UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-52069
TELUPAY INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
| Nevada | 98-466350 |
(State or other jurisdiction of incorporation of
organization) | (I.R.S. Employer Identification No.) |
First Island House, Peter Street
St. Helier, Jersey, Channel Islands JE4 8SG
(Address of principal executive offices, including zip code)
+44 (0)1534 789999
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| | Large Accelerated Filer | [ ] | | Accelerated Filer | [ ] |
| | Non-accelerated Filer | [ ] | | Smaller Reporting Company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 164,779,334 shares of common stock as of August 13, 2014.
TELUPAY INTERNATIONAL INC.
FORM 10-Q
INDEX
As used in this Report: (i) the terms “we,” “us,” “our,” and the “Company” mean Telupay International Inc. and its subsidiaries; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report constitute “forward-looking statements.” These statements appear in a number of places in this Report and include statements regarding our intent, belief or current expectation and that of our officers and directors. These forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In certain cases, forward-looking statements can be identified by the use of words such as “believe”, “intend”, “may”, “will”, “should”, “plans”, “anticipates”, “believes”, “potential”, “intends”, “expects” and other similar expressions. Forward-looking statements may include, but are not limited to, statements with respect to currency fluctuations, requirements for additional capital, the completion of financings and regulatory approvals, and the timing and possible outcome of pending litigation and the timing and magnitude of such events, which are inherently risky and uncertain. Important factors that you should also consider, include, but are not limited to, the factors discussed under “Risk Factors” in our Annual Report on Form 10-K.
Readers are cautioned that the foregoing list is not exhaustive of all factors that could cause actual results, performance or achievements to differ materially from those described in forward looking statements, as there may be other factors that cause results, performance or achievements to not be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. We assume no obligation to update or to publicly announce the results of any change to any of the forward-looking statements contained or included herein to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements, other than where a duty to update such information or provide further disclosure is imposed by applicable law, including applicable United States federal securities laws.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4
Telupay International Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | June 30,
2014
$ | | | March 31,
2014
$ | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | 22,065 | | | 93,157 | |
| Accounts receivable | | 280 | | | 5,463 | |
| Other current assets | | 14,081 | | | 7,526 | |
| Total Current Assets | | 36,426 | | | 106,146 | |
| Property and equipment, net of accumulated depreciation of $102,883 and $95,548 respectively | | 24,278 | | | 28,028 | |
| Capitalized software development costs, net of accumulated amortization of $136,164 and $124,512 respectively | | 96,877 | | | 108,529 | |
| Other noncurrent assets | | 131,742 | | | 120,750 | |
| Total Other Assets | | 228,619 | | | 229,279 | |
| Total Assets | | 289,323 | | | 363,453 | |
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | |
| Current Liabilities | | | | | | |
| Accounts payable and accruals | | 1,208,250 | | | 1,131,212 | |
| Accounts payable and accruals – related party | | 232,239 | | | 217,903 | |
| Deferred revenue (Note 8) | | 27,685 | | | 24,973 | |
| Notes payable (Note 6) | | 794,619 | | | 784,676 | |
| Notes payable – related parties (Note 5) | | 311,730 | | | 311,730 | |
| Convertible notes payable (Note 6) | | - | | | 146,198 | |
| Convertible notes payable – related party (Note 5) | | - | | | 57,526 | |
| Total Current Liabilities | | 2,574,523 | | | 2,674,218 | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | | 2,574,523 | | | 2,674,218 | |
| | | | | | | |
| Stockholders’ Deficit | | | | | | |
| Common Stock, 1,500,000,000 shares authorized, $0.001 par value 161,476,831 and 161,476,831issued and outstanding, respectively, (Note 4) | | 161,477 | | | 161,477 | |
| Additional paid-in capital | | 8,393,605 | | | 7,849,438 | |
| Common stock - authorized and unissued | | 5,893 | | | 573 | |
| Unamortized share-based compensation | | (8,060 | ) | | (16,123 | ) |
| Cumulative translation adjustments | | (5,904 | ) | | (18,791 | ) |
| Accumulated deficit | | (10,832,210 | ) | | (10,287,339 | ) |
| Total Stockholders’ Deficit | | (2,285,201 | ) | | (2,310,765 | ) |
| Total Liabilities and Stockholders’ Deficit | | 289,323 | | | 363,453 | |
(See accompanying notes to unaudited condensed consolidated financial statements)
5
Telupay International Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | For the three Months Ended | |
| | | June 30, | |
| | | 2014 | | | 2013 | |
| | | $ | | | $ | |
