NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
In these consolidated financial statements, references to “MoneyOnMobile,” “Company,” “we,” “us,” and “our” collectively refers to MoneyOnMobile, Inc., and its majority-owned Indian enterprise, which includes Digital Payment Processing Limited ("DPPL"), My Mobile Payments Limited ("MMPL"), SVR Retail Pvt. Ltd ("SVR") and Payblox Technologies (India) Private Limited ("Payblox"). All inter-company accounts and transactions have been eliminated in the accompanying consolidated financial statements. The Company operates
one
distinct business unit, which is located in India.
MoneyOnMobile offers electronic wallet services in India. MoneyOnMobile customers use our payments system to pay for goods and services and sending or receiving money using mobile phone text messages, smart phone or internet. Consumers are often required to prepay for certain utilities, such as mobile phone services. Because bank accounts and credit cards are only used by a small portion of the Indian population, consumers typically prepay for these utilities with cash, either directly to utility providers or through distributors. MoneyOnMobile acts as an intermediary between a) the utility provider and distributors, b) distributors and consumers, and c) consumer and other parties.
As an intermediary between the utility provider and distributors, MoneyOnMobile purchases utility units, such as mobile phone minutes, at wholesale rates and resells these units to distributors. MoneyOnMobile maintains an inventory of these utility units held for resell. As an intermediate between distributors and consumers, distributors use our electronic wallet technology to a) allow consumers to purchase utility units from the distributor by mobile phone text message and b) allow distributors to send a text message confirmation back to the consumer. MoneyOnMobile earns a transaction fee for these services, paid by the consumer. Once a consumer has established a MoneyOnMobile electronic wallet account, consumers can use our technology to facilitate non-distributor-related transactions with other parties that have MoneyOnMobile accounts, including other retailers and utilities and other MoneyOnMobile consumers. We also earns a transaction fee for these services, paid by the consumer.
In March 2012, the Company began acquiring common stock of Digital Payments Processing Limited (“DPPL”). During 2012, DPPL entered into an exclusive services agreement with My Mobile Payments Limited (“MMPL”), an entity that shares common ownership with DPPL. DPPL maintains a services agreement with My Mobile Payments Limited (“MMPL”) to deliver payment processing services in India. Both companies are organized under the laws of India and headquartered in Mumbai, India.
Payblox Technologies (India) Private Limited (“Payblox”), a wholly owned subsidiary of MMPL, organized in October 2010 under the laws of India and headquartered in Mumbai, India, provides certain back office and support services on behalf of MMPL to MoneyOnMobile customers. Collectively, DPPL, MMPL, and Payblox Technology (India) Private Limited (“Payblox”), operate the MoneyOnMobile enterprise. MoneyOnMobile is operated locally by a management team based in Mumbai, India, with corporate oversight provided by the executive management based in Dallas, Texas. MMPL currently has a license from the Reserve Bank of India to operate a payments system. Renewal of the license is required in October 2018, and MMPL intends to seek renewal and has no reason to believe it will not receive such renewal.
In January 2014, the Company acquired a majority of the common stock of DPPL, obtaining control of DPPL and, through DPPL’s services agreement, obtaining control of MMPL and Payblox. As such, MMPL has been consolidated as a Variable Interest Entity, in the Company’s accompanying financial statements. Prior to obtaining control in January 2014, investments in DPPL and MMPL were accounted for as equity method investments. On March 31, 2015, MMPL and DPPL executed a business purchase agreement, whereby DPPL purchased all the assets of MMPL. The impact of this business combination has been eliminated upon consolidation, as the Company maintained financial control of both entities since January 2014. In July 2016, the Company acquired the outstanding assets and liabilities of SVR, a non-operating Indian registered entity.
Preparation of Financial Statements
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements. We base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances, the results of which form the basis for our conclusions. Actual results may differ from the estimates used in preparing our consolidated financial statements. Significant estimates include revenue recognition, valuation of financial instruments, goodwill, fair value measurements and business combinations.
We consolidate entities over which we have control, as typically evidenced by a voting control of greater than 50% or for which we are the primary beneficiary, whereby we have the power to direct the most significant activities and the obligation to absorb significant losses or receive significant benefits from the entity. We separately present our noncontrolling interests in the consolidated financial statements. For affiliates we do not control but where significant influence over financial and operating policies exists, as typically evidenced by a voting control of 20% to 50%, the investment is accounted for using the equity method. In addition, the assets, liabilities, and results of operations of all variable interest entities for which we have determined we are the primary beneficiary are included in our consolidated financial statements from the date such determination is made. All significant inter-company investments, accounts, and transactions have been eliminated.
Going Concern
The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company had a net loss of $
(13,095,503)
and
$(19,727,913)
for the years ended March 31, 2017 and 2016, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is continuing with its plan to grow and expand its mobile payment and ATM processing operations in India. Management believes that its operating strategy will provide the opportunity for the Company to continue as a going concern as long as it continues to obtain sufficient external financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation.
Sale of U.S. Operations
Effective November 30, 2015, the Company divested its U.S. Operations, excluding executive headquarters. There is no continuing cash inflows or outflows from or to the discontinued operations. In consideration for the acquired assets, the buyer assumed certain of the Company’s liabilities, including an aggregate of
$8.3 million
of notes payable and certain of the Sellers’ outstanding contractual obligations. See Note 19:
Sale of U.S. Operations
for additional information.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value Measurements
Fair value is defined 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. The Company believes the carrying values of cash and equivalents, accounts receivable, other current assets, accounts payable, accrued expenses, and interest payable approximate their fair values. Additionally, the Company believes the carrying value of its senior notes, subordinated notes, and note payable approximate the estimated fair value for debt with similar terms, interest rates, and remaining maturities currently available to companies with similar credit ratings.
The estimated fair value of our common stock issued in share-based payments is measured by the more relevant of: (i) the prices received in private placement sales of our stock or; (ii) its publicly-quoted market price. We estimate the fair value of warrants, other than those included in common stock unit purchases, and stock options when issued or vested using the Black-Scholes option-pricing model which requires the input of highly subjective assumptions. Recognition in shareholders’ equity and expense of the fair value of stock options awarded to employees is on the straight-line basis over the requisite service period and, for grants to non-employees, when the options vest. The fair value of exercisable warrants on the date of issuance issued in connection with debt financing transactions or for services are deferred and expensed over the term of the debt or as services are performed.
Convertible Instruments
Certain debt instrument require us to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. This criteria includes (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Debt discounts under these arrangements are amortized over the term of the related debt to their date of redemption.
Derivative Financial Instruments
We classify as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide a choice of net-cash settlement or settlement in our own shares providing that such contracts are indexed to our common stock. We classify as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counter party a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
Our free standing derivatives consist of embedded conversion options with a convertible note. The Company evaluated these derivatives to assess their proper classification in the consolidated balance sheets using the applicable classification criteria enumerated under ASC 815-Derivatives and Hedging. The Company determined that certain embedded conversion features do not contain fixed settlement provisions. As a result, we were required to record the conversion option associated with the debt as an embedded derivative. We previously recorded this liability as a derivative liability within current liabilities in our historical consolidated balance sheet. Changes in the value of this derivative liability has been marked-to-market at the end of each reporting period and recorded as Other income (expense) in our consolidated statements of operations and comprehensive loss. As of March 31, 2017 and 2016, we did not have any outstanding convertible instruments that would be classified as a derivative.
Foreign Currency Translation
The functional currency of MoneyOnMobile, consisting of DPPL, SVR and the variable interest entities MMPL and Payblox, is the Indian Rupee. MoneyOnMobile assets and liabilities are translated into U.S. dollars at the exchange rates in effect at each consolidated balance sheet date. Revenues and expenses are translated at quarterly average exchange rates and resulting translation gains or losses are accumulated in other comprehensive loss as a separate component within the accompanying statements of shareholders’ equity. Additionally, cumulative translation adjustments recorded in other comprehensive income are reclassified to noncontrolling interest proportionally based on the weighted average percentage ownership interest held by the noncontrolling interest.
Cash and Equivalents
We consider cash, deposits, and short-term investments with original maturities of three months or less as cash and equivalents. Our deposits at financial institutions at times exceed amounts covered by U.S. Federal Deposit Insurance Corporation insurance.
Due from Distributors
Amounts represent purchases made by consumers for which payment was made to an agent. As of
March 31, 2017
and
2016
, there were
three
and
one
distributors, which comprised
77%
and
92%
, respectively.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization, using the straight-line method based on estimated useful lives of
three
to
five
years. The building purchased in India has an estimated useful life of
39
years. Repairs and maintenance are charged to expense as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations and comprehensive loss.
Equity Investment
Under the equity method of accounting, the Company records its proportionate share of the net earnings or losses and a corresponding increase or decrease to the investment balance. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
No
impairments were recorded during years ended
March 31, 2017
or
2016
.
Deferred Financing Costs
The Company capitalizes third-party costs paid to obtain its debt financing. Capitalized costs are then amortized using a straight-line basis over the related debt term into interest expense.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
Goodwill consists of the cost of our acquired businesses in excess of the fair value of the identifiable net assets acquired and is allocated to reporting units based on the relative fair value of the future benefit of the purchased operations to our existing business units as well as the acquired business unit. The Company has elected to early adopt Accounting Standards Update No: 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.
