UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
| [X] |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
|
| |
For
the fiscal year ended December 31, 2014 |
| |
|
| [ ] |
TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
| |
|
| |
For
the transition period from _________ to ________ |
| |
|
| |
Commission
file number: 333-168775 |
| iWallet
Corp. |
| (Exact
name of registrant as specified in its charter) |
| |
| Nevada |
27-1830013 |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| |
|
7394
Trade Street
San
Diego, California |
92121 |
| (Address
of principal executive offices) |
(Zip
Code) |
Registrant’s
telephone number: 1-800-508-5042 |
|
Securities
registered under Section 12(b) of the Exchange Act:
|
| Title
of each class |
Name
of each exchange on which registered |
| none |
not
applicable |
Securities
registered under Section 12(g) of the Exchange Act:
|
| Title
of class |
|
| none |
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate
by checkmark 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. Yes [X] 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 [ ] No
[X]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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 [ ] No [X]
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal quarter. $686,969.27 as of June 30, 2014.
Indicate
the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
33,919,419 as of March 26, 2015.
PART
I
Item
1. 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 Corp.” (‘iWallet”)
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 cases 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 which protects credit cards from being read
by many types of RF devices in public spaces. Using Bluetooth Smart technology, 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
can be achieved through the same Bluetooth Smart technology and the smart phone.
In
addition to our retail sales strategy, we also intend to focus on developing and licensing the following new technologies based
upon our design and utility patents: biometric touch sensors coupled with Bluetooth Smart technology, Zero Passwords, voice and
gesture recognition, and other biometric physical communication through iWallet products. We are working with outside software
companies to enhance the firmware in all of our products.
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 Stebis in Belgium, Luxemburg and
the Netherlands, the Urban Collection Loyalty program in the U.S., UK and Canada, Peters Of Kensington in Australia, Hontus group,
Planet Traveler in the U.S., Vivadi in Latin America, Brentano in the UK, and Gold Tree, LTD in Asia. 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 $499. The
new iWallets have the following features:
| |
• |
Sleek, compact industrial design with
carbon fiber case |
| |
• |
Pairs with the owner’s cellular
phone via Bluetooth Smart 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 through the
user’s smart phone |
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 in which
to store pharmaceuticals |
| |
• |
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 51% 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 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 with this material.
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 product offerings 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 high profile celebrities,
bloggers, etc. for product validation. |
| |
• |
Optimize the company’s e-commerce
strategy through a multi-lingual program which allows the customer to communicate in over 70 different languages. |
| |
• |
Continue worldwide media attention,
primarily from BBC Worldwide, Fox News (Fox and Friends), Discovery Channel. |
| |
• |
Establish a global distribution network
for the retail, incentive, and loyalty markets |
Our
established distribution channels for the iWallet, as originally launched, include the following:
| |
• |
Neiman Marcus in North America |
| |
• |
Stebis in Belgium, Luxemburg and Netherlands |
| |
• |
Urban Collection Loyalty program in
US, UK and Canada |
| |
• |
Peters of Kensington’s in Australia |
| |
• |
Hontus Group/Planet Traveler in US
(co-branded) |
| |
• |
Vivadi in Latin America |
| |
• |
Oak Incentives in Canada |
| |
• |
Brentano in UK |
| |
• |
Gold Tree, LTD in Asia |
The
following are current prospective sales channels:
| |
• |
Co-branding for Dunhill and Ducati
as well as other potential luxury partners. We are currently in partnering or licensing discussions with these companies. |
| |
• |
Internal Revenue Service |
We
plan to increase our consumer off take within newly gained distribution at major regional high-end department stores, luxury specialty
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 our named executive officers, we also employ a Project Manager, an in-house bookkeeper, and an outside comptroller
that serves on a part time basis.
Environmental
Laws
We
have not incurred and do not anticipate incurring any expenses associated with environmental laws.
Item
2. Properties
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.
Item
3. 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.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market
Information
Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is sponsored by FINRA, and on the OTCQB
tier of the electronic market place operated by OTC Markets, Inc. Our shares are currently quoted on the under the symbol “IWAL”.
The
following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as
reported by OTC Markets, Inc. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
| Fiscal
Year Ending December 31, 2014 |
| Quarter
Ended | |
High
$ | |
Low
$ |
| | December
31, 2014 | | |
$ | 1.0000 | | |
$ | 0.3000 | |
| | September
30, 2014 | | |
$ | 1.0000 | | |
$ | 0.0371 | |
| | June
30, 2014 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
| | March
31, 2014 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
| | | | |
| | | |
| | |
| Fiscal
Year Ending December 31, 2013 | |
| | Quarter
Ended | | |
| High
$ | | |
| Low
$ | |
| | December
31, 2013 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
| | September
30, 2013 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
| | June
30, 2013 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
| | March
31, 2013 | | |
$ | 0.0371 | | |
$ | 0.0371 | |
As
of March 26, 2015, the last closing price for our common stock was $0.14 per share.
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 March 26, 2015, we had 33,919,419 shares of our common stock issued and outstanding, held by fifty-eight (58) shareholders
of record.
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.
Recent
Sales of Unregistered Securities
| • |
In connection with our reverse merger on July 21, 2014, the previous
shareholders of iWallet Corporation, a private California corporation, received 10,000,000 shares of our common stock. The
10,000,000 shares of our common stock which were issued to the former holders of common stock of iWallet Corporation on the
effective date of the merger were issued in reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act. |
| • |
Also on July 21, 2014, certain Secured Convertible Debentures previously
issued by iWallet Corporation were converted to newly issued shares of our common stock and warrants. The former iWallet Corporation
debenture holders were issued a total of 3,222,120 shares of common stock, and warrants to purchase 3,222,120 shares of common
stock at a price of $0.20 per share, exercisable for two (2) years. These shares and warrants were also issued in reliance
on the exemption from registration afforded by Section 4(2) of the Securities Act. |
| • |
Immediately upon closing of our reverse
merger on July 21, 2014, 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.
