Zoompas Holdings, Inc. formerly known as UVIC. Inc. ("Zoompass Holdings," or the "Company") was incorporated under the laws of the State of Nevada on August 21, 2013. Effective August 22, 2016, the Company entered into an Agreement for the Exchange of Stock (the "Agreement") with Zoompass, Inc., an Ontario, Canada corporation ("Zoompass"). Pursuant to the Agreement, the Company agreed to issue 8,050,784 shares of its restricted common stock to Zoompass' shareholders ("Zoompass' shareholders") in exchange for all the shares of Zoompass Inc. owned by the Zoompass Inc.'s Shareholders. At the Closing Date, Rob Lee, a significant shareholder of the Company agreed to cancel 7,000,000 shares of the Company's common stock, which shares constituted the control shares of the Company. Other than this one significant shareholder, shareholders of the Company held 2,670,000 shares. As a result of the Agreement, Zoompass is now a wholly owned subsidiary of the Company. The Company has amended its Articles of Incorporation to change its name to Zoompass Holdings, Inc. and the appropriate forms were filed with FINRA and the SEC to change its name, address and symbol and complete a 3.5-1 forward split, which was consented to by the majority of shareholders on September 7, 2016 and approved in February 2017, for shareholders of record on September 7, 2016.
All share figures have been retroactively stated to reflect the stock split approved by shareholders, unless otherwise indicated. Additionally, the Company's shareholders consented to an increase of the shares authorized to 500,000,000 and a revision of the par value to $0.0001.
As the former Zoompass shareholders ended up owning the majority of the Company, the transaction does not constitute a business combination and was deemed to be a recapitalization of the Company with Zoompass being the accounting acquirer, accordingly the accounting and disclosure information is that of Zoompass going forward.
Zoompass Inc., was incorporated under the laws of Ontario on June 8, 2016. On June 28, 2016, pursuant to an agreement with a shareholder of Zoompass, certain net assets were acquired by Zoompass in exchange for shares of Zoompass (note 3). The net assets primarily consisted of a virtual payment platform, certain customer contracts, cash held in trust and customer deposits as well as the associated client funds.
These unaudited interim condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which presumes that it will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. These unaudited interim condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
Basis of presentation:
The unaudited consolidated interim financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The unaudited consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary to present a fair statement of the results for the period. From the date of incorporation on June 8, 2016, until the asset acquisition on June 28, 2016, further described in note 3, there was no operating activity, only the issuance of incorporation shares, the operations from June 28, 2016, to June 30, 2016, are immaterial to these consolidated interim financial statements. Accordingly, as the Company has presented the comparative unaudited consolidated interim statements of operations, comprehensive loss, and cash flows from the date of incorporation until September 30, 2016.
Certain comparative amounts have been reclassified to conform to the current year's presentation.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
SIGNIFICANT ACCOUNTING POLICIES
These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual audited financial statements and should be read in conjunction with those annual audited financial statements filed on Form 10-K for the period ended December 31, 2016. In the opinion of management, these unaudited interim condensed consolidated 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.
The Company's significant accounting policies have not changed from the year ended December 31, 2016, except as described below.
Goodwill:
Goodwill represents the excess purchase price over the estimated fair value of net assets acquired by the Company in business combinations. Business acquisitions are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as of the date of acquisition with the excess of the acquisition amount over such fair value being recorded as goodwill and allocated to reporting units ("RU"). RUs are the smallest identifiable group of assets, liabilities and associated goodwill that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Given how the Company is structured and managed, the Company is one RU. Goodwill arises principally because of the following factors among other things: (1) the going concern value of the Company's capacity to sustain and grow revenues through securing additional contracts and customers,; (2) the undeserved market of consumers looking for financial transactional alternatives; (3) technological and mobile capabilities beyond acquired lines of business to capture buyer specific synergies arising upon a transaction and (4) the requirement to record a deferred tax liability for the difference between the assigned values and the tax bases of the assets acquired and liabilities assumed in a business combination, if any.
