U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. 333-181747
MOBETIZE CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
7299
99-0373704
(Primary Standard Industrial Classification Number)
(IRS Employer Identification Number)
8105 Birch Bay Square St, Suite 205, Blaine WA 98230
(Address of principal executive offices)
Issuer's telephone number : (778) 588-5563
Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X ] No[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company.
Large accelerated filer ☐
Accelerated filer
☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). ☐ Yes ☒ No
At August 12, 2016, the number of shares outstanding of the registrant's common stock, $0.001 par
value was 23,330,233, the number of shares outstanding of registrant's Series A preferred stock, $0.001
par value was 4,565,000, and the number of shares outstanding of registrants Series B preferred stock,
$0.001 par value was 11,570,648.
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
Financial Statements:
3
Consolidated Balance Sheets
3
Consolidated Statements of Operations
4
Consolidated statements of Stockholders' Equity
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
7
Item 2 .
Management's Discussion and Analysis of Financial Condition and Results of
23
Operations
Item 3 .
Quantitative and Qualitative Disclosures about Market Risk
28
Item 4 .
Controls and Procedures
28
PART II-OTHER INFORMATION
Item 1 .
Legal Proceedings and Risk Factors
29
Item 2 .
Unregistered Sales of Equity Securities and Use of Proceeds
29
Item 3.
Defaults Upon Senior Securities
29
Item 4.
Mine Safety Disclosures
29
Item 5 .
Other Information
29
Item 6 .
Exhibits
31
Signatures
30
2
MOBETIZE, CORP.
Consolidated Balance Sheets
June 30, 2016
(Unaudited)
US $
JUNE 30,
MARCH 31,
2016
2016
ASSETS
Current Assets:
Cash
$
19,075
$
210,341
Accounts receivable
72,215
43,729
Prepaid expenses and deposits
52,391
59,516
Prepaid expenses and deposits – related party (Note 4d)
6,508
5,241
Total Current Assets
150,189
318,827
Property and equipment, net (Note 3)
10,995
11,828
TOTAL ASSETS
$
161,184
$
330,655
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
$
189,269
$
138,956
Accounts payable and accrued liabilities - related party (Note 4d)
124,357
75,749
Deposits due to customers
1,480
1,480
Promissory note – related party (Note 4d)
75,000
50,000
Convertible debenture (Note 5f)
275,000
275,000
Total Current Liabilities
665,106
541,185
Shareholder loans (Notes 4d&e)
59,073
47,476
TOTAL LIABILITIES
$
724,179
$
588,661
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 Par Value: 525,000,000 authorized and 23,330,233
common shares issued and outstanding, respectively (Note 5)
$
23,330
$
28,751
Preferred stock – Class A, $0.001 Par Value: 250,000,000 authorized and
4,565,000 preferred shares issues and outstanding (Note 5d)
4,565
4,565
Preferred stock – Class B, $0.001 Par Value: 250,000,000 authorized and
5,420,648 preferred shares issues and outstanding (Note 5e)
5,421
-
Share subscriptions payable
30,000
-
Share purchase warrants (Note 6)
676,964
676,964
Share options (Note 7)
830,382
757,524
Additional paid-in capital
4,608,487
4,608,487
Accumulated other comprehensive loss
(9,394)
(9,236)
Accumulated deficit
(6,732,750)
(6,325,061)
Total Stockholders' Deficiency
(562,995)
(258,006)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
$
161,184
$
330,655
The accompanying notes are an integral part of these consolidated financial statements .
3
MOBETIZE CORP.
Consolidated Statements of Operations and Comprehensive Loss
For the three months ended June 30, 2016 and 2015
(Unaudited)
US$
THREE MONTHS ENDED
JUNE 30,
2016
2015
OPERATING REVENUES
Revenues
$
75,618
$
3,335
OPERATING EXPENSES
Depreciation
805
776
General and administrative
86,878
64,800
General and administrative - related party (Note
4a&c)
2,683
1,434
Investor relations and promotion
34,515
-
Listing fees
4,052
12,235
Management salaries and consulting fees
21,000
110,366
Management salaries and consulting fees - related
party (Note 4a)
37,210
30,000
Professional fees
84,703
27,267
Research and development
102,582
111,566
Research and development - related party (Note 4a)
27,154
631
Sales and marketing
8,867
3,925
Stock based compensation expense (Note 7)
72,858
-
Total operating expenses
483,307
363,000
NET LOSS
$
(407,689)
$
(359,665)
NET LOSS PER SHARE
Basic
$
(0.02)
$
(0.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic
27,070,480
30,226,095
COMPREHENSIVE LOSS
Net loss
$
(407,689)
$
(359,665)
Other comprehensive loss:
Foreign currency translation adjustment
(158)
1,599
Comprehensive loss:
$
(407,847)
$
(358,066)
The accompanying notes are an integral part of these consolidated financial statements .
4
MOBETIZE CORP.
Consolidated Statements of Stockholders' Equity
For the three months ended June 30, 2016 and the year ended March 31, 2016
(Unaudited)
Preferred Shares –
Preferred Shares –
Common Shares
Class A
Class B
Warrants
Accumulated
Additional
Share
Options and
Other
Total
Paid-In
Subscriptions other Reserves
Accumulated Comprehensive
Shareholder's
Number
Value
Number
Value
Number
Value
Capital
Payable
(Note 8)
Deficit
Loss
Equity
Balance - March 31, 2015
30,185,505 $
30,186
- $
- $
-
-
4,030,880 $
14,303 $
423,408 $
(4,255,516) $
(2,326) $
240,935
Stock payable for consultancy
services received (Note 5a)
-
-
-
-
-
-
-
18,181
-
-
-
18,181
Sale of 161,481 shares at
$0.50/share
(Notes 5b)
161,481
161
-
-
-
-
65,022
-
15,556
-
-
80,739
Sales of 2,724,688 shares at
$0.25/share, net of $12,122
financing fee (Note 5b)
2,724,668
2,725
-
-
-
-
403,850
-
262,470
-
-
669,045
Valuation of financing warrants on
sale of shares (Notes 6d)
-
-
-
-
-
-
-
-
3,372
-
-
3,372
Exercise of warrants in the period
(Note 6a)
189,500
189
-
-
-
-
94,561
-
-
-
-
94,750
Warrants issued on exercise of
expiring warrants (Note 6a)
-
-
-
-
-
-
(18,255)
-
18,255
-
-
-
Share options issued in the period
(Note 8)
-
-
-
-
-
-
-
-
711,427
-
-
711,427
Conversion of common to
preferred shares
(Note 5d)
(4,565,000)
(4,565) 4,565,000
4,565
-
-
-
-
-
-
-
Shares issued for services (Note
5a)
54,727
55
-
-
-
-
32,429
(32,484)
-
-
-
-
Net loss for the year
-
-
-
-
-
-
-
-
-
(2,069,545)
-
(2,069,545)
Comprehensive loss for the year
-
-
-
-
-
-
-
-
-
-
(6,910)
(6,910)
Balance – March 31, 2016
28,750,881 $
28,751 4,565,000 $
4,565 $
- $
- $ 4,608,487 $
- $
1,434,488 $
(6,325,061) $
(9,236) $
(258,006)
Stock payable for consultancy
services received (Note 5a)
-
-
-
-
-
-
-
30,000
-
-
-
30,000
Conversion of common to
preferred shares (Note 5e)
(5,420,648)
(5,421)
-
- 5,420,648
5,421
-
-
-
-
-
-
Share option expense in the period
(Note 8)
-
-
-
-
-
-
-
-
72,858
-
-
72,858
Net Loss for the year
(407,689)
(407,689)
Comprehensive loss
(158)
(158)
Balance – June 30, 2016
23,330,233 $
23,330 4,565,000 $
4,565 $ 5,240,648 $
5,421 $ 4,608,487 $
30,000 $
1,507,346 $
(6,732,750) $
(9,394) $
(562,995)
The accompanying notes are an integral part of these consolidated financial statements .