In addition, a total of 583,110 Units were issued as compensation to certain licensed securities brokers who assisted with
the offering. The offering was conducted pursuant to Rule 506 under Regulation D and was conditional upon the closing of the
reverse merger. The offering was made to only to “accredited investors” as defined in Rule 501, and we did not
engage in any general solicitation or advertising. 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 $1,734,676. A total of forty (40) investors subscribed in the offering. |
| • |
On September 2, 2014, we closed a
small additional issuance of Units in an extension of the Units offering described above. Three subscribers purchased
a total of 183,333 Units at $0.30 per Unit, for gross proceeds of $54,999.90 |
| • |
On September 2, 2014, we issued 4,398,207
shares of common stock to our Chief Executive Officer, Jack Chadsey, pursuant to the terms of his employment agreement |
Securities
Authorized for Issuance under Equity Compensation Plans
None.
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. |
Convertible
Securities
We
have not issued and do not have outstanding any securities convertible into shares of our common stock or, except with regard
to the warrants described above, any rights convertible or exchangeable into shares of our common stock.
Item
6. Selected Financial Data
A
smaller reporting company is not required to provide the information required by this Item.
Item
7. 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 affect 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.
Results
of Operations for the Years Ended December 31, 2014 and 2013.
Our
total sales revenue for the year ended December 31, 2014 was $154,647. After cost of sales in the amount of $121,811, we recorded
a gross profit of $32,836. Our expenses for the year ended December 31, 2014 were 2,457,112 and consisted of legal and professional
fees of $805,181, share based compensation of $629,735, salaries and wages of $293,483, debt discount accretion of $289,991, office
and general expenses of $231,597, research and development of $151,245, travel expense of $34,940, rent of $19,500, interest and
finance charges of $14,917, amortization of intangible assets of $11,993, and positive recovery of a tooling commitment in the
amount of $25,470. Our charge for share-based compensation represents the amount expensed in 2014 for shares of common stock issued
to our CEO as compensation. The charge for debt discount accretion relates to the automatic conversion of certain convertible
debentures to shares of common stock concurrently with our reverse merger in July of 2014. Note 8 to our financial statements
should be reviewed for further information on this item. Our net loss for the year ended December 31, 2014 was $2,424,276.
By
comparison, our sales for the year ended December 31, 2013 were $85,769. After cost of sales of $63,585, we recorded a gross profit
of $22,184. Our total expenses for the year ended December 31, 2014 were $253,352 and we recorded a provision for income taxes
of $4,247, resulting in a net loss of $226,921.
Our
sales for the year ended December 31, 2014 were higher than last year due to our launch of the iWallet 2.0 and increased sales
and marketing efforts. Our expenses and net loss for the year ended December 31, 2014 were larger than last year primarily due
to increased professional fees related to our becoming a public company, charges for stock based compensation to executives, and
increased operating expenses as we have begun to expand our operations and increase our marketing efforts.
In
order to significantly increase our revenue base and 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 in the
near future.
Liquidity
and Capital Resources
As
of December 31, 2014, we had current assets of $958,613, consisting of cash in the amount of $465,847, funds held in attorney
trust of $20,000, deposits and deferred costs of $211,534, inventory of $138,819, a loan due from a shareholder of $114,349, and
accounts receivable of $8,064. Our current liabilities as of December 31, 2014 were $330,311, and consisted of the current portion
of long term bank debt in the amount of $4,347, accounts payable of $235,391, accrued liabilities of $45,916, amounts due to a
related party of $3,030, advances from an investor of $474, and a liability for a manufacturer tooling commitment of $41,153.
Our working capital as of December 31, 2014 was therefore $628,302.
In
the months prior to our reverse merger in July of 2014, 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 December 31, 2014, the balance owed was $18,111.
Immediately
upon closing of our reverse merger in July of 2014, 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 $1,734,676.
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.
Off
Balance Sheet Arrangements
As
of December 31, 2014, there were no off balance sheet arrangements.
Going
Concern
The
financial statements included in this annual report have been prepared assuming we will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company 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.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Management does not believe that any of our accounting policies currently fit this definition.
Recently
Issued Accounting Pronouncements
We
have reviewed all new accounting pronouncements and, except as set forth below, do not expect any new pronouncements or guidance
to have an impact on our results of operations or financial position:
1. 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
financial statements of adopting ASU 2014-09 will be assessed by management.
2. 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 organization’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 financial statements of adopting ASU 2014-15 will be assessed by management.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
A
smaller reporting company is not required to provide the information required by this Item.
