Mobetize Corp (SAVI) SEC Quarterly Report (10-Q) for Q3 2018

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

Mark One

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2018

☐ 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)

4555 Kingsway, Suite 202, Burnaby, British Columbia, Canada V5H 4T8

(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 ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a 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 December 10, 2018, the number of shares outstanding of the registrant's common stock, $0.001 par value was 14.285,255, the number of shares outstanding of registrant's Series A preferred stock, $0.001 par value was 0, and the number of shares outstanding of registrants Series B preferred stock, $0.001 par value was 4,797,262.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

As used herein, the terms "Mobetize," "we," "our," and "us" refer to Mobetize Corp., a Nevada corporation, and its predecessors and subsidiaries, unless otherwise indicated. In the opinion of management, the accompanying unaudited, consolidated financial statements included in this Form 10-Q reflect all adjustments necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

MOBETIZE CORP.

Condensed Consolidated Balance Sheets

(Expressed in US dollars)

(Unaudited) 

The accompanying notes are an integral part of these condensed consolidated financial statements.

MOBETIZE CORP.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(Expressed in US dollars)

(Unaudited) 

The accompanying notes are an integral part of these consolidated financial statements.

MOBETIZE CORP.

Consolidated Statements of Cash Flows

(Expressed in US dollars)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

1. Nature of Operations and Continuance of Business

Mobetize Corp. ("Company") was incorporated in the state of Nevada on February 23, 2012, as Slavia, Corp. On August 13, 2013, its name changed to "Mobetize Corp." The Company provides FinTech solutions and services to enable and support the convergence of global telecom and financial services providers ("Customers") through its Global Mobile B2B FinTech and Financial Services Marketplace. The Company's activities are subject to significant risks and uncertainties, including the need to secure additional funding to optimize the Company's existing technology.

On July 11, 2017, the Company completed a consolidation of the issued and outstanding common shares on a one for one hundred (1/100) basis and a decrease in the number of its authorized common and preferred shares. All share and per share amounts have been retroactively restated to reflect the share consolidation.

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize assets and discharge liabilities in the normal course of business. As of September 30, 2018, the Company has an accumulated deficit of $9,392,876, a history of net losses and a working capital deficiency of $893,426. 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 continuing financial support from management, increasing sales, securing debt or equity financing, cutting operating costs, launching viable products, and realizing profitable operations. These consolidated 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. Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The interim condensed consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries with all significant intercompany transactions eliminated. In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial position, results of operations and cash flows for the interim periods have been made. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("US GAAP") have been condensed or omitted pursuant to such SEC rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2018, and with our Annual Report on Form 10-K filed with the SEC on July 31, 2018. Operating results for the three and six-month periods ended September 30, 2018, may not necessarily be indicative of the results for the year ending March 31, 2018.

These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Mobetize Canada Inc., and Mobetize USA Inc. All significant intercompany accounts and transactions have been eliminated on consolidation.

2. Basis of presentation - Continued

Use of estimates

The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company regularly evaluates estimates and assumptions related to the collectability of accounts receivable, revenue recognition, useful life of long-lived assets, fair value of stock-based compensation, embedded derivative liabilities and beneficial conversion features of convertible debentures, fair values of shares issued for non-cash consideration, 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.

Fair value of financial assets and liabilities

The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor's carrying amount or exchange amount.

Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.

Financial instruments, including accounts receivable, accounts payable and accrued liabilities, accounts payable and accrued liabilities – related party, promissory note, promissory note – related party, and convertible promissory notes are carried at amortized cost, which management believes approximates fair value due to the short-term nature of these instruments.

2. Basis of presentation - Continued

Fair value of financial assets and liabilities - continued

The following table presents information about the assets that are measured at fair value on a recurring basis as at September 30, 2018 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:

Recent accounting pronouncements

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

New and amended standards adopted by the Company

There were no new and amended standards adopted by the Company for the first time in this reporting period which had a material impact on the Company's unaudited condensed consolidated interim financial statement except the following:

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-18, requiring that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of- period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash is not presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The amendments were effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2016-18 has had only a limited impact on the presentation of the statement of cash flows.