| Revenues | | 43,413 | | | 13,559 | |
| | | | | | | |
| Operating Expenses | | | | | | |
| Direct operating expense | | 43,489 | | | 10,557 | |
| Salaries and benefits | | 127,644 | | | 107,658 | |
| Share-based compensation – related parties | | 82,665 | | | 73,500 | |
| Travel | | 3,853 | | | 1,908 | |
| Professional fees | | 69,252 | | | 85,213 | |
| General and administrative expenses | | 85,021 | | | 39,038 | |
| Depreciation and amortization | | 16,666 | | | 17,101 | |
| Total Operating Expenses | | 428,590 | | | 334,975 | |
| Net Loss from Operations | | (385,177 | ) | | (321,416 | ) |
| | | | | | | |
| Other Income (Expense) | | | | | | |
| Interest expense | | (52,001 | ) | | (2,249 | ) |
| Interest expense-related party | | (40,335 | ) | | (2,625 | ) |
| Finance cost | | (47,551 | ) | | (7,500 | ) |
| Finance cost - related party | | (10,609 | ) | | - | |
| Foreign exchange loss | | (9,199 | ) | | (367 | ) |
| Total Other Income (Expense) | | (159,695 | ) | | (12,741 | ) |
| Net Loss before Provision for Income Taxes | | (544,872 | ) | | (334,157 | ) |
| Provision for income tax | | - | | | - | |
| Net Loss for the Year | | (544,872 | ) | | (334,157 | ) |
| | | | | | | |
| Net loss per share – basic | $ | (0.00) | | $ | (0.01) | |
| | | | | | | |
| Net loss per share - diluted | $ | (0.00) | | $ | (0.01) | |
| | | | | | | |
| Weighted average number of common shares outstanding - basic | | 162,518,828 | | | 48,343,261 | |
| | | | | | | |
| Weighted average number of common shares outstanding - diluted | | 163,039,808 | | | 48,343,261 | |
(See accompanying notes to unaudited condensed consolidated financial statements)
6
Telupay International Inc.
Condensed Consolidated Statements of Comprehensive (Loss)
(Unaudited)
| | | For the three months ended | |
| | | Jun 30, | |
| | | 2014 | | | 2013 | |
| | | $ | | | $ | |
| Net Loss | | (544,872 | ) | | (334,157 | ) |
Cumulative Translation Adjustment
Foreign currency translation | | 12,887 | | | (10,940 | ) |
| Total Comprehensive Income (Loss) | | (531,985 | ) | | (345,097 | ) |
(See accompanying notes to unaudited condensed consolidated financial statements)
7
Telupay International Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | For the three months Ended | |
| | | June 30, | |
| | | 2014 | | | 2013 | |
| | | $ | | | $ | |
| Operating Activities | | | | | | |
| Net loss | | (544,872 | ) | | (334,157 | ) |
| Adjustments to reconcile net loss to cash: | | | | | | |
| Depreciation and amortization | | 16,666 | | | 17,157 | |
| Financing cost | | 46,159 | | | 11,288 | |
| Financing cost –related party | | - | | | 43,500 | |
| Shares issued for debt settlement | | 286,128 | | | - | |
| Discount on convertible notes | | (203,724 | ) | | - | |
| Amortization of share-based compensation costs | | 8,063 | | | - | |
| Foreign currency loss | | 12,887 | | | 10,940 | |
| Changes in operating assets and liabilities: | | | | | | |
| Change in accounts receivable | | 5,183 | | | (454 | ) |
| Change in other current assets | | (6,555 | ) | | (3,965 | ) |
| Change in accounts payable and accruals | | 77,038 | | | 235,118 | |
| Change in accounts payable and accruals – related party | | 24,279 | | | (114,503 | ) |
| Change in deferred revenue | | 2,712 | | | (341 | ) |
| Net Cash Used in Operating Activities | | (276,036 | ) | | (135,327 | ) |
| | | | | | | |
| Investing Activities | | | | | | |
| Change in other assets | | (10,992 | ) | | - | |
| Acquisition of furniture and equipment | | (1,264 | ) | | - | |
| Net Cash Used in Investing Activities | | (12,256 | ) | | - | |
| | | | | | | |
| Financing Activities | | | | | | |
| Proceeds from notes payable | | - | | | 30,000 | |
| Proceeds from sale of common stock | | 217,200 | | | 100,000 | |
| Net Cash Provided by Financing Activities | | 217,200 | | | 130,000 | |
| | | | | | | |
| Increase in Cash | | (71,092 | ) | | (5,327 | ) |
| Cash - Beginning of Year | | 93,157 | | | 16,770 | |
| Cash - End of Year | | 22,065 | | | 11,443 | |
| | | | | | | |
| Supplemental Disclosures: | | | | | | |
| Interest paid | | - | | | - | |
| Income taxes paid | | - | | | - | |
(See accompanying notes to unaudited condensed consolidated financial statements)
8
Telupay International Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| | The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. |
| | These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements of the Company for the year ended March 31, 2014 and notes thereto included in the Company's Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. |
| | Results of operations for the interim periods are not indicative of annual results. |
| 2. | Summary of Significant Accounting Policies |
| | The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
| | Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows: |
Equipment 3-5 years
Furniture 7 years
| | The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there were no impairments needed as of June 30, 2014. |
9
Telupay International Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| 2. | Summary of Significant Accounting Policies, continued |
| | Capitalized Software Development Costs |