Item
8. Financial Statements and Supplementary Data
Index
to Financial Statements Required by Article 8 of Regulation S-X:
Report
of Independent Registered Public Accounting Firm
To
the Board or Directors and Shareholders of iWallet Corp
We
have audited the accompanying balance sheets of iWallet Corp as of December 31, 2014 and 2013 and the related statements of operations
and comprehensive loss, changes in shareholder's (deficiency) equity and cash flows for the years then ended. iWallet Corp’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 Corp is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits 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 Corp’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
Corp as of December 31, 2014 and 2013, 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 experienced negative cash flows from operations since inception and has accumulated a significant deficit which
raises 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 nclude any adjustments that might result from the outcome of this uncertainty.
| /s/
MNP LLP |
| |
| Chartered Professional Accountants |
| Licensed Public Accountants |
Mississauga,
Canada
March
31, 2015
iWallet
Corp
Balance
Sheets
December
31, 2014 and 2013
| | |
| 2014 | | |
| 2013 | |
| Assets | |
| | | |
| | |
| Current
assets | |
| | | |
| | |
| Cash | |
$ | 465,847 | | |
$ | 250,718 | |
| Funds
held in attorney trust (note 8) | |
| 20,000 | | |
| 39,705 | |
| Accounts
receivable, net of allowance for doubtful accounts ($nil) | |
| 8,064 | | |
| 4,575 | |
| Deposits
and deferred costs (note 9) | |
| 211,534 | | |
| 23,086 | |
| Inventory
(note 4) | |
| 138,819 | | |
| 20,361 | |
| Due
from shareholder (note 7) | |
| 114,349 | | |
| 61,833 | |
| | |
| 958,613 | | |
| 400,278 | |
| Intangible
assets (note 5) | |
| 116,336 | | |
| 96,715 | |
| | |
$ | 1,074,949 | | |
$ | 496,993 | |
| Liabilities | |
| | | |
| | |
| Current
liabilities | |
| | | |
| | |
| Bank
indebtedness - current (note 6) | |
$ | 4,347 | | |
$ | 5,539 | |
| Accounts
payable (note 7) | |
| 235,391 | | |
| 126,317 | |
| Accrued
liabilities (note 8) | |
| 45,916 | | |
| 3,062 | |
| Due
to related party (note 7) | |
| 3,030 | | |
| 37,842 | |
| Advances
from investor (note 7) | |
| 474 | | |
| 69,678 | |
| Convertible
debentures (notes 8, 11 and 12) | |
| — | | |
| 354,000 | |
| Tooling
commitment liability (note 9) | |
| 41,153 | | |
| 105,816 | |
| | |
| 330,311 | | |
| 702,254 | |
| Bank
indebtedness - long-term (note 6) | |
| 13,764 | | |
| 17,540 | |
| | |
| 344,075 | | |
| 719,794 | |
| Shareholder's
equity (deficiency) | |
| | | |
| | |
| Common
stock, par value $0.001, 75,000,000 shares authorized; 33,919,419 issued (2013 - 10,000,000) (note
11) | |
| 33,919 | | |
| 10,000 | |
| Shares
to be issued (note 11(vi)) | |
| 2,973 | | |
| — | |
| Additional
paid-in capital | |
| 3,341,070 | | |
| (9,989 | ) |
| Deficit | |
| (2,647,088 | ) | |
| (222,812 | ) |
| | |
| 730,874 | | |
| (222,801 | ) |
| | |
$ | 1,074,949 | | |
$ | 496,993 | |
The
accompanying notes are an integral part of these financial statements.
Wallet
Corp
Statement
of Operations and Comprehensive Loss
For the years ended December 31, 2014 and 2013
| | |
2014 | |
2013 |
| Sales | |
$ | 154,647 | | |
$ | 85,769 | |
| Cost
of sales (notes
2 and 13) | |
| 121,811 | | |
| 63,585 | |
| Gross
profit | |
| 32,836 | | |
| 22,184 | |
| Expenses | |
| | | |
| | |
| Legal and professional
fees | |
| 805,181 | | |
| 73,278 | |
| Share-based compensation
(note 11) | |
| 629,735 | | |
| — | |
| Salaries and wages | |
| 293,483 | | |
| — | |
| Debt discount accretion
(note 8) | |
| 289,991 | | |
| — | |
| Office and general
expenses | |
| 231,597 | | |
| 9,583 | |
| Research and development | |
| 151,245 | | |
| — | |
| Travel | |
| 34,940 | | |
| 23,475 | |
| Rent | |
| 19,500 | | |
| — | |
| Interest and other
finance charges | |
| 14,917 | | |
| 2,515 | |
| Provision for (recovery
of) loss on tooling commitment (note 9) | |
| (25,470 | ) | |
| 139,213 | |
| Amortization
of intangible assets | |
| 11,993 | | |
| 5,288 | |
| | |
| 2,457,112 | | |
| 253,352 | |
| Loss
before recovery of income taxes | |
| (2,424,276 | ) | |
| (231,168 | ) |
| Recovery
of income taxes (note 10) | |
| — | | |
| 4,247 | |
| Net
and comprehensive loss | |
$ | (2,424,276 | ) | |
$ | (226,921 | ) |
| Net
loss per share - basic and diluted (note 14) | |
$ | (0.12 | ) | |
$ | (0.02 | ) |
Weighted
average number of shares outstanding - basic and diluted (note 14)
| |
| 20,140,136 | | |
| 10,000,000 | |
The
accompanying notes are an integral part of these financial statements.
