Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
(Unaudited)
Note 1 – Basis of Presentation and Nature of Operations
The accompanying consolidated balance sheet as of December 31, 2012 has been derived from audited financial statements and the accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the interim reporting requirements of Regulation S-X. The accompanying interim consolidated financial statements included herein have been prepared by E-Debit Global Corporation (the “Corporation”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.
Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and E-Debit Global Corporation believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2012 audited financial statements and the accompanying notes thereto contained in the Annual Report on Form 10-K filed with the Securities and Exchange Commission. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by E-Debit Global Corporation later in the year. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. In management’s opinion all adjustments necessary for a fair presentation of the Corporation’s financial statements are reflected in the interim periods included.
Westsphere Asset Corporation, Inc. (Corporation) was incorporated in Colorado on July 21, 1998 as Newslink Networks TDS, Inc. and changed its name to Westsphere Asset Corporation Inc. on April 29, 1999. On April 2, 2010, the Corporation officially changed its name to E-Debit Global Corporation.
On September 18, 2012, the Corporation amended its articles of incorporation to increase its authorized capital to Ten Billion (10,000,000,000) shares of no par value common stock and Two Hundred Million (200,000,000) of no par value preferred stock.
The Corporation’s primary business is the sale and operation of cash vending (ATM) and point of sale (POS) machines in Canada.
Note 2 – Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting for the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a non-profit activity or a business within a foreign entity. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. We do not anticipate that this adoption will have a significant impact on our financial position, results of operations or cash flows.
In February 2013, FASB issued new accounting guidance clarifying the accounting for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. We do not anticipate that this adoption will have a significant impact on our financial position, results of operations or cash flows.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
Note 3 – Fair Value Measurements
The carrying amounts of current assets and current liabilities approximate fair value because of the short-term nature or the current rates at which the Corporation could borrow funds with similar remaining maturities. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Corporation does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments.
The FASB ASC clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2:
|
Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
|
|
Level 3:
|
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Note 4 - Restricted cash
The Corporation relies on a contractual agreement with Moneris Solution Corporation to settle daily ATM vault cash dispensements throughout our ATM Network into our bank account. The ATM vault cash will be settled to the cash owners within 24 hours turn around.
Note 5 - Accounts Receivable
Accounts receivable consists of amounts due from customers. The nature of the receivables consists of equipment sales, parts and accessories, and service provided. The Corporation considers accounts more than 180 days old to be past due, since the Corporation can withhold the transactions revenue owed to the customers should their receivables become past due. The account is deemed uncollectible and written off when the site locations are out of business and or in receivership. The Corporation uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance.
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Accounts Receivable
|
|
|
|
|
|
|
Equipment
|
|
|
-
|
|
|
$
|
597
|
|
Services
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
68,230
|
|
|
|
60,607
|
|
|
|
|
68,230
|
|
|
$
|
61,204
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts
|
|
|
(21,866
|
)
|
|
|
(23,413
|
)
|
|
|
$
|
46,364
|
|
|
$
|
37,791
|
|
The bad debt expense for the six months ended June 30, 2013 and June 30, 2012 totaled $15,367 and $12,221, respectively. The bad debt is reflected in the accompanying consolidated Statements of Operations as Other operating expenses.
Note 6 – Inventory
Inventory consists of the following elements:
|
|
|
Quantity
|
|
|
|
Cost
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
ATM
|
|
|
27
|
|
|
$
|
68,628
|
|
Parts and accessories
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
$
|
68,628
|
|
|
|
|
Quantity
|
|
|
|
Cost
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
ATM
|
|
|
31
|
|
|
$
|
70,835
|
|
Parts and accessories
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
$
|
70,835
|
|
Inventories are valued at the lesser of cost (on a first-in, first-out method) or net realizable value.
Note 7 – Property and Equipment
Property and equipment in service consists of the following elements:
|
|
Cost
|
|
|
Accumulated
Depreciation/
Amortization
|
|
|
Net
Book Value
|
|
Depreciation
Rate
and
Method
|
December 31, 2012 -
|
|
|
|
|
|
|
|
|
|
|
Office furniture and
equipment
|
|
$
|
62,380
|
|
|
$
|
38,947
|
|
|
$
|
23,433
|
|
20% DB
|
Computer hardware and
software
|
|
|
180,349
|
|
|
|
142,516
|
|
|
|
37,833
|
|
30% DB
|
ATM machines
|
|
|
210,627
|
|
|
|
47,789
|
|
|
|
162,838
|
|
30% DB
|
Other
|
|
|
7,494
|
|
|
|
6,408
|
|
|
|
1,086
|
|
Var
|
|
|
$
|
460,850
|
|
|
$
|
235,660
|
|
|
$
|
225,190
|
|
|
June 30, 2013 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and
equipment
|
|
$
|
38,259
|
|
|
$
|
30,470
|
|
|
$
|
7,789
|
|
20% DB
|
Computer hardware and
software
|
|
|
141,374
|
|
|
|
108,527
|
|
|
|
32,847
|
|
30% DB
|
ATM machines
|
|
|
152,719
|
|
|
|
39,458
|
|
|
|
113,261
|
|
30% DB
|
Other
|
|
|
8,014
|
|
|
|
7,501
|
|
|
|
513
|
|
Var
|
|
|
$
|
340,366
|
|
|
$
|
185,956
|
|
|
$
|
154,410
|
|
|
There are no leased ATMs included in the Corporation’s property and equipment for the six months ended June 30, 2013 and for the year ended December 31, 2012.
