Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
1.
Nature of Operations and Continuance of Business
Mobetize
Corp. (the “Company”) was incorporated in the state of Nevada on February 23, 2012, as Slavia, Corp. The Company’s
name changed to “Mobetize Corp.” on August 13, 2013. The Company provides Fintech solutions and services to enable
and support the convergence of global telecom and financial services providers (“Customers”) through its Global Mobile
B2B Fintech and Financial Services Marketplace (“Hub”) in Canada and the USA. The Company’s activities are subject
to significant risks and uncertainties, including the need to secure additional funding to optimize the Company’s existing
technology.
Mobetize’s
unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States. These unaudited consolidated financial statements include the accounts of Mobetize and its wholly owned subsidiaries,
Mobetize Canada Inc., and Mobetize USA Inc. All significant intercompany transactions and balances have been eliminated. The accompanying
unaudited consolidated financial statements of Mobetize should be read in conjunction with the financial statements and accompanying
notes filed with the U.S. Securities and Exchange Commission in Mobetize’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2017.
In
the opinion of management, the accompanying financial statements reflect all adjustments of a recurring nature considered necessary
to present fairly Mobetize’s financial position and the result of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those
estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be
expected for the full year.
On
July 11, 2017, the Company completed a consolidation of the issued and outstanding common shares on a one for one hundred (1/100)
basis. All share and per share amounts have been retroactively restated to reflect the share consolidation.
Going
Concern
These
unaudited consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue
to realize assets and discharge liabilities in the normal course of business. As of June 30, 2017, the Company has an accumulated
deficit of $7,870,517, a history of net losses and a working capital deficiency of $295,116. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent
upon continuing financial support from management, increasing sales, securing debt or equity financing, cutting operating costs,
launching viable products, and realizing profitable operations. These consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2. Recently
Accounting Pronouncements
In
March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-07, requiring certain
changes to the presentation of the expenses related to postretirement benefits accounted for under Topic 715. The amendments are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations,
financial condition, cash flows, and financial statement disclosures.
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
3.
Joint Venture
On
January 12, 2017, the Company entered into a Gateway License Agreement and Joint Venture Agreement (“Joint Venture”)
with CPT Secure, Inc. (“CPT”), a company controlled by a shareholder of the Company, to further develop certain payment
processing technology (“CPT IP”) on a 50/50 basis. In connection with the Joint Venture, the Company issued 500,000
Series B Preferred Shares with a fair value of $125,000 on January 12, 2017, to CPT in consideration for the license to the CPT
IP which was contributed to the JV Co. The license to the CPT IP has a term to January 11, 2019, and can be automatically renewed
for successive two year periods unless either party elects not to renew 60 days prior to expiration. The license fee of $125,000
is being amortized over the initial term of the license. During the three months ended June 30, 2017, the Company recognized amortization
of $10,103 on the license prior to being transferred to MPAY, which has been included in research and development expense.
Effective
May 29, 2017, the Company and CPT incorporated a joint venture company, MPAY Gateway Services Inc. (“MPAY”). Upon
incorporation of MPAY, the Company transferred the remaining carrying value of the license to the CPT IP of $101,541 to MPAY,
which has been presented on the balance sheet as an investment in joint venture. From incorporation to June 30, 2017, MPAY had
no other assets, liabilities, income or expenses.
4. Equipment
Equipment,
net consisted of the following:
|
|
June
30, 2017
|
|
March
31, 2017
|
Computer equipment
|
|
$
|
14,764
|
|
|
$
|
14,421
|
|
Furniture
|
|
|
1,202
|
|
|
|
1,174
|
|
Total
|
|
|
15,966
|
|
|
|
15,595
|
|
Less: accumulated amortization
|
|
|
8,954
|
|
|
|
7,966
|
|
Equipment, net
|
|
$
|
7,012
|
|
|
$
|
7,629
|
|
During
the three months ended June 30, 2017, equipment cost increased by $371, and accumulated amortization was impacted by $217, as
a result of foreign currency translation adjustments.
