10-Q 1 f10q_021216p.htm FORM 10-Q

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 December 31, 2015

 

[ ] 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

(Primary Standard Industrial Classification Number)

99-0373704

(IRS Employer Identification Number)

 

8105 Birch Bay Square St, Suite 205, Blaine WA 98230

(Address of principal executive offices)

 

Issuer’s telephone number: (206) 347-4515

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date: As at February 12, 2016, there were 33,261,154 shares of the issuer's $0.001 par value common stock issued and outstanding.

 

Page 1
 

MOBETIZE CORP.

 

PART I FINANCIAL INFORMATION  
ITEM 1 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 Operations 18
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 31
ITEM 4 Controls and Procedures 31
PART II OTHER INFORMATION  
ITEM 1 Legal Proceedings and Risk Factors 33
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 34
ITEM 3 Defaults Upon Senior Securities 34
ITEM 4 Mine Safety Disclosures 34
ITEM 5 Other Information 34
ITEM 6 Exhibits 34

 

 

 

 

 

Page 2
 

MOBETIZE, CORP.

Interim Consolidated Balance Sheets

December 31, 2015

(Unaudited)

 

   US $
   DECEMBER 31,
2015
  MARCH 31,
2015
       
ASSETS          
Current Assets:          
Cash  $125,645   $312,899 
Accounts receivable   85,745    6,534 
Accounts receivable – related party (Note 5)   -    14,687 
Prepaid expenses and deposits   37,734    56,424 
Total Current Assets   249,124    390,544 
           
Property and equipment, net (Note 3)   11,833    13,606 
TOTAL ASSETS  $260,957   $404,150 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
LIABILITIES          
Current Liabilities:          
Accounts payable and accrued liabilities  $89,784   $37,300 
Accounts payable and accrued liabilities - related party (Note 5)   42,362    72,810 
Deposits due to customers   500    - 
Total Current Liabilities   132,646    110,110 
           
Due to related party (Note 5)   77,955    53,105 
TOTAL LIABILITIES  $210,601   $163,215 
           
STOCKHOLDERS' EQUITY          
Common stock, $0.001 Par Value: 525,000,000 authorized and 33,261,154 and 30,185,505 common shares issued and outstanding, respectively (Note 6)  $33,261   $30,186 
Additional paid-in capital   4,736,355    4,191,177 
Warrants   562,764    263,111 
Share subscriptions payable   25,056    14,303 
Share options reserve (Note 8)   

600,753

    - 
Accumulated deficit   (5,901,819)   (4,255,516)
Accumulated other comprehensive loss   (6,014)   (2,326)
Total Stockholders' Equity   50,356    240,935 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $260,957   $404,150 

 

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

 

Page 3
 

MOBETIZE CORP.

Interim Consolidated Statements of Operations and Comprehensive Loss

For the three and nine months ended December 31, 2015 and 2014

(Unaudited)

 

   US $
THREE MONTHS ENDED
DECEMBER 31,
  US $
NINE MONTHS ENDED
DECEMBER 31,
   2015  2014  2015  2014
             
OPERATING REVENUES                    
Revenues  $74,383   $64,913   $81,460   $87,068 
Revenues-related party   -    7,126    -    7,126 
Total Operating Revenues   74,383    72,039    81,460    94,194 
                     
OPERATING EXPENSES                    
Depreciation   918    439    2,349    439 
General and administrative   76,211    15,202    189,627    91,104 
General and administrative – related party (Note 5)   1,811    77, 448    3,973    91,699 
Stock based compensation expense (Note 8)   600,753    -    600,753    - 
Investor relations and promotion   22,711    56,713    29,866    137,853 
Listing fees   10,629    10,925    31,820    26,356 
Management salaries and consulting fees   104,444    77,027    278,289    315,913 
Management salaries and consulting fees - related party (Note 5)   30,000    57,000    90,000    157,250 
Professional fees   17,986    3,112    55,996    56,565 
Research and development   93,643    42,061    330,259    56,162 
Research and development - related party (Note 5)   32,986    46,039    45,822    227,199 
Sales and marketing   15,248    28,532    69,009    28,532 
Sales and marketing - related party (Note 5)   -    -    -    2,638 
Total Operating Expenses   1,007,340    414,498    1,727,763    1,191,710 
                     
NET LOSS  $(932,957)  $(342,459)  $(1,646,303)  $(1,097,516)
                     
NET LOSS PER SHARE                    
Basic  $(0.03)  $(0.01)  $(0.05)  $(0.04)
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                    
Basic   33,261,154    29,606,155    31,594,441    29,532,655 
                     
COMPREHENSIVE LOSS                    
Net loss  $(932,957)  $(342,459)  $(1,646,303)  $(1,097,516)
Other comprehensive loss:                    
Unrealized loss on investments   -    (1,071,936)   -    (1,366,065)
Cumulative translation adjustment   1,212    71    (3,688)   1,078 
Comprehensive loss:  $(931,745)  $(1,414,324)  $(1,649,991)  $(2,462,503)

 

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

 

Page 4
 

MOBETIZE CORP.

Interim Consolidated Statements of Stockholders’ Equity

For the nine months ended December 31, 2015

(Unaudited)

 

  Common Shares   Additional    Share  Share     Accumulated
Other
  Total
  Number  Value  Paid-In
Capital
  Warrants  Subscriptions
Payable
  Options
Reserve
  Accumulated
Deficit
  Comprehensive
Loss
  Stockholders’
Equity
Balance - March 31, 2014   28,364,200   $28,364    2,992,747   $-   $-   $   $(1,246,498)  $-   $1,774,613 
Shares issued for consultancy services (Note 7a)   19,861    20    24,367    -    -    -    -    -    24,387 
Sale of 1,122,831 shares at $0.75/share net of $58,500 financing fees (Note 7b)   1,122,831    1,123    631,841    150,659    -    -    -    -    783,623 
Sale of 490,000 shares at $1.00/share (Note 7c)   490,000    490    377,058    112,452    -    -    -    -    490,000 
Shares issued due to repricing of December 2014 private placement from $1.00/share to $0.75/share (Note 7c)   163,333    163    (163)   -    -    -    -    -    - 
Valuation of financing warrants (Notes 7b and 7c)   -    -    114,200    -    -    -    -    -    114,200 
Valuation of options issued for consultancy services received   -    -    46,097    -    -    -    -    -    46,097 
Stock payable for consultancy services received (Note 7d)   -    -    -    -    14,303    -    -    -    14,303 
Conversion of interest payable   25,280    26    5,030    -    -    -    -    -    5,056 
Net loss for the year   -    -    -    -    -    -    (3,009,018)   -    (3,009,018)
Other comprehensive loss   -    -    -    -    -    -    -    (2,326)   (2,326)
Balance - March 31, 2015   30,185,505   $30,186    4,191,177   $263,111   $14,303   $-   $(4,255,516)  $(2,326)  $240,935 
Stock payable for consultancy services received (Note 7d)   -    -    -    -    10,753    -    -    -    10,753 
Sale of 161,481 shares at $0.50/share (Note 6i)   161,481    161    65,022    15,556    -    -    -    -    80,739 
Sale of 2,724,688  shares at $0.25/share, net of $12,122 financing fee (Note 6h)   2,724,668    2,725    403,850    262,470    -    -    -    -    669,045 
Valuation of financing warrants   -    -    -    3,372    -    -    -    -    3,372 
Exercise of warrants in the period (Note 6f,g)   189,500    189    94,561    -    -    -    -    -    94,750 
Warrants issued on exercise of expiring warrants   -    -    (18,255)   18,255    -    -    -    -    - 
Share options issued in the period (Note 8)   -    -    -    -    -    600,753    -    -    600,753 
Net loss for the period   -    -    -    -    -    -    (1,646,303)   -    (1,646,303)
Other comprehensive loss   -    -    -    -    -    -    -    (3,688)   (3,688)
Balance – December 31, 2015   33,261,154   $33,261    4,736,355   $562,764   $25,056   $600,753   $(5,901,819)  $(6,014)  $50,356 

