Attached files
| file | filename |
|---|---|
| EX-32 - MOBETIZE CERTIFICATION - MOBETIZE, CORP. | exhibit32docx.htm |
| EX-31 - MOBETIZE CERTIFICATION - MOBETIZE, CORP. | exhibit31.htm |
| EX-10.12 - JOINT VENTURE AGREEMENT - MOBETIZE, CORP. | exhibit1012.htm |
| EX-10.11 - SOFTWARE APPLICATION LICENSE - MOBETIZE, CORP. | exhibit1011.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended December 31, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
Commission File No. 333-181747
MOBETIZE CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
7299
99-0373704
(Primary Standard Industrial Classification Number)
(IRS Employer Identification Number)
8105 Birch Bay Square St, Suite 205, Blaine WA 98230
(Address of principal executive offices)
Issuer’s telephone number: (778) 588-5563
Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-
accelerated filer, or a smaller reporting company.
Large accelerated filer ☐
Accelerated filer
☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). ☐Yes ☒ No
At February 14, 2017, the number of shares outstanding of the registrant’s common stock, $0.001 par
value was 23,450,233, the number of shares outstanding of registrant’s Series A preferred stock, $0.001
par value was 4,565,000, and the number of shares outstanding of registrants Series B preferred stock,
$0.001 par value was 12,445,648.
1
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
3
Consolidated Balance Sheets
4
Consolidated Statements of Loss and Comprehensive Loss
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
7
Management's Discussion and Analysis of Financial Condition and Results of
16
Operations
Quantitative and Qualitative Disclosures about Market Risk
22
Controls and Procedures
23
PART II-OTHER INFORMATION
Legal Proceedings and Risk Factors
24
Unregistered Sales of Equity Securities and Use of Proceeds
24
Defaults Upon Senior Securities
25
Mine Safety Disclosures
25
Other Information
25
Exhibits
26
27
2
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.
3
MOBETIZE, CORP.
Consolidated Balance Sheets
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
DECEMBER 31,
MARCH 31,
2016
2016
ASSETS
Current Assets:
Cash
$
49,482 $
210,341
Accounts receivable
44,723
43,729
Prepaid expenses and deposits
45,015
53,677
Prepaid expenses and deposits – related party (Notes 5(g) and (i))
6,549
11,080
Total Current Assets
145,769
318,827
Property and equipment, net (Note 3)
9,108
11,828
TOTAL ASSETS
$
154,877 $
330,655
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
$
202,443 $
138,956
Accounts payable and accrued liabilities - related party (Note 5(e)
and (f))
208,520
75,749
Deposits due to customers
980
1,480
Promissory note – related party (Note 5(e))
43,620
50,000
Convertible debentures (Note 4 and 5(h))
340,000
275,000
Shareholder loans (Notes 5(d) and (e))
60,875
-
Total Current Liabilities
856,438
541,185
Shareholder loans
-
47,476
TOTAL LIABILITIES
$
856,438 $
588,661
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 Par Value: 525,000,000 authorized and
23,450,233 and 28,750,881 common shares issued and outstanding,
respectively (Note 6(a))
$
23,450 $
28,751
Preferred stock – Series A, $0.001 Par Value: 10,000,000 authorized
and 4,565,000 shares issues and outstanding (Note 6(b))
4,565
4,565
Preferred stock – Series B, $0.001 Par Value: 25,000,000 authorized
and 11,845,648 shares issues and outstanding (Note 6(c))
11,846
-
Share purchase warrants
676,964
676,964
Share options
924,557
757,524
Additional paid-in capital
4,737,142
4,608,487
Accumulated other comprehensive loss
(8,272)
(9,236)
Accumulated deficit
(7,071,813)
(6,325,061)
Total Stockholders' Deficiency
(701,561)
(258,006)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
$
154,877 $
330,655
The accompanying notes are an integral part of these consolidated financial statements.
4
MOBETIZE CORP.
