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:
· Projected operating or financial results, including anticipated cash flows used
in operations
· Expectations regarding capital expenditures; and
· Assumptions relating to our liquidity position, including our ability to obtain
additional financing, if required.
· 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:
· The loss of key management personnel on whom the Company depends;
· Our ability to operate our business efficiently, manage capital expenditures
and costs (including general and administrative expenses) and obtain financing
if required.
· Our expectations with respect to our acquisition activity.
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, 2019 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, 2018.
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.
4
Nature of Operations
Zoompass 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.
Effective March 6, 2018 (the "Closing Date"), Zoompass Holdings, Inc.'s (the
"Company") Canadian operating subsidiary, Zoompass, Inc., entered into an Asset
Purchase Agreement (the "Agreement") for the sale of its Prepaid Card Business
("Prepaid Business") to Fintech Holdings North America Inc., or its designee.
The aggregate purchase price of the Prepaid Business was C$400,000. The
transaction was completed on March 26, 2018.
During the first fiscal quarter of 2018, the Company implemented a plan to
abandon the mobility solution operation. The Company has determined that the
mobility solution operation represents a component and a reportable segment of
the Company. According to the plan of abandonment, the Company gradually ceased
accepting any new business during first fiscal quarter of 2018 and settled all
the remaining orders and obligations from mobility solution by end of March
2018.
On October 17, 2018, the Company purchased certain business assets that
represents a business from Virtublock Global Corp. ("Virtublock", "VGC") in
return the Company issued 44,911,724 shares to Virtublock and pursuant to the
issuance of shares Virtublock ended up owning 45% of total outstanding common
shares of the Company.
Zoompass Inc., was incorporated under the laws of Ontario on June 8, 2016. On
October 17, 2018, pursuant to an asset purchase agreement with Virtublock,
certain net assets were acquired by the Company in exchange for shares of the
Company. The net assets primarily consisted of certain technology IP related to
cryptocurrency exchange/wallet, certain strategic partnerships and customer
contracts. On March 25, 2019, the name of the company was changed from Zoompass
Inc. to Virtublock Canada Inc. ("VCI").
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. 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.
5
Significant Accounting Policies and Estimates
The significant accounting policies and estimates have been disclosed in the
note 2 of the interim condensed consolidated interim financial statements.
The discussion and analysis of the financial condition and results of operations
are based upon the interim condensed consolidated 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.
Results of operations for the nine months ended September 30, 2019
Revenue and cost of sales
The Company's revenue in prior period consisted of various fees associated with
the legacy prepaid debit card program that was acquired as part of the
acquisition of the payment platform. Additionally, the Company also recognized
revenue from the sale of mobility products. Net revenue of $ 437,535 was
recognized during the period ended September 30, 2018. The Company did not
recognize significant amount of revenue for the period ended September 30, 2019
since mobility and prepaid card business were discontinued in 2018 and the
company did not start generating revenue from the new line of business.
General and administrative and other expenses
Salaries and consultant expenses were lower in the nine months ended September
30, 2019 because the number of employees and consultants during the period ended
September 30, 2018 were higher. During the period ended September 30, 2018, the
Company's operations were significantly different from its operations in the
2019.
Rent and occupancy costs of $12,655 during the period were lower than the same
period in 2018. The decrease was due to certain enhanced security features the
Company implemented at its corporate office in 2018.
The share-based payment expense in 2019 pertains to the shares issued to an
arm's length third party as compensation for services provided. Share-based
payment expense in 2018 related to certain options and deferred stock units that
were granted in December 2016 and vests over a period of 36 months from the date
of grant.
There is no depreciation and amortization expense for the period ended September
2019 and 2018.
Professional fees pertain to audit and accounting fees are largely in line with
expenses for 2018.
Office and sundry expense include office expenses such as supplies, insurance
and additional costs incurred to support the corporate head office in addition
to travel costs. The decrease is primarily attributed to change in the nature of
operations and lower operating expenses.
Filing fees and regulatory costs are costs associated with the Company's listing
fees and transfer agent costs. Small spending in filings were made during the
period ended September 30, 2019 when compared to 2018.
Foreign exchange change was primarily attributed to the change in exchange rate
of Canadian dollar relative to the US dollar.
The Company recognized a net loss of $625,014 (loss from continuing operations -
$625,014, loss from discontinued operations -$NIL) or loss from continuing
operations per share $0.006 for the nine months ended September 30, 2019.
The Company recognized a net loss of $1,772,038 (loss from continuing operations
- 1,335,495, loss from discontinued operations -$436,543) or loss from
continuing operations per share $0.029 and loss from discontinued operations per
share $0.009 (basic-diluted) for the nine months ended September 30, 2018.
6
Liquidity and Capital Resources
As at September 30, 2019, the Company had $20,886 in cash and cash equivalents
compared with $36,075 as at December 31, 2018.