We perform an annual impairment assessment in the fourth quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment.
Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the goodwill impairment test is performed. To calculate any potential impairment, we compares the fair value of the reporting unit with its carrying amount. Any excess of the goodwill carrying amount over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down.
In our annual impairment assessment for the year ended
March 31, 2017
resulted in an impairment loss of
$(1,592,000)
. A significant factor in the impairment loss was related to our decline in revenue for the fiscal year ended March 31, 2017. A weighted average approach using multiple valuation methods on a financial controlling basis was created. It comprised of a
52.5%
weight to the market approach (
5%
precedent transactions (subject company),
47.5%
precedent transactions (comparable company),
47.5%
guideline public company and a
0%
weight to the income approach (discounted cash flow). Current market, industry and macro-economic conditions were utilized to assist to develop the fair value measurements.
Our annual impairment assessment for the year ended March 31, 2016, we determined it was more likely than not that the fair value of this reporting unit exceeded its carrying value. After reviewing the results of multiple valuation models, a weighted average approach on a financial controlling basis was considered most appropriate comprised of an
80%
weight to the market approach (
40%
precedent transactions (subject company),
15%
precedent transactions (comparable company) and
25%
guideline public company) and a
20%
weight to the income approach (
20%
discounted cash flow). Additionally, other information such as current market, industry and macro-economic conditions were utilized to assist to develop these fair value measurements. As a result, we concluded that goodwill was not impaired for the year ended March 31, 2016.
Intangible Assets
Intangible assets consist of software (excluding computer software), customer lists, trademarks, distributor contracts and domain names acquired through business combinations, or consists of software developed or obtained for internal use, as well as software intended for resale. Costs to develop internal use computer software during the application development stage are capitalized on a per project basis and are amortized on a straight line basis over its useful life. Capitalized costs for internally developed software during the years ended
March 31, 2017
and
2016
totaled
$252,110
and
$530,015
, respectively.
Costs for software developed for resale are expensed as incurred until technological feasibility is established, capitalized once technological feasibility occurs, including costs for coding and testing, and expensed once the software is available for release to customers. Capitalized costs for software available for sale are amortized over the greater of the amounts computed for the (1) expected revenue to total anticipated revenue or (2) straight line basis over its estimated useful life. Capitalized costs for software developed for resale during the years ended
March 31, 2017
and
2016
totaled
$0
for both periods.
The weighted average amortization period is
five
years for customer lists, acquisition costs and trademarks,
five
years for internal use software,
three
years for software developed for resale and domain names are not amortized. Capitalized finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Indefinite-lived assets are not amortized, but reviewed at least annually for potential impairment.
Impairment of Long-Lived Assets
In addition to the annual goodwill impairment test, long-lived assets, including property and equipment and other intangible assets, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. In addition to the recoverability assessment, we review the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life. There were
no
adjustments to the carrying value or useful lives of long-lived assets (other than goodwill) during the years ended
March 31, 2017
or
2016
.
Revenue Recognition
The Company recognizes revenue when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been performed; (3) the price is fixed or determinable; and (4) collectability is reasonably assured. The Company has three primary revenue streams: residual portfolios, merchant payment processing fees, and MoneyOnMobile transactions.
The following revenue recognition policies define the manner in which the Company accounts for sales transactions:
A significant portion of revenue is attributable to Merchant Services, including Mobile Recharge and Direct-to-Home. In these transactions, revenue from purchased utility units is recognized on a net basis, as the Company is acting in an agent capacity. MoneyOnMobile does not change the product or perform part of the service, has minimal discretion in supplier selection, has minimal latitude in establishing prices and possesses no credit risk.
Other services offered are Consumer Services, including bill payment and money transfer. For bill payment transactions, we act as an agent with consumers. Distributors use our electronic wallet technology to allow consumers to pay utility bills by mobile phone text message and smart phone. We earn a fixed transaction fee for these services. For our money transfer services, once a consumer has established a MoneyOnMobile electronic wallet account, consumers can use our technology to facilitate non-distributor-related transactions with other parties that have MoneyOnMobile accounts, including other retailers and utilities and other consumers. We also earn a fixed transaction fee for these services.
Distributors often keep a prepaid balance with MoneyOnMobile to facilitate transactions. Prepaid balances are deferred until utility units are delivered. As of
March 31, 2017
and
2016
, advances from distributors was
$2,108,645
and
$4,013,509
, respectively.
Revenue from the above services and transaction fees are recognized on a net basis, as the Company is not the primary obligor, does not establish prices and does not maintain inventory or credit risk.
Income Taxes
Deferred income taxes are recognized for the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and income tax return purposes, including undistributed foreign earnings and losses, using enacted tax laws and rates. A valuation allowance is recognized if it is more likely than not that some or all of a deferred tax asset may not be realized. Tax liabilities, together with interest and applicable penalties included in the income tax provision, are recognized for the benefits, if any, of uncertain tax positions in the financial statements which, more likely than not, may not be realized.
Advertising
Advertising costs are expensed as incurred. During the years ended
March 31, 2017
and
2016
, advertising expense was
$1,917,969
and
$1,485,467
, respectively.
Operating Lease Expense
Rental expense, consisting primarily of office rent for our Corporate office in Dallas, Texas and satellite offices in India, totaled
$334,119
and
$340,119
during the years ended
March 31, 2017
and
2016
, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance that supersedes revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of non-financial assets. Under the new guidance, entities are required to recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. The guidance permits two transition methods of adoption 1) the full retrospective method, in which case the standard would be applied to all reporting periods presented, or 2) the modified retrospective method, with a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB decided to approve a one-year deferral of the effective date as well as providing an option to early adopt the standard on the original effective date. This new guidance is effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. The Company will adopt this guidance in its fiscal year beginning April 1, 2018. The Company is currently evaluating the impact of the adoption of ASU No. 2014-09 on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance on April 1, 2017 and does not expect such adoption to have a material impact on its consolidated financial statements and related disclosures for fiscal year 2018.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosures of financial instruments including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 will become effective for the Company beginning April 1, 2018. The Company is currently evaluating the guidance to determine the potential impact on its consolidated financial statements.
In January 2017, the FASB issued guidance that clarifies the definition of a business. The new guidance assists a company when evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The provisions of the guidance require that if the fair value of the gross assets acquired (or disposed of) is substantially concentrated in a single identifiable asset or a group of similar identifiable assets, then it is not a business. The provisions of the guidance are effective for annual years beginning after December 15, 2017, including interim periods, with early adoption permitted. The Company plans to adopt this guidance in its fiscal year beginning April 1, 2018. These provisions of the guidance are to be applied prospectively. The adoption of this standard is not anticipated to have a material impact on the consolidated financial statements.
There are other various accounting updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
The Company incorrectly presented the certain line items within the Statement of Cash Flows for the fiscal year-ended March 31, 2016. The Company has corrected these errors in this Form 10-K filing. The correction of these errors had no effect on reported net loss, balance sheet or statement of shareholders' equity.
The following condensed table presents the effect of the correction discussed above on selected line items of our previously reported consolidated statement of cash flows for the year ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
As Reported
|
|
Adjustments
|
|
Restated
|
|
Net (loss)
|
|
|
$
|
(19,727,913
|
)
|
|
$
|
—
|
|
|
$
|
(19,727,913
|
)
|
|
|
|
Deferred financing cost amortization
|
|
324,144
|
|
|
(180,088
|
)
|
|
144,056
|
|
|
|
|
Deferred consulting fee amortization
|
|
3,194,949
|
|
|
(2,952,550
|
)
|
|
242,399
|
|
|
|
|
Equity awards issued for services
|
|
4,866,526
|
|
|
(1,265,553
|
)
|
|
3,600,973
|
|
|
|
|
Other adjustments
|
|
6,255,471
|
|
|
—
|
|
|
6,255,471
|
|
|
|
|
Changes in operating assets and liabilities
|
|
5,916,421
|
|
|
—
|
|
|
5,916,421
|
|
|
Net cash provided by (used in) operating activities
|
|
829,598
|
|
|
(4,398,191
|
)
|
|
(3,568,593
|
)
|
|
Investing Activities
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
(644,980
|
)
|
|
—
|
|
|
(644,980
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Payments on notes payable and bank loan
|
|
(7,834,541
|
)
|
|
4,332,013
|
|
|
(3,502,528
|
)
|
|
|
|
Borrowings on senior and sub notes
|
|
3,395,038
|
|
|
(1,333,159
|
)
|
|
2,061,879
|
|
|
|
|
Issuance of common stock and warrants
|
|
2,229,392
|
|
|
1,399,337
|
|
|
3,628,729
|
|
|
|
|
Other proceeds and borrowing
|
|
3,121,466
|
|
|
—
|
|
|
3,121,466
|
|
|
Net cash provided by financing activities
|
|
911,355
|
|
|
4,398,191
|
|
|
5,309,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency effect on cash flows
|
|
(269,640
|
)
|
|
—
|
|
|
(269,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
826,333
|
|
|
—
|
|
|
826,333
|
|
|
Cash and cash equivalents at beginning of year
|
|
1,293,461
|
|
|
—
|
|
|
1,293,461
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
2,119,794
|
|
|
$
|
—
|
|
|
$
|
2,119,794
|
|
4 - OTHER CURRENT ASSETS
At
March 31, 2017
and
2016
, other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Foreign service tax recoverable
|
$
|
578,187
|
|
|
$
|
577,751
|
|
|
Advance payments to vendors
|
266,133
|
|
|
166,779
|
|
|
Prepaid insurance and other
|
81,648
|
|
|
75,214
|
|
|
Total
|
$
|
925,968
|
|
|
$
|
819,744
|
|
5 - PROPERTY AND EQUIPMENT
At
March 31, 2017
and
2016
, property and equipment consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Building
|
$
|
3,744,261
|
|
|
$
|
3,626,116
|
|
|
Equipment
|
274,994
|
|
|
284,872
|
|
|
Furniture and fixtures
|
18,986
|
|
|
56,889
|
|
|
Subtotal
|
4,038,241
|
|
|
3,967,877
|
|
|
Less accumulated depreciation
|
(554,721
|
)
|
|
(459,042
|
)
|
|
Property and equipment, net
|
$
|
3,483,520
|
|
|
$
|
3,508,835
|
|
For the years ended March 31, 2017 and 2016, depreciation expense was $
95,679
and $
210,354
, respectively.