| | The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application. Capitalized software development costs represent the costs associated with the internal development of The Company’s software applications. Amortization of such costs is recorded on a software application-by-application basis, based on the greater of the proportion of current year sales to total of current and estimated future sales for the applications or the straight-line method over the remaining estimated useful life of the software application. The Company continually evaluates the recoverability of capitalized software costs and will charge to operations amounts that are deemed unrecoverable for projects it abandons. |
| | Revenue is derived through enterprise application integration, programming, wholesale sales and distribution of customized software applications, after-sales support and technical assistance, as well as the provision of third-party services and other related ancillary and/or support functions, services and systems related to mobile banking, money and payment solutions. |
| | The Company’s copyrighted technologies provide a modular, adaptable systems solution and application software designed to operate in multi-channel gateways and connected devices, providing services such as software development, mobile banking, mobile money and payment services, maintenance and after-sales support (i.e. system upgrades and updates), and customization services. The Company also provides other services, such as consulting and programming, provides licenses on Software as a Service (“SaaS”) basis, and receives royalties on sales on a performance basis, such as when a client acquires a new customer using our copyrighted products. |
| | Contract revenue is at a specifically fixed price separate from the price of software and PCS (Post-Contract Customer Support). Upon complete delivery based on a specific SLA (Service Level Agreement) and certificate of acceptance by the client, software revenue is recognized and billed to the client. |
| | Any cash payments before delivery in the form of deposits are treated as deferred revenue until acceptance of the client is evident to signify delivery of the product. This is the time the revenue is recognized, such that upon delivery, such deferred revenue will be recognized as revenue. |
| | In the case of PCS referring to bug fixes, patches and updates, these are treated as free support for the life of the contract. Maintenance cost is usually as a standard free for the first year. During the second year and succeeding years until end of the contract, maintenance cost revenues will be recognized on a ratable basis, applying a straight-line method. PCS product upgrades are priced separately and recognized as revenue over the life of the contract on a ratable basis. |
| | Based on a contractual period, the Company’s income is generated with a client under a revenue-sharing arrangement per transaction basis with fixed transaction fee(s) paid by the client or by the client’s customers, which is generally collected and reconciled by the client and then shared on a standard range of 50/50 revenue sharing percentage between the Company and the client net of system transaction costs. A reconciliation of successful transactions by the Company is done at the end of each month and confirmed by the client. Revenue is recognized and invoiced at this stage. The contract also allows the option for annual customer subscription fees collected from the client’s customers or paid directly by the client to the Company. A reconciliation of annual subscription fees is done every month by the Company and confirmed by the client. Annual subscription fees are invoiced at the end of each month, and revenue is recognized rateably over the one-year subscription period. |
| | Another revenue stream is commission from third-party providers that is shared on 70/30 split basis with 30% for the client. Commissions are collected by clients and shared with the Company, at which time revenue is recognized. |
| | The Company also generates revenue from development fees and after-sales support to cover maintenance, upgrades and other additional services costs. For such and all other sales of product or services, the Company recognizes revenues based on the terms of the customer agreement. In case of multiple elements, the contract has the specifics defining every payment or billing milestone as agreed upon between the Company and the client. Revenue is recognized based on a fixed price distributed every specific milestone. |
10
Telupay International Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| 2. | Summary of Significant Accounting Policies, continued |
| | Revenue Recognition, continued |
| | Revenue generated from licensure and royalty fees is recognized rateably over the agreement period. |
| | The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, “Earnings per Share.” Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share have not been presented since the effect of the assumed exercise or conversion of stock options, warrants, and debt to purchase common shares, would have an anti-dilutive effect. |
