MOBETIZE
CORP.
Consolidated
Financial Statements
March
31, 2018
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets
|
F-2
|
Consolidated Statements of Loss and Comprehensive Loss.
|
F-3
|
Consolidated Statements of Stockholders’ Equity (Deficiency)
|
F-4
|
Consolidated Statements of Cash Flows
|
F-5
|
Notes to the Consolidated Financial Statements
|
F-6
|
Davidson
&
Company llp ____________________
c
hartered
Professional Accountants
_________________
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and Directors of
Mobetize
Corp.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Mobetize Corp. (the “Company”), as of March 31, 2018
and 2017, and the related consolidated statements of loss and comprehensive loss, changes in stockholders’ equity (deficiency),
and cash flows for the years ended March 31, 2018 and 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Mobetize Corp. as of March 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended
March 31, 2018 and 2017, in conformity with accounting principles generally accepted in the United States of America.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and
has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2017.
|
|
“DAVIDSON & COMPANY LLP”
|
|
|
|
|
|
/s/ DAVIDSON & COMPANY
|
|
|
Charted Professional Accounts
|
Vancouver, Canada
|
|
|
July 26, 2018
|
|
|
1200
-609 Granville Street, P.O. Box 10372, Pacific Center, Vancouver, B.C. Canada V7Y 1G6
Telephone
(604) 687-0947 Davidson-co.com
MOBETIZE
CORP.
Consolidated
Balance Sheets
(Expressed
in US dollars)
|
|
MARCH 31,
2018
|
|
MARCH 31,
2017
|
ASSETS
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,542
|
|
|
$
|
535,438
|
|
Accounts receivable
|
|
|
40,619
|
|
|
|
113,140
|
|
Prepaid expenses and deposits
|
|
|
22,070
|
|
|
|
44,783
|
|
Prepaid expenses and deposits – related party (Note 7)
|
|
|
—
|
|
|
|
15,639
|
|
Total Current Assets
|
|
|
74,231
|
|
|
|
709,000
|
|
|
|
|
|
|
|
|
|
|
Intangible asset (Note 3)
|
|
|
—
|
|
|
|
111,644
|
|
Equipment, net (Note 4)
|
|
|
4,655
|
|
|
|
7,629
|
|
Investment in joint venture (Note 3)
|
|
|
75,227
|
|
|
|
—
|
|
TOTAL ASSETS
|
|
$
|
154,113
|
|
|
$
|
828,273
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
316,593
|
|
|
$
|
108,381
|
|
Accounts payable and accrued liabilities - related party (Note 7)
|
|
|
547,509
|
|
|
|
320,391
|
|
Deposits due to customers
|
|
|
8,740
|
|
|
|
980
|
|
Promissory note – related party (Note 7)
|
|
|
294,400
|
|
|
|
43,798
|
|
Convertible promissory notes (Note 6)
|
|
|
—
|
|
|
|
240,000
|
|
TOTAL LIABILITIES
|
|
$
|
1,167,242
|
|
|
$
|
713,550
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $0.001 Par Value: 250,000,000 authorized and 234,541 common shares issued and outstanding (Note 8(a))
|
|
$
|
235
|
|
|
$
|
235
|
|
Preferred stock, $0.001 Par Value: 75,000,000 authorized
|
|
|
|
|
|
|
|
|
Preferred stock – Series A, $0.001 Par Value: 10,000,000 authorized and 4,565,000 shares issued and outstanding (Note 8(b))
|
|
|
4,565
|
|
|
|
4,565
|
|
Preferred stock – Series B, $0.001 Par Value: 25,000,000 authorized and 14,282,976 (2017 – 13,688,408) shares issued and outstanding (Note 8(c))
|
|
|
14,283
|
|
|
|
13,688
|
|
Warrants reserve
|
|
|
676,964
|
|
|
|
676,964
|
|
Options reserve
|
|
|
999,733
|
|
|
|
952,828
|
|
Additional paid-in capital
|
|
|
6,228,999
|
|
|
|
5,955,025
|
|
Accumulated other comprehensive loss
|
|
|
(15,007
|
)
|
|
|
(10,267
|
)
|
Accumulated deficit
|
|
|
(8,922,901
|
)
|
|
|
(7,478,315
|
)
|
Total Stockholders' (Deficiency) Equity
|
|
|
(1,013,129
|
)
|
|
|
114,723
|
|
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY) EQUITY
|
|
$
|
154,113
|
|
|
$
|
828,273
|
|
The
accompanying notes are an integral part of these consolidated financial statements
MOBETIZE
CORP.
Consolidated
Statements of Loss and Comprehensive Loss
(Expressed
in US dollars)
|
|
YEAR ENDED
MARCH 31,
|
|
|
2018
|
|
2017
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
Revenues (Note 11)
|
|
$
|
438,281
|
|
|
$
|
467,417
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Depreciation (Note 4)
|
|
|
3,236
|
|
|
|
3,958
|
|
General and administrative
|
|
|
403,441
|
|
|
|
286,013
|
|
General and administrative – related party (Note 7)
|
|
|
54,782
|
|
|
|
100,096
|
|
Investor relations and promotion
|
|
|
698
|
|
|
|
62,584
|
|
Investor relations and promotion – related party (Note 7(e))
|
|
|
137,078
|
|
|
|
20,000
|
|
Consulting fees
|
|
|
18,703
|
|
|
|
66,192
|
|
Management fees – related party (Note 7)
|
|
|
160,653
|
|
|
|
287,073
|
|
Professional fees
|
|
|
482,100
|
|
|
|
151,831
|
|
Research and development
|
|
|
431,658
|
|
|
|
373,074
|
|
Research and development - related party (Note 7(a))
|
|
|
149,528
|
|
|
|
112,470
|
|
Total Operating Expenses
|
|
|
1,841,877
|
|
|
|
1,463,291
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE OTHER ITEMS
|
|
|
(1,403,596
|
)
|
|
|
(995,874
|
)
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
Loss on joint venture (Note 3)
|
|
|
(26,314
|
)
|
|
|
—
|
|
Loss on settlement of accounts payable (Note 8(c))
|
|
|
(14,676
|
)
|
|
|
(157,380
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,444,586
|
)
|
|
$
|
(1,153,254
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(6.16
|
)
|
|
$
|
(4.74
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
234,541
|
|
|
|
243,454
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,444,586
|
)
|
|
$
|
(1,153,254
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
(4,740
|
)
|
|
|
(1,031
|
)
|
Comprehensive loss
|
|
$
|
(1,449,326
|
)
|
|
$
|
(1,154,285
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
MOBETIZE
CORP.
