IWAL iWallet Corporation (PK)

Propsectus Supplement No. 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-198610

 

PROSPECTUS

iWALLET CORPORATION

20,968,130

SHARES OF COMMON STOCK

PUBLIC OFFERING

 

Prospectus Supplement No. 1 

 

___________________

 

This Prospectus Supplement No. 1 supplements and amends the final prospectus dated November 10, 2014 (the “Final Prospectus”), relating to the selling shareholders named in this prospectus whom are offering up all the shares of common stock being registered by this prospectus. The selling shareholders are registering in this prospectus 10,484,065 shares of common stock issued to them in private placements, as well as 10,484,065 shares of common stock underlying the warrants also issued to the selling shareholders in those private placements. We will not receive any proceeds from the sale of shares in this offering. We have not made any arrangements for the sale of these securities.

 

On November 19, 2014 we filed with the U.S. Securities and Exchange Commission the attached Quarterly Report on Form 10-Q.

 

Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”) and the OTCQB tier of the electronic market operated by OTC Markets, Inc. As a result, the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders. On October 9, 2014, the last sale price of our common stock as reported by the OTCBB was $0.75 per share.

 

The purchase of the securities offered through this prospectus involves a high degree of risk.  See section entitled “Risk Factors” starting on page 4.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The information in this prospectus is not complete and may be changed.  The selling shareholders may not sell these securities in any public offering until the registration statement filed with the Securities and Exchange Commission is effective.  The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

The Date of This Prospectus is: December 5, 2014

 

 

Table of Contents

 

	Page
Summary	3
Risk Factors	4
Use of Proceeds	8
Determination of Offering Price	8
Dilution	8
Selling Shareholders	8
Plan of Distribution	12
Description of Securities	13
Interest of Named Experts and Counsel	14
Description of Business	14
Description of Property	16
Legal Proceedings	17
Market for Common Equity and Related Stockholder Matters	17
Financial Statements	19
Management Discussion and Analysis of Financial Condition and Results of Operations	20
Changes in and Disagreements with Accountants	21
Directors and Executive Officers	22
Executive Compensation	23
Security Ownership of Certain Beneficial Owners and Management	27
Disclosure of Commission Position on Indemnification for Securities Act Liabilities	27
Certain Relationships and Related Transactions	28
Available Information	28
Dealer Prospectus Delivery Obligation	28

  

 

Summary

 

iWallet Corporation

 

The Company

 

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.

 

Our address is 7394 Trade Street, San Diego, California 92121. Our phone number is (858) 530-2958.  Our fiscal year end is December 31. 

 

The Offering

 

Securities Being Offered		Up to 20,968,130 shares of our common stock, including 10,484,065 shares of common stock issued to the selling shareholders in private placements, as well as 10,484,065 shares of common stock underlying the warrants also issued to the selling shareholders in private placements.
Offering Price		All shares being offered are being sold by existing shareholders without our involvement, so the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders.
Minimum Number of Shares To Be Sold in This Offering		n/a
Maximum Number of Shares To Be Sold in This Offering		20,968,130
Securities Issued and to be Issued		33,919,419 shares of our common stock are issued and outstanding as of October 9, 2014. All of the common stock to be sold under this prospectus will be sold by existing shareholders. There will be no increase in our issued and outstanding shares as a result of this offering.
Use of Proceeds		We will not receive any proceeds from the sale of the common stock by the selling shareholders.

 

 

 

Summary Financial Information
Balance Sheet Data			Fiscal Year Ended December 31, 2013 (audited)				Six Months Ended June 30, 2014 (unaudited)
Cash		$	250,718			$	17,168
Total Assets		$	496,993			$	380,630
Liabilities		$	719,794			$	1,007,824
Total Stockholder’s Deficit		$	222,812			$	627,205
Statement of Operations
Revenue		$	85,769			$	38,139
Net Profit (Loss) for Reporting Period		$	(226,921	)		$	(404,393	)

  

Risk Factors

 

You should consider each of the following risk factors and any other information set forth herein and in our reports filed with the SEC, including our financial statements and related notes, in evaluating our business and prospects. The risks and uncertainties described below are not the only ones that impact on our operations and business. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also impair our business or operations. If any of the following risks actually occur, our business and financial results or prospects could be harmed. In that case, the value of the Common Stock could decline.

 

Risks Related to Our Business and Industry

 

Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our product offerings could reduce our ability to compete successfully and adversely affect our results of operations.

 

We will need to raise additional funds in order to execute on our business development plan over the long term. We may not be able obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we cannot raise additional capital on acceptable terms, we may not be able to, among other things:

 

•

develop and enhance our products

 

•

develop our brand and acquire new customers

 

•

continue to expand our technology development, sales and marketing organizations

 

•

acquire complementary technologies, products or businesses

 

•

expand operations internationally

 

•

pay our debts as they come due

 

•

hire, train and retain employees

 

•

respond to competitive pressures or unanticipated working capital requirements

 

Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations.

 

 

Because we have experienced net losses to date, we may never be able to generate sufficient net revenue in the future to be profitable.

 

We have had net operating losses since inception and expect to continue experiencing net losses for the immediate future. In addition, we expect to make significant future expenditures related to the continued development and expansion of our business. 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, 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. 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.

 

Because we are dependent on outside manufacturers to produce our products, increases in manufacturing costs or component prices may negatively affect our operations

 

We currently rely on one manufacturer to manufacture our iWallet products to order. We are constrained by its manufacturing capabilities and pricing, and may face production delays or escalating costs if it is unable to manufacture a sufficient quantity of product at an affordable cost. Further, we could face production delays if it becomes necessary to replace our existing supplier with one or more alternative suppliers. These factors could have a material adverse effect on our business, prospects, and results of operations or financial condition. In addition, our operation could be significantly affected by increases in the cost of high quality carbon fiber or other raw materials necessary to manufacture our products.

 

Because there is an uncertain market for our products, we cannot be certain that they will gain wide acceptance or that we will be able to generate sustained sales growth.

 

While we believe that our innovative security products would be attractive to business professionals, we have only a limited operating history to determine the market acceptance for our products. No assurance can be given that a significant market for our products and services will be developed or sustained. If our iWallet security products do not gain wider acceptance amongst our target market, we will be unable to achieve sustained sales growth and our business may not be viable over the longer term.

 

Because the preservation of our intellectual property rights is essential to the success of our business, our failure to protect those rights could adversely affect our business.

 

Our intellectual property rights, including existing and future trademarks, patents, trade secrets and copyrights, are and will continue to be valuable and important assets of our business. We believe that our proprietary technology, as well as our other technologies and business practices, are competitive advantages and that any duplication by competitors would harm our business. We have taken measures to protect our intellectual property, but these measures may not be sufficient or effective. Intellectual property laws and contractual restrictions may not prevent misappropriation of our intellectual property or deter others from developing similar technologies. In addition, others may develop technologies that are similar or superior to our technology. Our failure to protect, or any significant impairment to the value of, our intellectual property rights could harm our business.

 

Our products may contain defects, which could adversely affect our reputation and cause us to incur significant costs.

 

Defects may be found in our products. Any such defects could cause us to incur significant return and exchange costs, re-engineering costs, divert the attention of our personnel from product development efforts, and cause significant customer relations and business reputation problems. If we deliver products with defects, our credibility and the market acceptance and sales of our products could be harmed.

 

If we are unable to hire and retain key personnel, we may not be able to implement our business plan.

 

Having certain key personnel is essential to the development and marketing of the products we plan to sell and thus to the entire business itself. Consequently, the loss of any of those individuals may have a substantial effect on our future success or failure. We may have to recruit qualified personnel with competitive compensation packages, equity participation, and other benefits that may affect the working capital available for our operations. Management may have to seek to obtain outside independent professionals to assist them in assessing the merits and risks of any business proposals as well as assisting in the development and operation of many company projects. No assurance can be given that we will be able to obtain such needed assistance on terms acceptable to us. Our failure to attract additional qualified employees or to retain the services of key personnel could have a material adverse effect on our operating results and financial condition.

 

Even though we are not manufacturing the products ourselves, if any of the products we sell infringe on the intellectual property rights of others, we may find ourselves involved in costly litigation, which will negatively affect the financial results of our business operations.

 

Although we have not received notices of any alleged infringement, we cannot be certain that our products do not infringe on issued trademarks and/or copyright rights of others. We may be subject to legal proceedings and claims from time to time in our ordinary course of business arising out of intellectual property rights of others. These legal proceedings can be very costly, and thus can negatively affect the results of our operations. 

 

 

Because we conduct business outside of the United States, we are subject to certain additional risks related to doing business in foreign countries.

 

We intend to conduct our business, in part, outside of the United States, and our products are manufactured under contract in China. Doing business in foreign countries carries with it certain risks that are not found in doing business in the United States. The risks of doing business in foreign countries that could result in losses against which we are not insured include:

 

•

exposure to local economic conditions;

 

•

potential adverse changes in the diplomatic relations of foreign countries with the United States;

 

•

hostility from local populations;

 

•

the adverse effect of currency exchange controls;

 

•

restrictions on the withdrawal of foreign investment and earnings;

 

•

government policies against businesses owned by foreigners;

 

•

investment restrictions or requirements;

 

•

expropriations of property;

 

•

the potential instability of foreign governments;

 

•

the risk of insurrections;

 

•

risks of renegotiation or modification of existing agreements with governmental authorities;

 

•

foreign exchange restrictions;

 

•

withholding and other taxes on remittances and other payments by subsidiaries; and

 

•

Changes in taxation structure.

 

 

Risks Related to Legal Uncertainty

 

Because our articles of incorporation and bylaws and Nevada law limit the liability of our officers, directors, and others, shareholders may have no recourse for acts performed in good faith.

 

Under our articles of incorporation, bylaws and Nevada law, each of our officers, directors, employees, attorneys, accountants and agents are not liable to us or the shareholders for any acts they perform in good faith, or for any non-action or failure to act, except for acts of fraud, willful misconduct or gross negligence. Our articles and bylaws provide that we will indemnify each of our officers, directors, employees, attorneys, accountants and agents from any claim, loss, cost, damage liability and expense by reason of any act undertaken or omitted to be undertaken by them, unless the act performed or omitted to be performed constitutes fraud, willful misconduct or gross negligence.

 

If certain legislation, including the Sarbanes-Oxley Act of 2002, makes it more difficult for us to retain or attract officers and directors, we may be unable to hire such personnel and our business operations may be materially negatively impacted.

 

The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. As a public company, we are required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

Risks Relating to our Common Stock

If we fail to remain current on our reporting requirements, we could be removed from quotation on the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTCQB, such as us, must be reporting issuers with the Securities and Exchange Commission and must be current in their reports in order to maintain price quotation privileges on the OTCQB tier of the electronic quotation system operated by OTC Markets, Inc. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Because our common stock could be deemed a low-priced “Penny” stock, it would be cumbersome for brokers and dealers to trade in our common stock, making the market for our common stock less liquid and negatively affect the price of our stock.