| | The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. As of June 30, 2014 and March 31, 2014, the Company determined that none of its long-term assets were impaired. |
| | Fair Value of Financial Instruments |
| | The Company has financial instruments whereby the fair value of the financial instruments could be different from that recorded on a historical basis in the accompanying balance sheets. The Company’s financial instruments consist of cash, receivables, accounts payable, accrued liabilities, and notes payable. The carrying amounts of the Company’s financial instruments approximate their fair values as of June 30, 2014 and March 31, 2014due to their short-term nature. |
| | The Company accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees are currently comprised of restricted stock grants that are recognized in the consolidated statement of operations based on their fair values at the date of grant. |
| | The Company accounts for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees may include grants of stock, stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. The fair value of option grants and warrant issuances will be calculated utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, The Company monitors both stock option and warrant exercises as well as employee termination patterns. |
| | The Company accounts for foreign currency in accordance with ASC Topic 830 “Foreign Currency” whereby the local currency is the functional currency. Assets and liabilities of the Company’s foreign locations are translated to reporting currency at the rate of exchange existing at the balance sheet date. Income statement amounts are translated |
11
Telupay International Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| 2. | Summary of Significant Accounting Policies, continued |
| | Foreign Currency, continued |
| | at a weighted average monthly exchange rate for each reporting period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as “Other comprehensive income”, a separate component of stockholders’ equity. Transaction gains and losses are included in the consolidated statement of operations. As of June 30, 2014 and 2013, the Company reported $12,887 and $10,940, respectively, in cumulative translation adjustment gains related to foreign currency re-measurement. |
| | Recent accounting pronouncements |
| | No recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
| | These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has not yet achieved profitable operations since its inception. Through June 30, 2014, the Company had accumulated losses of $10,832,211and a working capital deficit of $2,538,098. Management expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. |
| 4. | Related Party Transactions |
| | a) | Notes payable–a total of $311,730, loaned by directors during 2012, are due to certain directors as of June 30, 2014. The notes bear interest at 10% and are unsecured and are now due on demand. These notes are currently in default and repayment has not been demanded. During fiscal 2014 a director loaned $87,861 on a non-interest bearing, unsecured, demand basis. This note was assigned to a non-related third party. This promissory note was subsequently settled in June 2014 by the issuance of 878,610 Units at $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant entitling the holder to purchase an additional common share at $0.20 per share for a period of two years. |
| | b) | Director compensation - Telupay PLC issued executive service agreements to three directors, which have been amended periodically. Pursuant to these agreements, two executives, who are also officers, are entitled to monthly compensation of $7,500, and other executive director is entitled to monthly compensation of $3,200. Effective November 1, 2013 three non-executive Directors are provided with a quarterly compensation of $5,000 each. |
| | c) | Due to former officer/director of i-Level - the Company’s former officer/director was paid $4,000 per month for services rendered up to September 24, 2013. As at June 30, 2014 a total of $106,200 was owed. This amount is unsecured, non-interest bearing and due on demand. |
| | The Company owes $332,332 pursuant to 12% interest bearing, unsecured notes. As at June 30, 2014 there was interest of $248,256 accrued. This note holder is also owed $199,031 on a non-interest bearing, unsecured, demand basis. The total amount owing to this creditor is $779,619. |
| | During fiscal 2014 the Company received $188,267 from two investors. These amounts were settled in June 2014 by the issuance of 1,882,665 Units at $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant entitling the holder to purchase an additional common share at $0.20 per share for a period of two years. |
12
Telupay International Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| 5. | Notes Payable, continued |
| | As mentioned in note 5 - related party transactions, during fiscal 2014 a director loaned $87,861 on a non-interest bearing, unsecured, demand basis. This note was assigned to a non-related third party. This promissory note was subsequently settled in June 2014 by the issuance of 878,610 Units at $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant entitling the holder to purchase an additional common share at $0.20 per share for a period of two years. |
