UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
iWallet Corporation
(Exact name of Registrant as specified in its charter)
| Nevada | 3669 | 27-1830013 |
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
|
7394 Trade Street San Diego, California 92121 |
||
| (address of principal executive offices) | ||
| Registrant's telephone number, including area code: | (858) 530-2958 | |
|
Clark Agency LLC 3273 East Warm Springs Rd. Las Vegas, NV 89120 |
||
| (Name and address of agent for service of process) | ||
| Approximate date of commencement of proposed sale to the public: | As soon as practicable after the effective date of this Registration Statement. | |
If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box |X|
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|__|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|__|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|__|
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.|__|
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 |__| Smaller reporting company |X|
COPIES OF COMMUNICATIONS TO:
Joe Laxague, Esq.
3273 E. Warm Springs Road
Las Vegas, Nevada 89120
Ph: (702) 312-6255 | email: jlaxague@clarkcorporatelaw.com
CALCULATION OF REGISTRATION FEE
|
TITLE
OF EACH CLASS OF
SECURITIES TO BE REGISTRATION |
AMOUNT TO BE REGISTERED |
PROPOSED MAXIMUM OFFERING PRICE PER SHARE(1) |
PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(2) |
AMOUNT
OF
REGISTRATION FEE |
||||||||||
|
Common Stock (3) Common Stock Underlying Warrants (4) |
10,484,065 10,484,065 20,968,130 |
$ | 0.037119 | $ | 778,316 | $ | 100.25 | |||||||
| (1) | Pursuant to Rule 457(c) under the Securities Act, the proposed maximum offering price per share and the proposed maximum aggregate offering price have been determined on the basis of the average of the high and low prices reported as of a specified date (September 2, 2014) within five business days prior to the date of filing this registration statement. |
| (2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act. |
| (3) | These shares of common stock refer to those issued to investors in exempt private offerings. |
| (4) | These shares of common stock underlie the warrants to purchase shares of common stock that were issued to investors in exempt private offerings. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
| 2 |
PROSPECTUS
iWALLET CORPORATION
20,968,130
SHARES OF COMMON STOCK
PUBLIC OFFERING
___________________
SUBJECT TO COMPLETION, Dated October 16, 2014
The selling shareholders named in this prospectus are offering up all the shares of common stock being registered by this prospectus. The selling shareholders are registering in this prospectus 10,484,065 shares of common stock issued to them in private placements, as well as 10,484,065 shares of common stock underlying the warrants also issued to the selling shareholders in those private placements. We will not receive any proceeds from the sale of shares in this offering. We have not made any arrangements for the sale of these securities.
Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”) and the OTCQB tier of the electronic market operated by OTC Markets, Inc. As a result, the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders. On October 9, 2014, the last sale price of our common stock as reported by the OTCBB was $0.75 per share.
The purchase of the securities offered through this prospectus involves a high degree of risk. See section entitled “Risk Factors” starting on page 7.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities in any public offering until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The Date of This Prospectus is: October 16, 2014
| 3 |
| 4 |
iWallet Corporation
The Company
We were incorporated as “Queensridge Mining Resources, Inc.” on January 29, 2010, in the State of Nevada for the purpose of engaging in mineral exploration. On July 21, 2014, we entered into a Merger Agreement with iWallet Corporation, a private California corporation, whereby we acquired all of the issued and outstanding common stock of iWallet Corporation through a subsidiary. Following this merger, we merged the subsidiary with and into our corporation, and changed our name to “iWallet Corporation” as part of that process. As a result of entering into the Merger Agreement, we are in the business of designing and developing biometric locking wallets and related physical, personal security products.
Our address is 7394 Trade Street, San Diego, California 92121. Our phone number is (858) 530-2958. Our fiscal year end is December 31.
The Offering
| Securities Being Offered | Up to 20,968,130 shares of our common stock, including 10,484,065 shares of common stock issued to the selling shareholders in private placements, as well as 10,484,065 shares of common stock underlying the warrants also issued to the selling shareholders in private placements | |
| Offering Price | All shares being offered are being sold by existing shareholders without our involvement, so the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders. | |
| Minimum Number of Shares To Be Sold in This Offering | n/a | |
| Maximum Number of Shares To Be Sold in This Offering | 20,968,130 | |
| Securities Issued and to be Issued | 33,919,419 shares of our common stock are issued and outstanding as of October 9, 2014. All of the common stock to be sold under this prospectus will be sold by existing shareholders. There will be no increase in our issued and outstanding shares as a result of this offering. | |
| Use of Proceeds | We will not receive any proceeds from the sale of the common stock by the selling shareholders. |
| 5 |
|
Summary Financial Information
|
||||||||
|
Balance Sheet Data |
Fiscal Year Ended December 31, 2013 (audited) |
Six Months Ended June 30, 2014 (unaudited) |
||||||
| Cash | $ | 250,718 | $ | 17,168 | ||||
| Total Assets | $ | 496,993 | $ | 380,630 | ||||
| Liabilities | $ | 719,794 | $ | 1,007,824 | ||||
| Total Stockholder’s Deficit | $ | 222,812 | $ | 627,205 | ||||
|
Statement of Operations |
||||||||
| Revenue | $ | 85,769 | $ | 38,139 | ||||
| Net Profit (Loss) for Reporting Period | $ | (226,921 | ) | $ | (404,393 | ) |
You should consider each of the following risk factors and any other information set forth herein and in our reports filed with the SEC, including our financial statements and related notes, in evaluating our business and prospects. The risks and uncertainties described below are not the only ones that impact on our operations and business. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also impair our business or operations. If any of the following risks actually occur, our business and financial results or prospects could be harmed. In that case, the value of the Common Stock could decline.
Risks Related to Our Business and Industry
Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our product offerings could reduce our ability to compete successfully and adversely affect our results of operations.
We will need to raise additional funds in order to execute on our business development plan over the long term. We may not be able obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we cannot raise additional capital on acceptable terms, we may not be able to, among other things:
| • | develop and enhance our products |
| • | develop our brand and acquire new customers |
| • | continue to expand our technology development, sales and marketing organizations |
| • | acquire complementary technologies, products or businesses |
| • | expand operations internationally |
| • | pay our debts as they come due |
| • | hire, train and retain employees |
| • | respond to competitive pressures or unanticipated working capital requirements |
Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations .
| 6 |
Because we have experienced net losses to date, we may never be able to generate sufficient net revenue in the future to be profitable.
We have had net operating losses since inception and expect to continue experiencing net losses for the immediate future. In addition, we expect to make significant future expenditures related to the continued development and expansion of our business. Furthermore, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these factors, to achieve profitability we will need to, among other matters, increase our customer base and our distribution channels. We cannot assure you that we will be able to increase our revenue in this manner and achieve profitability. As we expect to continue to invest in the development of our business, this investment could outpace growth in our revenue, and thereby impair our ability to achieve and maintain profitability.
Because we are dependent on outside manufacturers to produce our products, increases in manufacturing costs or component prices may negatively affect our operations
We currently rely on one manufacturer to manufacture our iWallet products to order. We are constrained by its manufacturing capabilities and pricing, and may face production delays or escalating costs if it is unable to manufacture a sufficient quantity of product at an affordable cost. Further, we could face production delays if it becomes necessary to replace our existing supplier with one or more alternative suppliers. These factors could have a material adverse effect on our business, prospects, and results of operations or financial condition. In addition, our operation could be significantly affected by increases in the cost of high quality carbon fiber or other raw materials necessary to manufacture our products.
Because there is an uncertain market for our products, we cannot be certain that they will gain wide acceptance or that we will be able to generate sustained sales growth.
While we believe that our innovative security products would be attractive to business professionals, we have only a limited operating history to determine the market acceptance for our products. No assurance can be given that a significant market for our products and services will be developed or sustained. If our iWallet security products do not gain wider acceptance amongst our target market, we will be unable to achieve sustained sales growth and our business may not be viable over the longer term.
Because the preservation of our intellectual property rights is essential to the success of our business, our failure to protect those rights could adversely affect our business.
Our intellectual property rights, including existing and future trademarks, patents, trade secrets and copyrights, are and will continue to be valuable and important assets of our business. We believe that our proprietary technology, as well as our other technologies and business practices, are competitive advantages and that any duplication by competitors would harm our business. We have taken measures to protect our intellectual property, but these measures may not be sufficient or effective. Intellectual property laws and contractual restrictions may not prevent misappropriation of our intellectual property or deter others from developing similar technologies. In addition, others may develop technologies that are similar or superior to our technology. Our failure to protect, or any significant impairment to the value of, our intellectual property rights could harm our business.
Our products may contain defects, which could adversely affect our reputation and cause us to incur significant costs.
Defects may be found in our products. Any such defects could cause us to incur significant return and exchange costs, re-engineering costs, divert the attention of our personnel from product development efforts, and cause significant customer relations and business reputation problems. If we deliver products with defects, our credibility and the market acceptance and sales of our products could be harmed.
If we are unable to hire and retain key personnel, we may not be able to implement our business plan.
Having certain key personnel is essential to the development and marketing of the products we plan to sell and thus to the entire business itself. Consequently, the loss of any of those individuals may have a substantial effect on our future success or failure. We may have to recruit qualified personnel with competitive compensation packages, equity participation, and other benefits that may affect the working capital available for our operations. Management may have to seek to obtain outside independent professionals to assist them in assessing the merits and risks of any business proposals as well as assisting in the development and operation of many company projects. No assurance can be given that we will be able to obtain such needed assistance on terms acceptable to us. Our failure to attract additional qualified employees or to retain the services of key personnel could have a material adverse effect on our operating results and financial condition.
Even though we are not manufacturing the products ourselves, if any of the products we sell infringe on the intellectual property rights of others, we may find ourselves involved in costly litigation, which will negatively affect the financial results of our business operations.
Although we have not received notices of any alleged infringement, we cannot be certain that our products do not infringe on issued trademarks and/or copyright rights of others. We may be subject to legal proceedings and claims from time to time in our ordinary course of business arising out of intellectual property rights of others. These legal proceedings can be very costly, and thus can negatively affect the results of our operations.
| 7 |
Because we conduct business outside of the United States, we are subject to certain additional risks related to doing business in foreign countries.
We intend to conduct our business, in part, outside of the United States, and our products are manufactured under contract in China. Doing business in foreign countries carries with it certain risks that are not found in doing business in the United States. The risks of doing business in foreign countries that could result in losses against which we are not insured include:
| • | exposure to local economic conditions; |
| • | potential adverse changes in the diplomatic relations of foreign countries with the United States; |
| • | hostility from local populations; |
| • | the adverse effect of currency exchange controls; |
| • | restrictions on the withdrawal of foreign investment and earnings; |
| • | government policies against businesses owned by foreigners; |
| • | investment restrictions or requirements; |
| • | expropriations of property; |
| • | the potential instability of foreign governments; |
| • | the risk of insurrections; |
| • | risks of renegotiation or modification of existing agreements with governmental authorities; |
| • | foreign exchange restrictions; |
| • | withholding and other taxes on remittances and other payments by subsidiaries; and |
| • | Changes in taxation structure. |
| 8 |
Risks Related to Legal Uncertainty
Because our articles of incorporation and bylaws and Nevada law limit the liability of our officers, directors, and others, shareholders may have no recourse for acts performed in good faith.
Under our articles of incorporation, bylaws and Nevada law, each of our officers, directors, employees, attorneys, accountants and agents are not liable to us or the shareholders for any acts they perform in good faith, or for any non-action or failure to act, except for acts of fraud, willful misconduct or gross negligence. Our articles and bylaws provide that we will indemnify each of our officers, directors, employees, attorneys, accountants and agents from any claim, loss, cost, damage liability and expense by reason of any act undertaken or omitted to be undertaken by them, unless the act performed or omitted to be performed constitutes fraud, willful misconduct or gross negligence.
If certain legislation, including the Sarbanes-Oxley Act of 2002, makes it more difficult for us to retain or attract officers and directors, we may be unable to hire such personnel and our business operations may be materially negatively impacted.
The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. As a public company, we are required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Risks Relating to our Common Stock
If we fail to remain current on our reporting requirements, we could be removed from quotation on the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTCQB, such as us, must be reporting issuers with the Securities and Exchange Commission and must be current in their reports in order to maintain price quotation privileges on the OTCQB tier of the electronic quotation system operated by OTC Markets, Inc. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Because our common stock could be deemed a low-priced “Penny” stock, it would be cumbersome for brokers and dealers to trade in our common stock, making the market for our common stock less liquid and negatively affect the price of our stock.
We may be subject to certain provisions of the Securities Exchange Act of 1934, commonly referred to as the “penny stock” as defined in Rule 3a51-1. A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our stock is deemed to be a penny stock, trading will be subject to additional sales practice requirements of broker-dealers. These require a broker-dealer to:
| • | Deliver to the customer, and obtain a written receipt for, a disclosure document; |
| • | Disclose certain price information about the stock; |
| • | Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
| • | Send monthly statements to customers with market and price information about the penny stock; and |
| • | In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
Consequently, penny stock rules may restrict the ability or willingness of broker-dealers to trade and/or maintain a market in our common stock. Also, prospective investors may not want to get involved with the additional administrative requirements, which may have a material adverse effect on the trading of our shares.
Because we became a public company through a reverse acquisition, we may not be able to attract the attention of major brokerage firms.
There may be risks associated with our becoming public through a reverse acquisition. Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future.
Because we were formerly considered a “shell company” within the meaning of Rule 12b-2 under the Exchange Act, the ability of any holders of “restricted securities,” as defined under Rule 144 promulgated under the Securities Act, to re-sell their shares may be limited by applicable regulations for a period of time and our ability to attract additional investment through private offerings in the near future may be limited.