The Company accounts for goodwill and intangible assets in accordance with ASC No. 350,
Intangibles-Goodwill and Other
("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
Intangibles:
On acquisition, intangible assets, other than goodwill, are initially recorded at their fair value. Following initial recognition, intangible assets with a finite life are amortized on a straight line basis over their useful life. Useful lives are assessed at year end.
The following useful lives are used in the calculation of amortization:
Trademark – 7.25 years
Acquired payment platform – 5 years
During 2016, the Company paid an advance on behalf of certain shareholders in the amount of $250,000. These shareholders also serve as directors and officers of the Company. $120,000 was returned by December 31, 2016, and $50,000 was returned during the period ended September 30, 2017. The remaining $80,000 is reflected in prepaids and other current assets as at September 30, 2017 (December 31, 2016 - $130,000).
The total amount owing to the same shareholders, in relation to the services they provide to the Company in their capacity as Officers at September 30, 2017 was $286,317 (December 31, 2016 - $186,818) which includes expense reimbursements. This amount is reflected in accounts payable and is further described below.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Chief Executive Officer of the Company of $231,881 (December 31, 2016 - $127,073). The amount owing relates to services provided by the Chief Executive Officer and expense reimbursements.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Secretary of the Company of $54,436 (December 31, 2016 - $59,745). The amount owing relates to services provided by the Secretary and expense reimbursements.
As at September 30, 2017, the Company had an amount owing to the President of the Company of $5,475 (December 31, 2016 - $28,092) for salary.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Chief Financial Officer of the Company of $4,006 (December 31, 2016 - $31,653). The amount owing relates to services provided by the Chief Financial Officer.
A total of $94,063 and $267,440 was recognized during the three and nine month period ended September 30, 2017, respectively, for share-based payments expense to directors and officers of the Company.
As at September 30, 2017 and December 31, 2016, the amounts owing to officers of the Company are recorded in accounts payable and accrued liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements of historical fact, that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as "anticipate," "believe," "estimate," "expect," "forecast," "may," "will", "should," "plan," "project" and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:
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projected operating or financial results, including anticipated cash flows used in operations;
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expectations regarding capital expenditures; and
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assumptions relating to our liquidity position, including our ability to obtain additional financing, if required.
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Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
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the loss of key management personnel on whom the Company depends;
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our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing if required.
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our expectations with respect to our acquisition activity.
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In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included in this Quarterly Report on Form 10-Q, including in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward- looking statements contained in this Quarterly Report on Form 10-Q are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as otherwise required by applicable law.
This discussion and analysis should be read in conjunction with the accompanying consolidated interim financial statements and related notes for the period ended September 30, 2017 as filed with the Securities and Exchange Commission and included in this Form 10-Q and the financial statements and management discussion and analysis for the period ended December 31, 2016.
The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis management reviews our estimates and assumptions. The estimates were based on historical experience and other assumptions that management believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions.
As detailed in this 10-Q, the historic accounts are that of Zoompass Inc., a Company incorporated in June 2016. From the date of incorporation on June 8, 2016, until the asset acquisition on June 28, 2016, there was no operating activity, only the issuance of incorporation shares, the operations from June 28, 2016, to June 30, 2016, are immaterial to the consolidated interim unaudited financial statements. Accordingly, as the Company has presented the comparative unaudited consolidated interim statements of operations, comprehensive loss, and cash flows from the date of incorporation until September 30, 2016.
Nature of Operations and Going Concern
Zoompas Holdings, Inc. formerly known as UVIC. Inc. ("Zoompass Holdings," or the "Company") was incorporated under the laws of the State of Nevada on August 21, 2013. Effective August 22, 2016, the Company entered into an Agreement for the Exchange of Stock (the "Agreement") with Zoompass, Inc., an Ontario, Canada corporation ("Zoompass"). Pursuant to the Agreement, the Company agreed to issue 8,050,784 shares of its restricted common stock to Zoompass' shareholders ("Zoompass' shareholders") in exchange for all the shares of Zoompass Inc. owned by the Zoompass Inc.'s Shareholders. At the Closing Date, Rob Lee, a significant shareholder of the Company agreed to cancel 7,000,000 shares of the Company's common stock, which shares constituted the control shares of the Company. Other than this one significant shareholder, shareholders of the Company held 2,670,000 shares. As a result of the Agreement, Zoompass is now a wholly owned subsidiary of the Company. The Company has amended its Articles of Incorporation to change its name to Zoompass Holdings, Inc. and the appropriate forms were filed with FINRA and the SEC to change its name, address and symbol and complete a 3.5-1 forward split, which was consented to by the majority of shareholders on September 7, 2016 and approved in February 2017, for shareholders of record on September 7, 2016.