iWallet
Corp
Statement
of Changes in Shareholder's (Deficiency) Equity
for
the years ended December 31, 2014 and 2013
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| Shareholder's | |
| |
| Class
A Common Shares | | |
| Shares | | |
| Additional | | |
| | | |
| (Deficiency) | |
| |
| Shares | | |
| Amount | | |
| to
be issued | | |
| Paid-in
Capital | | |
| Deficit | | |
| Equity | |
| Balance, January 1, 2013 | |
| 10,000,000 | | |
$ | 10,000 | | |
$ | — | | |
$ | (9,989 | ) | |
$ | 4,109 | | |
$ | 4,120 | |
| Net and comprehensive
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (226,921 | ) | |
| (226,921 | ) |
| Balance, December,
2013 | |
| 10,000,000 | | |
| 10,000 | | |
| — | | |
| (9,989 | ) | |
| (222,812 | ) | |
| (222,801 | ) |
| Reverse recapitalization
of Queensridge | |
| 9,037,147 | | |
| 9,037 | | |
| — | | |
| (9,037 | ) | |
| — | | |
| — | |
| Private placement | |
| 6,662,335 | | |
| 6,662 | | |
| — | | |
| 1,992,039 | | |
| — | | |
| 1,998,701 | |
| Cost of issue | |
| — | | |
| — | | |
| — | | |
| (217,815 | ) | |
| — | | |
| (217,815 | ) |
| Issuance of common stock units on conversion of
convertible debenture | |
| 3,222,120 | | |
| 3,222 | | |
| — | | |
| 673,423 | | |
| — | | |
| 676,645 | |
| Beneficial conversion
feature | |
| — | | |
| — | | |
| — | | |
| 289,991 | | |
| — | | |
| 289,991 | |
| Broker common stock
units | |
| 599,610 | | |
| 600 | | |
| — | | |
| (600 | ) | |
| — | | |
| — | |
| Issuance of common
stock units to management | |
| 4,398,207 | | |
| 4,398 | | |
| — | | |
| 623,058 | | |
| — | | |
| 627,456 | |
| Shares to be issued | |
| — | | |
| — | | |
| 2,973 | | |
| — | | |
| — | | |
| 2,973 | |
| Net and comprehensive
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,424,276 | ) | |
| (2,424,276 | ) |
| Balance, December 31, 2014 | |
| 33,919,419 | | |
| 33,919 | | |
| 2,973 | | |
| 3,341,070 | | |
| (2,647,088 | ) | |
| 730,874 | |
The
accompanying notes are an integral part of these financial statements.
iWallet
Corp
Statements
of Cash Flows
for
the years ended December 31, 2014 and 2013
| | |
| 2014 | | |
| 2013 | |
| Cash
flow from operating activities | |
| | | |
| | |
| Net
and comprehensive loss for the year | |
$ | (2,424,276 | ) | |
$ | (226,921 | ) |
| Items
not affecting cash | |
| | | |
| | |
| Amortization
of intangible assets | |
| 11,993 | | |
| 5,288 | |
| Provision
for (recovery of) loss on tooling commitment (note 9) | |
| (25,470 | ) | |
| 139,213 | |
| Recovery
of income taxes | |
| — | | |
| (4,247 | ) |
| Debt
discount accretion | |
| 289,991 | | |
| — | |
| Interest
accrued on convertible debentures | |
| 13,645 | | |
| — | |
| Share-based
compensation | |
| 629,735 | | |
| — | |
| | |
| (1,504,382 | ) | |
| (86,667 | ) |
| Non-cash
operating items resulted from changes in: | |
| | | |
| | |
| Accounts
receivable | |
| (3,489 | ) | |
| 3,945 | |
| Deposits
and deferred costs | |
| (162,284 | ) | |
| (6,512 | ) |
| Inventory | |
| (118,458 | ) | |
| (6,620 | ) |
| Accounts
payable | |
| 109,074 | | |
| 71,244 | |
| Accrued
liabilities | |
| 42,854 | | |
| (622 | ) |
| Tooling
commitment liability | |
| (64,663 | ) | |
| (4,869 | ) |
| | |
| (1,701,348 | ) | |
| (30,101 | ) |
| Cash
flow from investing activities | |
| | | |
| | |
| Expenditures
on intangible assets | |
| (31,614 | ) | |
| (39,565 | ) |
| | |
| (31,614 | ) | |
| (39,565 | ) |
| Cash
flow from financing activities | |
| | | |
| | |
| Funds
repaid to related party | |
| (34,812 | ) | |
| (21,938 | ) |
| Funds
advanced to shareholder | |
| (52,516 | ) | |
| (48,781 | ) |
| Receipt
of funds held in attorney trust | |
| 19,705 | | |
| (39,705 | ) |
| Repayment
of bank indebtedness | |
| (4,968 | ) | |
| (6,332 | ) |
| Advances
from investor | |
| 11,796 | | |
| 69,678 | |
| Proceeds
from issuance of convertible debentures | |
| 228,000 | | |
| 354,000 | |
| Proceeds
from issuance of common stock units for cash | |
| 1,780,886 | | |
| — | |
| | |
| 1,948,091 | | |
| 306,922 | |
| Increase
in cash | |
| 215,129 | | |
| 237,256 | |
| Cash,
beginning of year | |
| 250,718 | | |
| 13,462 | |
| Cash,
end of year | |
$ | 465,847 | | |
$ | 250,718 | |
The
accompanying notes are an integral part of these financial statements.
iWallet
Corp
Notes
to Financial Statements
December
31, 2014 and 2013
1. Nature
of Business and Going Concern
iWallet
Corp (“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.
iWallet
Corporation (“iWallet”) 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”) (“the Merger”), 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 Queensridge. Immediately following
the merger the Acquisition Sub merged with and into Queensridge. Queensridge immediately changed its name to iWallet Corp and
is continuing the business of iWallet as its only line of business.
The
Company began trading on July 21, 2014 in the United States of America (“USA”) on the OTCQB Exchange under the ticker
symbol IWAL.
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, 2014, the Company has a deficit of $2,647,088 (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 future of the Company is dependent upon its ability to obtain financing and upon achieving profitable operations.
Management
has raised additional capital through private placement offerings and has plans to raise funds through public offering of its
capital stock. While the Company has been successful in securing such financing in the past, there is no assurance that it will
be able to do so in the future. Accordingly, these financial statements do not give effect to adjustments, relating to the recoverability
and classification of recorded assets, or the amounts of and classifications of liabilities that might be necessary in the event
the Company cannot continue in existence.
