PART
I – FINANCIAL INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
As
used herein, the terms “Mobetize,” “we,” “our,” and “us” refer to Mobetize Corp.,
a Nevada corporation, and its predecessors and subsidiaries, unless otherwise indicated. In the opinion of management, the accompanying
unaudited, consolidated financial statements included in this Form 10-Q reflect all adjustments necessary for a fair presentation
of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
MOBETIZE
CORP.
Condensed
Consolidated Balance Sheets
(Expressed
in US dollars)
(Unaudited)
|
|
SEPTEMBER 30,
2018
|
|
MARCH 31,
2018
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
23,869
|
|
|
$
|
11,542
|
|
Accounts receivable
|
|
|
13,231
|
|
|
|
40,619
|
|
Prepaid expenses and deposits
|
|
|
20,903
|
|
|
|
22,070
|
|
Total Current Assets
|
|
|
58,003
|
|
|
|
74,231
|
|
|
|
|
|
|
|
|
|
|
Equipment, net (Note 4)
|
|
|
3,053
|
|
|
|
4,665
|
|
Investment in joint venture (Note 3)
|
|
|
59,559
|
|
|
|
75,227
|
|
TOTAL ASSETS
|
|
$
|
120,615
|
|
|
$
|
154,113
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
343,980
|
|
|
$
|
316,593
|
|
Accounts payable and accrued liabilities - related party (Note 6)
|
|
|
141,170
|
|
|
|
547,509
|
|
Deposits due to customers
|
|
|
980
|
|
|
|
8,740
|
|
Promissory note (Note 5)
|
|
|
25,000
|
|
|
|
—
|
|
Promissory note – related party (Note 6)
|
|
|
440,299
|
|
|
|
294,400
|
|
Total Current Liabilities
|
|
|
951,429
|
|
|
|
1,167,242
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes (Note 7)
|
|
|
649,395
|
|
|
|
—
|
|
TOTAL LIABILITIES
|
|
$
|
1,600,824
|
|
|
$
|
1,167,242
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
Common stock, $0.001 Par Value: 250,000,000 authorized and 14,285,255 common shares issued and outstanding (Note 8(a))
|
|
$
|
14,286
|
|
|
$
|
235
|
|
Preferred stock – Series A, $0.001 Par Value: 10,000,000 authorized and 0 shares issued and outstanding (Note 8(b))
|
|
|
—
|
|
|
|
4,565
|
|
Preferred stock – Series B, $0.001 Par Value: 25,000,000 authorized and 4,797,262 (March 31, 2018 – 14,282,976) shares issued and outstanding (Note 8(c))
|
|
|
4,797
|
|
|
|
14,283
|
|
Warrants reserve
|
|
|
676,964
|
|
|
|
676,964
|
|
Options reserve
|
|
|
1,004,042
|
|
|
|
999,733
|
|
Additional paid-in capital
|
|
|
6,228,999
|
|
|
|
6,228,999
|
|
Accumulated other comprehensive loss
|
|
|
(16,421
|
)
|
|
|
(15,007
|
)
|
Accumulated deficit
|
|
|
(9,392,876
|
)
|
|
|
(8,922,901
|
)
|
Total Stockholders' Deficiency
|
|
|
(1,480,209
|
)
|
|
|
(1,013,129
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
$
|
120,615
|
|
|
$
|
154,113
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
MOBETIZE CORP.
Condensed
Consolidated Statements of Loss and Comprehensive Loss
(Expressed
in US dollars)
(Unaudited)
|
|
THREE MONTHS ENDED
|
|
SIX MONTHS ENDED
|
|
|
SEPTEMBER 30,
|
|
SEPTEMBER 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
62,462
|
|
|
$
|
65,789
|
|
|
$
|
151,218
|
|
|
$
|
181,519
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation (Note 4)
|
|
|
794
|
|
|
|
884
|
|
|
|
1,597
|
|
|
|
1,655
|
|
General and administrative
|
|
|
96,602
|
|
|
|
93,066
|
|
|
|
187,908
|
|
|
|
205,598
|
|
General and administrative – related party (Note 6)
|
|
|
57,456
|
|
|
|
17,046
|
|
|
|
76,522
|
|
|
|
26,787
|
|
Investor relations and promotion
|
|
|
2,607
|
|
|
|
—
|
|
|
|
2,607
|
|
|
|
—
|
|
Investor relations and promotion– related party (Note 6)
|
|
|
—
|
|
|
|
60,000
|
|
|
|
10,000
|
|
|
|
77,078
|
|
Consulting fees
|
|
|
1,170
|
|
|
|
5,871
|
|
|
|
8,420
|
|
|
|
12,351
|
|
Management fees – related party (Note 6)
|
|
|
28,911
|
|
|
|
45,718
|
|
|
|
66,195
|
|
|
|
93,089
|
|
Professional fees
|
|
|
106,992
|
|
|
|
124,172
|
|
|
|
128,661
|
|
|
|
260,901
|
|
Research and development
|
|
|
39,282
|
|
|
|
127,932
|
|
|
|
73,757
|
|
|
|
255,372
|
|
Research and development - related party (Note 6)
|
|
|
23,319
|
|
|
|
43,441
|
|
|
|
49,858
|
|
|
|
75,815
|
|
Total Operating Expenses
|
|
|
357,133
|
|
|
|
518,130
|
|
|
|
605,525
|
|
|
|
1,008,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE OTHER ITEMS
|
|
|
(294,671
|
)
|
|
|
(452,341
|
)
|
|
|
(454,307
|
)
|
|
|
(827,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on joint venture (Note 3)
|
|
|
(7,877
|
)
|
|
|
(7,973
|
)
|
|
|
(15,668
|
)
|
|
|
(10,713
|
)
|
Loss on settlement of accounts payable (Note 8(c))
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(302,548
|
)
|
|
$
|
(460,314
|
)
|
|
$
|
(469,975
|
)
|
|
$
|
(852,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.29
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(3.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
234,514
|
|
|
|
234,514
|
|
|
|
234,514
|
|
|
|
234,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(302,548
|
)
|
|
$
|
(460,314
|
)
|
|
$
|
(469,975
|
)
|
|
$
|
(852,516
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
3,606
|
|
|
|
3,092
|
|
|
|
4,387
|
|
|
|
(2,781
|
)
|
Comprehensive loss
|
|
$
|
(298,942
|
)
|
|
$
|
(457,222
|
)
|
|
$
|
(465,588
|
)
|
|
$
|
(855,297
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
MOBETIZE
CORP.