5
MOBETIZE CORP.
Consolidated Statements of Cash Flow
For the three months ended June 30, 2016 and 2015
(Unaudited)
US$
THREE MONTHS ENDED
JUNE 30,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(407,689)
$
(359,665)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense
805
776
Shares issued for services
30,000
6,630
Interest accrued on shareholder loans
950
-
Amounts due to related parties
10,647
-
Share based compensation
72,858
-
Changes in assets and liabilities
Accounts receivable
(28,486)
(3,431)
Accounts receivable – related party
-
14,687
Prepaid expenses and deposits
7,125
17,335
Prepaid expenses and deposits – related party
(1,267)
-
Accounts payables and accrued liabilities
50,313
42,218
Accounts payable - related party
48,608
(51,231)
Net cash used in operating activities
(216,136)
(332,681)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment
-
(1,742)
Net cash used in investing activities
-
(1,742)
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from sale of common stock
-
92,250
Proceeds from related party
25,000
81,106
Net cash provided by financing activities
25,000
173,356
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(130)
1,377
NET DECREASE IN CASH
(191,266)
(159,690)
CASH - BEGINNING OF PERIOD
210,341
312,899
CASH - END OF PERIOD
$
19,075
$
153,209
CASH PAID DURING THE PERIOD FOR:
Interest expense
$
-
$
-
Tax expense
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
6
MOBETIZE CORP.
Notes to the Consolidated Financial Statements
June 30, 2016
(Unaudited)
1. Nature of Operations and Continuance of Business
Mobetize, Corp. (the "Company") was incorporated in the state of Nevada on February 23, 2012,
under the name Slavia, Corp.
Mobetize Corp. is an emerging Fintech Company which provides Fintech solutions and services to
enable and support the convergence of global telecom and financial services providers ("Customers").
This is achieved through the Company's Global Mobile B2B Fintech and Financial Services
Marketplace ("Hub"). Mobetize is focused on selling Fintech solutions and services to global telecom
and financial services providers.
The Company's activities are subject to significant risks and uncertainties, including the need to
secure additional funding to operationalize the Company's current technology before another
company develops competitive products.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies
that the Company will continue to realize its assets and discharge its liabilities in the normal course of
business. As of June 30, 2016, the Company has an accumulated deficit of $6,732,750, a history of
net losses and cash used in operating activities, and working capital deficiency of $514,917. These
factors raise substantial doubt regarding the Company's ability to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the continued financial support
from its management, generating higher sales in the upcoming quarterly periods according to the
budget, management's ability to obtain the necessary debt or equity financing, cutting operating costs,
launching viable products, and generating profitable operations overall from the Company's future
operations. These financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
The interim consolidated financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States ("US GAAP") which include
the accounts of Mobetize Canada Inc. and Mobetize USA Inc., both of which are wholly-owned
subsidiaries of the Company. The consolidated financial statements are expressed in U.S. dollars.
All significant intercompany transactions and balances have been eliminated. The Company's
fiscal year end is March 31.
b) Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
7
The Company regularly evaluates estimates and assumptions related to the collectability of
accounts receivable, valuation of intangible assets, revenue recognition, fair value of stock-based
compensation, and deferred income tax asset valuation allowances. The Company bases its
estimates and assumptions on current facts, historical experience and various other factors that it
believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced by the Company
may differ materially and adversely from the Company's estimates. To the extent there are
material differences between the estimates and the actual results, future results of operations will
be affected.
c) Financial Statements
These consolidated financial statements have been prepared in the opinion of management to
reflect all adjustments, which include only normal recurring adjustments, necessary to present
fairly the Company's financial position, results of operations and cash flows for the periods
shown. The results of operations for such periods are not necessarily indicative of the results
expected for a full year or for any future period.
d) Cash
The Company considers all highly liquid instruments with maturity of three months or less at the
time of issuance to be cash equivalents. As of June 30, 2016 and 2015, the Company had no cash
equivalents.
e) Accounts Receivable
The Company evaluates the collectability of accounts receivable based on the age of receivable
balances and customer credit-worthiness. If the Company determines that financial conditions of
its customers have deteriorated, an allowance for doubtful accounts may be made or the accounts
receivable written off if all collection attempts have failed.
f) Prepaid Expenses
The Company pays for some services in advance and recognizes these expenses as prepaid at the
balance sheet date. If certain prepaid expenses extend beyond one-year, those are classified as
non-current assets.
g) Revenue Recognition
The Company recognizes revenue from licensing and professional fees. Revenue will be
recognized only when the price is fixed and determinable, persuasive evidence of an arrangement
exists, the service has been provided, and collectability is reasonably assured.
h) Property and Equipment
Property and equipment is accounted for at cost less accumulated depreciation and includes
computer equipment and office furniture. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, which are five years.
i) Research and Development Costs
The Company incurs research and development costs during the course of its operations. The
costs are expensed except in cases where development costs meet certain identifiable criteria for
capitalization. Capitalized development costs are amortized over the life of the related
commercial production.
8
j) Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation –
Stock Compensation, which requires the measurement and recognition of compensation expense
based on estimated fair values for all share-based awards made to employees and directors,
including stock options.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant
using an option-pricing model. The Company uses the Black-Scholes option-pricing model as its
method of determining fair value. This model is affected by the Company's stock price as well as
assumptions regarding a number of subjective variables.
These subjective variables include, but are not limited to the Company's expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise
behaviors. The value of the portion of the award that is ultimately expected to vest is recognized
as an expense in the consolidated statement of comprehensive loss over the requisite service
period.