We may be subject to certain provisions of the Securities Exchange Act of 1934, commonly referred to as the “penny stock” as defined in Rule 3a51-1. A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our stock is deemed to be a penny stock, trading will be subject to additional sales practice requirements of broker-dealers. These require a broker-dealer to:

•

Deliver to the customer, and obtain a written receipt for, a disclosure document;

•

Disclose certain price information about the stock;

•

Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

•

Send monthly statements to customers with market and price information about the penny stock; and

•

In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, penny stock rules may restrict the ability or willingness of broker-dealers to trade and/or maintain a market in our common stock. Also, prospective investors may not want to get involved with the additional administrative requirements, which may have a material adverse effect on the trading of our shares.

Because we became a public company through a reverse acquisition, we may not be able to attract the attention of major brokerage firms.

 

There may be risks associated with our becoming public through a reverse acquisition. Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future.

 

Because we were formerly considered a “shell company” within the meaning of Rule 12b-2 under the Exchange Act, the ability of any holders of “restricted securities,” as defined under Rule 144 promulgated under the Securities Act, to re-sell their shares may be limited by applicable regulations for a period of time and our ability to attract additional investment through private offerings in the near future may be limited.

 

Formerly, we were classified as a “shell company” under Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. As such, any “restricted securities,” as defined under Rule 144 promulgated under the Securities Act, may not be resold in reliance on safe harbors provided under Rule 144 until: (1) we have filed Form 10 information with the SEC when we cease to be a “shell company”; (2) we have filed all reports as required by Section 13 and 15(d) of the Securities Act for twelve consecutive months; and (3) one year has elapsed from the time we file the current Form 10 type information with the SEC reflecting our status as an entity that is not a shell company. We ceased to be a shell company on July 21, 2014. In addition, we filed Form 10 type information reflecting our status as a non-shell company with SEC in our Current Report on Form 8-K filed July 25, 2014, as amended on July 31, 2014 and September 3, 2014. One year must elapse from the date of this filing, however, until the requirements of Rule 144(i) are met. In addition, we must remain current in our SEC filingd during this period. As a result, we may experience difficulty in raising additional capital through private offerings of common stock or other securities until such time as the one year period has elapsed. For so long as the safe harbors provided under Rule 144 are not available to holders of restricted securities, our ability to raise significant additional capital in any offering other than a registered public offering may be severely limited. To the extent that any capital from future private offerings is available to us prior to the conclusion of the required one year period, the investors may demand re-sale registration rights in connection with such offerings or otherwise insist on terms which make such financings unattractive or infeasible.

 

  

Forward-Looking Statements

 

This prospectus contains forward-looking statements that involve risks and uncertainties.  We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements.  The actual results could differ materially from our forward-looking statements.  Our actual results are most likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this Risk Factors section and elsewhere in this prospectus.

 

Use of Proceeds

 

We will not receive any proceeds from the sale of the common stock offered through this prospectus by the selling shareholders.

 

Determination of Offering Price

 

All shares being offered will be sold by existing shareholders without our involvement, consequently the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders.

 

Dilution

 

The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.

 

Selling Shareholders

 

The selling shareholders named in this prospectus are offering all of the 20,968,130 shares of common stock offered through this prospectus. At the time of the purchase, the selling shareholders had no agreements or understandings to distribute the securities. The shares include the following:

 

•

7,261,945 shares of our common stock which were sold to accredited investors as part of a Private Placement which we completed on July 21, 2014, with a small additional closing on September 2, 2014, together with certain shares issued to licensed broker-dealers who assisted with the offering. The issuance and sale of said securities was made in reliance upon exemptions from registration pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended.

 

•

7,261,945 shares of common stock underlying warrants to purchase common stock at an exercise price of $0.60 per share which were also issued to the investors and participating brokers as part of the Private Placement discussed above.

 

•

3,222,120 shares of common stock issued upon conversion of certain Secured Convertible Debentures formerly issued by our accounting acquirer prior to our recent reverse merger. These debentures converted to common stock automatically upon the closing of our reverse merger on July 21, 2014.

 

•

3,222,120 shares of common stock underlying warrants to purchase common stock at an exercise price of $0.20 per share which were also issued to the converting debenture holders discussed above.

 

The following table provides information regarding the beneficial ownership of our common stock held by each of the selling shareholders as of September 5, 2014, including:

 

1. the number of shares owned by each prior to this offering;

2. the total number of shares that are to be offered by each;

3. the total number of shares that will be owned by each upon completion of the offering;

4. the percentage owned by each upon completion of the offering; and

5. the identity of the beneficial holder of any entity that owns the shares.

 

 

The named party beneficially owns and has sole voting and investment power over all shares or rights to the shares, unless otherwise shown in the table. The numbers in this table assume that none of the selling shareholders sells shares of common stock not being offered in this prospectus or purchases additional shares of common stock, and assumes that all shares offered are sold. The percentages are based on 33,919,419 shares of common stock outstanding on October 9, 2014.

 

Name of Selling Shareholder		Shares Owned Prior to This Offering				Shares To Be Received Upon The Exercise of Warrants				Total Number Of Shares To Be Offered For Selling Shareholder Account				Total Shares To Be Owned Upon Completion of This Offering				Percent Owned Upon Completion Of This Offering
490824 Ontario Inc. (1)			70,000				70,000				140,000				0				0
Alexander Goyette			16,666				16,666				33,332				0				0
Arnd Springer			75,838				75,838				151,676				0				0
Arshan Borhan			83,333				83,333				166,666				0				0
Barry M. Polisuk Professional Corporation (2)			30,000				30,000				60,000				0				0
Bluenose Investment Management Inc. (3)			67,000				67,000				134,000				0				0
Brant Investments Limited (4)			166,667				166,667				333,334				0				0
Caldwell Securities Ltd. ITF Nicol MacNicol a/c #505-554RE			67,000				67,000				134,000				0				0
Canaccord Genuity Corp. IN TRUST FOR CAROLYN LATONDRESSE Account # 255283B2			70,000				70,000				140,000				0				0
Canaccord Genuity Corp. (5) IN TRUST FOR WEBWORKS MULTIMEDIA CORP Account # 258716B8			67,000				67,000				134,000				0				0
Canaccord Genuity Corp. (6) IN TRUST FOR MANNINGTON FINANCE LTD Account # 31FL28B1			337,000				337,000				674,000				0				0
Canaccord Genuity Corp. IN TRUST FOR NELLO DICOSTANZO AND/OR NATASHA FALZON JTWROS Account # 13C469E1			16,667				16,667				33,334				0				0
Canaccord Genuity Corp. IN TRUST FOR RONAYE MALETTE AND/OR CHARLES MALETTE JTWROS Account # 13E139B1			197,000				197,000				394,000				0				0

 

 

Canaccord Genuity Corp. IN TRUST FOR STEPHEN STEWART Account # 40P090E1			100,000				100,000				200,000				0				0
Canaccord Genuity Corp. IN TRUST FOR VITO NARDI Account # 41E775A1			83,333				83,333				166,666				0				0
Canaccord Genuity Corp. IN TRUST FOR TRACEY LOGAN 609 Granville St., Suite 2200 Vancouver, BC V7Y 1H2			1,118,173				1,118,173				2,236,346				0				0
CIBC Woodgundy ITF Hal Roback Acct # 42618133			160,000				160,000				320,000				0				0
Colin Mohammed			33,334				33,334				66,668				0				0
David Kegler			33,334				33,334				66,668				0				0
Donal Carroll			1,623,285				823,285				1,646,570				800,000				2.36	%
G. Scott Paterson			200,000				200,000				400,000				0				0
Haron Ezer			35,000				35,000				70,000				0				0
Haywood Securities Inc. ITF Aton Select Fund (8)			300,000				300,000				600,000				0				0
Jack B. Chadsey			4,581,542				83,335				166,670				4,498,207				13.26	%
Jack Maltz			33,333				33,333				66,666				0				0
Jodi Saltsman			150,000				150,000				300,000				0				0
Jon Rosenblatt			83,333				83,333				166,666				0				0
Leonard Shiffman			67,000				67,000				134,000				0				0
Leonidas Economopoulos			16,667				16,667				33,334				0				0
Limitless Ventures Inc. (9)			916,667				416,667				833,334				500,000				1.47	%
Mary Anne Alton			114,886				114,886				229,772				0				0
Mukesh Steven Singh			330,000				330,000				660,000				0				0
Nimble Capital Inc. (10)			1,008,565				200,000				400,000				808,565				2.38	%
PI Financial Corp. ITF (11) Pathfinder Asset Management Ltd. A/C #027-2849-1			233,333				233,333				466,666				0				0
Sandy Pascuzzi			500,000				500,000				1,000,000				0				0
Scotia Capital Inc. Pedro Quinzanos Cancino			30,000				30,000				60,000				0				0
Sudha Raman			70,000				70,000				140,000				0				0

 

 

 

Vitor Fonseca			10,000				10,000				20,000				0				0
Carlise Overseas Ltd. (12)			333,000				333,000				666,000				0				0
Danny Gravelle			66,666				66,666				133,332				0				0
Janet Samantha Wade			100,000				100,000				200,000				0				0
Maria Mirenzi			16,667				16,667				33,334				0				0
First Republic Capital Corporation (13)			560,080				560,080				1,120,160				0				0
Caldwell Securities Ltd. (14)			4,690				4,690				9,380				0				0
7806221 Canada Inc. (15)			1,714,384				127,252				254,504				1,587,132				4.68	%
Andrew and Gloria Durkacz			48,943				48,943				97,886				0				0
Gigi Pang Che-Kwan			489,432				489,432				978,864				0				0
Ballentyne Holdings Limited (16)			489,432				489,432				978,864				0				0
Pedro Quinzanos Cancino			73,415				73,415				146,830				0				0
Robert Iachetta			97,886				97,886				195,772				0				0
Stuart Adair			48,943				48,943				97,886				0				0
Thomas Keevil			48,943				48,943				97,886				0				0
Graham Wovenden			48,735				48,735				97,470				0				0
Michael Dalsin			87,722				87,722				175,444				0				0
Michael Swedak			146,204				146,204				292,408				0				0
Richard Goldstein			121,836				121,836				243,672				0				0
Anthony Durkacz			388,885				388,885				777,770				0				0
Anthony Viele			48,010				48,010				96,020				0				0
Elizabeth Burlacoff			96,021				96,021				192,042				0				0
Helmsquire Holdings Ltd. (17)			120,026				120,026				240,052				0				0
Jesse Kaplan			120,026				120,026				240,052				0				0
GMP Securities ITF Michael B. Stein a/c 400-TZMO-F			120,026				120,026				240,052				0				0
Skip Pym			48,010				48,010				96,020				0				0
Ronaye Malette			96,021				96,021				192,042				0				0
NBCN ITF 4HE700F (18)			48,010				48,010				96,020				0				0

 

⁽¹⁾ Erica Shuttleworth is the director of 490824

⁽²⁾ Barry M. Polisuk is the owner of Barry M. Polisuk Professional Corporation

⁽³⁾ Nigel Roberts is the President of Bluenose Investment Management Inc.