All share figures have been retroactively stated to reflect the stock split approved by shareholders, unless otherwise indicated. Additionally, the Company's shareholders consented to an increase of the shares authorized to 500,000,000 and a revision of the par value to $0.0001.
As the former Zoompass shareholders ended up owning the majority of the Company, the transaction does not constitute a business combination and was deemed to be a recapitalization of the Company with Zoompass being the accounting acquirer, accordingly the accounting and disclosure information is that of Zoompass going forward.
Zoompass Inc., was incorporated under the laws of Ontario on June 8, 2016. On June 28, 2016, pursuant to an agreement with a shareholder of Zoompass, certain net assets were acquired by Zoompass in exchange for shares of Zoompass (note 3). The net assets primarily consisted of a virtual payment platform, certain customer contracts, cash held in trust and customer deposits as well as the associated client funds.
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 future to enable it to meet its obligations as they come due and consequently continue as a going concern. The Company will require additional financing this year to fund its operations and it is currently working on securing this funding through corporate collaborations, public or private equity offerings or debt financings. Sales of additional equity securities by the Company would result in the dilution of the interests of existing shareholders. There can be no assurance that financing will be available when required.
The Company expects the forgoing, or a combination thereof, to meet the Company's anticipated cash requirements for the next 12 months; however, these conditions raise substantial doubt about the Company's ability to continue as a going concern.
Financial information in this filing have been prepared on the basis that the Company will continue as a going concern, which presumes that it will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. These unaudited interim condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated statement of balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
Significant Accounting Policies and Estimates
The discussion and analysis of the financial condition and results of operations are based upon the condensed consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis management reviews our estimates and assumptions. The estimates were based on historical experience and other assumptions that management believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but management does not believe such differences will materially affect our financial position or results of operations.
From the inception of Zoompass Inc. to September 30, 2017 the Company, inclusive of the results of Zoompass Holdings, Inc., from August 22, 2016, has generated net losses. The Company may incur an additional operating loss for the three month period ended December 31, 2017, until such time that its additional pipeline of new revenue streams are launched.
The Company has launched its mobility products and solutions program consisting of new and certified customer pre-owned phones and tablets, branded accessories and endless aisle program availability.
In connection with the launch of the mobility products and solutions programs the Company entered into several agreements more fully described below.
LICENSED DISTRIBUTION OF NOKIA PHONES
In October 2017, the Company announced it had become the first company in Canada to reach an agreement for the distribution of the next generation of Nokia mobile phones, through HMD Global, the home of Nokia phones. The Canadian launch will focus on three products which include the Nokia 3310 3G, Nokia 3 and Nokia 5. The Nokia smartphones offer a pure Android experience and Canadian consumers will receive regular updates once released by HMD Global. This agreement will allow Zoompass to distribute to all Canadian retail outlets and further advance its model of integrating its mobile business with its financial platform. To support this, Zoompass is pleased to announce that it has hired Dave Bergeron, a 23-year Nokia veteran in Canada to lead this initiative.
MOBILITY SOLUTIONS PROGRAM
In November 2017, the Company, through a wholly-owned subsidiary, secured purchase orders and issued invoices valued at approximately C$740,000. Of this amount, approximately C$45,000 was recognized as gross revenue during the period ended September 30, 2017, with the balance to be recognized during the Company's fiscal fourth quarter. The purchase orders are subject to certain standard risks, including the delivery of mobile devices, which is expected to occur during the fourth quarter of 2017. These are initial orders and the beginning of what the company expects to be a steady line of revenue within its mobility devices group. Collectively these orders are for approximately 4,875 units across the Company's various product offerings and to its various distribution partners, including iOnetek Inc., a Canadian private distributor of mobile devices.