These
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, software
and website development costs and the warranty provision.
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, 2014 and
2013.
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 raw materials, finished goods and goods-in-transit.
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 expects 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.
Website
development costs relating to website and mobile application and software development are also capitalized and amortized over
its estimated useful life of three 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.
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, accrued liabilities, bank indebtedness,
due to related party, advances from investor, convertible debentures and tooling debt obligation 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 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.
Derivative
financial instruments
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.
2. Significant
Accounting Policies - continued
Derivative
financial instruments - continued
The
discount from the face value of the 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
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.
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.
2. Significant
Accounting Policies - continued
Shipping
and handling costs
The
Company’s shipping and handling costs of $22,408 are included in cost of sales for the year ended December 31, 2014 (2013
- $11,122).
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, 2014 the Company spent $151,245 (2013 - $nil) towards research and development expenses for the new generation
of iWallet products and new products to market.
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.
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 2% of revenue (2013 – 4%).
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 15.
3. Recently
Issued Accounting Standards and Recently Adopted Accounting Pronouncement
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
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 organization’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 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 financial statements.
4. Inventory
| |
| December
31, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Raw
materials and components | |
$ | 86,606 | | |
$ | — | |
| Finished
goods | |
| 32,622 | | |
| 20,361 | |
| Goods
in-transit | |
| 19,591 | | |
| — | |
| | |
$ | 138,819 | | |
$ | 20,361 | |
5. Intangible
Assets
| |
| |
| |
December 31, |
| | |
| |
Accumulated | |
2014 |
| |
Cost | |
Amortization | |
Net
Book Value |
| Patents | |
$ | 68,119 | | |
$ | 16,078 | | |
$ | 52,041 | |
| Trademarks | |
| 16,909 | | |
| 4,739 | | |
| 12,170 | |
| Software | |
| 40,000 | | |
| 3,875 | | |
| 36,125 | |
| Website
Development (i) | |
| 16,000 | | |
| — | | |
| 16,000 | |
| | |
$ | 141,028 | | |
$ | 24,692 | | |
$ | 116,336 | |
5. Intangible
Assets - continued
| (i) | The
Company engaged an arm's length third party vendor to complete development of their website
and mobile application software. Development was completed in December 2014; accordingly,
although ready for use, the costs were not amortized as any amortization would have been
insignificant. |
| | | | |
| | | |
| | | |
| December
31, | |
| | | | |
| | | |
| Amortization | | |
| 2013 | |
| | | | |
| Cost | | |
| Accumulated | | |
| Net
Book Value | |
| | Patents | | |
$ | 65,930 | | |
$ | 9,375 | | |
$ | 56,555 | |
| | Trademarks | | |
| 13,484 | | |
| 3,324 | | |
| 10,160 | |
| | Software | | |
| 30,000 | | |
| — | | |
| 30,000 | |
| | | | |
$ | 109,414 | | |
$ | 12,699 | | |
$ | 96,715 | |
Amortization
for the year ended December 31, 2014 was $11,993 (2013 - $5,288).
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, 2014 and 2013 was 4.5%, and with monthly repayments determined as follows:
a) the
greater of:
| i) | two
percent (2%) of the outstanding principal balance outstanding on the last day of the
billing period, or |
b) accrued
interest since the date of the last payment.
On
termination of the line of credit, the amount will become due over a period determined by the creditor of between thirty-six and
eighty-four months, or over three to seven years, which at the time of the agreement was determined to be forty-eight months,
or four years.
The
line of credit is subject to various non-financial covenants that would constitute an event of default, notably: ownership change
or sale of the business; closure or failure to maintain the related checking account; insolvency or any bankruptcy proceedings;
or, any other defaults on other contracts with the creditor or with any other financial institution.
6. Bank
Indebtedness - continued
Security
for the line of credit is the cash in the chequing account held with the bank.
| |
| December
31, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Line
of credit | |
$ | 18,111 | | |
$ | 23,079 | |
| Less: current
portion - estimated based on (a)(i) above | |
| (4,347 | ) | |
| (5,539 | ) |
| | |
$ | 13,764 | | |
$ | 17,540 | |
Principal
repayments estimated based on (a)(i) above as at December 31, 2014:
| | 2016 | | |
$ | 5,213 | |
| | 2017 | | |
| 5,213 | |
| | 2018 | | |
| 3,338 | |
| | | | |
$ | 13,764 | |
7. Related
Party Transactions and Balances
| |
December
31, | |
December 31, |
| | |
2014 | |
2013 |
| Current
assets | |
| |
|
| Due
from shareholder | |
$ | 114,349 | | |
$ | 61,833 | |
| Current
liabilities | |
| | | |
| | |
| Due
to related party | |
$ | 3,030 | | |
$ | 37,842 | |
| Advances
from investor | |
$ | 474 | | |
$ | 69,678 | |
The
above balances are non-interest bearing, unsecured and due on demand. The related party is is affiliated by virtue of common ownership.
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 year (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.
For
the year ended December 31, 2014, the Company expensed $7,901 (2013 – $nil) to Shelter Rock International, LLC (“SRI”)
for consulting services. The Principal of SRI is a director of the Company. As at December 31, 2014, the balance owing to SRI
was $2,788 (2013 – $nil).
7. Related
Party Transactions and Balances
For
the year-ended December 31, 2014, the Company incurred $188,544 (2013 – $nil) with First Republic Capital Corporation (“FRC”)
for agent fees in connection with the private placement and reverse merger transaction. The Executive Vice-President of FRC is
also a director of the Company. As at December 31, 2014, the balance owing to FRC was $nil (2013 – $nil).