⁽⁴⁾Douglas Johnson is the beneficial owner of Brant Investments Limited

⁽⁵⁾ Lance Morginn is the President of WEBWORKS MULTIMEDIA CORP

⁽⁶⁾ Sacha Grut is the authorized signatory for Mannington Finance Ltd.

⁽⁸⁾  David Dawes is the director and sole authorized signatory of Aton Select Fund

⁽⁹⁾ Pasquale Ceci is the President of Limitless Ventures Inc.

⁽¹⁰⁾ Fabrice Taylor is an authorized signatory for Nimble Capital Inc.

⁽¹¹⁾ Douglas Johnson is a beneficial owner of Pathfinder Asset Management Ltd.

⁽¹²⁾ Jigme Ribi is a director of Carlise Overseas Ltd.

⁽¹³⁾ Anthony Durkacz and Richard Goldstein are the beneficial owners of First Republic Capital Corporation

⁽¹⁴⁾  Nicol Macnicol is the Vice President, Portfolio manager for Caldwell Securities Ltd.

⁽¹⁵⁾ Bernard Adamski is owner and president of 7806221 Canada Inc.

⁽¹⁶⁾ Richard Langley is an authorized signatory for Ballentyne Holdings Limited

⁽¹⁷⁾ Sruli Weinreb is the Vice President of Equity Investments for Helmsquire Holdings Ltd.

⁽¹⁸⁾ Taras Krutous is an authorized signatory for NBCN ITF 4HE700F

 

  

Except as set forth below, none of the selling shareholders;

 

(1)

has had a material relationship with us other than as a shareholder at any time within the past three years;

(2)

has been one of our officers or directors; or

(3)

are broker-dealers or affiliates of broker-dealers.

 

1. Jack B. Chadsey is our CEO and a member of our board of directors.

 

2. Anthony Durkacz is a member of our board of directors.

 

Plan Of Distribution

 

The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•

an exchange distribution in accordance with the rules of the applicable exchange;

•

privately negotiated transactions;

•

short sales;

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

•

a combination of any such methods of sale; and

•

any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 or Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration of the shares of common stock. The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.

 

Description of Securities

 

Our authorized capital stock consists of 75,000,000 shares of common stock, $0.001 par value per share. As of October 9, 2014, there were 33,919,419 shares of our common stock issued and outstanding.

 

Common Stock

 

The holders of common stock are entitled to one vote per share. Our certificate of incorporation does not provide for cumulative voting. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. However, the current policy of the board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption or conversion rights.

 

In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

Registration Rights

 

We have agreed to file a registration statement on Form S-1 for the re-sale of the shares of common stock issued in our private offering closed July 21, 2014 concurrently with our recent reverse merger, as well as the common stock issuable upon exercise of all warrants issued in that offering. In addition, we have agreed to file a registration statement on Form S-1 for the re-sale of shares issued upon conversion of the convertible debentures issued by our accounting predecessor, as well as the common stock issuable upon exercise of all warrants issued to those converting debenture holders. The Registration Statement of which this prospectus is a part has been filed in accord with these contractual commitments.

 

Options and Warrants

 

We do not have any options issued and outstanding. We issued the following warrants to purchase common stock, all exercisable for a period of two (2) years from the date of issue.

 

•

7,261,945 warrants to purchase common stock at a price of $0.60 per share. 7,062,112 of these warrants will expire on July 21, 2016; 199,833 of these warrants will expire on September 2, 2016.

 

•

3,222,120 warrants to purchase common stock at a price of $0.20 per share, which will expire on July 21, 2016

 

Dividend Policy

 

We have never declared or paid any cash dividends on our common stock.  We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

  

Convertible Securities

 

We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.

 

Nevada Anti-Takeover Laws

 

Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply.  Our articles of incorporation and bylaws do not state that these provisions do not apply.  The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.

 

  

Interests of Named Experts and Counsel

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

Joe Laxague, Esq., our independent legal counsel, has provided an opinion on the validity of our common stock.  

 

MNP LLP, have audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in their audit report. MNP LLP has presented their report with respect to our audited financial statements.  The report of MNP LLP is included in reliance upon their authority as experts in accounting and auditing.

 

Description of Business

 

Principal Place of Business

 

Our principal offices are located at 7394 Trade Street, San Diego, California 92121.

 

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 it 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 casesconnected 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 iWallet 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 60% 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 sure stroage cases and similar accessories. We do not believe that the $500 approximate retail price to the end user will be 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), Discovery Channel.

 

Our established distribution channels for the iWallet, as originally launched, include the following:

 

•

Neiman Marcus in North America

•

Harrods in England

•

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

•

Touch of Modern

•

Skymall

•

Travelsmith

•

Hammacher Schlemmer

 

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.

  

Employees

 

In addition to the named executive officers discussed above, we also employ a Project Manager. We have hireda new CEO, as well as an in-house bookkeeper.

 

Environmental Laws

 

We have not incurred and do not anticipate incurring any expenses associated with environmental laws.

 

 

Description of Property

 

Our corporate headquarters are currently located in San Diego, California. We current lease approximately 3,000 square feet of space for $2,500 per month with a lease for one year that began on June 1, 2014.

 

 

Legal Proceedings

 

We are not currently a party to any legal proceedings. We are not aware of any 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.

 

Our agent for service of process in Nevada is Clark Agency LLC, 3273 East Warm Springs Rd., Las Vegas, NV 89120.

 

Market for Common Equity and Related Stockholder Matters

 

Our common stock is quoted under the symbol “IWAL” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc.  Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA.  Consequently, market makers that once quoted our shares on the OTCBB system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTCQB. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is presently current and, since inception, we have filed our SEC reports on time. Due to our recent name change, we expect our trading symbol to change in the near future.

 

The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The periods reflect our former fiscal years ended on June 30. On July 21, 2014, we changed our fiscal year end to December 31.

 

Fiscal Year Ending June 30, 2013
Quarter Ended				High $				Low $
	June 30, 2013			$	0.0371			$	0.0371
	March 31, 2013			$	0.0371			$	0.0371
	December 31, 2012			$	0.0371			$	0.0371
	September 30, 2012			$	0.0371			$	0.0371
	Fiscal Year Ending June 30, 2012
	Quarter Ended				High $				Low $
	June 30, 2012			$	0.0371			$	0.0371
	March 31, 2012				n/a				n/a
	December 31, 2011				n/a				n/a
	September 30, 2011				n/a				n/a

 

The last quoted price of our common stock was $0.75 per share on October 9, 2014.

  

Penny Stock

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

 

Holders of Our Common Stock

 

As of October 9, 2014 we had 33,919,419 shares of our common stock issued and outstanding, held by eighty-nine (89) shareholders of record.

 

Transfer Agent

 

The transfer agent for our common stock is Empire Stock Transfer, Inc.

 

Rule 144 Shares

 

None of our common stock is currently available for resale to the public under Rule 144.

 

In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company's common stock for at least six months is entitled to sell within any three month period a number of shares that does not exceed the greater of:

 

1.	one percent of the number of shares of the company's common stock then outstanding; or

 

2.	the average weekly trading volume of the company's common stock during the four calendar weeks preceding the filing of a notice on form 144 with respect to the sale.

 

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company.

 

Pursuant to Rule 144, one year must elapse from the time a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, ceases to be a shell company and files Form 10 information with the SEC, during which time the issuer must remain current in its filing obligations, before a restricted shareholder can resell their holdings in reliance on Rule 144. Form 10 information is equivalent to information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act. Under Rule 144, restricted securities that were initially issued by a reporting or non-reporting shell company or a company that was at anytime previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met: (1) the issuer of the securities that was formerly a reporting or non-reporting shell company has ceased to be a shell company; (2) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (3) the issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months (or shorter period that the Issuer was required to file such reports and materials), other than Form 8-K reports; and (4) at least one year has elapsed from the time the issuer filed the current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

 

Until July 21, 2014, we were classified as a “shell company” under Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. As such, all restricted securities may not be resold in reliance on Rule 144 until: (1) we file Form 10 information with the SEC when we cease to be a “shell company” (such filing was made on July 25, 2014, when we filed a Current Report on Form 8-K); (2) we have filed all reports as required by Section 13 and 15(d) of the Securities Act for twelve consecutive months; and (3) one year has elapsed from the time we file the current Form 10 type information with the SEC reflecting our status as an entity that is not a shell company. 

 

Stock Option Grants

 

To date, we have not granted any stock options.

 

Dividends

 

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends.  The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

 

1.	we would not be able to pay our debts as they become due in the usual course of business, or;
2.	our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

 

 

 Financial Statements

 

Index to Financial Statements:

 

Audited Financial Statements:
F-1	Report of Independent Registered Public Accounting Firm
F-2	Balance Sheets as of December 31, 2013 and 2012;
F-3	Statement of Operations for the years ended December 31, 2013 and 2012;
F-4	Statement of Changes in Shareholder's Deficiency for the years ended December 31, 2013 and 2012;
F-5	Statement of Cash Flows for the years ended December 31, 2013 and 2012; and
F-6	Notes to Financial Statements.

 

Unaudited Condensed Interim Financial Statements:
F-18	Condensed Interim Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013
F-19	Statements of Operations and Comprehensive Loss (Unaudited) for the three-month and six month periods ended June 30, 2014 and 2013
F-20	Statements of Cash Flows (Unaudited) for the six-month periods ended June 30, 2013 and 2014
F-21	Notes to Condensed Interim Financial Statements (unaudited)

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholder of iWallet Corporation

 

We have audited the accompanying balance sheets of iWallet Corporation as of December 31, 2013 and 2012, and the related statements of operations and comprehensive (loss) income, changes in deficit, and cash flows for the years then ended. iWallet Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. iWallet Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of iWallet Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of iWallet Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1, the Company has a significant working capital deficiency and has incurred significant losses and negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Ontario

April 4, 2014

 

ACCOUNTING › CONSULTING › TAX 701 EVANS AVENUE, 8TH FLOOR, TORONTO ON, M9C 1A3 P: 416.626.6000 F: 416.626.8650 MNP.ca

 

 

iWallet Corporation

Balance Sheets

December 31, 2013 and 2012

 

			2013				2012
Assets
Current assets
Cash		$	250,718			$	13,462
Funds held in attorney trust (note 8)			39,705				—
Accounts receivable			4,575				8,520
Deposits and deferred costs (note 9)			23,086				155,788
Inventory (note 4)			20,361				13,742
Due from shareholder (note 7)			61,833				13,052
			400,278				204,564
Intangible assets (note 5)			96,715				62,436
		$	496,993			$	267,000
Liabilities
Current liabilities
Bank indebtedness - current (note 6)		$	5,539			$	7,059
Accounts payable			126,317				55,074
Accrued liabilities (notes 8 and 12)			3,062				3,684
Due to related party (note 7)			37,842				59,779
Advances from investor (note 7)			69,678				—
Convertible debentures (note 8)			354,000				—
Tooling commitment liability (note 9)			105,816				110,685
Deferred tax liabilities - current (note 10)			—				368
			702,254				236,649
Bank indebtedness - long-term (note 6)			17,540				22,352
Deferred tax liabilities (note 10)			—				3,879
			719,794				262,880
Shareholder's (deficiency) equity
Class A common shares, par value $0.001, 200,000,000 shares authorized; 10,000 issued (2012 - 10,000)  (note 11)			10				10
Class B common shares, par value $0.001, 100,000,000 shares authorized; Nil issued (2012 - Nil)  (note 11)
Preferred shares, par value $0.001, 10,000,000 shares authorized; Nil issued (2012 - Nil)  (note 11)
Additional paid-in capital			1				1
Retained earnings			(222,812	)			4,109
			(222,801	)			4,120
		$	496,993			$	267,000

  

The accompanying notes are an integral part of these financial statements. 