Options granted to consultants are valued at the fair value of the equity instruments issued, or the
fair value of the services received, whichever is more reliably measureable.
k) Income Taxes
Deferred income taxes are determined using the liability method for the temporary differences
between the financial reporting basis and income tax basis of the Company's assets and liabilities.
Deferred income taxes are measured based on the tax rates expected to be in effect when the
temporary differences are included in the Company's tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their respective tax bases.
The Company's policy is to recognize penalties and interest, if any, related to uncertain tax
positions as general and administrative expense.
l) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per
Share. ASC 260 requires presentation of basic and diluted earnings per share ("EPS") on the face
of the income statement. Basic EPS is computed by dividing net loss available to common
shareholders and preferred shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the
exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their
effect is anti-dilutive. Due to the continued losses in the Company, all convertible instruments,
stock options, and warrants are considered anti-dilutive. Consequently, as of June 30, 2016, the
Company has nil (2015 – nil) potentially dilutive shares.
m) Comprehensive Loss
ASC 220, Comprehensive Income , establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements.
9
n) Financial Instruments / Concentration
Financial instruments consist principally of cash, accounts receivable, accounts payable, deposits
due to customers, promissory note, shareholder loans, and due to related parties. Pursuant to ASC
820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments the fair
value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active
markets for identical assets.
The recorded values of all other financial instruments approximate their current fair values
because of their nature and respective relatively short maturity dates and current market rates for
similar instruments. The Company is exposed to credit risk through its cash and accounts
receivable, but mitigates this risk by keeping deposits at major financial institutions and
advancing credit only to bona fide creditworthy entities. The maximum amount of credit risk is
equal to the carrying amount.
o) Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures , an entity is required to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure fair value. A financial
instrument's categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels
that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for
identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market
data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation
methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, amounts receivable, accounts
payable and accrued liabilities, and amounts due to related parties. Pursuant to ASC 820, the fair
value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in
active markets for identical assets. We believe that the recorded values of all of our other
financial instruments approximate their current fair values because of their nature and respective
maturity dates or durations.
10
p) Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815
Derivatives and Hedging to determine whether the embedded conversion feature(s) should be
bifurcated from the host instrument and accounted for as a derivative at fair value with changes in
fair value recorded in earnings. If the conversion feature does not require derivative treatment
under ASC 815, the instrument is evaluated under ASC 470-20, Debt with Conversion and Other
Options for consideration of any beneficial conversion feature.
q) Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. The Company evaluates all of it financial instruments, including stock
purchase warrants, to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income. For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the
derivative instruments at inception and subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
r) Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the
Company records a Beneficial Conversion Feature (the "BCF") and related debt discount.
When the Company records a BCF, the intrinsic value method of the BCF is recorded as a debt
discount against the face amount of the respective debt instrument (offset to additional paid in
capital) and amortized to interest expense over the life of the debt. The Company has determined
that there is no BCF with its convertible debt.
s) Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as
warrants). These costs are amortized to interest expense over the life of the debt. If a conversion
of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately
expensed.
11
t) Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. The Company evaluates all of it financial instruments, including stock
purchase warrants, to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income. For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the
derivative instruments at inception and subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
u) Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the
Company records a Beneficial Conversion Feature (the "BCF") and related debt discount.
When the Company records a BCF, the intrinsic value method of the BCF is recorded as a debt
discount against the face amount of the respective debt instrument (offset to additional paid in
capital) and amortized to interest expense over the life of the debt. The Company has determined
that there is no BCF with its convertible debt.
v) Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as
warrants). These costs are amortized to interest expense over the life of the debt. If a conversion
of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately
expensed.
w) Foreign Currency
The functional and reporting currency of the Company and its subsidiary, Mobetize USA Inc. is
the United States Dollar. The functional currency of the Company's international subsidiary,
Mobetize Canada Inc., is the local currency, which is Canadian dollar. The Company translates
the financial statements of this subsidiary to U.S. dollars in accordance with ASC 740, Foreign
Currency Translation Matters using month-end rates of exchange for assets and liabilities, and
average rates for the annual period are derived from daily spot rates for revenues and expenses.
Translation gains and losses are recorded in accumulated other comprehensive income as a
component of stockholders' equity. The Company has not, to the date of these consolidated
financial statements, entered into derivative instruments to offset the impact of foreign currency
fluctuations.
12
x) Recently Adopted Accounting Standards
In June 2014, ASU guidance was issued to resolve the diversity of practice relating to the
accounting for stock based performance awards that the performance target could be achieved
after the employee completes the required service period. The update is effective prospectively or
retrospectively for annual reporting periods beginning after December 15, 2015. The Company
adopted this ASU on April 1, 2016 prospectively. The adoption of this ASU does not have a
material effect on the Company's consolidated financial statements.
In January 2015, an ASU was issued to simplify the income statement presentation requirements
in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are
events and transactions that are distinguished by their unusual nature and by the infrequency of
their occurrence. Eliminating the extraordinary classification simplifies income statement
presentation by altogether removing the concept of extraordinary items from consideration. This
ASU is effective for annual periods beginning after December 15, 2015, including interim periods
within those annual periods. An entity may apply this ASU prospectively or retrospectively to all
prior periods presented in the financial statements. Early adoption is permitted. The Company
adopted this ASU on April 1, 2016 prospectively. The adoption of this ASU does not have a
material effect on the Company's consolidated financial statements.
y) Recent Accounting Pronouncements
In May 2014, ASU guidance was issued related to revenue from contracts with customers. The
new standard provides a five-step approach to be applied to all contracts with customers and also
requires expanded disclosures about revenue recognition. The ASU is effective for annual
reporting periods beginning after December 15, 2017, including interim periods and is to be
retrospectively applied. Early application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting
period. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
In November 2015, an ASU was issued to simplify the presentation of deferred income taxes.
The amendments in this ASU require that deferred tax liabilities and assets be classified as non-
current in a classified balance sheet as compared to the current requirements to separate deferred
tax liabilities and assets into current and non-current amounts. This ASU is effective for annual
periods beginning after December 15, 2016, including interim periods within those annual
periods. Earlier application is permitted. This ASU may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all periods presented. The Company is
currently evaluating this guidance and the impact it will have on its consolidated financial
statements.
13
In February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840,
Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under previous
GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize lease assets and lease
liabilities. If a lessee makes this election, it should recognize lease expense for such leases
generally on a straight-line basis over the lease term. The accounting applied by a lessor is
largely unchanged from that applied under previous GAAP. Topic 842 will be effective for
annual reporting periods beginning after December 15, 2018, including interim periods within
those annual periods and is to be retrospectively applied. Earlier application is permitted. The
Company is currently evaluating this guidance and the impact it will have on its consolidated
financial statements.