Consolidated
Statements of Stockholders’ Equity (Deficiency)
For
the Years Ended March 31, 2017, and 2018
(Expressed
in US dollars)
|
|
Common
Stock
|
|
Preferred Stock
Class A
|
|
Preferred Stock
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Value
|
|
Number
|
|
Value
|
|
Number
|
|
Value
|
|
Additional
Paid-In Capital
|
|
Warrants and
Options Reserves
|
|
Accumulated Deficit
|
|
Accumulated
Other Comprehensive Loss
|
|
Total Shareholder’s
Equity (Deficiency)
|
Balance – March 31, 2016
|
|
|
287,548
|
|
|
$
|
288
|
|
|
|
4,565,000
|
|
|
$
|
4,565
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
4,636,950
|
|
|
$
|
1,434,488
|
|
|
$
|
(6,325,061
|
)
|
|
$
|
(9,236
|
)
|
|
$
|
(258,006
|
)
|
Conversion of common to preferred shares
|
|
|
(54,207
|
)
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,420,648
|
|
|
|
5,421
|
|
|
|
(5,367
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Shares issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
499,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
Shares issued for intangible asset
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
124,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
125,000
|
|
Shares issued for services
|
|
|
1,200
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
44,649
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,700
|
|
Shares issued to settle accounts payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,967,760
|
|
|
|
1,967
|
|
|
|
313,543
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
315,510
|
|
Shares issued to settle promissory note
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,650,000
|
|
|
|
4,650
|
|
|
|
41,850
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,500
|
|
Shares issued upon conversion of convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
600,000
|
|
|
|
600
|
|
|
|
299,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,304
|
|
Net loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,153,254
|
)
|
|
|
—
|
|
|
|
(1,153,254
|
)
|
Comprehensive loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,031
|
)
|
|
|
(1,031
|
)
|
Balance – March 31, 2017
|
|
|
234,541
|
|
|
$
|
235
|
|
|
|
4,565,000
|
|
|
$
|
4,565
|
|
|
|
13,688,408
|
|
|
$
|
13,688
|
|
|
$
|
5,955,025
|
|
|
$
|
1,629,792
|
|
|
$
|
(7,478,315
|
)
|
|
$
|
(10,267
|
)
|
|
$
|
114,723
|
|
Shares issued to settle accounts payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,568
|
|
|
|
35
|
|
|
|
34,534
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,569
|
|
Shares issued upon conversion of convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
560,000
|
|
|
|
560
|
|
|
|
239,440
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
240,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,905
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,905
|
|
Net loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,444,586
|
)
|
|
|
—
|
|
|
|
(1,444,586
|
)
|
Comprehensive loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,740
|
)
|
|
|
(4,740
|
)
|
Balance – March 31, 2018
|
|
|
234,541
|
|
|
$
|
235
|
|
|
|
4,565,000
|
|
|
$
|
4,565
|
|
|
|
14,282,976
|
|
|
$
|
14,283
|
|
|
$
|
6,228,999
|
|
|
$
|
1,676,697
|
|
|
$
|
(8,922,901
|
)
|
|
$
|
(15,007
|
)
|
|
$
|
(1,013,129
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
MOBETIZE
CORP.
Consolidated
Statements of Cash Flows
(Expressed
in US dollars)
|
|
YEAR
ENDED MARCH 31,
|
|
|
2018
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,444,586
|
)
|
|
$
|
(1,153,254
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
Amortization of intangible asset – research and development (Note 3)
|
|
|
10,103
|
|
|
|
13,356
|
|
Depreciation
|
|
|
3,236
|
|
|
|
3,958
|
|
Interest accrued on shareholder loans and promissory notes – related party
|
|
|
17,462
|
|
|
|
2,035
|
|
Loss on joint venture
|
|
|
26,314
|
|
|
|
—
|
|
Loss on settlement of accounts payable
|
|
|
14,676
|
|
|
|
157,380
|
|
Shares issued for services
|
|
|
—
|
|
|
|
44,700
|
|
Stock-based compensation (Note 10)
|
|
|
46,905
|
|
|
|
195,304
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
72,521
|
|
|
|
(69,411
|
)
|
Prepaid expenses and deposits
|
|
|
22,713
|
|
|
|
8,894
|
|
Prepaid expenses and deposits – related party
|
|
|
15,639
|
|
|
|
(8,059
|
)
|
Accounts payable and accrued liabilities
|
|
|
228,105
|
|
|
|
103,555
|
|
Accounts payable and accrued liabilities - related party
|
|
|
209,656
|
|
|
|
219,131
|
|
Deposits due to customers
|
|
|
7,760
|
|
|
|
(500
|
)
|
Net cash used in operating activities
|
|
|
(769,496
|
)
|
|
|
(482,911
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Proceeds from sale of preferred stock
|
|
|
—
|
|
|
|
500,000
|
|
Proceeds from convertible promissory note, net of prepaid interest
|
|
|
—
|
|
|
|
265,000
|
|
Proceeds from promissory note (Note 5)
|
|
|
20,152
|
|
|
|
—
|
|
Proceeds from promissory note, net of prepaid interest-related party
|
|
|
250,000
|
|
|
|
44,188
|
|
Repayment of promissory note (Note 5)
|
|
|
(20,152
|
)
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
250,000
|
|
|
|
809,188
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(4,400
|
)
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(523,896
|
)
|
|
|
325,097
|
|
CASH - BEGINNING OF YEAR
|
|
|
535,438
|
|
|
|
210,341
|
|
CASH - END OF YEAR
|
|
$
|
11,542
|
|
|
$
|
535,438
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible promissory note
|
|
$
|
240,000
|
|
|
$
|
300,000
|
|
Shares issued for intangible asset
|
|
$
|
—
|
|
|
$
|
125,000
|
|
Shares issued to settle accounts payable
|
|
$
|
34,569
|
|
|
$
|
351,510
|
|
Shares issued to settle promissory note – related party
|
|
$
|
—
|
|
|
$
|
46,500
|
|
Transfer from intangible asset to investment in joint venture
|
|
$
|
101,541
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
37,703
|
|
Income taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
1.