6 - VARIABLE INTEREST ENTITIES
A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. We consolidate our VIEs where we determine that we have both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or receive benefits from the VIE.
My Mobile Payments Limited
We did not hold a majority ownership interest in MMPL at either March 31, 2017 or 2016. Therefore, our determination of whether to consolidate is based upon the power to direct the activities that significantly impact the economic success of these entities. We are the primary beneficiary of MMPL as we are deemed to have a controlling financial interest due to having both a) the power to direct activities that most significantly impact its financial performance and b) the obligation to absorb losses that potentially could be significant. Our analysis includes consideration of the following factors which highlights our ability to control and direct significant influence over financial performance and overall investment strategy:
i) shared Board of Directors with DPPL; and
ii) inter-dependent operations with DPPL (i.e. MMPL is not a sustainable business without DPPL); and
iii) MMPL relies exclusively on DPPL to fund its operations.
Contractual terms that may change the powers held in future periods, such as a purchase or sale options, are not considered in our analysis. Based on our analysis, we believe that we hold the power and rights to direct the most significant activities of MMPL and as a result the financial results of MMPL from the acquisition date of January 6, 2014 have been consolidated in the accompanying consolidated financial statements. During the year ending March 31, 2015, the Company invested
$4,906,760
to acquire
8.17%
of MMPL. This investment was necessary to support local management in executing its growth plans. No direct investment was made by the Company to MMPL during the year ending March 31, 2017 or 2016.
During March 2017, the Company reached a settlement agreement with the co-founder of DPPL and MMPL. The Company agreed to purchase all DPPL and MMPL shares held by the co-founder and his business associates. During March 2017, the Company paid
$487,727
to the co-founder to acquire
400,000
shares of MMPL and
48,135
shares of DPPL, and are being held in escrow until all the payments have been made. See note 11:
Mandatory Redeemable Financial Instruments
for detail of payment schedule for the Company's purchase of the remaining shares held by the co-founder at March 31, 2017.
Net loss and comprehensive loss are attributed to controlling and noncontrolling interests. We elected to utilize a weighted average value calculation based on relative ownership interest of DPPL for the year ended March 31, 2017 and 2016. As of March 31, 2017 and 2016, the allocation of MoneyOnMobile to our controlling interest was
74.2%
and
71.9%
, respectively. During the year ended March 31, 2017 and 2016, the Company invested
$1,107,985
and
$0
, respectively, to acquire shares of DPPL and MMPL from Noncontrolling interest.
The following table presents the Net Loss of Subsidiaries Attributable to MoneyOnMobile and Transfers (to) from Noncontrolling Interests during the Fiscal Year Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to MoneyOnMobile shareholders fiscal year ended March 31, 2017
|
|
$
|
(10,013,544
|
)
|
|
Transfers (to) from the noncontrolling interest
|
|
|
|
|
Decrease in paid-in capital for new issuance of DPPL common shares to MoneyOnMobile, Inc.
|
|
(923,339
|
)
|
|
|
Decrease in paid-in capital for purchase of DPPL and MMPL common shares from Noncontrolling interests
|
|
(1,089,498
|
)
|
|
|
Net Transfers (to) from noncontrolling interest
|
|
(2,012,837
|
)
|
|
Change from net loss attributable to MoneyOnMobile shareholders and transfers (to) from noncontrolling interests for fiscal year ended March 31, 2017
|
|
$
|
(12,026,381
|
)
|
The following table presents the Net Loss of Subsidiaries Attributable to MoneyOnMobile and Transfers (to) from Noncontrolling Interests during the Fiscal Year Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to MoneyOnMobile shareholders fiscal year ended March 31, 2016
|
|
$
|
(15,952,578
|
)
|
|
Transfers (to) from the noncontrolling interest
|
|
|
|
|
Decrease in paid-in capital for new issuance of DPPL common shares to MoneyOnMobile, Inc.
|
|
(2,135,243
|
)
|
|
|
Increase in paid-in capital for sale of DPPL common shares to Noncontrolling interest
|
|
4,599,991
|
|
|
|
Net Transfers (to) from noncontrolling interest
|
|
2,464,748
|
|
|
Change from net loss attributable to MoneyOnMobile shareholders and transfers (to) from noncontrolling interests for fiscal year ended March 31, 2016
|
|
$
|
(13,487,830
|
)
|
7 - INVESTMENTS
Happy Cellular Services Limited
As part of our acquisition of the MoneyOnMobile Indian enterprise in January 2014, we acquired a
40%
equity interest in Happy Cellular Services Limited (“Happy Cellular”). Happy Cellular is a mobile talk time reseller based in India. During January 2017, Company reached a settlement with Sushil Poddar, Chairman of the Happy Group. As part of the settlement the Company agreed to sell its entire equity investment in Happy Cellular to Mr. Poddar at its cost basis. As of
March 31, 2017
and 2016, our equity investment balance was
$0
and
$190,172
, respectively.
GreedyGame Media Pvt. Limited
During the year ended March 31, 2016, MMPL purchased shares of GreedyGame Media Pvt. Limited ("GreedyGame"). GreedyGame is a mobile marketing company based in India. No dividends were received during fiscal year ended March 31, 2017 or 2016. Our investment balance at
March 31, 2017
and 2016 was
$18,548
and
$18,153
, respectively. This investment is recorded within other non-current assets in the consolidated balance sheet.
8 – GOODWILL
The following table is a reconciliation of the carrying amount of goodwill:
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2015
|
|
$
|
14,633,237
|
|
|
Net foreign exchange movement
|
|
(823,120
|
)
|
|
Carrying value at March 31, 2016
|
|
$
|
13,810,117
|
|
|
Impairment loss
|
|
(1,592,000
|
)
|
|
Net foreign exchange movement
|
|
290,674
|
|
|
Carrying value at March 31, 2017
|
|
$
|
12,508,791
|
|
9 – OTHER INTANGIBLE ASSETS, NET
At
March 31, 2017
and
2016
, other intangible assets subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Customer lists
|
$
|
1,204,724
|
|
|
$
|
1,185,702
|
|
|
Software development costs
|
1,582,327
|
|
|
1,180,910
|
|
|
Trademarks
|
30,160
|
|
|
29,518
|
|
|
Contracts
|
86,229
|
|
|
240,285
|
|
|
|
2,903,440
|
|
|
2,636,415
|
|
|
Less accumulated amortization
|
(2,003,065
|
)
|
|
(1,311,097
|
)
|
|
Total
|
$
|
900,375
|
|
|
$
|
1,325,318
|
|
For the years ended March 31, 2017 and 2016, the weighted average amortization period is approximately
5
years. For the years ended March 31, 2017 and 2016, amortization expense was $
662,149
and $
496,730
, respectively.
Our future amortization expense relating to other intangible assets subject to amortization:
|
|
|
|
|
|
|
|
Year ending March 31, 2018
|
$
|
428,617
|
|
|
Year ending March 31, 2019
|
366,918
|
|
|
Year ending March 31, 2020
|
52,420
|
|
|
Year ending March 31, 2021
|
52,420
|
|
|
Total
|
$
|
900,375
|
|
At
March 31, 2017
and
2016
, other intangible assets not subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
License
|
$
|
2,430,686
|
|
|
$
|
2,379,007
|
|
|
Trade name
|
945,877
|
|
|
925,767
|
|
|
Domain names
|
10,000
|
|
|
10,000
|
|
|
Total
|
$
|
3,386,563
|
|
|
$
|
3,314,774
|
|
The License held from the Reserve Bank of India meets the criteria to be classified as an indefinite life intangible as there are no legal, regulatory, contractual, competitive, economic, or other factors that limit its useful life. It does require renewal, which Management will continuously pursue.