Consolidated Statements of Loss and Comprehensive Loss
For the three and nine months ended December 31, 2016 and 2015
(Expressed in U.S. dollars)
(Unaudited)
THREE MONTHS ENDED
NINE MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2016
2015
2016
2015
OPERATING REVENUES
Revenues
$
149,138 $
74,383 $
365,386 $
81,460
OPERATING EXPENSES
Depreciation
777
918
2,377
2,349
Director compensation (Note 5(c))
3,000
-
30,000
-
General and administrative
51,278
76,211
178,988
189,627
General and administrative – related party (Note
5(a) and (b))
19,747
1,811
74,053
3,973
Investor relations and promotion
15,684
22,711
65,209
29,866
Listing fees
3,467
10,629
12,821
31,820
Consulting fees
-
104,444
21,000
278,289
Management fees – related party (Note 5(a) and
(b))
29,859
30,000
98,149
90,000
Professional fees
21,015
17,986
117,720
55,996
Research and development
65,834
93,643
232,431
330,259
Research and development - related party (Note
5(a))
38,977
32,986
97,027
45,822
Sales and marketing
861
15,248
8,130
69,009
Share compensation (Note 6(a))
-
-
7,200
-
Stock-based compensation expense (Note 8)
39,594
600,753
167,033
600,753
Total Operating Expenses
290,093
1,007,340
1,112,138
1,727,763
NET LOSS
$
(140,955) $ (932,957) $ (746,752) $ (1,646,303)
NET LOSS PER SHARE
Basic and Diluted
$
(0.01) $
(0.03) $
(0.03) $
(0.05)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and Diluted
23,450,233
33,261,154
24,638,381
31,594,441
COMPREHENSIVE LOSS
Net loss
$
(140,955) $ (932,957) $ (746,752) $ (1,646,303)
Other comprehensive loss:
Cumulative translation adjustment
1,184
1,212
964
(3,688)
Comprehensive loss
$
(139,771) $ (931,745) $ (745,788) $ (1,649,991)
The accompanying notes are an integral part of these consolidated financial statements.
5
MOBETIZE CORP.
Consolidated Statements of Cash Flows
For the nine months ended December 31, 2016 and 2015
(Expressed in U.S. dollars)
(Unaudited)
NINE MONTHS
ENDED DECEMBER 31,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(746,752)
$
(1,646,303)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation expense
2,377
2,349
Shares issued for services
61,200
10,753
Interest accrued on shareholder loans
2,859
-
Stock-based compensation
167,033
600,753
Changes in assets and liabilities:
Accounts receivable
(994)
(79,211)
Accounts receivable – related party
-
14,687
Prepaid expenses and deposits
8,662
18,690
Prepaid expenses and deposits – related party
1,031
-
Accounts payable and accrued liabilities
90,987
52,984
Accounts payable - related party
129,912
(30,448)
Deposits due to customers
(500)
-
Net cash used in operating activities
(284,185)
(1,055,746)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment
-
(1,554)
Net cash used in investing activities
-
(1,554)
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from sale of common stock and warrant exercise, net of
financing costs
-
619,667
Proceeds from sale of common stock and warrant exercise, net of
financing costs - related party
-
228,240
Proceeds from related party promissory note, net of prepaid interest
44,188
-
Proceeds from convertible debenture, net of prepaid interest
65,000
-
Proceeds from shareholder loans, net of repayments
13,399
24,850
Net cash provided by financing activities
122,587
872,757
EFFECT OF EXCHANGE RATE CHANGES ON CASH
739
(2,711)
NET DECREASE IN CASH
(160,859)
(187,254)
CASH - BEGINNING OF PERIOD
210,341
312,899
CASH - END OF PERIOD
$
49,482
$
125,645
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued to settle accounts payable
$
27,500
$
-
Shares issued to settle promissory note – related party
$
46,500
$
-
SUPPLEMENTAL DISCLOSURES:
Interest paid
$
13,703
$
-
Income taxes paid
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
6
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
1. Nature of Operations and Continuance of Business
Mobetize Corp. (“Mobetize”) was incorporated in the state of Nevada on February 23, 2012, as
Slavia, Corp. Mobetize’s name became “Mobetize Corp on August 13, 2013.
Mobetize 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”). Mobetize’s activities are subject to significant risks and
uncertainties, including the need to secure additional funding to optimize Mobetize’s existing
technology to effective counter competitive products.
Mobetize’s unaudited consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. These unaudited consolidated financial statements
include the accounts of Mobetize and its wholly owned subsidiaries, Mobetize Canada Inc., and
Mobetize USA Inc. All significant intercompany transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements of Mobetize should be read in
conjunction with the financial statements and accompanying notes filed with the U.S. Securities and
Exchange Commission in Mobetize’s Annual Report on Form 10-K for the fiscal year ended March
31, 2016. In the opinion of management, the accompanying financial statements reflect all
adjustments of a recurring nature considered necessary to present fairly Mobetize’s financial position
and the result of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts
reported. Actual results could differ materially from those estimates. The results of operations and
cash flows for the periods shown are not necessarily indicative of the results to be expected for the
full year.
Going Concern
These unaudited consolidated financial statements have been prepared on a going concern basis,
which implies that Mobetize will continue to realize assets and discharge liabilities in the normal
course of business. As of December 31, 2016, Mobetize has an accumulated deficit of $7,071,813, a
history of net losses and a working capital deficiency of $710,669. These factors raise substantial
doubt regarding Mobetize’s ability to continue as a going concern. The continuation of Mobetizeas 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 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 Mobetize be unable to continue as a going concern.