 

 iWallet Corporation

Statements of Operations and Comprehensive (Loss) Income

for the years ended December 31, 2013 and 2012

 

			2013				2012
Sales		$	85,769			$	159,288
Cost of sales			63,585				79,550
Gross profit			22,184				79,738
Expenses
Legal and professional fees			73,278				41,491
Office and general expenses			9,583				9,040
Travel			23,475				6,786
Interest and bank fees			2,515				3,179
Research and development			—				3,200
Provision for loss on tooling commitment (note 9)			139,213				—
Amortization of intangible assets			5,288				3,904
			253,352				67,600
(Loss) income before (recovery of) provision for income taxes			(231,168	)			12,138
(Recovery of) provision for income taxes (note 10)			(4,247	)			4,247
Net and comprehensive (loss) income for the year		$	(226,921	)		$	7,891
Net and comprehensive (loss) income per share basic and diluted (note 13)		$	(23	)		$	1
Weighted average number of shares outstanding basic and diluted (note 13)			10,000				10,000

 

The accompanying notes are an integral part of these financial statements. 

 

 

iWallet Corporation

Statement of Changes in Shareholder's Deficiency

for the years ended December 31, 2013 and 2012

 

														Retained				Shareholder's
		Class A Common Shares								Additional				Earnings				(Deficiency)
		Shares				Amount				Paid-in Capital				(Deficit)				Equity
Balance, January 1, 2012			10,000			$	10			$	1			$	(3,782	)		$	(3,771	)
Net income			—				—				—				7,891				7,891
Balance, December 31, 2012			10,000				10				1				4,109				4,120
Net loss			—				—				—				(226,921	)			(226,921	)
			10,000			$	10			$	1			$	(222,812	)		$	(222,801	)

 

The accompanying notes are an integral part of these financial statements. 

 

  

 iWallet Corporation

Statements of Cash Flows

for the years ended December 31, 2013 and 2012 

 

			2013				2012
Cash flow from operating activities
Net and comprehensive (loss) income for the year		$	(226,921	)		$	7,891
Items not affecting cash
Amortization			5,288				3,904
Provision for loss on tooling contract (note 9)			139,213				—
(Recovery of) provision for income taxes			(4,247	)			4,247
			(86,667	)			16,042
Change in cash resulted from changes in:
Accounts receivable			3,945				(8,520	)
Deposits and deferred costs			(6,512	)			(105,994	)
Inventory			(6,620	)			(13,742	)
Accounts payable			71,244				41,177
Accrued liabilities			(622	)			(903	)
Tooling commitment liability			(4,869	)			110,685
			(30,101	)			38,745
Cash flow from investing activities
Expenditures on intangible assets			(39,565	)			(20,296	)
			(39,565	)			(20,296	)
Cash flow from financing activities
Funds repaid to related party			(21,938	)			(72,655	)
Funds (repaid to) advanced by shareholder			(48,781	)			60,400
Increase in funds held in attorney trust			(39,705	)			—
Repayment of bank indebtedness			(6,332	)			(4,076	)
Advances from investor			69,678				—
Proceeds from issuance of convertible debentures			354,000				—
			306,922				(16,331	)
Increase in cash			237,256				2,118
Cash, beginning of year			13,462				11,344
Cash, end of year		$	250,718			$	13,462

 

The accompanying notes are an integral part of these financial statements. 

 

 

iWallet Coporation 

Notes to Financial Statements

December 31, 2013 and 2012 

 

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 users fingerprint to open the wallet.

 

The Company was incorporated on November 18, 2009 in the State of California and is located at 7968 Arjons Drive, Suite D, San Diego, California 92126.

 

The 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 December 31, 2013, the Company has incurred a shareholder's deficiency of $222,801 (2012 - $(4,120)) and has significant losses and negative cash flows from operations. In addition as at December 31, 2013 the Company has a working capital deficiency of $301,976 (2012 - $32,085). 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 Company may require additional financing to fund its operations, which may not be available at acceptable terms or at all. The Company plans on raising additional funds from completing financing arrangements, whether as continued subscriptions for convertible debentures such as those received subsequent to year end (note 16) or from additional sources, in contemplation of completing a public listing transaction.

 

The 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 financial statements.

 

2. Significant Accounting Policies

 

Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates include amounts for inventory valuation, useful lives of patents, trademarks and software and the warranty provision.

 

Cash and cash equivalents

 The Company considers cash and cash equivalents to consist of cash and highly liquid investments purchased with original maturities of generally 90 days or less at the date of purchase.

 

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

Allowance for doubtful account

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is estimated and recorded based on management’s assessment of the credit history with the customer and the current relationships with them. On this basis management has determined that an allowance for doubtful accounts of $nil was appropriate as of both December 31, 2013 and 2012, respectively.

 

Inventory

Inventory is stated at the lower of cost or market determined using the first-in, first-out method. Inventory is periodically reviewed for use and obsolescence, and adjusted as necessary. Inventory consists of finished goods.

 

Intangible assets

Patents and trademarks are measured at cost. Legal fees associated with patents and trademarks, which are expected to be issued are recorded as patents and trademarks on the balance sheets. Upon approval by the relevant patent office, the patents and trademarks are amortized over their respective expected lives. Patent and trademark costs associated with patents or trademarks which are not approved or are abandoned, are expensed in the period in which such patents are not approved.

 

The Company is generally able to maintain patents for up to 20 years from the effective date and the trademark registrations for as long as the trademarks remain in use and the required filings are made to keep them in use. However, based on the Company's assessment of potential innovation or other competing technological developments a useful life of ten years has been assessed for both the patents and the trademarks.

 

Software consists of costs relating to the development of the software behind the biometric scanning and the other security programs involved in the wallets. Costs relating to the development of this software are capitalized and amortized over its estimated useful life of ten years.

 

Topic 350-20, Goodwill, and 350-30, General Intangibles Other than Goodwill, in the Accounting Standards Codification ("ASC") requires intangible assets with a finite life be tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated discounted cash flow used in determining the fair value of the asset.

 

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

2. Significant Accounting Policies - continued

 

Fair value of financial instruments

ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued item.

 

The carrying amounts of cash, accounts receivable, due from shareholder, accounts payable and accrued liabilities, bank indebtedness, due to related party, advances from investor and convertible debentures approximate fair value because of their short-term nature. Per ASC Topic 820 framework these are considered Level 2 inputs where inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. The convertible debentures has a fixed interest rate therefore the Company is exposed to interest rate risk in that they could not benefit from a decrease in market interest rates. The bank indebtedness has a variable interest rate, which results in an exposure to interest rate risk resulting from an increase in rates. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposure through its normal operating and financing activities. All other liabilities are non-interest bearing.

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

 

The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

 

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.

 

The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

 

Revenue recognition

The Company derives revenue primarily from the sale of its wallets. In accordance with Staff Accounting Bulletin No. 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed or determinable and collection is reasonably assured.

 

The Company also derives an insignificant amount of revenue from providing engraving of the wallets. Engraving revenues are recognized concurrent with the revenues for the related wallet.

 

Earnings/loss per share of common stock

Basic and diluted earnings per share have been determined by dividing the net earnings available to shareholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. The diluted weighted average number of shares outstanding is calculated as if all dilutive options and restricted stock grants had been exercised or vested at the later of the beginning of the reporting period or date of grant, using the treasury stock method. The dilutive effect of convertible debentures has been reflected in diluted weighted average number of shares using the if-converted method.

 

Loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive.

 

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

2. Significant Accounting Policies - continued

 

Income taxes

Income taxes are computed in accordance with the provisions of ASC Topic 740, which requires, among other things, a liability approach to calculating deferred income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company is required to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a material impact on the Company’s income tax provision and results of operations.

 

Shipping and handling costs 

The Company’s shipping and handling costs of $11,122 are included in cost of sales for the year ended December 31, 2013 (2012 - $5,874).

 

Research and development

The Company is engaged in research and development work. Research and development costs are charged as operating expense of the Company as incurred. Any recovery of costs received for research and development work is used to offset these expenditures. For the year ended December 31, 2013 the Company spent $nil (2012 - $3,200) towards research and development expenses.

 

Foreign currency translation

The functional currency of the Company is the U.S. dollar. All of the Company’s revenue and materials purchased from suppliers are denominated in, or linked to, the U.S. dollar. Transactions denominated in currencies other than the functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included within foreign exchange loss in the statements of operations and comprehensive income / (loss).

 

Product warranties

The Company offers a one year warranty on its products, which it provides for based on estimated warranty costs at the time of sale and accrues for specific items at the time their existence is known and the amounts are determinable. The Company estimates warranty costs using standard quantitative measures based on industry warranty claim experience and evaluation of specific customer warranty issues. The Company currently estimates warranty costs as approximately 4% of revenue.

  

Segment reporting

ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in the Company’s financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company only operates in one reportable segment; however, required entity-wide information is included in note 14.

 

3. Recently Issued Accounting Standards and Recently Adopted Accounting Pronouncement

 

Income Taxes (ASC Topic - 750): 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. FASB issued guidance on how to present an unrecognized tax benefit. The guidance is effective for annual periods beginning after December 15, 2013. Management does not believe that the adoption of the accounting pronouncement would have a material effect on these accompanying financial statements.

 

4. Inventory

 

		2013				2012
Finished goods		$	20,361			$	13,742

 

During the year ended December 31, 2013, the Company recorded a provision relating to obsolete inventory of $nil (2012 - $nil).

 

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

5. Intangible Assets

 

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.

 

2012
									Accumulated				Net Book
					Cost				Amortization				Value
	Patents			$	59,509			$	5,278			$	54,231
	Trademarks				10,337				2,132				8,205
				$	69,846			$	7,410			$	62,436

 

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

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 December 31, 2013 and 2012 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

ii)

$100, and

 

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 chequing 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.

 

			2013				2012
Line of credit		$	23,079			$	29,411
Less:  Current portion - estimated based on (a)(i) above			(5,539	)			(7,059	)
		$	17,540			$	22,352

Principal repayments estimated based on (a)(i) above as at December 31, 2013:

 

	2014			$	5,539
	2015				5,539
	2016				5,539
	2017				923
				$	17,540

 

 

iWallet Coporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

7. Related Party Balances

 

		2013				2012
Balances
Current assets
Due from shareholder		$	61,833			$	13,052
Current liabilities
Due to related party		$	37,842			$	59,779
Advances from investor		$	69,678			$	—

The above liabilities are non-interest bearing, unsecured and due on demand. The related party is related by virtue of the common control and ownership by the Company's shareholder.