Nature of Operations and Continuance of Business
Mobetize
Corp. (“Company”) was incorporated in the state of Nevada on February 23, 2012, as Slavia, Corp. On August 13, 2013,
its name changed to “Mobetize Corp.” The Company provides Fintech solutions and services to enable and support the
convergence of global telecom and financial services providers (“Customers”) through its Global Mobile B2B Fintech
and Financial Services Marketplace (“Hub”). The Company’s activities are subject to significant risks and uncertainties,
including the need to secure additional funding to optimize the Company’s existing technology.
On
July 11, 2017, the Company completed a consolidation of the issued and outstanding common shares on a one for one hundred (1/100)
basis and a decrease in the number of its authorized common and preferred shares. All share and per share amounts have been retroactively
restated to reflect the share consolidation.
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to
realize assets and discharge liabilities in the normal course of business. As of March 31, 2018, the Company has an accumulated
deficit of $8,922,901, a history of net losses and a working capital deficiency of $1,093,011. 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.
Summary of Significant Accounting Policies
a)
Basis of Presentation
These
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted
in the United States (“US GAAP”) which include the accounts of Mobetize Canada Inc., and Mobetize USA Inc., both of
which are wholly-owned subsidiaries of the Company. The consolidated financial statements are expressed in U.S. dollars. All significant
intercompany transactions and balances have been eliminated.
2.
Summary of Significant Accounting Policies - continued
b)
Use of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
The
Company regularly evaluates estimates and assumptions related to the collectability of accounts receivable, revenue recognition,
useful life of long-lived assets, fair value of stock-based compensation, embedded derivative liabilities and beneficial conversion
features of convertible debentures, fair values of shares issued for non-cash consideration, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
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 March 31, 2018, and 2017, the Company had no cash equivalents.
d)
Accounts Receivable and Allowance for Doubtful Accounts
Trade
and other accounts receivable are reported at face value less any provisions for uncollectible accounts considered necessary.
Accounts receivable primarily includes trade receivables from customers. The Company provides an allowance for its accounts receivable
for estimated losses that may result from its customers’ inability to pay. At March 31, 2018, the Company had accounts receivable
of $40,619 (2017 - $113,140) and has not recognized an allowance for doubtful accounts.
e)
Prepaid Expenses and Deposits
The
Company pays for some services in advance and recognizes these expenses as prepaid at the balance sheet date. If certain prepaid
expenses extend beyond one-year, those are classified as non-current assets.
f)
Revenue Recognition
The
Company recognizes revenue from payment processing, licensing and the provision of professional services. Revenue will be recognized
only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and
collectability is reasonably assured.
2.
Summary of Significant Accounting Policies – continued
g)
Equipment
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.
h)
Intangible Asset
Intangible
asset consisted of a license with a definite life of two years and was stated at cost less amortization. The asset is reviewed
for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable.
If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques.
i)
Joint Venture
Investee
companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity
method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation
of several factors including, among others, representation on the Investee company’s board of directors and ownership level,
which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting,
an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of
Loss and Comprehensive Loss; however, the Company’s share of the earnings or losses of the Investee company is reflected
as a single line item in the Consolidated Statements of Loss and Comprehensive Loss. The Company’s carrying value in an
equity method Investee company is also reflected as a single line item on the Company’s Consolidated Balance Sheets.
When
the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in
the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company or has
committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of
such income until it equals the amount of its share of losses not previously recognized.
j)
Long-lived Assets
In
accordance with ASC 360,
Property, Plant and Equipment
, the Company tests long-lived assets or asset groups for recoverability
when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could
trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse
changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected
for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses
or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely
than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the
carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows
expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
2.
Summary of Significant Accounting Policies - continued
k)
Research and Development Costs
The
Company incurs research and development costs during the course of its operations and in the provision of revenue generating professional
services. 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 asset. Costs incurred after the launch of a product or
service are expensed as incurred.
l)
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 income (loss) over the requisite service period.
Options
granted to consultants are valued at the fair value of the equity instruments issued, or the fair value of the services received,
whichever is more reliably measurable.
m)
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
expenses.
2.
Summary of Significant Accounting Policies - continued
n)
Basic and Diluted Net Loss per Share
The
Company computes net loss per share in accordance with ASC 260,
Earnings per Share,
which requires presentation of basic
and diluted loss per share (“LPS”) on the face of the statements of loss and comprehensive loss. Basic LPS is computed
by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted LPS gives effect to all potentially dilutive common shares outstanding during the period using the
treasury stock method and convertible preferred stock using the if-converted method. In computing diluted LPS, 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 LPS excludes all dilutive potential shares if their effect is anti-dilutive. Due to the continued losses in
the Company, all convertible instruments, stock options, and warrants are considered anti-dilutive. Consequently, as of March
31, 2018, the Company has nil (2017 – nil) potentially dilutive shares.
o)
Comprehensive Loss
ASC
220,
Comprehensive Income
, establishes standards for the reporting and display of comprehensive loss and its components
in the consolidated financial statements.
p)
Advertising Costs
Advertising
costs are expensed as incurred and are included in general and administrative expense in the accompanying financial statements.
The Company incurred $18,098 and $9,565 in advertising costs for the years ended March 31, 2018 and 2017, respectively.
2. Summary
of Significant Accounting Policies - continued
q)
Financial Instruments/Fair Value
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.
Financial
instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, accounts payable and accrued
liabilities – related party, deposits due to customers, promissory note – related party, and convertible promissory
notes. 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.
Financial
assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain
related party transactions which are accounted for at the transferor’s carrying amount or exchange amount.