Formerly, we were classified as a “shell company” under Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. As such, any “restricted securities,” as defined under Rule 144 promulgated under the Securities Act, may not be resold in reliance on safe harbors provided under Rule 144 until: (1) we have filed Form 10 information with the SEC when we cease to be a “shell company”; (2) we have filed all reports as required by Section 13 and 15(d) of the Securities Act for twelve consecutive months; and (3) one year has elapsed from the time we file the current Form 10 type information with the SEC reflecting our status as an entity that is not a shell company. We ceased to be a shell company on July 21, 2014. In addition, we filed Form 10 type information reflecting our status as a non-shell company with SEC in our Current Report on Form 8-K filed July 25, 2014, as amended on July 31, 2014 and September 3, 2014. One year must elapse from the date of this filing, however, until the requirements of Rule 144(i) are met. In addition, we must remain current in our SEC filingd during this period. As a result, we may experience difficulty in raising additional capital through private offerings of common stock or other securities until such time as the one year period has elapsed. For so long as the safe harbors provided under Rule 144 are not available to holders of restricted securities, our ability to raise significant additional capital in any offering other than a registered public offering may be severely limited. To the extent that any capital from future private offerings is available to us prior to the conclusion of the required one year period, the investors may demand re-sale registration rights in connection with such offerings or otherwise insist on terms which make such financings unattractive or infeasible.
| 9 |
Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. The actual results could differ materially from our forward-looking statements. Our actual results are most likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this Risk Factors section and elsewhere in this prospectus.
We will not receive any proceeds from the sale of the common stock offered through this prospectus by the selling shareholders.
Determination of Offering Price
All shares being offered will be sold by existing shareholders without our involvement, consequently the actual price of the stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price will thus be determined by market factors and the independent decisions of the selling shareholders.
The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.
The selling shareholders named in this prospectus are offering all of the 20,968,130 shares of common stock offered through this prospectus. At the time of the purchase, the selling shareholders had no agreements or understandings to distribute the securities. The shares include the following:
| • | 7,261,945 shares of our common stock which were sold to accredited investors as part of a Private Placement which we completed on July 21, 2014, with a small additional closing on September 2, 2014, together with certain shares issued to licensed broker-dealers who assisted with the offering. The issuance and sale of said securities was made in reliance upon exemptions from registration pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended. |
| • | 7,261,945 shares of common stock underlying warrants to purchase common stock at an exercise price of $0.60 per share which were also issued to the investors and participating brokers as part of the Private Placement discussed above. |
| • | 3,222,120 shares of common stock issued upon conversion of certain Secured Convertible Debentures formerly issued by our accounting acquirer prior to our recent reverse merger. These debentures converted to common stock automatically upon the closing of our reverse merger on July 21, 2014. |
| • | 3,222,120 shares of common stock underlying warrants to purchase common stock at an exercise price of $0.20 per share which were also issued to the converting debenture holders discussed above. |
The following table provides information regarding the beneficial ownership of our common stock held by each of the selling shareholders as of September 5, 2014, including:
1. the number of shares owned by each prior to this offering;
2. the total number of shares that are to be offered by each;
3. the total number of shares that will be owned by each upon completion of the offering;
4. the percentage owned by each upon completion of the offering; and
5. the identity of the beneficial holder of any entity that owns the shares.
| 10 |
The named party beneficially owns and has sole voting and investment power over all shares or rights to the shares, unless otherwise shown in the table. The numbers in this table assume that none of the selling shareholders sells shares of common stock not being offered in this prospectus or purchases additional shares of common stock, and assumes that all shares offered are sold. The percentages are based on 33,919,419 shares of common stock outstanding on October 9, 2014.
| 11 |
|
Canaccord
Genuity Corp.
IN TRUST FOR STEPHEN STEWART Account # 40P090E1 |
100,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
|
Canaccord
Genuity Corp.
IN TRUST FOR VITO NARDI Account # 41E775A1 |
83,333 | 83,333 | 166,666 | 0 | 0 | |||||||||||||||
|
Canaccord
Genuity Corp.
(7)
IN TRUST FOR TRACEY LOGAN 609 Granville St., Suite 2200 Vancouver, BC V7Y 1H2 |
1,118,173 | 1,118,173 | 2,236,346 | 0 | 0 | |||||||||||||||
|
CIBC
Woodgundy ITF Hal Roback
Acct # 42618133 |
160,000 | 160,000 | 320,000 | 0 | 0 | |||||||||||||||
| Colin Mohammed | 33,334 | 33,334 | 66,668 | 0 | 0 | |||||||||||||||
| David Kegler | 33,334 | 33,334 | 66,668 | 0 | 0 | |||||||||||||||
| Donal Carroll | 1,623,285 | 823,285 | 1,646,570 | 800,000 | 2.36 | % | ||||||||||||||
| G. Scott Paterson | 200,000 | 200,000 | 400,000 | 0 | 0 | |||||||||||||||
| Haron Ezer | 35,000 | 35,000 | 70,000 | 0 | 0 | |||||||||||||||
| Haywood Securities Inc. ITF Aton Select Fund (8) | 300,000 | 300,000 | 600,000 | 0 | 0 | |||||||||||||||
| Jack B. Chadsey | 4,581,542 | 83,335 | 166,670 | 4,498,207 | 13.26 | % | ||||||||||||||
| Jack Maltz | 33,333 | 33,333 | 66,666 | 0 | 0 | |||||||||||||||
| Jodi Saltsman | 150,000 | 150,000 | 300,000 | 0 | 0 | |||||||||||||||
| Jon Rosenblatt | 83,333 | 83,333 | 166,666 | 0 | 0 | |||||||||||||||
| Leonard Shiffman | 67,000 | 67,000 | 134,000 | 0 | 0 | |||||||||||||||
| Leonidas Economopoulos | 16,667 | 16,667 | 33,334 | 0 | 0 | |||||||||||||||
| Limitless Ventures Inc. (9) | 916,667 | 416,667 | 833,334 | 500,000 | 1.47 | % | ||||||||||||||
| Mary Anne Alton | 114,886 | 114,886 | 229,772 | 0 | 0 | |||||||||||||||
| Mukesh Steven Singh | 330,000 | 330,000 | 660,000 | 0 | 0 | |||||||||||||||
| Nimble Capital Inc. (10) | 1,008,565 | 200,000 | 400,000 | 808,565 | 2.38 | % | ||||||||||||||
|
PI
Financial Corp. ITF
(11)
Pathfinder Asset Management Ltd. A/C #027-2849-1 |
233,333 | 233,333 | 466,666 | 0 | 0 | |||||||||||||||
| Sandy Pascuzzi | 500,000 | 500,000 | 1,000,000 | 0 | 0 | |||||||||||||||
|
Scotia
Capital Inc.
Pedro Quinzanos Cancino |
30,000 | 30,000 | 60,000 | 0 | 0 | |||||||||||||||
| Sudha Raman | 70,000 | 70,000 | 140,000 | 0 | 0 |
| 12 |
| Vitor Fonseca | 10,000 | 10,000 | 20,000 | 0 | 0 | |||||||||||||||
| Carlise Overseas Ltd. (12) | 333,000 | 333,000 | 666,000 | 0 | 0 | |||||||||||||||
| Danny Gravelle | 66,666 | 66,666 | 133,332 | 0 | 0 | |||||||||||||||
| Janet Samantha Wade | 100,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
| Maria Mirenzi | 16,667 | 16,667 | 33,334 | 0 | 0 | |||||||||||||||
| First Republic Capital Corporation (13) | 560,080 | 560,080 | 1,120,160 | 0 | 0 | |||||||||||||||
| Caldwell Securities Ltd. (14) | 4,690 | 4,690 | 9,380 | 0 | 0 | |||||||||||||||
| 7806221 Canada Inc. (15) | 1,714,384 | 127,252 | 254,504 | 1,587,132 | 4.68 | % | ||||||||||||||
| Andrew and Gloria Durkacz | 48,943 | 48,943 | 97,886 | 0 | 0 | |||||||||||||||
| Gigi Pang Che-Kwan | 489,432 | 489,432 | 978,864 | 0 | 0 | |||||||||||||||
| Ballentyne Holdings Limited (16) | 489,432 | 489,432 | 978,864 | 0 | 0 | |||||||||||||||
| Pedro Quinzanos Cancino | 73,415 | 73,415 | 146,830 | 0 | 0 | |||||||||||||||
| Robert Iachetta | 97,886 | 97,886 | 195,772 | 0 | 0 | |||||||||||||||
| Stuart Adair | 48,943 | 48,943 | 97,886 | 0 | 0 | |||||||||||||||
| Thomas Keevil | 48,943 | 48,943 | 97,886 | 0 | 0 | |||||||||||||||
| Graham Wovenden | 48,735 | 48,735 | 97,470 | 0 | 0 | |||||||||||||||
| Michael Dalsin | 87,722 | 87,722 | 175,444 | 0 | 0 | |||||||||||||||
| Michael Swedak | 146,204 | 146,204 | 292,408 | 0 | 0 | |||||||||||||||
| Richard Goldstein | 121,836 | 121,836 | 243,672 | 0 | 0 | |||||||||||||||
| Anthony Durkacz | 388,885 | 388,885 | 777,770 | 0 | 0 | |||||||||||||||
| Anthony Viele | 48,010 | 48,010 | 96,020 | 0 | 0 | |||||||||||||||
| Elizabeth Burlacoff | 96,021 | 96,021 | 192,042 | 0 | 0 | |||||||||||||||
| Helmsquire Holdings Ltd. (17) | 120,026 | 120,026 | 240,052 | 0 | 0 | |||||||||||||||
| Jesse Kaplan | 120,026 | 120,026 | 240,052 | 0 | 0 | |||||||||||||||
| GMP Securities ITF Michael B. Stein a/c 400-TZMO-F | 120,026 | 120,026 | 240,052 | 0 | 0 | |||||||||||||||
| Skip Pym | 48,010 | 48,010 | 96,020 | 0 | 0 | |||||||||||||||
| Ronaye Malette | 96,021 | 96,021 | 192,042 | 0 | 0 | |||||||||||||||
| NBCN ITF 4HE700F (18) | 48,010 | 48,010 | 96,020 | 0 | 0 |
(1) Erica Shuttleworth is the director of 490824
(2) Barry M. Polisuk is the owner of Barry M. Polisuk Professional Corporation
(3) Nigel Roberts is the President of Bluenose Investment Management Inc.
(4) Douglas Johnson is the beneficial owner of Brant Investments Limited
(5) Lance Morginn is the President of WEBWORKS MULTIMEDIA CORP
(6) Sacha Grut is the authorized signatory for Mannington Finance Ltd.
(7) Tracey Logan is an authorized signatory for Canaccord Genuity Corp
(8) David Dawes is the director and sole authorized signatory of Aton Select Fund
(9) Pasquale Ceci is the President of Limitless Ventures Inc.
(10) Fabrice Taylor is an authorized signatory for Nimble Capital Inc.
(11) Douglas Johnson is a beneficial owner of Pathfinder Asset Management Ltd.
(12 ) Jigme Ribi is a director of Carlise Overseas Ltd.
(13) Anthony Durkacz and Richard Goldstein are the beneficial owners of First Republic Capital Corporation
(14) Nicol Macnicol is the Vice President, Portfolio manager for Caldwell Securities Ltd.
(15) Bernard Adamski is owner and president of 7806221 Canada Inc.
(16) Richard Langley is an authorized signatory for Ballentyne Holdings Limited
(17) Sruli Weinreb is the Vice President of Equity Investments for Helmsquire Holdings Ltd.
(18) Taras Krutous is an authorized signatory for NBCN ITF 4HE700F
| 13 |
Except as set forth below, none of the selling shareholders;
| (1) | has had a material relationship with us other than as a shareholder at any time within the past three years; |
| (2) | has been one of our officers or directors; or |
| (3) | are broker-dealers or affiliates of broker-dealers. |
1. Jack B. Chadsey is our CEO and a member of our board of directors.
2. Anthony Durkacz is a member of our board of directors.
The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:
| • | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| • | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| • | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| • | an exchange distribution in accordance with the rules of the applicable exchange; |
| • | privately negotiated transactions; |
| • | short sales; |
| • | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| • | a combination of any such methods of sale; and |
| • | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 or Rule 144A under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the shares of common stock. The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.
| 14 |
Our authorized capital stock consists of 75,000,000 shares of common stock, $0.001 par value per share. As of October 9, 2014, there were 33,919,419 shares of our common stock issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote per share. Our certificate of incorporation does not provide for cumulative voting. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. However, the current policy of the board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption or conversion rights.
In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Registration Rights
We have agreed to file a registration statement on Form S-1 for the re-sale of the shares of common stock issued in our private offering closed July 21, 2014 concurrently with our recent reverse merger, as well as the common stock issuable upon exercise of all warrants issued in that offering. In addition, we have agreed to file a registration statement on Form S-1 for the re-sale of shares issued upon conversion of the convertible debentures issued by our accounting predecessor, as well as the common stock issuable upon exercise of all warrants issued to those converting debenture holders. The Registration Statement of which this prospectus is a part has been filed in accord with these contractual commitments.
Options and Warrants
We do not have any options issued and outstanding. We issued the following warrants to purchase common stock, all exercisable for a period of two (2) years from the date of issue.
| • | 7,261,945 warrants to purchase common stock at a price of $0.60 per share. 7,062,112 of these warrants will expire on July 21, 2016; 199,833 of these warrants will expire on September 2, 2016. |
| • | 3,222,120 warrants to purchase common stock at a price of $0.20 per share, which will expire on July 21, 2016 |
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.
Nevada Anti-Takeover Laws
Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.
| 15 |
Interests of Named Experts and Counsel
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
Joe Laxague, Esq., our independent legal counsel, has provided an opinion on the validity of our common stock.
MNP LLP, have audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in their audit report. MNP LLP has presented their report with respect to our audited financial statements. The report of MNP LLP is included in reliance upon their authority as experts in accounting and auditing.
Principal Place of Business
Our principal offices are located at 7394 Trade Street, San Diego, California 92121.
Company Overview
We were incorporated as “Queensridge Mining Resources, Inc.” on January 29, 2010, in the State of Nevada for the purpose of engaging in mineral exploration. On July 21, 2014, we entered into a Merger Agreement with iWallet Corporation, a private California corporation, whereby we acquired all of the issued and outstanding common stock of iWallet Corporation through a subsidiary. Following this merger, we merged the subsidiary with and into our corporation, and changed our name to “iWallet Corporation” as part of that process. As a result of entering into the Merger Agreement, we are in the business of designing and developing biometric locking wallets and related physical, personal security products.