 

 

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

 

Page 5
 

MOBETIZE CORP.

Interim Consolidated Statements of Cash Flows

For the nine months ended December 31, 2015 and 2014

(Unaudited)

 

   US $
NINE MONTHS ENDED
DECEMBER 31,
   2015  2014
       
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(1,646,303)  $(1,097,516)
           
Adjustments to reconcile net loss to net cash used in  operating activities:          
Depreciation expense   2,349    420 
Shares issued for services   10,753    255,934 
Share based compensation   600,753    - 
Changes in assets and liabilities          
Accounts receivable   (79,211)   (22,744)
Accounts receivable – related party   14,687    - 
Prepaid expenses   18,690    (31,691)
Accounts payables and accrued liabilities   52,984    6,935 
Accounts payable - related party   (30,448)   (22,464)
Net cash used in operating activities   (1,055,746)   (911,126)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of computer equipment   (1,554)   (7,396)
Net cash used in investing activities   (1,554)   (7,396)
           
CASH FLOWS FROM FINANCING ACTIVITES          
Proceeds from sale of common stock and warrant exercise, net of financing costs   619,667    1,273,622 
Proceeds from sale of common stock and warrant exercise, net of financing costs - related party   228,240    - 
Proceeds, net of repayments from related party   24,850    - 
 Net cash provided by financing activities   872,757    1,273,622 
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (2,711)   - 
NET INCREASE IN CASH   (187,254)   355,100 
CASH - BEGINNING OF PERIOD   312,899    90,537 
CASH - END OF PERIOD  $125,645   $445,637 
           
CASH PAID DURING THE PERIOD FOR:          
Interest expense, net of interest income  $-   $- 
Tax expense  $-   $- 

 

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

 

Page 6
 

MOBETIZE CORP.

 

Notes to the InterimConsolidated Financial Statements

December 31, 2015

(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. The Company plans to offer mobile banking technologies and service.

 

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 interim 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 December 31, 2015, the Company has an accumulated deficit of $5,901,819 and a history of net losses and cash used in operating activities. 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, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations 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”) and are expressed in U.S. dollars. 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.

 

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.

 

Page 7
 

c)Financial Statements

 

These interim 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 December 31, 2015 and 2014, 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. Prepaid expenses are carried at fair value which is deemed to be the gross value of the pre-payment due to the short-term maturity of these payments. 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.

 

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.

 

Page 8
 

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 behaviours. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the interim 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 (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. As of December 31, 2015, the Company has nil (2014 – 1,206,858) 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.

 

n)Fair Instruments / Concentration

 

Financial instruments consist principally of cash, accounts receivable, accounts payable, deposits due to customers, 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.

 

Page 9
 

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.

 

p)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.

 

q)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 December 15, 2015.

 

Page 10
 

The adoption of the pronouncement did not have a material effect on the Company’s consolidated financial statements.

 

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. Accordingly, we have elected to adopt ASU No. 2014-10.

 

r)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.

 

3.Property and Equipment

 

Property and equipment, net consisted of the following:

 

   December 31,
2015
   March 31,
2015
 
           
Computer equipment  $13,857   $13,428 
Furniture   1,128    1,231 
Total   14,985    14,659 
Less: accumulated amortization   3,152    1,053 
Property and equipment, net  $11,833   $13,606 

 

During the nine months ended December 31, 2015 property and equipment decreased by $1,127 as a result of foreign currency translation adjustments.

 

4.Investment

 

On December 24, 2013 the Company completed a debt for equity swap transaction, through which it converted the notes receivable and accrued interest it held from Telupay International Inc. (“Telupay”) into 3,268,097 common shares in Telupay. As a result of this transaction, the Company owned approximately 2.02% of the outstanding share capital of Telupay.

 

The Company recognizes the holding of these shares as an investment available for sale and values it at the fair value of the shares. As Telupay is a public company on the OTC market, the shares are valued at the market price.

 

Page 11
 

During the twelve month period ending March 31, 2015 the Company fully liquidated 3,268,097 common shares of Telupay for $130,527 in cash proceeds, realizing a loss on sale of investment of $1,503,523. For the period ended December 31, 2015, the value of the Telupay shares was $nil (December 31, 2014 - $267,984).

 

5.Related Party Transactions

 

a)During the three and nine months ended December 31, 2015, the Company incurred $nil (2014 - $25,500) and $nil (2014 - $195,251), respectively, of management fees, $nil (2014 - $14,430) and $nil (2014 - $55,641), respectively, of general and administrative expenses and $nil (2014 - $1,350) and $nil (2014 – $3,321), respectively, of advertising expenses to the former President of the Company, currently serving as the Chief Financial Officer of the Company (the “CFO”). In fiscal 2015 the Chief Financial Officer was remunerated as an employee.

 

b)During the three and nine months ended December 31, 2015, the Company incurred $30,000 (2014 - $30,000) and $90,000 (2014 - $78,000), respectively, of management fees, $32,985 (2014 - $20,951) and $45,822 (2014 - $195,251), respectively, of development and engineering fees, $nil (2014 - $nil) and $nil (2014 - $2,995), respectively, of advertising expenses, $144 (2014 - $4,845) and $2,018 (2014 - $28,435), respectively, of general and administration expenses, and $nil (2014 - $1,350) and $nil (2014 - $6,604) of consulting expenses to a company controlled by the Chief Executive Officer of the Company (the “CEO”).

 

c)During the three and nine months ended December 31, 2015, the Company generated $nil (2014 - $7,126) and $nil (2014 - $7,126), respectively, in revenues from a company controlled by the CEO.

 

d)During the three and nine months ended December 31, 2015, the Company incurred $nil (2014 - $2,742) and $nil (2014 - $2,742) of general and administrative expenses to the Chief Executive Officer of the Company.