The
recorded values of all other financial instruments approximate their current fair values because of their nature and respective
short-term 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 of these instruments.
2.
Summary of Significant Accounting Policies – continued
r)
Embedded Conversion Features
The
Company evaluates embedded conversion features within convertible promissory notes under ASC 815,
Derivatives and Hedging,
to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as
a derivative at fair value with changes in fair value recorded in income (loss). If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20,
Debt with Conversion and Other Options,
for consideration
of any beneficial conversion feature.
s)
Derivative Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including convertible debentures, stock purchase warrants and stock options, to determine if
such instruments are derivatives or contain features that qualify as embedded derivatives.
For
derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its
fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income
(loss). For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value
the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
t)
Beneficial Conversion Feature
For
conventional convertible debt where the rate of conversion is below market value, the Company records a Beneficial Conversion
Feature (the "BCF") and related debt discount.
When
the Company records a BCF, the intrinsic value of the BCF is recorded as a debt discount against the face amount of the respective
debt instrument (offset to additional paid-in capital) and amortized to interest expense over the life of the debt.
u)
Debt Issue Costs and Debt Discount
The
Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These
costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life
of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
2.
Summary of Significant Accounting Policies - continued
v)
Foreign Currency
The
functional and reporting currency of the Company and its subsidiary, Mobetize USA Inc., is the United States Dollar (“U.S.
Dollars”). The functional currency of the Company’s international subsidiary, Mobetize Canada Inc., is the Canadian
dollar. The Company translates the consolidated financial statements of this subsidiary to U.S. dollars in accordance with ASC
740,
Foreign Currency Translation Matters,
using period-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 loss as a component of stockholders’ equity (deficiency).
The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the
impact of foreign currency fluctuations.
w)
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees,
in which case the nature of the guarantee would be disclosed.
2.
Summary of Significant Accounting Policies - continued
x)
Recent Accounting Standards
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The
amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective
for us in the first quarter of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of
Topic 606). We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.
On
November 22, 2017, the FASB issued “ASU 2017-14 —
Income Statement—Reporting Comprehensive Income
(Topic
220),
Revenue Recognition
(Topic 605), and
Revenue from Contracts with Customers
(Topic 606)”. This update
amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing
guidance into conformity with Topic 606, Revenue from Contracts with Customers. This update is effective in fiscal years,
including interim periods, beginning after December 15, 2017. The adoption of this standard is not expected to have a material
impact on the Company´s consolidated financial statements.
In
August 2016, the FASB issued ASU No. 2016-15 related to the statement of cash flows. This new guidance addresses eight specific
cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows. This update is effective in fiscal years, including interim periods,
beginning after December 15, 2017, and early adoption is permitted. The Company has made a preliminary evaluation and expects
no material impact to arise from the adoption of this standard on April 1, 2018.
In
February 2016, Topic 842,
Leases
was issued to replace the leases requirements in Topic 840,
Leases
.
The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for
those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to
make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class
of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely
unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December
15, 2018, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted.
The adoption of this standard is not expected to have a significant impact on the Company’s results of operations, financial
condition, cash flows, and financial statement disclosures.
In
May 2014, the FASB issued ASU No. 2014-09,
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. The adoption of this standard is not expected to have a significant impact on the Company’s results of operations,
financial condition, and cash flows. The adoption of this standard is expected to result in additional financial statement disclosures
3.
Joint Venture
On
January 12, 2017, the Company entered into a Gateway License Agreement and Joint Venture Agreement (“Joint Venture”)
with CPT Secure, Inc. (“CPT”), a company controlled by a shareholder of the Company (related party), 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 MPAY Gateway Services Inc. (“MPAY”) on May 29, 2017. 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 year ended March 31, 2018, the Company recognized amortization of $10,103 (2017 - $13,356) on the license prior to
the transfer, which has been included in research and development expense.
Effective
May 29, 2017, the Company and CPT incorporated a joint venture company, MPAY. The Company accounts for its interest in MPAY using
the equity method of accounting. Upon incorporation of MPAY, the Company transferred the remaining carrying value of the license
to the CPT IP of $101,541 (after accumulated amortization of $23,459) to MPAY, which was recognized on the balance sheet as an
investment in joint venture. MPAY is an inactive company. The results of operations and financial position of MPAY include sales
of $nil, net loss of $52,628, current assets of $69, non-current assets of $49,144, current liabilities of $300, and equity of
$48,913. During the year ended March 31, 2018, the Company recognized a loss on joint venture of $26,314 (2017 - $nil), representing
the Company’s 50% interest in the loss (being the change in net assets) of MPAY. As at March 31, 2018, the remaining carrying
value of the Company’s investment in joint venture was $75,227.
4. Equipment
Equipment,
net consisted of the following:
|
|
March 31, 2018
|
|
March 31, 2017
|
Computer equipment
|
|
$
|
14,884
|
|
|
$
|
14,421
|
|
Furniture
|
|
|
1,211
|
|
|
|
1,174
|
|
Total
|
|
|
16,095
|
|
|
|
15,595
|
|
Less: accumulated amortization
|
|
|
11,440
|
|
|
|
7,966
|
|
Equipment, net
|
|
$
|
4,655
|
|
|
$
|
7,629
|
|
During
the year ended March 31, 2018, equipment cost increased by $500 (2017 – decreased by $241), and accumulated amortization
was impacted by $238 (2017 - $155), as a result of foreign currency translation adjustments.
5.
Promissory Note
On
September 13, 2017, the Company entered into a Bridge Loan Promissory Note with a third party, whereby the Company received proceeds
of $20,152 (CDN$25,000), which was non-interest bearing, unsecured, and matured on October 13, 2017. During the year ended March
31, 2018, the Company repaid the loan and paid a bridge loan fee of $1,942 (CDN$2,500) in consideration for the loan.
6.