Description of Business
We are a designer and developer of innovative, physical, personal security products that incorporate the latest security and communication technologies to protect against identity, personal and financial information theft. iWallet is a registered trademark in the United States. Our flagship product is a biometric locking luxury storage case that protects cash, credit cards and personal information with a proprietary fingerprint security system. The iWallet features a carbon fiber or aluminum chassis and protects credit cards from being read by many types of RF devices in public spaces. Using a free app, iWallet owners can tether the iWallet to a supported smart device. A proximity alarm sounds on both devices when separated by about five meters. In addition, GPS tracking capabilities are expected to be available on future models.
We are based in San Diego, California and our business was originally founded in 2009. The initial version of the iWallet generated sales of over $700,000 in the first eighteen months following it launch. With improved designs and a better manufacturing partner, iWallet is ready to re-launch the product on a larger scale. Established sales channels include Neiman Marcus in North America, Harrods in England, Highline Peak Group in Canada, and NeedItWantItGadgets in New Zealand . Our prospective sales channels include Dufry, Touch of Modern, Skymall, Travelsmith, Hammacher Schlemmer, and co-branding for Montblanc, Porsche Design, Ducati, Gucci, and Bugatti. . We own the trademark “iWallet” for secure luxury storage casesconnected to smartphones in the USA and have patents worldwide. We have been licensed by Apple Inc. as an official Accessory Developer.
Products and Technology
At this time, we are preparing to re-launch its flagship product and the iWallet 2.0. The suggested retail price will be $529. The new iWallet are expected to have the following features:
| • | Sleek, compact industrial design with carbon fiber case | |
| • | Pairs with the owner’s cellular phone via bluetooth technology | |
| • | Patented, exclusive tamper resistant locking mechanism utilizes innovative fingerprint biometric reader for unlocking | |
| • | Unique latch control that only consumes power during latching hence providing extended battery life | |
| • | RFID blocking capability for enhanced wireless protection | |
| • | Speaker providing audible feedback | |
| • | GPS tracking capabilities |
| 16 |
Over the course of the next twelve months, we intend to bring the following additional products to market:
| • | Storage devices with co-branding luxury partners | |
| • | A secure passport case called the iPassport | |
| • | A women’s iWallet version | |
| • | A secure mobile personal safe to store pharmaceuticals in | |
| • | A smart “padlock” with a biometric reader for gym lockers and other personal areas that require security |
We hold over twenty patents and patent applications filed in various countries around the world. Our products are currently manufactured under contract by a manufacturer based in Zhuhai, China, Apollo Electronics. The suppliers for our raw materials are currently Future Electronics, Namiki Motors, Cotech Taiwan, Digital Persona, Avnet Electronics, Avnet Taiwan, and Apollo Electronics. Historically, our largest major customer has been Neiman Marcus, which has been the source of approximately 60% of our gross revenues over the past year. As we expand our sales and distribution channels, we expect that our customer base will diversify and that, in the future, our revenues will not be dependent upon one or a few major customers.
We hold both utility and design patents and patent applications. All of our current utility patents will remain in effect until September 14, 2027. The duration of our design patents varies by country. The expiration dates of our current design patents, by country, is as follows:
| Canada | June 10, 2023 |
| Europe | December 9, 2036 |
| China | December 12, 2021 |
| Japan | May 18, 2032 |
| Russia | December 13, 2036 |
| Singapore | December 9, 2026 |
| Taiwan | December 9, 2023 |
Market and Competition Overview
Our primary target demographic will be consumers who are in the market for high-end luxury sure stroage cases and similar accessories. We do not believe that the $500 approximate retail price to the end user will be obstacle for our initial target demographic. The carbon fiber process is labor intensive to manufacture. High net worth individuals appreciate the advantages of carbon fiber construction and spend tens of thousands of dollars outfitting their automobiles and other accessories.
A comparison of the iWallet to the leather or canvas sure storage accessories currently offered by several major fashion designers is below:
We believe the security, high technology, slim design, and carbon fiber construction of the iWallet can position it to compete for a share of the luxury secure accessories market.
| 17 |
Sales, Distribution and Growth Strategy
Our plan for marketing and raising awareness for the iWallet includes the following strategies:
| • | Sell and market at major trade shows that attract global buyers such as the CES. | |
| • | Align iWallet with a high profile celebrity as the face for iWallet. | |
| • | Optimize website to gain greater distributor inquiry, continued media attention and wider market accessibility through links to other major potential purchasers. | |
| • | Continue worldwide media attention, primarily from BBC Worldwide, Fox News (Fox and Friends), Discovery Channel. |
Our established distribution channels for the iWallet, as originally launched, include the following:
| • | Neiman Marcus in North America |
| • | Harrods in England |
| • | In Canada for Centurion (black card) Amex members, who will be able to redeem points in exchange for an iWallet through Highline Peak Group |
| • | NeedItWantItGadgets in New Zealand |
The following are current prospective sales channels:
| • | Private branding for Montblanc, Porsche Design, Ducatti, Gucci, and Bugatti. We are currently in partnering or licensing discussions with all of these companies. |
| • | Dufry, a global duty free company with 1,100 locations in 45 countries |
| • | Touch of Modern |
| • | Skymall |
| • | Travelsmith |
| • | Hammacher Schlemmer |
We plan to increase our consumer off take within newly gained distribution at major regional high-end department stores, and to expand to private brand stores. Together with our distribution partners, we are targeting major national retail channels. We believe a partnership with any one leading national chain would be transformative. We intend to develop our website towards wider market accessibility through links to other major potential purchasers. We will continue to be featured in ingadget.com and gizmodo.com, where the iWallet has been dubbed “The Fort Knox of Wallets.” We will also begin limited selling efforts in key international markets using further regional distributors in Europe, Asia, Canada, Australia, and South America. We are also in discussions with distribution companies in key opportunity geographies.
Employees
In addition to the named executive officers discussed above, we also employ a Project Manager. We have hireda new CEO, as well as an in-house bookkeeper.
Environmental Laws
We have not incurred and do not anticipate incurring any expenses associated with environmental laws.
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.
| 18 |
We are not currently a party to any legal proceedings. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Our agent for service of process in Nevada is Clark Agency LLC, 3273 East Warm Springs Rd., Las Vegas, NV 89120.
Market for Common Equity and Related Stockholder Matters
Our common stock is quoted under the symbol “IWAL” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc. Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA. Consequently, market makers that once quoted our shares on the OTCBB system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTCQB. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is presently current and, since inception, we have filed our SEC reports on time. Due to our recent name change, we expect our trading symbol to change in the near future.
The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The periods reflect our former fiscal years ended on June 30. On July 21, 2014, we changed our fiscal year end to December 31.
| Fiscal Year Ending June 30, 2013 | ||||||||||
| Quarter Ended | High $ | Low $ | ||||||||
| June 30, 2013 | $ | 0.0371 | $ | 0.0371 | ||||||
| March 31, 2013 | $ | 0.0371 | $ | 0.0371 | ||||||
| December 31, 2012 | $ | 0.0371 | $ | 0.0371 | ||||||
| September 30, 2012 | $ | 0.0371 | $ | 0.0371 | ||||||
| Fiscal Year Ending June 30, 2012 | ||||||||||
| Quarter Ended | High $ | Low $ | ||||||||
| June 30, 2012 | $ | 0.0371 | $ | 0.0371 | ||||||
| March 31, 2012 | n/a | n/a | ||||||||
| December 31, 2011 | n/a | n/a | ||||||||
| September 30, 2011 | n/a | n/a | ||||||||
The last quoted price of our common stock was $0.75 per share on October 9, 2014.
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
| 19 |
Holders of Our Common Stock
As of October 9, 2014 we had 33,919,419 shares of our common stock issued and outstanding, held by eighty-nine (89) shareholders of record.
Transfer Agent
The transfer agent for our common stock is Empire Stock Transfer, Inc.
Rule 144 Shares
None of our common stock is currently available for resale to the public under Rule 144.
In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company's common stock for at least six months is entitled to sell within any three month period a number of shares that does not exceed the greater of:
| 1. | one percent of the number of shares of the company's common stock then outstanding; or |
| 2. | the average weekly trading volume of the company's common stock during the four calendar weeks preceding the filing of a notice on form 144 with respect to the sale. |
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company.
Pursuant to Rule 144, one year must elapse from the time a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, ceases to be a shell company and files Form 10 information with the SEC, during which time the issuer must remain current in its filing obligations, before a restricted shareholder can resell their holdings in reliance on Rule 144. Form 10 information is equivalent to information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act. Under Rule 144, restricted securities that were initially issued by a reporting or non-reporting shell company or a company that was at anytime previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met: (1) the issuer of the securities that was formerly a reporting or non-reporting shell company has ceased to be a shell company; (2) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (3) the issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months (or shorter period that the Issuer was required to file such reports and materials), other than Form 8-K reports; and (4) at least one year has elapsed from the time the issuer filed the current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
Until July 21, 2014, we were classified as a “shell company” under Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. As such, all restricted securities may not be resold in reliance on Rule 144 until: (1) we file Form 10 information with the SEC when we cease to be a “shell company” (such filing was made on July 25, 2014, when we filed a Current Report on Form 8-K); (2) we have filed all reports as required by Section 13 and 15(d) of the Securities Act for twelve consecutive months; and (3) one year has elapsed from the time we file the current Form 10 type information with the SEC reflecting our status as an entity that is not a shell company.
Stock Option Grants
To date, we have not granted any stock options.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
| 1. | we would not be able to pay our debts as they become due in the usual course of business, or; |
| 2. | our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. |
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
| 20 |
Index to Financial Statements:
| 21 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of iWallet Corporation
We have audited the accompanying balance sheets of iWallet Corporation as of December 31, 2013 and 2012, and the related statements of operations and comprehensive (loss) income, changes in deficit, and cash flows for the years then ended. iWallet Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. iWallet Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of iWallet Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of iWallet Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1, the Company has a significant working capital deficiency and has incurred significant losses and negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
April 4, 2014
|
ACCOUNTING › CONSULTING › TAX 701 EVANS AVENUE, 8 TH FLOOR, TORONTO ON, M9C 1A3 P: 416.626.6000 F: 416.626.8650 MNP.ca |
| F- 1 |
Balance Sheets
December 31, 2013 and 2012
| 2013 | 2012 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 250,718 | $ | 13,462 | ||||
| Funds held in attorney trust (note 8) | 39,705 | — | ||||||
| Accounts receivable | 4,575 | 8,520 | ||||||
| Deposits and deferred costs (note 9) | 23,086 | 155,788 | ||||||
| Inventory (note 4) | 20,361 | 13,742 | ||||||
| Due from shareholder (note 7) | 61,833 | 13,052 | ||||||
| 400,278 | 204,564 | |||||||
| Intangible assets (note 5) | 96,715 | 62,436 | ||||||
| $ | 496,993 | $ | 267,000 | |||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Bank indebtedness - current (note 6) | $ | 5,539 | $ | 7,059 | ||||
| Accounts payable | 126,317 | 55,074 | ||||||
| Accrued liabilities (notes 8 and 12) | 3,062 | 3,684 | ||||||
| Due to related party (note 7) | 37,842 | 59,779 | ||||||
| Advances from investor (note 7) | 69,678 | — | ||||||
| Convertible debentures (note 8) | 354,000 | — | ||||||
| Tooling commitment liability (note 9) | 105,816 | 110,685 | ||||||
| Deferred tax liabilities - current (note 10) | — | 368 | ||||||
| 702,254 | 236,649 | |||||||
| Bank indebtedness - long-term (note 6) | 17,540 | 22,352 | ||||||
| Deferred tax liabilities (note 10) | — | 3,879 | ||||||
| 719,794 | 262,880 | |||||||
| Shareholder's (deficiency) equity | ||||||||
| Class A common shares, par value $0.001, 200,000,000 shares authorized; 10,000 issued (2012 - 10,000) (note 11) | 10 | 10 | ||||||
| Class B common shares, par value $0.001, 100,000,000 shares authorized; Nil issued (2012 - Nil) (note 11) | ||||||||
| Preferred shares, par value $0.001, 10,000,000 shares authorized; Nil issued (2012 - Nil) (note 11) | ||||||||
| Additional paid-in capital | 1 | 1 | ||||||
| Retained earnings | (222,812 | ) | 4,109 | |||||
| (222,801 | ) | 4,120 | ||||||
| $ | 496,993 | $ | 267,000 |
The accompanying notes are an integral part of these financial statements.
| F- 2 |
Statements of Operations and Comprehensive (Loss) Income
for the years ended December 31, 2013 and 2012
| 2013 | 2012 | |||||||
| Sales | $ | 85,769 | $ | 159,288 | ||||
| Cost of sales | 63,585 | 79,550 | ||||||
| Gross profit | 22,184 | 79,738 | ||||||
| Expenses | ||||||||
| Legal and professional fees | 73,278 | 41,491 | ||||||
| Office and general expenses | 9,583 | 9,040 | ||||||
| Travel | 23,475 | 6,786 | ||||||
| Interest and bank fees | 2,515 | 3,179 | ||||||
| Research and development | — | 3,200 | ||||||
| Provision for loss on tooling commitment (note 9) | 139,213 | — | ||||||
| Amortization of intangible assets | 5,288 | 3,904 | ||||||
| 253,352 | 67,600 | |||||||
| (Loss) income before (recovery of) provision for income taxes | (231,168 | ) | 12,138 | |||||
| (Recovery of) provision for income taxes (note 10) | (4,247 | ) | 4,247 | |||||
| Net and comprehensive (loss) income for the year | $ | (226,921 | ) | $ | 7,891 | |||
| Net and comprehensive (loss) income per share basic and diluted (note 13) | $ | (23 | ) | $ | 1 | |||
| Weighted average number of shares outstanding basic and diluted (note 13) | 10,000 | 10,000 |
The accompanying notes are an integral part of these financial statements.