 

e)As at December 31, 2015, the Company owes $nil (March 31, 2015 - $89,338) to the CFO of the Company for advances, management fees, outstanding compensation, and reimbursement of general and administrative expenses (as applicable) incurred but unpaid during the period. Amounts previously owing were unsecured, non-interest bearing, and due on demand.

 

f)Relating to the advances, during the three and nine months ended December 31, 2015, the Company received additional advances of $nil (2014 - $nil) and $137,000 (2014 - $nil), respectively, from the CFO, which were reinvested during the period as part of a $175,000 private placement for common shares of the Company (see Note 7(h)) by the CFO and direct members of the CFO’s family. During the three and nine months ended December 31, 2015, the Company also paid $994 (2014 - $nil) in interest to the CFO relating to the above noted advances.

 

g)During the three and nine months ended December 31, 2015, the CFO exercised 25,000 warrants at $0.50 (see Note 7(f)).

 

h)As at December 31, 2015, the Company owes $42,362 (March 31, 2015 - $36,577) to a Company controlled by the CEO for management fees, development expenses, advertising expenses, and general and administration expenses (as applicable) incurred but unpaid during the period. The amounts owing are unsecured, non-interest bearing, and due on demand.

 

i)Relating to the advances, during the three and nine months ended December 31, 2015, the Company received additional advances of $nil (2014 - $nil) and $40,741 (2014 - $nil), respectively, from the CEO, which were reinvested during the period as part of a $40,741 private placement for common shares of the Company (see Note 7(i)) by a company controlled by the CEO.

 

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6.Common Stock and Preferred Stock

 

a)On April 4, 2014 the Company issued 1,334 common shares in exchange for services in the amount of $1,800 pursuant to the agreement entered into on October 1, 2013. The shares issued were valued at $1,800 based on the quoted closing price of the Company’s common stock on the date of settlement.

 

On September 8, 2014 the Company issued 1,240 common shares in exchange for services in the amount of $1,500 pursuant to the agreement entered into on October 1, 2013. The shares issued were valued at $1,500 based on the quoted closing price of the Company’s common stock on the date of settlement.

 

On August 18, 2014 the Company entered into agreement with a supplier to provide consultancy services in exchange for shares. During the twelve months ended March 31, 2015 the value of services received was $10,500 resulting in 8,537 shares issued to the supplier. During the three months ended June 30, 2015 the value of services received was $nil (2014 - $nil).

 

On September 8, 2014 the Company issued 8,750 common shares in exchange for services in the amount of $10,567 pursuant to the agreement entered into on November 13, 2013. The shares issued were valued at $10,587 based on the quoted closing price of the Company’s common stock on the date of settlement.

 

b)On June 25, 2014 the Company closed a private placement under which it sold 1,122,831 investment units for proceeds of $783,623, net of financing fees of $58,500 paid in cash. Each investment unit consisted of one common share of the Company’s stock and one half-warrant.

 

The warrants are exercisable at $1.00 per share and were initially valid for two years from the date of issue. 133,000 financing warrants were issued on the same terms as those in the investment units. The financing warrants were valued at $80,752 using the Black Scholes method, which included the dividend yield of nil, risk-free interest rate of 0.47%, expected volatility of 111.0%, and expected term of 2 years. The full value of financing warrants was expensed to stock based compensation.

 

On March 17, 2015, the term of both the financing and investment unit warrants was extended from 2 to 4 years. No additional compensation expense relating to the 133,000 financing warrants was recorded as a result of the term extension.

 

c)On December 11, 2014 the Company closed a private placement under which it sold 490,000 investment units for proceeds of $490,000. Each investment unit consisted of one common share of the Company’s stock and one half-warrant. The warrants are exercisable at $1.25 per share and were initially valid for three years from the date of issue. No financing fees were payable in cash associated with this private placement. 60,000 financing warrants were issued on the same terms as those in the investment units. The financing warrants were valued at $33,448 using the Black Scholes method, which included the dividend yield of nil, risk-free interest rate of 1.10%, expected volatility of 96.4%, and expected term of 3 years. The full value of financing warrants was expensed to stock based compensation.

 

On March 17, 2015, the term of both the financing and investment unit warrants was extended from 3 to 4 years. No additional compensation expense relating to the 60,000 financing warrants was recorded as a result of the term extension.

 

On March 17, 2015, the Company repriced 490,000 investment units from the December 11, 2014 private placement from $1.00 per unit to $0.75 per unit resulting in additional 163,333 investment units issued to the private placement shareholders. Each investment unit consisted of one common share of the Company’s stock and one half-warrant. The warrants are exercisable at $1.25 per share and are valid for four years from the date of issue.

 

Page 13
 

d)On December 15, 2014, the Company entered into agreement with an Advisor to provide advisory services in exchange for shares. During the three and nine months ending December 31, 2015 the value of services received was $4,123 (2014 - $1,944) and $10,753 (2014 - $1,944) respectively. At December 31, 2015 $25,056 (March 31, 2015 - $14,303) in share subscriptions payable was due for advisory and consulting services.

 

e)On March 4, 2015, the Company issued 25,280 shares at a price of $0.20 per share to convert interest payable on notes payable in the amount of $5,056 to equity.

 

f)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.

 

g)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

 

h)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 warrants are exercisable at $1.00 per share and are valid for three years from the date of issue (see Note 8(b)). $8,750 cash financing fees and 17,500 financing warrants with a value of $3,372 (see Note 8(d)) are payable with this private placement.

 

i)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 $80,741. Each investment unit consists of one common share of the Company’s stock and one half-warrant. The warrants are exercisable at $1.00 per share and are valid for three years from the date of issue (see Note 8(c)). Neither financing fees nor financing warrants were payable with this private placement.

 

Page 14
 

7.Share Purchase Warrants

 

The following table summarizes the continuity of share purchase warrants:

 

   Number of warrants   Weighted average exercise price (US$) 
           
Balance, March 31, 2014   500,000    0.50 
Issued, June 25, 2014   694,414    1.00 
Issued, December 11, 2014   305,000    1.25 
Issued, March 17, 2015   81,670    1.25 
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, December 31, 2015   2,636,406    1.04 

 

During the nine months ended December 31, 2015 the company issued the following tranches of warrants:

 

a)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)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 (the “$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)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 (the “$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)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.