Convertible Promissory Notes
Date of issuance
|
|
Principal
March 31,
2018
|
|
Principal
March 31,
2017
|
|
Interest
|
|
Maturity
|
November 21, 2016
(1)
|
|
$
|
—
|
|
|
|
40,000
|
|
|
|
6% per annum
|
|
|
|
November 21, 2017
|
|
January 27, 2017
(2)
|
|
$
|
—
|
|
|
|
125,000
|
|
|
|
12% per annum
|
|
|
|
January 27, 2018
|
|
January 30, 2017
(3)
|
|
$
|
—
|
|
|
|
75,000
|
|
|
|
12% per annum
|
|
|
|
January 30, 2018
|
|
|
|
$
|
—
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
(1)
November 21, 2016 Issuance - $40,000 (converted):
•
|
|
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 (the “Conversion Feature”). The Conversion Feature
enabled the holder to convert any portion of their outstanding convertible promissory note principal balance into Series B Preferred
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 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, 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
promissory notes. $20,000 of this issuance was owed to a Director of the Company (Note 7(i)).
|
(1)
January 27, 2017 Issuance - $125,000 (converted):
•
|
|
Issued
net of $15,000 of prepaid interest, based on an interest rate of 12% per annum.
|
•
|
|
Of
the $125,000 Convertible Promissory Notes, $50,000 was owed to a Director of the Company (Note 7(i)).
|
•
|
|
The
Conversion Feature enables the holder to convert any portion of their outstanding convertible promissory notes principal balance
into Series B Preferred 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 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, it was determined that no beneficial
conversion feature existed on the commitment date.
|
•
|
|
On
August 3, 2017, the Company issued 250,000 Series B Preferred Shares pursuant to the conversion of $125,000 of the convertible
promissory notes.
|
6.
Convertible Promissory Notes – continued
(2)
January 30, 2017 Issuance - $75,000 (converted):
•
|
|
Issued
net of $9,000 of prepaid interest, based on an interest rate of 12% per annum.
|
•
|
|
The
$75,000 Convertible Promissory Note is owed to a Director of the Company (Note 7(i)).
|
•
|
|
The
Conversion Feature enables the holder to convert any portion of their outstanding convertible promissory notes principal balance
into Series B Preferred 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, it was determined that no beneficial
conversion feature existed on the commitment date.
|
•
|
|
On
August 3, 2017, the Company issued 150,000 Series B Preferred Shares pursuant to the conversion of $75,000 of the convertible
promissory notes.
|
(3)
Conversions – For the Year Ended March 31, 2017
•
|
|
March,
2016 Issuance - $275,000: Issued net of $30,000 of prepaid interest, noting that $3,000 of prepaid interest was paid by the Company
to one convertible debenture holder during the year ended March 31, 2017. On January 20, 2017, the Company issued 550,000 Series
B Preferred Shares pursuant to the conversion of $275,000 of the convertible debenture in accordance with the modified conversion
terms which were agreed to on that date.
|
•
|
|
July
25, 2016 Issuance - $25,000: Issued net of $3,000 of prepaid interest, based on an interest rate of 12% per annum. On January
20, 2017, the Company issued 50,000 Series B Preferred Shares pursuant to the conversion of $25,000 of the convertible debenture
in accordance with the modified conversion terms which were agreed to on that date.
|
7.
Related Party Transactions
|
|
Year ended March 31,
|
Transactions with related parties
|
|
2018
|
|
2017
|
(a) Transactions incurred with the CEO or companies controlled by the CEO:
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
123,776
|
|
|
$
|
121,370
|
|
Management fees – Stock-based compensation
|
|
|
613
|
|
|
|
27,971
|
|
Research and development
|
|
|
149,528
|
|
|
|
112,470
|
|
General and administrative
|
|
|
28,944
|
|
|
|
19,004
|
|
Conversion of promissory note (Note 8(c))
|
|
|
—
|
|
|
|
46,500
|
|
|
|
$
|
302,861
|
|
|
$
|
327,315
|
|
(b) Transactions incurred with the former CFO(s) or a company controlled by a former CFO:
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
—
|
|
|
$
|
7,110
|
|
General and administrative
|
|
|
—
|
|
|
|
69,231
|
|
|
|
$
|
—
|
|
|
$
|
76,341
|
|
(c) Transactions incurred with the Chairman of the Company
|
|
|
|
|
|
|
|
|
Management fees
(1)
|
|
$
|
—
|
|
|
$
|
33,000
|
|
Management fees – Stock-based compensation
|
|
|
25,903
|
|
|
|
69,730
|
|
|
|
$
|
25,903
|
|
|
$
|
102,730
|
|
(d) Transactions incurred with a Director of the Company
|
|
|
|
|
|
|
|
|
Management fees – Stock-based compensation
|
|
$
|
10,361
|
|
|
$
|
27,892
|
|
General and administrative – Interest on promissory notes
|
|
|
12,660
|
|
|
|
—
|
|
General and administrative – Interest on convertible promissory note
|
|
|
13,178
|
|
|
|
11,861
|
|
|
|
$
|
36,199
|
|
|
$
|
39,753
|
|
(e) Transactions incurred with a shareholder of the Company
|
|
|
|
|
|
|
|
|
Investor relations and promotion
|
|
$
|
137,078
|
|
|
$
|
20,000
|
|
Acquisition of intangible asset (Note 3)
|
|
|
—
|
|
|
|
125,000
|
|
|
|
$
|
137,078
|
|
|
$
|
145,000
|
|
Related party balances, as at
|
|
March 31,
2018
|
|
March 31,
2017
|
(f) Amounts owed to companies controlled by the CEO:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
421,351
|
|
|
|
275,687
|
|
Promissory note – June 2, 2017
(2)
|
|
|
25,000
|
|
|
|
25,000
|
|
Promissory note – July 11, 2017
(3)
|
|
|
19,400
|
|
|
|
18,798
|
|
|
|
$
|
465,751
|
|
|
$
|
319,485
|
|
|
|
|
|
|
|
|
|
|
(g) Amounts owed to the Chairman of the Company
|
|
$
|
9,000
|
|
|
$
|
9,000
|
|
|
|
|
|
|
|
|
|
|
(h) Amounts prepaid to a company controlled by the CEO
|
|
|
|
|
|
|
|
|
Prepaid interest on promissory notes
|
|
$
|
—
|
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
(i) Amounts owed to a Director of the Company
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
8,622
|
|
|
$
|
—
|
|
Convertible promissory note – matures November 21, 2017 (Note 6
(1)
))
|
|
|
—
|
|
|
|
20,000
|
|
Convertible promissory note – matures January 27, 2018 (Note 6
(2)
))
|
|
|
—
|
|
|
|
50,000
|
|
Convertible promissory note – matures January 30, 2018 (Note 6
(3)
))
|
|
|
—
|
|
|
|
75,000
|
|
Promissory note – September 17, 2017
(4)
|
|
|
100,000
|
|
|
|
—
|
|
Promissory note – November 7, 2017
(5)
|
|
|
50,000
|
|
|
|
—
|
|
Promissory note – December 5, 2017
(6)
|
|
|
100,000
|
|
|
|
—
|
|
|
|
$
|
258,622
|
|
|
$
|
145,000
|
|
|
|
|
|
|
|
|
|
|
(j) Amounts prepaid to a Director of the Company
|
|
|
|
|
|
|
|
|
Prepaid interest on convertible promissory notes
|
|
$
|
—
|
|
|
$
|
13,178
|
|
|
|
|
|
|
|
|
|
|
(k) Amounts owed to a shareholder of the Company
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
88,001
|
|
|
$
|
17,358
|
|
7.