In March 2016, an ASU was issued to reduce complexity in the accounting for employee share-
based payment transactions. One of the simplifications relates to forfeitures of awards. Under
current GAAP, an entity estimates the number of awards for which the requisite service period is
expected to be rendered and base the accruals of compensation cost on the estimated number of
awards that will vest. This ASU permits an entity to make an entity-wide accounting policy
election either to estimate the number of forfeitures expected to occur or to account for forfeitures
in compensation cost when they occur. This ASU is effective for annual periods beginning after
December 15, 2016, including interim periods within those annual periods. Earlier application is
permitted. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
3. Property and Equipment
Property and equipment, net consisted of the following:
June 30,
March 31,
2016
2016
Computer equipment
$ 14,743
$ 14,787
Furniture
1,200
1,204
Total
15,943
15,991
Less: Accumulated amortization
4,948
4,163
Property and equipment, net
$ 10,995
$ 11,828
During the three months ended June 30, 2016, property and equipment decreased by $35 as a result of
foreign currency translation adjustments.
14
4. Related Party Transactions
a) During the three month period ended June 30, 2016, the Company incurred $22,500 (2015 -
$30,000) of management fees, $27,154 (2015 - $631) of development and engineering fees, and
$2,233 (2015 - $1,434) of general and administrative expenses to companies controlled by the
Chief Executive Officer ("CEO") of the Company.
b) During the three month period ended June 30, 2016, the Company received an advance of
$25,000 (2015 - $nil) from a company controlled by the CEO.
c) During the three month period ended June 30, 2016, the Company incurred $450 (2015 - $nil) of
general and administrative expenses to the former Chief Financial Officer ("Former CFO), also a
significant shareholder of the Company.
d) As at June 30, 2016, the Company owes to companies controlled by the CEO $42,033 (March 31,
2016 - $41,533) in shareholder loans, $52,500 (March 31, 2016 - $30,000) in management fees,
$71,857 (March 31, 2016 - $45,749) in amounts payable for services received and expenses
incurred by the Company, and $68,492 (March 31, 2016 - $44,759) in two promissory notes
(described below) which comprise $75,000 (March 31, 2016 - $50,000) principal less $6,508
(March 31, 2016 - $5,241) in prepaid interest. The first promissory note has a twelve month term
with $50,000 (March 31, 2016 - $50,000) principal due on maturity (February 14, 2017) and 12%
annual interest rate with $6,000 (March 31, 2016 - $6,000) interest prepaid to the holder. The
second promissory note has a twelve month term with $25,000 (March 31, 2016 - $nil) principal
due on maturity (June 2, 2017) and 12% annual interest rate with $3,000 (March 31, 2016 - $nil)
interest prepaid to the holder.
e) As at June 30, 2016, the Company has recorded an obligation of $17,040 (March 31, 2016 -
$5,943) to the Former CFO or a company controlled by the Former CFO in shareholder loan.
Amount owed to the Former CFO is unsecured and due on demand.
15
5. Common Stock and Preferred Stock
a) Shares for Services:
During the three month period ended June 30, 2016 and the twelve month period ended March
31, 2016, the Company entered into various consulting and advisory agreements with consultants
and advisors to provide services in exchange for shares and/or cash, as applicable. Shares issued
for services have been valued at the service value amount and exchanged to common shares
based on either the quoted closing price of the Company's common stock on the date of
settlement, or where issuance is delayed, at the average market price of the Company's stock for
the respective period of service, as applicable.
During the three month period ended June 30, 2016, the Company incurred $30,000 (twelve
month period ended March 31, 2016 - $18,181) in shares for services, and settled $nil (twelve
month period ended March 31, 2016 - $32,484) of services into common shares with nil (twelve
month period ended March 31, 2016 - 54,727) common shares issued at $0.001 per share and $nil
(twelve month period ended March 31, 2016 - $32,429) recorded to additional paid-in capital as
follows:
§ On March 31, 2016, the Company issued 54,727 shares at $0.001 per share with $32,429
recorded to additional paid-in capital to settle $32,484 of services payable in common
shares.
§ As at June 30, 2016, $30,000 (March 31, 2016 - $nil) was included in share subscriptions
payable for consulting services provided.
b) Private Placements:
During the three month period ended June 30, 2016 and the twelve month period ended March
31, 2016, the Company conducted four private placements of investment units comprising
common shares and warrants, as follows:
§ On September 1, 2015, the Company closed a private placement under which it sold
2,724,668 investment units for $0.25 per unit for gross proceeds of $681,167, which were
exclusively offered to subscribers of previous $0.75 private placements. Each investment
unit consists of one common share of the Company's stock and one half-warrant. The
1,362,332 warrants are exercisable at $1.00 per share and are valid for three years from
the date of issue. $8,750 cash financing fees and 17,500 financing warrants with a value
of $3,372 are payable with this private placement.
§ On September 1, 2015, the Company closed a private placement under which it sold
161,481 investment units for $0.50 per unit for gross proceeds of $80,739. Each
investment unit consists of one common share of the Company's stock and one half-
warrant. The 80,740 warrants are exercisable at $1.00 per share and are valid for three
years from the date of issue. Neither financing fees nor financing warrants were payable
with this private placement.
16
c) Issuance of Shares on Exercise of Warrants, Options, and Settlement of Amounts:
§ On June 10, 2015, the Company issued 184,500 shares at a price of $0.50 per share for
proceeds of $92,250 upon the exercise of warrants. $184 was recorded to common shares
at the par value of $0.001 per share and $92,066 was recorded to additional paid-in
capital.
§ On August 15, 2015, the Company issued 5,000 shares at a price of $0.50 per share for
proceeds of $2,500 upon the exercise of warrants. $5 was recorded to common shares at
the par value of $0.001 per share and $2,495 was recorded to additional paid-in capital.
d) Authorization and Issuance of Series A Preferred Shares:
During the year ended March 31, 2016, the Company authorized the issuance of 250,000,000
shares of preferred stock with a par value of $0.001 per share and designated 10,000,000 of the
preferred stock as Series A preferred shares ("Series A Preferred Shares"). The Series A Preferred
Shares have the same rights and privileges as the common shares, with the exception that the
Series A Preferred Share holder has 10 votes per Series A Preferred Share versus one vote per
common share and does not have the right to sell the shares for a period of 2 years from the date
of issue.
On February 4, 2016, the Company converted 4,565,000 common shares held by the CEO of the
Company into 4,565,000 Series A Preferred Shares.
As at June 30, 2016 4,565,000 (March 31, 2016 - 4,565,000) Series A Preferred Shares were
issued and outstanding.
e) Authorization and Issuance of Series B Preferred Shares:
During the three months ended June 30, 2016, the Company designated 25,000,000 shares of the
authorized preferred stock as Series B preferred shares ("Series B Preferred Shares"). The Series
B Preferred Shares have the same rights and privileges as the common shares, with the exception
that the Series B Preferred Shares have an anti-dilution provision and the Series B Preferred
Share holder does not have the right to convert Series B Preferred Shares into common shares for
a period of 2 years from the date of issue.