 

The advances from investor were funds advanced for purposes of covering operating expenses of the Company and are intended to be formalized into a convertible debenture. At this time the investor is also serving as interim Chief Financial Officer ("CFO") and accordingly these transactions constitute related party transactions.

 

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 is held in attorney's trust to fund related closing costs. The convertible debentures mature June 30, 2014, and bear interest at 5% per annum calculated monthly and payable on maturity. As at December 31, 2013, the amount of accrued interest is $200, which is included in accrued liabilities.

 

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 will be 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 share purchase warrant entitling the holder to purchase one additional Class A 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.

 

Since the conversion option is contingent upon a public listing there has been no value allocated to the conversion option in accordance with ASC 470 Debt. The terms of the convertible debenture do not permit the number of shares that would be received upon conversion if a public listing occurs to be calculated at the commitment date. Upon the occurence of a public listing the conversion feature would be measured and recognized as a debt discount and corresponding adjustment to additional paid-in capital.

 

Subsequent to year end the Company has closed on an additional $83,000 of convertible debentures with the same terms as the above (note 16).

 

 

iWallet Corporation 

Notes to Financial Statements

December 31, 2013 and 2012 

 

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, 2013 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.

 

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 levels realized in 2013, the 5,000 unit commitment the Company would likely not be able to meet the required orders. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the statement of operations and comprehensive income / (loss).

 

			2013				2012
Tooling commitment deposit		$	41,119			$	45,103
Tooling commitment deferred costs			100,947				110,685
			142,066				155,788
Provision for possible loss on tooling commitment			(139,213	)			—
Tooling commitment deposit and deferred costs		$	2,853			$	155,788
Tooling commitment liability		$	105,816			$	110,685

 

 

iWallet Corporation 

Notes to Financial Statements

December 31, 2013 and 2012 

 

10. Income Taxes

 

		2013				2012
Components of (loss) income before income taxes consists of the following:
U.S.		$	(226,921	)		$	7,891
The provision (recovery) for income taxes consists of the following:
Current
Federal		$	—			$	—
State			—				—
			—				—
Deferred		$	(4,247	)		$	4,247

The reconciliation of the provision (recovery) for income taxes based on the combined U.S. statutory federal and state tax rate of 40.75% (Federal - 35%; State - 5.75%, net of Federal benefit) to the effective tax rates:

 

		2013				2012
Net loss before recovery of income taxes		$	(231,168	)		$	12,138
Statutory rate			0				0
Expected income tax recovery		$	(94,201	)		$	4,946
Non-deductible expenses			49,161				(7,835	)
Change in tax benefits not recognized			45,040				2,889
Recovery of income taxes		$	—			$	—

The components of deferred taxes are as follows:

 

			2013				2012
Deferred tax assets (liabilities)
Current
Accrued liabilities		$	(253	)		$	(368	)
Provision for loss on tooling commitment			56,724				—
Valuation allowance			(56,471	)			—
		$	—			$	(368	)

 

iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

10. Income Taxes - continued

 

 

			2013				2012
Non-current
Intangible assets		$	7,955			$	(9,328	)
Net operating losses			45,031				5,449
Valuation allowance			(52,986	)			—
		$	—			$	(3,879	)

The change in the gross unrecognized tax benefits of the Company is as follows:

 

Deferred income taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred income tax assets have not been recognized in respect of the following deductible temporary differences:

 

			2013				2012
Beginning balance		$	13,422			$	7,973
Additions related to the current year			45,031				—
Reductions related to prior years			—				5,449
Unrecognized tax benefits end of year		$	58,453			$	13,422

The Company has non-capital income tax losses that expire as follows:

 

	2031				15,068
	2033				110,515
				$	125,583

 

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.

 

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 December 31, 2013 and 2012, the Company had no uncertain tax positions.

 

 

iWallet Corporation 

Notes to Financial Statements

December 31, 2013 and 2012 

 

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 December 31, 2013:

 

Federal	2010 to present
State	2010 to present

 

11. Share Capital

 

Authorized

 

200000000 Class A Common shares par value $0.001

100000000 Class B Common shares par value $0.001

10000000 Preferred Shares par value $0.001

Issued 

 

			2013				2012
10000 Class A Common shares		$	10			$	10

 

 

12. 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, labour 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 year ended December 31, 2013 of $3,062 (2012 - $3,684), however, the actual amount of loss could be materially different.

 

13. Basic and Diluted (Loss) Income Per Share

 

Potential common shares related to the convertible debentures were excluded from the computation of diluted loss per share for the year ended December 31, 2013 because the inclusion of these shares would be anti-dilutive.

 

For the year ended December 31, 2012, no dilutive instruments existed; therefore, basic and diluted income per share were equal.

 

 

 iWallet Corporation

Notes to Financial Statements

December 31, 2013 and 2012 

 

14. Segmented Reporting

 

All of the Company's long-lived assets are located in the United States.

 

During 2012, the Company had sales to customers in Russia amounting to 27% of total sales. The remaining sales consist primarily of domestic sales; however, additional international sales accounted for 23% of total sales although no individual country was in excess of ten percent of total sales. During 2013, there were no sales to within any individual foreign country exceeding ten percent of total sales.

 

15. 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. One of its customers accounted for 40%, of the Company’s revenue during the year ended December 31, 2013 and 100% of its accounts receivable as of December 31, 2013. During the year ended December 31, 2012, three customers accounted for 53% of revenue and one customer accounted for 100% of accounts receivable.

 

ECONOMIC DEPENDENCE

 

For the year ended December 31, 2013, the Company purchased 100% (2012 - 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.

 

16. Subsequent Event

 

As described in note 8, the Company has closed on an additional $83,000 of convertible debentures with the same terms as those detailed in note 8.

 

 

iWallet Corporation

Condensed Interim Balance Sheets

June 30, 2014 and December 31, 2013

 

			2014				2013
			(Unaudited)
Assets
Current assets
Cash		$	17,168			$	250,718
Funds held in attorney trust (note 8)			—				39,705
Accounts receivable			6,177				4,575
Deposits and deferred costs (note 9)			116,407				23,086
Inventory (note 4)			23,549				20,361
Due to/from shareholder (note 7)			114,201				61,833
			277,502				400,278
Intangible assets (note 5)			103,128				96,715
		$	380,630			$	496,993
Liabilities
Current liabilities
Bank indebtedness - current (note 6)		$	4,907			$	5,539
Accounts payable (notes 7& 8)			158,561				126,317
Accrued liabilities (note 12)			41,087				3,062
Due to related party (note 7)			20,421				37,842
Advances from investor (note 7)			474				69,678
Convertible debentures (note 8)			663,000				354,000
Tooling commitment liability (note 9)			103,836				105,816
			992,286				702,254
Bank indebtedness - long-term (note 6)			15,538				17,540
			1,007,824				719,794
Shareholder's (deficiency) equity
Class A common shares, par value $0.001, 200,000,000 shares authorized; 10,000 issued (December 31, 2013 - 10,000)  (note 11)			10				10
Class B common shares, par value $0.001, 100,000,000 shares authorized; Nil issued (December 31, 2013 - Nil)  (note 11)			—				—
Preferred shares, par value $0.001, 10,000,000 shares authorized; Nil issued (December 31, 2013 - Nil)  (note 11)			—				—
Additional paid-in capital			1				1
Deficit			(627,205	)			(222,812	)
			(627,194	)			(222,801	)
		$	380,630			$	496,993

 

The accompanying notes are an integral part of these condensed interim financial statements.

 

Going Concern (note 1); Commitments and Contingencies (note 12); Subsequent Events (note 16)

 

 

  iWallet Corporation

  Condensed Interim Statements of Operations and Comprehensive Loss

  for the three and six month periods ended June 30, 2014 and 2013
(unaudited)

 

		Three months				Three months				Six months				Six months
		ending				ending				ending				ending
		June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
Sales		$	22,007			$	14,515			$	38,139			$	32,006
Cost of sales			18,317				5,178				35,253				19,681
Gross (loss) profit			3,690				9,337				2,886				12,325
Expenses
Legal and professional fees			114,441				8,276				220,029				16,351
Subcontractor fees (note 7)			47,000				—				109,100				—
Travel			1,371				27				16,986				3,154
Office and general expenses			9,049				269				26,404				2,223
Interest and bank fees			7,486				509				12,952				976
Rent			3,250				—				4,500				—
Research and development			10,391				1,387				11,533				1387
Provision for loss on tooling commitment (note 9)			—				—				—				139,213
Amortization of intangible assets			2,887				1,848				5,775				3,632
			195,875				12,316				407,279				166,936
Loss before recovery of income taxes			(192,185	)			(2,979	)			(404,393	)			(154,611	)
Recovery of income taxes (note 10)			—				(4,247	)			—				(4,247	)
Net and comprehensive income (loss)		$	(192,185	)		$	1,268			$	(404,393	)		$	(150,364	)
Net and comprehensive loss per share basic and diluted (note 13)		$	(19.22	)		$	0.13			$	(40.44	)		$	(15.04	)
Weighted average number of shares outstanding basic and diluted (note 13)			10,000				10,000				10,000				10,000

 

The accompanying notes are an integral part of these condensed interim financial statements.

 

 

iWallet Corporation

Condensed Interim Statements of Cash Flows

for the six month periods ended June 30, 2014 and 2013
(unaudited)

 

			2014				2013
Cash flow from operating activities
Net and comprehensive loss for the period			(404,393	)			(150,364	)
Items not affecting cash
Amortization of intangible assets			5,775				3,632
Provision for loss on tooling commitment (note 9)			—				139,213
Recovery of  income taxes			—				(4,247	)
			(398,618	)			(11,766	)
Non-cash operating items resulted from changes in:
Accounts receivable			(1,602	)			8,520
Deposits and deferred costs			(95,301	)			—
Inventory			(3,188	)			8,684
Accounts payable			32,244				8,254
Accrued liabilities			38,025				2,180
			(428,440	)			15,872
Cash flow from investing activities
Expenditures on intangible assets			(12,188	)			(5,171	)
			(12,188	)			(5,171	)
Cash flow from financing activities
Funds paid to related party			(17,421	)			(1,572	)
Funds paid to shareholder			(52,368	)			(17,687	)
Receipt of funds held in attorney trust			39,705				—
Repayment of bank indebtedness			(2,634	)			(2,724	)
Advances from investor			11,796				—
Proceeds from issuance of convertible debentures			228,000				—
			207,078				(20,883	)
Decrease in cash			(233,550	)			(11,282	)
Cash, beginning of period			250,718				13,462
Cash, end of period		$	17,168			$	2,180

 

The accompanying notes are an integral part of these condensed interim financial statements.

 

 

iWallet Corporation

Notes to Condensed Interim Financial Statements

June 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 7968 Arjons Drive, Suite D, San Diego, California 92126. 