7
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
2.
Recent Accounting Pronouncements
a) Recently Adopted Accounting Standards
In June 2014, ASU guidance was issued to resolve the diversity of practice relating to the
accounting for stock based performance awards that the performance target could be achieved
after the employee completes the required service period. The update is effective prospectively or
retrospectively for annual reporting periods beginning after December 15, 2015. The Company
adopted this ASU on April 1, 2016, prospectively. The adoption of this ASU does not have a
material effect on Mobetize’s consolidated financial statements.
In January 2015, an ASU was issued to simplify the income statement presentation requirements
in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are
events and transactions that are distinguished by their unusual nature and by the infrequency of
their occurrence. Eliminating the extraordinary classification simplifies income statement
presentation by altogether removing the concept of extraordinary items from consideration. This
ASU is effective for annual periods beginning after December 15, 2015, including interim periods
within those annual periods. An entity may apply this ASU prospectively or retrospectively to all
prior periods presented in the financial statements. Early adoption is permitted. Mobetize
adopted this ASU on April 1, 2016, prospectively. The adoption of this ASU does not have a
material effect on Mobetize’s consolidated financial statements.
b) Recent Accounting Pronouncements
In May 2014, ASU guidance was issued related to revenue from contracts with customers. The
new standard provides a five-step approach to be applied to all contracts with customers and also
requires expanded disclosures about revenue recognition. The ASU is effective for annual
reporting periods beginning after December 15, 2017, including interim periods and is to be
retrospectively applied. Early application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting
period. Mobetize is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
In November 2015, an ASU was issued to simplify the presentation of deferred income taxes.
The amendments in this ASU require that deferred tax liabilities and assets be classified as non-
current on the balance sheet as compared to the current requirements to separate deferred tax
liabilities and assets into current and non-current amounts. This ASU is effective for annual
periods beginning after December 15, 2016, including interim periods within those annual
periods. Earlier application is permitted. This ASU may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all periods presented. Mobetize is currently
evaluating this guidance and the impact it will have on its consolidated financial statements.
8
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
2. Recent Accounting Pronouncements – continued
b) Recent Accounting Pronouncements
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. Mobetize is currently evaluating this guidance and the impact it will
have on its consolidated financial statements.
In March 2016, an ASU was issued to reduce complexity in the accounting for employee share-based
payment transactions. One of the simplifications relates to forfeitures of awards. Under current
GAAP, an entity estimates the number of awards for which the requisite service period is expected to
be rendered and base the accruals of compensation cost on the estimated number of awards that will
vest. This ASU permits an entity to make an entity-wide accounting policy election either to estimate
the number of forfeitures expected to occur or to account for forfeitures in compensation cost when
they occur. This ASU is effective for annual periods beginning after December 15, 2016, including
interim periods within those annual periods. Earlier application is permitted. Mobetize is currently
evaluating this guidance and the impact it will have on its consolidated financial statements.
3. Property and Equipment
Property and equipment, net consisted of the following:
December 31, 2016
March 31, 2016
Computer equipment
$
14,285 $
14,787
Furniture
1,162
1,204
Total
15,447
15,991
Less: accumulated amortization
6,339
4,163
Property and equipment, net
$
9,108 $
11,828
During the nine months ended December 31, 2016, property and equipment cost decreased by $544 as
a result of foreign currency translation adjustments.
9
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
4. Convertible Debentures
Date of issuance
Principal
Interest
Maturity
March 2016(1)
$
275,000
12% per annum
March, 2017
July 25, 2016(2)
$
25,000
12% per annum
July 25, 2017
November 21, 2016(3)
$
40,000
6% per annum
November 21, 2017
(1) March, 2016 Issuance:
§ Convertible debentures issued net of $30,000 of prepaid interest, noting that $3,000 of
prepaid interest was paid by Mobetize to one Convertible Debenture holder during the period
ended December 31, 2016.
§ $50,000 is owed to a Director of Mobetize (Note 5(h)), issued on March 21, 2016.
§ The conversion feature is exercisable at the option of the holder (the “Conversion Feature”).
The Conversion Feature enables the holder to convert any portion of their outstanding
Convertible Debenture principal balance into Series B Preferred shares at a price of Fifty
Cents ($0.50) after 180 days from issue date, but no later than the maturity date.
§ The Conversion Feature represents an embedded contingent redemption feature and is
accounted for as a derivative. The fair value of the contingent redemption feature is
immaterial and therefore not recognized at inception, or at December 31, 2016.
(2) July 25, 2016 Issuance:
§ Convertible debenture issued net of $3,000 of prepaid interest.