10 - ACCRUED LIABILITIES
At
March 31, 2017
and
2016
, accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Interest payable
|
$
|
930,997
|
|
|
$
|
477,456
|
|
|
Wages and benefits
|
332,980
|
|
|
413,087
|
|
|
Foreign statutory fees
|
205,726
|
|
|
482,360
|
|
|
Bank overdraft
|
154,333
|
|
|
34,622
|
|
|
Legal costs
|
—
|
|
|
215,000
|
|
|
Vendor payments
|
965,034
|
|
|
1,597,717
|
|
|
Total
|
$
|
2,589,070
|
|
|
$
|
3,220,242
|
|
11 - MANDATORY REDEEMABLE FINANCIAL INSTRUMENTS
During March 2017, the Company reached a settlement agreement with the co-founder of DPPL and MMPL. The Company agreed to purchase all DPPL and MMPL shares held by the co-founder and his business associates. The fair value of the forward contract at inception totaled $
4,941,040
. During the year ended March 31, 2017, the Company paid
$487,727
and the remaining liability at March 31, 2017 totaled
$4,596,822
. These shares are being held in escrow until all the payments have been made.
The following table provides a reconciliation of the remaining liability at March 31, 2017 to the amounts recorded in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Total mandatory redeemable financial instruments
|
|
$
|
4,596,822
|
|
|
Fair value discount
|
|
(143,509
|
)
|
|
Total mandatory redeemable financial instruments, net
|
|
4,453,313
|
|
|
Less mandatory redeemable financial instruments - current portion
|
|
(3,010,254
|
)
|
|
Mandatory redeemable financial instruments - long term portion
|
|
$
|
1,443,059
|
|
Purchase commitment schedule for the Company acquiring the following shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MMPL
|
|
DPPL
|
|
Total
|
|
For the quarter ended June 30, 2017
|
$
|
38,236
|
|
|
$
|
477,254
|
|
|
$
|
515,490
|
|
|
For the quarter ended September 30, 2017
|
982,838
|
|
|
278,665
|
|
|
1,261,503
|
|
|
For the quarter ended December 31, 2017
|
669,524
|
|
|
256,244
|
|
|
925,768
|
|
|
For the quarter ended March 31, 2018
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended June 30, 2018
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended September 30, 2018
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended December 31, 2018
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended March 31, 2019
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended June 30, 2019
|
—
|
|
|
307,493
|
|
|
307,493
|
|
|
For the quarter ended September 30, 2019
|
—
|
|
|
49,103
|
|
|
49,103
|
|
|
Remaining share purchase commitment at March 31, 2017
|
$
|
1,690,598
|
|
|
$
|
2,906,224
|
|
|
$
|
4,596,822
|
|
12 - DEBT
As of
March 31, 2017
and
2016
, long term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Convertible subordinated notes payable
|
$
|
2,900,000
|
|
|
$
|
3,200,000
|
|
|
Notes payable and promissory notes
|
4,066,595
|
|
|
2,008,159
|
|
|
Building mortgage
|
2,040,802
|
|
|
2,067,588
|
|
|
Unsecured credit facility
|
2,974,000
|
|
|
—
|
|
|
Total
|
11,981,397
|
|
|
7,275,747
|
|
|
Less: debt discount
|
(502,407
|
)
|
|
(1,212,580
|
)
|
|
|
11,478,990
|
|
|
6,063,167
|
|
|
Less: current portion
|
(9,508,025
|
)
|
|
(895,609
|
)
|
|
Long term debt
|
$
|
1,970,965
|
|
|
$
|
5,167,558
|
|
Convertible Subordinated Notes Payable
The Company’s subordinated debt has been issued pursuant to a
$3 million
Subordinated Debt Offering and a separate
$2 million
Subordinated Debt Offering. Each offering is exempt from registration under Rule 506 of Regulation D of the Securities and Exchange Commission (“SEC”), as described in the Current Reports on Form 8-K filed on January 6, 2011 and August 10, 2012. The notes are secured by a first lien on substantially all of the Company’s assets. The notes bear interest at a rate of
12%
annually paid monthly in arrears.
In March 2016, the Company extended the maturity date on its remaining subordinated notes from December 31, 2016 to December 31, 2017. As part of this agreement, the Company issued to debt holders
3,200,000
warrants, which possessed an aggregate fair value of
$1,267,817
at issuance using the Black-Scholes valuation model.
1,000,000
of these warrants were subsequently canceled prior to year-end and reissued with an extended maturity date. See note 17:
Related Parties
for additional details.
For the years ended
March 31, 2017
and
2016
,
$300,000
and
$1,000,000
, respectively, of subordinated notes principal and relating accrued interest were converted into
499,072
and
1,683,334
, respectively, of common shares.
For the years ended
March 31, 2017
and
2016
, amortized debt discount included in interest expense totaled
$740,147
and
$511,131
, respectively. During the years ended
March 31, 2017
and
2016
, the Company made principal payments of
$0
and
$600,000
, respectively.
Convertible Promissory Note
In September 2015, the Company entered into a Loan and Security Agreement with Hall Phoenix/Inwood, Ltd., a Texas limited partnership (“Hall”), whereby the Company received
$2,000,000
, and issued a convertible promissory note (the “Hall Note”) secured by all the assets of the Company and accrues interest at an annual rate of
10%
and a maturity date of September 16, 2016. In December 2015, the Company sold to Hall,
450,379
shares in its majority-owned subsidiary DPPL. As consideration, the Hall Note was considered repaid in full.
Notes Payable and Promissory Notes
In October 2015, the Company received
$6,000,000
from various investors as part of a debt subscription agreement, which was specific to facilitating the sale of the Company's U.S. Operations in November 2015. As part of this sale, these notes were assumed by the buyer. Additionally, notes totaling
$59,434
were issued by the Company to note holders to account for the interest that was incurred by the Company while the funds were in escrow and have a maturity date of December 31, 2017. These notes were not assumed by the buyer.
In April 2016, and in connection with the Company's settlement agreement with the buyer, the Company issued
two
promissory notes, First,
$727,285
, of which
$720,084
was the note balance included in the Asset Purchase Agreement, with the remaining balance as subsequent interest incurred. This note possessed an interest rate of
12%
per annum payable monthly, matures on December 31, 2017. Second, the Company issued the buyer a
$675,000
note in exchange for the buyer waiving any claims for breach of the Purchase Agreement between the buyer and the Company. The Company escrowed
2,000,000
shares of its common stock as a guarantee of repayment. Lastly, the Company issued
three
notes totaling
$546,440
, which represented the remaining outstanding debt of the U.S. Operations that was not included as part of the sale of U.S. Operations at March 31, 2016. These loans have a maturity date of December 31, 2017.
In December 2016, the Company extended the maturity date on its remaining subordinated notes relating to CRA debt from December 31, 2016 to December 31, 2017. As part of this agreement, the Company issued to debt holders
57,909
warrants, which possessed an aggregate fair value of
$31,389
at issuance using the Black-Scholes valuation model.
In June 2015, MMPL obtained a
$60,000
loan from Bajaj Finserv with an interest rate of
19%
per annum payable monthly with a maturity date in May 2018. During December 2016, MMPL obtained an additional
$30,000
from Bajaj Finserv.
In March 2017, the Company executed a
$2,000,000
promissory note to HALL MOM, LLC., a Texas limited liability company (“HALL MOM"). This note possesses an interest rate of
10%
per annum payable monthly from March through May 2017, and
15%
annum thereafter. The maturity date is December 31, 2017. Principal payments are due each month at a minimum of
$50,000
beginning April 1, 2017. This promissory note represented the Company's obligation, which was previously classified as a Put Liability from March 2016 through December 2017. See note 18:
Commitments and contingencies
for more information.
Building Mortgage
In May 2014, MMPL obtained a $
2,254,500
loan with Union Bank of India to purchase an office building to be used as its headquarters. The loan was interest only for the first six months at the rate of
16%
per annum. Thereafter, the interest rate is
15
% per annum, and principal and interest payments are to be made in
26
equal quarterly payments. The loan matures in May 2021 and is collateralized by the building. During the quarter ended June 30, 2015, MMPL refinanced its office building loan by paying off its loan with the Union Bank of India, and replacing it with a
$2,198,000
loan with Standard Chartered. The new loan is at a variable interest of
11.10%
per annum with principal and interest payments to be made in
180
equal monthly payments.
Unsecured Credit Facility
In December 2016, MMPL entered into a Loan Agreement with YES BANK Limited, which provided MMPL an unsecured credit facility totaling approximately
$1.5 million
. As part of the agreement, a MoneyOnMobile, Inc. shareholder provided the lender with a
$2.0 million
standby letter-of-credit to the lender as collateral. Borrowings under the Credit Facility are at a variable rate based on
2.1%
over a base rate, which is currently equal to
9.5%
. The resulting aggregate interest rate on the Credit Facility totals
11.6%
and matures in December 2017.
In March 2017, MMPL amended its December 2016 loan agreement with YES BANK Limited, which extended the unsecured credit facility from
$1.5 million
to
$3.0 million
. As part of the amendment, a MoneyOnMobile, Inc. shareholder provided the lender with an additional
$2.0 million
standby letter-of-credit to the lender as collateral. No other terms of the original Loan Agreement were changed. The unused line of credit at March 31, 2017 was approximately
$26,000
.