2. Basis of presentation - Continued

Recent Accounting pronouncements - continued

New standards and interpretations not yet adopted by the Company

Several new standards and amendments to standards and interpretations are effective for annual periods beginning after the closing date of this report and have not been applied in preparing these unaudited condensed consolidated interim financial statements:

In February 2016, Financial Accounting Standards Board (FASB) issued Topic 842, Leases 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 adoption of this standard is not expected to have a significant impact on the Company's results of operations, financial condition, cash flows, and financial statement disclosures.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January 1, 2020. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-11, requiring certain changes to the presentation and disclosures of changes to liability or equity classification of financial instruments. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2018-07, requiring certain changes to nonemployee share-based payment accounting. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

3. Joint Venture

On January 12, 2017, the Company entered into a Gateway License Agreement and Joint Venture Agreement ("Joint Venture") with CPT Secure, Inc. ("CPT"), a company controlled by a shareholder of the Company, to further develop certain payment processing technology ("CPT IP") on a 50/50 basis. In connection with the Joint Venture, the Company issued 500,000 Series B Preferred Shares with a fair value of $125,000 on January 12, 2017, to CPT in consideration for the license to the CPT IP which was contributed to the JV Co. The license to the CPT IP has a term to January 11, 2019, and can be automatically renewed for successive two-year periods unless either party elects not to renew 60 days prior to expiration. The license fee of $125,000 is being amortized over the initial term of the license. During the six months ended September 30, 2017, the Company recognized amortization of $10,103 on the license prior to being transferred to MPAY, which has been included in research and development expense.

Effective May 29, 2017, the Company and CPT incorporated a joint venture company, MPAY Gateway Services Inc. ("MPAY"). Upon incorporation of MPAY, the Company transferred the remaining carrying value of the license to the CPT IP of $101,541 to MPAY, which has been presented on the balance sheet as an investment in joint venture. During the six months ended September 30, 2018, the Company recognized a loss on joint venture of $15,668 (2017 -$10,713), representing the Company's 50% interest in the loss of MPAY.

4. Equipment

Equipment, net consisted of the following:

During the six months ended September 30, 2018, equipment cost increased by $1,614, and accumulated amortization was impacted by $34 as a result of foreign currency translation adjustments.

5. Promissory Note

On June 26, 2018, the Company issued an unsecured Promissory Note to one of its shareholders in the amount of $25,000 that bears interest at 12% per annum and matures on June 25, 2019.

6. Related Party Transactions

6. Related Party Transactions - Continued

7. Convertible Promissory Notes

On September 30, 2018, the Company issued three convertible promissory notes in the aggregate amount of $649,395 to its CEO and his related entities in exchange for extinguishing certain amounts due for the rendition of services and certain outstanding loans. The convertible promissory notes bear interest at 4% per annum, and are convertible into units at $0.50 per unit, each unit comprised of 1 share of common stock and a ½ share purchase warrant, one whole share purchase warrant exercisable at $1.50 per share for two years.

8. Common Stock and Preferred Stock

•      On July 11, 2017, the Company consolidated its issued and outstanding common shares on a one for one hundred (1/100) basis, and amended the Company's Articles of Incorporation to decrease the number of authorized shares of common stock from 525,000,000 shares par value $0.001 per share to 250,000,000 shares par value $0.001 per share. All share and per share amounts have been retroactively restated to reflect the share consolidation.

•      On August 29, 2018, each member of the Company's board of directors and a shareholder along with related entities elected to convert their shares of Series B Preferred stock into shares of common stock authorizing the aggregate cancellation of 14,050,714 shares of Series B Preferred stock in exchange for the aggregate issuance of 14,050,714 shares of common stock.

•      On February 4, 2016, the Company designated 10,000,000 shares of the 250,000,000 shares of preferred stock authorized as Series A Preferred par value of $0.001 per share. The Series A Preferred stock has the same rights and privileges as the common stock, except that each share of the Company's Series A Preferred stock entitles the holder to 10 votes versus one vote per share of common stock. The Series A Preferred designation was amended on May 20, 2016, and August 28, 2018.

•      On February 4, 2016, the Company's CEO exchanged 4,565,000 shares of his common stock for 4,565,000 shares of Series A Preferred stock.

•      On June 4, 2018, the Company's CEO converted 4,565,000 shares of his Series A Preferred stock to Series B Preferred stock. 