| F- 3 |
Statement of Changes in Shareholder's Deficiency
for the years ended December 31, 2013 and 2012
| Retained | Shareholder's | |||||||||||||||||||
| Class A Common Shares | Additional | Earnings | (Deficiency) | |||||||||||||||||
| Shares | Amount | Paid-in Capital | (Deficit) | Equity | ||||||||||||||||
| Balance, January 1, 2012 | 10,000 | $ | 10 | $ | 1 | $ | (3,782 | ) | $ | (3,771 | ) | |||||||||
| Net income | — | — | — | 7,891 | 7,891 | |||||||||||||||
| Balance, December 31, 2012 | 10,000 | 10 | 1 | 4,109 | 4,120 | |||||||||||||||
| Net loss | — | — | — | (226,921 | ) | (226,921 | ) | |||||||||||||
| 10,000 | $ | 10 | $ | 1 | $ | (222,812 | ) | $ | (222,801 | ) | ||||||||||
The accompanying notes are an integral part of these financial statements.
| F- 4 |
Statements of Cash Flows
for the years ended December 31, 2013 and 2012
| 2013 | 2012 | |||||||
| Cash flow from operating activities | ||||||||
| Net and comprehensive (loss) income for the year | $ | (226,921 | ) | $ | 7,891 | |||
| Items not affecting cash | ||||||||
| Amortization | 5,288 | 3,904 | ||||||
| Provision for loss on tooling contract (note 9) | 139,213 | — | ||||||
| (Recovery of) provision for income taxes | (4,247 | ) | 4,247 | |||||
| (86,667 | ) | 16,042 | ||||||
| Change in cash resulted from changes in: | ||||||||
| Accounts receivable | 3,945 | (8,520 | ) | |||||
| Deposits and deferred costs | (6,512 | ) | (105,994 | ) | ||||
| Inventory | (6,620 | ) | (13,742 | ) | ||||
| Accounts payable | 71,244 | 41,177 | ||||||
| Accrued liabilities | (622 | ) | (903 | ) | ||||
| Tooling commitment liability | (4,869 | ) | 110,685 | |||||
| (30,101 | ) | 38,745 | ||||||
| Cash flow from investing activities | ||||||||
| Expenditures on intangible assets | (39,565 | ) | (20,296 | ) | ||||
| (39,565 | ) | (20,296 | ) | |||||
| Cash flow from financing activities | ||||||||
| Funds repaid to related party | (21,938 | ) | (72,655 | ) | ||||
| Funds (repaid to) advanced by shareholder | (48,781 | ) | 60,400 | |||||
| Increase in funds held in attorney trust | (39,705 | ) | — | |||||
| Repayment of bank indebtedness | (6,332 | ) | (4,076 | ) | ||||
| Advances from investor | 69,678 | — | ||||||
| Proceeds from issuance of convertible debentures | 354,000 | — | ||||||
| 306,922 | (16,331 | ) | ||||||
| Increase in cash | 237,256 | 2,118 | ||||||
| Cash, beginning of year | 13,462 | 11,344 | ||||||
| Cash, end of year | $ | 250,718 | $ | 13,462 |
The accompanying notes are an integral part of these financial statements.
| F- 5 |
Notes to Financial Statements
December 31, 2013 and 2012
1. Nature of Business and Going Concern
iWallet Corporation ("the Company") is engaged in the design, development, manufacturing and sales of bio-metric locking wallets, which operate by scanning a users fingerprint to open the wallet.
The Company was incorporated on November 18, 2009 in the State of California and is located at 7968 Arjons Drive, Suite D, San Diego, California 92126.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which contemplates continuation of the Company as a going concern.
As of December 31, 2013, the Company has incurred a shareholder's deficiency of $222,801 (2012 - $(4,120)) and has significant losses and negative cash flows from operations. In addition as at December 31, 2013 the Company has a working capital deficiency of $301,976 (2012 - $32,085). There is no certainty that the Company will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the near future to enable it to meet its obligations as they come due. As a result there is substantial doubt regarding the Company's ability to continue as a going concern. The Company may require additional financing to fund its operations, which may not be available at acceptable terms or at all. The Company plans on raising additional funds from completing financing arrangements, whether as continued subscriptions for convertible debentures such as those received subsequent to year end (note 16) or from additional sources, in contemplation of completing a public listing transaction.
The financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. All adjustments, consisting only of normal recurring items, considered necessary for fair presentation have been included in these financial statements.
2. Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates include amounts for inventory valuation, useful lives of patents, trademarks and software and the warranty provision.
Cash and cash equivalents
The Company considers cash and cash equivalents to consist of cash and highly liquid investments purchased with original maturities of generally 90 days or less at the date of purchase.
| F- 6 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
Allowance for doubtful account
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is estimated and recorded based on management’s assessment of the credit history with the customer and the current relationships with them. On this basis management has determined that an allowance for doubtful accounts of $nil was appropriate as of both December 31, 2013 and 2012, respectively.
Inventory
Inventory is stated at the lower of cost or market determined using the first-in, first-out method. Inventory is periodically reviewed for use and obsolescence, and adjusted as necessary. Inventory consists of finished goods.
Intangible assets
Patents and trademarks are measured at cost. Legal fees associated with patents and trademarks, which are expected to be issued are recorded as patents and trademarks on the balance sheets. Upon approval by the relevant patent office, the patents and trademarks are amortized over their respective expected lives. Patent and trademark costs associated with patents or trademarks which are not approved or are abandoned, are expensed in the period in which such patents are not approved.
The Company is generally able to maintain patents for up to 20 years from the effective date and the trademark registrations for as long as the trademarks remain in use and the required filings are made to keep them in use. However, based on the Company's assessment of potential innovation or other competing technological developments a useful life of ten years has been assessed for both the patents and the trademarks.
Software consists of costs relating to the development of the software behind the biometric scanning and the other security programs involved in the wallets. Costs relating to the development of this software are capitalized and amortized over its estimated useful life of ten years.
Topic 350-20, Goodwill, and 350-30, General Intangibles Other than Goodwill, in the Accounting Standards Codification ("ASC") requires intangible assets with a finite life be tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated discounted cash flow used in determining the fair value of the asset.
| F- 7 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
2. Significant Accounting Policies - continued
Fair value of financial instruments
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued item.
The carrying amounts of cash, accounts receivable, due from shareholder, accounts payable and accrued liabilities, bank indebtedness, due to related party, advances from investor and convertible debentures approximate fair value because of their short-term nature. Per ASC Topic 820 framework these are considered Level 2 inputs where inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. The convertible debentures has a fixed interest rate therefore the Company is exposed to interest rate risk in that they could not benefit from a decrease in market interest rates. The bank indebtedness has a variable interest rate, which results in an exposure to interest rate risk resulting from an increase in rates. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposure through its normal operating and financing activities. All other liabilities are non-interest bearing.
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.
The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Revenue recognition
The Company derives revenue primarily from the sale of its wallets. In accordance with Staff Accounting Bulletin No. 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed or determinable and collection is reasonably assured.
The Company also derives an insignificant amount of revenue from providing engraving of the wallets. Engraving revenues are recognized concurrent with the revenues for the related wallet.
Earnings/loss per share of common stock
Basic and diluted earnings per share have been determined by dividing the net earnings available to shareholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. The diluted weighted average number of shares outstanding is calculated as if all dilutive options and restricted stock grants had been exercised or vested at the later of the beginning of the reporting period or date of grant, using the treasury stock method. The dilutive effect of convertible debentures has been reflected in diluted weighted average number of shares using the if-converted method.
Loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive.
| F- 8 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
2. Significant Accounting Policies - continued
Income taxes
Income taxes are computed in accordance with the provisions of ASC Topic 740, which requires, among other things, a liability approach to calculating deferred income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company is required to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a material impact on the Company’s income tax provision and results of operations.
Shipping and handling costs
The Company’s shipping and handling costs of $11,122 are included in cost of sales for the year ended December 31, 2013 (2012 - $5,874).
Research and development
The Company is engaged in research and development work. Research and development costs are charged as operating expense of the Company as incurred. Any recovery of costs received for research and development work is used to offset these expenditures. For the year ended December 31, 2013 the Company spent $nil (2012 - $3,200) towards research and development expenses.
Foreign currency translation
The functional currency of the Company is the U.S. dollar. All of the Company’s revenue and materials purchased from suppliers are denominated in, or linked to, the U.S. dollar. Transactions denominated in currencies other than the functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included within foreign exchange loss in the statements of operations and comprehensive income / (loss).
Product warranties
The Company offers a one year warranty on its products, which it provides for based on estimated warranty costs at the time of sale and accrues for specific items at the time their existence is known and the amounts are determinable. The Company estimates warranty costs using standard quantitative measures based on industry warranty claim experience and evaluation of specific customer warranty issues. The Company currently estimates warranty costs as approximately 4% of revenue.
Segment reporting
ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in the Company’s financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company only operates in one reportable segment; however, required entity-wide information is included in note 14.
3. Recently Issued Accounting Standards and Recently Adopted Accounting Pronouncement
Income Taxes (ASC Topic - 750): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists" ("ASU 2013-11") was issued during July 2013. FASB issued guidance on how to present an unrecognized tax benefit. The guidance is effective for annual periods beginning after December 15, 2013. Management does not believe that the adoption of the accounting pronouncement would have a material effect on these accompanying financial statements.
4. Inventory
| 2013 | 2012 | |||||||
| Finished goods | $ | 20,361 | $ | 13,742 | ||||
During the year ended December 31, 2013, the Company recorded a provision relating to obsolete inventory of $nil (2012 - $nil).
| F- 9 |
i Wallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
5. Intangible Assets
| 2013 | ||||||||||||
| Accumulated | Net Book | |||||||||||
| Cost | Amortization | Value | ||||||||||
| Patents | $ | 65,930 | $ | 9,375 | $ | 56,555 | ||||||
| Trademarks | 13,484 | 3,324 | 10,160 | |||||||||
| Software (i) | 30,000 | — | 30,000 | |||||||||
| $ | 109,414 | $ | 12,699 | $ | 96,715 | |||||||
| (i) | The Company purchased software from an arm's length third party in December 2013 accordingly although ready for use, the costs were not amortized as any amortization would have been insignificant. |
| 2012 | ||||||||||||||
| Accumulated | Net Book | |||||||||||||
| Cost | Amortization | Valu e | ||||||||||||
| Patents | $ | 59,509 | $ | 5,278 | $ | 54,231 | ||||||||
| Trademarks | 10,337 | 2,132 | 8,205 | |||||||||||
| $ | 69,846 | $ | 7,410 | $ | 62,436 | |||||||||
| F- 10 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
6. Bank Indebtedness
The bank indebtedness of the Company consists of a secured line of credit with a limit of $35,000 bearing interest at the annual prime rate plus 1.25%, which as at December 31, 2013 and 2012 was 4.5%, and with monthly repayments determined as follows:
a) the greater of:
| i) | two percent (2%) of the outstanding principal balance outstanding on the last day of the billing period, or |
| ii) | $100, and |
b) accrued interest since the date of the last payment.
On termination of the line of credit, the amount will become due over a period determined by the creditor of between thirty-six and eighty-four months, or over three to seven years, which at the time of the agreement was determined to be forty-eight months, or four years.
The line of credit is subject to various non-financial covenants that would constitute an event of default, notably: ownership change or sale of the business; closure or failure to maintain the related chequing account; insolvency or any bankruptcy proceedings; or, any other defaults on other contracts with the creditor or with any other financial institution.
Security for the line of credit is the cash in the chequing account held with the bank.
| 2013 | 2012 | |||||||
| Line of credit | $ | 23,079 | $ | 29,411 | ||||
| Less: Current portion - estimated based on (a)(i) above | (5,539 | ) | (7,059 | ) | ||||
| $ | 17,540 | $ | 22,352 |
Principal repayments estimated based on (a)(i) above as at December 31, 2013:
| 2014 | $ | 5,539 | ||||
| 2015 | 5,539 | |||||
| 2016 | 5,539 | |||||
| 2017 | 923 | |||||
| $ | 17,540 |
| F- 11 |
iWallet Coporation
Notes to Financial Statements
December 31, 2013 and 2012
7. Related Party Balances
| 2013 | 2012 | |||||||
| Balances | ||||||||
| Current assets | ||||||||
| Due from shareholder | $ | 61,833 | $ | 13,052 | ||||
| Current liabilities | ||||||||
| Due to related party | $ | 37,842 | $ | 59,779 | ||||
| Advances from investor | $ | 69,678 | $ | — | ||||
The above liabilities are non-interest bearing, unsecured and due on demand. The related party is related by virtue of the common control and ownership by the Company's shareholder.
The advances from investor were funds advanced for purposes of covering operating expenses of the Company and are intended to be formalized into a convertible debenture. At this time the investor is also serving as interim Chief Financial Officer ("CFO") and accordingly these transactions constitute related party transactions.
8. Convertible Debentures
In December of 2013, the Company entered into a series of secured convertible debenture agreements (the "convertible debentures") with various investors amounting to $354,000, of which $39,705 is held in attorney's trust to fund related closing costs. The convertible debentures mature June 30, 2014, and bear interest at 5% per annum calculated monthly and payable on maturity. As at December 31, 2013, the amount of accrued interest is $200, which is included in accrued liabilities.
Each convertible debenture contains a conversion option contingently exercisable upon the approval from the Securities and Exchange Commission or the TSX Venture Exchange for listing of its common shares. The conversion price will be based on the price at which the Company sells or issues common shares or units, less a discount of 30%. A unit would consist of one common stock and one share purchase warrant entitling the holder to purchase one additional Class A common share at an exercise price of $0.20 and with a term of 24 months. Similarly, the Company has the option to force conversion upon approval of a public listing at the same conversion price.
Since the conversion option is contingent upon a public listing there has been no value allocated to the conversion option in accordance with ASC 470 Debt. The terms of the convertible debenture do not permit the number of shares that would be received upon conversion if a public listing occurs to be calculated at the commitment date. Upon the occurence of a public listing the conversion feature would be measured and recognized as a debt discount and corresponding adjustment to additional paid-in capital.
Subsequent to year end the Company has closed on an additional $83,000 of convertible debentures with the same terms as the above (note 16).
| F- 12 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
9. Tooling Commitment Deposit, Deferred Costs and Liability
On May 26, 2011, the Company signed a contract with a supplier under which they are required to pay for tooling costs in addition to their regular purchase orders (the "tooling commitment"). Under the terms of the tooling commitment the Company was required to pay for 30% of the contracted tooling costs upon execution (the "tooling commitment deposit") and the remaining 70% over the purchase of 5,000 units over a nine month period (the "tooling commitment liability"). If 5,000 units were not purchased within those nine months, then the remaining amount was due within thirty days.