Depreciation and amortization have been provided in amounts sufficient to recover asset costs over their estimated useful lives. All components of property and equipment are being depreciated or amortized. Depreciation and amortization expense for the six months ended June 30, 2013 and June 30, 2012 totaled $57,062 and $53,702, respectively.
Note 8 – Deferred Costs/Intangible Assets
On the 9
th
of November 2007, E-Debit contracted with ACI Worldwide through its wholly owned subsidiary Westsphere Systems Inc. (WSI) to provide its ACI ‘Base 24 On Demand” (AOD) hosted solution for ATM and POS transaction acquiring where WSI shares responsibilities with ACI as the transaction processor. ACI hosts the processing environment which is set up to specific requirements as set out by WSI, which supports WSI ATM and POS devices, debit and credit transaction processing and card management requirement that is unique and scalable to WSI’s current and future requirements and not shared with other ACI customers. ACI supplies software acquisition, operation and maintenance, facilities, operations and environment development and maintenance and disaster recovery infrastructure and services; whereby WSI supports, authorizes and distributes all settlements and revenues distributions through its account maintenance software developed by WSI and specific to ACI On Demand processing platform.
As a result Westsphere Systems Inc. processed all transactions through its association with ACI hosted transaction processing solution eliminating the costs, restrictions, and potential risks of relying on third party processors.
The Corporation capitalized costs related to development of software totaling $168,690 in 2007. The Corporation is amortizing these costs over its expected life. E-Debit officially launched its switch in January 2009 and commenced rollover of ATMs to process all transactions through its association with ACI. The deferred costs were reclassified as intangible assets upon the completion of all the specific requirements including coding and testing in year 2009. The Corporation assessed the useful life of the intangible asset in relation to its five-year contract with ACI commencing November 2008. The Corporation also determined the technology may be outdated at the end of the term of the contract and an enhancement of the software may be required at that time.
Depreciation is calculated using a declining balance method.
Intangible assets consist of the following elements:
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Depreciation
Method
|
December 31, 2012 -
|
|
|
|
|
|
|
|
|
|
|
License – ACI
|
|
$
|
168,690
|
|
|
$
|
134,953
|
|
|
$
|
33,737
|
|
Straight-line
|
Patent
|
|
|
15,076
|
|
|
|
14,416
|
|
|
|
660
|
|
Straight-line
|
License – Paragon
|
|
|
18,319
|
|
|
$
|
8,790
|
|
|
|
9,529
|
|
Straight-line
|
|
|
$
|
202,085
|
|
|
$
|
158,159
|
|
|
$
|
43,926
|
|
|
June 30, 2013 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License – ACI
|
|
$
|
159,610
|
|
|
$
|
143,651
|
|
|
$
|
15,959
|
|
Straight-line
|
Patent
|
|
|
15,255
|
|
|
|
15,255
|
|
|
|
—
|
|
Straight-line
|
License – Paragon
|
|
|
17,333
|
|
|
$
|
12,823
|
|
|
|
4,510
|
|
Straight-line
|
|
|
$
|
192,198
|
|
|
$
|
171,729
|
|
|
$
|
20,469
|
|
|
Depreciation and amortization have been provided in amounts sufficient to recover asset costs over their estimated useful lives. Depreciation and amortization expense for the year ended June 30, 2013 and June 30, 2012 totaled $21,036 and $18,526, respectively. This depreciation and amortization expense was part of the totals which are reflected in the accompanying consolidated statements of operations as Depreciation and amortization.