•      On February 25, 2016, the Company designated 25,000,000 shares of the authorized preferred stock as Series B Preferred stock. The Series B Preferred stock has essentially the same rights and privileges as the common stock. The Series B designation was subsequently amended on May 23, 2016, May 31, 2016, and August 28, 2018.

•      On June 4, 2018, the number of Series B Preferred Shares increased by 4,565,000 due to the conversion of 4,565,000 shares of Series A Preferred stock into 4,565,000 shares of Series B Preferred stock by the Company's CEO.

9. Share Purchase Warrants

The following table summarizes the continuity of share purchase warrants:

As at September 30, 2018, the following share purchase warrants were outstanding:

10. Stock Options

The Company has adopted a Stock Option Plan which permits the Company to issue stock options for up to 30,000 (post consolidation) common shares of the Company to directors, officers, employees and consultants of the Company with a maximum term of 5 years, exercise prices equal to the minimum fair market value per common share on the date of grant, and a vesting schedule determined by the Board of Directors at the time of granting the options.

The following table summarizes the continuity of stock options:

As at September 30, 2018, the following share purchase options were outstanding:

During the six months period ended September 30, 2018, $4,309 ($32,907 – 2017) in stock-based compensation expense was recorded and allocated amongst general and administrative, consulting fees, management fees, and research and development expenses. The intrinsic value of the options was $nil at September 30, 2018, and March 31, 2018.

11. Concentration of Risk

Revenues are currently generated through licensing, professional services, and payment processing provided to our customers. During the six months ended September 30, 2018, the Company had revenues from five customers (2017 – five customers) with 60% (2017 – 62%) of revenues generated from the Company's largest customer. At September 30, 2018, the Company's accounts receivable is concentrated and due from two customers (March 31, 2018 – four customers) with 97% (March 31, 2018 – 43%) of accounts receivable due from the Company's largest customer.

12. Commitments and Contingencies

Mobetize believes that Fowler's claims detailed in the Citation are without merit. Nevertheless, the outcome of this litigation cannot be reasonably determined at this time.

Mobetize believes that Fowler's claims detailed in the Notice are without merit. Nevertheless, the outcome of this litigation cannot be reasonably determined at this time.

12. Commitments and Contingencies – Continued

Mobetize believes that Fowler's claims detailed in the Complaint are without merit. Nevertheless, the outcome of this litigation cannot be reasonably determined at this time.

13. Segment Information

The Company has a single operating segment that provides FinTech solutions and services to businesses located in Canada and the United States of America ("USA"). Revenues are generated in Canada and the USA while all assets are located in Canada. During the six months ended September 30, 2018, the Company generated revenue of $90,488 (CDN$117,546) (2017 -$56,607 (CDN$70,927)) in Canada and $60,729in the USA (2017 - $124,912). The costs incurred to generate this revenue are expensed as research and development. At September 30, 2018, and 2017, the Company's long-lived assets are located in Canada.

14. Subsequent Events

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as "anticipates," "expects," "believes," "plans," "predicts," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Our fiscal year end is March 31. All information presented herein is based on the three and six-month periods ended September 30, 2018 and September 30, 2017.

DISCUSSION AND ANALYSIS

Mobetize is a business to business (B2B) financial technology company (FinTech). FinTech is an umbrella term for describing disruptive technologies involved in the provision of financial services that are transforming the way money is managed affecting almost every financial activity. Under this umbrella Mobetize provides modern frictionless white-label digital banking applications focused on payment and lending solutions for financial institutions, money service businesses, and telecommunications organizations (Customers). Mobetize calls these solutions smartProducts, through which Customers are able to seamlessly integrate their existing programs to offer our services to their subscribers or members (Users).

Mobetize accelerates innovation, broadens revenue opportunities, reduces operational costs and enhances regulatory compliance for its Customers. Our approach to FinTech challenges the conventional model of how financial services are delivered and consumed. Our next-generation banking solutions (Services) are offered through financial institutions or other digital participants.