§ The Conversion Feature is exercisable at the option of the holder. The Conversion Feature
enables the holder to convert any portion of their outstanding Convertible Debenture
principal balance into Series B Preferred shares at a price of Fifty Cents ($0.50) after 180
days from issue date, but no later than the maturity date.
§ The Conversion Feature represents an embedded contingent redemption feature and is
accounted for as a derivative. The fair value of the contingent redemption feature is
immaterial and therefore not recognized at inception or at December 31, 2016.
(3) November 21, 2016 Issuance:
§ Convertible debenture issued net of $2,400 of prepaid interest.
§ $20,000 is owed to a Director of Mobetize (Note 5(h)), issued on November 21, 2016.
§ The Conversion Feature enables the holder to convert any portion of their outstanding
Convertible Debenture principal balance into common shares at $0.25 per share after 180
days from issue date, but no later than the maturity date.
§ The Conversion Feature represents an embedded contingent redemption feature. The fair
value of the contingent redemption feature is immaterial and therefore not recognized at
inception or at December 31, 2016.
10
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
5. Related Party Transactions
Nine months ended December 31,
Transactions with related parties
2016
2015
(a) Transactions incurred with the CEO or companies controlled by the
CEO:
Management salaries and fees
$
91,039 $
90,000
Research and development
97,027
45,822
General and administration expenses
11,843
2,979
Conversion of promissory note(1)
46,500
-
$
246,409 $
138,801
(b) Transactions incurred with the former CFO’s or a company
controlled by a former CFO:
Management salaries and fees
$
7,110 $
-
General and administration expenses
62,210
994
Advances – applied to private placement(2)
-
137,000
$
69,320 $
137,994
(c) Transactions incurred with the Chairman of Mobetize
Director compensation(3)
$
30,000 $
-
December 31,
Related party balances, as at
2016
March 31, 2016
(d) Amounts owed to companies controlled by the former CFO:
Shareholder loan(4)
$
17,837
$
5,943
(e) Amounts owed to companies controlled by the CEO:
Shareholder loan(4)
$
43,038
41,533
Management fees
82,500
30,000
Amounts payable - for services received and expenses incurred
123,020
45,749
Promissory note – June 2, 2017(5)
25,000
-
Promissory note – July 11, 2017(6)
18,620
-
Promissory note – February 14, 2017(7)
-
50,000
$
292,178
$
167,282
(f) Amounts owed to the Chairman of Mobetize
$
3,000
$
-
(g) Amounts prepaid to a company controlled by the CEO
Prepaid interest on promissory notes
$
2,450
$
5,241
(h) Amounts owed to a Director of Mobetize
Convertible debenture – March 21, 2017 (Note 4(1))
$
50,000
$
50,000
Convertible debenture – July 21, 2017 (Note 4(2))
25,000
-
Convertible debenture – November 20, 2017 (Note 4(3))
20,000
-
95,000
50,000
(i) Amounts prepaid to a Director of Mobetize
Prepaid interest on convertible debentures
$
4,099
$
5,839
(1) The promissory note was comprised of $50,000 principal, offset by $3,500 of prepaid interest. The promissory note
was converted into 4,650,000 Series B preferred shares of Mobetize.
(2) The advances from the former CFO were later used as a subscription to a private placement which included
subscriptions by the former CFO and direct family members.
(3) On July 15, 2016 the Chairman was compensated $24,000. On July 1, 2016, Mobetize entered into an agreement with
its Chairman where the Chairman would provide services to Mobetize at a monthly rate of $1,000 for a period of two
years ending on June 30, 2018.
(4) Shareholder loan balances are unsecured and due on demand.
(5) The promissory note maturing on June 2, 2017, was issued with a twelve-month term, comprises $25,000 principal, and
bears interest at 12% per annum. The principal balance includes prepaid interest of $3,000, due on maturity.
(6) The promissory note maturing on July 11, 2017, was issued with a twelve-month term, comprises $18,620 (CAD
$25,000) principal, and bears interest at 12% per annum. The principal balance includes prepaid interest of $2,234
(CAD $3,000), due on maturity.
(7) The promissory note maturing on February 14, 2017, was issued with a twelve-month term, comprised $50,000
principal, and bore interest at 12% per annum. The principal balance included prepaid interest of $6,000, due on
maturity. This promissory note was converted into 4,650,000 Series B preferred shares of Mobetize.