| | During the quarter ended June 30, 2014, the Company had the following equity transactions: |
| | a) | On June 24, 2014, the Company settled an aggregate of approximately $276,128 in debt through the issuance of an aggregate of 2,761,275 Units to three creditors at a deemed issuance price of $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.20 per share for a period of two years from issuance. |
| | b) | On June 24, 2014, the Company received approximately $81,200 cash through the issuance of 541,333 Units to three investors at a deemed issuance price of $0.15 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.30 per share for a period of two years from issuance. As of June 30, 2014, shares are authorized but unissued. |
| | c) | During June 2014, the Company received approximately $36,000 in cash from two investors through the issuance of 1,250,000 Units at a deemed issuance price of $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.20 per share for a period of two years. The Company also received $100,000 from one investor through the issuance of 666,667 Units at a deemed issuance price of $0.15 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.30 per share for a period of two years from issuance. As of June 30, 2014, shares are authorized but unissued. |
| | On September 24, 2013, in connection with the i-Level Media Group, Inc. merger, the Company agreed to exchange all outstanding Telupay, PLC warrants for warrants of the Company based on an exchange ratio of 1.2:1. As a result, the Company has issued 10,734,000 warrants to acquire 10,734,000 common shares of the Company exercisable at $0.2777 per share and expiring June 28, 2014. |
| | In June of 2014, the Company granted a total of 2,609,638 warrants to purchase its common stock in connection with its unit offering as detailed in Note 6. The warrants are exercisable at a price range of $0.20 - $0.30 and expire two years from the date of issuance. |
| 8. | Fair Value of Financial Instruments |
| | The Company adopted ASC Topic 820-10 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below: |
| | Level I – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. |
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| | Level II – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
| | Level III – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability. |
| | The following methods and assumptions are used to estimate the fair value of each class of financial instruments: |
| | June 30, 2014 | | Level I | | | Level II | | | Level III | | | Fair Value | |
| | Capitalized software development | $ | – | | $ | – | | $ | 96,877 | | $ | 96,877 | |
| | Notes payable– related party | | – | | | (311,730 | ) | | – | | | (311,730 | ) |
| | Notes payable | | – | | | (794,619 | ) | | – | | | (794,619 | ) |
| | Convertible notes payable | | – | | | -- | | | – | | | -- | |
| | Total | $ | – | | $ | (1,106,349 | ) | $ | 96,877 | | $ | (1,009,472 | ) |
| | | | | | | | | | | | | | |
| | March 31, 2014 | | Level I | | | Level II | | | Level III | | | Fair Value | |
| | Capitalized software development | $ | – | | $ | – | | $ | 108,529 | | $ | 108,529 | |
| | Notes payable– related party | | – | | | (311,730 | ) | | – | | | (311,730 | ) |
| | Notes payable | | – | | | (784,676 | ) | | – | | | (784,676 | ) |
| | Convertible notes payable | | – | | | (203,724 | ) | | – | | | (203,724 | ) |
| | Total | $ | – | | $ | (1,300,130 | ) | $ | 108,529 | | $ | (1,191,601 | ) |
| | On March 26, 2012, Telupay PLC entered into a five-year License Agreement for the use and distribution of its mobile banking and payment software. Telupay PLC received a non-refundable amount of $30,000 for the exclusive right to distribute, use, and to provide the software to the licensees’ clients. The amount was recorded as deferred revenue and is taken into income over five years. The agreement is renewable upon mutual agreement of both parties. |
| | The Company has evaluated all subsequent events through the date these financial statements were issued and determined the following: |
| | a) | On July 31, 2014, the Company settled an aggregate of approximately $36,439 in debt through the issuance of an aggregate of 364,394 Units to two creditors at a deemed issuance price of $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.20 per share for a period of two years from issuance. |
| | b) | On July 31, 2014, the Company settled approximately $8,120 in debt through the issuance of 54,133 Units to on creditor at a deemed issuance price of $0.15 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.30 per share for a period of two years from issuance. |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements for our fiscal quarter ended June 30, 2014 and the notes thereto included elsewhere in this report. Our consolidated financial statements are prepared in accordance with U.S. GAAP. All references to dollar amounts in this section are in U.S. dollars unless expressly stated otherwise.