Future principal payments due under the Company’s debt, excluding debt discounts of $
(502,407)
, for the fiscal years ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
|
Convertible subordinated notes payable
|
$
|
2,900,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,900,000
|
|
|
Notes payable and promissory notes
|
4,066,595
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,066,595
|
|
|
Building mortgage
|
69,837
|
|
|
77,995
|
|
|
87,107
|
|
|
97,283
|
|
|
108,648
|
|
|
1,599,932
|
|
|
2,040,802
|
|
|
Unsecured line of credit
|
2,974,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,974,000
|
|
|
|
$
|
10,010,432
|
|
|
$
|
77,995
|
|
|
$
|
87,107
|
|
|
$
|
97,283
|
|
|
$
|
108,648
|
|
|
$
|
1,599,932
|
|
|
$
|
11,981,397
|
|
13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
We measure the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:
|
|
|
|
Level 1 -
|
quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2 -
|
quoted prices for similar assets and liabilities in active markets or inputs that are observable
|
|
|
|
|
Level 3 -
|
inputs that are unobservable based on an entity’s own assumptions, as there is little, if any, related market activity (for example, cash flow modeling inputs based on assumptions)
|
There were no financial liabilities as of March 31, 2017 and 2016 measured at fair value on a recurring basis.
In September 2015, the Company determined that a certain conversion option related to a convertible note did not have fixed settlement provisions and was deemed to be a derivative financial instrument, since the exercise price was subject to adjustment based on certain changes in market price of the Company’s common stock. Accordingly, the Company was required to record such conversion option as a liability and mark such derivative to fair value each reporting period. Such instrument was classified within Level 3 of the valuation hierarchy. However, the note was exchanged prior to March 31, 2016.
The fair value of the conversion option was calculated using a binomial lattice formula with the following weighted average assumptions during the nine months ended December 31, 2015. The financial instrument was exchanged on December 30, 2015 and was created on September 17, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
September 17, 2015
|
|
Common Stock Closing Price
|
|
$
|
0.55
|
|
|
$
|
0.54
|
|
|
Conversion Price per Share
|
|
$
|
0.53
|
|
|
$
|
0.45
|
|
|
Conversion Shares
|
|
3,789,233
|
|
|
4,444,306
|
|
|
Call Option Value
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
Dividend Yield
|
|
—
|
|
|
—
|
|
|
Volatility
|
|
103.21
|
%
|
|
103.24
|
%
|
|
Risk-free Interest Rate
|
|
0.33
|
%
|
|
0.39
|
%
|
|
Term (years)
|
|
1 year
|
|
|
1 year
|
|
The risk-free interest rate is the United States Treasury rate on the measurement date having a term equal to the remaining contractual life of the instrument. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate. The dividend yield is 0% as the Company has not made any dividend payment and has no plans to pay dividends in the foreseeable future.
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer, who reports to the Chief Executive Officer, determine its valuation policies and procedures.
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of management.
Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility or interest free rate, in isolation, can significantly increase or decrease the fair value of the derivative liabilities. Changes in the values of the derivative liabilities are recorded as a component of other income (expense) on the Company’s consolidated statements of operations.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis using significant unobservable input for the year ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
April 1, 2015
|
|
$
|
—
|
|
|
Aggregate amount of derivative instruments issued
|
|
1,097,635
|
|
|
Change in fair value of derivative liabilities
|
|
(477,032
|
)
|
|
Reclassification into Equity
|
|
(620,603
|
)
|
|
March 31, 2016
|
|
—
|
|
|
March 31, 2017
|
|
$
|
—
|
|
The Company’s assets measured at fair value on a non-recurring basis are summarized in the following tables by fair value measurement Level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Equity Investments as of March 31, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
190,172
|
|
|
$
|
190,172
|
|
|
Equity Investments as of March 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fair Value Measurements are defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories. There have been no changes in the methodologies used at March 31, 2017 and 2016:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Level 3 investments consist of investments in Happy Cellular Services Limited.
A reconciliation of the beginning and ending balances for the investments using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
Carrying value, March 31, 2015
|
|
$
|
201,600
|
|
|
Foreign currency translation
|
|
(11,428
|
)
|
|
Fair value of equity investment as of March 31, 2016
|
|
190,172
|
|
|
Foreign currency translation
|
|
2,678
|
|
|
Sale of equity investment
|
|
192,850
|
|
|
Carrying value, March 31, 2017
|
|
$
|
—
|
|
14 - CAPITAL STOCK
We have not agreed to register any of our common stock or warrants for resale under the Securities Act of 1933, as amended; however,
9,565,669
shares common stock and warrants to acquire
2,144,123
shares of our common stock have customary “piggy back” registration rights in the event we register shares of our common stock in the future.
On May 1, 2017, the Company held a special meeting of shareholders pursuant to notice duly given. At the special meeting, the Company submitted for approval by its shareholders proposals (i) to amend its Amended and Restated Certificate of Formation - For-Profit Corporation to effect a reverse share split with respect to the Company’s issued and outstanding common stock, par value
$0.001
per share, including shares held by the Company as treasury shares if any, at a ratio of between 1-for-5 and 1-for-20 (the “Exchange Range”), with the ratio within such Exchange Range to be determined at the discretion of the Board (the “Reverse Share Split”) and the Reverse Share Split shall be effected at such time as the Board deems proper and ready; and (ii) to transact any other business as may properly come before the meeting or at any adjournment thereof (the “Other Transactions”). As of June 30, 2017, the Reverse Share Split is on hold. The Board may approve the Reverse Share Split up until December 31, 2017.
Common Stock
During the years ended March 31, 2017 and 2016, the Company issued shares of its common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Issuance of common stock for cash
|
|
6,054,800
|
|
(1)
|
$
|
3,697,166
|
|
|
5,960,419
|
|
|
$
|
3,628,728
|
|
|
Issuance of common stock for services
|
|
2,507,421
|
|
|
1,302,274
|
|
|
2,838,889
|
|
|
1,610,217
|
|
|
Conversion of preferred stock to common stock
|
|
1,756,693
|
|
(1)
|
1,054,016
|
|
|
—
|
|
|
—
|
|
|
Conversion of debt to common stock
|
|
499,072
|
|
|
349,351
|
|
|
2,001,515
|
|
|
1,204,000
|
|
|
Exercise of warrants into common stock (including 3,125,768 cashless warrants)
|
|
6,314,782
|
|
|
1,757,384
|
|
|
—
|
|
|
—
|
|
|
Reacquisition and retirement of common stock
|
|
(3,661,540
|
)
|
|
4,556,848
|
|
|
(40,000
|
)
|
|
602,214
|
|
(1) - Shares total includes certain subscribed stock.
Treasury Stock
In July 2016, the Company reacquired
3,551,694
shares of MoneyOnMobile, Inc., from a distributor, SVR Retail Private Ltd. ("SVR"). The Company paid
$177,369
in cash and forgave a receivable SVR owed to DPPL totaling
$4,346,945
. The Company formally retired
3,661,540
common shares upon receipt in July 2016 and recorded a
$(4,524,314)
reduction to additional paid-in capital in the consolidated balance sheet. As a result of the transaction, the Company did not acquire any other assets or assume any liabilities. Concurrently, the Company reacquired and reissued
109,846
shares of MoneyOnMobile, Inc., from an agent, and are included in issuance of common stock for services.
Convertible Preferred Stock - Series D
During the years ended March 31, 2017 and 2016, the Company issued
1,542
and
600
shares, respectively, of its Series D Convertible Preferred Stock (the “Series D Preferred”), par value
$0.001
per share and a stated value of
$1,000
per share. In connection with the issuance of the Series D Preferred, the Company issued warrants to purchase
373,000
and
150,000
shares, respectively, of Common Stock at an exercise price of
$0.75
per share. The Company received gross proceeds of
$1,542,000
and
$600,000
, respectively, in consideration for the issuance of these securities. The investor shall have the right to convert the preferred shares, including accrued dividends (
15%
annually), into the Company's common stock at any time at
$0.60
per share. At the completion of a certain level of equity funding, the investor must convert their outstanding investment, including accrued dividends to either: (i) cash; (ii) Company common stock at
$0.60
per share; or (iii) Company common stock at the not yet determined equity raise per share value. During the year ended March 31, 2017, investors converted
917
shares of Series D Preferred, including accrued preferred dividends, into
1,756,693
shares of Common Stock. During the year ended March 31, 2016 there was no conversion of shares of Series D Preferred. At March 31, 2017 and 2016, outstanding cumulative preferred dividends totaled
$186,438
and
$0
, respectively.
Convertible Preferred Stock - Series E
During the year ended March 31, 2017 and 2016, the Company issued
2,530
and
0
shares, respectively, of its Series E Convertible Preferred Stock (the “Series E Preferred”), par value
$0.001
per share and a stated value of
$1,000
per share. The Company received gross proceeds of
$2,530,000
and
$0
, respectively, in consideration for the issuance of these securities. No warrants were issued in connection with the issuance of the Series E Preferred. The Series E Preferred is voluntarily convertible into shares of
Common Stock of the Company at a conversion price of
$1.59
. There also exists contingent conversion features with these securities. In the event the Company's Common Stock is uplisted to a major stock exchange, all outstanding Series E Preferred will be automatically converted into Common Stock at a conversion price equal to
$1.34
. Holders of Series E Preferred are not entitled to receive dividends.
Warrants
During the year ended March 31, 2017, and in connection with the Series D Preferred share conversion, investors redeemed
307,500
warrants for
184,500
shares of Common Stock.