 

The 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 June 30, 2014, the Company has incurred a shareholder's deficiency of $627,205 (December 31, 2013 - $222,812) and has significant losses and negative cash flows from operations. In addition as at June 30, 2014 the Company has a working capital deficiency of $714,784 (December 31, 2013 - $301,976). 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 Company may require additional financing to fund its operations, which may not be available at acceptable terms or at all. The Company plans on raising additional funds from completing financing arrangements, whether as continued subscriptions for convertible debentures or from additional sources, in contemplation of completing a public listing transaction as described in note 16.

 

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 - 750): 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.

 

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

 

			June 30,				December 31,
			2014				2013
Raw Material & Finished Goods		$	23,549			$	20,361

 

During the period ended June 30, 2014, the Company recorded a provision relating to obsolete inventory of $nil (2013 - $nil).

 

 

5. Intangible Assets

June 30, 2014
									Accumulated				Net Book
					Cost				Amortization				Value
	Patents			$	68,118			$	12,726			$	55,392
	Trademarks				13,484				4,123				9,361
	Software				40,000				1,625				38,375
				$	121,602			$	18,474			$	103,128

 

 

	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.

Depreciation for the six-month period ended June 30, 2014 is $5,775 (June 30, 2013 - $3,632).

 

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 June 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

ii)

$100, and

 

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 checking account held with the bank.

 

			June 30,				December 31,
			2014				2013
Line of credit		$	20,445			$	23,079
Less:  Current portion - estimated based on (a)(i) above			(4,907	)			(5,539	)
		$	15,538			$	17,540

 

Principal repayments estimated based on (a)(i) above as at June 30, 2014:

 

	2014 (remaining six months)			$	2,454
	2015				5,213
	2016				5,213
	2017				2,658
				$	15,538

  

7. Related Party Balances

 

			June 30,				December 31,
			2014				2013
Current assets
Due from shareholder		$	114,201			$	61,833
Current liabilities
Accounts payable – due to shareholder		$	24,000			$	—
Due to related party		$	20,421			$	37,842
Advances from investor		$	474			$	69,678

 

The above balances are non-interest bearing, unsecured and due on demand. The related party is related by virtue of the common control and ownership by the Company's shareholder.

 

The accounts payable – due to shareholder relates to compensation owing to the Company’s shareholder for services in his capacity as Chief Executive Officer.

 

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. In addition during the period, the Company extended the maturity to August 15, 2014, including the formalization of the advances from investor in note 7 (see note 16). As at June 30, 2014, the amount of accrued interest is $11,739 (December 31, 2013 - $200), which is included in accounts payable, and total interest expense for the six months ended June 30, 2014 was $11,625 (2013 - $nil) and for the three months ended June 30, 2014 was 6,467 (2013 - $nil).

 

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 will be 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 share purchase warrant entitling the holder to purchase one additional Class A 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.

 

 

Since the conversion option is contingent upon a public listing no value has been allocated to the conversion option in accordance with ASC 470 Debt. The terms of the convertible debenture do not permit the number of shares receivable upon conversion if a public listing occurs to be calculated at the commitment date. During the period in which a public listing occurs, the conversion feature would be measured and recognized as a debt discount and an adjustment to additional paid-in capital.

 

Subsequent to the period end, all of the outstanding convertible debentures and accrued interest were converted into 3,222,120 common shares and warrants to purchase an additional 3,222,120 shares of common stock of the Company at an exercise price of $0.20 and with a term of 24 months.

 

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.

 

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 levels realized in 2013, the 5,000 unit commitment, the Company would likely not be able to meet the required orders. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the condensed interim statement of operations and comprehensive (loss).

 

			June 30,				December 31,
			2014				2013
Tooling commitment deposit		$	39,385			$	41,119
Tooling commitment deferred costs			98,967				100,947
			138,352				142,066
Provision for loss on tooling commitment			(138,352	)			(139,213	)
Tooling commitment deposit and deferred costs		$	—			$	2,853
Tooling commitment liability		$	103,836			$	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 June 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 $404,393 loss for the six months ended June 30, 2014.   The Company recognized no income tax expense based on its $154,611 pre-tax loss for six months ended June 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 June 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 June 30, 2014:

 

Federal 2009 – present

State 2009 – present

 

11. Share Capital

 

Authorized

 

200,000,000 Class A Common shares par value $0.001

100,000,000 Class B Common shares par value $0.001

10,000,000 Preferred Shares par value $0.001

 

Issued

			June 30,				December 31,
			2014				2013
10,000 Class A Common shares		$	10			$	10

 

12. 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 June 30, 2014 of $2,763 and the year ended December 31, 2013 of $3,062, however, the actual amount of loss could be materially different.

Lease agreements

On June 1, 2014 the Company entered into a new lease agreement for $2,500 per month on a month to month basis.

 

 

13. Basic and Diluted Loss Per Share

 

Potential common shares related to the convertible debentures were excluded from the computation of diluted loss per share for the period ending June 30, 2014 because the inclusion of these shares would be anti-dilutive.

 

For the periods ending June 30, 2013, no dilutive instruments existed; therefore, basic and diluted loss per share were equal.

 

14. Segmented Reporting

 

All of the Company's long-lived assets are located in the United States.

During the six months ended June 30, 2014, majority of sales were domestic; however total international sales accounted for 14% (six months ended June 30, 2013 – 44%) of total sales although no individual country was in excess of ten percent of total sales. During the three months ended June 30, 2014, majority of the sales were domestic; however total international sales accounted for 8% of total sales. During the three months ended June 30, 2013, the Company had sales to customers in Switzerland amounting to 14% and Canada amounting to 10%. The remaining sales consisted of primarily domestic sales; however additional international sales accounted for 14% of total sales.

 

15. 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 six months ended June 30, 2014, one customer accounted for 22% and another for 14% of the Company’s revenue. There were no significant customers during the six months ended June 30, 2013. For the three months ended June 30, 2014, one customer accounted for 30% and another for 19% of the Company's revenue. There were no significant customers during the three months ended June 30, 2013. As of June 30, 2014 one customer accounted for 94% of the accounts receivable balance. As of December 31, 2013 one customer accounted for 100% of the accounts receivable balance.

 

Economics Dependence

 

For the period ended June 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.

 

16. Subsequent Events

(a)

On July 21, 2014, the Company was combined in an all stock, tax free merger (the “Merger”) with a wholly-owned subsidiary of Queensridge Mining Resources Inc. ("Queensridge"). Pursuant to the Merger the Company will become a wholly-owed subsidiary of Queensridge and the Company’s former stockholders will become the majority owners of Queensridge. Queensridge, whose shares are currently quoted on the OTC Bulletin Board, will immediately change its name to iWallet Corporation and will continue the business of iWallet as its only line of business. The Merger will constitute a reverse merger whereby Queensridge was deemed to have acquired iWallet for accounting purposes only. Upon the close of the Merger, all convertible debentures and accrued interest were converted into common shares of the Company and resulted in the issuance of 3,222,120 shares and warrants to purchase 3,222,120 common shares at $0.20 per share, exercisable for two years. Concurrent with the close of the Merger transaction the Company completed a Private Placement of 6,479,002 units of the Company (“Units”) for gross proceeds of $1,943,701. Each Unit consists of one common share and one common share purchase warrant of the Company. Each whole common share purchase warrant is exercisable at $0.60 for a period of two years. 583,110 Units were issued as compensation to the brokers who assisted with the offering.

(b)

The Company began trading in the United States on the OTCQB (OTC Markets Group) exchange under the ticker symbol IWAL on July 25, 2014.

  

Management Discussion and Analysis of Financial Condition and Results of Operations

 

Our reverse merger closed July 21, 2014 has been accounted for as a “reverse acquisition,” as the former stockholders of iWallet Corporation, a private California corporation (“iWallet”), possessed majority voting control of the company immediately following the merger and now control our board of directors. iWallet is deemed to be the accounting acquirer in the reverse acquisition. Consequently, the results of operations presented herein reflect the historical operations of iWallet.

 

Results of Operations for the Years Ended December 31, 2013 and December 31, 2012

 

During the fiscal year ended December 31, 2013, we generated sales of $85,769. Our cost of sales was $63,585, resulting in gross profit of $22,184. Our expenses for the year ended 2013 were $253,352, and consisted of legal and professional fees of $73,278, office and general expenses of $9,583, travel expenses of $23,475, interest and bank fees of $2,515, amortization of intangible assets of $5,288, and a provision for loss on a contractual tooling commitment of $139,213. We also recorded a recovery of a provision for income taxes of $4,247. Our net loss for the year ended December 31, 2013 was $226,921. By comparison, during the year ended December 31, 2012, we generated sales of $159,288. Our cost of sales was $79,550, resulting in gross profit of $79,738. Our expenses for the year ended 2012 were $67,600, and consisted of legal and professional fees of $41,491, office and general expenses of $9,040, travel expenses of $6,786, interest and bank fees of $3,179, amortization of intangible assets of $3,904, and research and development expenses of $3,200. We also recorded a provision for income taxes of $4,247. Our net income for the year ended December 31, 2013 was $7,891.

 

Our sales during the year ended December 31, 2013 were lower than in the prior year due to manufacturing delays. In addition, our expenses were higher during the year ended December 31, 2013 than in the prior year primarily due to the provision for loss on a tooling commitment. On May 26, 2011, we signed a contract with a supplier under which we were required to pay for tooling costs in addition to our regular purchase orders (the "tooling commitment"). Under the terms of the tooling commitment we were 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, we had not reached the contracted level of purchases and an informal agreement to extend the period was made; however, by December 31, 2013 we had not complied and as a result, the entire amount would have been considered due. On August 24, 2013, we entered into a revised agreement with the supplier that extended the term another twelve months to August 24, 2014. During 2013, it was determined that based on the actual sales levels realized in 2013, we would likely not be able to meet the required orders to meet the 5,000 unit commitment. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the statement of operations and comprehensive income / (loss). 

 

Results of Operations for the Three and Six Months ended June 30, 2014 and 2013.

 

During the three months ended June 30, 2014, we generated sales of 22,007. Our cost of sales was $18,317, resulting in gross profit of $3,690. Our expenses for the three months ended June 30, 2014 were $195,875, and consisted of legal and professional fees of $114,441, subcontractor fees of $47,000, office and general expenses of $9,049, travel expenses of $1,371, interest and bank fees of $7,486, amortization of intangible assets of $2,887, rent of $3,250, and research and development of $10,391. Our net loss for the three months ended June 30, 2014 was $192,185. By comparison, during the three months ended June 30, 2013, we generated sales of $14,515. Our cost of sales was $5,178, resulting in gross profit of $9,337. Our expenses for the three months ended June 30, 2014 were $12,316, and consisted of legal and professional fees of $8,276, office and general expenses of $269, travel expenses of $27, interest and bank fees of $509, and amortization of intangible assets of $1,848. We also recorded a provision for recovery of income taxes of $4,247. Our net income for the three months ended June 30, 2013 was $1,268.