AGREEMENT WITH SYNNEX
The Company has entered into to a sales agent agreement with SYNNEX Canada Limited. ("SYNNEX Canada"). SYNNEX Canada Limited, is a wholly-owned subsidiary of SYNNEX Corporation a leading distributor of technology products to resellers and system builders across Canada. It is expected that the agreement will propel the existing mobility strategy within Synnex to increase their reach within North America through national retail and wholesale channels, as well as value added resellers. The agreement should benefit Zoompass by giving direct access to those channels for cross-selling opportunities. Through this partnership, Synnex will gain access to Zoompass' expertise and established relationships with original equipment manufacturers and mobile virtual network operations and other channels opportunities.
AGREEMENT WITH SKY
The Company has agreed to a marketing partnership with SKY Devices LLC ("SKY") to provide international brand exposure into expanding markets and key retailers. "SKY is a fast growing mobile manufacturer developing smartphones with premium quality modern designs and robust performance". This partnership is in line with our strategy of being a unique integrated fintech company by bridging mobility with a global mobile money platform.
AGREEMENT WITH U-VEND GROUP
Zoompass has entered into an agreement with U-Vend Group to fit U-Vend Group vending solutions with mobility products and provide North American brand exposure into key markets and retailers. U-Vend Group owns and operates kiosks and has partnered with numerous national consumer product companies to deliver new and innovative customer retail experiences in automated "frictionless" settings. The Company is well positioned to sell U-Vend Group solutions within Canada, USA and Mexico by leveraging its existing relationships and network within the national retailer, airport and mall channels. The offering will leverage a "Grab and Go" model where consumers can use their credit card in a vending machine to purchase mobility devices and products.
AGREEMENT WITH STARLINK GROUP LLC
The Company has agreed to a marketing partnership with Starlink Group LLC ("STARLINK") to provide international brand exposure into expanding markets and key retailers. STARKLINK is a wholesale distributor qualified in marketing cellphones and electronic equipment offering a variety of models and brands. This partnership is in line with Zoompass' strategy of being a unique integrated fintech company by bridging mobility with a global mobile money platform.
The Company has entered into a Lender Referral Agreement with a third party to provide financing allowing the Company to launch is virtual financing program. Enabled by the Zoompass Mobile Money Platform, the program provides complete turnkey financing options for retail customers within locations across North America.
The program allows for real time credit approval and allows the Company to leverage its card products to provide greater credit to the consumer with residual approved funds issued through prepaid cards.
GIANT TIGER PROGRAM
The Company through its alliance with Home Trust, launched of an onsite credit program with retail chain Giant Tiger. Giant Tiger was founded in 1961 and is Canadian owned and operated. The privately held, franchise based company, has over 200 stores in eight provinces, with many more opening, and employs over 7,000 team members. This program combines Zoompass' core competencies with its ability to facilitate the offering of credit facilities through its partners. The success of the launch hinged on the ability to offer "on-the-spot" quick credit approval for customers. This was accomplished utilizing Zoompass' mobile money platform in conjunction with Home Trust's credit and adjudication facilities. In total, consumers are on-boarded in under 5 minutes and are approved in under 20 seconds.
The Company launched its new reloadable prepaid card during December of 2016. The Company shipped 15,000 prepaid cards to select retail locations in December 2016 and is currently in the process of delivering another 50,000 cards to retail locations.
ACQUISITION OF TRANSPORTATION ENABLEMENT PLATFORM
During the nine months ended September 30, 2017, the Company entered into an agreement to acquire a transportation enablement platform (the "Platform") which provides fully automated dispatching and bookings management built for taxi companies, limousine companies and ride-sharing service providers. The Platform gives customers an app based experience while the acquired cloud-based Platform, provides service providers a range of functions which include customer booking, accounts management, driver tracking, real-time notifications, auto dispatching algorithms, accounting and settlements, corporate account management as well as providing reporting and analytics. The Platform has also shown to have a direct application in the B2B space in providing corporations with a more efficient taxi chit solution to combat fraud and excessive administration costs.