As of February 27, 2012, the Company had not reached the contracted level of purchases and an informal agreement to extend the period was made; however, by December 31, 2013 the Company had not complied and as a result, the entire amount would have been considered due.
On August 24, 2013, the Company entered into a revised agreement with the supplier that extended the term another twelve months to August 24, 2014.
The tooling commitment deposit is included in deposits and deferred costs and is capitalized into inventory as units are purchased based on the 5,000 unit commitment. The tooling commitment liability becomes due and is recognized into accounts payable as units are purchased and the corresponding deferred costs are capitalized into inventory, all of which is based on the 5,000 unit commitment.
During 2013, it was determined that based on the actual sales levels realized in 2013, the 5,000 unit commitment the Company would likely not be able to meet the required orders. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the statement of operations and comprehensive income / (loss).
| 2013 | 2012 | |||||||
| Tooling commitment deposit | $ | 41,119 | $ | 45,103 | ||||
| Tooling commitment deferred costs | 100,947 | 110,685 | ||||||
| 142,066 | 155,788 | |||||||
| Provision for possible loss on tooling commitment | (139,213 | ) | — | |||||
| Tooling commitment deposit and deferred costs | $ | 2,853 | $ | 155,788 | ||||
| Tooling commitment liability | $ | 105,816 | $ | 110,685 |
| F- 13 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
10. Income Taxes
| 2013 | 2012 | |||||||
| Components of (loss) income before income taxes consists of the following: | ||||||||
| U.S. | $ | (226,921 | ) | $ | 7,891 | |||
| The provision (recovery) for income taxes consists of the following: | ||||||||
| Current | ||||||||
| Federal | $ | — | $ | — | ||||
| State | — | — | ||||||
| — | — | |||||||
| Deferred | $ | (4,247 | ) | $ | 4,247 | |||
The reconciliation of the provision (recovery) for income taxes based on the combined U.S. statutory federal and state tax rate of 40.75% (Federal - 35%; State - 5.75%, net of Federal benefit) to the effective tax rates:
| 2013 | 2012 | |||||||
| Net loss before recovery of income taxes | $ | (231,168 | ) | $ | 12,138 | |||
| Statutory rate | 0 | 0 | ||||||
| Expected income tax recovery | $ | (94,201 | ) | $ | 4,946 | |||
| Non-deductible expenses | 49,161 | (7,835 | ) | |||||
| Change in tax benefits not recognized | 45,040 | 2,889 | ||||||
| Recovery of income taxes | $ | — | $ | — | ||||
The components of deferred taxes are as follows:
| 2013 | 2012 | |||||||
| Deferred tax assets (liabilities) | ||||||||
| Current | ||||||||
| Accrued liabilities | $ | (253 | ) | $ | (368 | ) | ||
| Provision for loss on tooling commitment | 56,724 | — | ||||||
| Valuation allowance | (56,471 | ) | — | |||||
| $ | — | $ | (368 | ) |
| F- 14 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
10. Income Taxes - continued
| 2013 | 2012 | |||||||
| Non-current | ||||||||
| Intangible assets | $ | 7,955 | $ | (9,328 | ) | |||
| Net operating losses | 45,031 | 5,449 | ||||||
| Valuation allowance | (52,986 | ) | — | |||||
| $ | — | $ | (3,879 | ) |
The change in the gross unrecognized tax benefits of the Company is as follows:
Deferred income taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred income tax assets have not been recognized in respect of the following deductible temporary differences:
| 2013 | 2012 | |||||||
| Beginning balance | $ | 13,422 | $ | 7,973 | ||||
| Additions related to the current year | 45,031 | — | ||||||
| Reductions related to prior years | — | 5,449 | ||||||
| Unrecognized tax benefits end of year | $ | 58,453 | $ | 13,422 |
The Company has non-capital income tax losses that expire as follows:
| 2031 | 15,068 | |||||
| 2033 | 110,515 | |||||
| $ | 125,583 |
The Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date ordinary income at the end of the period. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within general and administrative expenses. As of December 31, 2013 and 2012, the Company had no uncertain tax positions.
| F- 15 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. In many cases the Company’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2013:
| Federal | 2010 to present |
| State | 2010 to present |
11. Share Capital
Authorized
200000000 Class A Common shares par value $0.001
100000000 Class B Common shares par value $0.001
10000000 Preferred Shares par value $0.001
Issued
| 2013 | 2012 | |||||||
| 10000 Class A Common shares | $ | 10 | $ | 10 |
12. Commitments and Contingencies
LEGAL MATTERS
From time to time, the Company may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labour and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of current pending matters will not have a material adverse effect on its business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on the Company because of legal costs, diversion of management resources and other factors.
WARRANTY PROVISIONS
The Company is also exposed to warranty contingencies associated with the iWallet and has recorded a provision for these for the year ended December 31, 2013 of $3,062 (2012 - $3,684), however, the actual amount of loss could be materially different.
13. Basic and Diluted (Loss) Income Per Share
Potential common shares related to the convertible debentures were excluded from the computation of diluted loss per share for the year ended December 31, 2013 because the inclusion of these shares would be anti-dilutive.
For the year ended December 31, 2012, no dilutive instruments existed; therefore, basic and diluted income per share were equal.
| F- 16 |
iWallet Corporation
Notes to Financial Statements
December 31, 2013 and 2012
14. Segmented Reporting
All of the Company's long-lived assets are located in the United States.
During 2012, the Company had sales to customers in Russia amounting to 27% of total sales. The remaining sales consist primarily of domestic sales; however, additional international sales accounted for 23% of total sales although no individual country was in excess of ten percent of total sales. During 2013, there were no sales to within any individual foreign country exceeding ten percent of total sales.
15. Risk Management
CONCENTRATIONS OF CREDIT RISK
The Company’s cash balances are maintained in bank accounts in the United States. Deposits held in banks in the United States are insured up to $250,000 per depositor for each bank by the Federal Deposit Insurance Corporation. Actual balances at times may exceed these limits.
The Company performs on-going credit evaluations of its customers’ financial condition and generally does not require collateral from its customers. One of its customers accounted for 40%, of the Company’s revenue during the year ended December 31, 2013 and 100% of its accounts receivable as of December 31, 2013. During the year ended December 31, 2012, three customers accounted for 53% of revenue and one customer accounted for 100% of accounts receivable.
ECONOMIC DEPENDENCE
For the year ended December 31, 2013, the Company purchased 100% (2012 - 100%) of its wallet inventory from one vendor.
The accounts payable to this vendor is reflected in the carrying amount of the tooling commitment liability see note 9.
16. Subsequent Event
As described in note 8, the Company has closed on an additional $83,000 of convertible debentures with the same terms as those detailed in note 8.
| F- 17 |
Condensed Interim Balance Sheets
June 30, 2014 and December 31, 2013
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 17,168 | $ | 250,718 | ||||
| Funds held in attorney trust (note 8) | — | 39,705 | ||||||
| Accounts receivable | 6,177 | 4,575 | ||||||
| Deposits and deferred costs (note 9) | 116,407 | 23,086 | ||||||
| Inventory (note 4) | 23,549 | 20,361 | ||||||
| Due to/from shareholder (note 7) | 114,201 | 61,833 | ||||||
| 277,502 | 400,278 | |||||||
| Intangible assets (note 5) | 103,128 | 96,715 | ||||||
| $ | 380,630 | $ | 496,993 | |||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Bank indebtedness - current (note 6) | $ | 4,907 | $ | 5,539 | ||||
| Accounts payable ( notes 7& 8) | 158,561 | 126,317 | ||||||
| Accrued liabilities (note 12) | 41,087 | 3,062 | ||||||
| Due to related party (note 7) | 20,421 | 37,842 | ||||||
| Advances from investor (note 7) | 474 | 69,678 | ||||||
| Convertible debentures (note 8) | 663,000 | 354,000 | ||||||
| Tooling commitment liability (note 9) | 103,836 | 105,816 | ||||||
| 992,286 | 702,254 | |||||||
| Bank indebtedness - long-term (note 6) | 15,538 | 17,540 | ||||||
| 1,007,824 | 719,794 | |||||||
| Shareholder's (deficiency) equity | ||||||||
| Class A common shares, par value $0.001, 200,000,000 shares authorized; 10,000 issued (December 31, 2013 - 10,000) (note 11) | 10 | 10 | ||||||
| Class B common shares, par value $0.001, 100,000,000 shares authorized; Nil issued (December 31, 2013 - Nil) (note 11) | — | — | ||||||
| Preferred shares, par value $0.001, 10,000,000 shares authorized; Nil issued (December 31, 2013 - Nil) (note 11) | — | — | ||||||
| Additional paid-in capital | 1 | 1 | ||||||
| Deficit | (627,205 | ) | (222,812 | ) | ||||
| (627,194 | ) | (222,801 | ) | |||||
| $ | 380,630 | $ | 496,993 |
The accompanying notes are an integral part of these condensed interim financial statements.
Going Concern (note 1); Commitments and Contingencies (note 12); Subsequent Events (note 16)
| F- 18 |
Condensed Interim Statements of Operations and Comprehensive Loss
for the three and six month periods ended June 30, 2014 and 2013
(unaudited)
| Three months | Three months | Six months | Six months | |||||||||||||
| ending | ending | ending | ending | |||||||||||||
| June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |||||||||||||
| Sales | $ | 22,007 | $ | 14,515 | $ | 38,139 | $ | 32,006 | ||||||||
| Cost of sales | 18,317 | 5,178 | 35,253 | 19,681 | ||||||||||||
| Gross (loss) profit | 3,690 | 9,337 | 2,886 | 12,325 | ||||||||||||
| Expenses | ||||||||||||||||
| Legal and professional fees | 114,441 | 8,276 | 220,029 | 16,351 | ||||||||||||
| Subcontractor fees (note 7) | 47,000 | — | 109,100 | — | ||||||||||||
| Travel | 1,371 | 27 | 16,986 | 3,154 | ||||||||||||
| Office and general expenses | 9,049 | 269 | 26,404 | 2,223 | ||||||||||||
| Interest and bank fees | 7,486 | 509 | 12,952 | 976 | ||||||||||||
| Rent | 3,250 | — | 4,500 | — | ||||||||||||
| Research and development | 10,391 | 1,387 | 11,533 | 1387 | ||||||||||||
| Provision for loss on tooling commitment (note 9) | — | — | — | 139,213 | ||||||||||||
| Amortization of intangible assets | 2,887 | 1,848 | 5,775 | 3,632 | ||||||||||||
| 195,875 | 12,316 | 407,279 | 166,936 | |||||||||||||
| Loss before recovery of income taxes | (192,185 | ) | (2,979 | ) | (404,393 | ) | (154,611 | ) | ||||||||
| Recovery of income taxes (note 10) | — | (4,247 | ) | — | (4,247 | ) | ||||||||||
| Net and comprehensive income (loss) | $ | (192,185 | ) | $ | 1,268 | $ | (404,393 | ) | $ | (150,364 | ) | |||||
| Net and comprehensive loss per share basic and diluted (note 13) | $ | (19.22 | ) | $ | 0.13 | $ | (40.44 | ) | $ | (15.04 | ) | |||||
| Weighted average number of shares outstanding basic and diluted (note 13) | 10,000 | 10,000 | 10,000 | 10,000 | ||||||||||||
The accompanying notes are an integral part of these condensed interim financial statements.
| F- 19 |
Condensed Interim Statements of Cash Flows
for
the six month periods ended June 30, 2014 and 2013
(unaudited)
| 2014 | 2013 | |||||||
| Cash flow from operating activities | ||||||||
| Net and comprehensive loss for the period | (404,393 | ) | (150,364 | ) | ||||
| Items not affecting cash | ||||||||
| Amortization of intangible assets | 5,775 | 3,632 | ||||||
| Provision for loss on tooling commitment (note 9) | — | 139,213 | ||||||
| Recovery of income taxes | — | (4,247 | ) | |||||
| (398,618 | ) | (11,766 | ) | |||||
| Non-cash operating items resulted from changes in: | ||||||||
| Accounts receivable | (1,602 | ) | 8,520 | |||||
| Deposits and deferred costs | (95,301 | ) | — | |||||
| Inventory | (3,188 | ) | 8,684 | |||||
| Accounts payable | 32,244 | 8,254 | ||||||
| Accrued liabilities | 38,025 | 2,180 | ||||||
| (428,440 | ) | 15,872 | ||||||
| Cash flow from investing activities | ||||||||
| Expenditures on intangible assets | (12,188 | ) | (5,171 | ) | ||||
| (12,188 | ) | (5,171 | ) | |||||
| Cash flow from financing activities | ||||||||
| Funds paid to related party | (17,421 | ) | (1,572 | ) | ||||
| Funds paid to shareholder | (52,368 | ) | (17,687 | ) | ||||
| Receipt of funds held in attorney trust | 39,705 | — | ||||||
| Repayment of bank indebtedness | (2,634 | ) | (2,724 | ) | ||||
| Advances from investor | 11,796 | — | ||||||
| Proceeds from issuance of convertible debentures | 228,000 | — | ||||||
| 207,078 | (20,883 | ) | ||||||
| Decrease in cash | (233,550 | ) | (11,282 | ) | ||||
| Cash, beginning of period | 250,718 | 13,462 | ||||||
| Cash, end of period | $ | 17,168 | $ | 2,180 |
The accompanying notes are an integral part of these condensed interim financial statements.
| F- 20 |
Notes to Condensed Interim Financial Statements
June 30, 2014 and 2013 (unaudited)
1. Nature of Business and Going Concern
iWallet Corporation ("the Company") is engaged in the design, development, manufacturing and sales of bio-metric locking wallets, which operate by scanning a user’s fingerprint to open the wallet.
The Company was incorporated on November 18, 2009 in the State of California and is located at 7968 Arjons Drive, Suite D, San Diego, California 92126.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which contemplates continuation of the Company as a going concern.