Related Party Transactions – continued
(1)
|
|
On
July 1, 2016, the Company entered into an agreement with the Company’s Chairman whereby he would provide services to the
Company at a daily rate of $1,000 for a period of two years ending on June 30, 2018. Effective April 1, 2017, the Company’s
Chairman agreed to waive the accrued fees.
|
(2)
|
|
The
promissory note maturing on June 2, 2017, is unsecured and 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. The promissory note is currently overdue,
and the parties are renegotiated timing of repayment.
|
(3)
|
|
The
promissory note maturing on July 11, 2017, is unsecured and was issued with a twelve-month term, comprises $19,400 (2017 - $18,798)
(CAD $25,000) principal, and bears interest at 12% per annum. The principal balance included prepaid interest of $2,328 (2017
- $2,256) (CAD $3,000). The promissory note is currently overdue, and the parties are renegotiating timing of repayment.
|
(4)
|
|
The
promissory note maturing on March 17, 2018, was issued with a 6-month term, comprises $100,000 principal, which is unsecured and
bears interest at 12% per annum.
|
(5)
|
|
The
promissory note maturing on November 7, 2018, was issued with a 12-month term, comprises $50,000 principal, which is unsecured
and bears interest at 12% per annum.
|
(6)
|
|
The
promissory note maturing on December 5, 2018, was issued with a 12-month term, comprises $100,000 principal, which is unsecured
and bears interest at 12% per annum.
|
8.
Common Stock and Preferred Stock
a)
Issuance of Common Stock:
For
the Year Ended March 31, 2017
•
|
|
On
August 1, 2016, the Company issued 120,000 shares of common stock at $0.06 per share totaling $7,200 as bonus shares to the former
CFO of the Company, recorded with general and administrative – related party expenses.
|
For
the Year Ended March 31, 2018
•
|
|
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.
|
8. Common
Stock and Preferred Stock - continued
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:
•
|
|
During
the year ended March 31, 2017, the Company designated 25,000,000 shares of the authorized preferred stock as Series B Preferred
Shares (“Series B Preferred Shares”). The Series B Preferred Shares have the same rights and privileges as the common
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.
|
For
the Year Ended March 31, 2017
•
|
|
On
June 2, 2016, the Company converted 4,081,481 shares of common stock held by a company controlled by the CEO into 4,081,481 Series
B Preferred Shares, 300,000 shares of common stock held by the Company’s Chairman and Director into 300,000 Series B Preferred
Shares, and 1,039,167 shares of common stock held by the Company’s Director into 1,039,167 Series B Preferred Shares.
|
•
|
|
On
July 15, 2016, the Company issued 200,000 Series B Preferred Shares with a fair value of $0.15 per share to settle $30,000 in
services payable.
|
•
|
|
On
July 15, 2016, the Company issued 1,300,000 Series B Preferred Shares with a fair value of $0.15 per share to a company controlled
by a Chairman of the Company to settle $24,000 in services payable. The excess fair value of $171,000 is recorded within additional
paid-in capital.
|
•
|
|
On
July 15, 2016, the Company issued 4,650,000 Series B Preferred Shares with a fair value of $0.15 per share to a company controlled
by the Company’s CEO to settle $46,500 in an outstanding promissory note, which included a principal of $50,000 less prepaid
interest of $3,500. The excess fair value of $651,000 is recorded within additional paid-in capital.
|
•
|
|
On
December 1, 2016, the Company issued 275,000 Series B Preferred Shares with a fair value of $0.25 per share to a consultant of
the Company to settle $27,500 in amounts owing for services provided, resulting in a loss on settlement of debt of $141,250.
|
•
|
|
On
January 12, 2017, the Company issued 500,000 Series B Preferred Shares with a fair value of $0.25 per share to acquire a license
from CPT Secure, Inc. (Note 3).
|
•
|
|
On
January 20, 2017, the Company issued 600,000 Series B Preferred Shares pursuant to the modification and immediate conversion of
$300,000 of convertible debentures.
|
•
|
|
On
February 23, 2017, the Company issued 25,000 Series B Preferred Shares with a fair value of $0.50 per share as incentive shares
upon signing of an advisory services agreement, recorded within consulting fees.
|
8.
Common Stock and Preferred Stock – continued
For
the Year Ended March 31, 2017 - continued
•
|
|
On
March 13, 2017, the Company issued 50,000 Series B Preferred Shares with a fair value of $1.00 per share to a vendor pursuant
to the settlement of $12,500 in accounts payable, resulting in a loss on settlement of debt of $25,000.
|
•
|
|
On
March 14, 2017, the Company issued 25,000 Series B Preferred Shares with a fair value of $1.00 per share as incentive shares upon
signing of an advisory services agreement, recorded within consulting fees.
|
•
|
|
On
March 16, 2017, pursuant to an agreement signed on March 9, 2017, the Company issued 500,000 Series B Preferred Shares at $1.00
for gross proceeds of $500,000.
|
•
|
|
On
March 30, 2017, the Company issued 127,760 Series B Preferred Shares with a fair value of $1.00 per share to a vendor pursuant
to the settlement of $31,940 in accounts payable, resulting in a loss on settlement of debt of $95,820.
|
•
|
|
On
March 31, 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 $32,190 in accounts payable, resulting in a gain on settlement of debt of $17,190.
|
For
the Year Ended March 31, 2018
•
|
|
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 6
(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.
|
•
|
|
On
August 3, 2017, the Company issued 400,000 Series B Preferred Shares pursuant to the conversion of $200,000 in convertible debentures
at a conversion price of $0.50 per share (Note 6
(2)
and 6
(3)
).
|
9.