Consolidated
Statements of Cash Flows
(Expressed
in US dollars)
(Unaudited)
|
|
SIX MONTHS ENDED SEPTEMBER 30,
|
|
|
2018
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(469,975
|
)
|
|
$
|
(852,516
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
Amortization of intangible asset – research and development
|
|
|
—
|
|
|
|
10,103
|
|
Depreciation
|
|
|
1,597
|
|
|
|
1,655
|
|
Interest accrued on accounts payable – related party
|
|
|
—
|
|
|
|
1,973
|
|
Loss on joint venture
|
|
|
15,668
|
|
|
|
10,713
|
|
Loss on settlement of accounts payable
|
|
|
—
|
|
|
|
14,676
|
|
Stock-based compensation
|
|
|
4,309
|
|
|
|
32,907
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
27,388
|
|
|
|
66,177
|
|
Prepaid expenses and deposits
|
|
|
1,167
|
|
|
|
(5,202
|
)
|
Prepaid expenses and deposits – related party
|
|
|
—
|
|
|
|
15,639
|
|
Accounts payable and accrued liabilities
|
|
|
27,387
|
|
|
|
70,807
|
|
Accounts payable and accrued liabilities - related party
|
|
|
144,709
|
|
|
|
83,088
|
|
Deposits due to customers
|
|
|
(7,760
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(255,510
|
)
|
|
|
(549,980
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
|
25,000
|
|
|
|
20,152
|
|
Proceeds from promissory note, net of prepaid interest-related party
|
|
|
244,576
|
|
|
|
100,000
|
|
Net cash provided by financing activities
|
|
|
269,576
|
|
|
|
120,152
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(1,739
|
)
|
|
|
(1,960
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
12,327
|
|
|
|
(431,788
|
)
|
CASH - BEGINNING OF PERIOD
|
|
|
11,542
|
|
|
|
535,438
|
|
CASH - END OF PERIOD
|
|
$
|
23,869
|
|
|
$
|
103,650
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible debentures
|
|
$
|
—
|
|
|
$
|
240,000
|
|
Shares issued to settle accounts payable
|
|
$
|
—
|
|
|
$
|
34,568
|
|
Transfer from intangible asset to investment in joint venture
|
|
$
|
—
|
|
|
$
|
101,541
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
1.
Nature of Operations and Continuance of Business
Mobetize
Corp. (“Company”) was incorporated in the state of Nevada on February 23, 2012, as Slavia, Corp. On August 13, 2013,
its name changed to “Mobetize Corp.” The Company provides FinTech solutions and services to enable and support the
convergence of global telecom and financial services providers (“Customers”) through its Global Mobile B2B FinTech
and Financial Services Marketplace. The Company’s activities are subject to significant risks and uncertainties, including
the need to secure additional funding to optimize the Company’s existing technology.
On
July 11, 2017, the Company completed a consolidation of the issued and outstanding common shares on a one for one hundred (1/100)
basis and a decrease in the number of its authorized common and preferred shares. All share and per share amounts have been retroactively
restated to reflect the share consolidation.
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to
realize assets and discharge liabilities in the normal course of business. As of September 30, 2018, the Company has an accumulated
deficit of $9,392,876, a history of net losses and a working capital deficiency of $893,426. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent
upon continuing financial support from management, increasing sales, securing debt or equity financing, cutting operating costs,
launching viable products, and realizing profitable operations. These consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2.
Basis of presentation
The
accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (“SEC”). The interim condensed consolidated financial statements
include the consolidated accounts of the Company and its wholly-owned subsidiaries with all significant intercompany transactions
eliminated. In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial position,
results of operations and cash flows for the interim periods have been made. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in accordance with generally accepted accounting principles of the
United States of America (“US GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. These
interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
for the year ended March 31, 2018, and with our Annual Report on Form 10-K filed with the SEC on July 31, 2018. Operating results
for the three and six-month periods ended September 30, 2018, may not necessarily be indicative of the results for the year ending
March 31, 2018.
These
unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,
Mobetize Canada Inc., and Mobetize USA Inc. All significant intercompany accounts and transactions have been eliminated on consolidation.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
2.
Basis of presentation - Continued
Use
of estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
The
Company regularly evaluates estimates and assumptions related to the collectability of accounts receivable, revenue recognition,
useful life of long-lived assets, fair value of stock-based compensation, embedded derivative liabilities and beneficial conversion
features of convertible debentures, fair values of shares issued for non-cash consideration, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected.
Fair
value of financial assets and liabilities
The
Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements.
The
Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables
or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value
on their initial recognition, except for those arising from certain related party transactions which are accounted for at the
transferor’s carrying amount or exchange amount.
Financial
assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income.
Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified
as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified
as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income
until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
Financial
instruments, including accounts receivable, accounts payable and accrued liabilities, accounts payable and accrued liabilities
– related party, promissory note, promissory note – related party, and convertible promissory notes are carried at
amortized cost, which management believes approximates fair value due to the short-term nature of these instruments.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
2.
Basis of presentation - Continued
Fair
value of financial assets and liabilities - continued
The
following table presents information about the assets that are measured at fair value on a recurring basis as at September 30,
2018 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In
general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair
values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where
there is little, if any, market activity for the asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
Significant Other
|
|
Significant
|
|
|
September 30,
|
|
in Active Markets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
23,869
|
|
|
$
|
23,869
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
23,869
|
|
|
$
|
23,869
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Recent
accounting pronouncements
The
accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.
New
and amended standards adopted by the Company
There
were no new and amended standards adopted by the Company for the first time in this reporting period which had a material impact
on the Company’s unaudited condensed consolidated interim financial statement except the following:
In
November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-18, requiring that
restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of- period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted
cash is not presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The
amendments were effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company considers that ASU 2016-18 has had only a limited impact on the presentation of the statement
of cash flows.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
2.