 

Page 15
 

As at December 31, 2015, the following share purchase warrants were outstanding:

 

Number of warrants outstanding  Exercise
price (US$)
   Expiry date
         
694,414   1.00   June 24, 2018
386,670   1.25   December 10, 2018
1,555,322   1.00   September 01, 2018
         
2,636,406        

 

8.Share Options

 

The following table summarizes the continuity of share purchase options:

 

   Number of options   Weighted average exercise price (US$) 
           
Balance, March 31, 2014   5,500    1.00 
Issued in period   250,000    1.25 
Expired in period   (5,500)   1.00 
Cancelled in period   (192,709)   1.25 
Balance, March 31, 2015   57,291    1.25 
Issued in period   2,630,000    0.60 
Cancelled in period   

(57,291

)   1.25 
Balance, December 31, 2015   2,630,000    0.60 

 

As at December 31, 2015, the following share purchase options were outstanding:

 

Number of options outstanding  Exercise
price (US$)
   Expiry date
        
2,630,000   0.60   September 30, 2020

 

On September 1, 2014 the Company issued 250,000 share options for consulting services with a three year term, expiring on August 31, 2017. The options vested monthly in equal installments and were valued at $201,150 using the Black Scholes method, which included the dividend yield of nil, risk-free interest rate of 0.99%, expected volatility of 111.0%, and expected term of 3 years. At March 31, 2015 192,709 options were cancelled as a result of the termination of consulting services while 57,291 options were cancelled at December 31, 2015. There were no options exercised since the date of issue. For each of the three and nine months ended December 31, 2015 $nil (2014 - $nil) stock based compensation expense was recorded.

 

On August 10, 2015, the Company’s directors approved the adoption of the 2015 Stock Option Plan (“the 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.

 

Page 16
 

The options vested monthly in equal installments and were valued at $600,753 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 December 31, 2015, 1,490,703 of the granted options have vested, $nil have been exercised, and $nil have expired or been forfeited. For each of the three and nine months ended December 31, 2015 $600,753 (2014 - $nil) stock based compensation expense was recorded.

 

9.Concentration of Risk

 

During the three and nine months period ending December 31, 2015, revenues generated were $74,383 and $81,460, respectively, compared to revenues of $72,039 and $94,194, respectively, during the same period in 2014. Revenues are generated through m-commerce services provided in line with the contracts acquired by Mobetize from Alligato Inc. and revenues generated through consulting services provided to Alligato Inc., and to independent customers.

 

During the three months ended December 31, 2015, the Company had revenues from four customers (2014 – revenues from four customers) with 73% (2014 – 52.5%) of revenues generated from the Company’s largest customer.

 

During the nine months ended December 31, 2015, the Company had revenues from four customers (2014 – revenues from five customers) with 66% (2014 – 63%) of revenues generated from the Company’s largest customer.

 

10.Commitment and Contingencies

 

The Company has obligation under rental lease for its operating office. As of December 31, 2015, the remaining term of the lease is nine months with monthly payments of $4,900. The Company’s lease includes a renewal option.

 

11.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.

 

12.Comparative Periods

 

Certain comparative amounts for the prior period have been reclassified to conform to the current period presentation.

 

13.Subsequent Events

 

Subsequent to December 31, 2015, the Company’s CFO resigned from his position and a new CFO was appointed.

 

Also, subsequent to December 31, 2015, the Company authorized issuance of 250,000,000 shares of preferred stock and designated 10,000,000 of the preferred stock as Series A preferred shares.


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

 

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 (the “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, 2015.

 

GENERAL

 

We were incorporated in the State of Nevada on February 23, 2012. Our business office is at 8105 Birch Bay Road, Suite 205, Blaine WA 98230. Our telephone number is (206) 347-4515.

 

Our original business was to provide service to international students who want to study in Canada. We have not generated any revenues and our principal business activities had consisted of creating a business plan and entering into a Referral Agreement dated May 7, 2012 with Novy Mir, Ltd., an independent contractor who was to refer international students to us.

 

Our business plan was to help international students enroll in appropriate universities, institutes, colleges or schools in Canada. We also had planned to help students obtain student visas and find accommodations in the cities of study. Our service was to start from preliminary consultation and end when the client was enrolled to the program, entered to the destination country and accommodated at a desired place.

 

Unfortunately, we were not able to raise sufficient capital to fund our business development and consequently our management began considering alternative strategies, such as business combinations or acquisitions to create value for our shareholders.

 

On July 9, 2013, we entered into an asset purchase and sale agreement with Mobetize Inc. (“Priveco”), a State of Nevada corporation and formerly “Telupay Inc.”. Pursuant to the terms of the agreement, we agreed to acquire substantially all the assets of Priveco in exchange for the issuance by our company of 22,003,000 shares of our common stock to Priveco.

 

Page 18
 

On July 12, 2013, Ms. Shpeyzer had resigned as our President, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director. Ms. Shpeyzer’s resignation was not the result of any disagreement with our company regarding our operations, policies, practices or otherwise. Concurrently with Ms. Shpeyzer’s resignation, Mr. Stephen Fowler was appointed as our President, Principal Financial Officer, Principal Accounting Officer and as a director.

 

In accordance with board approval, we filed a Certificate of Change dated August 8, 2013 with the Nevada Secretary of State to give effect to a forward split of our authorized, issued and outstanding shares of common stock on a 7 new for 1 old basis, such that our authorized capital increased from 75,000,000 to 525,000,000 shares of common stock and, correspondingly, our issued and outstanding shares of common stock was increased from 3,290,000 to 23,030,000 common shares, all with a par value of $0.001.  

 

Further, effective August 13, 2013, in accordance with approval from the Financial Industry Regulatory Authority (“FINRA”), our company changed its name from “Slavia, Corp.” to “Mobetize Corp.”.  The name change and forward split became effective with the Over-the-Counter Bulletin Board at the opening of trading on August 14, 2013 under the symbol SAVID”. Effective October 1, 2013, our stock symbol changed from “SAVID” to “MPAY” to better reflect the new name of our company. 

 

In connection with the asset purchase and sale agreement, Mr. Fowler agreed to return for cancellation 18,400,000 shares of our common stock on September 4, 2013. Concurrently, we closed the asset purchase and sale by issuing the required 22,003,000 common shares to Priveco. Also pursuant to the asset purchase and sale agreement, on September 4, 2013, Ajay Hans was appointed as a director and Principal Executive Officer of our company.

 

On September 20, 2013, Stephen Fowler had resigned as our Principal Financial Officer and Principal Accounting Officer. Mr. Fowler’s resignation was not the result of any disagreement with our company regarding our operations, policies, practices or otherwise.  Concurrently with Mr. Fowler resignation, Mr. Chris Convey was appointed as our Chief Financial Officer.

 

On September 16, 2013, our company issued 315,000 common shares to Source Capital Group, Inc., a US investment-banking firm, as part of an on-going consulting agreement with our company. Additionally on October 7, 2013 the Company issued 1,050,000 shares in a private placement at $0.50 per share for gross funds of $525,000.

 

On December 15, 2013 our company issued 15,000 common shares for prepaid marketing services with a fair value of $19,500. All these services had been received and amortized by June 30, 2014.

 

On December 31, 2013 our company issued 1,200 common shares in payment of consultancy services received with a fair market value of $1,500.

 

On March 14, 2014 our company issued 200,000 common shares at a deemed price of $0.20 a share to Bacarrat Overseas Ltd upon conversion of the outstanding notes payable to equity.