As of June 30, 2014, the Company has incurred a shareholder's deficiency of $627,205 (December 31, 2013 - $222,812) and has significant losses and negative cash flows from operations. In addition as at June 30, 2014 the Company has a working capital deficiency of $ 714,784 (December 31, 2013 - $301,976). There is no certainty that the Company will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the near future to enable it to meet its obligations as they come due. As a result there is substantial doubt regarding the Company's ability to continue as a going concern. The Company may require additional financing to fund its operations, which may not be available at acceptable terms or at all. The Company plans on raising additional funds from completing financing arrangements, whether as continued subscriptions for convertible debentures or from additional sources, in contemplation of completing a public listing transaction as described in note 16.
The condensed interim financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. All adjustments, consisting only of normal recurring items, considered necessary for fair presentation have been included in these condensed interim financial statements.
2. Significant Accounting Policies
Unaudited Condensed Interim Financial Statements
These unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and should be read in conjunction with those annual financial statements for the year ended December 31, 2013. In the opinion of management, these unaudited condensed interim financial statements reflect adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
3. Recently Issued Accounting Standards and Recently Adopted Accounting Pronouncement
Income Taxes (ASC Topic - 750): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists" ("ASU 2013-11") was issued during July 2013. The FASB issued guidance on how to present an unrecognized tax benefit. The guidance is effective for annual periods beginning after December 15, 2013. Adoption of the accounting pronouncement does not have a material effect on these accompanying condensed interim financial statements.
On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is not permitted. The impact on the condensed interim financial statements of adopting ASU 2014-09 will be assessed by management.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed interim financial statements.
4. Inventory
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Raw Material & Finished Goods | $ | 23,549 | $ | 20,361 |
During the period ended June 30, 2014, the Company recorded a provision relating to obsolete inventory of $nil (2013 - $nil).
| F- 21 |
5. Intangible Assets
| June 30, 2014 | ||||||||||||||
| Accumulated | Net Book | |||||||||||||
| Cost | Amortization | Value | ||||||||||||
| Patents | $ | 68,118 | $ | 12,726 | $ | 55,392 | ||||||||
| Trademarks | 13,484 | 4,123 | 9,361 | |||||||||||
| Software | 40,000 | 1,625 | 38,375 | |||||||||||
| $ | 121,602 | $ | 18,474 | $ | 103,128 | |||||||||
| December 31, 2013 | ||||||||||||||
| Accumulated | Net Book | |||||||||||||
| Cost | Amortization | Value | ||||||||||||
| Patents | $ | 65,930 | $ | 9,375 | $ | 56,555 | ||||||||
| Trademarks | 13,484 | 3,324 | 10,160 | |||||||||||
| Software (i) | 30,000 | — | 30,000 | |||||||||||
| $ | 109,414 | $ | 12,699 | $ | 96,715 | |||||||||
| (i) | The Company purchased software from an arm's length third party in December 2013 accordingly although ready for use, the costs were not amortized as any amortization would have been insignificant. |
| Depreciation for the six-month period ended June 30, 2014 is $5,775 (June 30, 2013 - $3,632). |
6. Bank Indebtedness
The bank indebtedness of the Company consists of a secured line of credit with a limit of $35,000 bearing interest at the annual prime rate plus 1.25%, which as at June 30, 2014 and December 31, 2013 was 4.5%, and with monthly repayments determined as follows:
a) the greater of:
| i) | two percent (2%) of the outstanding principal balance outstanding on the last day of the billing period, or |
| ii) | $100, and |
b) accrued interest since the date of the last payment.
On termination of the line of credit, the amount will become due over a period determined by the creditor of between thirty-six and eighty-four months, or over three to seven years, which at the time of the agreement was determined to be forty-eight months, or four years.
The line of credit is subject to various non-financial covenants that would constitute an event of default, notably: ownership change or sale of the business; closure or failure to maintain the related checking account; insolvency or any bankruptcy proceedings; or, any other defaults on other contracts with the creditor or with any other financial institution.
| F- 22 |
Security for the line of credit is the cash in the checking account held with the bank.
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Line of credit | $ | 20,445 | $ | 23,079 | ||||
| Less: Current portion - estimated based on (a)(i) above | (4,907 | ) | (5,539 | ) | ||||
| $ | 15,538 | $ | 17,540 |
Principal repayments estimated based on (a)(i) above as at June 30, 2014:
| 2014 (remaining six months) | $ | 2,454 | ||||
| 2015 | 5,213 | |||||
| 2016 | 5,213 | |||||
| 2017 | 2,658 | |||||
| $ | 15,538 |
7. Related Party Balances
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Current assets | ||||||||
| Due from shareholder | $ | 114,201 | $ | 61,833 | ||||
| Current liabilities | ||||||||
| Accounts payable – due to shareholder | $ | 24,000 | $ | — | ||||
| Due to related party | $ | 20,421 | $ | 37,842 | ||||
| Advances from investor | $ | 474 | $ | 69,678 |
The above balances are non-interest bearing, unsecured and due on demand. The related party is related by virtue of the common control and ownership by the Company's shareholder.
The accounts payable – due to shareholder relates to compensation owing to the Company’s shareholder for services in his capacity as Chief Executive Officer.
The advances from investor were funds advanced for purposes of covering operating expenses of the Company and $81,000 of these advances were formalized into a convertible debenture during the period (note 8). At December 31, 2013, the investor was also serving as interim Chief Financial Officer ("CFO") and accordingly these transactions constitute related party transactions; however, on January 1, 2014 the investor resigned as interim CFO.
8. Convertible Debentures
In December of 2013, the Company entered into a series of secured convertible debenture agreements (the "convertible debentures") with various investors amounting to $354,000, of which $39,705 was held in attorney's trust to fund related closing costs. During the three months ending March 31, 2014 the Company closed on an additional $83,000 of convertible debentures with the same terms, bringing the total convertible debentures outstanding as at March 31, 2014 to $437,000. During the three months ending June 30, 2014 the Company closed on an additional $226,000 of convertible debentures with the same terms, inclusive of $81,000 of advances from investor formalized into a convertible debenture during the period (note 7), bringing the total convertible debentures outstanding as at June 30, 2014 to $663,000. The convertible debentures bear interest at 5% per annum calculated monthly and payable on maturity and had an original maturity date of June 30, 2014. In addition during the period, the Company extended the maturity to August 15, 2014, including the formalization of the advances from investor in note 7 (see note 16). As at June 30, 2014, the amount of accrued interest is $11,739 (December 31, 2013 - $200), which is included in accounts payable, and total interest expense for the six months ended June 30, 2014 was $11,625 (2013 - $nil) and for the three months ended June 30, 2014 was 6,467 (2013 - $nil).
Each convertible debenture contains a conversion option contingently exercisable upon the approval from the Securities and Exchange Commission or the TSX Venture Exchange for listing of its common shares. The conversion price will be based on the price at which the Company sells or issues common shares or units, less a discount of 30%. A unit would consist of one common stock and one share purchase warrant entitling the holder to purchase one additional Class A common share at an exercise price of $0.20 and with a term of 24 months. Similarly, the Company has the option to force conversion upon approval of a public listing at the same conversion price.
| F- 23 |
Since the conversion option is contingent upon a public listing no value has been allocated to the conversion option in accordance with ASC 470 Debt. The terms of the convertible debenture do not permit the number of shares receivable upon conversion if a public listing occurs to be calculated at the commitment date. During the period in which a public listing occurs, the conversion feature would be measured and recognized as a debt discount and an adjustment to additional paid-in capital.
Subsequent to the period end, all of the outstanding convertible debentures and accrued interest were converted into 3,222,120 common shares and warrants to purchase an additional 3,222,120 shares of common stock of the Company at an exercise price of $0.20 and with a term of 24 months.
9. Tooling Commitment Deposit, Deferred Costs and Liability
On May 26, 2011, the Company signed a contract with a supplier under which they are required to pay for tooling costs in addition to their regular purchase orders (the "tooling commitment"). Under the terms of the tooling commitment the Company was required to pay for 30% of the contracted tooling costs upon execution (the "tooling commitment deposit") and the remaining 70% over the purchase of 5,000 units over a nine month period (the "tooling commitment liability"). If 5,000 units were not purchased within those nine months, then the remaining amount was due within thirty days.
As of February 27, 2012, the Company had not reached the contracted level of purchases and an informal agreement to extend the period was made; however, by December 31, 2012 the Company had not complied and as a result, the entire amount would have been considered due.
On August 24, 2013, the Company entered into a revised agreement with the supplier that extended the term another twelve months to August 24, 2014.
The tooling commitment deposit is included in deposits and deferred costs and is capitalized into inventory as units are purchased based on the 5,000 unit commitment. The tooling commitment liability becomes due and is recognized into accounts payable as units are purchased and the corresponding deferred costs are capitalized into inventory, all of which is based on the 5,000 unit commitment.
During 2013, it was determined that based on the actual sales levels realized in 2013, the 5,000 unit commitment, the Company would likely not be able to meet the required orders. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the condensed interim statement of operations and comprehensive (loss).
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Tooling commitment deposit | $ | 39,385 | $ | 41,119 | ||||
| Tooling commitment deferred costs | 98,967 | 100,947 | ||||||
| 138,352 | 142,066 | |||||||
| Provision for loss on tooling commitment | (138,352 | ) | (139,213 | ) | ||||
| Tooling commitment deposit and deferred costs | $ | — | $ | 2,853 | ||||
| Tooling commitment liability | $ | 103,836 | $ | 105,816 |
| F- 24 |
10. Income Taxes
The Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date ordinary income at the end of the period. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. As of June 30, 2014 and 2013, the Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively. The Company had no income tax expense on its $404,393 loss for the six months ended June 30, 2014. The Company recognized no income tax expense based on its $154,611 pre-tax loss for six months ended June 30, 2013.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within general and administrative expenses. As of June 30, 2014 and December 31, 2013, the Company had no uncertain tax positions.
The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. In many cases the Company's uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of June 30, 2014:
Federal 2009 – present
State 2009 – present
11. Share Capital
Authorized
200,000,000 Class A Common shares par value $0.001
100,000,000 Class B Common shares par value $0.001
10,000,000 Preferred Shares par value $0.001
Issued
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| 10,000 Class A Common shares | $ | 10 | $ | 10 |
12. Commitments and Contingencies
Legal Matters
From time to time, the Company may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of current pending matters will not have a material adverse effect on its business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on the Company because of legal costs, diversion of management resources and other factors.
Warranty Provisions
The Company is also exposed to warranty contingencies associated with the iWallet and has recorded a provision for these for the period ended June 30, 2014 of $2,763 and the year ended December 31, 2013 of $3,062, however, the actual amount of loss could be materially different.
Lease agreements
On June 1, 2014 the Company entered into a new lease agreement for $2,500 per month on a month to month basis.
| F- 25 |
13. Basic and Diluted Loss Per Share
Potential common shares related to the convertible debentures were excluded from the computation of diluted loss per share for the period ending June 30, 2014 because the inclusion of these shares would be anti-dilutive.
For the periods ending June 30, 2013, no dilutive instruments existed; therefore, basic and diluted loss per share were equal.
14. Segmented Reporting
All of the Company's long-lived assets are located in the United States.
During the six months ended June 30, 2014, majority of sales were domestic; however total international sales accounted for 14% (six months ended June 30, 2013 – 44%) of total sales although no individual country was in excess of ten percent of total sales. During the three months ended June 30, 2014, majority of the sales were domestic; however total international sales accounted for 8% of total sales. During the three months ended June 30, 2013, the Company had sales to customers in Switzerland amounting to 14% and Canada amounting to 10%. The remaining sales consisted of primarily domestic sales; however additional international sales accounted for 14% of total sales.
15. Risk Management
Concentrations of Credit Risk
The Company’s cash balances are maintained in bank accounts in the United States. Deposits held in banks in the United States are insured up to $250,000 per depositor for each bank by the Federal Deposit Insurance Corporation. Actual balances at times may exceed these limits.
The Company performs on-going credit evaluations of its customers’ financial condition and generally does not require collateral from its customers. For the six months ended June 30, 2014, one customer accounted for 22% and another for 14% of the Company’s revenue. There were no significant customers during the six months ended June 30, 2013. For the three months ended June 30, 2014, one customer accounted for 30% and another for 19% of the Company's revenue. There were no significant customers during the three months ended June 30, 2013. As of June 30, 2014 one customer accounted for 94% of the accounts receivable balance. As of December 31, 2013 one customer accounted for 100% of the accounts receivable balance.
Economics Dependence
For the period ended June 30, 2014 the Company purchased 100% (2013 - 100%) of its wallet inventory from one vendor.
The accounts payable to this vendor is reflected in the carrying amount of the tooling commitment liability see note 9.
16. Subsequent Events
| (a) | On July 21, 2014, the Company was combined in an all stock, tax free merger (the “Merger”) with a wholly-owned subsidiary of Queensridge Mining Resources Inc. ("Queensridge"). Pursuant to the Merger the Company will become a wholly-owed subsidiary of Queensridge and the Company’s former stockholders will become the majority owners of Queensridge. Queensridge, whose shares are currently quoted on the OTC Bulletin Board, will immediately change its name to iWallet Corporation and will continue the business of iWallet as its only line of business. The Merger will constitute a reverse merger whereby Queensridge was deemed to have acquired iWallet for accounting purposes only. Upon the close of the Merger, all convertible debentures and accrued interest were converted into common shares of the Company and resulted in the issuance of 3,222,120 shares and warrants to purchase 3,222,120 common shares at $0.20 per share, exercisable for two years. Concurrent with the close of the Merger transaction the Company completed a Private Placement of 6,479,002 units of the Company (“Units”) for gross proceeds of $1,943,701. Each Unit consists of one common share and one common share purchase warrant of the Company. Each whole common share purchase warrant is exercisable at $0.60 for a period of two years. 583,110 Units were issued as compensation to the brokers who assisted with the offering. |
| (b) | The Company began trading in the United States on the OTCQB (OTC Markets Group) exchange under the ticker symbol IWAL on July 25, 2014. |
| F- 26 |
Management Discussion and Analysis of Financial Condition and Results of Operations
Our reverse merger closed July 21, 2014 has been accounted for as a “reverse acquisition,” as the former stockholders of iWallet Corporation, a private California corporation (“iWallet”), possessed majority voting control of the company immediately following the merger and now control our board of directors. iWallet is deemed to be the accounting acquirer in the reverse acquisition. Consequently, the results of operations presented herein reflect the historical operations of iWallet.