At March 31, 2017, and in connection with financing activities and service agreements, a total of
17,352,803
warrants for our common stock with exercise prices ranging from $
0.01
to $
3.00
per share ($
0.71
weighted average) are outstanding and expire during the fiscal years as follows:
750,660
in
2018
;
2,501,197
in
2019
;
1,451,619
in
2020
;
6,098,345
in
2021
;
2,775,982
in
2022
; and
3,775,000
in
2026
. On exercise, the warrants will be settled in delivery of unregistered shares of our common stock.
The following table summarizes the changes in warrants for the years ended March 31, 2017 and 2016.
|
|
|
|
|
|
|
|
Warrants
|
|
Outstanding at March 31, 2015
|
8,728,526
|
|
|
Granted
|
18,437,046
|
|
|
Exercised
|
—
|
|
|
Expired/canceled
|
(5,433,300
|
)
|
|
Outstanding at March 31, 2016
|
21,732,272
|
|
|
Granted
|
2,735,239
|
|
|
Exercised
|
(6,314,782
|
)
|
|
Expired/canceled
|
(799,926
|
)
|
|
Outstanding at March 31, 2017
|
17,352,803
|
|
For the year ended March 31, 2017 and 2016 the Company granted the following warrants:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Issued for services
|
1,157,756
|
|
|
9,150,963
|
|
|
Issued for common stock
|
1,132,390
|
|
|
2,980,212
|
|
|
Issued for preferred stock
|
385,384
|
|
|
150,000
|
|
|
Conversion from debt to equity
|
—
|
|
|
996,781
|
|
|
Debt modifications
|
59,709
|
|
|
5,159,090
|
|
|
Total
|
2,735,239
|
|
|
18,437,046
|
|
We estimate the fair value of warrant granted using the Black-Scholes option valuation model. The expected life of warrant represents the term of warrant. The expected stock volatility is based on the average of historical volatility of the Company’s common stock and other subjective factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time awards are granted, and the expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. Warrants issued for services included in selling, general and administrative expenses was $
465,717
and $
3,256,309
for the years ended
March 31, 2017
and
2016
, respectively.
The fair value of each warrant granted was estimated on the date of grant using the Black-Scholes valuation model with the following weighted average assumptions for grants during the years ended March 31:
|
|
|
|
|
|
|
|
|
|
Warrants
|
2017
|
|
2016
|
|
Risk-free interest rates
|
1.63
|
%
|
|
1.61
|
%
|
|
Expected volatility
|
98.36
|
%
|
|
110.62
|
%
|
|
Dividend yields
|
—
|
%
|
|
—
|
%
|
|
Expected lives (years)
|
5 years
|
|
|
4 years
|
|
Equity Incentive Plans
The
2011 Equity Incentive Plan
(“2011 Plan”) provides for issuing equity awards for an aggregate of
3,500,000
shares of our common stock in the form of grants of restricted shares, incentive stock options (employees only), non-qualified stock options, share appreciation rights, performance shares, and performance units.
The
2016 Equity Incentive Plan
(“2016 Plan”) provides for issuing equity awards for an aggregate of
6,000,000
shares of our common stock, of which
3,000,000
have been registered at March 31, 2017, in the form of grants of restricted shares, incentive stock options (employees only), non-qualified stock options, share appreciation rights, performance shares, and performance units.
The purposes of the 2011 Plan and 2016 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors, and consultants, and to promote the long-term growth and profitability of the Company. Stock option awards have a maximum contractual life of
ten years
and specific vesting terms and performance goals are addressed in each equity award grant. Shares issued to satisfy awards may be from authorized but unissued or reacquired common stock.
Stock Options
We estimate the fair value of stock options granted using the Black-Scholes option valuation model. The expected life of options represents the period of time the options are expected to be outstanding and other subjective factors. The expected stock volatility is based on the average of historical volatility of the Company’s common stock and other subjective factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time awards are granted, and the expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. No forfeiture is expected when stock options are granted.
During the years ended March 31, 2017 and 2016, the Company awarded
600,000
and
2,800,000
incentive stock options for shares of common stock. Stock-based compensation expense included in selling, general and administrative expenses was
$209,734
and
$1,216,146
for the years ended March 31, 2017 and 2016. Options with a weighted-average exercise price of
$0.70
per share for
4,080,000
common shares were outstanding at March 31, 2017. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option. Intrinsic value at March 31, 2017 and 2016 totaled
$0
and
$650,000
, respectively. At March 31, 2017, outstanding options are fully vested and the weighted-average remaining contractual term was
8.4
years; however, if services are earlier terminated,
4,080,000
options become void
90
days after termination.
The fair value of each option was estimated on the date of grant using the Black-Scholes valuation model using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Option plan
|
|
2017
|
|
2016
|
|
Risk-free interest rates
|
|
1.89
|
%
|
|
1.74
|
%
|
|
Expected volatility
|
|
96.99
|
%
|
|
103.05
|
%
|
|
Dividend yields
|
|
—
|
%
|
|
—
|
%
|
|
Expected lives (years)
|
|
5 years
|
|
|
5 years
|
|
The following table summarizes the changes in equity available for grant, comprised of stock options and restricted common stock, for the years ended
March 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Outstanding at March 31, 2015
|
|
1,960,000
|
|
|
$
|
1.17
|
|
|
Granted
|
|
2,800,000
|
|
|
$
|
0.52
|
|
|
Exercised
|
|
—
|
|
|
|
|
Forfeited
|
|
(1,280,000
|
)
|
|
|
|
Outstanding at March 31, 2016
|
|
3,480,000
|
|
|
$
|
0.74
|
|
|
Granted
|
|
600,000
|
|
|
$
|
0.49
|
|
|
Exercised
|
|
—
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
|
Outstanding at March 31, 2017
|
|
4,080,000
|
|
|
$
|
0.70
|
|
15 - (LOSS) PER SHARE
Basic (loss) per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted (loss) per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
Our shareholder equity includes a line item for “subscribed stock", which represents shares of common stock for which we irrevocably received investors’ purchase prices but, due to administrative delays, had not issued the respective shares of common stock before the period end. These shares have been included in the weighted average number of shares of common stock outstanding during the period for the purposes of calculating basic (loss) per share.
The computation of basic and diluted loss per share excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period. Potentially dilutive securities excluded from the computation of basic and diluted net (loss) per share as of
March 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Warrants
|
17,352,803
|
|
|
21,732,272
|
|
|
Stock options
|
4,080,000
|
|
|
3,480,000
|
|
|
Convertible subordinated notes
|
2,900,000
|
|
|
3,200,000
|
|
|
Convertible preferred stock
|
4,235,977
|
|
|
1,000,000
|
|
|
Total
|
28,568,780
|
|
|
29,412,272
|
|
16 - INCOME TAXES
Our deferred income tax liabilities and assets reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. We adjust our deferred income tax liabilities and assets, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We establish a valuation allowance to offset any deferred income tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred income tax assets will not be realized. We recognize uncertain income tax positions taken or expected to be taken on tax returns at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of
March 31, 2017
and
2016
, no such uncertain income tax benefits were recognized.
The Company has cumulative domestic net operating losses of
$(32.7) million
and
$(27.6) million
as of
March 31, 2017
and 2016, respectively. The net operating loss carryover begins to expire in 2026 through 2034.
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Warrants
|
$
|
1,956,625
|
|
|
$
|
1,787,277
|
|
|
Net operating loss carryovers
|
11,123,913
|
|
|
12,164,076
|
|
|
Management equity awards
|
836,450
|
|
|
765,141
|
|
|
Fixed Assets
|
2,380
|
|
|
—
|
|
|
Total deferred tax assets
|
13,919,368
|
|
|
14,716,494
|
|
|
Valuation allowance
|
(13,919,368
|
)
|
|
(14,716,494
|
)
|
|
Net deferred tax asset
|
$
|
—
|
|
|
$
|
—
|
|
For fiscal year ending
March 31, 2017
and
2016
, there were no current or deferred tax expenses due to a full valuation allowance. The losses from continuing operations before income taxes and equity investment loss at the
34%
federal statutory and foreign (India) tax rate reconciles to our tax provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Domestic
|
Foreign
|
Total
|
|
Domestic
|
Foreign
|
Total
|
|
Loss from continuing operations, before income taxes
|
$
|
(7,646,888
|
)
|
$
|
(5,448,615
|
)
|
$
|
(13,196,218
|
)
|
|
$
|
(13,024,794
|
)
|
$
|
(4,638,370
|
)
|
$
|
(17,663,164
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit at statutory rate
|
(2,599,942
|
)
|
(1,852,529
|
)
|
(4,452,471
|
)
|
|
(4,428,430
|
)
|
(1,577,046
|
)
|
(6,005,476
|
)
|
|
Equity investment adjustment
|
521,900
|
|
—
|
|
521,900
|
|
|
1,305,093
|
|
—
|
|
1,305,093
|
|
|
Items not deductible for tax purposes
|
12,195
|
|
—
|
|
12,195
|
|
|
7,914
|
|
—
|
|
7,914
|
|
|
Change in valuation allowance
|
2,065,847
|
|
2,242,733
|
|
4,308,580
|
|
|
3,115,423
|
|
1,655,161
|
|
4,770,584
|
|
|
Rate difference in foreign jurisdiction
|
—
|
|
(490,919
|
)
|
(490,919
|
)
|
|
—
|
|
(63,288
|
)
|
(63,288
|
)
|
|
Income tax (benefit) expense
|
$
|
—
|
|
$
|
(100,715
|
)
|
$
|
(100,715
|
)
|
|
$
|
—
|
|
$
|
14,827
|
|
$
|
14,827
|
|
Prior to the DPPL acquisition on January 7, 2014, the Company owned
49.9%
of DPPL, a loss company at the time of the acquisition. As a result of this acquisition we obtained certain foreign net operating losses. In the U.S., loss carryforwards are subject to IRC Section 382 of the Code which may limit the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership). We do not expect the IRC Section 382 limitation to materially impact the deferred tax asset as it relates to the NOL. The provision for income taxes is due entirely to MMPL and is payable to the Indian Government.