 

On March 26, 2014 our company entered in to a debt for equity settlement agreement with the president of our company. Under the terms of this agreement, the Company settled debts of $112,500 owed to the president of our company in return for the issuance of 150,000 common shares. This transaction was valued at the prevailing market price of $1.35 per share, so our company incurred an interest charge of $90,000 as a result of this transaction.

 

On April 4, 2014 our company issued 1,334 common shares in exchange for services valued at $1,800.

 

Page 19
 

On June 25, 2014 our company closed a private placement under which it sold 1,122,831 investment units for gross proceeds of $842,123. Each investment unit consisted of one common share of our company’s stock and one half-warrant. The warrants are exercisable at $1.00 per share and are valid for two years from issue. $58,500 financing fees are payable in cash associated with this private placement and 133,000 financing warrants were issued on the same terms as those in the investment units.

 

On September 1, 2014 the Company issued 250,000 share options for consulting services with a three year term, expiring on August 31, 2017. The options vested monthly in equal installments. There were no options exercised since the date of issue. At December 31, 2015 all options were cancelled.

 

On September 8, 2014 the Company issued 9,990 common shares in settlement of supplier liabilities valued at $12,087.

 

On December 11, 2014 the Company closed a private placement under which it sold 490,000 investment units for net proceeds of $490,000. Each investment unit consisted of one common share of our company’s stock and one half-warrant. The warrants are exercisable at $1.25 per share and are valid for three years from issue. No financing fees are payable in cash associated with this private placement. 60,000 financing warrants were issued on the same terms as those in the investment units.

 

On March 4, 2015, the Company issued 25,280 shares at a conversion price of $0.20 per share to convert interest payable on notes payable in the amount of $5,056 to equity.

 

On March 17, 2015, the Company repriced 490,000 investment units from the December 11, 2014 private placement from $1.00 per unit to $0.75 per unit resulting in additional 163,333 investment units issued to the private placement shareholders. Each investment unit consisted of one common share of the Company’s stock and one half-warrant. The warrants are exercisable at $1.25 per share and are valid for four years from the date of issue.

 

On June 10, 2015, the Company issued 184,500 shares at a conversion 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 $92,065 was recorded to additional paid-in capital.

 

On August 15, 2015, the Company issued 5,000 shares at a conversion 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

 

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 warrants are exercisable at $1.00 per share and are valid for three years from the date of issue (see Note 8(b)). $8,750 cash financing fees and 17,500 financing warrants with a value of $56,350 (see Note 8(d)) 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 $80,741. Each investment unit consists of one common share of the Company’s stock and one half-warrant. The warrants are exercisable at $1.00 per share and are valid for three years from the date of issue (see Note 8(c)). Neither financing fees nor financing warrants were payable with this private placement.

 

Page 20
 

BUSINESS OVERVIEW

 

Our original business was to provide service to international students who want to study in Canada. We did not generate any revenues and our principal business activities consisted of creating a business plan. Our business plan was to help international students enrol in appropriate universities, institutes, colleges or schools in Canada. We also had planned to help students obtain student visas and find accommodations in the cities of study. Our service was to start from preliminary consultation and will end when the client is enrolled to the program, entered to the destination country and accommodated at desired place.

 

Unfortunately, we were not able to raise sufficient capital to fund our business development and consequently our management began considering alternative strategies, such as business combinations or acquisitions to create value for our shareholders.

 

As such, we purchased all or substantially all of the business assets of Mobetize Inc. on September 4, 2013 and our new business offers us the opportunity to become a leading online and mobile commerce platform provider for telecom operators, payment service providers and banks. Our platform is brand-able and enables telecom operators, employers and prepaid card issuers to simplify the delivery of mobile financial services.  We ensure end-to-end integration for services such as retail/online payments, air-time top ups, international remittances/money transfer, P2P transfers and Visa/Mastercard programs on mobile devices. We seamlessly integrate and white label our secure mobile money platform with our delivery partners to help increase their average revenue per customer (ARPU), decrease customer service costs, and increase loyalty to existing offerings. 

 

Telecom Products and Solutions:

 

Adoption of the smart phone has created an unprecedented increase in the use of the mobile devices for financial transactions.  This paradigm is changing the way people receive financial services across the globe. MFS are part of a long-term strategy for telecom operators worldwide to enhance their relationship with their subscribers and increase Average Revenue Per User (“ARPU”). For telcos with predominantly prepaid customer bases, we assist them in significantly increasing their enterprise value, as we effectively convert pre-paid subscribers in to post-paid subscribers. We have commenced operations with our first products designed and ready for sale and/or implementation.

 

smartWallet:

 

Our smartWallet solution is provided via mobile web and web OS Apple and Android app to the desktop, iPad or mobile phone of our users.

 

The smartWallet is the core of our mobile financial services offerings and allows users to load funds in to their mobile wallet and access global services such as prepaid top-ups for themselves or for gifts for family members, Person 2 Person money transfers, international money transfer remittances, bill payments and bill management, with other financial services being added.

 

Users can load funds in to their smartWallet from their bank account (ACH or real time ACH), via credit or prepaid debit card, by electronic remote check deposit, and cash load at Green Dot affiliated locations across the US.

 

smartWallet can be integrated with a billing system to allow to offer a mobile ‘my account’ as part of a mobile wallet with rich features including:

 

·Registration - Sign in and sign up process capabilities based on current systems.

 

·User Account Settings - Allows the user to update their information, edit/add and save different payment methods while changing password and saving account numbers to favorites for fast access.

 

Page 21
 

·View Balance - Subscribers are able to track their balances by viewing their real-time balance.

 

·Add and Save Services -Create, save, and edit a list of Favorites for easy and fast access to all transactions.

 

·Favorites - Create, save, and edit a list of Favorite contacts, remittances, airtime transactions and more for convenience and accessibility.

 

·Stored Payment Methods - Safely store and edit a list of preferred method of payments to load the smartWallet and increase convenience and accessibility including credit cards, debit cards, and ACH.

 

smartRemit:

 

A fully integrated mobile platform dedicated to providing the most convenient, efficient, scalable and inexpensive global money transfer solution for your subscriber.

 

It allows customers to send funds person to person via multiple convenient ways; bank account deposits, pick-up at agent location, and home delivery. Users can send funds in one currency and have the beneficiary receive in another. Cash delivery options include:

 

·Cash to cash

·Cash to account

·Door service

·Mobile transfers

 

smartRemit is accessed via the smartWallet and provides users with 24/7 mobile money transfer remittance capabilities via the mobile web through 50,000+ agent locations worldwide. We anticipate this reach to grow during the remainder of 2016 with money transfer capability through 170,000 payout agents and delivery to any bank accounts in over 600 Banks worldwide.