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
fiscal 2014 the Company closed on an additional $309,000 of convertible debentures with the same terms, inclusive of $81,000 of
advances from investor formalized into a convertible debenture during the year (note 7), bringing the total convertible debentures
outstanding 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 year, the Company extended the maturity to August 15, 2014, including
the formalization of the advances from investor in note 7.
At
the time of issuance there was no beneficial conversion feature since 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 was
therefore deemed to contain a beneficial conversion feature. The conversion price to the debenture holders was $0.21. The Company
measured and immediately recognized the full value of the beneficial conversion feature as debt discount accretion in the statement
of operations and comprehensive loss 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 December 31, 2014, the contract has expired and the tooling commitment of $41,153 is due on demand.
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 Company recorded a loss on the tooling commitment based on the shortfall of the expected
number of units to be sold in 2014 resulting in a loss of $139,213 in the statement of operations and comprehensive loss.
During
2014, the actual sales realized in 2014 exceeded the expected sales. As such the Company recognized a recovery on the tooling
commitment of $25,470 in the statement of operations and comprehensive loss.
| |
December 31, | |
December 31, |
| | |
2014 | |
2013 |
| Tooling commitment deposit | |
$ | 6,682 | | |
$ | 41,119 | |
| Tooling commitment
deferred costs | |
| — | | |
| 100,947 | |
| | |
| 6,682 | | |
| 142,066 | |
| Provision for
loss on tooling commitment | |
| — | | |
| (139,213 | ) |
| Tooling commitment deposit and deferred
costs | |
| 6,682 | | |
| 2,853 | |
| Other prepaid
deposits and insurance | |
| 204,852 | | |
| 20,233 | |
| Deposits and deferred
costs | |
$ | 211,534 | | |
| 23,086 | |
| Tooling commitment
liability | |
$ | 41,153 | | |
$ | 105,816 | |
10. Income
Taxes
Components
of (loss) income before income taxes consists of the following:
| | |
2014 | |
2013 |
| | U.S. | | |
$ | (2,424,276 | ) | |
$ | (226,921 | ) |
The
provision (recovery) for income taxes consists of the following:
| | | | |
| 2014 | | |
| 2013 | |
| | Current | | |
| | | |
| | |
| | Federal | | |
$ | — | | |
$ | — | |
| | State | | |
| — | | |
| — | |
| | | | |
| — | | |
| — | |
| | Deferred | | |
$ | — | | |
$ | (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:
| | |
2014 | |
2013 |
| Net
loss before recovery of income taxes | |
$ | (2,424,276 | ) | |
$ | (231,168 | ) |
| Statutory rate | |
| 40.75 | | |
| 40.75 | |
| Expected income tax recovery | |
$ | (987,892 | ) | |
$ | (94,201 | ) |
| Non-deductible expenses | |
| 182,146 | | |
| 49,161 | |
| Change in tax
benefits not recognized | |
| 805,746 | | |
| 45,040 | |
| Recovery of income taxes | |
$ | — | | |
$ | — | |
10. Income
Taxes - continued
The
components of deferred taxes are as follows:
| | |
2014 | |
2013 |
| Deferred tax assets (liabilities) | |
| | | |
| | |
| Current | |
| | | |
| | |
| Accrued liabilities | |
$ | 1,220 | | |
$ | (253 | ) |
| Provision for loss on tooling commitment | |
| 56,729 | | |
| 56,724 | |
| Valuation allowance | |
| (57,949 | ) | |
| (56,471 | ) |
| | |
$ | — | | |
$ | — | |
| Non-current | |
| | | |
| | |
| Intangible assets | |
$ | 2,244 | | |
$ | 7,955 | |
| Net operating losses | |
| 741,774 | | |
| 45,031 | |
| Share based compensation | |
| 113,326 | | |
| | |
| Valuation allowance | |
| (857,254 | ) | |
| (52,986 | ) |
| | |
$ | — | | |
$ | — | |
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:
| | |
2014 | |
2013 |
| Beginning balance | |
$ | 109,457 | | |
$ | 13,422 | |
| Additions related to the current year | |
| 805,746 | | |
| 96,035 | |
| Reductions related
to prior years | |
| — | | |
| — | |
| Unrecognized tax
benefits end of year | |
$ | 915,203 | | |
$ | 109,457 | |
The
Company has non-capital income tax losses that expire as follows:
| | 2031 | | |
| 19,567 | |
| | 2032 | | |
| 15,068 | |
| | 2033 | | |
| 110,515 | |
| | 2034 | | |
| 2,244,690 | |
| | | | |
$ | 2,279,330 | |
10. Income
Taxes - continued
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 December 31, 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 $2,228,793 pre-tax loss for the twelve months ended December 31, 2014. The Company recognized no income tax
expense based on its $226,919 pre-tax loss for the twelve months ended December 31, 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 December 31, 2014 and 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 December 31, 2014:
| Federal |
2010 – present |
| State |
2010 –
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 33,919,419 shares of Common
Stock issued and outstanding as of December 31, 2014.
| |
No.