Share Purchase Warrants
The
following table summarizes the continuity of share purchase warrants:
|
|
Number of warrants
|
|
Weighted average exercise price
$
|
Balance, March 31, 2016, 2017 and 2018
|
|
|
26,364
|
|
|
|
104
|
|
As
at March 31, 2018, 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
|
|
|
|
|
|
|
|
*
Expired subsequently
10.
Stock Options
The
Company has adopted a Stock Option Plan (“Stock Option Plan”) which permits the Company to issue stock options for
up to 30,000 common shares (post consolidation on July 11, 2017) 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 2018
|
|
|
20,200
|
|
|
|
60
|
|
Exercisable, March 31, 2018
|
|
|
19,150
|
|
|
|
60
|
|
As
at March 31, 2018, the following stock options were outstanding:
Number of options outstanding
|
|
Number of options vested
|
|
Exercise
price
$
|
|
Expiry date
|
|
20,200
|
|
|
|
19,150
|
|
|
|
60
|
|
|
September 30, 2020
|
During
the year ended March 31, 2018, $46,905 (2017 - $195,304) 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 March 31, 2018, and 2017.
11. Concentration of Risk
Revenues
are currently generated through licensing, professional services, and payment processing services provided by Mobetize to our
existing customers. During the year ended March 31, 2018, the Company had revenues from six customers (2017 –five customers)
with 54% (2017 – 56%) of revenues generated from the Company’s largest customer. At March 31, 2018, the Company’s
accounts receivable is concentrated and due from four customers (2017 – five customers) with 43% (2017 – 61%) of accounts
receivable due from the Company’s largest customer.
12. Commitments
and Contingencies
a)
|
|
The
Company has an obligation under a rental lease for its operating office. As of March 31, 2018, the remaining term of the lease
is 9 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 (Citation), that Stephen J. Fowler (Fowler), a former
director and chief financial officer, had initiated a complaint with the State of Washington Department of Labor and Industries
for amounts allegedly due to him for unpaid wages. The Citation declared that Fowler is owed $45,000 in wages in addition to an
assessed interest of $3,368, and a penalty of $4,500 ($20,535 (2017 - $18,346)) accrued net of advances receivable due from Fowler)).
On November 8, 2016, the Company entered an appeal alleging that the calculation of amounts due to Fowler) was incorrect and that
Fowler had improperly obtained shares of its common stock which it intends to recover. The Company received a response from the
Department of Labor and Industries dated November 18, 2016, in which it was advised that Fowler’s claim had been transferred
to the Office of the Attorney General and that a hearing on the matter would be held by the Office of Administrative Hearings.
A hearing has been scheduled on January 30, 2019. The Company believes that the claim is without merit and intends to vigorously
defend its position. The ultimate outcome of this litigation cannot presently be determined. However, in management’s opinion,
the likelihood of a material adverse outcome is remote.
|
c)
|
|
The
Company received a Notice of Civil Claim dated April 26, 2017, filed in British Columbia Supreme Court by Fowler, naming the Company
and its directors as defendants. Fowler asserts claims against the Company for unpaid expenses of approximately $6,000, and breach
of contract for unspecified general and punitive damages and legal costs associated with this action. He also asserts that his
shareholdings in the Company have been diluted due to certain actions of its current director, making claims including breach
of contract, breach of fiduciary duty, misrepresentation and conspiracy. The Company and its directors believe that Fowler’s
claims are without merit and are intent on vigorously defending against this action. Further, the Company has advanced counterclaims
against Fowler, including a claim that that while Fowler was an officer and director of the Company, that he caused it to issue
shares to himself to which he was not entitled. The Company’s counterclaims also assert claims against Fowler of fraudulent
or negligent misrepresentation, breach of fiduciary duty, negligence and unjust enrichment. On June 23, 2017, the Company filed
its response to Fowler’s claims and its own counterclaims against Fowler and exchanged document discovery in November 2017
and March 2018. No further steps in this action have been taken, and no trial date has been set. In management’s opinion,
the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution
of this matter have not been reflected in the financial statements.
|
12.
Commitments - continued
d)
|
|
The
Company received a Complaint dated May 12, 2017, filed in the Second Judicial District Court of the State of Nevada (Washoe County)
by Fowler naming the Company and its three present directors as defendants. The Washoe County action concerns substantially the
same facts and seeks substantially the same relief as Fowler’s British Columbia action (Note 12(b)). On June 23, 2017, the
Company filed a Motion to Dismiss, or in the alternative an Application for a Preliminary Injunction to either dismiss or enjoin
the Complaint. On October 31, 2017, the court held a hearing on the Motion which was denied. The court did however stay the Washoe
County action pending resolution of the British Columbia action. No trial date has been set. The Company’s exposure and
assessment of the outcome of this claim are described in Note 12 (b) above.
|
e)
|
|
The
Company received a Complaint dated May 3, 2017, filed in the Eighth Judicial District Court of the State of Nevada (Clark County)
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 for injunctive relief. The court
did not rule on the question of Fields’ alleged damages. On August 4, 2017, the Company and its three directors received
an Amended Complaint seeking damages for breach of fiduciary duty, conversion, and unjust enrichment. On November 17, 2017, the
Company filed Defendants’ Motion for Judgment on the Pleadings. The court held hearings on the Motion on December 19, 2017
and January 9, 2018 and denied the Motion. A trial date has been set for January 2, 2019. The suit seeks damages totaling $3,660,242
plus legal expenses. The Company intends to vigorously defend its position. The ultimate outcome of this litigation cannot presently
be determined and management feels that a reasonable estimate of loss cannot be made at this time, nor is it probable that a loss
will occur. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in
the financial statements.
|
13.