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
5. Convertible
Debentures
Date
of issuance
|
|
Principal
June
30,
2017
|
|
Principal
March
31,
2017
|
|
Interest
|
|
Maturity
|
November
21, 2016
(1)
|
|
$
|
—
|
|
|
|
40,000
|
|
|
|
6%
per annum
|
|
|
|
November
21, 2017
|
|
January
27, 2017
(2)
|
|
$
|
125,000
|
|
|
|
125,000
|
|
|
|
12%
per annum
|
|
|
|
January
27, 2018
|
|
January
30, 2017
(3)
|
|
$
|
75,000
|
|
|
|
75,000
|
|
|
|
12%
per annum
|
|
|
|
January
30, 2018
|
|
|
|
$
|
200,000
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
(1)
|
November
21, 2016 Issuance - $40,000:
|
|
•
|
Issued
net of $2,400 of prepaid interest, based on an interest rate of 6% per annum.
|
|
•
|
The
conversion feature was exercisable at the option of the holder (“Conversion Feature”).
The Conversion Feature enabled the holder to convert any portion of their outstanding
Convertible Debenture principal balance into common shares at $0.25 per share on or after
May 20, 2017, but no later than the maturity date.
|
|
•
|
The
Company evaluated whether separate financial instruments with the same terms as the Conversion
Feature would meet the characteristics of a derivative instrument as described in paragraphs
ASC 815-15-25. The terms of the contracts do not permit net settlement, as the shares
delivered upon conversion are not readily convertible to cash. As the conversion features
would not meet the characteristics of a derivative instrument as described in paragraphs
ASC 815-15-25, the conversion features are not required to be separated from the host
instrument and accounted for separately. As a result, it was determined that no beneficial
Conversion Feature existed on the commitment date.
|
|
•
|
On
April 21, 2017, the Company issued 160,000 Series B Preferred Shares pursuant to the
conversion of $40,000 of the convertible debentures.
|
|
(2)
|
January
27, 2017 Issuance - $125,000:
|
|
•
|
Issued
net of $15,000 of prepaid interest, based on an interest rate of 12% per annum.
|
|
•
|
Of
the $125,000 Convertible Debentures, $50,000 is owed to a Director of the Company (Note
6(j)).
|
|
•
|
The
Conversion Feature enables the holder to convert any portion of their outstanding Convertible
Debenture principal balance into common shares at $0.50 per share on or after July 26,
2017, but no later than the maturity date.
|
|
•
|
The
Company has evaluated whether separate financial instruments with the same terms as the
Conversion Features would meet the characteristics of a derivative instrument as described
in paragraphs ASC 815-15-25. The terms of the contracts do not permit net settlement,
as the shares delivered upon conversion are not readily convertible to cash. As the conversion
features would not meet the characteristics of a derivative instrument as described in
paragraphs ASC 815-15-25, the conversion features are not required to be separated from
the host instrument and accounted for separately. As a result, at March 31, 2017, and
June 30, 2017, the Conversion Feature would not meet derivative classification. Additionally,
it was determined that no beneficial Conversion Feature existed on the commitment date.
|
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
5.
Convertible Debentures – continued
|
(3)
|
January
30, 2017 Issuance - $75,000:
|
|
•
|
Issued
net of $9,000 of prepaid interest, based on an interest rate of 12% per annum.
|
|
•
|
The
$75,000 Convertible Debentures is owed to a Director of the Company (Note 6(j)).
|
|
•
|
The
Conversion Feature enables the holder to convert any portion of their outstanding Convertible
Debenture principal balance into common shares at $0.50 per share on or after July 29,
2017, but no later than the maturity date.
|
|
•
|
The
Company has evaluated whether separate financial instruments with the same terms as the
conversion features above would meet the characteristics of a derivative instrument as
described in paragraphs ASC 815-15-25. The terms of the contracts do not permit net settlement,
as the shares delivered upon conversion are not readily convertible to cash. As the conversion
features would not meet the characteristics of a derivative instrument as described in
paragraphs ASC 815-15-25, the conversion features are not required to be separated from
the host instrument and accounted for separately. As a result, at March 31, 2017, and
June 30, 2017, the Conversion Feature would not meet derivative classification. Additionally,
it was determined that no beneficial Conversion Feature existed on the commitment date.