of shares | |
Amount |
| Balance
January 1, 2013 and December 31, 2013 (i) | |
| 10,000,000 | | |
$ | 10,000 | |
| Recapitalization adjustment
(ii) | |
| 9,037,147 | | |
| 9,037 | |
| Private placement
(iii) | |
| 6,479,002 | | |
| 6,479 | |
| Private placement
(iv) | |
| 183,333 | | |
| 183 | |
| Broker common stock
units (iii)(iv) | |
| 599,610 | | |
| 600 | |
| Issuance of common
stock on conversion of convertible debentures(v) | |
| 3,222,120 | | |
| 3,222 | |
| Issuance
of shares to employees (vi) | |
| 4,398,207 | | |
| 4,398 | |
| Balance
December 31, 2014 | |
| 33,919,419 | | |
$ | 33,919 | |
11. Share
Capital
On
July 21, 2014, the Company entered into a merger agreement with Queensridge 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 6,427,800 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 9,037,147. |
| (iii) | Concurrently
with the Merger, the Company closed a Private Placement of 6,479,002 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 $34,092 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. |
| | | |
| | | 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, originally valued at
$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. |
11. Share
Capital
| (v) | 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. The Company’s stock price was $0.30 at the time of issuance,
resulting in 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. For the year ended December 31, 2014 1,172,855 shares have vested, with remaining
amounts to be vested on each anniversary date. As at December 31, 2014 a total of $626,762
has been expensed as stock-based compensation using the graded vesting method. |
| | | |
| | | To
account for subsequent dilution, the CEO is to maintain a 15% ownership at the end of
the initial term of his employment contract 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 CEO is to be issued an additional 29,975 common stock.
At the time of issuance, the Company’s stock price was $0.30 per share, resulting in a total value of $8,992, As of December
31, 2014, $2,973 has vested which is 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, December 31, 2014 | |
| 10,484,065 | | |
$ | 0.48 | |
The
following is a summary of the common stock purchase warrants outstanding as of December 31, 2014:
| Exercise
Price ($) | |
No.
of warrants | |
Expiry
date |
| | 0.6 | | |
| 7,062,112 | | |
July 21, 2016 |
| | 0.2 | | |
| 3,222,120 | | |
July 21, 2016 |
| | 0.6 | | |
| 199,833 | | |
September 2, 2016 |
| | | | |
| 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 year
ended December 31, 2014 of $6,679 (2013 - $3,062) which is included in accrued liabilities, however, the actual amount
of loss could be materially different.
The
actual warranty claims for the twelve month period ended December 31, 2014 was $4,023 (2013 - $12,074) which is included
in cost of sales.
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 10,484,065 potentially dilutive warrants (note 12) and 29,975 shares
(note 11(vi)) since their effect is anti-dilutive.
15. Segmented
Reporting
All
of the Company's long-lived assets are located in the United States.
During
the year period ended December 31, 2014, the majority of the sales were domestic; however total international sales accounted
for 14%. No individual countries were in excess of ten percent of total sales.
During
the year ended December 31, 2013, no 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 year ended December 31, 2014, one customer accounted for 51% of the Company’s total revenue.
For the year ended December 31, 2013, one customer accounted for 40%.
As
at December 31, 2014 two customers accounted for 97% of the accounts receivable balance. As at December 31, 2013 one customer
accounted for 100% of the accounts receivable balance.
Economic
Dependence
For
the year ended December 31, 2014 one vendor assembled 100% (2013 - 100%) of its finished goods wallet inventory.
For
the year ended December 31, 2014, the Company purchased approximately 41.8%, 22.9% 19.4% and 14.8% of raw materials from four
different vendors. For the year ended December 31, 2013, the Company purchased 100% of raw materials from one vendor.
Item
9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
No
events occurred requiring disclosure under Item 307 and 308 of Regulation S-K during the fiscal year ending June 30, 2014.
Item
9A. Controls and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this annual report, December 31, 2014. This evaluation
was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer.
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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed
under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based
upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure
controls and procedures were ineffective as of the end of the period covered by this annual report.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial
reporting as of December 31, 2014 based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December
31, 2014, our internal control over financial reporting was not effective. Our management identified the following material weaknesses
in our internal control over financial reporting, which are indicative of many small companies with small staff: (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.
We
plan to take steps to enhance and improve the design of our internal control over financial reporting. Our disclosure controls
and procedures have improved with the addition of new staff. During the period covered by this annual report on Form 10-K, however,
we have not been able to fully remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement
the following changes: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective
risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation
efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing
the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material
manner.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection
Act.
Item
9B. Other Information
None
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
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 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 | |
| 67 | | |
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.
Orlando
LaCalle is our Chief Marketing Officer. From March of 2004 to October of 2009, he was a Federal Account Executive for Xerox
Corporation. In that position, he managed and sold Xerox software products to assigned accounts in his territory. Also, he negotiated
perpetual license agreements with the U.S. Air Force, N.A.S.A., the U.S. Navy, the U.S. Coast Guard and all federal law enforcement
agencies including the State Attorney, the Federal Courts and the Florida House of Representatives. From April of 200 to February
of 2004, he served as Sales Director, Telecommunications Division Sales Group, for the Latin America Division of HNC Software,
Inc., where he prospected new accounts and managed and maintained the company’s customer base in Latin America, the Caribbean
and Mexico. From January 1994 to March of 2000, he was a Senior Account Executive at Xerox Corporation. From August of 1986 through
March of 1992, he served as a Personnel Specialist for the United States Air Force.
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.
Family
Relationships
There
are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become
directors or executive officers.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director,
executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business,
securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.
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
To
date, 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.