Basis of presentation - Continued
Recent
Accounting pronouncements - continued
New
standards and interpretations not yet adopted by the Company
Several
new standards and amendments to standards and interpretations are effective for annual periods beginning after the closing date
of this report and have not been applied in preparing these unaudited condensed consolidated interim financial statements:
In
February 2016, Financial Accounting Standards Board (FASB) issued Topic 842,
Leases
to replace the leases requirements
in Topic 840,
Leases
. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease
liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance
sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying
asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely
unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December
15, 2018, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted.
The adoption of this standard is not expected to have a significant impact on the Company’s results of operations, financial
condition, cash flows, and financial statement disclosures.
In
June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-13, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement
as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January
1, 2020. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated results
of operations, financial condition, cash flows, and financial statement disclosures.
In
July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-11, requiring certain
changes to the presentation and disclosures of changes to liability or equity classification of financial instruments. The amendments
are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those
fiscal years. The Company is currently assessing the impact that the adoption of this standard will have on its consolidated results
of operations, financial condition, cash flows, and financial statement disclosures.
In
June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2018-07, requiring certain
changes to nonemployee share-based payment accounting. The amendments are effective for public business entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact
that the adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial
statement disclosures.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(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 six months ended September 30, 2017, the Company recognized
amortization of $10,103 on the license prior to being transferred to MPAY, which has been included in research and development
expense.
Effective
May 29, 2017, the Company and CPT incorporated a joint venture company, MPAY Gateway Services Inc. (“MPAY”). Upon
incorporation of MPAY, the Company transferred the remaining carrying value of the license to the CPT IP of $101,541 to MPAY,
which has been presented on the balance sheet as an investment in joint venture. During the six months ended September 30, 2018,
the Company recognized a loss on joint venture of $15,668 (2017 -$10,713), representing the Company’s 50% interest in the
loss of MPAY.
4. Equipment
Equipment,
net consisted of the following:
|
|
September 30, 2018
|
|
March 31, 2018
|
|
|
|
|
|
Computer equipment
|
|
$
|
14,922
|
|
|
$
|
14,884
|
|
Furniture
|
|
|
1,214
|
|
|
|
1,211
|
|
Total
|
|
|
16,136
|
|
|
|
16,095
|
|
Less: accumulated amortization
|
|
|
13,083
|
|
|
|
11,440
|
|
Equipment, net
|
|
$
|
3,053
|
|
|
$
|
4,655
|
|
During
the six months ended September 30, 2018, equipment cost increased by $1,614, and accumulated amortization was impacted by $34
as a result of foreign currency translation adjustments.
5. Promissory
Note
On
June 26, 2018, the Company issued an unsecured Promissory Note to one of its shareholders in the amount of $25,000 that bears
interest at 12% per annum and matures on June 25, 2019.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
6. Related
Party Transactions
|
|
Six
months ended September 30,
|
|
Transactions
with related parties
|
|
2018
|
|
2017
|
|
|
|
|
|
|
(a)
|
Transactions
incurred with the CEO or companies controlled by CEO:
|
|
|
|
|
|
Management
fees
|
$
|
61,886
|
$
|
63,016
|
|
Management
fees – Stock-based compensation
|
|
-
|
|
613
|
|
Research
and development
|
|
49,858
|
|
75,815
|
|
General
and administrative
|
|
54,592
|
|
13,182
|
|
|
$
|
166,336
|
$
|
152,626
|
(b)
|
Transactions
incurred with the Chairman of the Company
|
|
|
|
|
|
Management
fees
(1)
|
$
|
-
|
$
|
6,000
|
|
Management
fees – Stock-based compensation
|
|
3,078
|
|
16,757
|
|
|
$
|
3,078
|
$
|
22,757
|
(c)
|
Transactions
incurred with a Director of the Company
|
|
|
|
|
|
Management
fees – Stock-based compensation
|
$
|
1,231
|
$
|
6,703
|
|
General
and administrative – Interest on convertible promissory note
|
|
-
|
|
13,605
|
|
General
and administrative – Interest on promissory note
|
|
20,852
|
|
-
|
|
|
$
|
22,083
|
$
|
20,308
|
(d)
|
Transactions
incurred with a shareholder of the Company
|
|
|
|
|
|
Investor
relations and promotion
|
$
|
10,000
|
$
|
77,078
|
|
General
and administrative
|
|
1,078
|
|
-
|
|
|
$
|
11,078
|
$
|
77,078
|
|
Related
party balances, as at
|
|
September
30, 2018
|
|
March
31, 2018
|
|
|
|
|
|
|
(e)
|
Amounts
owed to companies controlled by the CEO:
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
15,626
|
|
421,351
|
|
Promissory
note – June 2, 2017
(2)
|
|
25,000
|
|
25,000
|
|
Promissory
note – July 11, 2017
(3)
|
|
19,400
|
|
19,400
|
|
Convertible
Promissory Notes
(4)
|
|
649,395
|
|
-
|
|
Promissory
note – September 14, 2018
(5)
|
|
15,299
|
|
-
|
|
Promissory
note – September 25, 2018
(6)
|
|
25,000
|
|
-
|
|
|
$
|
749,720
|
$
|
465,751
|
|
|
|
|
|
|
(f)
|
Amounts
owed to the Chairman of the Company
|
$
|
9,000
|
$
|
9,000
|
|
|
|
|
|
|
(g)
|
Amounts
owed to a Director of the Company
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
6,000
|
$
|
8,622
|
|
Promissory
note – September 17, 2017
(7)
|
|
100,000
|
|
100,000
|
|
Promissory
note – November 7, 2017
(7)
|
|
50,000
|
|
50,000
|
|
Promissory
note – December 5, 2017
(7)
|
|
100,000
|
|
100,000
|
|
Promissory
note – April 11, 2018
(7)
|
|
50,000
|
|
-
|
|
Promissory
note – May 29, 2018
(8)
|
|
25,000
|
|
-
|
|
Promissory
note – June 21, 2018
(9)
|
|
25,000
|
|
-
|
|
Promissory
note – June 26, 2018
(10)
|
|
25,000
|
|
-
|
|
Promissory
note – August 17, 2018
(11)
|
|
25,000
|
|
-
|
|
|
$
|
406,000
|
$
|
258,622
|
(h)
|
Amounts
owed to a shareholder of the Company
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
110,528
|
$
|
88,001
|
|
|
|
|
|
|
|
|
|
|
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
6. 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 monthly rate of $1,000 for a period of two years ending on June
30, 2018. Effective April 1, 2017, the Chairman agreed to waive the accrued fees.