Users can access our Services through multiple access points including:

1. Desktop Applications

2. Mobile Web Applications

3. Native Applications for Apple iOS Devices and Android Devices

REVENUE MODEL

Our business model is designed to generate revenue from:

1)       Transactional processing fees based on the volume of activity

2)       Revenue share based fees for financial services

3)       Recurring platform fees for licensing Services

4)       Recurring fees for service level agreements

5)       Consulting and professional services fees

6)       Customization, integration, and deployment fees

Existing revenue is influenced by the growing global consumption of mobile financial services and its adoption by Users who rely on their mobile devices as an access point to complete financial transactions. Future revenue will also be affected by our ability to innovate new technology processes and systems that our Customers can offer to their Users.

Our strategy is to drive growth by:

• Leveraging existing contracts to increase Customer and User adoption

• Enhancing business development efforts to expand sales globally

• Evaluating merger and acquisition strategies to grow the business

• Continuing to develop innovative FinTech solutions for the digital economy

PRODUCTS

smartRemit

Our flagship product is smartRemit, which we license through banking networks, banking processors and digital banking companies. Banking networks have large customer bases comprised of financial institutions that can sub-license our smartRemit solution to offer to their Users. Our model creates a large network to network effect between our international money transfer network capabilities and the banking networks that enables us to effectively scale end user bank customers. Users rely on our service to send money from a mobile application that is distributed by their own financial institution to pay bills for families and friends around the world. We are currently offering this service from Canada to 80+ countries globally.

Typical end Users have left their home country to seek better financial opportunities elsewhere to improve their financial well-being. They also have strong ties back home that cause them to support friends and family. Users are already banking with financial institutions and represent a broad range of professions and education levels. They all have loved ones to support, all have bank accounts and all are Mobile phone users. The only option otherwise offered by financial institutions is to initiate an expensive wire transfer using Swift. However, with our smartRemit branded under a Customer's own brand, end Users can now send money home in minutes through a mobile application that is a fast and convenient digital solution. The funds sent with smartRemit can be received by the recipient via cash pickup, account credit, or in some cases home delivery or a mobile wallet.

Our vision is to the be the preferred FinTech solution for financial institutions globally who want to offer fast, convenient and cost-effective cross-border Person to Person (P2P) money transfers to their end Users. Mobetize is able to provide this service with its own proprietary technology in partnership with networks of financial institutions that have money transfer processors. Our unique risk management and compliance business model allows us to be a global leader in FinTech services due to our low friction, real time know your client (KYK) process, and rapid deployment international money transfer service. The key differentiator for Customer adoption is the mobile technology, frictionless User experience, elegant platform design, expansive payout network, and loyalty to the Customer financial institution with low cost and transparent fees.

Sales and Marketing

Management believes that Mobetize's way forward depends on developing its channel partner relationships that allow us to onboard financial institutions. Our strategy enables Mobetize to onboard banks in less than two months versus the 24-month project usually required per bank. The higher the number of banks on boarded results in a higher number of addressable and active users who are expected to become loyal recurring users. Our channel partner relationships enable us to have a significantly lower cost of acquisition per end User as compared to other direct to consumer money transfer companies. Mobetize has already qualified a pipeline of US and Canadian banking networks and digital banking partners that it expects to onboard in the near term.

Industry Overview

The market for global money transfers is large and growing. Canadians send about $24 billion annually and Americans send out about $160 billion annually. The top remittance-receiving countries are India, China, Philippines and Mexico. The total global remittance market is estimated at $600 billion annually.

We believe our model of enabling financial institutions with a low-cost solution that offers customers a convenient, cost effective and fast way to send money from their mobile device with their bank will disrupt both the traditional brick and mortar sources of money transfers as well as new digital entrants due to inconvenience, KYC friction, risk and compliance costs and customer acquisition costs.

Technology and Development

We intend to aggressively grow our business by continuing to invest in our platform and enhancing complementary FinTech services for financial institutions. Our focus on research and development is a direct response to the technology roadmap for banking networks and the investments made in digital banking, in addition to the requests made by financial institutions that are customers of our network partners. We will be expanding our solutions for both cross border payments and digital lending solutions for our customers.

Recent Business Developments

Tata Communications (America), Inc.

On August 28, 2018, TATA Communications (America), Inc. ("Tata") placed a new service order with Mobetize USA Inc. for new software module development and support. New software features will include module development, product code training and support services extension. On February 1, 2017, we secured a Software Application License, Customization Development and Service Level Agreement with Tata to govern the global deployment of our services for its customers through a five-year strategic partnership. Mobetize expects to generate revenue from service level support fees and the sharing of transactional income with Tata, in addition to accelerating FinTech revenue sharing opportunities, and product innovation.