Expected future depreciation and amortization of the intangible assets are as follows:
Note 9 – Loans Payable
In September 2007, Vencash entered into a loan agreement with an initial term of twelve months totaling $95,099 ($100,000 CDN) with an external arms-length investor, bearing interest at 12% per annum, with blended monthly payments of interest only of $977 ($1,000 CDN). The initial term may be automatically extended for further six (6) month terms (a “renewal period”) after the end of the initial term or terminated subject to mutual termination agreements. The investor must give a written notice not less than 90 days before the end of the initial term or renewal period, whichever the case may be, to not renew the loan agreement. Vencash must notify the investor not less than 60 days before the end of the initial term or renewal period, its intention to terminate the loan. Currently, no written notice has been received from the investor to Vencash or vice versa.
As of June 30, 2013, the balance is $95,099 ($100,000 CDN). This loan is included in the accompanying consolidated balance sheet as Loans payable.
In November 2007, Westsphere’s subsidiary Westsphere Systems Inc. (WSI) raised $124,948 ($131,000 CDN) through a loan agreement with an initial term of twenty-four months with an external arms-length investor, bearing interest at 12% per annum, with blended monthly payments of interest only of $1,280 ($1,310 CDN). The initial term may be automatically extended for further twelve month terms (a “renewal period”) after the end of the initial term or terminated subject to mutual termination agreements. The investor must give a written notice not less than 90 days before the end of the initial term or renewal period, whichever the case may be, to not renew the loan agreement. Vencash must notify the investor not less than 30 days before the end of the initial term or renewal period, its intention to terminate the loan. Currently, no written notice has been received from the investor to WSI or vice versa. The purpose of the loan was to fund the switch development project. In February 2010, the loan was reduced by $62,212 ($65,000 CDN) in exchange for 622,123 common shares at $0.10 per share. In May 2012, the loan was reduced by $981 ($998 CDN) in offsetting against the expenses. In September 2012, the loan was reduced by $59 ($60 CDN) in offsetting against the expenses. In December 2012, WSI recorded an accrued interest of $4,324 ($4,547 CDN). In March 2013, WSI recorded an accrued interest of $1,914 ($1,947 CDN). In June 2013, WSI recorded an accrued interest of $1,852 ($1,947 CDN). As of June 30, 2013, the balance is $69,786 ($73,383 CDN). This loan is included in the accompanying consolidated balance sheet as loans payable.
On December 20, 2011 the Corporation and its subsidiaries jointly and severally entered into a Demand Loan Agreement and related GSA with an investor for a loan of $196,643 ($200,000 CDN) at a prime lending rate of Canadian Prime plus four (4%) percent. Under the GSA, this debt is collateralized by all of the Corporation’s assets. Upon demand the Corporation has forty-five (45) days to repay the Demand Loan and interest. On October 24, 2012, the loan was repaid by $105,588 ($107,390 CDN). On December 5, 2012, the loan was repaid by $75,218 ($76,503 CDN). In June 2013, the loan was repaid by $15,837 ($16,107 CDN). As of June 30, 2013, the balance is $0. This loan is included in the accompanying consolidated balance sheet as Loans payable.
On August 15, 2012 the Corporation and its subsidiaries jointly and severally entered into a Demand Loan Agreement and related GSA with an arms-length third party investor for a loan of $94,465 ($100,000 CDN) at a prime lending rate of Canadian Prime plus four (4%) percent. Under the GSA, this debt is collateralized by all of the Corporation’s assets. Upon demand the Corporation has forty-five (45) days to repay the Demand Loan and interest. In March 2013, E-Debit recorded an accrued interest of $1,836 ($1,868 CDN). In June 2013, E-Debit recorded an accrued interest of $2,023 ($2,070 CDN). In June 2013, the loan was repaid by $31,743 ($16,107 CDN). As of June 30, 2013, the balance is $66,581 ($70,013 CDN). This loan is included in the accompanying consolidated balance sheet as Loans payable.
Note 10 – Commitments and Contingencies
The Corporation leases real estate (office and warehouse space) under non-cancellable operating leases that expire on varying dates through 2014.
The Corporation leases additional real estate (office and warehouse space) for an “Initial Term” commencing June 1, 2010 on a month to month basis. The Corporation may renew the Lease on a monthly basis by giving notice to the Landlord.
The Corporation also has the obligation for equipment lease through 2016.
The Corporation’s real estate leases are with an affiliated Corporation that is controlled by the Corporation’s president.