On June 2, 2016, the Company converted 4,081,481 common shares held by a company
controlled by the CEO into 4,081,481 Series B Preferred Shares, 300,000 common shares held by
the Company's Chairman and Director into 300,000 Series B Preferred Shares, and 1,039,167
common shares held by the Company's Director into 1,039,167 Series B Preferred Shares.
As at June 30, 2016, 5,420,648 (March 31, 2016 – nil) Series B Preferred Shares were issued and
outstanding.
17
f) Convertible Debenture:
In March 2016, the Company closed a convertible debenture financing for gross proceeds of
$275,000 (the "Convertible Debentures"), net of $30,000 of prepaid interest, noting that $3,000 of
prepaid interest was paid by the Company to one Convertible Debenture holder after year end.
The Convertible Debentures have a 12 month term, 12% annual interest rate, pay the holder 12
months of prepaid interest on issuance, and have a conversion feature exercisable at the option of
the holder (the "Conversion Feature"). The Conversion Feature enables the holder to convert any
portion of their outstanding Convertible Debenture principal balance into common shares at a
variable and discounted conversion price ("Conversion Price" - see below) after 180 days from
issue date, but no later than the maturity date. The Conversion Price is calculated as a 50%
discount to the average of the three lowest closing market prices over any ten day trading period,
ending one day prior to a notice of conversion provided by the holder. The Conversion Feature
represents an embedded contingent redemption feature and is accounted for as a derivative. The
fair value of the contingent redemption feature is immaterial and therefore not recognized at
inception, at March 31, 2016, and at June 30, 2016.
18
6. Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
Weighted average
Number of warrants
exercise price (US$)
Balance, March 31, 2015
1,581,084
0.90
Exercised, June 10, 2015
(184,500)
0.50
Exercised, August 15, 2015
(5,000)
0.50
Issued, July 15, 2015
94,750
1.00
Issued, September 1, 2015
1,460,572
1.00
Expired, September 2, 2015
(310,500)
0.50
Balance, March 31, 2016
2,636,406
1.04
Balance, June 30, 2016
2,636,406
1.04
a) On July 15, 2015, 94,750 warrants were issued with an exercise price of $1.00 and a three year
term ending September 1, 2018 to holders of the September 3, 2013 warrants who had exercised a
total of 189,500 warrants during the six months ended September 30, 2015 prior to the expiry
date of September 2, 2015. These warrant holders each received a half warrant for each full
warrant they exercised. These warrants were valued at $18,255 using the Black Scholes method
criteria as below.
b) On September 1, 2015, 1,362,332 warrants were issued with an exercise price of $1.00 and a
three year term ending September 1, 2018 to the parties participating in the $0.25 private
placement for common shares ("$0.25 PP") in the quarter. Each subscriber to the private
placement received a half warrant for each common share they subscribed for. These warrants
were valued at $262,470 using the Black Scholes method criteria as below.
c) On September 1, 2015, 80,740 warrants were issued with an exercise price of $1.00 and a three
year term ending September 1, 2018 to the parties participating in the $0.50 private placement for
common shares ("$0.50 PP") in the quarter. Each subscriber to the private placement received a
half warrant for each common share they subscribed for. These warrants were valued at $15,566
using the Black Scholes method criteria as below.
d) On September 1, 2015, 17,500 finder's warrants were issued with an exercise price of $1.00 and a
three year term ending September 1, 2018 to an arms-length third party assisting in the $0.25 PP.
These warrants were valued at $3,372 using the Black Scholes method criteria as below.
Each of the warrant issuances above were valued using the Black Scholes method, which included
the dividend yield as nil, risk-free interest rate of 1.07%, expected volatility of 70.42%, and expected
term of 3 years.
As at June 30, 2016, the following share purchase warrants were outstanding:
Number of warrants
Exercise
outstanding
price (US$)
Expiry date
694,414
1.00
June 24, 2018
386,670
1.25
December 10, 2018
1,555,322
1.00
September 1, 2018
2,636,406
19
7. Share Options
The following table summarizes the continuity of share purchase options:
Weighted average
Number of options
exercise price (US$)
Balance, March 31, 2015
57,291
1.25
Issued in period
2,630,000
0.60
Expired in period
(36,000)
0.65
Cancelled in period
(270,029)
0.74
Balance, March 31, 2016
2,381,262
0.60
Expired in period
(40,129)
0.60
Cancelled in period
(30,400)
0.60
Balance, June 30, 2016
2,310,733
0.60
As at June 30, 2016, the following share purchase options were outstanding:
Number of options
Number of options
Exercise
outstanding
vested
price (US$)
Expiry date
2,310,733
1,417,233
0.60
September 30, 2020
On August 10, 2015, the Company's directors adopted the 2015 Stock Option Plan ("Stock Option
Plan") which permits the Company to issue stock options for up to 3,000,000 common shares of the
Company to directors, officers, employees and consultants of the Company. The 3,000,000 shares
allocation was approximately 10% of the issued and outstanding shares as of August 10, 2015.
On October 1, 2015, 2,630,000 stock options from the Stock Option Plan were issued to directors,
employees, advisors and consultants for the exercise of up to 2,630,000 common shares with a $0.60
exercise price, a 5 year life, and vesting terms ranging from immediate to 32 months depending,
generally, on the tenure of staff.
The vested options are measured using the Black Scholes method, which included the dividend yield
of nil, risk-free interest rate of 0.68%, expected volatility of 76.7%, and expected term of 5 years. As
at March 31, 2016, 1,294,262, of the granted options were vested, nil were exercised, 36,000 expired,
and 212,738 of the unvested options were cancelled leaving 1,087,000 options unvested.
As at June 30, 2016, 1,417,233 of the granted options were vested, nil were exercised, 40,129
expired, and 30,400 of the unvested options were cancelled leaving 893,500 options unvested.
During the three months ended June 30, 2016 $72,858 (2015 - $nil) in stock based compensation
expense was recorded.
20
8. Reserves
The Company had the following Share Purchase Warrants and Share Options in Reserves:
Share Purchase
Warrants
Share Options
Total
(Note 7)
(Note 7)
Reserves
Balance - March 31, 2015
$
377,311 $
46,097
$
423,408
Sale of 161,481 shares at
$0.50/share (Note 7c)
15,556
-
15,556
Sale of 2,724,688 shares at
$0.25/share, net of $12,122
financing fee (Note 7b)
262,470
-
262,470
Valuation of financing warrants
(Note 7d)
3,372
-
3,372
Warrants issued on exercise of
expiring warrants (Note 7a)
18,255
-
18,255
Share options issued in the period
-
711,427
711,427
Balance – March 31, 2016
$
676,964 $
757,524
$
1,434,488
Share option compensation
incurred in the period
-
72,858
72,858
Balance – June 30, 2016
$
676,964 $
830,382
$
1,507,346
9. Concentration of Risk
During the three months period ending June 30, 2016, revenues generated were $75,618 compared to
revenues of $3,335 during the same period in 2015. Revenues are generated through consulting
services provided by Mobetize to existing customers, payment processing, and licensing.