FICANEX Technology Limited Partnership

On September 11, 2017, we entered into a Master Services Agreement with FICANEX Technology Limited Partnership ("FICANEX") to co-develop and market innovative financial services solutions ("FICANEX Agreement"). The initial solution is focused on providing mobile international money remittance services. FICANEX will adopt certain of our Services to position itself as a FinTech banking services accelerator to over 170+ member financial institution across Canada. The FICANEX Agreement has a three-year term and automatically renews for one additional three-year term.

On October 30th, 2018, Mobetize went live with the First West Group representing three financial institutions in Canada, namely Envision Financial, Valley First Credit Union and Island Savings. Our smartRemit platform was offered through the FICNEX's SendGlobal brand. Mobetize has since realized its first transactional and licensing revenues. We are encouraged by our results to date and expect to increase the number of financial institutions offering smartRemit through FICNEX in the coming months.

MPAY Gateway Services Inc.

On May 29, 2017, MPAY Gateway Services Inc. was formed as a joint venture in connection with a joint venture between Mobetize and CPT Secure Inc. ("CPT") dated January 12, 2017. The joint venture is intended to develop payment processing technology and provide a license to use CPT technology. The license has a two-year term that can be renewed for successive two-year periods unless either party elects not to renew the license no later than 60 days prior to expiration.

RESULTS OF OPERATIONS

Revenues

For the three months ended September 30, 2018, Mobetize generated revenue of $62,462, as compared to revenues of $65,789 over the same three-month period in 2017, a decrease of 5%. For the six months ended September 30, 2017, Mobetize generated revenue of $151,218, as compared to revenues of $181,519 over the same six-month period in 2017, a decrease of 17%. The decrease in revenues over the comparable three and six-month periods can be attributed to a fall in contract development work, licensing and professional services without the realization of any transactional income from payment processing.

We expect that revenues will increase in future periods as Mobetize anticipates additional contract development revenue, professional service activity, licensing revenue, and is now realizing its first transactional revenues from its relationship with FICANEX.

Operating Expenses

Operating expenses for the three and six-month periods ended September 30, 2018 and 2017 are outlined in the following table:

For the three months ended September 30, 2018, operating expenses were $357,133 as compared to operating expenses of $518,130 over the three months ended September 30, 2017, a decrease of 31%. For the six months ended September 30, 2018, operating expenses were $605,525 as compared to operating expenses of $1,008,646 over the six months ended September 30, 2017, a decrease of 40%. The decreases in operating expenses over the comparable three and six-month periods can be primarily attributed to the decrease in research and development expenses, professional fees and investor relations offset by an increase in general and administrative costs.

We expect that operating expenses will increase over future periods as Mobetize returns its focus to research and development activities, in order to enhance its product pipeline to grow its revenue model.

Net Losses

For the three months ended September 30, 2018, net losses before other items were $294,671 as compared to net losses before other items of $452,341 over the three months ended September 30, 2017, a decrease of 35%. For the six months ended September 30, 2018, net losses before other items were $454,307 as compared to net losses before other items of $827,127 over the six months ended September 30, 2017, a decrease of 45%. The decrease in net losses over the comparable three and six-month periods can be primarily attributed to the decrease in operating expenses over the prior comparable three and six-month periods.

We believe that net losses will continue to decrease over future periods as revenues are expected to grow from transaction revenue since realized subsequent to period end, and the continued implementation of operating efficiencies.

Liquidity and Capital Resources

Mobetize had a working capital deficit of $893,426 as of September 30, 2018, and has funded its cash needs since inception with revenues generated from operations, related party advances, debt instruments and private equity placements. Existing working capital and anticipated cash flow is not expected to be sufficient to fund operations over the next twelve months. Mobetize will have to seek additional debt or equity funding to maintain operations.

Current assets as of September 30, 2018, were $58,003 which consisted of $23,869 in cash, $13,231 in accounts receivable, and $20,903 in prepaid expenses and deposits. Total assets of $120,615 which consisted of current assets, equipment of $3,053 and an investment in the MPAY joint venture of $59,559.