11
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
6. Common Stock and Preferred Stock
a) Common Shares Issued for Services:
On August 1, 2016, Mobetize settled $7,200 in shares for services through the issuance of
120,000 common shares with a fair value of $0.06 per share and a par value of $0.001 per share,
resulting in $7,080 being recorded to additional paid-in capital.
b) Authorization and Issuance of Series A Preferred Shares:
During the year ended March 31, 2016, Mobetize authorized the issuance of 250,000,000 shares
of preferred stock with a par value of $0.001 per share and 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 shares, with the exception that the Series A
Preferred Share holder has 10 votes per Series A Preferred Share versus one vote per common
share and does not have the right to convert the shares into common shares for a period of 2 years
from the date of issue.
c) Authorization and Issuance of Series B Preferred Shares:
During the nine months ended December 31, 2016, Mobetize 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 shares, 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 common shares for
a period of 2 years from the date of issue.
On June 2, 2016, Mobetize converted 4,081,481 common shares held by a company controlled by
the CEO into 4,081,481 Series B Preferred Shares, 300,000 common shares held by its Chairman
and Director into 300,000 Series B Preferred Shares, and 1,039,167 common shares held by a
Mobetize Director into 1,039,167 Series B Preferred Shares.
On July 15, 2016, Mobetize issued 200,000 Series B Preferred Shares with a fair value of $0.15
per share to settle $30,000 in services payable. $200 was recorded to Series B Preferred Shares
and $29,800 was recorded to additional paid-in capital.
On July 15, 2016, Mobetize issued 1,300,000 Series B Preferred Shares with a fair value of $0.15
per share to a company controlled by the Chairman of Mobetize to settle $24,000 in services
payable. $1,300 was recorded to Series B Preferred Shares and $22,700 was recorded to
additional paid-in capital. This transaction is considered a capital transaction, as such, the excess
fair value of the Series B Preferred shares issued has a $nil effect on additional paid-in capital.
On July 15, 2016, Mobetize issued 4,650,000 Series B Preferred Shares with a fair value of $0.15
per share to a company controlled by its CEO to settle $46,500 in an outstanding promissory note,
which included a principal of $50,000 less prepaid interest of $2,500. $4,650 was recorded to
Series B Preferred Shares and $41,850 was recorded to additional paid-in capital. This transaction
is considered a capital transaction, as such, the excess fair value of the Series B Preferred shares
issued has a $nil effect on additional paid-in capital.
12
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
6. Common Stock and Preferred Stock - Continued
c) Authorization and Issuance of Series B Preferred Shares:
On December 1, 2016, Mobetize issued 275,000 Series B Preferred Shares with a fair value of
$0.10 per share to a consultant of Mobetize to settle $27,500 in amounts owing for services
provided. $275 was recorded to Series B Preferred Shares and $27,225 was recorded to additional
paid-in capital.
7. Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
Weighted
average exercise
Number of
price
warrants
$
Balance, March 31, 2015
1,581,084
0.90
Issued
1,555,322
1.00
Exercised
(189,500)
0.50
Expired
(310,500)
0.50
Balance, March 31, 2016 and December 31, 2016
2,636,406
1.04
As at December 31, 2016, the following share purchase warrants were outstanding:
Number of warrants
Exercise price
outstanding
$
Expiry date
694,414
1.00
June 24, 2018
386,670
1.25
December 10, 2018
1,555,322
1.00
September 1, 2018
2,636,406
13
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
8. Stock Options
On August 10, 2015, Mobetize’s directors adopted the 2015 Stock Option Plan (“Stock Option Plan”)
which permits Mobetize to issue stock options for up to 3,000,000 common shares of Mobetize to
directors, officers, employees and consultants of Mobetize with a maximum term of 5 years, 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:
Weighted
average exercise
Number of
price
stock options
$
Balance, March 31, 2016
2,381,262
0.60
Expired
(288,539)
0.60
Cancelled
(32,723)
0.60
Outstanding, December 31, 2016
2,060,000
0.60
Exercisable, December 31, 2016
1,469,500
0.60
As at December 31, 2016, the following share purchase options were outstanding:
Exercise
Number of options
Number of options
price
outstanding
vested
$
Expiry date
2,060,000
1,469,500
0.60
September 30, 2020
The vested options are measured using the Black Scholes method, which included a dividend yield of
nil, risk-free interest rate of 0.68%, expected volatility of 76.7%, and expected term of 5 years.
During the nine months ended December 31, 2016, $167,033 (2015 - $600,753) in stock-based
compensation expense was recorded. The intrinsic value of the options was $nil at December 31,
2016 and March 31, 2016.
9. Concentration of Risk
Revenues are currently generated through licensing, professional services, and payment processing
services provided by Mobetize to our existing Customers. During the nine months ended December
31, 2016, Mobetize had revenues from four customers (2015 – revenues from four customers) with 56%
(2015 – 66%) of revenues generated from Mobetize’s largest customer.
14
MOBETIZE CORP.
Notes to Consolidated Financial Statements
December 31, 2016
(Expressed in U.S. dollars)
(Unaudited)
10. Commitment
Mobetize has an obligation under a rental lease for its operating office. As of December 31, 2016, the
remaining term of the lease is 21 months with monthly payments of $4,995. Mobetize’s lease includes
a renewal option.