|
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
6. Related
Party Transactions
|
|
Three
months ended June 30,
|
Transactions with related
parties
|
|
2017
|
|
2016
|
(a)
Transactions incurred with the CEO or companies controlled by the CEO:
|
|
|
|
|
|
|
|
|
Management
fees
|
|
$
|
30,517
|
|
|
$
|
22,500
|
|
Management fees
– Stock-based compensation
|
|
|
613
|
|
|
|
12,185
|
|
Research and
development
|
|
|
32,374
|
|
|
|
27,154
|
|
General and
administrative
|
|
|
5,224
|
|
|
|
2,233
|
|
Advances
– applied to private placement
|
|
|
—
|
|
|
|
25,000
|
|
|
|
$
|
68,728
|
|
|
$
|
89,072
|
|
(b)
Transactions
incurred with the former CFO’s or a company controlled by a former CFO:
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
—
|
|
|
$
|
14,711
|
|
General
and administrative
|
|
|
—
|
|
|
|
450
|
|
|
|
$
|
—
|
|
|
$
|
15,161
|
|
(c)
Transactions incurred with the Chairman of the Company
|
|
|
|
|
|
|
|
|
Management fees
(1)
|
|
$
|
3,000
|
|
|
$
|
—
|
|
Management
fees – Stock-based compensation
|
|
|
9,458
|
|
|
|
23,923
|
|
|
|
$
|
12,458
|
|
|
$
|
23,923
|
|
|
|
|
|
|
|
|
|
|
(d)
Transactions incurred with a Director of the Company
|
|
|
|
|
|
|
|
|
Management fees
– Stock-based compensation
|
|
$
|
3,783
|
|
|
$
|
9,570
|
|
General
and administrative – Interest on convertible debenture
|
|
|
4,517
|
|
|
|
1,500
|
|
|
|
$
|
8,300
|
|
|
$
|
58,453
|
|
(e)
Transactions incurred with a shareholder of the Company
|
|
|
|
|
|
|
|
|
Investor
relations and promotion
|
|
$
|
17,078
|
|
|
$
|
—
|
|
|
|
$
|
17,078
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Related
party balances, as at
|
|
|
June
30, 2017
|
|
|
|
March
31, 2017
|
|
(f)
Amounts owed to the former CFO (existing shareholder):
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
18,925
|
|
|
$
|
18,346
|
|
|
|
|
|
|
|
|
|
|
(g)
Amounts owed to companies controlled by the CEO:
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
285,068
|
|
|
|
275,687
|
|
Promissory note – June 2,
2017
(4)
|
|
|
25,000
|
|
|
|
25,000
|
|
Promissory
note – July 11, 2017
(5)
|
|
|
19,245
|
|
|
|
18,798
|
|
|
|
$
|
329,313
|
|
|
$
|
319,485
|
|
|
|
|
|
|
|
|
|
|
(h)
Amounts owed to the Chairman of the Company
(2)
|
|
$
|
12,806
|
|
|
$
|
9,000
|
|
|
|
|
|
|
|
|
|
|
(i)
Amounts prepaid to a company controlled by the CEO
|
|
|
|
|
|
|
|
|
Prepaid
interest on promissory notes
|
|
$
|
69
|
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
(j)
Amounts owed to a Director of the Company
|
|
|
|
|
|
|
|
|
Convertible
debenture – matures November 21, 2017 (Note 5
(1)
))
|
|
$
|
—
|
|
|
$
|
20,000
|
|
Convertible
debenture – matures January 27, 2018 (Note 5
(2)
))
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible
debenture – matures January 30, 2018 (Note 5
(3)
))
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
$
|
125,000
|
|
|
$
|
145,000
|
|
|
|
|
|
|
|
|
|
|
(k)
Amounts prepaid to a Director of the Company
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,809
|
|
|
$
|
—
|
|
Prepaid
interest on convertible debentures
|
|
$
|
8,661
|
|
|
$
|
13,178
|
|
|
|
|
|
|
|
|
|
|
(l)
Amounts owed to a shareholder of the Company
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
12,837
|
|
|
$
|
17,358
|
|
|
(1)
|
On
July 1, 2016, the Company entered into an agreement with the Company’s Chairman
where the Chairman would provide services to the Company at a monthly rate of $1,000
for a period of two years ending on June 30, 2018.
|
|
(2)
|
The
promissory note maturing on June 2, 2017, was issued with a twelve-month term, comprises
$25,000 principal, and bears interest at 12% per annum. The principal balance included
prepaid interest of $3,000.
|
|
(3)
|
The
promissory note maturing on July 11, 2017, was issued with a twelve-month term, comprises
$19,245 (CAD $25,000) principal, and bears interest at 12% per annum. The principal balance
included prepaid interest of $2,309 (CAD $3,000).
|
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
7.