Segment Information
The
Company has a single operating segment being the provision of Fintech Solutions and Services to businesses located in Canada and
the United States of America (“USA”). Revenues are generated in Canada and the USA while all assets are located in
Canada. During the year ended March 31, 2018, the Company generated revenue of $249,100 (CDN$319,276) (2017 - $197,226 (CDN$258,862)
in Canada and $189,181 (2017 - $270,191) in the USA. The costs incurred to generate this revenue are expensed as research and
development. At March 31, 2018, and 2017, the Company’s long-lived assets are located in Canada.
14. Income
Taxes
During
the year ended March 31, 2018, the Company incurred federal operating non-capital losses (“non-capital loss”) of approximately
$1,377,000 (2017 – $750,000). As at March 31, 2018, the Company’s cumulative losses totaled $6,118,000 (2017 - $4,708,000).
A
reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for
the years ended March 31, 2018, and 2017, is summarized as follows:
|
|
2018
$
|
|
2017$
|
Loss before income taxes
|
|
|
(1,444,586
|
)
|
|
|
(1,153,254
|
)
|
Income tax recovery at statutory rates
|
|
|
(390,000
|
)
|
|
|
(300,000
|
)
|
Permanent differences
|
|
|
14,000
|
|
|
|
137,000
|
|
Temporary differences
|
|
|
321,000
|
|
|
|
211,000
|
|
Change in statutory, foreign tax, foreign exchange rates and other
|
|
|
55,000
|
|
|
|
(48,000
|
)
|
Income tax expenses
|
|
|
—
|
|
|
|
—
|
|
The
valuation allowance for deferred tax assets as of March 31, 2018, and 2017, was $1,406,000 and $1,479,000, respectively, which
will begin to expire in 2033. The decrease in the valuation allowance is attributable to a decrease in the federal corporate tax
rate which impacted the non-capital loss carryforwards. In assessing the recovery of the deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences
become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income,
and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred
tax assets would not be realized as of March 31, 2018, and 2017, and maintained a full valuation allowance.
The
unrecognized deferred tax assets include tax losses and difference between the carrying amount and tax basis of the following
items:
|
|
2018
$
|
|
2017$
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Non-capital losses available for future periods
|
|
|
1,404,000
|
|
|
|
1,478,000
|
|
Property and equipment
|
|
|
2,000
|
|
|
|
1,000
|
|
Valuation allowance
|
|
|
(1,406,000
|
)
|
|
|
(1,479,000
|
)
|
Deferred income taxes recovered
|
|
|
—
|
|
|
|
—
|
|
14. Income
Taxes - continued
The
Company has non-capital losses available to offset future taxable income as follows:
Year of expiry
|
|
Canada
$
|
|
USA
$
|
2033
|
|
|
—
|
|
|
|
353,000
|
|
2034
|
|
|
—
|
|
|
|
554,000
|
|
2035
|
|
|
316,000
|
|
|
|
1,439,000
|
|
2036
|
|
|
689,000
|
|
|
|
639,000
|
|
2037
|
|
|
478,000
|
|
|
|
272,000
|
|
2038
|
|
|
639,000
|
|
|
|
739,000
|
|
|
|
|
2,122,000
|
|
|
|
3,996,000
|
|
15.
Subsequent Events
a)
|
|
On
April 10, 2018, the Company entered into a Loan Consolidation Agreement (the “Agreement”) with a Director of the Company,
whereby $250,000 of previously issued promissory notes owing to the Director of the Company along with an additional $50,000 of
funding was consolidated into a new $300,000 promissory note. The promissory note bears interest at 12% per annum and matures
on April 10, 2019.
|
b)
|
|
On
May 23, 2018, the Company terminated a Strategic Business Development Service Agreement, which had a fee of $15,000 per month
and a term of December 1, 2017, to December 1, 2018. In connection with the termination, the Company is obligated to pay the consultant
$105,000, which represents the monthly fees that would have been paid for the remaining term of the agreement.
|
c)
|
|
On
June 1, 2018, the Board of Directors of the Company approved the Second Amended Certificate of Designation of Preferred Stock
of the Company’s Series A Preferred Stock (the “Second Amended Certificate of Designation”) that amends and
replaces in its entirety the Certificate of Amendment of Preferred Stock of the Company’s Series A Preferred Stock dated
May 20, 2016. The Second Amended Certificate of Designation was filed with the Nevada Secretary of State on June 4, 2018.
T
|
|
|
The Second Amended Certificate of Designation designates 10,000,000 of the
Company’s authorized preferred shares as Series A Preferred Stock. The Series A Preferred Stock can be converted into
shares of common stock of the Company or shares of Series B Preferred Stock of the Company on a one-for-one basis on or after
the 2
nd
anniversary of the designation of the Series A Preferred Stock or on an earlier date if converted in
connection with a reorganization, reclassification, consolidation, merger or sale. The Series A Preferred Stock have the same
rights and privileges as the common stock, with the exception that the Series A Preferred Stock holder has 10 votes per
Series A Preferred Stock versus one vote per share of common stock. The Second Amended Certificate of Designation may not be
altered in any way except with the consent of the holder of Series A Preferred Stock. The Company may not redeem for value
existing shares of Common Stock or any additional series of preferred stock if such redemption does not include outstanding
shares of Series A. The Company may not issue a new series of capital stock ranking pari pasu or with a preference
over the voting rights fixed for the Series A Preferred Stock.
|
d)
|
|
On
June 4, 2018, the Company’s Chief Executive Officer and Chief Financial Officer, the sole holder of Series A Preferred Stock,
elected to convert all 4,565,000 outstanding shares of Series A Preferred Stock to Series B Preferred Stock, in accordance with
the terms and conditions of the Second Amended Certificate of Designation.
|
e)
|
|
Subsequent
to the year ended March 31, 2018, the Company received a total of $165,000 pursuant to the issuance of promissory notes to companies
controlled by the CEO of the Company, a Director of the Company and a third-party lender.
|