11. Segment Information
Mobetize has currently operating segments 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. The
Mobetize’s chief operating decision maker reviews financial information presented on a consolidated
basis for purposes of allocating resources and evaluating financial performance.
12. Subsequent Events
Mobetize evaluated its December 31, 2016 financial statements for subsequent events through the
date the financial statements were issued. Mobetize is not aware of any subsequent events which
would require recognition or disclosure in the financial statements except as disclosed below.
Mobetize continues to seek recovery of 578,733 common shares and 101,726 share purchase warrants
issued as an overpayment to the Former CFO of Mobetize for consulting services and settlement of
expenses and liabilities.
On January 12, 2017, Mobetize entered into a Joint Venture Agreement (“Joint Venture”) with CPT
Secure, Inc. (“CPT”), to further develop certain payment processing technology (“CPT IP”) on a
50/50 basis. In connection with the Joint Venture, Mobetize agreed to issue 500,000 Series B
Preferred Shares to CPT in consideration for the license to the CPT IP which will be contributed to
the Joint Venture. 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.
On January 20, 2017, the holders of Convertible Debentures holding an aggregate amount of three
hundred thousand ($300,000) in convertible debt elected to convert their respective debentures at
$0.50 a share into six hundred thousand shares of Series B Preferred Shares
On January 27, 2017, Mobetize issued twelve month Convertible Debentures in the aggregate amount
of $200,000 net of $176,000 of prepaid interest to four individuals that entitles each of them to
convert any portion of the principal into Series B Preferred Shares at a price of $0.50 per share, 180
days from issue date, but no later than the maturity date.
On February 1, 2017, dated effective December 15, 2016, the Company entered into a Software
Application License, Customization Development and Service Level Agreement with Tata
Communications (America) Inc. to govern the global deployment of our Services for its customers.
The parties agreed to a five-year strategic partnership.
15
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 nine month periods ended December 31, 2016 and
December 31, 2015.
DISCUSSION AND ANALYSIS
Mobetize is an emerging Fintech (mobile delivery of banking and other financial services) company that
digitizes bricks and mortar financial services to enable the convergence of global telecom and financial
services providers through its Global Mobile B2B Fintech and Financial as a Service Marketplace
(“Hub”). This Hub provides among other things, a mobile financial services (“MFS”) white label
technology platform, that includes an individual MFS application program interface (“API”) consumption
protocol that supports services such as personal loan applications, prepaid air-time and data top ups,
international money transfers, P2P transfers, Visa™/MasterCard™ programs and bill payments on
personal computers and mobile devices (“Services”). The Hub seamlessly integrates with our customers
who can then offer our services to their own customers. Over the three and nine month period ended
December 31, 2016, we entered into the following agreements:
GF Financial Group – On September 27, 2016, effective September 20, 2016, we entered into a Software
Application License, Customization Development and Service Level Agreement with GF Financial Group
to partner in offering a mobile personal lending facility with omni-channel capabilities to its customers
built on our Fintech platform. GF Financial customers will be able to apply for and be approved for
personal loans initiated from their mobile devices. A roll out of the application is planned for the first
quarter of 2017.
CPT Joint Venture – On January 12, 2017, we entered into a Joint Venture Agreement with CPT Secure
Inc. to develop payment processing technology. Mobetize agreed to issue 500,000 Series B Preferred
Shares to CPT in consideration for the license of CPT technology to the joint venture. The license has a
two year term that can be automatically renewed for successive two year periods unless either party elects
not to renew 60 days prior to expiration. The joint venture will be formed in the first quarter of 2017.
Tata Communications – On February 1, 2017, dated effective December 15, 2016, we entered into a
Software Application License, Customization Development and Service Level Agreement with Tata
Communications (America) Inc. to govern the global deployment of our Services for its customers. The
parties agreed to a five-year strategic partnership from which we expect to generate revenue from service
level support fees and the sharing of transactional income; advance our technology alliance to accelerate
new Fintech revenue sharing opportunities; and focus our research and development partnership on
Fintech product innovation. The parties expect progress with the partnership in the first quarter of 2017.
Our business plan for the coming year is to complete the development and qualification of products under
development, and to increase sales of our existing products. Meanwhile, we will continue internal
research and development efforts and collaborate with development partners to ensure the continuity of
our product pipeline as we maintain our focus on the convergence of telecom and financial services.