During the three months ended June 30, 2016 the Company had revenues from five customers (2015
– revenues from two customers) with 77% (2015 – nil) of revenues generated from the Company's
largest customer.
10. Commitment and Contingencies
The Company has an obligation under a rental lease for its operating office. As of June 30, 2016, the
remaining term of the lease is three months with monthly payments of $4,900. The Company's lease
includes a renewal option.
11. Supplemental Cash Flow Disclosures
US$
Quarter ended June 30,
2016
2015
SUPPLEMENTAL NONCASH
INFORMATION:
Shares issued for services
30,000
6,630
21
12. Segment Information
The Company has currently one operating segment located in Canada. Therefore, there is a single
reportable segment and operating unit structure. The Company's chief operating decision maker
reviews financial information presented on a consolidated basis for purposes of allocating resources
and evaluating financial performance.
13. Subsequent Events
Subsequent to June 30, 2016, the Company continues to seek recovery of 578,733 common shares
and 101,726 share purchase warrants issued as an overpayment to the Former CFO of the Company in
consulting services and settlement of expenses and liabilities.
On July 12, 2016, the Company issued a CAD $25,000, equivalent to USD $19,231, promissory note
to the Company's CEO. The note has a 12 month term, 12% annual interest rate, and pays the holder
12 months of prepaid interest on issuance.
On July 15, 2016, the Company entered into Consulting Agreement with the company controlled by
the Company's Chairman pursuant to which a monthly compensation of $1,000 is to be paid by the
Company for consulting services provided.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company
controlled by the Company's Chairman pursuant to which the Company agreed to settle an amount of
$24,000 for services rendered by the Chairman in exchange for 1,300,000 Series B Preferred Shares.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company
controlled by the Company's CEO pursuant to which the Company agreed to settle an amount of
$46,500, which included a principal of $50,000 less prepaid interest of $2,500, in outstanding
promissory note in exchange for 4,650,000 Series B Preferred Shares.
On July 22, 2016, the Company issued a $25,000 convertible note, net of $3,000 prepaid interest to a
Director of the Company. The note has a 12 month term, 12% annual interest rate, pays the holder 12
months of prepaid interest on issuance, and has a Conversion Feature exercisable at the option of the
holder. The Conversion Feature enables the holder to convert any portion of their outstanding
Convertible Debenture principal balance into common shares at a variable and discounted Conversion
Price after 180 days from issue date, but no later than the maturity date. The Conversion Price is
calculated as a 50% discount to the average of the three lowest closing market prices over any ten day
trading period, ending one day prior to a notice of conversion provided by the holder.
On July 26, 2016, the Company adopted Audit Committee Charter, Business Code of Conduct and
Ethics, Insider Trading Policy, appointed the Company's Chairman and Director as members of the
Audit Committee, and appointed the Company's Chief Financial Officer as the Corporation's
Compliance Officer.
22
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our financial statements, which are included
elsewhere in this Form 10-Q ("Report"). This Report contains forward-looking statements which relate to
future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown risks, uncertainties,
and other factors that may cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
In evaluating these statements, you should consider various factors which may cause our actual results to
differ materially from any forward-looking statements. Although we believe that the predictions reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
We are considered a development stage company. Our auditors have issued a going concern opinion on
the financial statements for the year ended March 31, 2016. The continuation of Mobetize as a going
concern is dependent upon the continued financial support from its management, and its ability to identify
future investment opportunities and obtain the necessary debt or equity financing, cutting operating costs,
launching a viable product, and generating profitable operations from our future operations.
Mobetize's plan of operation for the coming year is to finalize Version 2.2 of our Fintech suite, complete
the development and qualification of products in our pipeline, and increase sales of our existing products.
Meanwhile, we will continue internal research and development efforts and collaborate with development
partners to ensure the continuity of our product pipeline focused on the convergence of telecom and
financial services.
RESULTS OF OPERATION
Operating Revenues, Operating Expenses and Net Loss
US$
Three Months Ended
June 30,
2016
2015
Operating revenues
$
75,618
$
3,335
Operating expenses
483,307
363,000
Net loss from operations
(407,689)
(359,665)
Net loss
(407,689)
(359,665)
During the three month period ending June 30, 2016, revenues generated were $75,618 compared to
revenues of $3,335 during the same period in 2015. Revenues are currently generated through licensing,
consulting, and payment processing services provided by Mobetize to our existing Customers.
23
Our operating expenses for the three months ended June 30, 2016 and 2015 are outlined in the following
table:
US$
Three Months Ended
June 30,
2016
2015
Depreciation
$
805
$
776
General and administrative
86,878
64,800
General and administrative - related party
2,683
1,434
Investor relations and promotion
34,515
-
Listing fees
4,052
12,235
Management salaries and consulting fees
21,000
110,366
Management salaries and consulting fees - related
party
37,210
30,000
Professional fees
84,703
27,267
Research and development
102,582
111,566
Research and development - related party
27,154
631
Sales and marketing
8,867
3,925
Stock based compensation expense
72,858
-
Total
483,307
363,000
During the three months ended June 30, 2016 operating costs were $483,307 compared with $363,000
during the three months ended June 30, 2015. Compared to the three month period ended June 30, 2015,
general and administrative costs increased by $23,327, investor relations and promotion increased by
$34,515, professional fees increased by $57,436, research and development increased by $17,539, and
stock based compensation expense increased by $72,858. The increases were offset by a $82,156 decrease
in management salaries and consulting fees.
During the three months ended June 30, 2016, the Company recorded a net loss of $407,689 compared
with a net loss of $359,665 for the three months ended June 30, 2015. The $48,024 increase in net loss is
mostly due to a $72,858 increase in stock based compensation expense and a $34,515 increase in investor
relations and promotion expense, partially offset by a $82,156 decrease in management salaries and
consulting fees during the three months ended June 30, 2016, compared to the three months ended June
30, 2015.
Liquidity and Capital Resources
US $
June 30, 2016
March 31, 2016
Current assets
$
150,189 $
318,827
Current liabilities
665,106
541,185
Working capital deficiency
$
514,917 $
222,358
As at June 30, 2016, our company's cash balance was $19,075 and total assets were $196,270, compared
to cash balance of $210,341 and total assets of $330,655 as at March 31, 2016. The decrease in the cash
balance is attributed to the ongoing use of cash in operating activities.