Overview
The Company effected the acquisition of Telupay PLC (“Telupay”) by way of a merger pursuant to the terms of the Amended and Restated Merger Agreement dated August 8, 2013 among the Company, Telupay, and I-Level Mergeco. The merger was effective on September 24, 2013, at which time I-Level Mergeco merged with and into Telupay, pursuant to which the identity and separate corporate existence of I-Level Mergeco ceased and Telupay became the surviving corporation in the Merger and a wholly owned subsidiary of the Company.
The closing of the acquisition of Telupay represented a change in control of our Company. For accounting purposes, this change of control constitutes a re-capitalization of the Company, and the acquisition has been accounted for as a reverse merger whereby we, as the legal acquirer, are treated as the acquired entity, and Telupay, as the legal subsidiary, is treated as the acquiring company with the continuing obligations.
Results of Operations
Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013
We had revenues of $43,413 during our quarter ended June 30, 2014, as compared to $13,559 during our quarter ended June 30, 2013. The increase in revenues between the periods mostly pertained to growing usage of mobile banking services for airtime load and bill payments in the Philippines.
Our operating expenses were $428,590 during the quarter ended June 30, 2014, as compared to $334,975 during the quarter ended June 30, 2013, as follows:
- Direct operating expense of $43,489 (consisting of payment for mobile prepaid load sold to clients) for the quarter ended June 30, 2014, increased from $10,557 for the quarter ended June 30, 2013, primarily due to growing usage of mobile banking services for airtime load and bill payments in the Philippines.
- Salaries and benefits of $127,644 for the quarter ended June 30, 2014, as compared to $107,658 for the quarter ended June 30, 2013. The reason for the increase was due to increase in personnel.
- Share based compensation of $82,665 for the quarter ended June 30, 2014, was slightly higher than share-based compensation of $73,500 for the quarter ended June 30, 2013.
- Travel of $3,853 for the quarter ended June 30, 2014, as compared to $1,908 for the quarter ended June 30, 2013.
- Professional fees of $69,252 for the quarter ended June 30, 2014, as compared to $85,213 for the quarter ended June 30, 2013. The reason for the decrease was primarily due to legal fees regarding the merger transaction in incurred during the quarter ended June 30, 2013.
- General and administrative expenses of $85,021 for the quarter ended June 30, 2014, as compared to $39,038 for the quarter ended June 30, 2013. The reason for the increase was primarily due to an increase in our overall operations.
- Depreciation and amortization of $16,666 for the quarter ended June 30, 2014 was substantially similar to depreciation and amortization of $17,101 for the quarter ended June 30, 2013.
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Liquidity and Capital Resources
Overview
At June 30, 2014, we had cash of $22,065 (June 30, 2013: $93,157) and a working capital deficiency of $2,538,097 which included cash of $22,065, customer accounts receivable of $280 and other current assets of $14,081. We have accounts payable and accrued expenses (including related party) of $1,440,489; notes payable (including related party) of $1,106,349, and deferred revenue of $27,685.
Future Growth and Expansion Plans and Need for Additional Capital
We require additional capital to support our ongoing basic overhead and operations estimated to be approximately $1 million for the next twelve months. We require $3 million in additional capital to start executing our business initiatives in each of Peru, United Kingdom/Europe, the Philippines and Indonesia over the next twelve months. We anticipate that we will raise the required capital pursuant to a private equity financing in the near term, but there is no guarantee that we will be able to do so.