16
RESULTS OF OPERATIONS
US $
US $
Three Months Ended
Nine months Ended
December 31,
December 31,
2016
2015
2016
2015
Revenues
$
149,138
$
74,383 $
365,386 $
81,460
Operating Expenses
290,093
1,007,340
1,112,138
1,727,763
Net Loss
(140,955)
(932,957)
(746,752)
(1,646,303)
Revenues
Mobetize generated $365,386 of revenue in the nine months ended December 31, 2016, compared to
revenues of $81,460 during the same period in 2015, an increase of 349%. For the three months ended
December 31, 2016, Mobetize generated $149,138 of revenue compared to $74,383 of revenue during the
same period in 2015, an increase of 100%. Revenues are generated from licensing our Services,
providing professional services, and payment processing for our customers. The increase in revenues over
the comparative three and nine month periods can be attributed to an increase in contract development
revenue and professional service receipts in the current three and nine month periods over the
corresponding prior periods.
We expect that revenues will continue to increase in future periods as Mobetize anticipates its first
transactional revenues in the first half of the calendar year 2017.
Operating Expenses
Operating expenses for the three and nine months ended December 31, 2016 and 2015 are outlined in the
following table:
US $
US $
Three Months Ended
Nine months Ended
December 31,
December 31,
2016
2015
2016
2015
Depreciation
777
918
2,377
2,349
Director compensation
3,000
-
30,000
-
General and administrative
51,278
76,211
178,988
189,627
General and administrative – related party
19,747
1,811
74,053
3,973
Investor relations and promotion
15,684
22,711
65,209
29,866
Listing fees
3,467
10,629
12,821
31,820
Consulting fees
-
104,444
21,000
278,289
Management fees – related party
29,859
30,000
98,149
90,000
Professional fees
21,015
17,986
117,720
55,996
Research and development
65,834
93,643
232,431
330,259
Research and development - related party
38,977
32,986
97,027
45,822
Sales and marketing
861
15,248
8,130
69,009
Share compensation
-
-
7,200
-
Stock-based compensation expense
39,594
600,753
167,033
600,753
Total Operating Expenses
290,093
1,007,340
1,112,138
1,727,763
NET LOSS
$
(140,955) $
(932,957) $ (746,752) $ (1,646,303)
NET LOSS PER SHARE
Basic and Diluted
$
(0.01) $
(0.03) $
(0.03) $
(0.05)
For the nine months ended December 31, 2016, operating expenses were $1,112,138 compared with
17
$1,727,763 for the nine months ended December 31, 2015, a decrease of 36%. The $615,625 decrease is
primarily attributed to a $257,289 decrease in consulting fees, a $30,390 decrease in management fees
due to the departure of a former executive officer, a $97,828 decrease in research and development costs
as products under development matured to commercial application, a $60,879 decrease in sales and
marketing, and a $433,720 decrease in stock based compensation as Mobetize moves away from issuing
equity in lieu of cash compensation. The decrease in operating expenses was offset by an increase of
$30,000 in Director compensation, an increase in general and administrative expenses paid to a related
party due to the interest expense on promissory notes, a $35,343 increase in investor relations costs
related to a new investors relations contract, a $61,724 increase in professional fees most of which is
related to public company disclosure, and a $51,205 increase in research and development costs incurred
to a related party.
For the three months ended December 31, 2016, operating costs were $290,093 compared with
$1,007,340 for the three months ended December 31, 2015, a decrease of 71%. The $717,247 decrease is
primarily attributed to a $89,585 decrease consulting fees paid to a former executive officer, and a
$561,159 decrease in stock based compensation as Mobetize moves away from issuing equity in lieu of
cash compensation. The decrease in operating expenses was offset by a $17,936 increase in general and
administrative expenses paid to a related party due to interest expense on promissory notes.
We expect that operating expenses will increase over future periods as Mobetize expands its business to
focus on joint research and development activities, enhance its product pipeline, and grow its revenue
model to include transactional sales in 2017.
Net Losses
During the nine months ended December 31, 2016, Mobetize recorded a net loss of $746,752 compared
with a net loss of $1,646,303 for the nine months ended December 31, 2015, a decrease of 55%. The
$899,551 decrease in the net loss is primarily due to the $283,926 increase in revenues, and the $615,625
decrease in total operating costs.
During the three months ended December 31, 2016, Mobetize recorded a net loss of $140,955 compared
with a net loss of $932,957 for the three months ended December 31, 2015, a decrease of 85%. The
$792,002 decrease in the net loss is primarily attributed to a $74,755 increase in revenues and the
$717,247 decrease in total operating costs.
We believe that net losses will continue to diminish over future periods as revenue is expected to grow the
effect of operating efficiencies on our business are carefully monitored to ensure the most cost effective
realization of our business plan.