 

smartCharge:

 

smartCharge enables real time prepaid mobile top-ups to any mobile phone and recharge transfers to over 250 partner mobile network operators in 90 countries, reaching 3.6 billion prepaid users. Subscribers can offer top-ups as a gift to any mobile phone globally.

 

 

 

smartBill:

 

smartBill allows users to pay bills to approximately 14,000 companies within the US, including utilities, mobile phone providers and other. A full list of the billers currently supported via smartBill is available on request or via the smartWallet application.

 

Page 22
 

smartTel:

 

Through the integration with a billing system, users will be able to access their ‘my account’ features through the Mobetize smartTel application.

 

smartCard:

 

Now with our agreement with DCR Strategies users will be able to request (during sign-up or at any time via the Mobetize app) a prepaid MasterCard or Visa card, which is linked to their smartWallet. Users will be able to move any cleared funds from their smartWallet on to the MasterCard, allowing them to make purchases both online and in retail locations, plus withdraw cash from ATMs and Green Dot affiliated locations across the US that includes Walmart, CVS, RiteAid, Walgreens and 7 Eleven Stores.

 

Users will be able to track the balance and see recent transactions via the Mobetize smartWallet and can easily move money back to the smartWallet via the Mobetize App. The smartCard MasterCard will have the same white-label branding as the smartWallet for a seamless user experience.

 

CRM and Reporting Tool:

 

Mobetize will also provide an online access to its CRM and reporting system.

 

The reporting system can be configured so that different levels within a customer’s team can see and access different levels of information, through user access rights and logons. The reporting tool provides real time data, at different levels of detail, allowing to track such metrics as:

 

·Transactions $ values

·Transaction volume-by type of transaction

·Number of registered users

·Number of active users

·Geographic splits

·Other KPIs as defined

 

The web based CRM tool, will allow staff to provide Tier 1 customer support for the smartWallet solutions. Through this web-tool, the staff will be able to access and update customer data such as:

 

·User information (name, address, etc.)

·User transaction history

·User wallet balance

·Issue refunds of balances in wallet

 

Latest Developments and Customers:

 

On September 3, 2014, we were selected by DCR Strategies Inc – TruCash., to be the core mobile wallet and mobile financial services (MFS) provider, which will be fully integrated to the TruCash prepaid card mobile application.

 

We have extended our existing partnership with DCR to offer Mobetize mobile financial services and products to the many millions of existing DCR prepaid card users in North America.

 

On September 8, 2014 we entered into an agreement with Impact Telecom, a global provider of voice, messaging, and data services, to offer the Mobetize mobile wallet platform to deliver international money transfer, mobile airtime top-up, and bill payments to Impact Telecom’s extensive customer base in the United States and Canada.

 

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U.S. and Canada currently remit over $100 billion annually, and most of that money is transferred utilizing traditional storefront methods. The Mobetize mobile wallet platform improves reach, convenience, and low cost to customers by digitizing these financial transactions via mobile devices.

 

We accelerate the migration of traditional e-commerce to mobile payment. Our smart solutions platform provides telecommunications operators and payment gateways unparalleled mobile functionality in bill management, payments, recharge, domestic money transfers, international remittances, point-of-sale functionality, and numerous other related technologies.

 

Our wallet platform—designed to enable telecommunications operators to increase customer retention, maximize average revenue per user, and minimize churn—provides the market’s smoothest and most cost-effective transition of existing e-commerce to mobile.

 

On December 22, 2014 Mr. Kenneth F Douglas joined Mobetize Corp. as a strategic advisor to assist the Company's expansion of mobile financial services, partnerships, and M&A in North America and Europe.

 

Mr. Douglas is currently a Senior VP Business and Partnership Development in SEQR USA, Inc. He is responsible for building the US operations for SEQR USA, Inc., (www.seqr.com) a subsidiary of Seamless Distribution AB (www.seamless.se) based in Stockholm, Sweden, a global mobile payment company providing prepaid top-up and mobile payments in 30 countries with over 3.1 billion transactions annually.

 

Mr. Douglas speaks regularly as an Industry Leader for Pacific Crest Securities MOSAIC group as an SME (Subject Matter Expert) for the payment industry, payments, emerging/alternative payments, mobile payments and technology.

 

Previously, Mr. Douglas served as Executive VP Partnerships and Alliances at Zipmark, Executive VP Partnerships and Alliances at Adility (acquired by inComm), Executive VP of Social Gaming and Commerce at Twitpay (acquired by Acculynk), and VP and General Manager of Merchant Services at Revolution Money (acquired by American Express) where he was responsible for building the RevolutionCard Network(TM) with over 700,000 accepting merchants and 300,000 card holders/members.

 

Currently, Mr. Douglas sits on the Advisory Board for a number of fintech companies in multiple stages of growth -- ShelfBucks, ShopMyNeighborhood(TM), EyeBuyTV, OrderIt, RedCritter, BRANDedTray, and Zipmark.

 

In April 2015 we completed the production version of Mobile Web application 1.0.  This consists of smartCard, Paypal, bank ACH and credit card processing as cash-in options.  Cash-out options include smartCharge, smartBill, person-to-person transfers, and smartCard for ATM withdrawals and POS purchases. The CRM, reporting, and incident management tools have been completed in addition to the completion of the desktop version and Representation State Transfer (REST) APIs with all of the above features. During the three months ended June 30, 2015 Mobetize began receiving the initial revenue stream from its first customer, CostMaster, who began using the Mobile Web application Version 1.0 for delivery of their foreign payroll.

 

In May 2015 we began the final phase of development of Version 2.0 for rollout to our customers. MPAY’s Version 2.0 includes the most significant component and key differentiator of our offering to-date being International Money Transfer capabilities globally via our International Money Transfer partners. Version 2.0, which also supports the Spanish language in the mobile web application, allows our existing customers to offer International Money Transfer capabilities from USA via a network of nearly 200,000 payout agent locations and bank transfers to over 600 Banks worldwide.

 

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The World Bank estimated that in 2014 $131 Billion dollars was sent from the USA by residents and immigrant workers to their family members in their respective countries. The USA is the largest market for these money transfer services accounting for over 22% of all global money transfers. MPAY’s Version 2.0 is expected to generate multiple revenue streams for Mobetize from the deployment of these mobile and desktop financial services via our existing customers. CRM and reporting tools are included in the Version 2.0 as well.

 

Future upgrades and implementations for Version 2.0 include introducing standalone REST API services for our financial products to allow clients with existing technologies, such as virtual wallets, to be able to include them in their systems. Desktop Web as well as native applications for iOS and Android are also inclusive in the above mentioned future releases.

 

In May 2015 Mobetize was selected from over 100 technology companies to speak and present at the 2015 Innovation Showcase Event on Friday May 29, 2015 held by the Telecom Council of Silicon Valley  held in Sunnyvale, CA. Mobetize showcased the MPAY mobile financial services aggregation platform to decision level executives and had 10+ individual meetings and demos to some of largest Telecom companies in the world resulting in signing numerous NDAs and having ongoing discussions with many of these Tier 1 and Tier 2 Telcos.