During 2014 we plan to seek further additional financing, but there is no guarantee that we will be able to do so. Should we be successful in raising sufficient financing, we can begin planning for other business initiatives such as: completing the execution of our business plan in each of Peru, United Kingdom/Europe, the Philippines and Indonesia and entering into a formal partnership in Colombia similar to Peru; accelerating our business initiatives in the United Kingdom and Europe; and fund marketing and incentive initiatives for the new generation of products throughout the European marketplace. The following table sets forth the major sources and uses of cash for the quarters ended June 30, 2014 and 2013:
| | | Quarter ended June 30, 2014
$ | | | Quarter Ended June 30, 2013
$ | |
| Net cash used in operating activities | | (276,036 | ) | | (135,327 | ) |
| Net cash used in investing activities | | (12,256 | ) | | - | |
| Net cash provided by financing activities | | 217,200 | | | 130,000 | |
| Net increase (decrease) in cash | | (71,092 | ) | | (5,327 | ) |
Cash Used in Operating Activities
During the quarter ended June 30, 2014, we used $(276,036) (2013 - $(135,327)) in operating activities. This was made up of:
- our net loss of $(544,872) (2013 - $(334,157));
- adjustments to reconcile net loss to cash of: depreciation and amortization of $16,666 (2013 - $17,157), financial costs (including related party) of $46,159 (2013 – 54,788), shares issued for debt settlement of $286,128 (2013 - $Nil), discount on convertible notes of $(203,724) (2013 - $Nil), amortization of share-based compensation costs of $8,063 (2013 - $Nil), and foreign currency loss of $12,887 (2013 – 10,940);
- changes in operating assets and liabilities of: change in accounts receivable of $5,183 (2013 - $(454)), change in other current assets of $(6,555) (2013 - $(3,965)), change in accounts payable and accruals of $77,038 (2013 - $235,118), change in accounts payable and accruals, related party of $24,279 (2013 – $(114,503)), and change in deferred revenue of $2,712 (2013 - $(341)).
Cash Used in Investing Activities
During the quarter ended June 30, 2014, $(12,256) was used in investing activities (2013 - $Nil), consisting of a change in other assets of $(10,992) (2013 - $Nil) and acquisition of furniture and equipment of $(1,264) (2013 - $nil).
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Cash Provided by Financing Activities
During the quarter ended June 30, 2014, we received $217,200 from financing activities (2013 - $130,000), consisting of the following: proceeds from notes payable of $Nil (2013 - $30,000) and proceeds from sale of common stock of $217,200 (2013 - $100,000).
Off Balance Sheet Arrangements
We have not had, and at June 30, 2014, 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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our financial statements, we believe the critical accounting policies involving the most complex, difficult and subjective estimates and judgments are: revenue recognition, share-based compensation and use of estimates as discussed in Note 2 to the condensed financial statements included in Item 1 to this report.
Recently Issued Accounting Pronouncements
There have been no recently issued Accounting Pronouncements that impact us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, in light of the material weaknesses found in our internal controls over financial reporting as described in our Annual Report on Form 10-K for our fiscal year ended March 31, 2014, our disclosure controls and procedures were not effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fiscal quarter ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended June 30, 2014, the Company made the following sales of equity securities:
a) On June 24, 2014, the Company settled an aggregate of approximately $276,128 in debt through the issuance of an aggregate of 2,761,275 Units to three creditors at a deemed issuance price of $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.20 per share for a period of two years from issuance.
b) On June 24, 2014, the Company received approximately $81,200 cash through the issuance of 541,333 Units to three investors at a deemed issuance price of $0.15 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.30 per share for a period of two years from issuance. As of June 30, 2014, shares are authorized but unissued.