Minimum future rental payments under non-cancellable operating leases having remaining terms in excess of one year are as follows:
|
|
Real Estate
|
|
|
Other
|
|
2013
|
|
$
|
35,087
|
|
|
$
|
2,111
|
|
2014
|
|
$
|
11,742
|
|
|
$
|
4,434
|
|
2015
|
|
$
|
—
|
|
|
$
|
4,434
|
|
2016
|
|
$
|
—
|
|
|
$
|
2,217
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Rental expense
|
|
$
|
53,604
|
|
|
$
|
96,602
|
|
On May 28, 2004 Peter Gregory filed an action in the Ontario Superior Court of Justice against Vencash Capital Corporation. Peter Gregory was a former Vencash distributor and agent who filed the action related to a claim of wrongful dismissal from Vencash for $260,000 (CDN). On July 30, 2004 Vencash filed a Statement of Defence and Counterclaim in the amount of $1,600,000 for breach of contract, breach of confidence, breach of fiduciary duties, interference with economic relations, damages for inducing breach of contract, and punitive damages. The Corporation believes the claim by Gregory to be without merit. In January 2012, the Corporation received a copy of notice of garnishment from our bank institution against Vencash’s bank account for the total amount not to exceed $31,649 CDN. The Corporation did not receive the notification for the judgement and this notice was rescinded by the bank upon delivery. As of July 2013 the Corporation has not been contacted further relating to the action initiated by Gregory. The Corporation is currently reviewing the related correspondence and is in consultation with legal counsel and upon completion of the review will respond to any further action initiated by Gregory in this regard.
On January 25, 2009, Victory ATM filed an action in the Nova Scotia Superior Court against Vencash Capital Corporation. Victory ATM was formerly a customer of Vencash distributor Bullion Investments Inc. and claimed that supplied vault cash to a contracted armoured car Corporation had been misappropriated for a total of approximately $45,000 CDN. The Corporation has filed a statement of defense stating that Vencash had no care control or access to the vault cash supplied by Victory ATM and the only role that Vencash played was processing the Victory ATM transactions in their designated site locations. The Corporation believes the claim by Victory ATM to be without merit and has not accrued a liability for the claim. As of July 2013, our Nova Scotia legal counsel has advised that the plaintiff revived its action against Vencash Capital Corporation. The Corporation is currently reviewing the related correspondence and is in consultation with legal counsel and upon completion of the review will respond to any further action initiated by Victory ATM in this regard.
On December 11, 2012, Mainland Investments, Inc. and Research Driven Investor, LLC filed an action in the Alberta Court of Queen’s Bench against E-Debit Global Corporation, E-Debit’s officers, and various other parties. Mainland Investment Inc. and Research Driven Investor, LLC (RDI) (specialized investor relations firms) claimed for a total of $150,000 CDN related to an alleged investor relations consulting agreement between RDI and the Corporation. On February 4, 2013, the Corporation and E-Debit’s officers have filed a statement of defense denying that there had ever existed an agreement between RDI and E-Debit. The Corporation has a signed Investor Relations Consulting Agreement with Open Waters Investments Inc. (OWI) and deny that OWI ever had authority to enter into written or oral agreement with RDI on behalf of E-Debit, or that E-Debit ever contractually agreed to or represented that it had appointed RDI as its advisor. The Corporation believes the claim by Mainland Investments, and Research Drive Investor, LLC to be without merit and has not accrued a liability for the claim. As of July 2013, there has been no change in this action since last filing. The Corporation will respond to any further action initiated by Mainland Investments, Inc. and Research Driven Investor, LLC in this regard.
On December 14, 2012, Trans-Armored Canada Inc. filed an action in the Nova Scotia Superior Court against Westsphere Systems Inc. (WSI). Trans-Armored Canada Inc. (TAC) was formerly a contracted armoured car Corporation to deliver vault cash to site locations and claimed for a total outstanding debt of $34,325 CDN. As set out in the 15
th
of August 2007 TAC/Vencash Agreement, the Corporation’s President and Chief Executive Officer sits as a member of the board of directors and represents 50% of TAC’s board of directors. The Corporation has released what it believes to be the full and final payment to TAC in May 2012 where the Corporation and TAC mutually agreed to offset the full amount of deposit due from TAC against the accounts payable owed to TAC. The Corporation believes the claim by Trans-Armored Canada Inc. to be without merit and has not accrued a liability for the claim. As of July 2013, there has been no change in this action since last filing. The Corporation will respond to any further action initiated by Trans-Armored Canada Inc. in this regard.
Since 2009, Interac, MasterCard and VISA have mandated a hardware and software security upgrade for ATMs, Debit Terminals and the Corporation’s Switch.