Current liabilities as of September 30, 2018, were $951,429 which consisted of accounts payable of $343,980, accounts payable related party of $141,170, deposits due to customers of $980, promissory notes to related parties of $440,299, and a promissory note of $25,000. Total liabilities of $1,600,824 which consisted of current liabilities and a convertible promissory notes in the aggregate amount of $649,395.

Stockholders' deficit as of September 30, 2018, was $1,480,209.

Cash Flows

Cash flows provided by (used in) Operating Activities

During the six months ended September 30, 2018, Mobetize used net cash in operating activities of $255,510 as compared to $549,980 of net cash used in operating activities during the six months ended September 30, 2017. The decrease in net cash used in operating activities in the current period is primarily attributed to the decrease in net losses, and the increase in accounts payable to a related party.

Mobetize expects to transition to net cash flow provided by operating activities in future periods as revenue is expected to grow and losses to decrease.

Cash flows used in Investing Activities

During the six months ended September 30, 2018, and September 30, 2017, Mobetize used $nil in investing activities.

Mobetize expects to use cash flow in investing activities in future periods as it will require additional investment in equipment to bring new renewed focus to research and development activities to expand its product line.

Cash flows provided by Financing Activities

During the six months ended September 30, 2018, Mobetize realized net cash provided by financing activities of $269,576 as compared to $120,152 in proceeds provided by financing activities during the six months ended September 30, 2017. Net cash provided by financing activities in both six-month periods was realized in connection with the issuance of related and non-related promissory notes.

Mobetize expects to realize cash flow from financing activities in future periods until such time as it can increase revenue to the point at which it can maintain operations and fund business growth.

Financing

We have financed operations to date from the proceeds of private equity placements of common stock, promissory notes, convertible promissory notes, and advances from directors and shareholders. Our business does anticipate increases in operating expenses and capital expenditures over the next twelve months in relation to: (i) product development; (ii) research and development to enhance existing products and create new ones; (iii) marketing expenses; and (iv) ongoing professional fees. We expect that our working capital requirements will be funded over this period by a combination of revenue, shareholder debt or equity private placements and if necessary, shareholder loans. Despite our expectation, we have no agreements to obtain funds through bank loans, lines of credit or any other sources. Since we have no financing committed, our inability to realize financing would materially restrict our operations.

On November 16, 2018, Mobetize entered into a securities purchase agreement with an investor pursuant to which agreement it realized $500,000 in exchange for a convertible promissory note. The proceeds of this transaction are sufficient to meet Mobetize's short term liquidity needs as it works to grow revenue and identify additional sources of capital.

We have adopted the Mobetize 2015 Stock Option Plan pursuant to which we can grant up to 30,000 options to purchase shares of Mobetize's common stock to employees, directors, officers, consultants or advisors on the terms and conditions set forth therein. As of September 30, 2018, 20,200 options with an exercise price of $60 remain outstanding, all of which have vested.

Mobetize has no lines of credit or other bank financing arrangements in place.

Mobetize has no commitments for future capital expenditures that are material.

Mobetize has no current plans for the purchase or sale of any plant or equipment.

Mobetize has no current plans to make any changes in the number of employees.

Mobetize does not expect to pay cash dividends in the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2018, we did 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, 2018, financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. As of September 30, 2018, Mobetize had an accumulated deficit of $9,392,876, a history of net losses, net cash used in operating activities, and a working capital deficiency of $893,426. These factors raise substantial doubt regarding Mobetize's ability to continue as a going concern. Mobetize's ability to continue as a going concern is dependent on continued financial support from management, increasing revenue, realizing additional debt or equity financing, decreasing operating costs and producing commercially viable products. Nonetheless, these consolidated financial statements have been prepared on a going concern basis, which implies that Mobetize will continue to realize its assets and discharge its liabilities in the normal course of business.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are summarized in Note 2 to our audited annual consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe that accounting policies identified in Note 2 are the most critical to our consolidated 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 professional 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 consolidated statements of loss and 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 measurable.

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 income (loss). 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.

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 and stock options, 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 (loss). 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 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 that 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 September 30, 2018, 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.