c) During June 2014, the Company received approximately $36,000 in cash from two investors through the issuance of 1,250,000 Units at a deemed issuance price of $0.10 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.20 per share for a period of two years. The Company also received $100,000 from one investor through the issuance of 666,667 Units at a deemed issuance price of $0.15 per Unit. Each Unit contained one common share and one/half of one common share purchase warrant to purchase an additional common share at $0.30 per share for a period of two years from issuance. As of June 30, 2014, shares are authorized but unissued.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
The following documents are included herein:
| Exhibit No. | Description of Exhibit |
| 3.1(1) | Articles of Incorporation. |
| 3.2(2) | Articles of Merger (pursuant to which the Company’s Articles of Incorporation were amended to change the Company’s name to “i-Level Media Group Incorporated”). |
| 3.3(3) | Certificate of Change filed with the Secretary of State of Nevada on June 29, 2011. |
| 3.4(3) | Certificate of Correction filed with the Secretary of State of Nevada on July 6, 2011. |
| 3.5(4) | Certificate of Amendment filed with the Secretary of State of Nevada on March 13, 2012. |
| 3.6(9) | Certificate of Change filed with the Secretary of State of Nevada on October 4, 2013. |
| 3.7(9) | Articles of Merger as filed with the Nevada Secretary of State on October 4, 2013. |
| 3.8(1) | Bylaws. |
| 10.1(5) | Agreement in Principle between the Company and Telupay PLC. |
| 10.2(6) | Merger Agreement & Plan of Merger between i-Level Media Group Incorporated and Telupay PLC, dated December 13, 2012, including Telupay Disclosure Schedule pursuant thereto. |
| 10.3(7) | Amended and Restated Merger Agreement & Plan of Merger between i-Level Media Group Incorporated and Telupay PLC, dated August 8, 2013, including Telupay Disclosure Schedule pursuant thereto. |
| 10.4(8) | Assignment, Transfer and Acceptance of Assets between Qspan Technologies Ltd. and Telupay PLC, dated December 21, 2010. |
| 10.5(8) | Asset Purchase Agreement between Qspan Technologies Ltd. and Telupay PLC, dated December 21, 2010. |
| 10.6(8) | Service Provider Agreement among Metrobank & Trust Company, Telupay (Philippines) Inc. and Telupay (M.E.) FZE, dated December 13, 2010. |
| 10.7(8) | Software Escrow Agreement among Metrobank & Trust Company, Telupay (M.E.) FZE, Telupay (Philippines) Inc. and Gimenez Mayuga Gatmaitan and Associates, December 13, 2010. |
| 10.8(8) | Service Provider Agreement between Telupay (Philippines) Inc. and Union Bank of the Philippines dated March 7, 2011. |
| 10.9(8) | Service Agreement between Telupay (Philippines) Inc. and United Coconut Planters Bank, dated October 14, 2011. |
| 10.10(8) | Service Agreement between Telupay Solutions Limited and Metapago S.A., dated November 4, 2011. |
| 10.11(8) | Memorandum of Agreement between Telupay (Philippines) Inc. and Megalink, Inc., dated August 17, 2012. |
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act. * |
| 31.2 | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act. * |
| 32.1 | Certification of Chief Executive Officer and Chief Financial officer Under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act. * |
| 101.INS | XBRL Instance Document* |
| 101.SCH | XBRL Taxonomy Extension Schema* |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase* |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase* |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase* |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase* |
* Filed herewith.
(1) Incorporated by reference from our Registration Statement on Form SB-2 as filed with the SEC on March 17, 2006.
(2) Incorporated by reference from our Registration Statement on Form SB-2 as filed with the SEC on July 9, 2007.
(3) Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on July 11, 2007.
(4) Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on March 13, 2012.
(5) Incorporated by reference from our Registration Statement on Form S-1 as filed with the SEC on March 6, 2008.
(6) Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on December 19, 2012.
(7) Incorporated by reference from our Current Report on Form 8-K filed with the SEC on August 13, 2013.
(8) Incorporated by reference from our Current Report on Form 8-K filed with the SEC on September 30, 2013.
(9) Incorporated by reference from our Current Report on Form 8-K filed with the SEC on October 23, 2013.
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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.
| | | TELUPAY INTERNATIONAL INC. |
| | | |
| Date: August 18, 2014 | BY: | /s/ Adrian Ansell |
| | | Adrian Ansell, President, Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
| Date: August 18, 2014 | BY: | /s/ Rosarito Carrillo |
| | | Rosarito Carrillo, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) |