 

During the six months ended June 30, 2014, we generated sales of 38,139. Our cost of sales was $35,253 resulting in gross profit of $2,886. Our expenses for the six months ended June 30, 2014 were $407,279, and consisted of legal and professional fees of $220,029, subcontractor fees of $109,100, office and general expenses of $26,404, travel expenses of $16,986, interest and bank fees of $12,952, amortization of intangible assets of $5,775, rent of $4,500, and research and development of $11,533. Our net loss for the six months ended June 30, 2014 was $404,393. By comparison, during the six months ended June 30, 2013, we generated sales of $32,006. Our cost of sales was $19,681, resulting in gross profit of $12,325. Our expenses for the six months ended June 30, 2014 were $166,936, and consisted of legal and professional fees of $16,351, office and general expenses of $2,223, travel expenses of $3,154, interest and bank fees of $976, amortization of intangible assets of $3,632, research and development of $1,387, and a provision for a loss on a tolling commitment of $139,213. We also recorded a provision for recovery of income taxes of $4,247. Our net loss for the six months ended June 30, 2013 was $150,634.

 

Our expenses and net loss for the three and six months ended June 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.

Over the course of the remainder of the current fiscal year, we expect that our sales will increase significantly as we launch the iWallet 2.0 and begin distribution of the product to various retailers and other outlets. In the latter half 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 expect 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 June 30, 2014, we had current assets of $277,502, consisting of cash in the amount of $17,168, deposits and deferred costs of $116,407, inventory of $23,549, a loan due from a shareholder of $114,201, and accounts receivable of $6,177. Our current liabilities as of June 30, 2014 were $992,286, and consisted of the current portion of long term bank debt in the amount of $4,907, accounts payable of $158,561, accrued liabilities of $41,087, amounts due to a related party of $20,421, advances from an investor of $474, convertible debentures of $663,000, and a liability for a manufacturer tooling commitment of $103,836. Our working capital deficit as of June 30, 2014 was therefore $714,784.

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 June 30, 2014, the balance owed was $20,445.

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 $1,745,537.

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 current year. 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.

Going Concern

 

We have experienced recurring losses from operations and had a working capital deficiency of $714,784 as of June 30, 2014. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on an ongoing basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results or operations, liquidity, capital expenditures or capital resources that is deemed material.

 

Changes In and Disagreements with Accountants

 

Except as set forth below, we have had no changes in or disagreements with our accountants.

 

On August 12, 2014, Silberstein Ungar, PLLC (the “Former Accountant”) resigned as our independent auditor. The Former Accountant resigned because most of its client base has been acquired by another firm. Also on August 12, 2014, our board of directors appointed MNP, LLP (the “New Accountant”) as our new independent registered public accounting firm.

 

The Former Accountant’s audit reports on the financial statements for our former fiscal years ended June 30, 2013 and 2012 contained no adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, with exception of uncertainty regarding our ability to continue as a going concern.

 

During the former fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 12, 2014, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of the Former Accountant would have caused them to make reference thereto in their reports on the financial statements for such periods.

 

During the fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 14, 2014, there were the following “reportable events” (as such term is defined in Item 304 of Regulation S-K). As disclosed in Part I, Item 4 of the Company’s Form 10-Q for the quarterly period ended March 31, 2014, the Company’s management determined that the Company’s internal controls over financial reporting were not effective as of the end of such period due to the existence of material weaknesses related to the following:

 

(i)

inadequate segregation of duties and effective risk assessment; and

 

(ii)

insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

These material weaknesses have not been remediated as of the date of this Current Report on Form 8-K.

 

Other than as disclosed above, there were no reportable events during the fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 12, 2014.

 

Prior to retaining the New Accountant, we did not consult with the New Accountant regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).

 

 

Directors and Executive Officers

 

The following table sets forth information regarding the members of our board of directors and our executive officers and other significant employees. All of our officers and directors were appointed on July 21, 2014. All of our directors hold office until the next annual meeting of stockholders and their successors are duly elected and qualify. Executive officers serve at the request of the board of directors.

 

Name			Age			Office(s) held
Jack B. Chadsey			66			Chief Executive Officer and Director
Steven Cabouli			56			President and Director
Orlando LaCalle			50			Chief Marketing Officer
Carl Rosen			61			Director
Charles Ng			66			Director
Anthony Durkacz			38			Director

 

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

 

Steven Cabouli is our President and a member of our Board of Directors. Mr. Cabouli founded iWallet in 2009. He has over 25 years of experience in introducing new and unique products to the market. In the 1980s, he introduced machines for shaved ice, cooking baking, and donuts to Argentina and sold the rights to this business to an established South American cookie manufacturer in 1987. He is also the owner of China Mystique, Inc., a global distributor of skincare products which he co-founded in 1990. From 2003 through January of 2014, he was the owner of Steve Cabouli Properties, a real estate company which owns several properties in San Diego, Mexico, and Argentina. Mr. Cabouli studied Civil Engineering at the University of Buenos Aires in Argentina.

 

Jack B. Chadsey is our Chief Executive Officer and a member of our Board of Directors. Mr. Chadsey’s work experience spans over 30 years of senior management positions with some of the premier big box and specialty store retailers. Since January of 2006, Mr. Chadsey has been the principal of Brickell Business Ventures, Inc., a private equity investment and consulting practice focused on emerging growth opportunities. In 2005, he was the Chairman and CEO of Musicland Group, Inc., a privately held entertainment company which operated over 1,000 stores. From 1995 to 2004, Mr. Chadsey served as Chairman of Illuminations, an upscale candle and home accessories company which grew to over 100 retail locations during his tenure. From 1997 to 2001, he was Chairman and CEO of Lids, Inc. From 1989 to 1997, Mr. Chadsey served as the President and CEO of Sunglass Hut, International. During his time with Sunglass Hut, Mr. Chadsey led the company through a recapitalization, an initial public offering, and subsequent follow-on offerings in an effort to fund the internal growth and store expansion needs of the company. From 1984 to 1989, he served as President and CEO of Branden’s, a chain of big box home specialty stores owned by Target/ Dayton Hudson Corporation. From 1984 to 1986, he served as VP and Merchandise Manager for the Home Division of Target Corporation. From 1981 to 1984, he served as Sr. VP, GMM and executive committee member responsible for developing and implementing merchandising and marketing strategies for the home, hardlines, and active apparel divisions of Kohl’s Department Stores. Mr. Chadsey holds a B.S. in Business Administration from the University of Arkansas.

 

Carl Rosen, one of our directors, is principal of Shelter Rock International, LLC, which provides comprehensive consulting services specializing in the luxury goods sector. He consults in the launch or expansion of watch, jewelry or eyewear lines on a worldwide basis, licensing, sourcing, asset disposition, and sales of state-of-the-art marketing, sales and survey technologies. Mr. Rosen also currently serves as the Director of Anti-counterfeiting of the American Watch Guild. Prior to founding Shelter Rock International in 2010, Mr. Rosen was with Bulova Corporation, an international consumer luxury goods company, and its former parent company, Loews Corporation. Loews Corporation is a conglomerate with holdings in insurance, hotels and energy, and previously in tobacco and theaters. In 2008, Bulova was acquired by Citizen Watch Co. Ltd (Japan.) From 1980 – 2001, Mr. Rosen simultaneously held different positions in both organizations. From 2007 to 2010, he was the Chief Operating Officer of Bulova Corporation. From 2002 to 2007, he was the Senior Vice President for Worldwide Operations at Bulova. From 1999 to 2001 he was Chief Information Officer at Loews while also serving as a Senior Vice President for Bulova. From 1988 to 1999, he served as Executive Directors of Systems Development at Loews Corporation while also serving as an Executive Vice President at Bulova Corporation. From 1985 to 1988, Mr. Rosen was the Director of the Information Center at Loews. From 1980 to 1985, he was a Consultant for Management Advisory Services at Loews. From 1977 to 1980, he was the Manager of International Finance and Planning at Continental Can Company. Mr. Rosen holds an MBA from the Wharton School at the University of Pennsylvania, and a B.S. in Civil Engineering from Tufts University.

 

Charles Ng, one of our directors, is currently the VP of Sales, Americas for NEXT Biometrics. In that position, he is responsible for selling biometric sensor solutions to top tier mobile and P.C. original equipment manufacturers as well as the standard biometrics physical access control, token and NEXT enable biometrics market spaces. Prior to this position, Mr. Ng was the head of FingerPrint Cards’ biometric business operations in North America, where he was responsible mainly for the top tier PC and mobile market segments. In 2005, he joined UPEK, a leader in biometric fingerprint security solutions, as its Sales Director Americas. At UPEK, Mr. Ng grew the revenue from $200K to $24M in two years.  He managed sales to major Asia original design manufacturers, including Foxconn, Wistron, Chicony in China, IIDA in Japan.  In 2010, UPEK merged with AuthenTec, which was later acquired by Apple. Inc. in 2012. During his time with UPEK/Authentic/Apple, he was responsible for selling over $110M in biometric fingerprint reader solutions.  Prior to that position, Mr. Ng was the VP of Sales at Valicert, a secure internet communications leader. Mr. Ng has also worked in the telecommunications industry at ROLM/IBM/Siemens, Network Equipment Technologies and Copper Mountain Networks; holding various business development and sales management positions. He holds a Bachelors degree in Business Administration.

 

Anthony Durkacz, one of our directors, is currently Executive Vice-President at First Republic Capital Corp., a position he has held since January 2014. From January to December 2013, he was the President of Capital Ideas Investor Relations. From January 2011 to January 2013, he was CFO and a director of Snipp Interactive Inc.. He was instrumental in the financing and public listing of Snipp Interactive Inc. with operations in Canada, the USA, Mexico and India. Mr. Durkacz is also the owner and president of Fortius Research & Trading Corp., which provides financial and accounting consulting services to micro and small cap companies in various sectors, and develops investment strategies for high net worth individuals. From 2006 to 2009, he served as COO and CFO of MKU Canada Inc. and engaged in mergers and acquisitions around the globe. From 2002 to 2006, he served as CFO of Astris Energi Inc., a dually listed public company in the US and Canada which was acquired by an international conglomerate. He began his career at TD Securities on the capital markets trading floor. Mr. Durkacz holds an Honors Bachelor of Business Administration from Brock University with a major in both Accounting and Finance.

 

Directors

 

Our bylaws authorize no less than one (1) and no more than twelve (12) directors. We currently have five directors.

 

All directors hold office for one-year terms until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion of the board.

 

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.

 

Committees of the Board

 

We do not currently have a compensation committee, executive committee, or stock plan committee. 

 

Audit Committee

 

We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K.

 

 

Nomination Committee

 

Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.

 

When evaluating director nominees, our directors consider the following factors:

 

•         The appropriate size of our Board of Directors;

•         Our needs with respect to the particular talents and experience of our directors;

•

The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board;

•         Experience in political affairs;

•         Experience with accounting rules and practices; and

•         The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members.

 

Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.

 

Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.