PART II. –- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Stephen Fowler

Mobetize received a Citation and Notice of Assessment dated October 14, 2016 ("Citation"), pursuant to which Stephen J. Fowler (Fowler), a former director and chief financial officer of Mobetize, had initiated a complaint with the State of Washington Department of Labor and Industries for amounts allegedly due to him for unpaid wages. The Citation declared that Fowler is owed $45,000 in wages in addition to an assessed interest of $3,368, and a penalty of $4,500. On November 8, 2016, Mobetize entered an appeal alleging that the calculation of amounts due to Fowler was incorrect and that Fowler had improperly obtained shares of its common stock which it intends to recover. Mobetize received a response from the Department of Labor and Industries dated November 18, 2016, in which it was advised that Fowler's claim had been transferred to the Office of the Attorney General and that a hearing on the matter would be held by the Office of Administrative Hearings. A hearing date for this matter has been set for January 30, 2019, in Seattle, Washington. On October 29, 2018, Mobetize extended an offer to settle those claims made by Fowler in connection with the Citation. The parties are presently working to finalize the terms of a settlement agreement that will conclude this matter. Therefore, at this point in time, the outcome of this proceeding cannot be reasonably determined.

Mobetize received a Notice of Civil Claim dated April 26, 2017, ("Notice"), filed in British Columbia Supreme Court by Fowler naming Mobetize and its directors as defendants. Fowler asserts claims against Mobetize for unpaid expenses of approximately $6,000, and breach of contract. He also asserts that his shareholdings in Mobetize have been diluted due to certain actions of its current directors, making claims including breach of contract, breach of fiduciary duty, misrepresentation and conspiracy. On June 23, 2017, Mobetize filed its response to Fowler's claims and submitted its own claims. Mobetize's claims include a claim that Fowler improperly issued shares to himself, is responsible for fraudulent or negligent misrepresentation, breach of fiduciary duty, negligence and unjust enrichment. Document discovery is at a standstill. No further steps in this action have been taken, and no trial date has been set. Mobetize believes that Fowler's claims detailed in the Notice are without merit. However, the outcome of this litigation cannot be reasonably determined at this time.

Mobetize received a Complaint dated May 12, 2017, ("Fowler Complaint"), filed in the Second Judicial District Court of the State of Nevada by Fowler naming Mobetize and its directors as defendants. The Nevada action concerns substantially the same facts and the same relief as the Notice. Mobetize has taken the position that the filing of duplicative actions in two different jurisdictions constitutes an abuse of process and that British Columbia is the appropriate jurisdiction in which Fowler's claims ought to be heard, and that the Nevada action ought to be dismissed or stayed for these same reasons. On June 23, 2017, Mobetize filed a Motion to Dismiss or in the alternative, an Application for Preliminary Injunction to either dismiss or stay the Fowler Complaint. A hearing was held and Mobetize's Motion to Dismiss was denied. The Court did however determine to stay the action pending resolution of the action in British Columbia. No further steps in this action, have taken place and no trial date has been set. Mobetize believes that the claims detailed in the Fowler Complaint are without merit. However, the outcome of this litigation cannot be reasonably determined at this time.

Cary Fields

Mobetize received a Complaint dated May 3, 2017, ("Fields Complaint"), filed in the Eighth Judicial District Court of the State of Nevada (Clark County) by Cary Fields ("Fields") naming Mobetize and its directors as defendants, to obtain a preliminary injunction to enjoin a consolidation of Mobetize's common stock, and seek damages for breach of fiduciary duty, conversion, and unjust enrichment. On May 18, 2017, the Court denied Fields' application for injunctive relief but did not rule on the question of Fields' alleged damages. On August 4, 2017, Fields filed an Amended Complaint seeking damages for breach of fiduciary duty, conversion, and unjust enrichment. On November 17, 2017, the Company filed Defendants' Motion for Judgment on the Pleadings. The Court held hearings on the Motion on December 19, 2017 and on January 9, 2018 denied the Motion. A mandatory settlement conference was convened by the Court on July 30, 2018. On August 20, 2018, the parties to this action entered into a Settlement Agreement. Mobetize, its directors and Fields filed a dismissal of the proceedings with the Court on September 18, 2018.