 

On August 10, 2015 Mobetize Corp. showcased its latest MPAY Version 2.0 at the Prepaid Expo in Las Vegas which incorporates the full mobile money product suite that can be white-labeled by any telecom operator. The suite consisted of a mobile wallet with key financial services offerings that now include global money transfer capability, US bill payments, global gifting of prepaid air-time top ups and paid Visa/MasterCard programs for Telecom Operators. Mobetize allows its telecom operators to pick and choose the financial services they want to deliver branded for their customer, which can be launched through APIs, or as a stand-alone system.

 

On August 10, 2015, our directors approved the adoption of the 2015 Stock Option Plan which permits our company to issue stock options for up to 3,000,000 common shares to our directors, officers, employees and consultants. The 3,000,000 shares allocation was approximately 10 % of the issued and outstanding shares as of August 10, 2015.

 

On August 31, 2015 Mobetize Corp. retained Allison+Partners as Investor Relations Agency of Record (AOR). Allison+Partners will provide Mobetize with investor relations, media relations and thought leadership services, and advise management on financial communications strategies. The goal of the program is to increase the visibility of the Company's growth strategy. Allison+Partners is a fast-growing, best-in-class, strategic communications firm specializing in investor relations, corporate communications, media relations, digital public relations marketing and communications management services.

 

On September 1, 2015 Mobetize Corp. announced the closing of a recapitalization agreement with several existing investors and founders generating net proceeds of approximately $747,000. Proceeds from the transaction will provide Mobetize with greater financial flexibility and additional capital to support any potential increase in business demand. Each investment unit consisted of one common share of the Company's stock and one half-warrant. The warrants are exercisable at $1.00 per share and are valid for three years from issue date. $8,750 cash financing fees and 17,500 financing warrants were associated with these private placements. As part of the financing, the Company's co-founders converted $228,240 of unsecured loans, advances and warrants into equity.

 

On September 2, 2015 Mobetize Corp. announced that Vincent Tozzi has been appointed as the Company's first Chief Revenue Officer. In his role, Tozzi is responsible for the Company's Sales and Marketing with a focus on building sales teams and closing contracts. Mr. Tozzi has twenty-plus years of experience in sales management, business development, solution sales and channel management with large telcos in North America, most recently as Chief Commercial Officer for Nobel USA.

 

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His prior experience includes senior sales and marketing positions at IDT Telecom, Allegiance Telecom and Winstar Communications.

 

On September 14, 2015 Mobetize Corp. appointed Donald Duberstein as an independent director and Chairman of the Remuneration Committee. In addition to owning and managing an extensive portfolio of residential and commercial properties across the USA, over the past 38 years, Mr. Duberstein co-founded and chaired a skin care company and has been an active investor in a number of private and public companies in various sectors including display advertising, water filtration systems and sports teams. He also served on the Board of Directors of Selvac Corporation. Mr. Duberstein graduated from the University of Pennsylvania Phi Beta Kappa, Magna Cum Laude in 1973 and NYU Law School in 1976. He became a member of the New York and Florida Bars in 1977 and also serves as a volunteer to several non-profit enterprises including as the incoming Chairman of the Board of United Hebrew Geriatric Centre.

 

On October 7, 2015 the Company announced that it has formed a strategic partnership to deliver mobile wallet and financial services to customers of Pure Minutes. Pure Minutes is a leading provider of prepaid international calling services and mobile phone payment services for domestic and international mobile carriers with an addressable customer base of over 1.1 million in the USA.

 

On October 21, 2015, Mobetize Corp. announced that Kay Wong-Alafriz has been appointed as the Company’s Senior Vice President of Operations and Finance. In her role, Ms. Wong-Alafriz will leverage her broad array of project finance, accounting, and compliance experiences and skills to ensure strong operational support of client projects. Ms. Wong-Alafriz brings more than 20 years of experience in processes management, quality control and compliance to Mobetize and will be responsible for all aspects of operations monitoring in addition to supporting the Company’s customer compliance and quality control efforts related to client projects. Prior to joining Mobetize, Ms. Wong-Alafriz was SVP of Finance and Risk Management at Asian Coast Development Ltd., and earlier held senior finance positions at Imperial Parking Corporation, Great Canadian Gaming Corporation, Sierra Wireless and Vancouver International Airport Authority.

 

On November 3, 2015 Mobetize Corp announced that it has formed a strategic partnership to deliver a mobile wallet and financial services to Global Service Solutions Inc. under their new brand Gotawallet™. Global Service Solutions has experienced great success with its Got Prepaid™ brand and Gotawallet™ is a natural successor for the company.

 

Got Prepaid™ provides distribution, through a nation-wide channel of large distributor and retailers, to over one million end-users in the U.S. covering over 50 different prepaid cellular products in a combination of hard card, real time replenishments and e-pin formats. In the prepaid industry, the Got Prepaid brand is highly regarded for its ability to provide quality customer service and technical support. Got Prepaid™ provides recharge for wireless AT&T, Verizon, T Mobile, H20, Red Pocket and many others.

 

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RESULTS OF OPERATION

 

Operating Revenues, Operating Expenses and Net Loss

 

   US $  US $
   Three Months Ended  Nine Months Ended
   December 31,  December 31,
   2015  2014  2015  2014
             
Operating Revenues   74,383    72,039    81,460    94,194 
Operating Expenses   1,007,340    414,498    1,727,763    191,710 
Net Loss from Operations   (932,957)   (342,459)   (1,646,303)   (1,097,516)

 

Our company generated $81,460 of revenue in the nine months ended December 31, 2015 compared to revenues of $87,068 during the same period in 2014. For the three months ended December 31, 2015, our company generated $74,383 of revenue compared to $64,913 of revenue during the same period in 2014. All revenues are currently generated through m-commerce services provided in line with the contracts acquired by Mobetize from Alligato Inc. Our company expects to generate further revenue in the next 12 months as Mobile Money services are deployed.

 

Our operating expenses for the three and nine months ended December 31, 2015 and 2014 are outlined in the following table:

 

   US $  US $
   Three Months Ended 

Nine Months Ended

   December 31,  December 31,
   2015  2014  2015  2014
             
Depreciation   918    439    2,349    439 
General and administrative   76,211    15,202    189,627    91,104 
General and administrative – related party   1,811    77,448    3,973    91,699 
Stock based compensation expense   600,753    -    600,753    - 
Investor relations and promotion   22,711    56,713    29,866    137,853 
Listing fees   10,629    10,925    31,820    26,356 
Management salaries and consulting fees   104,444    77,027    278,289    315,913 
Management salaries and consulting fees– related party   30,000    57,000    90,000    157,250 
Professional fees   17,986    3,112    55,996    56,565 
Research and development   93,643    42,061    330,259    56,162 
Research and development – related party   32,986    46,039    45,822    227,199 
Sales and marketing   15,248    28,532    69,009    28,532 
Sales and marketing – related party   -    -    -    2,638 
Total Operating Expenses   1,007,340    414,498    1,727,763    1,191,710 

 

For the nine months ended December 31, 2015 operating costs were $1,727,763 compared with $1,191,710 for the nine months ended December 31, 2014.