In exchange for the acquisition of the Platform from a private Canadian based company, the Company will be providing as consideration the equivalent of up to C$1,000,000 in the form of non-registered shares in the common stock of the Company, based on a share price of the lesser of US$3.00 per share, or the share price on closing. The equivalent of C$400,000 in shares is payable on closing with C$300,000 payable in shares on the first anniversary of the closing, subject to the satisfaction of certain milestones, and an additional C$300,000 payable in shares on the second anniversary of the closing, subject to the satisfaction of certain milestones.
The transaction is expected to close in the fourth quarter of 2017.
Results of operations for the three and nine months ended September 30, 2017
Revenue and cost of sales
The Company's revenue consists of various fees associated with its prepaid debit card program, sales from mobility devices, sales commissions from the sale of mobility devices and fees and other revenue.
For the three months ended September 30, 2017, the Company generated gross card revenue of $209,029 and commissions and agent fees of $(31,078), compared with gross card revenue of $125,706 and commissions and agent fees of $(38,002) for the period ended September 30, 2016. Revenue was higher due to the launch of certain programs during 2017. Additionally, the Company recognized revenue from the sale of mobility products of $118,035, mobility product commissions of $2,958 and cost of goods sold of $(109,277). The Company also recognized fees and other revenue of $78,769. The Company recorded processing and card fees of $(175,122), compared with $(117,874) for the period ended September 30, 2016. These fees were higher for the current year period due to an increased number of transactions.
For the nine months ended September 30, 2017, the Company generated gross card revenue of $654,494 and commissions and agent fees of $(89,148). Additionally, the Company recognized revenue from the sale of mobility products of $154,080, mobility product commissions of $10,059 and cost of goods sold of $(136,747). The Company also recognized fees and other revenue of $78,769. The Company recorded processing and card fees of $(600,779).
General and administrative and other expenses
The Company incurred salaries and full-time consultant expenses of $384,447 for the three months ended September 30, 2017 compared with $369,043 for the period ended September 30, 2016. Salaries and full-time consultants were higher for the current period due to higher head count. For the nine months ended September 30, 2017, the Company recognized $1,180,919 in salaries and full-time consultant costs.
Rent and occupancy costs for the three months ended September 30, 2017 was $38,805, largely in line with rent and occupancy costs of $39,476 for the period ended September 30, 2016. Rent and occupancy costs for the nine months ended September 30, 2017, was $122,382.
Share-based payment expense for the three months ended September 30, 2017, was $97,936, substantially lower than the share-based payment expense of $11,056,129 for the period ended September 30, 2016. Included in share-based payment expense for the period ended September 30, 2016, is an amount related to the grant of restricted shares to certain employees and full-time consultants. Additionally, share-based payments expense was recognized for the value attributed to the grant of warrants to certain individuals. Share-based payment expense for the nine months ended September 30, 2017, was $520,468 and reflects the issuance of warrants made during the nine months ended September 30, 2017.
The Company recognized depreciation and amortization expense of $14,201 for the three months ended September 30, 2017, largely consistent with the depreciation and amortization expense of $14,616 for the period ended September 30, 2016. For the nine months ended September 30, 2017, depreciation and amortization expense of $40,661. As the Company, is currently enhancing the payment platform acquired to support its additional pipeline of revenue streams, costs incurred to enhance the platform are capitalized and are not being depreciated.
The Company incurred $136,656 in professional fees for the three months ended September 30, 2017, compared with $3,351 for the period ended September 30, 2016. Professional fees were significantly higher due to increased corporate activity and the fact that the Company completed its reverse take-over in August 2016, and did not incur any significant legal or accountant costs. For the nine months ended September 30, 2017, the company recognized $284,983 in professional fees.
The Company recognized $11,553 in transaction costs during the period ended September 30, 2016, related to certain corporate transactions.
Telecommunication expense is comprised of telephone and internet expenses. Included in telecommunication expense is the costs related to regular and ongoing technological support. For the three months ended September 30, 2017, the Company incurred $3,392 in telecommunication costs down from the $7,245 for the period ended September 30, 2016. For the nine months ended September 30, 2017, the Company incurred telecommunication expense of $9,866.