Common Stock and Preferred Stock
|
a)
|
Issuance
of Common Stock:
|
•
|
|
On
July 11, 2017, the Company completed a consolidation of the issued and outstanding common
shares on a one for one hundred (1/100) basis, and amended the Company’s Articles
of Incorporation to decrease the number of authorized shares of common stock from 525,000,000
shares with a par value $0.001 per share to 250,000,000 shares with a par value of $0.001
per share. All share and per share amounts have been retroactively restated to reflect
the share consolidation.
|
|
b)
|
Authorization
and Issuance of Series A Preferred Shares:
|
•
|
|
The
Company is authorized to issue 250,000,000 shares of preferred stock with a par value
of $0.001 per share and has designated 10,000,000 of the preferred stock as Series A
Preferred Shares (“Series A Preferred Shares”). The Series A Preferred Shares
have the same rights and privileges as the common stock, with the exception that the
Series A Preferred Share holder has 10 votes per Series A Preferred Share versus one
vote per share of common stock and does not have the right to sell the shares for a period
of two years from the date of issue.
|
•
|
|
Effective
April 7, 2017, the Company amended its Articles of Incorporation to decrease the number
of authorized preferred shares from 250,000,000 shares with a par value $0.001 per share
to 75,000,000 with a par value $0.001 per share. There were no changes in the number
of designated or outstanding Series A Preferred Shares or Series B Preferred Shares.
|
|
c)
|
Authorization
and Issuance of Series B Preferred Shares:
|
•
|
|
The
Company has designated 25,000,000 shares of the authorized preferred stock as Series
B Preferred Shares (“Series B Preferred Shares”). The Series B Preferred
Shares have the same rights and privileges as the common stock, with the exception that
the Series B Preferred Shares have an anti-dilution provision and the Series B Preferred
Share holder does not have the right to convert Series B Preferred Shares into shares
of common stock for a period of two years from the date of issue.
|
•
|
|
On
April 21 2017, the Company issued 160,000 Series B Preferred Shares pursuant to the conversion
of $40,000 in convertible debentures at a conversion price of $0.25 per share (Note 5
(1)
).
|
•
|
|
On
April 27, 2017, the Company issued 19,568 Series B Preferred Shares with a fair value
of $1.00 per share to a consultant of the Company to settle $4,892 in amounts owing for
services provided, resulting in a loss on settlement of debt of $14,676.
|
•
|
|
On
May 29, 2017, the Company issued 15,000 Series B Preferred Shares with a fair value of
$1.00 per share to a vendor pursuant to the settlement of $15,000 in accounts payable.
|
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
8. Share
Purchase Warrants
The
following table summarizes the continuity of share purchase warrants:
|
Number
of warrants
|
|
Weighted
average exercise price
$
|
Balance,
March 31, 2017 and June 30, 2017
|
|
26,364
|
|
|
|
104
|
|
As
at June 30, 2017, the following share purchase warrants were outstanding:
Number
of warrants
outstanding
|
|
Exercise
price
$
|
|
Expiry
date
|
|
6,944
|
|
|
|
100
|
|
|
June 24, 2018
|
|
3,866
|
|
|
|
125
|
|
|
December 10, 2018
|
|
15,554
|
|
|
|
100
|
|
|
September 1, 2018
|
|
26,364
|
|
|
|
|
|
|
|
9.
Stock Options
The
Company has adopted a Stock Option Plan (“Stock Option Plan”) which permits the Company to issue stock options for
up to 3,000,000 common shares of the Company to directors, officers, employees and consultants of the Company with a maximum term
of 5 years, exercise prices equal to the minimum fair market value per common share on the date of grant, and a vesting schedule
determined by the Board of Directors at the time of granting the options.
The
following table summarizes the continuity of stock options:
|
|
Number
of stock options
|
|
Weighted
average exercise price
$
|
Balance,
March 31, 2016
|
|
|
23,812
|
|
|
|
60
|
|
Expired
|
|
|
(2,885
|
)
|
|
|
60
|
|
Cancelled
|
|
|
(727
|
)
|
|
|
60
|
|
Outstanding,
March 31, 2017 and June 30, 2017
|
|
|
20,200
|
|
|
|
60
|
|
Exercisable,
June 30, 2017
|
|
|
16,775
|
|
|
|
60
|
|
As
at June 30, 2017, the following share purchase options were outstanding:
Number
of options outstanding
|
|
Number
of options vested
|
|
Exercise
price
$
|
|
Expiry
date
|
|
20,200
|
|
|
|
16,775
|
|
|
|
60
|
|
|
September 30,
2020
|
During
the three months ended June 30, 2017, $19,480 (2016 - $72,858) in stock-based compensation expense was recorded and allocated
amongst general and administrative, consulting fees, management fees, and research and development expenses. The intrinsic value
of the options was $nil at June 30, 2017, and March 31, 2017.
MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
10. Concentration
of Risk
Revenues
are currently generated through licensing, professional services, and payment processing services provided by Mobetize to our
existing customers. During the three months ended June 30, 2017, the Company had revenues from five customers (2016 – revenues
from five customers) with 55% (2016 – 77%) of revenues generated from the Company’s largest customer. At June 30,
2017, the Company’s accounts receivable is concentrated and due from five customers (March 31, 2017 – five customers)
with 56% (March 31, 2017 – 61%) of accounts receivable due from the Company’s largest customer.
11. Commitments
|
a)
|
The
Company has an obligation under a rental lease for its operating office. As of June 30,
2017, the remaining term of the lease is 18 months with monthly payments of $4,995. The
Company’s lease includes a renewal option.
|
|
b)
|
The
Company received a Citation and Notice of Assessment dated October 14, 2016, that Stephen
J. Fowler (“Fowler”), a former Director and Chief Financial Officer of the
Company, had initiated a complaint with the State of Washington Department of Labor and
Industries for amounts allegedly due to him for unpaid wages of $45,000 in wages in addition
to assessed interest of $3,368, and a penalty of $4,500. An appeal presented by the Company
alleged that the calculation of amounts due to Fowler was incorrect and that he had improperly
obtained shares of its common stock. A hearing before the Office of Administrative Hearings
has yet to set. See Note 6(f) for amounts recorded as owed to Fowler.
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The
Company received a Notice of Civil Claim dated April 26, 2017, filed in the British Columbia
Supreme Court by Fowler, naming the Company and its three present directors as defendants.
Fowler asserts claims against Mobetize for unpaid expenses, and breach of contract. He
also asserts claims breach of contract, breach of fiduciary duty, misrepresentation and
conspiracy. The Company has advanced its own counterclaims against Fowler, including
fraudulent or negligent misrepresentation, breach of fiduciary duty, negligence and unjust
enrichment. On June 23, 2017, Mobetize filed its response to Fowler’s claims and
its own counterclaims against Fowler. No trial date has been set.
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The
Company received a Complaint dated May 12, 2017, filed in the Second Judicial District
Court of the State of Nevada, by Fowler naming the Company and its three present directors
as defendants. The Nevada action concerns substantially the same facts and seeks substantially
the same relief as Fowler’s British Columbia action. On June 23, 2017, Mobetize
filed a Motion to Dismiss or in the alternative, an Application for Preliminary Injunction
to either dismiss or stay the Complaint. The court in this instance has called for hearings
on Mobetize’s Motion to Dismiss though no date has yet been set for the hearing
No trial date has been set.
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c)
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The
Company received a Complaint dated May 3, 2017, filed in Eight Judicial District Court
of the State of Nevada by Cary Fields (“Fields”) naming the Company and its
three present directors as defendants, to obtain a preliminary injunction to enjoin a
consolidation of the Company’s common stock, and seek damages for breach of fiduciary
duty, conversion and unjust enrichment. On May 18, 2017, after due consideration, the
court denied Fields application and determined not to grant a temporary injunction. The
court did not rule on the question of alleged damages to Fields. On August 4, 2017, Fields
amended his Complaint to seek damages similar to those sought in his original filing
and remediation of the consolidation of Mobetize’s common stock effected on July
11, 2017. No trial date has been set.
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MOBETIZE
CORP.
Notes
to Consolidated Financial Statements
June
30, 2017
(Expressed
in U.S. dollars)
(Unaudited)
12.
Segment Information
The
Company has a single operating segment located in Canada and the United States of America (“USA”). Revenues are generated
in Canada and the USA while all assets are located in Canada. During the three months ended June 30, 2017, the Company generated
revenue of $62,523 (CDN$84,082) in Canada and $53,207 in the USA. The costs incurred to generate this revenue are expensed as
research and development. At June 30, 2017, the Company’s long-lived assets are located in Canada.
13. Subsequent
Events
The
Company evaluated its June 30, 2017, consolidated financial statements for subsequent events through the date the consolidated
financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure
in the consolidated financial statements except as disclosed below.
On
July 11, 2017, the Company completed a consolidation of the issued and outstanding common shares on a one for one hundred (1/100)
basis, and amended the Company’s Articles of Incorporation to decrease the number of authorized shares of common stock from
525,000,000 shares with a par value $0.001 per share to 250,000,000 shares with a par value of $0.001 per share and to decrease
the number of authorized preferred shares from 250,000,000 shares with a par value $0.001 per share to 75,000,000 with a par value
$0.001 per share.