|
|
(2)
|
An unsecured promissory note maturing on June 1, 2017, was issued
with a twelve-month term, in the amount of $25,000 (CAD $33,380) that bears interest at 12% per annum. The principal balance includes
prepaid interest of $3,000. The promissory note is in default. An extension of the term is expected to be renegotiated.
|
|
(3)
|
An unsecured promissory note maturing on July 10, 2017, was issued
with a twelve-month term, in the principal amount of $19,400 (CAD $25,000) that bears interest at 12% per annum. The principal
balance includes prepaid interest of $2,328 (CAD $3,000). The promissory note is in default. An extension of the term is expected
to be renegotiated.
|
|
(4)
|
Three unsecured convertible promissory notes in the aggregate of
$649,395 maturing on September 29, 2018, were issued to the Company’s CEO and his related entities in exchange for extinguishing
amounts due for the rendition of services and outstanding loans. The convertible promissory notes bear interest at 4% per annum,
and are convertible into units at $0.50 per unit, each unit comprised of 1 share of common stock and a ½ share purchase
warrant, one whole share purchase warrant exercisable at $1.50 per share for two years.
|
|
(5)
|
An unsecured promissory note maturing on September 13, 2019, was
issued with a twelve-month term, in the principal amount of $15,299 (CAD $20,000) that bears interest at 12% per annum.
|
|
(6)
|
An unsecured promissory note maturing on September 24, 2019, was
issued with a twelve-month term, in the principal amount of $25,000 that bears interest at 12% per annum.
|
|
(7)
|
An unsecured promissory note maturing on April 10, 2019, was issued
to a Company Director with a twelve-month term, in the principal amount of $300,000 in exchange for consolidating and extinguishing
amounts due against prior promissory notes. dated September 17, 2017, November 7, 2017, December 5, 2017, and April 11, 2018, respectively.,
The new promissory note bears interest of 12% per annum.
|
|
(8)
|
An unsecured promissory note maturing on May 28, 2019, was issued
with a twelve-month term in the amount of $25,000 in principal and bears 12% per annum.
|
|
(9)
|
An unsecured promissory note maturing on June 20, 2019, was issued
with a twelve-month term in the amount of $25,000 in principal and bears 12% per annum.
|
|
(10)
|
An unsecured promissory note maturing on June 25, 2019, was issued
with a twelve-month term in the amount of $25,000 in principal and bears 12% per annum.
|
|
(11)
|
An unsecured promissory note maturing on August 16, 2019, was issued
with a twelve-month term in the amount of $25,000 in principal and bears 12% per annum.
|
7. Convertible
Promissory Notes
On
September 30, 2018, the Company issued three convertible promissory notes in the aggregate amount of $649,395 to its CEO and his
related entities in exchange for extinguishing certain amounts due for the rendition of services and certain outstanding loans.
The convertible promissory notes bear interest at 4% per annum, and are convertible into units at $0.50 per unit, each unit comprised
of 1 share of common stock and a ½ share purchase warrant, one whole share purchase warrant exercisable at $1.50 per share
for two years.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
8. Common
Stock and Preferred Stock
|
a)
|
Issuance
of Common Stock:
|
•
On July 11, 2017, the Company consolidated its issued and outstanding common shares on a one for one hundred (1/100) basis, and
amended the Company’s Articles of Incorporation to decrease the number of authorized shares of common stock from 525,000,000
shares par value $0.001 per share to 250,000,000 shares par value $0.001 per share. All share and per share amounts have been
retroactively restated to reflect the share consolidation.
•
On August 29, 2018, each member of the Company’s board of directors and a shareholder
along with related entities elected to convert their shares of Series B Preferred stock
into shares of common stock authorizing the aggregate cancellation of 14,050,714 shares
of Series B Preferred stock in exchange for the aggregate issuance of 14,050,714 shares
of common stock.
|
b)
|
Authorization
and Issuance of Series A Preferred Shares:
|
•
On February 4, 2016, the Company designated 10,000,000 shares of the 250,000,000 shares of preferred stock authorized as Series
A Preferred par value of $0.001 per share. The Series A Preferred stock has the same rights and privileges as the common stock,
except that each share of the Company’s Series A Preferred stock entitles the holder to 10 votes versus one vote per share
of common stock. The Series A Preferred designation was amended on May 20, 2016, and August 28, 2018.
•
On February 4, 2016, the Company’s CEO exchanged 4,565,000 shares of his common stock for 4,565,000 shares of Series A Preferred
stock.
•
On June 4, 2018, the Company’s CEO converted 4,565,000 shares of his Series A Preferred stock to Series B Preferred stock.
|
c)
|
Authorization
and Issuance of Series B Preferred Shares:
|
•
On February 25, 2016, the Company designated 25,000,000 shares of the authorized preferred stock as Series B Preferred stock.
The Series B Preferred stock has essentially the same rights and privileges as the common stock. The Series B designation was
subsequently amended on May 23, 2016, May 31, 2016, and August 28, 2018.
•
On June 4, 2018, the number of Series B Preferred Shares increased by 4,565,000 due to the
conversion of 4,565,000 shares of Series A Preferred stock into 4,565,000 shares of Series
B Preferred stock by the Company’s CEO.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
9. Share
Purchase Warrants
The
following table summarizes the continuity of share purchase warrants:
|
|
Number
of warrants
|
|
Weighted
average exercise price
|
|
|
$
|
Balance,
March 31, 2018
|
|
26,364
|
|
104
|
Expired
|
|
(22,497)
|
|
100
|
Balance,
September 30, 2018
|
|
3,867
|
|
125
|
As
at September 30, 2018, the following share purchase warrants were outstanding:
Number
of warrants
outstanding
|
Exercise
price
$
|
Expiry
date
|
3,866
|
125
|
December
10, 2018
|
3,866
|
|
|
10. Stock
Options
The
Company has adopted a Stock Option Plan which permits the Company to issue stock options for up to 30,000 (post consolidation)
common shares of the Company to directors, officers, employees and consultants of the Company with a maximum term of 5 years,
exercise prices equal to the minimum fair market value per common share on the date of grant, and a vesting schedule determined
by the Board of Directors at the time of granting the options.