Security upgrades are required under Interac, MasterCard, and VISA rules. These upgrades include the requirements to have:
(a)
|
EMV (Europay, MasterCard, VISA) certified chip card (the replacement technology for the historical magnetic stripe cards)software/readers, and
|
(b)
|
network approved encrypted PIN pad ("EPP") devices, installed on all ATMs and debit terminals: thereby providing the ability to accept EMV chip card transactions. This has required and will also require further upgrading the Corporation’s Switch to process EMV chip card transactions, and adding additional encryption methods to Corporations managed ATMs and Debit terminals, Triple DES Encryption.
|
The Corporation’s understanding of the deadlines mandated by Interac and MasterCard for conversion of ATMs and debit terminals (i.e. to read the EMV microchip on a card rather than a magnetic stripe) are as follows:
(a)
|
50% of all ATMs had to upgraded with an EMV certified chip pin entry device by December 31, 2011 and 100% of ATMs must be upgraded by December 31, 2012;
|
(b)
|
35% of debit terminals had to upgraded with an EMV certified chip pin entry device by December 31, 2010, 60% must be converted by December 31, 2012, and 100% must be upgraded by December 31, 2015.
|
VISA's rule changes do not require a switch to the new technology by any particular date. However, both MasterCard and VISA rules provide that after March 31, 2011, certain liabilities (i.e. in respect of transaction errors or frauds) will be reallocated to industry participants who are still accessing the MasterCard and VISA networks using non-upgraded equipment, cards or software.
In addition to the security upgrades to ATM and Debit Terminals, in order to access Interac, cards (i.e. the debit cards issued by financial institutions) had to upgraded (i.e. reissued) to have EMV chips installed: 65% by December 31 2011 and 100% by December 31, 2012.
The result of non-compliance can include penalties, fines, sanctions and contractual penalties by the applicable Network(s) and ultimately disconnection of the ATM and Debit Terminal device or card from the Network for failure to comply by the end dates. The Corporation will be investing maintenance capital and upgrading its IT department to meet these upgrade deadlines. The Corporation’s customers who own their own equipment are encouraged to make the necessary changes to their equipment and in some cases the Corporation has the contractual right to make the necessary changes for the customer (and charge the customer for the cost of the change).
Management believes that the Corporation and/or its subsidiaries are in compliance 100% with EMV requirements.
Note 11 – Related Party transactions
Investment, at cost:
In October 2010, E-Debit sold 41 common shares (41%) of the issued and outstanding shares held in its wholly owned subsidiary, 1105725 Alberta Ltd. o/a Personal Financial Solutions (PFS) at $1.00 per share. The common shares were sold to a number Corporation that is controlled by an officer of E-Debit. The purchaser agrees that the current outstanding advances made to the Corporation by E-Debit will remain outstanding and owed by the related party to E-Debit. As a result of the sale transaction, E-Debit remains a 10% shareholder in Personal Financial Solutions. PFS has had no active business activities for the last four years. The 10% or $10 interest in Personal Financial Solutions is reflected in the accompanying consolidated balance sheet as investment, at cost.
In May 2011, E-Debit sold 90 common shares (90%) of the issued and outstanding shares held in its wholly owned subsidiary, Cash Direct Financial Services Ltd. (CDF) at $1.00 per share. The common shares were sold to a number Corporation that is controlled by the president of E-Debit. The purchaser agreed that the current outstanding advances made to Cash Direct by the Corporation will remain outstanding and owed by the related party to E-Debit. As a result of the sale transaction, E-Debit remains a 10% shareholder in Cash Direct Financial Services. CDF commenced the sale of ATMs in 2012. The 10% or $10 interest in Cash Direct Financial Services is reflected in the accompanying consolidated balance sheet as investment, at cost.
On December 13, 2012, Group Link Inc. (“Group Link”) was incorporated under the laws of the Province of Alberta as the foundation of the re-establishment of our nationwide distribution network, which in the past allowed for our presence in the Canadian marketplace.
The Corporation was the majority shareholder of Group Link holding 55% of the issued and outstanding common stock of the Corporation. The Corporation’s Chief Executive Officer is Group Link’s Chief Executive Officer and Director and holds personally 15% of the issued and outstanding common stock of Group Link. E-Debit’s Chief Operating Officer is a Director and personally holds 10% of the issued and outstanding common stock of Group Link. Group Link’s President and Group Link’s Chief Development Officer both are Directors of Group Link and each hold 10% of the issued and outstanding common stock of the Group Link.
In May 2013, E-Debit sold 45 common shares (45%) of the issued and outstanding shares held in its majority shareholder of Group Link Inc. at $1.00 per share. The common shares were sold to Screenfin Inc. that is controlled by the Group Link’s President. The purchaser agreed that the current outstanding advances made to Group Link by the Corporation will remain outstanding and owed to E-Debit. Terms and conditions of the sale leave E-Debit with a Perpetual Royalty Grant of three and six fourths (3.64%) percent of Group Link Inc. net sales as well as a Perpetual Group Link share position of 10% with Board of Director appointment of a minimum of twenty (20%) percent. As a result of the sale transaction, E-Debit remains a 10% shareholder in Group Link Inc. Group Link commenced its business activities in July 2013. The 10% or $10 interest in Group Link Inc. is reflected in the accompanying consolidated balance sheet as investment, at cost.