As at June 30, 2016, our company had total liabilities of $724,179 compared with total liabilities of
$588,661 as at March 31, 2016. The increase in total liabilities is attributed to increases in accounts
payable and amounts due to related parties.
As at June 30, 2016, our company had working capital deficiency of $514,917 compared with working
capital deficiency of $222,358 at March 31, 2016 with the increase in working capital deficiency
attributed to the ongoing use of cash in operating activities.
24
Cash Flows
US$
Three Months Ended
June 30,
2016
2015
Cash flows used in operating activities
$
(216,136)
$
(332,681)
Cash flows used in investing activities
-
(1,742)
Cash flows provided by financing activities
25,000
173,356
Effect of Exchange rate changes on cash
(130)
1,377
Net Change in Cash During Period
$
(191,266)
$
(159,690)
Cash flow used in Operating Activities
During the three months ended June 30, 2016, our company used $216,136 of cash for operating activities
compared to $332,681 of cash for operating activities during the three months ended June 30, 2015. The
decrease in the use of cash for operating activities is mostly due to increase in accounts payable and
amounts due to related parties.
Cash flow used in Investing Activities
During the three months ended June 30, 2016 our company did not use any cash in investing activities
compared to $1,742 cash used to purchase computer equipment during the three months ended June 30,
2015.
Cash flow from Financing Activities
During the three months ended June 30, 2016, our company received $25,000 of proceeds from financing
activities in return for the issuance of promissory note to the Company's CEO. During the three months
ended June 30, 2015, our company received $173,356 in financing proceeds, which consisted of the
exercise of warrant shares issued in September 2013 for $92,250, an advance of $40,085 from the CEO,
and an advance of $41,021 from the Former CFO during the three months ended June 30, 2015.
SUBSEQUENT DEVELOPMENTS
Subsequent to June 30, 2016, the Company continues to seek recovery of 578,733 common shares and
101,726 share purchase warrants issued as an overpayment to the Former CFO of the Company in
consulting services and settlement of expenses and liabilities.
On July 12, 2016, the Company issued a CAD $25,000, equivalent to USD $19,231, promissory note to
the Company's CEO. The note has a 12 month term, 12% annual interest rate, and pays the holder 12
months of prepaid interest on issuance.
On July 15, 2016, the Company entered into Consulting Agreement with the company controlled by the
Company's Chairman pursuant to which a monthly compensation of $1,000 is to be paid by the Company
for consulting services provided.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company controlled
by the Company's Chairman pursuant to which the Company agreed to settle an amount of $24,000 for
services rendered by the Chairman in exchange for 1,300,000 Series B Preferred Shares.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company controlled
by the Company's CEO pursuant to which the Company agreed to settle an amount of $46,500, which
included a principal of $50,000 less prepaid interest of $3,500, in outstanding promissory note in
exchange for 4,650,000 Series B Preferred Shares.
25
On July 22, 2016, the Company issued a $25,000 convertible note, net of $3,000 prepaid interest to a
Director of the Company. The note has a 12 month term, 12% annual interest rate, pays the holder 12
months of prepaid interest on issuance, and has a Conversion Feature exercisable at the option of the
holder. The Conversion Feature enables the holder to convert any portion of their outstanding Convertible
Debenture principal balance into common shares at a variable and discounted Conversion Price after 180
days from issue date, but no later than the maturity date. The Conversion Price is calculated as a 50%
discount to the average of the three lowest closing market prices over any ten day trading period, ending
one day prior to a notice of conversion provided by the holder.
On July 26, 2016, the Company adopted Audit Committee Charter, Business Code of Conduct and Ethics,
Insider Trading Policy, appointed the Company's Chairman and Director as members of the Audit
Committee, and appointed the Company's Chief Financial Officer as the Corporation's Compliance
Officer.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through a combination of
increased sales during upcoming quarterly periods, our existing funds, further issuances of securities in
the form of debt or equity. Our working capital requirements are expected to increase in line with the
growth of our business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to
be adequate to fund our operations over the next twelve months. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through the proceeds of the
private placement of equity, advances from directors, and issuance of Promissory Notes as well as
Convertible Debentures. In connection with our business plan, management anticipates additional
increases in operating expenses and capital expenditures relating to: (i) developmental expenses
associated with a start-up business and (ii) marketing expenses. We intend to finance these expenses with
further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional
capital and generate revenues to meet long-term operating requirements. We currently have no
agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of
credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability
to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable
company. Additional issuances of equity or convertible debt securities will result in dilution to our current
shareholders. Further, such securities might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are
not available or are not available on acceptable terms, we may not be able to take advantage of
prospective new business endeavors or opportunities, which could significantly and materially restrict our
business operations.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Report, we do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our March 31, 2016 financial statements contained an
explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
26
These consolidated financial statements have been prepared on a going concern basis, which implies that
the Company will continue to realize its assets and discharge its liabilities in the normal course of
business. As of June 30, 2016, the Company has an accumulated deficit of $6,732,750, a history of net
losses and cash used in operating activities, and working capital deficiency of $514,917. These factors
raise substantial doubt regarding the Company's ability to continue as a going concern. The continuation
of the Company as a going concern is dependent upon the continued financial support from its
management, generating higher sales in the upcoming quarterly periods according to the budget,
management's ability to obtain the necessary debt or equity financing, cutting operating costs, launching a
viable product, and generating profitable operations overall from the Company's future operations. These
financial statements do not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
CRITITCAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in Note 2 to our financial statements. While the
selection and application of any accounting policy may involve some level of subjective judgments and
estimates, we believe the following accounting policies are the most critical to our financial statements,
potentially involve the most subjective judgments in their selection and application, and are the most
susceptible to uncertainties and changing conditions.
Mobetize recognizes revenue from payment processing, licensing, and provision of consulting services.
Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an
arrangement exists, the service has been provided, and collectability is reasonably assured.
Stock-Based Compensation
Mobetize records stock-based compensation in accordance with ASC 718, Compensation – Stock
Compensation, which requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees and directors, including stock options.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using
an option-pricing model. Mobetize uses the Black-Scholes option-pricing model as its method of
determining fair value. This model is affected by Mobetize's stock price as well as assumptions regarding
a number of subjective variables. These subjective variables include, but are not limited to Mobetize's
expected stock price volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is
recognized as an expense in the statement of consolidated comprehensive loss over the requisite service
period. Options granted to consultants are valued at the fair value of the equity instruments issued, or the
fair value of the services received, whichever is more reliably measureable.
Embedded Conversion Features
Mobetize evaluates embedded conversion features within convertible debt under ASC 815 Derivatives
and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host
instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated
under ASC 470-20, Debt with Conversion and Other Options for consideration of any beneficial
conversion feature.