Office and sundry expense and other includes office expenses such as supplies, insurance and additional costs incurred to support the corporate head office in addition to travel costs. For the three months ended September 30, 2017, office and sundry and other was $79,666, higher than the period ended September 30, 2016, of $32,852, largely due to increased travel costs as a result of higher business activity in 2017. Office and sundry expense and other for the nine months ended September 30, 2017 was $290,931.
Included in filing fees and regulatory costs are costs associated with the Company's listing fees and transfer agent costs. For the three months ended September 30, 2017, the Company incurred $6,568, compared with $nil for the period ended September 30, 2016. For the nine months ended September 30, 2017, the Company incurred $30,785 in filing fees and regulatory costs.
The Company recorded a foreign exchange loss of $16,889 and $3,024 for the three and nine months ended September 30, 2017, respectively, largely due to the strengthening of the US dollar relative to the Canadian dollar. During the period ended September 30, 2016, the Company recognized a foreign exchange loss of $2,206.
The Company incurred $5,088 and $5,971 in bank fees for the three months ended September 30, 2017 and the period ended September 30, 2016, respectively. Bank fees for the nine months ended September 30, 2017, was $14,680.
For the three months ended September 30, 2017, the Company incurred a net loss of $690,334 or $0.02 per share and $11,572,612 or $0.40 per share for the period ended September 30, 2016. For the nine months ended September 30, 2017, the Company incurred a loss of $2,427,881 or $0.06 per share.
Liquidity and Capital Resources
As at September 30, 2017, the Company had a net working capital deficit of $279,220 compared with a surplus of $359,600 at December 31, 2016. The decrease was primarily due to a use of cash for operating and investing activities during the period.
Operations for the period ended September 30, 2017, were primarily funded through cash balances at December 31, 2016, and the cash received from the issuances of shares of the Company's common stock as a result of the exercise of warrants and private placements.
Subject to the launch and ramp up of the additional pipeline of revenue streams, there is no certainty that we will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the future to enable us to meet our obligations as they come due and consequently continue as a going concern. The Company may require additional funds to further develop our expanded business plan. The Company may require additional financing this year to fund our operations and is examining possible sources of funding beyond the existing cash generated from operations. Sales of additional equity securities would result in the dilution of the interests of existing stockholders. There can be no assurance that financing will be available when required. In the event that the necessary additional financing is not obtained, the Company would reduce its discretionary overhead costs substantially, or otherwise curtail operations.
The Company expects the forgoing, or a combination thereof, to meet our anticipated cash requirements for the next 12 months; however, these conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Net Cash Used in Operating Activities
During the nine months ended September 30, 2017, $1,599,715 in cash, respectively, was used for operations. This was primarily the result of the net loss offset to some extent by changes in non-cash working capital. During the period ended September 30, 2016, $324,437 in cash was used in operations.
Net Cash Provided by Investing Activities
During the nine months ended September 30, 2017, the Company invested $45,000 in its software platform. During the period ended September 30, 2016, the Company acquired $208,723 in cash and cash equivalents from the acquisition of certain assets on June 28, 2016. Additionally, the Company invested $60,000 during the period related to its software platform.
Net Cash Provided by Financing Activities
For the nine months ended September 30, 2017, $1,244,560 was raised through the completion of several private placements and the exercise of warrants. Net cash provided by financing activities was $271,661, and was the result of a private placement through the issuance of 266,661 shares.
Commitments
The Company is currently using leased office space under a contract which runs to October 31, 2020. The amount due under this contract is as follows:
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2017
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40,246
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2018
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160,984
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2019
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160,984
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2020
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134,155
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496,369
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Financial instruments and risk factors
The Company has exposure to liquidity risk and foreign currency risk. The Company's risk management objective is to preserve and redeploy the existing treasury as appropriate, ultimately to protect shareholder value. Risk management strategies, as discussed below, are designed and implemented to ensure the Company's risks and the related exposure are consistent with the business objectives and risk tolerance.