 

Code of Ethics

 

As of September 5, 2014, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

 

 

Executive Compensation

 

Compensation Discussion and Analysis

 

Our executive officers Jack Chadsey, Steven Cabouli and Orlando LaCalle are currently paid monthly fixed cash compensation as follows:

 

Jack Chadsey		$	12,500
Steven Cabouli		$	12,000
Orlando LaCalle		$	4,000

 

The compensation agreement with Mr. LaCalle was reached on December 30, 2013 and was based on Mr. LaCalle’s fixed monthly expenses and our financial resources and ability to pay. Mr. Cabouli is the founder and former sole shareholder of iWallet Corporation and no formal arrangement was reached with him on any specific date. His current salary arrangement, like the arrangement with Mr. LaCalle, is based on Mr. Cabouli’s fixed personal monthly expenses and our financial resources and ability to pay. Accruals will be recorded for any wages owed to Mr. Chadsey, Mr. Cabouli and Mr. LaCalle in the event that there is not enough cash to meet payroll requirements. Our compensation system has generally consisted of paying our key executives such basic remuneration for their time and services as is appropriate for our current resources and stage of development. We are in the process of creating a formal system of compensation designed to motivate, incentivise, and retain our key executives. Currently with his appointment on September 8, 2014, we entered into an Executive Employment Agreement (the “Agreement”) with our CEO, Mr. Chadsey. Under the Agreement, Mr. Chadsey will serve as our CEO and a member of the Board for three (3) years. He will be paid a minimum base annual salary of $150,000, subject to annual review. In addition to annual salary, the Agreement provides Mr. Chadsey with a grant of common stock equal to a total of fifteen percent (15%) of our issued and outstanding common stock, or 4,398,207 shares under current figures. The stock grant will vest in annual phases over the course of the term of the agreement. The objectives of the Agreement with Mr. Chadsey are to provide him with an appropriate base salary, to vest him with the opportunity to earn substantial ownership in the company, and to provide him with an incentive for longevity in office.

 

 

Summary Compensation Table

 

The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.

 

SUMMARY COMPENSATION TABLE

Name and principal position

Year

Salary ($)

Bonus ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

Jack Chadsey, CEO

2013 2012

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

Steven Cabouli, President

2013 2012

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

Orlando LaCalle, Chief Marketing Officer

2013 2012

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

n/a n/a

Jerry Chatel, former officer

2013 2012

0 n/a

0 n/a

0 n/a

0 n/a

0 n/a

0 n/a

0 n/a

0 n/a

Phillip Stromer, former officer

2013 2012

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

 

Narrative Disclosure to the Summary Compensation Table

 

Our current executive officers, Jack Chadsey, Steven Cabouli and Orlando LaCalle, did not serve during our last two fiscal years. Former officers Jerry Chatel and Phillip Stromer did not receive any compensation for their service as officers. Our current compensation arrangements with our executive officers are as set forth above.

 

Stock Option Grants

 

We have not granted any stock options to the executive officers or directors since our inception.

 

 

Outstanding Equity Awards At Fiscal Year-end Table

 

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS

STOCK AWARDS

Name

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

Option Exercise Price ($)

Option Expiration Date

Number of Shares or Shares of Stock That Have Not Vested (#)

Market Value of Shares or Shares of Stock That Have Not Vested ($)

Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#)

Jack Chadsey, CEO

—

—

—

—

—

—

—

—

—

Steven Cabouli, President

—

—

—

—

—

—

—

—

—

Orlando LaCalle, Chief Marketing Officer

—

—

—

—

—

—

—

—

—

Jerry Chatel, former officer

—

—

—

—

—

—

—

—

—

Phillip Stromer, former officer

—

—

—

—

—

—

—

—

—

 

 

Compensation of Directors Table

 

The table below summarizes all compensation paid to our directors for our last completed fiscal year.

 

DIRECTOR COMPENSATION

Name

Fees Earned or Paid in Cash ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Non-Qualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

Steven Cabouli

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Jack Chadsey

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Carl Rosen

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Charles Ng

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Anthony Durkacz

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Jerry Chatel, former director

-0

-0

-0

-0

-0

-0

-0

Phillip Stromer, former director

-0

-0

-0

-0

-0

-0

-0

 

Narrative Disclosure to the Director Compensation Table

 

We did not provide any compensation to directors for their service as directors during the last fiscal year. Compensation arrangements for our current directors have not been formally documented but are in process of being finalized. Consulting agreements with directors are likewise the subject of current discussion and will require future approval by the full board.

 

Employment Agreements with Current Management

 

Except with regard to Mr. Chadsey, as discussed above, we do not currently have any employment agreements in place with any of our executive officers.

 

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than 5% of any class of stock and by the executive officers and directors as a group. Except as otherwise indicated, all Shares are owned directly and the percentage shown is based on 33,919,419 shares common stock issued and outstanding.

 

Title of class		Name and address of beneficial owner (1)		Amount of beneficial ownership				Percent of class
Current Executive Officers & Directors:
Common Stock		Steven Cabouli 7394 Trade Street San Diego, CA 92121			8,221,230				24.24	%
Common Stock		Jack B. Chadsey(4) 600 Coral Way, Fl. 2 Coral Gable, FL 33134			4,664,877				13.75	%
Common Stock		Anthony Durkacz(5) 3006-2045 Lakeshore Blvd. West Toronto, ON M8V 2Z6			1,337,850				3.94	%
Common Stock		Carl E. Rosen 59 Shelter Rock Road Stamford, CT			100,000				0.29	%
Common Stock		Charles Ng 3345 Blackhawk Meadow Dr. Danville, CA 94506			100,000				0.29	%
Common Stock		Orlando LaCalle P.O. Box 565577 Miami, FL 33256			978,770				2.89	%
Total of All Current Directors and Officers:
Common Stock					15,402,727				45.40	%
More than 5% Beneficial Owners
Common Stock		7806221 Canada, Inc.(2) 71 Clairton Crescent Toronto, ON M6N 2M7			1,841,636				6.24	%
Common Stock		Donal Carroll(3) 55 North Dr. Toronto, ON M9A 4R1			2,446,570				8.29	%

 

(1)	As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
(2)	The total shares for 7806221 Canada, Inc. include 1,714,384 shares of common stock and warrants to purchase an additional 127,252 shares of common stock at a price of $0.20, exercisable for 2 years. Mr. Bernard Adamski is the President of 7806221 Canada, Inc., and, in that capacity, has the authority to direct voting and investment decisions regarding its common stock.
(3)	The total shares for Donal Carroll include 1,623,285 shares of common stock, warrants to purchase 156,618 shares of common stock at a price of $0.20 per share, exercisable for 2 years, and warrants to purchase 666,667 shares of common stock at a price of $0.60 per share, exercisable for 2 years
(4)	The total shares for Jack B. Chadsey include 4,581,542 shares of common stock and warrants to purchase 83,335 shares of common stock at a price of $0.60 per share, exercisable for 2 years
(5)	The total shares for Anthony Durkacz include 388,885 shares of common stock,warrants to purchase 388,885 shares of common stock at $0.20 per shares, exercisable for 2 years, and 560,080 shares owned by First Republic Capital Corp.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

To date, we have not adopted a stock option plan or other equity compensation plan and have not issued any stock, options, or other securities as compensation under any equity compensation plan.

 

Disclosure of Commission Position of Indemnification for Securities Act Liabilities

 

In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

Certain Relationships and Related Transactions and Director Independence

 

With the exception of our reverse merger closed July 21, 2014, and except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the last two years or in any presently proposed transaction which, in either case, has or will materially affect us:

 

1. Our balance sheets reflect the sum of $61,833 due from shareholder. This obligation, which arose during the time when iWallet Corporation was a privately held company and is due from our President and CEO, Steven Cabouli. This obligation is non-interest bearing, unsecured and due on demand. There is no written agreement or specific terms of repayment for this obligation. We expect that it will be settled in the near future.

2. Concurrent with his appointment on September 8, 2014, we entered into anExecutive Employment Agreement (the “Agreement”) with our CEO, Jack Chadsey. Under the Agreement, Mr. Chadsey will serve as our CEO and a member of the Board for three (3) years. He will be paid a minimum base annual salary of $150,000, subject to annual review. In addition to annual salary, the Agreement provides Mr. Chadsey with a grant of common stock equal to a total of fifteen percent (15%) of our issued and outstanding common stock, or 4,398,207 shares under current figures. The stock grant will vest in annual phases over the course of the term of the agreement.

 

3. One of our directors, Carl Rosen, has provided advisory services to our company as needed and on an hourly basis through his consultancy firm, Shelter Rock International, LLC. Generally, these services have been provided at a rate of $225 per hour under a Consulting and Advisory Service Agreement executed with our accounting predecessor. We expect that the agreement will be updated and ratified by our current board in the near future.

 

4. One of our directors, Anthony Durkacz, is a majority owner of First Republic Capital Corporation (“First Republic”). First Republic is a securities broker based in Canada that assisted with our private placement of common stock closed July 21, 2014.

 

Director Independence 

We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Charles Ng and Carl Rosen are independent directors.

 

Available Information

 

We have filed a registration statement on form S-1 under the Securities Act of 1933 with the Securities and Exchange Commission with respect to the shares of our common stock offered through this prospectus.  This prospectus is filed as a part of that registration statement, but does not contain all of the information contained in the registration statement and exhibits.  Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the company.  We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the company.  You may inspect the registration statement, exhibits and schedules filed with the Securities and Exchange Commission at the Commission's principal office in Washington, D.C.  Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549.  Please Call the Commission at (202) 942-8088 for further information on the operation of the public reference rooms.  The Securities and Exchange Commission also maintains a Web Site at http://www.sec.gov that contains reports, proxy Statements and information regarding registrants that files electronically with the Commission.  Our registration statement and the referenced exhibits can also be found on this site.

 

If we are not required to provide an annual report to our security holders, we intend to still voluntarily do so when otherwise due, and will attach audited financial statements with such report.

 

Dealer Prospectus Delivery Obligation

 

Until ________________, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

PROSPECTUS

iWALLET CORPORATION

20,968,130

SHARES OF COMMON STOCK

PUBLIC OFFERING

 

___________________

 

December 5, 2014

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.

 

 

 

	TABLE OF CONTENTS
		Page
PART I - FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4:	Controls and Procedures	9
PART II - OTHER INFORMATION
Item 1:	Legal Proceedings	10
Item 1A:	Risk Factors	10
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3:	Defaults Upon Senior Securities	10
Item 4:	Mine Safety Disclosures	10
Item 5:	Other Information	10
Item 6:	Exhibits	10

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:
F-1	Condensed Consolidated Interim Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013;
F-2	Condensed Consolidated Interim Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited);
F-3	Condensed Interim Statement of Changes in Shareholders’ (Deficiency) Equity (Unaudited) for the nine months ended September 30, 2014 and 2013 and December 31, 2013;
F-4	Condensed Consolidated Interim Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited);
F-5	Notes to Condensed Consolidated Interim Financial Statements (Unaudited).

 

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

ii)

$100, and

 

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

 

•

Harrods in England

 

•

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

 

•

Touch of Modern

 

•

Skymall

 

•

Travelsmith

 

•

Hammacher Schlemmer

 

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

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	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
101	Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in Extensible Business Reporting Language (XBRL).

 

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