Operations for nine month ended September 30, 2019 and the year ended December
31, 2018, were primarily financed through the issuance of shares in the common
stock of the Company and the issuance of a promissory note.
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 periods ended September 30, 2018, and 2018, $213,678 and $773,158 in
cash, respectively, was used for operations. For both periods, the cash used in
operations was primarily the result of the net loss and a negative change in
non-cash working capital. The cash used in operations was primarily the result
of net loss and change in working capital for period ended September 30, 2019
and September 30, 2018.
Net Cash Provided by Investing Activities
During the period ended September 30, 2019, the Company did not generate or use
cash in investing activities. During the period ended September 30, 2018 the
Company generated $152,871 cash from sale of prepaid card business.
Net Cash Provided by Financing Activities
For the period ended September 30, 2018 the Company raised $196,154 from the
issuances of common shares. In comparison, $80,342 were raised from the issuance
of common stock for the period ended September 30, 2018. In addition, $837,000
and were generated and $477,402 were used from promissory notes.
7
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, 2019, the Company had $20,886 in
cash and cash equivalents (December 2018 - $36,075).
Currency risk: The Company's expenditures are incurred in Canadian and US
dollars. The results of the Company's operations are subject to currency
translation 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, 2019, the
Company's credit risk is primarily attributable to cash and cash equivalents. At
September 30, 2019, the Company's cash and cash equivalents were held with
reputable Canadian chartered banks.
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 as the promissory note have been settled during the period
ended September 30, 2019.
Fair values: The carrying amounts reported in the consolidated balance sheet
for cash and cash equivalents, accounts receivables, accounts payable and
accrued liabilities approximate fair value because of the short period of time
between the origination of such instruments and their expected realization.
8
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 year ended December 31, 2017. The amount reflected in
prepaids and other current assets as at June 30, 2019 was $NIL (December 31,
2018 - $NIL after a 100% provision).
During 2018, the Company made advance to two corporations owned by the current
Chief Executive Officer in the amount of $201,711 in the normal course of
operations. After the impairment assessment, the company made a 100% provision
for the advanced amounts.
The total amount owing to the directors and officers of the Company and
corporations controlled by the directors and officers, in relation to the
services they provide to the Company in their capacity as Officers and service
provider at September 30, 2019 was 572,096 (December 31, 2018 - $337,762) which
includes expense reimbursements. This amount is reflected in accounts payable
and is further described below.
As at September 30, 2019, the Company had an amount owing to entities owned and
controlled by the current Chief Executive Officer of the Company of $250,617
(December 31, 2018 - $14,861). The amount owing relates to services provided by
the Chief Executive Officers and expense reimbursements.
As at September 30, 2019, the Company had an amount owing to the Chief Financial
Officer of the Company of $1,510 (December 31, 2018 - $2,932). The amount owing
relates to services provided by the Chief Financial Officer.
As at September 30, 2019, the Company had an amount owing to an entity owned and
controlled by then the Chief Executive Officer of the Company of $265,533
(December 31, 2018 - $265,533). The amount owing relates to services provided
by the Chief Executive Officer and expense reimbursements.
The Company had an amount owing to an entity owned and controlled by the then
Secretary of the Company of $54,436 as at September 30, (December 31, 2018 -
$54,436). The amount owing relates to services provided by the Secretary and
expense reimbursements.
$NIL was recognized during three months ended September 30, 2019 (September 30,
2018: Issuance of shares for service - NIL, stock options expenses - $69,957,
totaling $69,957), for share-based payments expense to directors and officers of
the Company.
$NIL was recognized during six months ended September 30, 2019 (September 30,
2018: Issuance of shares for service - 337,250, stock options expenses -
$212,570, totaling $549,820), for share-based payments expense to directors and
officers of the Company.
As at September 30, 2019 and December 31, 2018, the amounts owing to officers of
the Company are recorded in accounts payable and accrued liabilities.
9
NEWLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2018, the FASB issued an accounting pronouncement (FASB ASU 2018-07) to
expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include
share-based payment transactions for acquiring goods and services from
nonemployees. The pronouncement is effective for fiscal years, and for interim
periods within those fiscal years, beginning after December 15, 2018, with early
adoption permitted. We are currently in the process of evaluating the effects of
this pronouncement on our consolidated financial statements, including potential
early adoption.
On January 1, 2018, the Company adopted the accounting pronouncement issued by
the Financial Accounting Standards Board ("FASB") to clarify existing guidance
on revenue recognition. This guidance includes the required steps to achieve the
core principle that a company should recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those
goods or services. The Company adopted this pronouncement on a modified
retrospective and such adoption did not have a material impact on our financial
position and/or results of operations.