Liquidity Risk: Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity by ensuring that there is sufficient capital to meet short and long-term business requirements, after taking into account cash requirements from operations and the Company's holdings of cash and cash equivalents. The Company also strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances.
Management forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future requirements may be met through a combination of credit and access to capital markets. The Company's cash requirements are dependent on the level of operating activity, a large portion of which is discretionary. Should management decide to increase its operating activity, more funds than what is currently in place would be required. It is not possible to predict whether financing efforts will be successful or sufficient in the future. At September 30, 2017, the Company had $41,876 (December 31, 2016, $422,385), in cash and cash equivalents.
Additionally, the Company has commitments as noted previously.
Currency risk: The Company's expenditures are incurred in Canadian and US dollars. The results of the Company's operations are subject to currency transaction risk. The Company mitigates foreign exchange risk through forecasting its foreign currency denominated expenditures and maintaining an appropriate balance of cash in each currency to meet the expenditures. As the Company's reporting currency is the US dollar, fluctuations in US dollar will affect the results of the Company.
Credit risk:
Credit risk is the risk of loss associated with a counterparty's inability to fulfill its payment obligations. As at September 30, 2017 and December 31, 2016, the Company's credit risk is primarily attributable to cash and cash equivalents, cash held in trust and customer deposits, and accounts receivable. At September 30, 2017 and December 31, 2016, the Company's cash and cash equivalents, cash held in trust and customer deposits was held with reputable Canadian chartered banks. At September, 2017, the Company had an allowance for doubtful accounts of $16,531 (December 31, 2016, - $16,396) as a result of a review of collectability of the amount outstanding and the duration of time it was outstanding.
Interest rate risk:
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company's does not have significant interest rate risk.
Additionally, the following has been updated from the risks factors disclosed in the Company's 10-K filing for the year ended December 31, 2016.
Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management's attention and resources.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in our common stock.
Related Party Transactions
During 2016, the Company paid an advance on behalf of certain shareholders in the amount of $250,000. These shareholders also serve as directors and officers of the Company. $120,000 was returned by December 31, 2016, and $50,000 was returned during the period ended September 30, 2017. The remaining $80,000 is reflected in prepaids and other current assets as at September 30, 2017 (December 31, 2016 - $130,000).
The total amount owing to the same shareholders, in relation to the services they provide to the Company in their capacity as Officers at September 30, 2017 was $286,317 (December 31, 2016 - $186,818) which includes expense reimbursements. This amount is reflected in accounts payable and is further described below.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Chief Executive Officer of the Company of $231,881 (December 31, 2016 - $127,073). The amount owing relates to services provided by the Chief Executive Officer and expense reimbursements.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Secretary of the Company of $54,436 (December 31, 2016 - $59,745). The amount owing relates to services provided by the Secretary and expense reimbursements.
As at September 30, 2017, the Company had an amount owing to the President of the Company of $5,475 (December 31, 2016 - $28,092) for salary.
As at September 30, 2017, the Company had an amount owing to an entity owned and controlled by the Chief Financial Officer of the Company of $4,006 (December 31, 2016 - $31,653). The amount owing relates to services provided by the Chief Financial Officer.
A total of $94,063 and $267,440 was recognized during the three and nine month period ended September 30, 2017, respectively, for share-based payments expense to directors and officers of the Company.
As at September 30, 2017 and December 31, 2016, the amounts owing to officers of the Company are recorded in accounts payable and accrued liabilities.
Newly Adopted and Recently Issued Accounting Pronouncements
Newly Adopted Accounting Standards
In August 2014, the FASB issued a new financial accounting standard on going concern, ASU No. 2014-15, "Presentation of Financial Statements – Going Concern (Sub-Topic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The standard provides guidance about management's responsibility to evaluate whether there is a substantial doubt about the organization's ability to continue as a going concern. The amendments in this Update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. There was no impact on the unaudited interim condensed consolidated balance sheets or the unaudited interim condensed consolidated statements of operations and comprehensive loss from the adoption of this standard.