In May 2013, E-Debit sold 90% of the issued and outstanding shares of all classes held in its wholly owned subsidiary, E-Debit International Inc. for $90. The shares of all classes were sold to two outside investors: CPM Financial Services Inc. $80 (80%) and Winsoft Technology Solutions Inc. $10 (10%). The purchaser agreed that the current outstanding advances made to E-Debit International Inc. by the Corporation will remain outstanding and owed to E-Debit. E-Debit and the Purchaser agreed E-Debit debt shall be repaid after all other debt holders have been paid.
Terms and conditions of the sale leave E-Debit with a Perpetual Royalty Grant of three and two thirds (3.66%) percent of E-Debit International Inc. net sales. Winsoft will take an initial seven and quarter (7.25%) payment agreement of E-Debit International Inc. net sales until receipt of $550,000 CDN at which time Winsoft will receive a Perpetual Royalty Grant of three and two thirds (3.66%) percent of E-Debit International Inc. net sales as well as a Perpetual Group Link share position of ten (10%) of the issued and outstanding shares of all classes of E-Debit International Inc. As a result of the sale transaction, E-Debit remains a 10% shareholder in E-Debit International Inc. The 10% or $10 interest in E-Debit International Inc. is reflected in the accompanying consolidated balance sheet as investment, at cost.
Other receivable – related parties:
The other receivable – related parties was from the sale transaction of 41% of the subsidiary 1105725 Alberta Ltd. o/s Personal Financial Solutions (PFS) in October 2010 and sale transaction of 90% of the subsidiary Cash Direct Financial Services Ltd. (CDF) in May 2011, and sale transactions to E-Debit’s directors.
As of June 30, 2013 and December 31, 2012, the Corporation setup an allowance for doubtful collections of $63,827 and $52,746 respectively for the related parties’ receivables, as collection was unknown.
The following table summarizes the Corporation’s others receivable from related parties’ transactions as of June 30, 2013 and December 31, 2012:
|
|
2013
|
|
|
2012
|
|
1105725 Alberta Ltd. o/a
Personal Financial Solutions
|
|
$
|
38,000
|
|
|
$
|
40,162
|
|
Cash Direct Financial Services Ltd.
|
|
|
11,906
|
|
|
|
12,584
|
|
Trans Amored Canada
|
|
|
13,921
|
|
|
|
7,922
|
|
Accounts receivable – directors
|
|
|
11,581
|
|
|
|
8,613
|
|
|
|
$
|
75,408
|
|
|
$
|
69,281
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts
|
|
|
(63,827
|
)
|
|
|
(52,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,581
|
|
|
$
|
16,535
|
|
The current outstanding advances are reflected in the accompanying consolidated balance sheet as other receivable – related parties and totaled $11,581 and $16,535, respectively, at June 30, 2013 and December 31, 2012.
Real estate leases:
The Corporation’s real estate leases are with an affiliated Corporation that is controlled by the Corporation’s president.
The Corporation leases real estate (office and warehouse space) under non-cancellable operating leases that expire on varying dates through 2014. The monthly lease payment is $5,791 ($5,971 CDN).
The Corporation leases additional real estate (office and warehouse space) for an “Initial Term” commencing June 1, 2010 on a month to month basis. The Corporation may renew the Lease on a monthly basis by giving notice to the Landlord. The monthly lease payment is $3,030 ($3,100 CDN).
Minimum future rental payments under non-cancellable operating leases having remaining terms in excess of one year are as follows:
|
|
Real Estate
|
|
2013
|
|
$
|
35,087
|
|
2014
|
|
$
|
11,742
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Rental expense
|
|
$
|
53,604
|
|
|
$
|
96,602
|
|
Residual and interchange costs:
The following table summarizes the amounts paid by the Corporation for residual and interchange fees to related parties for the six months ended June 30, 2013:
Payable to:
|
|
June 30, 2013
|
|
Three affiliated companies that are controlled by E-Debit’s President.
|
|
$
|
8,965
|
|
An affiliated Corporation that is controlled by E-Debit’s vice President.
|
|
$
|
4,595
|
|
An affiliated Corporation that is controlled by E-Debit’s director.
|
|
$
|
1,231
|
|
An affiliated Corporation that is controlled by E-Debit’s director.
|
|
$
|
150
|
|
Total
|
|
$
|
14,941
|
|
The residual and interchange paid to related parties are in accordance with the contracts with their distributorship. The above payments are reflected in the accompanying consolidated statements of operations as residual and interchange costs.