Item
11. Executive Compensation
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 | |
$ | 5,000 | |
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 | |
| 2014
2013 | | |
| $50,000 n/a | | |
n/a
n/a | |
$626,762
n/a | |
n/a
n/a | |
n/a
n/a | |
n/a
n/a | |
n/a
n/a | |
| $676,762
n/a | |
| Steven Cabouli, President | |
| 2014
2013 | | |
| $126,000 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 | |
| $126,000
n/a | |
| Orlando LaCalle,
Chief Marketing Officer | |
| 2014
2013 | | |
| $58,816 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 | |
| $58,816
n/a | |
| Jerry Chatel, former
officer | |
| 2014
2013 | | |
| 0 0 | | |
0
0 | |
0
0 | |
0
0 | |
0
0 | |
0
0 | |
0
0 | |
| 0
0 | |
| Phillip Stromer,
former officer | |
| 2014
2013 | | |
| n/a 0 | | |
n/a
0 | |
n/a
0 | |
n/a
0 | |
n/a
0 | |
n/a
0 | |
n/a
0 | |
| n/a
0 | |
Narrative
Disclosure to the Summary Compensation Table
Our
current executive officers, Jack Chadsey, Steven Cabouli and Orlando LaCalle, were appointed during 2014 and did not serve during
2013. Former officers Jerry Chatel and Phillip Stromer did not receive any compensation for their service as officers. Except
with regard to Jack Chadsey, as disclosed above, we presently do not have employment or compensation agreements with any of our
named executive officers and have not established any overall system of executive compensation or any fixed policies regarding
compensation of executive officers. Our executive officers received the cash compensation detailed above. The Stock Awards figure
for Mr. Chadsey reflects common stock issued to him as compensation pursuant to the terms of his Executive Employment Agreement.
Stock
Option Grants
We
have not granted any stock options to the executive officers or directors since our inception.
Outstanding
Equity Awards At Fiscal Year-end Table
The
table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive
officer outstanding as of the end of our last completed fiscal year.
| OPTION
AWARDS | | |
| STOCK
AWARDS | |
Name | |
| Number
of Securities Underlying Unexercised Options
(#) Exercisable | | |
| Number
of Securities Underlying Unexercised Options
(#) Unexercisable | | |
| Equity Incentive
Plan Awards: Number
of Securities Underlying Unexercised Unearned Options (#) | | |
| Option Exercise
Price ($) | | |
| 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 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,225,352 | | |
$ | 692,700 | | |
| — | | |
| — | |
| 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 | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | |
| Jack Chadsey | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | |
| Carl Rosen | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | |
| Charles Ng | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | |
| Anthony Durkacz | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | | |
| -0 | |
| 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. For their service as
executive officers, Mr. Cabouli and Mr. Chadsey received the compensation described in the Summary Compensation Table above. 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.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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 | | |
| 5.43 | % |
| (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. includes 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.
|
| (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. |
Item
13. 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 $114,349 due from shareholder. This obligation is due from our President and former 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 an Executive 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 $225 per hour under a Consulting
and Advisory Service Agreement executed with our accounting predecessor. We expect that the agreement will be updated and ratified
by our current board in the near future.
4. One
of our directors, Anthony Durkacz, is a majority owner of First Republic Capital Corporation (“First Republic”). First
Republic is a securities broker based in Canada that assisted with our private placement of common stock closed July 21, 2014.
Director
Independence
We
are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards
for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The
Nasdaq Stock Market, Inc., we believe that Charles Ng and Carl Rosen are independent directors.
Item
14. Principal Accounting Fees and Services
Below
is the table of Audit Fees (amounts in CDN$) billed by our auditor in connection with the audit of the Company’s annual
financial statements for the years ended:
| Financial Statements for
the Year Ended | |
Audit
Services | |
Audit
Related Fees | |
Tax
Fees | |
Other
Fees |
| December 31, 2014 | |
$ | 86,003 | | |
$ | 40,680 | | |
$ | 0 | | |
$ | 0 | |
| December 31, 2013 | |
$ | 55,000 | | |
$ | 2,500 | | |
$ | 0 | | |
$ | 0 | |
PART
IV
Item
15. Exhibits, Financial Statements Schedules
| (a) |
Financial Statements
and Schedules |
The
following financial statements and schedules listed below are included in this Form 10-K.
Financial
Statements (See Item 8)
(1)
Incorporated by reference to Current Report on Form 8-K/A filed July 31, 2014.
(2) Incorporated
by reference to Registration Statement on Form S-1 filed August 12, 2010.
(3)
Incorporated by reference to Registration Statement on Form S-1 filed September 5, 2014.
(4)
Incorporation by reference to Current Report on Form 8-K filed September 9, 2014
(5)
Incorporated by reference to Current Report on Form 8-K filed October 7, 2014.
(6)
Incorporated by reference to Registration Statement on Form S-1/A filed October 17, 2014.
**
Filed herewith
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
iWallet
Corporation
By:
/s/ Jack B. Chadsey
Jack B.
Chadsey
Chief Executive
Officer, Principal Financial Officer and Director
March 31, 2015
In
accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
By:
/s/ Jack B. Chadsey
Jack B.
Chadsey
Chief Executive
Officer, Principal Financial Officer and Director
March
31, 2015
By: /s/
Steven Cabouli
Steven Cabouli
President
and Director
March
31, 2015
By:
/s/ Carl Rosen
Carl Rosen
Director
March
31, 2015
By: /s/
Anthony Durkacz
Anthony
Durkacz
Director
March
31, 2015
CERTIFICATIONS
I, Jack B. Chadsey, certify that;
| 1. |
|
I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 of iWallet Corporation (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2015
/s/ Jack B. Chadsey
By: Jack B. Chadsey
Title: Chief Executive Officer
CERTIFICATIONS
I, Jack B. Chadsey, certify that;
| 1. |
|
I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 of iWallet Corporation (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2015
/s/ Jack B. Chadsey
By: Jack B. Chadsey
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the annual Report of iWallet
Corporation (the “Company”) on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange
Commission (the “Report”), I, Jack B. Chadsey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
| By: |
/s/ Jack B. Chadsey |
| Name: |
Jack B. Chadsey |
| Title: |
Principal Executive Officer, Principal Financial Officer and Director |
| Date: |
March 31, 2015 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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