Results of Operations for the Years Ended December 31, 2013 and December 31, 2012
During the fiscal year ended December 31, 2013, we generated sales of $85,769. Our cost of sales was $63,585, resulting in gross profit of $22,184. Our expenses for the year ended 2013 were $253,352, and consisted of legal and professional fees of $73,278, office and general expenses of $9,583, travel expenses of $23,475, interest and bank fees of $2,515, amortization of intangible assets of $5,288, and a provision for loss on a contractual tooling commitment of $139,213. We also recorded a recovery of a provision for income taxes of $4,247. Our net loss for the year ended December 31, 2013 was $226,921. By comparison, during the year ended December 31, 2012, we generated sales of $159,288. Our cost of sales was $79,550, resulting in gross profit of $79,738. Our expenses for the year ended 2012 were $67,600, and consisted of legal and professional fees of $41,491, office and general expenses of $9,040, travel expenses of $6,786, interest and bank fees of $3,179, amortization of intangible assets of $3,904, and research and development expenses of $3,200. We also recorded a provision for income taxes of $4,247. Our net income for the year ended December 31, 2013 was $7,891.
Our sales during the year ended December 31, 2013 were lower than in the prior year due to manufacturing delays. In addition, our expenses were higher during the year ended December 31, 2013 than in the prior year primarily due to the provision for loss on a tooling commitment. On May 26, 2011, we signed a contract with a supplier under which we were required to pay for tooling costs in addition to our regular purchase orders (the "tooling commitment"). Under the terms of the tooling commitment we were required to pay for 30% of the contracted tooling costs upon execution (the "tooling commitment deposit") and the remaining 70% over the purchase of 5,000 units over a nine month period (the "tooling commitment liability"). If 5,000 units were not purchased within those nine months, then the remaining amount was due within thirty days. As of February 27, 2012, we had not reached the contracted level of purchases and an informal agreement to extend the period was made; however, by December 31, 2013 we had not complied and as a result, the entire amount would have been considered due. On August 24, 2013, we entered into a revised agreement with the supplier that extended the term another twelve months to August 24, 2014. During 2013, it was determined that based on the actual sales levels realized in 2013, we would likely not be able to meet the required orders to meet the 5,000 unit commitment. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling commitment in the statement of operations and comprehensive income / (loss).
Results of Operations for the Three and Six Months ended June 30, 2014 and 2013.
During the three months ended June 30, 2014, we generated sales of 22,007. Our cost of sales was $18,317, resulting in gross profit of $3,690. Our expenses for the three months ended June 30, 2014 were $195,875, and consisted of legal and professional fees of $114,441, subcontractor fees of $47,000, office and general expenses of $9,049, travel expenses of $1,371, interest and bank fees of $7,486, amortization of intangible assets of $2,887, rent of $3,250, and research and development of $10,391. Our net loss for the three months ended June 30, 2014 was $192,185. By comparison, during the three months ended June 30, 2013, we generated sales of $14,515. Our cost of sales was $5,178, resulting in gross profit of $9,337. Our expenses for the three months ended June 30, 2014 were $12,316, and consisted of legal and professional fees of $8,276, office and general expenses of $269, travel expenses of $27, interest and bank fees of $509, and amortization of intangible assets of $1,848. We also recorded a provision for recovery of income taxes of $4,247. Our net income for the three months ended June 30, 2013 was $1,268.
During the six months ended June 30, 2014, we generated sales of 38,139. Our cost of sales was $35,253 resulting in gross profit of $2,886. Our expenses for the six months ended June 30, 2014 were $407,279, and consisted of legal and professional fees of $220,029, subcontractor fees of $109,100, office and general expenses of $26,404, travel expenses of $16,986, interest and bank fees of $12,952, amortization of intangible assets of $5,775, rent of $4,500, and research and development of $11,533. Our net loss for the six months ended June 30, 2014 was $404,393. By comparison, during the six months ended June 30, 2013, we generated sales of $32,006. Our cost of sales was $19,681, resulting in gross profit of $12,325. Our expenses for the six months ended June 30, 2014 were $166,936, and consisted of legal and professional fees of $16,351, office and general expenses of $2,223, travel expenses of $3,154, interest and bank fees of $976, amortization of intangible assets of $3,632, research and development of $1,387, and a provision for a loss on a tolling commitment of $139,213. We also recorded a provision for recovery of income taxes of $4,247. Our net loss for the six months ended June 30, 2013 was $150,634.
Our expenses and net loss for the three and six months ended June 30, 2014 were larger than in the same periods last year primarily due to increased legal and professional fees related to our preparations for becoming a public company.
Over the course of the remainder of the current fiscal year, we expect that our sales will increase significantly as we launch the iWallet 2.0 and begin distribution of the product to various retailers and other outlets. During 2014, we also expect to make significant additional expenditures related to the continued development and expansion of our business. Furthermore, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these factors, to achieve profitability we will need to, among other matters, significantly increase our customer base and our distribution channels. We cannot assure you that we will be able to increase our revenue in this manner and achieve profitability on a consistent basis. As we expect to continue to invest in the development of our business, this investment could outpace growth in our revenue, and thereby impair our ability to achieve and maintain profitability.
Liquidity and Capital Resources
As of June 30, 2014, we had current assets of $277,502, consisting of cash in the amount of $17,168, deposits and deferred costs of $116,407, inventory of $23,549, a loan due from a shareholder of $114,201, and accounts receivable of $6,177. Our current liabilities as of June 30, 2014 were $992,286, and consisted of the current portion of long term bank debt in the amount of $4,907, accounts payable of $158,561, accrued liabilities of $41,087, amounts due to a related party of $20,421, advances from an investor of $474, convertible debentures of $663,000, and a liability for a manufacturer tooling commitment of $103,836. Our working capital deficit as of June 30, 2014 was therefore $714,784.
In the months prior to our reverse merger, we engaged in a bridge financing transaction raising a total $663,000 through the sale of secured convertible promissory notes. Concurrent with the closing of the merger, these notes converted to 3,222,120 shares of common stock and 3,222,120 warrants to purchase shares of common stock at a price of $0.20, exercisable for two years.
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Our bank indebtedness consists of a line of credit with a limit of $35,000, secured by cash on deposit in a checking account. The line bears interest at a rate of prime plus 1.25%. As of June 30, 2014, the balance owed was $20,445.
Immediately upon closing of our reverse merger, we closed a private offering of Units at a price of $0.30 per Unit, each Unit consisting of one (1) share of common stock and one (1) warrant to purchase one share of common stock at a price of $0.60 per share, exercisable for two (2) years. A total of 6,479,002 shares of common stock and 6,479,002 warrants were issued to subscribers in the offering. The gross proceeds from the offering, prior to the deduction of agreed selling commissions and expenses, were $1,943,701. Net of broker’s commissions and expenses, we received net proceeds of $1,745,537.
As a result of the funds obtained through the offering, we believe that we have sufficient capital to execute our business development plan for the current year. In order to continue our growth and development plan over the longer term, however, we will require additional financing. Management is currently seeking additional equity financing in order to fund the long term development of the company. There can be no assurance that we will be successful in raising additional funding, either through increased sales and debt and/or other equity financing arrangements. If we are not able to secure significant additional funding, the long term implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Going Concern
We have experienced recurring losses from operations and had a working capital deficiency of $714,784 as of June 30, 2014. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on an ongoing basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results or operations, liquidity, capital expenditures or capital resources that is deemed material.
Changes In and Disagreements with Accountants
Except as set forth below, we have had no changes in or disagreements with our accountants.
On August 12, 2014, Silberstein Ungar, PLLC (the “Former Accountant”) resigned as our independent auditor. The Former Accountant resigned because most of its client base has been acquired by another firm. Also on August 12, 2014, our board of directors appointed MNP, LLP (the “New Accountant”) as our new independent registered public accounting firm.
The Former Accountant’s audit reports on the financial statements for our former fiscal years ended June 30, 2013 and 2012 contained no adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, with exception of uncertainty regarding our ability to continue as a going concern.
During the former fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 12, 2014, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of the Former Accountant would have caused them to make reference thereto in their reports on the financial statements for such periods.
During the fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 14, 2014, there were the following “reportable events” (as such term is defined in Item 304 of Regulation S-K). As disclosed in Part I, Item 4 of the Company’s Form 10-Q for the quarterly period ended March 31, 2014, the Company’s management determined that the Company’s internal controls over financial reporting were not effective as of the end of such period due to the existence of material weaknesses related to the following:
| (i) | inadequate segregation of duties and effective risk assessment; and |
| (ii) | insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines. |
These material weaknesses have not been remediated as of the date of this Current Report on Form 8-K.
Other than as disclosed above, there were no reportable events during the fiscal years ended June 30, 2013 and 2012, and through the interim periods ended August 12, 2014.
Prior to retaining the New Accountant, we did not consult with the New Accountant regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).
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Directors and Executive Officers
The following table sets forth information regarding the members of our board of directors and our executive officers and other significant employees. All of our officers and directors were appointed on July 21, 2014. All of our directors hold office until the next annual meeting of stockholders and their successors are duly elected and qualify. Executive officers serve at the request of the board of directors.
| Name | Age | Office(s) held | ||||
| Jack B. Chadsey | 66 | Chief Executive Officer and Director | ||||
| Steven Cabouli | 56 | President and Director | ||||
| Orlando LaCalle | 50 | Chief Marketing Officer | ||||
| Carl Rosen | 61 | Director | ||||
| Charles Ng | 66 | Director | ||||
| Anthony Durkacz | 38 | Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Steven Cabouli is our President and a member of our Board of Directors. Mr. Cabouli founded iWallet in 2009. He has over 25 years of experience in introducing new and unique products to the market. In the 1980s, he introduced machines for shaved ice, cooking baking, and donuts to Argentina and sold the rights to this business to an established South American cookie manufacturer in 1987. He is also the owner of China Mystique, Inc., a global distributor of skincare products which he co-founded in 1990. From 2003 through January of 2014, he was the owner of Steve Cabouli Properties, a real estate company which owns several properties in San Diego, Mexico, and Argentina. Mr. Cabouli studied Civil Engineering at the University of Buenos Aires in Argentina.
Jack B. Chadsey is our Chief Executive Officer and a member of our Board of Directors. Mr. Chadsey’s work experience spans over 30 years of senior management positions with some of the premier big box and specialty store retailers. Since January of 2006, Mr. Chadsey has been the principal of Brickell Business Ventures, Inc., a private equity investment and consulting practice focused on emerging growth opportunities. In 2005, he was the Chairman and CEO of Musicland Group, Inc., a privately held entertainment company which operated over 1,000 stores. From 1995 to 2004, Mr. Chadsey served as Chairman of Illuminations, an upscale candle and home accessories company which grew to over 100 retail locations during his tenure. From 1997 to 2001, he was Chairman and CEO of Lids, Inc. From 1989 to 1997, Mr. Chadsey served as the President and CEO of Sunglass Hut, International. During his time with Sunglass Hut, Mr. Chadsey led the company through a recapitalization, an initial public offering, and subsequent follow-on offerings in an effort to fund the internal growth and store expansion needs of the company. From 1984 to 1989, he served as President and CEO of Branden’s, a chain of big box home specialty stores owned by Target/ Dayton Hudson Corporation. From 1984 to 1986, he served as VP and Merchandise Manager for the Home Division of Target Corporation. From 1981 to 1984, he served as Sr. VP, GMM and executive committee member responsible for developing and implementing merchandising and marketing strategies for the home, hardlines, and active apparel divisions of Kohl’s Department Stores. Mr. Chadsey holds a B.S. in Business Administration from the University of Arkansas.
Carl Rosen , one of our directors, is principal of Shelter Rock International, LLC, which provides comprehensive consulting services specializing in the luxury goods sector. He consults in the launch or expansion of watch, jewelry or eyewear lines on a worldwide basis, licensing, sourcing, asset disposition, and sales of state-of-the-art marketing, sales and survey technologies. Mr. Rosen also currently serves as the Director of Anti-counterfeiting of the American Watch Guild. Prior to founding Shelter Rock International in 2010, Mr. Rosen was with Bulova Corporation, an international consumer luxury goods company, and its former parent company, Loews Corporation. Loews Corporation is a conglomerate with holdings in insurance, hotels and energy, and previously in tobacco and theaters. In 2008, Bulova was acquired by Citizen Watch Co. Ltd (Japan.) From 1980 – 2001, Mr. Rosen simultaneously held different positions in both organizations. From 2007 to 2010, he was the Chief Operating Officer of Bulova Corporation. From 2002 to 2007, he was the Senior Vice President for Worldwide Operations at Bulova. From 1999 to 2001 he was Chief Information Officer at Loews while also serving as a Senior Vice President for Bulova. From 1988 to 1999, he served as Executive Directors of Systems Development at Loews Corporation while also serving as an Executive Vice President at Bulova Corporation. From 1985 to 1988, Mr. Rosen was the Director of the Information Center at Loews. From 1980 to 1985, he was a Consultant for Management Advisory Services at Loews. From 1977 to 1980, he was the Manager of International Finance and Planning at Continental Can Company. Mr. Rosen holds an MBA from the Wharton School at the University of Pennsylvania, and a B.S. in Civil Engineering from Tufts University.
Charles Ng , one of our directors, is currently the VP of Sales, Americas for NEXT Biometrics. In that position, he is responsible for selling biometric sensor solutions to top tier mobile and P.C. original equipment manufacturers as well as the standard biometrics physical access control, token and NEXT enable biometrics market spaces. Prior to this position, Mr. Ng was the head of FingerPrint Cards’ biometric business operations in North America, where he was responsible mainly for the top tier PC and mobile market segments. In 2005, he joined UPEK, a leader in biometric fingerprint security solutions, as its Sales Director Americas. At UPEK, Mr. Ng grew the revenue from $200K to $24M in two years. He managed sales to major Asia original design manufacturers, including Foxconn, Wistron, Chicony in China, IIDA in Japan. In 2010, UPEK merged with AuthenTec, which was later acquired by Apple. Inc. in 2012. During his time with UPEK/Authentic/Apple, he was responsible for selling over $110M in biometric fingerprint reader solutions. Prior to that position, Mr. Ng was the VP of Sales at Valicert, a secure internet communications leader. Mr. Ng has also worked in the telecommunications industry at ROLM/IBM/Siemens, Network Equipment Technologies and Copper Mountain Networks; holding various business development and sales management positions. He holds a Bachelors degree in Business Administration.