27
Derivative Financial Instruments
Mobetize does not use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks. Mobetize evaluates all of it financial instruments, including stock purchase warrants, to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair
value reported as charges or credits to income. For option-based simple derivative financial instruments,
Mobetize uses the Black-Scholes option-pricing model to value the derivative instruments at inception
and subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, Mobetize records a
Beneficial Conversion Feature (the "BCF") and related debt discount.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not required of smaller reporting companies.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), are designed to ensure that information required to be disclosed
in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in rules and forms adopted by the Securities and Exchange Commission
("Commission"), and that such information is accumulated and communicated to management, including
the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required
disclosures.
Based on that evaluation, Mobetize's management concluded, as of the end of the period covered by this
report, that our disclosure controls and procedures were not effective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission's rules and forms, and such information was not accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
During the quarter ended June 30, 2016, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting
28
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any
other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or
affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or that have been
threatened against us or our properties.
ITEM 1A.
RISK FACTORS
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the
information required by this item.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 2, 2016, our board of directors authorized the conversion of 5,420,648 common shares into
shares of Series B Preferred in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended
("Securities Act"), the (i) Company is the same issuer of the common shares and the Series B Preferred
Stock, (ii) no additional consideration was given to offerees for the exchange, (iii) offerees are existing
security holders of the Company, and (iv) the Company did not pay any commission or remuneration for
the exchange. The offering was conducted pursuant to the exemptions from registration provided by
Section 4(2) and Regulation D of the Securities Act to the following persons:
Name
Consideration
Exchange Series B
Exemptions
Common Shares
Preferred Shares
Alligato, Inc.*
4,081,481
4,081,481
Section 4(2)/Reg D
Malek Ladki**
300,000
300,000
Section 4(2)/Reg D
Donald Duberstein**
1,039,167
1,039,167
Section 4(2)/Reg D
* Alligato, Inc. is a company owned and controlled by the Company's CEO.
** Mr. Ladki and Mr. Duberstein serve on the Company's board of directors.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 31 of this Form 10-Q, and are incorporated herein by this reference.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOBETIZE CORP.
DATE
/s/ Ajay Hans
August 12, 2016
By: Ajay Hans
Its: Chief Executive Officer
/s/ Elena Karamushko
August 12, 2016
By Elena Karamushko
Its: Chief Financial Officer and Principal Accounting Officer
30
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
2.1 *
Purchase and Sale Agreement with Mobetize, Inc., dated July 9, 2013, incorporated by reference to our Form 10-
Q/A filed with the Commission on September 10, 2013.
3.1*
Articles of Incorporation, incorporated hereto by reference to the Form S-1, filed with the Commission on May
30, 2012.
3.1.1*
Certificate of Amendment filed on August 8, 2013 incorporated by reference to the Form 8-K filed with the
Commission on August 15, 2013.
3.1.2*
Certificate of Designation Series A Preferred filed on February 4, 2016, incorporated by reference to the Form 8-
K filed with the Commission on February 11, 2016.
3.1.3*
Certificate of Amended Designation Series A Preferred filed on May 20, 2016, incorporated by reference to the
Form 8-K filed with the Commission on June 3, 2016.
3.1.4*
Certificate of Designation Series B Preferred filed on May 23, 2016, incorporated by reference to the Form 8-K
filed with the Commission on June 3, 2016.
3.1.5*
Certificate of Amended Designation Series B Preferred filed on May 31, 2016, incorporated by reference to the
Form 8-K filed with the Commission on June 3, 2016.
3.2*
Bylaws, incorporated by reference to the Form S-1, filed with the Commission on May 30, 2012.
3.2.1*
Amended Bylaws, incorporated by reference to the Form 8-K filed with the Commission on February 11, 2016.
10.1*
Management Services Agreement between Mobetize and Alligato, Inc. dated June 1, 2013, incorporated by
reference to the Form 8-K filed with the Commission on September 16, 2013.
10.2*
Management Services Agreement between Mobetize and 053574 BC Ltd. dated June 1, 2013, incorporated hereto
by reference to the Form 8-K filed with the Commission on September 16, 2013.
10.3*
Consulting Agreement between Mobetize and Stephen Fowler dated July 15, 2013, incorporated hereto by
reference to the Form 8KA filed with the Commission on October 28, 2013.
10.4*
Assignment of Debt Agreement between Mobetize and Stephen Fowler dated April 4, 2012, incorporated by
reference to the Form 8-K/A filed with the Commission on November 22, 2013.
10.5*
License Assignment Agreement between Telepay, Inc. and Baccarat Overseas Ltd. dated August 21, 2012,
incorporated by reference to the Form 8-K filed with the Commission on September 16, 2013.
10.6*
Consulting agreement between Mobetize and Tanuki Business Consulting, Inc. dated September 23, 2013,
incorporated by reference to the Form 8-K filed with the Commission on October 1, 2013.
10.7*
Consulting Agreement between Mobetize and Hugo Cuevas-Mohr dated October 1, 2013, incorporated by
reference to the Form 8-K filed with the Commission on March 18, 2014.
10.8*
Consulting agreement between Mobetize and Institutional Marketing Services, Inc. dated November 13, 2013,
incorporated by reference to the Form 8-K filed with the Commission on March 18, 2014.
10.9*
Form of Subscription Agreement with the Subscribers dated June 25, 2014, incorporated by reference to the Form
10-K filed with the Commission on June 30, 2014.
10.10*
Management Consulting Agreement between Mobetize Corp. and Ajay Hans dated July 1, 2014, incorporated by
reference to the Form 10-K/A filed with the Commission on July 13, 2016.
10.11*
Management Employment Agreement between Mobetize Canada Inc. and Elena Karamushko dated February 4,
2016, incorporated by reference to the Form 10-K/A filed with the Commisson on July 13, 2016.
14
Code of Business Conduct and Ethics adopted by Mobetize Corp.'s Board of Directors on July 26, 2016
21*
Subsidiaries of Mobetize incorporated by reference to the Form 10-K/A filed with the Commission on July 13,
2016
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, attached.
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, attached.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, attached.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, attached.
99*
2015 Mobetize Stock Option Plan dated August 10, 2015, incorporated by reference to the Form 8-K filed with
the Commission on August 11, 2015.
101. INS
XBRL Instance Document †
101. PRE
XBRL Taxonomy Extension Presentation Linkbase †
101. LAB
XBRL Taxonomy Extension Label Linkbase †
101. DEF
XBRL Taxonomy Extension Label Linkbase †
101. CAL
XBRL Taxonomy Extension Label Linkbase †
101. SCH
XBRL Taxonomy Extension Schema †
*
Incorporated by reference to previous filings of the Company.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed "furnished" and not "filed" or
part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, or
deemed "furnished" and not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, and
otherwise is not subject to liability under these section.
31