 

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This $536,053 increase is primarily attributed to the following: $107,987 decrease to investor relations as we eliminated an investor relations services contract, and $104,874 decrease in management fees as we internalized certain roles while optimizing the management structure to reduce overhead cost, which was offset by a $92,720 increase in research and development as we continued to focus on and invest in our product development, and a $600,753 increase in stock based compensation due to the issuance of stock options to management and employees.

 

For the three months ended December 31, 2015 operating costs were $1,007,340 compared with $414,427 for the three months ended December 31, 2014. This $370,446 increase is primarily attributed to the following: $600,753 increase in stock based compensation due to the issuance of stock options to management and employees.

 

During the nine months ended December 31, 2015, our company recorded a net loss of $1,423,836 compared with a net loss of $1,096,438 for the nine months ended December 31, 2014. During the three months ended December 31, 2015, our company recorded a net loss of $710,490 compared with a net loss of $342,389 for the three months ended December 31, 2014. Revenues during each of these periods was not significant, therefore any change to net loss can be best explained through the analysis of total operating costs above.

 

Liquidity and Capital Resources

 

   US $
   December 31, 2015  March 31, 2015
       
Current Assets   249,124    390,544 
Current Liabilities   132,646    110,110 
Working Capital   116,478    280,434 

 

As at December 31, 2015, our company’s cash balance was $125,642 and total assets were $260,957, compared to cash balance of $312,899 and total assets of $404,150 as at March 31, 2015. The increase in the cash balance was primarily attributed to proceeds from the sale of common stock and warrant exercise offset cash used from operating activities. The increase in total assets was also primarily due to the increase in the cash balance offset somewhat by reductions in accounts receivable and prepaid expenses and deposits.

 

As at December 31, 2015, our company had total liabilities of $210,601 compared with total liabilities of $163,215 as at March 31, 2015. The increase in total liabilities is attributed to a $22,036 increase in account payable and accrued liabilities and an increase in $77,995 due to the granting of a shareholder loan, offset by a decrease to due to related party of $53,105.

 

As at December 31, 2015, our company has working capital of $116,478 compared with working capital of $280,434 at March 31, 2015 with the decrease in the working capital attributed to decreased current assets, particularly cash used for business purposes, and an increase in total liabilities as indicated above.

 

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Cash Flows

 

   US $
   Nine Months Ended
   December 31,
   2015  2014
Cash flows used in Operating Activities   (1,055,746)   (911,126)
Cash flows used in Investing Activities   (1,554)   (7,396)
Cash flows provided by Financing Activities   872,757    1,273,622 
Effect of exchange rate changes on cash   (2,711)   - 
Net Increase in Cash During Period   (187,254)   355,100 

 

Cash flow used in Operating Activities

 

During the nine months ended December 31, 2015, our company used $1,055,746 of cash for operating activities compared to $911,126 of cash used in operating activities during the nine months ended December 31, 2014. The $144,620 increase in cash used in operating activities is primarily attributed to the fact that net loss after adding back shares issued for services and amortization expense was $327,398 higher in 2014 which was offset by a decrease in shares issued for services of $245,181, a decrease in accounts receivable, an increase prepaid expenses and an increase in payable and accrued liabilities in the 2015 period.

 

Cash flow used in Investing Activities

 

During the nine months ended December 31, 2015 our company used $1,554 of cash in investing activities compared to $7,396 in 2014. Cash used in investing activities during the nine months ended December 31, 2015 was due to the purchase of computer equipment while cash used in investing activities during the same period in 2014 was due to investment in software development costs.

 

Cash flow from Financing Activities

 

During the nine months ended December 31, 2015, our company received $872,757 of proceeds from financing activities compared to $1,273,622 during the nine months ended December 31, 2014. Both periods benefitted from private placements share subscriptions that during the nine months ended December 31, 2015 included approximately $228,000 of investment by the Chief Executive Office and the Chief Financial Officer of the company.

 

SUBSEQUENT DEVELOPMENTS

 

Subsequent to December 31, 2015, the Company’s CFO resigned from his position and a new CFO was appointed.

 

Also, subsequent to December 31, 2015, the Company authorized issuance of 250,000,000 shares of preferred stock and designated 10,000,000 of the preferred stock as Series A preferred shares.

 

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PLAN OF OPERATION AND FUNDING

 

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. 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 and advances from directors. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) 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 Quarterly 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, 2015 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

 

There is significant doubt about our ability to continue as a going concern.

 

These financial statements included in this Quarterly Report for December 31, 2015 have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2015, our company has an accumulated deficit of $5,679,352 and has accumulated other comprehensive losses of $6,014. The continuation of our company 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, and generating profitable operations from our company’s future operations. These factors raise substantial doubt regarding our company’s ability to continue as a going concern. 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 our company be unable to continue as a going concern.

 

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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.

 

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.

 

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 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As we are a smaller reporting company, as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "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 SEC, 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.

 

Management, with the participation of the President and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the President and the Chief Financial Officer concluded that, our disclosure controls and procedures were not effective. Our disclosure controls and procedures were not effective because of the "material weaknesses" described below under "Management's report on internal control over financial reporting," which are in the process of being remediated as described below under "Management Plan to Remediate Material Weaknesses."

 

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Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our President and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

 

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements

 

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

 

However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Further, over time control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In making its assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its assessment, management has concluded that we had certain control deficiencies described below that constituted material weaknesses in our internal controls over financial reporting. As a result, our internal control over financial reporting was not effective as of September 30, 2015.

 

A "material weakness" is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of management's review of the investigation issues and results, and other internal reviews and evaluations that were completed after the end of quarter related to the preparation of management's report on internal controls over financial reporting required for this quarterly report on Form 10-Q, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:

 

1.lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;

 

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2.insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements;

 

We do not believe the material weaknesses described above caused any meaningful or significant misreporting of our financial condition and results of operations for the quarter ended September 30, 2015. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Management Plan to Remediate Material Weaknesses

 

Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

 

We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in our company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our company's internal control over financial reporting.

 

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

 

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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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibits:

 

Number Description
   
(31) Rule 13a-14(a) / 15d-14(a) Certifications
31.1 Certification of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002
(32) Section 1350 Certifications
32.1 Certification of Principle Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: February 12, 2016 MOBETIZE CORP.
  By: /s/ Elena Karamushko                               
  Elena Karamushko, Chief Financial Officer
   
  MOBETIZE CORP.
  By: /s/ Ajay Hans                                               
  Ajay Hans, Chief Executive Officer

 

 

 

 

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