The
following table summarizes the continuity of stock options:
|
Number
of stock options
|
Weighted
average exercise price
|
$
|
Balance
outstanding, March 31, 2018 and September 30, 2018
|
20,200
|
60
|
Exercisable,
September 30, 2018
|
20,200
|
60
|
As
at September 30, 2018, the following share purchase options were outstanding:
Number
of options outstanding
|
Number
of options vested
|
Exercise
price
$
|
Expiry
date
|
20,200
|
20,200
|
60
|
September
30, 2020
|
During
the six months period ended September 30, 2018, $4,309 ($32,907 – 2017) in stock-based compensation expense was recorded
and allocated amongst general and administrative, consulting fees, management fees, and research and development expenses. The
intrinsic value of the options was $nil at September 30, 2018, and March 31, 2018.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
11. Concentration
of Risk
Revenues
are currently generated through licensing, professional services, and payment processing provided to our customers. During the
six months ended September 30, 2018, the Company had revenues from five customers (2017 – five customers) with 60% (2017
– 62%) of revenues generated from the Company’s largest customer. At September 30, 2018, the Company’s accounts
receivable is concentrated and due from two customers (March 31, 2018 – four customers) with 97% (March 31, 2018 –
43%) of accounts receivable due from the Company’s largest customer.
12. Commitments
and Contingencies
|
a)
|
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. 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 date has been set for January 30, 2019. On October 29, 2018, Mobetize
extended an offer to settle those claims made by Fowler in connection with the Citation.
The parties are presently working to finalize the terms of a settlement agreement that
will conclude this matter. Therefore, at this point in time, the outcome of this proceeding
cannot be reasonably determined.
|
Mobetize
believes that Fowler’s claims detailed in the Citation are without merit. Nevertheless, the outcome of this litigation cannot
be reasonably determined at this time.
|
b)
|
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. He also asserts that his shareholdings in the Company have been diluted due
to certain actions of its directors, 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 putting up a vigorous
defense. Further, the Company has advanced counterclaims against Fowler, including a
claim that that while an officer and director of the Company, 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. No further steps in
this action have been taken, and no trial date has been set.
|
Mobetize
believes that Fowler’s claims detailed in the Notice are without merit. Nevertheless, the outcome of this litigation cannot
be reasonably determined at this time.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
12. Commitments
and Contingencies – Continued
|
c)
|
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 directors
as defendants. The Washoe County action concerns substantially the same facts and seeks
substantially the same relief as Fowler’s British Columbia action. 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 did not grant injunctive relief but determined to stay the Washoe County action
pending resolution of the British Columbia action. No trial date has been set.
|
Mobetize
believes that Fowler’s claims detailed in the Complaint are without merit. Nevertheless, the outcome of this litigation
cannot be reasonably determined at this time.
|
d)
|
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 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, the Court denied Fields’
application for injunctive relief but did not rule on the question of Fields’ alleged
damages. On August 4, 2017, Fields filed an Amended Complaint seeking damages for breach
of fiduciary duty, conversion, and unjust enrichment. On November 17, 2017, the Company
filed Defendants’ Motion for Judgment on the Pleadings. The Court held hearings
on the Motion on December 19, 2017, and on January 9, 2018 denied the Motion. A trial
date of January 2, 2019, was formalized by the Court. On July 30, 2018, a mandatory settlement
conference was convened by the Court. On August 20, 2018, the Company and Fields entered
into a Settlement Agreement whereby all concerned parties agreed to resolve their disputes
and that all claims should be dismissed with prejudice. A dismissal of the proceedings
with the Court was filed and made effective September 18, 2018.
|
13. Segment
Information
The
Company has a single operating segment that provides FinTech solutions and services to businesses located in Canada and the United
States of America (“USA”). Revenues are generated in Canada and the USA while all assets are located in Canada. During
the six months ended September 30, 2018, the Company generated revenue of $90,488 (CDN$117,546) (2017 -$56,607 (CDN$70,927)) in
Canada and $60,729in the USA (2017 - $124,912). The costs incurred to generate this revenue are expensed as research and development.
At September 30, 2018, and 2017, the Company’s long-lived assets are located in Canada.
|
MOBETIZE CORP.
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
|
September 30, 2018
|
|
|
(Unaudited)
|
|
14. Subsequent
Events
|
a)
|
On
October 29, 2018, the Company extended an offer to settle those claims made by Fowler
in connection with the Citation dated October 14, 2016. The parties are presently working
to finalize the terms of a settlement agreement to conclude this matter.
|
|
b)
|
On
October 31, 2018, the Company entered into a settlement and release agreement with a
Company director, in the aggregate amount of $410,000, on issuing an unsecured convertible
promissory note that matures on October 30, 2020, bears interest at 4% per annum, and
is convertible into units at $0.50 per unit, each unit comprised of 1 share of common
stock and a ½ share purchase warrant exercisable at $1.50 per share for two years
in exchange for the extinguishment of unsecured promissory notes, and accrued net interest.
|
|
c)
|
On
November 16, 2018, the Company entered into a securities purchase agreement with an investor in the amount of $500,000 on
issuing an unsecured convertible promissory note that matures on November 16, 2020, bears interest at 4% per annum, and is
convertible into units at $0.50 per unit, each unit comprised of 1 share of common stock and a ½ share purchase
warrant, with one whole share purchase warrant exercisable at $1.50 per share for two years.
|
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and other parts of this quarterly
report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified
by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,”
and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited
to those discussed in the subsection entitled
Forward-Looking Statements and Factors That May Affect Future Results and Financial
Condition
below. The following discussion should be read in conjunction with our financial statements and notes thereto included
in this report. Our fiscal year end is March 31. All information presented herein is based on the three and six-month periods
ended September 30, 2018 and September 30, 2017.
DISCUSSION
AND ANALYSIS
Mobetize
is a business to business (B2B) financial technology company (FinTech). FinTech is an umbrella term for describing disruptive
technologies involved in the provision of financial services that are transforming the way money is managed affecting almost every
financial activity. Under this umbrella Mobetize provides modern frictionless white-label digital banking applications focused
on payment and lending solutions for financial institutions, money service businesses, and telecommunications organizations (Customers).
Mobetize calls these solutions smartProducts, through which Customers are able to seamlessly integrate their existing programs
to offer our services to their subscribers or members (Users).
Mobetize
accelerates innovation, broadens revenue opportunities, reduces operational costs and enhances regulatory compliance for its Customers.