Indebtedness to related parties:
The Corporation expensed $24,118 ($24,675 CDN) during the second quarter 2013 for consulting and management services to an affiliated Corporation that is controlled by the Corporation’s president. This expense is reflected in the accompanying consolidated Statements of Operations as a Consulting fees.
In February 2011, the Corporation and its subsidiary, Westsphere Systems Inc., jointly signed the General Security Agreement (GSA) for the current debts owed to related parties and shareholders. The Corporation has requested that the related parties and shareholders individually or collectively advance loans up to one million five hundred thousand ($1,500,000) dollars in Canadian Funds to the Corporation. The loans are due “On Demand” with initial thirty-six months (36) terms which can be renewed from the date initial funds were advanced. The interest rate is Eight (8%) percent per year and is payable quarterly. Under the GSA, these debts are collateralized by the Corporation’s Accounts Receivables, Inventory, Equipment, Intangibles, Leasehold, Real and Immovable Property, and Proceeds.
In December 2011, the Corporation and its subsidiaries jointly and severally, signed a General Security Agreement (GSA) as well as loan agreements related to the loan from an investor for $200,000. As a result the aforementioned GSA dated February 2011 was cancelled in order that this new loan and GSA could be filed in priority to other loans advance to the Corporation by related parties.
Upon completion of the first party claim related to the December loan and GSA the Corporation and its subsidiaries jointly and severally signed a GSA for the current debts owed to related parties and shareholders. The Corporation has requested that the related parties and shareholders individually or collectively advance loans up to one million seven hundred and fifty thousand ($1,750,000) dollars in Canadian Funds to the Corporation. The loans are due “On Demand” with initial thirty-six months (36) terms which can be renewed from the date initial funds were advanced. The interest rate is Eight (8%) percent per year and is payable quarterly. Under the GSA, these debts are collateralized by the Corporation’s Accounts Receivables, Inventory, Equipment, Intangibles, Leasehold, Real and Immovable Property, and Proceeds.
In May 2013, the Company’s president assigned $369,557 debt owed to an affiliated company that is controlled by the Company’s president from the company wholly owned subsidiary, Westsphere Systems Inc. to E-Debit International Inc. The assignment of debt was considered as forgiveness of debt by related party and is reflected in the accompanying consolidated balance sheet as Additional paid-in capital.
The total amount owed to related parties (consist of indebtedness to related parties and shareholder loans) as of June 30, 2013 is $1,560,997 ($1,641,451 CDN). The remaining credit available to be drawn against related to this GSA and Line of Credit is $103,228 ($108,549 CDN).
The following table summarizes the Corporation’s indebtedness to related parties’ transactions as of June 30, 2013 and December 31, 2012:
Payable to:
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Terms/Maturities
|
Interest Rate
|
A loan advanced from E-Debit’s President for working capital.
|
|
$
|
61,001
|
|
|
$
|
95,674
|
|
Demand loans
|
8% per annum
|
A loan advanced from an affiliated Corporation that is controlled by E-Debit’s President for working capital.
|
|
|
693,726
|
|
|
|
867,701
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s vice President for working capital.
|
|
|
10,159
|
|
|
|
8,521
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s officers for working capital.
|
|
|
13,274
|
|
|
|
6,421
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s directors for working capital.
|
|
|
92,188
|
|
|
|
89,353
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s director for working capital.
|
|
|
191,221
|
|
|
|
208,926
|
|
Demand loans
|
No interest
|
Officers’ and Directors’ bonuses payable carried forward from year 2002
|
|
|
28,797
|
|
|
|
33,611
|
|
Demand loans
|
No interest
|
A loan advanced from an affiliated Corporation that is controlled by E-Debit’s President for working capital.
|
|
|
193,647
|
|
|
|
207,394
|
|
Demand loans
|
No interest
|
Total
|
|
$
|
1,284,013
|
|
|
$
|
1,517,601
|
|
|
|
The indebtedness to related parties as of June 30, 2013 consists of loans that are payable on demand by the related parties. The interest rate is Eight (8%) percent annually calculated and paid quarterly attached to the related party loans. There is no interest attached to a loan advanced from E-Debit’s director of $191,221, the Officers’ and Directors’ bonuses payable carried forward from year 2002 of $28,797, and the loan advanced from an affiliated company that is controlled by E-Debit’s President for working capital of $193,647. The above obligations are reflected in the accompanying consolidated balance sheet as indebtedness to related parties.