17
- RELATED PARTIES
Support Services and Advances
ART has provided the Company, since its startup period, with certain support services. It has been verbally agreed that payment for these services would accrue interest-free and be paid at a future date to be agreed on by the parties. At
March 31, 2017
and
2016
, amounts due to ART were
$190,511
and
$208,181
, respectively, and is included in Related party payables on the Company’s balance sheet.
Cagan McAfee Capital Partners, LLC / Cagan Capital, LLC / Laird Cagan
Cagan McAfee Capital Partners, LLC (“CMCP”) is an investment company owned and controlled by Laird Cagan, a former member of our Board of Directors and a significant shareholder. The amounts due, including interest, to CMCP totaled
$761,805
as of
March 31, 2017
and
2016
, respectively, and is recorded in Related party payables in the consolidated balance sheets.
In 2011, Cagan Capital, LLC (“CCLLC”), an entity owned and controlled by Mr. Cagan, purchased
$1.0 million
of our subordinated notes payable and warrants to purchase up to
500,000
shares of our common stock at
$1.00
per share on a cashless basis. During the year ended March 31, 2016, these warrants were exchanged and reissued with extended maturity dates. In connection with the extension of the maturity date of the subordinated notes in 2012, CCLLC was issued an additional
71,233
warrants to purchase shares of our common stock at
$2.00
per share. There were no subordinated debt principal payments in 2017 or 2016 and interest paid at
12%
per annum totaled
$0
in 2017 and
$0
in 2016. Mr. Cagan converted these warrants in September 2016.
At March 31, 2017, the Company has two promissory notes due to Mr. Cagan. The first, is a
$727,000
principal amount, which may be converted to common stock at any time by dividing the outstanding principal and any accrued interest by
$2.00
per share. No principal payments were made during fiscal year March 31, 2017. Interest payments made during the year ended March 31, 2017 totaled
$29,091
. The second promissory notes is non-convertible and has a principal amount of
$162,137
. Interest payment totaled
$0
as of March 31, 2017. See note 12:
Debt
for more information.
In March 2016, the Company executed an
one
year advisory agreement with Mr. Cagan and issued one million warrants. Mr. Cagan received
1,000,000
warrants as part of the subordinated notes payable modification. See note 12:
Debt
for more information. These warrants and those held by Mr. Cagan, totaling
2.5 million
warrants, were canceled and reissued in order to extend the maturity date. This resulted in a non-cash expense of
$314,623
for the year ended March 31, 2016 and is recorded in Selling, general and administrative in the Consolidated Statement of Operations and Comprehensive Loss. Mr. Cagan converted these warrants in September 2016.
Happy Cellular Services Limited
The majority shareholder and Chairman of Happy Cellular Services Limited ("Happy Cellular"), is also a shareholder and board member of MMPL. Additionally, a certain number of Happy Cellular retailers are also agents for MoneyOnMobile. During the year ended March 31, 2016, MMPL issued three short-term bonds to the majority shareholder of Happy Cellular totaling approximately
$450,000
. These debt instruments have an interest rate of
15.3%
, which represent the prevailing bank rate at inception. At March 31, 2017 and 2016,
$0
and
$295,415
, representing outstanding principal and interest was past due and recorded as Related party payables in the Consolidated Balance Sheets.
In December 2016, Happy Cellular provided a refundable deposit totaling approximately
$294,400
for the Company to increase its volume of immediate payment service transactions. Happy Cellular agents are entitled to a commission for a fixed number of transactions at a fixed rate. Additionally, in January 2017, the Company reached a settlement agreement with Happy Cellular for all receivables and payables. No significant adjustments resulted.
18 - COMMITMENTS AND CONTINGENCIES
SALE OF OFFICE BUILDING
During March 2017, the Company reached an agreement to sell its office building located in Mumbai, India with the co-founder of DPPL and MMPL. The Company has not presented the building as an asset held for sale due to the sale being contingent on the purchaser obtaining financing by July 10, 2017. If this transaction does not consummate, the Company intends to withdraw its plans to sell the building.
PUT LIABILITY - NONCONTROLLING INVESTMENT
In September 2015, the Company entered into a Loan and Security Agreement with Hall Phoenix/Inwood, Ltd., a Texas limited partnership (“Hall”), whereby the Company received
$2,000,000
, and issued a convertible promissory note (the “Hall Note”) secured by all the assets of the Company and accrues interest at an annual rate of
10%
and a maturity date of September 16, 2016. On December 30, 2015, the Company sold to Hall,
450,379
of its shares held in its majority-owned subsidiary DPPL. As consideration, the Hall Note was considered repaid in full.
On December 30, 2015, the Company entered into a Share Purchase Agreement with HALL MOM. Pursuant to the Purchase Agreement, and in satisfaction of a
$2,000,000
loan made to the Company by Hall in September 2015, the Company issued and sold
450,379
equity shares of DPPL to HALL MOM. In addition to the debt satisfaction, HALL MOM agreed to return to the Company for cancellation,
1,000,000
shares of the Company’s common stock and warrants to purchase
2,500,000
shares of the Company’s common stock. As part of the Share Purchase Agreement, HALL MOM possessed an option for the Company to buyback its investment for
$3,000,000
. On March 15, 2016, HALL MOM exercised its option, which required repayment of its investment. In March 2017, the Company made a
$1.0 million
payment to HALL MOM and issued a
$2,000,000
promissory note. As such, the put liability was reclassified to debt at March 31, 2017. See note 12:
Debt
for more information.
LITIGATION
Reinvention Capital Advisors Co.
In December 2015, Reinvention Capital Advisors Co. ("Reinvention" or “Plaintiff”) filed suit against the Company alleging breach of the financial advisory services agreement and fees associated with the sale of the Company's U.S. Operations. Alleged damages totaled
$500,996
. In June 2016, the Company reached a settlement for
$300,000
, of which was paid in full at March 31, 2017.
19 - SALE OF U.S. OPERATIONS
Effective November 30, 2015 (11:59pm), the Company entered into an Asset Purchase Agreement with eVance Processing Inc. ("eVance") to divest its Calpian Commerce business segment and certain other U.S. residual portfolio assets of MoneyOnMobile, Inc., including Calpian Residual Acquisition, LLC and its equity investment in Calpian Granite Hill, L.P. This action was undertaken to allow the Company to focus entirely on executing its growth strategy for MoneyOnMobile. There is no continuing cash inflows or outflows from or to the discontinued operations. In consideration for the acquired assets, eVance assumed certain of the Company’s liabilities, including an aggregate of
$9,000,000
of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 12, 2016, the Company and eVance entered into a purchase price adjustment agreement and a cancellation of securities acknowledgment with one of eVance’s note holders whereby the note holder canceled their note in the amount of
$720,084
, which was subsequently reissued by the Company to the note holder. Additionally, the Company issued eVance a note in the amount of
$675,000
. The
$675,000
note bears interest of
12%
per annum payable monthly, matures on November 30, 2017 and is secured by
2,000,000
shares of the Company's common stock. These common share were issued subsequent to March 31, 2016 and are maintained in escrow. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and the Company and has claimed damages in excess of
$1,500,000
. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the
$675,000
note issued by the Company up to a maximum of
$675,000
.
ASC 360-10-45-9 requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. This criteria was achieved on June 30, 2015. Additionally, the discontinued operations are comprised of the entirety of the Calpian Commerce segment and the majority of the remaining U.S. Operations segment, excluding corporate services expenses. Lastly, for comparability purposes certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying consolidated statements of net loss and comprehensive loss and the consolidated balance sheets.