Our approach to FinTech challenges the conventional model of how financial services are delivered and consumed. Our next-generation
banking solutions (Services) are offered through financial institutions or other digital participants.
Users
can access our Services through multiple access points including:
1.
Desktop Applications
2.
Mobile Web Applications
3.
Native Applications for Apple iOS Devices and Android Devices
REVENUE
MODEL
Our
business model is designed to generate revenue from:
1) Transactional
processing fees based on the volume of activity
2) Revenue
share based fees for financial services
3) Recurring
platform fees for licensing Services
4) Recurring
fees for service level agreements
5) Consulting
and professional services fees
6) Customization,
integration, and deployment fees
Existing
revenue is influenced by the growing global consumption of mobile financial services and its adoption by Users who rely on their
mobile devices as an access point to complete financial transactions. Future revenue will also be affected by our ability to innovate
new technology processes and systems that our Customers can offer to their Users.
Our
strategy is to drive growth by:
•
Leveraging existing contracts to increase Customer and User adoption
•
Enhancing business development efforts to expand sales globally
•
Evaluating merger and acquisition strategies to grow the business
•
Continuing to develop innovative FinTech solutions for the digital economy
PRODUCTS
smartRemit
Our
flagship product is smartRemit, which we license through banking networks, banking processors and digital banking companies. Banking
networks have large customer bases comprised of financial institutions that can sub-license our smartRemit solution to offer to
their Users. Our model creates a large network to network effect between our international money transfer network capabilities
and the banking networks that enables us to effectively scale end user bank customers. Users rely on our service to send money
from a mobile application that is distributed by their own financial institution to pay bills for families and friends around
the world. We are currently offering this service from Canada to 80+ countries globally.
Typical
end Users have left their home country to seek better financial opportunities elsewhere to improve their financial well-being.
They also have strong ties back home that cause them to support friends and family. Users are already banking with financial institutions
and represent a broad range of professions and education levels. They all have loved ones to support, all have bank accounts and
all are Mobile phone users. The only option otherwise offered by financial institutions is to initiate an expensive wire transfer
using Swift. However, with our smartRemit branded under a Customer’s own brand, end Users can now send money home in minutes
through a mobile application that is a fast and convenient digital solution. The funds sent with smartRemit can be received by
the recipient via cash pickup, account credit, or in some cases home delivery or a mobile wallet.
Our
vision is to the be the preferred FinTech solution for financial institutions globally who want to offer fast, convenient and
cost-effective cross-border Person to Person (P2P) money transfers to their end Users. Mobetize is able to provide this service
with its own proprietary technology in partnership with networks of financial institutions that have money transfer processors.
Our unique risk management and compliance business model allows us to be a global leader in FinTech services due to our low friction,
real time know your client (KYK) process, and rapid deployment international money transfer service. The key differentiator for
Customer adoption is the mobile technology, frictionless User experience, elegant platform design, expansive payout network, and
loyalty to the Customer financial institution with low cost and transparent fees.
Sales
and Marketing
Management
believes that Mobetize’s way forward depends on developing its channel partner relationships that allow us to onboard financial
institutions. Our strategy enables Mobetize to onboard banks in less than two months versus the 24-month project usually required
per bank. The higher the number of banks on boarded results in a higher number of addressable and active users who are expected
to become loyal recurring users. Our channel partner relationships enable us to have a significantly lower cost of acquisition
per end User as compared to other direct to consumer money transfer companies. Mobetize has already qualified a pipeline of US
and Canadian banking networks and digital banking partners that it expects to onboard in the near term.
Industry
Overview
The
market for global money transfers is large and growing. Canadians send about $24 billion annually and Americans send out about
$160 billion annually. The top remittance-receiving countries are India, China, Philippines and Mexico. The total global remittance
market is estimated at $600 billion annually.
We
believe our model of enabling financial institutions with a low-cost solution that offers customers a convenient, cost effective
and fast way to send money from their mobile device with their bank will disrupt both the traditional brick and mortar sources
of money transfers as well as new digital entrants due to inconvenience, KYC friction, risk and compliance costs and customer
acquisition costs.
Technology
and Development
We
intend to aggressively grow our business by continuing to invest in our platform and enhancing complementary FinTech services
for financial institutions. Our focus on research and development is a direct response to the technology roadmap for banking networks
and the investments made in digital banking, in addition to the requests made by financial institutions that are customers of
our network partners. We will be expanding our solutions for both cross border payments and digital lending solutions for our
customers.
Recent
Business Developments
Tata
Communications (America), Inc.
On
August 28, 2018, TATA Communications (America), Inc. (“Tata”) placed a new service order with Mobetize USA Inc. for
new software module development and support. New software features will include module development, product code training and
support services extension. On February 1, 2017, we secured a Software Application License, Customization Development and Service
Level Agreement with Tata to govern the global deployment of our services for its customers through a five-year strategic partnership.
Mobetize expects to generate revenue from service level support fees and the sharing of transactional income with Tata, in addition
to accelerating FinTech revenue sharing opportunities, and product innovation.
FICANEX
Technology Limited Partnership
On
September 11, 2017, we entered into a Master Services Agreement with FICANEX Technology Limited Partnership (“FICANEX”)
to co-develop and market innovative financial services solutions (“FICANEX Agreement”). The initial solution is focused
on providing mobile international money remittance services. FICANEX will adopt certain of our Services to position itself as
a FinTech banking services accelerator to over 170+ member financial institution across Canada. The FICANEX Agreement has a three-year
term and automatically renews for one additional three-year term.
On
October 30th, 2018, Mobetize went live with the First West Group representing three financial institutions in Canada, namely Envision
Financial, Valley First Credit Union and Island Savings. Our smartRemit platform was offered through the FICNEX’s SendGlobal
brand. Mobetize has since realized its first transactional and licensing revenues. We are encouraged by our results to date and
expect to increase the number of financial institutions offering smartRemit through FICNEX in the coming months.
MPAY
Gateway Services Inc.
On
May 29, 2017, MPAY Gateway Services Inc. was formed as a joint venture in connection with a joint venture between Mobetize and
CPT Secure Inc. (“CPT”) dated January 12, 2017. The joint venture is intended to develop payment processing technology
and provide a license to use CPT technology. The license has a two-year term that can be renewed for successive two-year periods
unless either party elects not to renew the license no later than 60 days prior to expiration.