The indebtedness to related parties as of December 31, 2012 consists of loans that are payable on demand by the related parties. The interest rate is Eight (8%) percent per year and is payable quarterly. There is no interest attached to a loan advanced from E-Debit’s director of $208,926, the Officers’ and Directors’ bonuses payable carried forward from year 2002 of $33,611, and the loan advanced from an affiliated Corporation that is controlled by E-Debit’s President for working capital of $207,394 at December 31, 2012. The above obligations are reflected in the accompanying consolidated balance sheet as indebtedness to related parties.
Note 12 – Shareholder loans
In December 2011, the Corporation and its subsidiaries jointly and severally signed the General Security Agreement (GSA) for the current debts owed to related parties and shareholders. The Corporation has requested that the related parties and shareholders individually or collectively advance loans up to one million seven hundred and fifty thousand ($1,750,000) dollars in Canadian Funds to the Corporation. The terms of loans are “On Demand” with initial thirty-six months (36) terms which can be renewed from the date initial funds were advanced. The interest rate is Eight (8%) percent annually calculated and paid quarterly. Under the GSA, these debts are collateralized by the Corporation’s Accounts Receivables, Inventory, Equipment, Intangibles, Leasehold, Real and Immovable Property, and Proceeds.
The following table summarizes the Corporation’s shareholder loans transactions as of June 30, 2013 and December 31, 2012:
Payable to:
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Terms/Maturities
|
Interest Rate
|
A loan advanced from E-Debit’s vice President for working capital.
|
|
|
52,304
|
|
|
|
55,280
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s directors for working capital.
|
|
|
134,812
|
|
|
|
142,481
|
|
Demand loans
|
8% per annum
|
A loan advanced from E-Debit’s vice President for working capital.
|
|
|
42,319
|
|
|
|
44,726
|
|
Demand loans
|
12% per annum
|
A loan advanced from E-Debit’s shareholder for working capital.
|
|
|
47,549
|
|
|
|
50,254
|
|
Demand loans
|
9% per annum
|
Total
|
|
$
|
276,984
|
|
|
$
|
292,741
|
|
|
|
E-Debit’s shareholder loans as of June 30, 2013 are related to cash advanced from E-Debit’s vice president total $52,304 and the directors total $134,812 have an interest rate of 8% per annum calculated and paid quarterly with no specific terms of repayment. The remaining balance of shareholder loans totaling $89,868 consist of a loan advance from E-Debit’s vice president totaling $42,319 with an interest rate of 12% per annum and no specific terms of repayment, and a loan advance from a shareholder of $47,549 with an interest rate of 9% per annum and no specific terms of repayment. The above obligations are reflected in the accompanying consolidated balance sheet as shareholder loans.
E-Debit’s shareholder loans as of December 31, 2012 are related to cash advanced from E-Debit’s vice president total $55,280 and the directors total $142,481 have an interest rate of 8% per annum calculated and paid quarterly with no specific terms of repayment. The remaining balance of shareholder loans totaling $94,980 consist of a loan advance from E-Debit’s vice president totaling $44,726 has an interest rate of 12% per annum with no specific terms of repayment, and a loan advance from a shareholder of $50,254 has an interest rate of 9% per annum with no specific terms of repayment. The above obligations are reflected in the accompanying consolidated balance sheet as shareholder loans.
Note 13 – Other Revenue
In June 2013, the Company concluded the sales of a portion of the Company’s eastern Canada ATMs site location contracts to an investor for a total of $107,548 ($110,032 CDN). This sale transaction is included in the accompanying consolidated income statement as Gain on sale.
Note 14 – Subsequent Events
The Company has evaluated events subsequent to June 30, 2013 and through the date the financial statements were available to be issued to assess the need for potential recognition or disclosure in this report. No events were noted that require recognition or disclosure in these financial statements.
Note 15 – Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Corporation as a going concern. The Corporation has recurring net losses from operations, and had a working capital deficit and a stockholders’ deficit at June 30, 2013 and December 31, 2012. These conditions raise substantial doubt as to the Corporation's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Corporation be unable to continue as a going concern.
Management recognizes that the Corporation must generate additional resources to enable it to continue operations. Management intends to raise additional funds through debt financing and equity financing or through other means that it deems necessary, with a view to moving forward and sustaining a prolonged growth in its strategy phases. However, no assurance can be given that the Corporation will be successful in raising additional capital. Management’s plans also include restructuring and reorganizing its subsidiaries to save costs. Furthermore, management is in the process of negotiations with a third party investor to potentially sell part or all of the Corporation’s ATM estate. In addition, there is no demand for payment on the accounts payable to related parties of $1,284,013 and shareholder loans of $276,984 as these liabilities are owed to internal officers and directors. Further, even if the Corporation raises additional capital, there can be no assurance that the Corporation will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Corporation will not be able to meet its obligations and may have to cease operations.