As the Company's senior secured promissory note was required to be repaid as a result of the disposal transaction, the relating interest on this debt instrument has been allocated in its entirety to discontinued operations. No other interest has been allocated to discontinued operations. The major classes of line items constituting the after-tax gain on discontinued operations in the consolidated statements of operations and comprehensive loss for the year ended March 31, 2016:
|
|
|
|
|
|
|
|
|
Revenue, net:
|
|
|
|
|
Residual portfolios
|
$
|
1,594,475
|
|
(1)
|
|
Processing fees
|
5,880,911
|
|
(1)
|
|
Other
|
1,359,496
|
|
(1)
|
|
Total revenues
|
8,834,882
|
|
(1)
|
|
Cost of revenues:
|
|
|
|
Residual portfolio amortization
|
263,421
|
|
(1)
|
|
Processing and other
|
5,126,216
|
|
(1)
|
|
Other
|
385,904
|
|
(1)
|
|
Total cost of sales
|
5,775,541
|
|
(1)
|
|
Gross profit:
|
3,059,341
|
|
(1)
|
|
General and administrative expenses
|
|
|
|
Salaries and wages
|
1,320,851
|
|
(1)
|
|
Selling, general and administrative
|
677,713
|
|
(1)
|
|
Depreciation and amortization
|
27,702
|
|
(1)
|
|
Total general and administrative
|
2,026,266
|
|
(1)
|
|
Other income (expense)
|
|
|
|
Interest expense
|
(952,940
|
)
|
(1)
|
|
Other
|
123,992
|
|
(1)
|
|
Total other income (expense)
|
(828,948
|
)
|
(1)
|
|
Income tax expense
|
—
|
|
(1)
|
|
Gain from discontinued operations, net of tax
|
$
|
204,127
|
|
(1)
|
(1) - As the Company's U.S. Operations were divested on November 30, 2015, the financial information presented above includes only eight month results for the periods within the current fiscal year.
Senior Credit Facility (Discontinued Operations)
Outstanding balances under the senior credit facility accrue interest at an annual rate of
13.2%
, payable monthly in arrears. On August 8, 2014, the facility was amended to extend interest only payments through September 2015; thereafter, principal is payable in monthly installments, plus accrued interest, until maturity in October 2017. The facility required maintaining a minimum of
$200,000
in cash and equivalents and meeting certain financial and financial reporting covenants and was returned to the Company when the facility was repaid on November 30, 2015 as part of the sale of its U.S. Operations.
During the years ended
March 31, 2017
and
2016
, interest expense, exclusive of accretion of debt discount and amortization of loan origination fees, was
$0
and
$572,088
, respectively. For the years ended
March 31, 2017
and
2016
, amortized debt discount included in interest expense were
$0
and
$54,167
, respectively.
Loan origination fees related to our senior credit facility are amortized through November 30, 2015, the date of the facility was repaid in full, and are included in interest expense. For the years ended
March 31, 2017
and
2016
, amortized financing costs included in interest expense were
$0
and
$144,056
, respectively. Additionally, the remaining Deferred Finance Costs totaling
$180,070
were written off as of November 30, 2015 and were included in the calculation of Loss on Sale of U.S. Operations. For the years ended
March 31, 2017
and
2016
, the Company made principal payments on the senior credit facility of
$0
and
$6,600,000
, respectively.
Senior Promissory Notes (Discontinued Operations)
Calpian Residual Acquisition, LLC entered into
$3.0 million
and
$1.0 million
senior promissory notes to
three
investors in February 2014 and September 2014, respectively. Outstanding balances under the senior promissory notes accrue interest at an annual rate of
12%
, payable monthly in arrears. Interest only is payable through February 2015; thereafter, principal is payable evenly for
48
months through maturity, February 2019. The
$4.0 million
notes are voluntarily convertible into common stock after December 31, 2014 at a conversion ratio of
$2
per share of our common stock. In March 2015, Calpian Residual Acquisition, LLC issued
$175,000
senior promissory notes with separate investors and accrue interest at an annual rate of
8%
, payable monthly in arrears. Interest only is payable through March 2016; thereafter, principal is payable evenly for
48
months through maturity, March 2020.
As part of the Company's November 30, 2015 sale of its U.S. Operations,
$3,000,000
of principal senior promissory notes were assumed by the buyer,
$175,000
was converted to CLPI common stock, and the remaining
$500,000
of principal was converted to notes directly with MoneyOnMobile, Inc.. These notes have a maturity date of December 31, 2016 with an annual interest rate of
12%
. During the year ended
March 31, 2017
and
2016
, interest expense was
$0
and
$297,029
, respectively.
Warrants, valued at the time of issuance using a Black Scholes valuation model, have been issued in connection with the senior promissory notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair
|
|
|
|
Number
|
|
Value at the
|
|
Period of Issue (Fiscal Period)
|
|
of Warrants
|
|
Time of Issuance
|
|
Q1 2015
|
|
75,000
|
|
|
$
|
60,000
|
|
|
Q2 2015
|
|
175,000
|
|
|
140,000
|
|
|
Q3 2015
|
|
125,000
|
|
|
82,246
|
|
|
Total - 2015
|
|
375,000
|
|
|
$
|
282,246
|
|
During the years ended
March 31, 2017
and
2016
, debt discount accreted into interest expense was
$0
and
$80,919
, respectively. During the years ended
March 31, 2017
and
2016
, the Company made principal payments on the senior promissory notes of
$0
and
$4,093,162
, respectively. Additionally, the remaining Deferred Finance Costs totaling
$394,481
were written off as of November 30, 2015 and were included in the calculation of Loss on Sale of U.S. Operations.
The following information presents the major classes of line items constituting significant operating and investing cash flow activities in the consolidated statements of cash flows relating to discontinued operations for the year ended March 31, 2016.
|
|
|
|
|
|
|
|
Cash Flow: major line items
|
|
|
Portfolio Amortization
|
$
|
432,075
|
|
|
Depreciation and amortization
|
40,987
|
|
|
Purchases of property and equipment
|
7,186
|
|
20 - SUPPLEMENTAL CASH FLOW INFORMATION
The table below provides a summary of non-cash investing and financing transactions for the fiscal years ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Subordinated debt converted to common stock
|
$
|
349,351
|
|
|
$
|
1,204,000
|
|
|
Issuance of warrants with debt
|
32,365
|
|
|
1,944,356
|
|
|
Exchange of warrants with related party
|
—
|
|
|
314,623
|
|
|
Cancellation of warrants for DPPL shares
|
—
|
|
|
1,265,553
|
|
|
Cancellation of common stock for DPPL shares
|
—
|
|
|
602,214
|
|
|
Conversion of preferred stock to common stock
|
916,536
|
|
|
—
|
|
|
Conversion of preferred stock dividends to common stock
|
137,480
|
|
|
—
|
|
|
Reclassification of noncontrolling interest to mandatory redeemable financial instrument
|
4,453,313
|
|
|
—
|
|
|
Reacquisition and retirement of common stock for forgiveness of balances due from distributors
|
4,346,945
|
|
|
—
|
|
|
Put liability converted to debt
|
2,000,000
|
|
|
—
|
|
|
Financing costs associated with sale of U.S. Operations
|
—
|
|
|
1,072,732
|
|
The table below provides a summary of cash paid for interest and income taxes for the fiscal years ended March 31:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Interest paid, net of amounts capitalized
|
461,335
|
|
|
1,752,324
|
|
|
Income taxes paid
|
—
|
|
|
—
|
|
21 - SUBSEQUENT EVENTS
Sale of Equity Securities
Subsequent to March 31, 2017, the Company issued
839,077
common shares in exchange for advisory services received.
Fund Raising Activities
Subsequent to March 31, 2017, the Company raised
$858,000
in exchange for issuing
2,860,002
common shares and warrants to purchase
1,430,000
common shares at a strike price of
$0.45
.
New Debt Obligations
Subsequent to March 31, 2017, the Company issued a convertible promissory note with a principal balance of
$210,000
. This note accrues interest at
10%
per annum and matures on December 31, 2017. It can be voluntarily converted by the investor at a conversion ratio of
$0.25
per common share. Additionally, the Company issued the investor
420,000
warrants in connection with this transaction.
Also, the Company issued
two
promissory notes with a principal balance of
$200,000
and
$300,000
, each having a one year term. Interest increases during the term from
10%
to
17%
per annum.
Additional Warrants Issued for Services
Subsequent to March 31, 2017, the Company issued
167,000
warrants relating to consulting services received.
Purchase of Subsidiary Shares Held by Noncontrolling Interest
Subsequent to March 31, 2017, the Company issued
1,600,000
common shares in exchange for
641,028
shares of DPPL, which were held by noncontrolling interests. These shares represented
5.1%
of outstanding shares of DPPL at March 31, 2017.
Appointment and Renewal of Directors
On April 6, 2017, the Board of Directors of the Company elected the Honorable Kay Bailey Hutchison and Mr. Karl Power as members of the Board in order to fill the vacant position resulting from the resignation of Shashank Joshi and the Board’s resolution to increase the size of the Board to five members. The Company agreed to issue both new board members a
five
year warrant to purchase
200,000
shares of the Company’s common stock at an exercise price of
$0.4699
, the closing price of the Company’s common stock on April 5, 2017. Mr. Power was issued an additional
five
year warrant to purchase
100,000
shares of the Company's common stock at an exercise price of
$0.46
for being audit committee chairman.
Existing Board members Jim McKelvey and David Utterback renewed their Board agreements. Mr. McKelvey was issued a
five
year warrant to purchase
200,000
shares of the Company's common stock at an exercise price of
$0.40
for being a board member and a
five
year warrant to purchase
50,000
shares of the Company's common stock at an exercise price of
$0.40
for being a member of the audit committee. Mr Utterback was issued a
five
year warrant to purchase
200,000
shares of the Company's common stock at an exercise price of
$0.40
for being a board member and an additional
five
year warrant to purchase
150,000
shares of the Company's common stock at an exercise price of
$0.40
for his Board service for the previous year.
Employee Retainer Options
Subsequent to March 31, 2017, the Company issued
1,850,000
incentive stock options to management.