RESULTS
OF OPERATIONS
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30.
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
|
62,462
|
|
|
|
65,789
|
|
|
|
151,218
|
|
|
|
181,519
|
|
Operating Expenses
|
|
|
357,133
|
|
|
|
518,130
|
|
|
|
605,525
|
|
|
|
1,008,646
|
|
Loss Before Other Items
|
|
|
(294,671
|
)
|
|
|
(452,341
|
)
|
|
|
(454,307
|
)
|
|
|
(827,127
|
)
|
Revenues
For
the three months ended September 30, 2018, Mobetize generated revenue of $62,462, as compared to revenues of $65,789 over the
same three-month period in 2017, a decrease of 5%. For the six months ended September 30, 2017, Mobetize generated revenue of
$151,218, as compared to revenues of $181,519 over the same six-month period in 2017, a decrease of 17%. The decrease in revenues
over the comparable three and six-month periods can be attributed to a fall in contract development work, licensing and professional
services without the realization of any transactional income from payment processing.
We
expect that revenues will increase in future periods as Mobetize anticipates additional contract development revenue, professional
service activity, licensing revenue, and is now realizing its first transactional revenues from its relationship with FICANEX.
Operating
Expenses
Operating
expenses for the three and six-month periods ended September 30, 2018 and 2017 are outlined in the following table:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30.
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Depreciation
|
|
|
794
|
|
|
|
884
|
|
|
|
1,597
|
|
|
|
1,655
|
|
General and administrative
|
|
|
96,602
|
|
|
|
93,066
|
|
|
|
187,908
|
|
|
|
205,598
|
|
General and administrative – related party
|
|
|
57,456
|
|
|
|
17,046
|
|
|
|
76,522
|
|
|
|
26,787
|
|
Investor relations and promotion
|
|
|
2,607
|
|
|
|
—
|
|
|
|
2,607
|
|
|
|
—
|
|
Investor relations and promotion – related party
|
|
|
—
|
|
|
|
60,000
|
|
|
|
10,000
|
|
|
|
77,078
|
|
Consulting fees
|
|
|
1,170
|
|
|
|
5,871
|
|
|
|
8,420
|
|
|
|
12,351
|
|
Management fees – related party
|
|
|
28,911
|
|
|
|
45,718
|
|
|
|
66,195
|
|
|
|
93,089
|
|
Professional fees
|
|
|
106,992
|
|
|
|
124,172
|
|
|
|
128,661
|
|
|
|
260,901
|
|
Research and development
|
|
|
39,282
|
|
|
|
127,932
|
|
|
|
73,757
|
|
|
|
255,372
|
|
Research and development – related party
|
|
|
23,319
|
|
|
|
43,441
|
|
|
|
49,858
|
|
|
|
75,815
|
|
Total Operating Expenses
|
|
|
357,133
|
|
|
|
518,130
|
|
|
|
605,525
|
|
|
|
1,008,646
|
|
Loss Before Other Items
|
|
|
(294,671
|
)
|
|
|
(452,341
|
)
|
|
|
(454,307
|
)
|
|
|
(827,127
|
)
|
For
the three months ended September 30, 2018, operating expenses were $357,133 as compared to operating expenses of $518,130 over
the three months ended September 30, 2017, a decrease of 31%. For the six months ended September 30, 2018, operating expenses
were $605,525 as compared to operating expenses of $1,008,646 over the six months ended September 30, 2017, a decrease of 40%.
The decreases in operating expenses over the comparable three and six-month periods can be primarily attributed to the decrease
in research and development expenses, professional fees and investor relations offset by an increase in general and administrative
costs.
We
expect that operating expenses will increase over future periods as Mobetize returns its focus to research and development activities,
in order to enhance its product pipeline to grow its revenue model.
Net
Losses
For
the three months ended September 30, 2018, net losses before other items were $294,671 as compared to net losses before other
items of $452,341 over the three months ended September 30, 2017, a decrease of 35%. For the six months ended September 30, 2018,
net losses before other items were $454,307 as compared to net losses before other items of $827,127 over the six months ended
September 30, 2017, a decrease of 45%. The decrease in net losses over the comparable three and six-month periods can be primarily
attributed to the decrease in operating expenses over the prior comparable three and six-month periods.
We
believe that net losses will continue to decrease over future periods as revenues are expected to grow from transaction revenue
since realized subsequent to period end, and the continued implementation of operating efficiencies.
Liquidity
and Capital Resources
|
|
September 30, 2018
|
|
March 31, 2018
|
Current Assets
|
|
$
|
58,003
|
|
|
$
|
74,231
|
|
Total Assets
|
|
|
120,615
|
|
|
|
154,113
|
|
Current Liabilities
|
|
|
951,429
|
|
|
|
1,167,242
|
|
Total Liabilities
|
|
|
1,600,824
|
|
|
|
1,167,242
|
|
Working Capital Deficiency
|
|
|
893,426
|
|
|
|
1,093,011
|
|
Mobetize
had a working capital deficit of $893,426 as of September 30, 2018, and has funded its cash needs since inception with revenues
generated from operations, related party advances, debt instruments and private equity placements. Existing working capital and
anticipated cash flow is not expected to be sufficient to fund operations over the next twelve months. Mobetize will have to seek
additional debt or equity funding to maintain operations.
Current
assets as of September 30, 2018, were $58,003 which consisted of $23,869 in cash, $13,231 in accounts receivable, and $20,903
in prepaid expenses and deposits. Total assets of $120,615 which consisted of current assets, equipment of $3,053 and an investment
in the MPAY joint venture of $59,559.
Current
liabilities as of September 30, 2018, were $951,429 which consisted of accounts payable of $343,980, accounts payable
related party of $141,170, deposits due to customers of $980, promissory notes to related parties of $440,299, and a
promissory note of $25,000. Total liabilities of $1,600,824 which consisted of current liabilities and a convertible
promissory notes in the aggregate amount of $649,395.
Stockholders’
deficit as of September 30, 2018, was $1,480,209.