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 November 16, 2018, Mobetize issued a convertible promissory note in the amount of $500,000 to The Harrison Fields Irrevocable Trust DTD 3/6/14 pursuant to the terms and conditions of a securities purchase agreement in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended ("Securities Act")

Mobetize complied with the exemption requirements of Section 4(a)(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction that did not involve a public offering; (2) there was only one offeree who was issued the security in exchange for cash; (3) the offeree committed to hold the security; (4) there have been no subsequent or contemporaneous public offerings of the security; (5) the security has not been broken down into smaller denominations; (6) the discussions that led to the transaction took place directly between the offeree and Mobetize; and (7) the offeree was financially sophisticated.

On October 31, 2018, Mobetize issued a convertible promissory note in the amount of $410,000 to Donald Duberstein pursuant to the terms and conditions of a settlement agreement and release in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.

Mobetize complied with the exemption requirements of Section 4(a)(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction that did not involve a public offering; (2) there was only one offeree who was issued the security in exchange for the settlement of debt; (3) the offeree committed to hold the security; (4) there have been no subsequent or contemporaneous public offering of the security; (5) the security has not been broken down into smaller denominations; (6) the offeree serves as a director of Mobetize; (7) the discussions that led to the debt settlement took place directly between the offeree and Mobetize; and (8) the offeree was financially sophisticated.

On September 30, 2018, Mobetize issued three convertible promissory notes in the aggregate amount of $649,395 to Ajay Hans and related entities pursuant to the terms and conditions of settlement agreements and releases in reliance on the exemptions from registration provided by Section 4(a)(2) and Regulation S of the Securities Act as follows:

Mobetize complied with the exemption requirements of Section 4(a)(2) of the Securities Act based on the following factors: (1) the issuances were isolated private transactions that did not involve a public offering; (2) the offerees were issued the securities in exchange for the settlement of debt; (3) the offerees committed to hold the securities; (4) there have been no subsequent or contemporaneous public offerings of the securities; (5) the securities have not been broken down into smaller denominations; (6) the individual offeree serves as an officer and director of Mobetize; (7) the discussions that led to the debt settlements took place directly between the offerees and Mobetize; and (8) the offerees were financially sophisticated.

Mobetize complied with the requirements of Regulation S of the Securities Act by having directed no offering efforts in the United States, by offering securities only to offerees who were outside of the United States at the time of the offering, and ensuring that the offerees to whom the securities were offered were non-U.S. offerees with an address in a foreign country.

On August 29, 2018, Mobetize authorized the issuance of shares of common stock to certain individuals and their related entities, in exchange for an aggregate number of 14,050,714 shares of Series B Preferred in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as follows:

Mobetize complied with the exemption requirements of Section 4(a)(2) of the Securities Act based on the following factors: (1) the issuances were isolated private transactions that did not involve a public offering; (2) the offerees were issued the securities in exchange for securities; (3) the offerees committed to hold the securities; (4) there have been no subsequent or contemporaneous public offerings of the securities; (5) the securities have not been broken down into smaller denominations; (6) the discussions that led to the exchange of securities took place directly between the offerees and Mobetize; and (8) the offerees were financially sophisticated.

Mobetize complied with the requirements of Regulation S of the Securities Act in respect to Hans, his related entities and Ladki, by having directed no offering efforts in the United States, by offering securities only to offerees who were outside of the United States at the time of the offering, and ensuring that the offerees to whom the securities were offered were non-U.S. offerees with an address in a foreign country.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On August 28, 2018, Mobetize replaced its Designation of Series B Preferred Stock dated May 20, 2016 , as amended on May 31, 2016, with an Amended Certificate of Designation of Preferred Stock of Mobetize Corp. Series B Preferred ("Series B Amendment). The Series B Amendment excised a restriction from the designation that limited the number of Series B Preferred shares that could be converted to common stock by any given holder to no more than 4.99% of the outstanding shares of common stock following such conversion.

The Series B Amendment was approved unanimously by the board of directors on August 22, 2018. On August 23, 2018, those stockholders holding a majority of the voting shares of Series B Preferred Stock, voting as a single class, approved the Series B Amendment. Notice of the Series B Amendment will be posted to each holder of Series B Preferred shares.

The foregone description of the Series B Amendment is qualified in its entirety by reference to the full text of that document incorporated hereto.

ITEM 6. EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 33 of this Form 10-Q, and are incorporated herein by this reference.

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.

INDEX TO EXHIBITS

Exhibit No. Exhibit Description

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 †