On January 1, 2018, the Company adopted the accounting pronouncement issued by
the FASB to clarify how entities should present restricted cash and restricted
cash equivalents in the statement of cash flows. This guidance requires entities
to show changes in the total of cash, cash equivalents and restricted cash in
the combined statement of cash flows. This guidance was adopted on a
retrospective basis, and such adoption did not have a material impact on
combined financial position and/or results of operations.
In July 2017, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2017-11 ("ASU 2017-11"), which addressed
accounting for (I) certain financial instruments with down round features and
(II) replacement of the indefinite deferral for mandatorily redeemable financial
instruments of certain non-public entities and certain mandatorily redeemable
non-controlling interests with a scope exception. The main provisions of Part I
of ASU 2017-11 "change the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round features. When
determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes
equity classification when assessing whether the instrument is indexed to an
entity's own stock. The amendments also clarify existing disclosure requirements
for equity-classified instruments. As a result, a freestanding equity-linked
financial instrument (or embedded conversion option) no longer would be
accounted for as a derivative liability at fair value as a result of the
existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share
(EPS) to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS." Under previous US GAAP, warrants with a down
round feature are not being considered indexed to the entity's own stock, which
results in classification of the warrant as a derivative liability. Under ASU
2017-11, the down round feature qualifies for a scope exception from derivative
treatment. ASU 2017-11 is effective for public companies as of December 15, 2018
and interim periods within that fiscal year. Early adoption is permitted,
including adoption in an interim period, with adjustments reflected as of the
beginning of the fiscal year. We are currently in the process of evaluating the
effects of this pronouncement on our consolidated financial statements,
including potential early adoption.
The amendments in this Update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement
of cash flows. The amendments in this Update do not provide a definition of
restricted cash or restricted cash equivalents. The amendments in this Update
are effective for public business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. For all other
entities, the amendments are effective for fiscal years beginning after December
15, 2018, and interim periods within fiscal years beginning after December 15,
2019. Early adoption is permitted, including adoption in an interim period. If
an entity early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that includes that
interim period. The amendments in this Update should be applied using a
retrospective transition method to each period presented. Management does not
expect to have a significant impact of this ASU on the Company's consolidated
financial statements.
In May 2017, an accounting pronouncement was issued by the Financial Accounting
Standards Board ("FASB") ASU 2017-09, "Compensation - Stock Compensation: Scope
of Modification Accounting." ASU 2017-09 provides guidance about which changes
to the terms or conditions of a share-based payment award require an entity to
apply modification accounting. The updated guidance is effective for interim and
annual periods beginning after December 15, 2017, and early adoption is
permitted. The adoption of this pronouncement is not expected to have a material
impact on the unaudited interim condensed consolidated financial position and/or
results of operations.
10
On April 1, 2017, the Company adopted the accounting pronouncement issued by the
Financial Accounting Standards Board ("FASB") to simplify the presentation of
deferred income taxes within the balance sheet. This pronouncement eliminates
the requirement that deferred tax assets and liabilities are presented as
current or noncurrent based on the nature of the underlying assets and
liabilities. Instead, the pronouncement requires that all deferred tax assets
and liabilities, including valuation allowances, be classified as noncurrent. We
adopted this pronouncement on a retrospective basis. The adoption of this
guidance did not have a material impact on the Company's consolidated financial
position and/or results of operations.
On January 1, 2019, the Company adopted Accounting Standards Codification Topic
842, "Leases" ("ASC 842") to replace existing lease accounting guidance. This
pronouncement is intended to provide enhanced transparency and comparability by
requiring lessees to record right-of-use assets and corresponding lease
liabilities on the balance sheet for most leases. Expenses associated with
leases will continue to be recognized in a manner similar to previous accounting
guidance. The Company adopted ASC 842 utilizing the transition practical
expedient added by the Financial Accounting Standards Board ("FASB"), which
eliminates the requirement that entities apply the new lease standard to the
comparative periods presented in the year of adoption. The Company is the lessee
in a lease contract when the Company obtains the right to use the asset.
Operating leases are included in the line items right-of-use asset, lease
obligation, current, and lease obligation, long-term in the consolidated balance
sheet. Right-of-use ("ROU") asset represents the Company's right to use an
underlying asset for the lease term and lease obligations represent the
Company's obligations to make lease payments arising from the lease, both of
which are recognized based on the present value of the future minimum lease
payments over the lease term at the commencement date. Leases with a lease term
of 12 months or less at inception are not recorded on the consolidated balance
sheet and are expensed on a straight-line basis over the lease term in our
consolidated statement of income. The Company determines the lease term by
agreement with lessor. As our current operating lease of office space, at the
commencement, has a term of less than 12 months, we elect not to apply the
recognition requirements of ASC 842 to the short-term lease, instead lease
payments are recognized in statement of operations on a straight-line basis over
the lease term.
Off Balance Sheet Arrangements
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to our
investors.
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