Recently issued accounting pronouncements
In May 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 unaudited interim condensed consolidated financial statements of adopting ASU 2014-09 will be assessed by management.
In August 2014, the FASB issued a new financial accounting standard on going concern, ASU No. 2014-15, "Presentation of Financial Statements – Going Concern (Sub-Topic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The standard provides guidance about management's responsibility to evaluate whether there is a substantial doubt about the organization's ability to continue as a going concern. The amendments in this Update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. There was no impact on the unaudited interim condensed consolidated balance sheets or the unaudited interim condensed consolidated statements of operations and comprehensive loss from this standard.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," which requires that deferred tax liabilities and assets be classified on the Consolidated Balance Sheets as noncurrent based on an analysis of each taxpaying component within a jurisdiction. ASU No. 2015-17 is effective for the fiscal year commencing after December 15, 2017. The Company does not anticipate that the adoption of ASU No. 2015-17 will have a material effect on the consolidated balance sheet or the consolidated results of operations.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 740): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. ASU 2016-01 enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The Company is currently assessing the impact of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, Leases. This update requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosure about the amount, timing and uncertainty of cash flows arising from leases. The provisions of this update are effective for annual and interim periods beginning after December 15, 2018. The Company is still assessing the impact that the adoption of ASU 2016-02 will have on the consolidated balance sheet and the consolidated results of operations.
Off Balance Sheet Arrangements
The Company has no off-balance sheet transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company" (as defined by §229.10(f)(1)), the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
During the period ended September 30, 2017, there were no changes in our internal controls over financial reporting (as defined in Rule 13a- 15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
The Company maintains "disclosure controls and procedures" as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were ineffective due to a lack of
segregation of duties, due to limited administrative and financial personnel and related resources and as only one of our directors is independent
.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
During the nine months ended September 30, 2017, the Company was served with a class action complaint had been filed against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the District of New Jersey. The complaint alleges, inter alia, that the defendants violated the federal securities laws by, among other things, failing to disclose that the Company was engaged in an unlawful scheme to promote its stock. The Company has analyzed the complaint and has concluded that the complaint is legally deficient and otherwise without merit. The Company intends to vigorously defend against these claims.
Also during the nine months ended September 30, 2017, the Company was served with two derivative complaints on behalf of the Company have been filed against the Company's Directors and Chief Executive Officer, President, Corporate Secretary, and Chief Financial Officer, and nominally against the Company in the Eighth Judicial District Court of the State of Nevada in and for the County of Clark and in the United States District Court for the District of Nevada. These complaints allege, inter alia, that the Company's officers and directors directed the Company to undertake an unlawful scheme to promote its stock. The Company has analyzed these complaints and has concluded that the complaints are legally deficient and otherwise without merit. The Company intends to vigorously defend against these claims.
ITEM 1A. RISK FACTORS
The Company, as a "smaller reporting company" (as defined by §229.10(f)(1)), is not required to provide the information required by this Item.
ITEM 2. RECENT UNREGISTERED SALES OF EQUITY SECURITIES
During the second quarter of 2017, the Company issued 654,130 shares in the common stock of the Company through the completion of several private placements for proceeds of $735,317.
During the three months ended September 30, 2017, the Company issued 18,332 shares in the common stock of the Company through the exercise of warrants for gross proceeds of $7,298.
During the three months ended September 30, 2017, the Company completed several private placements for the sale of non-registered shares of the Company's common stock. As a result of these private placements 1,266,044 non-registered shares of the Company's common stock was issued for gross proceeds of $307,407.
In October, 2017, the Company completed several private placements and issued 110,000 non-registered shares in the common stock of the Company for gross proceeds of $44,014.
Subsequent to September 30, 2017, the Company issued 332,996 warrants at an exercise price of C$0.50. Each warrant is exercisable into one share of the common stock of the Company and expire on December 31, 2017.
ITEM 3. EXHIBITS
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Exhibit No.
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Description
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31.1
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31.2
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32.1
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32.2
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Zoompass Holdings, Inc.,
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November 20, 2017
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/s/ Rob Lee
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Rob Lee
Chief Executive Officer
(Principal Executive Officer)
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