Anthony Durkacz , one of our directors, is currently Executive Vice-President at First Republic Capital Corp., a position he has held since January 2014. From January to December 2013, he was the President of Capital Ideas Investor Relations. From January 2011 to January 2013, he was CFO and a director of Snipp Interactive Inc.. He was instrumental in the financing and public listing of Snipp Interactive Inc. with operations in Canada, the USA, Mexico and India. Mr. Durkacz is also the owner and president of Fortius Research & Trading Corp., which provides financial and accounting consulting services to micro and small cap companies in various sectors, and develops investment strategies for high net worth individuals. From 2006 to 2009, he served as COO and CFO of MKU Canada Inc. and engaged in mergers and acquisitions around the globe. From 2002 to 2006, he served as CFO of Astris Energi Inc., a dually listed public company in the US and Canada which was acquired by an international conglomerate. He began his career at TD Securities on the capital markets trading floor. Mr. Durkacz holds an Honors Bachelor of Business Administration from Brock University with a major in both Accounting and Finance.
Management is currently conducting a search for a highly qualified individual to join our company as a new CEO. Appropriate additional disclosures will be made upon the appointment of all new executive officers or directors.
Directors
Our bylaws authorize no less than one (1) and no more than twelve (12) directors. We currently have five directors.
All directors hold office for one-year terms until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion of the board.
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.
Committees of the Board
We do not currently have a compensation committee, executive committee, or stock plan committee.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K.
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Nomination Committee
Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.
When evaluating director nominees, our directors consider the following factors:
• The appropriate size of our Board of Directors;
• Our needs with respect to the particular talents and experience of our directors;
| • | The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; |
• Experience in political affairs;
• Experience with accounting rules and practices; and
• The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members.
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.
Code of Ethics
As of September 5, 2014, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Compensation Discussion and Analysis
Our executive officers Jack Chadsey, Steven Cabouli and Orlando LaCalle are currently paid monthly fixed cash compensation as follows:
| Jack Chadsey | $ | 12,500 | ||
| Steven Cabouli | $ | 12,000 | ||
| Orlando LaCalle | $ | 4,000 |
The compensation agreement with Mr. LaCalle was reached on December 30, 2013 and was based on Mr. LaCalle’s fixed monthly expenses and our financial resources and ability to pay. Mr. Cabouli is the founder and former sole shareholder of iWallet Corporation and no formal arrangement was reached with him on any specific date. His current salary arrangement, like the arrangement with Mr. LaCalle, is based on Mr. Cabouli’s fixed personal monthly expenses and our financial resources and ability to pay. Accruals will be recorded for any wages owed to Mr. Chadsey, Mr. Cabouli and Mr. LaCalle in the event that there is not enough cash to meet payroll requirements. Our compensation system has generally consisted of paying our key executives such basic remuneration for their time and services as is appropriate for our current resources and stage of development. We are in the process of creating a formal system of compensation designed to motivate, incentivise, and retain our key executives. Currently with his appointment on September 8, 2014, we entered into an Executive Employment Agreement (the “Agreement”) with our CEO, Mr. Chadsey. Under the Agreement, Mr. Chadsey will serve as our CEO and a member of the Board for three (3) years. He will be paid a minimum base annual salary of $150,000, subject to annual review. In addition to annual salary, the Agreement provides Mr. Chadsey with a grant of common stock equal to a total of fifteen percent (15%) of our issued and outstanding common stock, or 4,398,207 shares under current figures. The stock grant will vest in annual phases over the course of the term of the agreement. The objectives of the Agreement with Mr. Chadsey are to provide him with an appropriate base salary, to vest him with the opportunity to earn substantial ownership in the company, and to provide him with an incentive for longevity in office.
| 25 |
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.
| SUMMARY COMPENSATION TABLE | ||||||||||||||||||||
|
Name
and principal position |
Year |
Salary ($) |
Bonus
($) |
Stock Awards
($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
Nonqualified
Deferred Compensation Earnings ($) |
All Other
Compensation ($) |
Total
($) |
|||||||||||
| Jack Chadsey, CEO |
2013
2012 |
n/a n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
|||||||||||
| Steven Cabouli, President |
2013
2012 |
n/a n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
|||||||||||
| Orlando LaCalle, Chief Marketing Officer |
2013
2012 |
n/a n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
n/a
n/a |
|||||||||||
| Jerry Chatel, former officer |
2013
2012 |
0 n/a |
0
n/a |
0
n/a |
0
n/a |
0
n/a |
0
n/a |
0
n/a |
0
n/a |
|||||||||||
| Phillip Stromer, former officer |
2013
2012 |
0 0 |
0
0 |
0
0 |
0
0 |
0
0 |
0
0 |
0
0 |
0
0 |
|||||||||||
Narrative Disclosure to the Summary Compensation Table
Our current executive officers, Jack Chadsey, Steven Cabouli and Orlando LaCalle, did not serve during our last two fiscal years. Former officers Jerry Chatel and Phillip Stromer did not receive any compensation for their service as officers. 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.
Stock Option Grants
We have not granted any stock options to the executive officers or directors since our inception.
| 26 |
Outstanding Equity Awards At Fiscal Year-end Table
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||||||||||||||||||||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||||
|
Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date
|
Number of Shares or Shares of Stock That Have Not Vested (#) |
Market Value of Shares or Shares of Stock That Have Not Vested ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
|||||||||||||||||||||||||||
| Jack Chadsey, CEO | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Steven Cabouli, President | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Orlando LaCalle, Chief Marketing Officer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Jerry Chatel, former officer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Phillip Stromer, former officer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 27 |
Compensation of Directors Table
The table below summarizes all compensation paid to our directors for our last completed fiscal year.
| DIRECTOR COMPENSATION | ||||||||||||||||||||||||||||
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||
| Steven Cabouli | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Jack Chadsey | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Carl Rosen | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Charles Ng | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Anthony Durkacz | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Jerry Chatel, former director | -0 | -0 | -0 | -0 | -0 | -0 | -0 | |||||||||||||||||||||
| Phillip Stromer, former director | -0 | -0 | -0 | -0 | -0 | -0 | -0 | |||||||||||||||||||||
Narrative Disclosure to the Director Compensation Table
We did not provide any compensation to directors for their service as directors during the last fiscal year. Compensation arrangements for our current directors have not been formally documented but are in process of being finalized. Consulting agreements with directors are likewise the subject of current discussion and will require future approval by the full board.
Employment Agreements with Current Management
Except with regard to Mr. Chadsey, as discussed above, we do not currently have any employment agreements in place with any of our executive officers.
| 28 |
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than 5% of any class of stock and by the executive officers and directors as a group. Except as otherwise indicated, all Shares are owned directly and the percentage shown is based on 33,919,419 shares common stock issued and outstanding.
| (1) |
As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
|
| (2) |
The total shares for 7806221 Canada, Inc. include 1,714,384 shares of common stock and warrants to purchase an additional 127,252 shares of common stock at a price of $0.20, exercisable for 2 years. Mr. Bernard Adamski is the President of 7806221 Canada, Inc., and, in that capacity, has the authority to direct voting and investment decisions regarding its common stock.
|
| (3) | The total shares for Donal Carroll include 1,623,285 shares of common stock, warrants to purchase 156,618 shares of common stock at a price of $0.20 per share, exercisable for 2 years, and warrants to purchase 666,667 shares of common stock at a price of $0.60 per share, exercisable for 2 years |
| (4) |
The total shares for Jack B. Chadsey include 4,581,542 shares of common stock and warrants to purchase 83,335 shares of common stock at a price of $0.60 per share, exercisable for 2 years
|
| (5) | The total shares for Anthony Durkacz include 388,885 shares of common stock,warrants to purchase 388,885 shares of common stock at $0.20 per shares, exercisable for 2 years, and 560,080 shares owned by First Republic Capital Corp. |
Securities Authorized for Issuance Under Equity Compensation Plans
To date, we have not adopted a stock option plan or other equity compensation plan and have not issued any stock, options, or other securities as compensation under any equity compensation plan.
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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Certain Relationships and Related Transactions and Director Independence
With the exception of our reverse merger closed July 21, 2014, and except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the last two years or in any presently proposed transaction which, in either case, has or will materially affect us:
1. Our balance sheets reflect the sum of $61,833 due from shareholder. This obligation, which arose during the time when iWallet Corporation was a privately held company and is due from our President and CEO, Steven Cabouli. This obligation is non-interest bearing, unsecured and due on demand. There is no written agreement or specific terms of repayment for this obligation. We expect that it will be settled in the near future.
2. Concurrent with his appointment on September 8, 2014, we entered into anExecutive Employment Agreement (the “Agreement”) with our CEO, Jack Chadsey. Under the Agreement, Mr. Chadsey will serve as our CEO and a member of the Board for three (3) years. He will be paid a minimum base annual salary of $150,000, subject to annual review. In addition to annual salary, the Agreement provides Mr. Chadsey with a grant of common stock equal to a total of fifteen percent (15%) of our issued and outstanding common stock, or 4,398,207 shares under current figures. The stock grant will vest in annual phases over the course of the term of the agreement.
3. One of our directors, Carl Rosen, has provided advisory services to our company as needed and on an hourly basis through his consultancy firm, Shelter Rock International, LLC. Generally, these services have been provided at a rate of $225 per hour under a Consulting and Advisory Service Agreement executed with our accounting predecessor. We expect that the agreement will be updated and ratified by our current board in the near future.
4. One of our directors, Anthony Durkacz, is a majority owner of First Republic Capital Corporation (“First Republic”). First Republic is a securities broker based in Canada that assisted with our private placement of common stock closed July 21, 2014.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Charles Ng and Carl Rosen are independent directors.
We have filed a registration statement on form S-1 under the Securities Act of 1933 with the Securities and Exchange Commission with respect to the shares of our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement, but does not contain all of the information contained in the registration statement and exhibits. Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the company. We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the company. You may inspect the registration statement, exhibits and schedules filed with the Securities and Exchange Commission at the Commission's principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. Please Call the Commission at (202) 942-8088 for further information on the operation of the public reference rooms. The Securities and Exchange Commission also maintains a Web Site at http://www.sec.gov that contains reports, proxy Statements and information regarding registrants that files electronically with the Commission. Our registration statement and the referenced exhibits can also be found on this site.
If we are not required to provide an annual report to our security holders, we intend to still voluntarily do so when otherwise due, and will attach audited financial statements with such report.
Dealer Prospectus Delivery Obligation
Until ________________, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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Part II
Information Not Required In the Prospectus
Other Expenses Of Issuance And Distribution
The estimated costs of this offering are as follows:
| Securities and Exchange Commission registration fee | $ | 100.25 | ||
| Federal Taxes | $ | 0 | ||
| State Taxes and Fees | $ | 0 | ||
| Listing Fees | $ | 0 | ||
| Printing and Engraving Fees | $ | 0 | ||
| Transfer Agent Fees | $ | 0 | ||
| Accounting fees and expenses | $ | 2,500 | ||
| Legal fees and expenses | $ | 10,000 | ||
| Total | $ | 12,600.25 |
All amounts are estimates, other than the Commission's registration fee.
We are paying all expenses of the offering listed above.
Indemnification of Directors and Officers
Our officers and directors are indemnified as provided by the Nevada Revised Statutes and our bylaws.
Under the governing Nevada statutes, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company's articles of incorporation. Our articles of incorporation do not contain any limiting language regarding director immunity from liability. Excepted from this immunity are:
| 1. | a willful failure to deal fairly with the company or its shareholders in connection with a matter in which the director has a material conflict of interest; |
| 2. | a violation of criminal law (unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful); |
| 3. | a transaction from which the director derived an improper personal profit; and |
| 4. | willful misconduct. |
Our bylaws provide that we will indemnify our directors and officers to the fullest extent not prohibited by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless:
| 1. | such indemnification is expressly required to be made by law; |
| 2. | the proceeding was authorized by our Board of Directors; |
| 3. | such indemnification is provided by us, in our sole discretion, pursuant to the powers vested us under Nevada law; or; |
| 4. | such indemnification is required to be made pursuant to the bylaws. |
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Our bylaws provide that we will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the company, or is or was serving at the request of the company as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under our bylaws or otherwise.
Our bylaws provide that no advance shall be made by us to an officer of the company, except by reason of the fact that such officer is or was a director of the company in which event this paragraph shall not apply, in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the company.
Recent Sales of Unregistered Securities
| • | In connection with our recent reverse merger on July 21, 2014, the previous shareholders of iWallet Corporation, a private California corporation (“iWallet”), 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 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 were converted to newly issued shares of our common stock and warrants. The former iWallet 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 $1,745,537. 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 |
| Exhibit Number | Description |
| 2.1 | Merger Agreement (1) |
| 3.1 | Articles of Merger (1) |
| 3.2 | Articles of Incorporation (2) |
| 3.3 | By-laws (2) |
| 5.1 | Opinion of Joe Laxague, Esq., with consent to use (3) |
| 10.1 | Manufacturing and Supply Agreement** |
| 10.2 | Executive Employment Agreement with Jack B. Chadsey (4) |
| 10.3 | Consulting and Advisory Service Agreement with Shelter Rock International, LLC (5) |
| 23.1 | Consent of Independent Registered Public Accounting Firm** |
(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.
** Filed herewith
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The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(b) to reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.; and
(c) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act of 1933, and we will be governed by the final adjudication of such issue.
4. That each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to the Offering shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
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In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in San Diego, California, on October 16, 2014.
iWALLET CORPORATION.
iWALLET CORPORATION.
By: /s/ Jack B. Chadsey
Jack B. Chadsey
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
By: /s/ Jack B. Chadsey
Jack B. Chadsey
Chief Executive Officer and Director
By: /s/ Steven Caboul i
Steven Cabouli
President and Director
By: /s/ Carl Rosen
Carl Rosen
Director
By: /s/ Charles Ng
Charles Ng
Director
By: /s/ Anthony Durkacz
Anthony Durkacz
Director
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