Cash
Flows
|
|
US $
|
|
|
six months ended
|
|
|
September 30, 2018
|
|
September 30, 2017
|
Cash flows used in Operating Activities
|
|
$
|
(255,510
|
)
|
|
|
(549,980
|
)
|
Cash flows used in Investing Activities
|
|
|
—
|
|
|
|
—
|
|
Cash flows provided by Financing Activities
|
|
|
269,576
|
|
|
|
120,152
|
|
Effect of exchange rate changes on cash
|
|
|
(1,739
|
)
|
|
|
(1,960
|
)
|
Net Increase (Decrease) in Cash During Period
|
|
|
12,327
|
|
|
|
(431,788
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) Operating Activities
During
the six months ended September 30, 2018, Mobetize used net cash in operating activities of $255,510 as compared to $549,980
of net cash used in operating activities during the six months ended September 30, 2017. The decrease in net cash used in
operating activities in the current period is primarily attributed to the decrease in net losses, and the increase in
accounts payable to a related party.
Mobetize
expects to transition to net cash flow provided by operating activities in future periods as revenue is expected to grow and losses
to decrease.
Cash
flows used in Investing Activities
During
the six months ended September 30, 2018, and September 30, 2017, Mobetize used $nil in investing activities.
Mobetize
expects to use cash flow in investing activities in future periods as it will require additional investment in equipment to bring
new renewed focus to research and development activities to expand its product line.
Cash
flows provided by Financing Activities
During
the six months ended September 30, 2018, Mobetize realized net cash provided by financing activities of $269,576 as compared to
$120,152 in proceeds provided by financing activities during the six months ended September 30, 2017. Net cash provided by financing
activities in both six-month periods was realized in connection with the issuance of related and non-related promissory notes.
Mobetize
expects to realize cash flow from financing activities in future periods until such time as it can increase revenue to the point
at which it can maintain operations and fund business growth.
Financing
We
have financed operations to date from the proceeds of private equity placements of common stock, promissory notes, convertible
promissory notes, and advances from directors and shareholders. Our business does anticipate increases in operating expenses and
capital expenditures over the next twelve months in relation to: (i) product development; (ii) research and development to enhance
existing products and create new ones; (iii) marketing expenses; and (iv) ongoing professional fees. We expect that our working
capital requirements will be funded over this period by a combination of revenue, shareholder debt or equity private placements
and if necessary, shareholder loans. Despite our expectation, we have no agreements to obtain funds through bank loans, lines
of credit or any other sources. Since we have no financing committed, our inability to realize financing would materially restrict
our operations.
On
November 16, 2018, Mobetize entered into a securities purchase agreement with an investor pursuant to which agreement it realized
$500,000 in exchange for a convertible promissory note. The proceeds of this transaction are sufficient to meet Mobetize’s
short term liquidity needs as it works to grow revenue and identify additional sources of capital.
We
have adopted the Mobetize 2015 Stock Option Plan pursuant to which we can grant up to 30,000 options to purchase shares of Mobetize’s
common stock to employees, directors, officers, consultants or advisors on the terms and conditions set forth therein. As of September
30, 2018, 20,200 options with an exercise price of $60 remain outstanding, all of which have vested.
Mobetize
has no lines of credit or other bank financing arrangements in place.
Mobetize
has no commitments for future capital expenditures that are material.
Mobetize
has no current plans for the purchase or sale of any plant or equipment.
Mobetize
has no current plans to make any changes in the number of employees.
Mobetize
does not expect to pay cash dividends in the foreseeable future.
OFF-BALANCE
SHEET ARRANGEMENTS
As
of September 30, 2018, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
GOING
CONCERN
The
independent auditors' report accompanying our March 31, 2018, financial statements contained an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. As of September 30, 2018, Mobetize had an accumulated deficit
of $9,392,876, a history of net losses, net cash used in operating activities, and a working capital deficiency of $893,426. These
factors raise substantial doubt regarding Mobetize’s ability to continue as a going concern. Mobetize’s ability to
continue as a going concern is dependent on continued financial support from management, increasing revenue, realizing additional
debt or equity financing, decreasing operating costs and producing commercially viable products. Nonetheless, these consolidated
financial statements have been prepared on a going concern basis, which implies that Mobetize will continue to realize its assets
and discharge its liabilities in the normal course of business.
CRITICAL
ACCOUNTING POLICIES
Our
significant accounting policies are summarized in Note 2 to our audited annual consolidated financial statements. While the selection
and application of any accounting policy may involve some level of subjective judgments and estimates, we believe that accounting
policies identified in Note 2 are the most critical to our consolidated financial statements, potentially involve the most subjective
judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions.
Mobetize
recognizes revenue from payment processing, licensing, and provision of professional services. Revenue will be recognized only
when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability
is reasonably assured.
Stock-Based
Compensation
Mobetize
records stock-based compensation in accordance with ASC 718,
Compensation – Stock Compensation,
which requires the
measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees
and directors, including stock options.
ASC
718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. Mobetize
uses the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by Mobetize’s
stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not
limited to Mobetize’s expected stock price volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense
in the consolidated statements of loss and comprehensive loss over the requisite service period. Options granted to consultants
are valued at the fair value of the equity instruments issued, or the fair value of the services received, whichever is more reliably
measurable.
Embedded
Conversion Features
Mobetize
evaluates embedded conversion features within convertible debt under ASC 815
Derivatives and Hedging
to determine whether
the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value
with changes in fair value recorded in income (loss). If the conversion feature does not require derivative treatment under ASC
815, the instrument is evaluated under ASC 470-20,
Debt with Conversion and Other Options
for consideration of any beneficial
conversion feature.
Derivative
Financial Instruments
Mobetize
does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Mobetize evaluates all
of it financial instruments, including stock purchase warrants and stock options, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives.
For
derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its
fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income
(loss). For option-based simple derivative financial instruments, Mobetize uses the Black-Scholes option-pricing model to value
the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Beneficial
Conversion Feature
For
conventional convertible debt where the rate of conversion is below market value, Mobetize records a Beneficial Conversion Feature
and related debt discount.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required of smaller reporting companies.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities
and Exchange Commission (“Commission”), and that such information is accumulated and communicated to management, including
the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based
on that evaluation, Mobetize’s management concluded, as of the end of the period covered by this report, that our disclosure
controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed,
within the time periods specified in the Commission’s rules and forms, and that such information was not accumulated and
communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding
required disclosures.
Changes
in Internal Controls Over Financial Reporting
During
the quarter ended September 30, 2018, there has been no change in internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect our internal control over financial reporting.