Liquidity and Capital Resources
US $
December 31, 2016
March 31, 2016
Current Assets
$
145,769 $
318,827
Total Assets
154,877
330,655
Current Liabilities
856,438
541,185
Total Liabilities
856,438
588,661
Working Capital Deficiency
710,669
222,358
18
Mobetize had a working capital deficit of $710,669 as of December 31, 2016, and has funded its cash
needs since inception with revenues generated from operations, debt instruments and private equity
placements. Existing working capital and anticipated cash flow are not expected to be sufficient to fund
operations over the next twelve months.
Total current assets as of December 31, 2016, were $145,769 which consisted of $49,482 in cash, $44,723
in accounts receivable, $45,015 in prepaid expenses and deposits and $6,549 in prepaid expenses to a
related party. Total assets were $154,877 which consisted of current assets, and property and equipment
of $9,108.
Total current liabilities as of December 31, 2016, were $856,438 which consisted of accounts payable of
$202,443, accounts payable to a related party of $208,520, deposits due to customers of $980, a
promissory note due to a related party of $43,620 and convertible debentures of $340,000. Total liabilities
were $856,438 which consisted entirely of current liabilities.
Stockholders’ deficit as of December 31, 2016, was $701,561.
Cash Flows
US $
Nine months Ended
December 31,
2016
2015
Cash flows used in Operating Activities
(284,185)
(1,055,746)
Cash flows used in Investing Activities
-
(1,554)
Cash flows provided by Financing Activities
122,587
872,757
Effect of exchange rate changes on cash
739
(2,711)
Net Increase in Cash During Period
(160,859)
(187,254)
Cash flows used in Operating Activities
During the nine months ended December 31, 2016, Mobetize used $270,786 in operating activities as
compared to $1,055,746 of cash used in operating activities during the nine months ended December 31,
2015. The $771,561 change in cash used in operating activities over the comparative periods, is primarily
attributed to a number of items that are book expense items which do not affect the total amount relative
to actual cash used including depreciation, share based compensation, interest accrued on shareholder
loans, and shares issued to settle a promissory note with a related party. Balance sheet accounts that
actually affect cash, but are not income statement related items that are added or deducted to arrive at net
cash used in operating activities, include accounts receivable, shareholder loans, accounts payable and the
related party promissory note.
Mobetize expects to continue to use cash flow in operating activities until such time as diminishing losses
transition to profit on the expectation that revenues will continue to increase.
Cash flows used in Investing Activities
During the nine months ended December 31, 2016, Mobetize used $nil in investing activities compared to
$1,554 in 2015. Cash used in investing activities during the nine months ended December 31, 2015 was
due to purchase of computer equipment.
Mobetize expects to use cash flow in investing activities in future periods as it will require additional
investment to increase revenue.
19
Cash flows provided by Financing Activities
During the nine months ended December 31, 2016, Mobetize realized $122,587 in proceeds provided by
financing activities compared to $872,757 during the nine months ended December 31, 2015. Proceeds
provided by financing activities during the nine months ended December 31, 2016, were primarily from
the issuance of convertible debentures in the amount of $65,000, the issuance of a promissory note to a
related party, net of prepaid interest in the amount of $44,188. Proceeds provided by financing activities
during the nine months ended December 31, 2015 consisted of proceeds from the sale of common stock
and the exercise of warrants in the amount of $619,667, proceeds from the sale of common stock and the
exercise of warrants by related parties in the amount of $228,240.
Mobetize expects to continue to realize cash flow from financing activities 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 placements of common stock, the
exercise of warrants, the issuances of convertible debentures, and advances from directors and
shareholders. Our business plan 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 innovate new ones; and (iii) marketing expenses. We expect that our
working capital requirements will be funded over this period by a combination of revenue, shareholder
debt or equity private placements of our securities 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 to maintain
operations and grow our business would materially restrict our business operations. Financing may not be
available upon acceptable terms, or at all. Should we be successful in securing future financing new
issuances of equity or convertible debt would dilute our current shareholders and might have rights,
preferences or privileges senior to our common or preferred stock. If financing is not available to us, such
severe limitation might cause us to consider a consolidation of existing common equity as a means to
attract financing and maintain our business.
Mobetize has adopted a stock option plan pursuant to which it can grant up to 3,000,000 options to
purchase shares of its common stock to employees, directors, officers, consultants or advisors on the
terms and conditions set forth therein. As of December 31, 2016, 2,060,000 options with an exercise price
of $0.60 had been granted, 1,469,500 of which have vested. Except for the 2015 Stock Option Plan,
Mobetize has no other defined benefit plan with any of its officers or directors.
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.
20
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2016, 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, 2016, financial statements contained an
explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
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.
As of December 31, 2016, Mobetize had an accumulated deficit of $7,071,813, a history of net losses and
cash used in operating activities, and a working capital deficiency of $710,669. These factors raise
substantial doubt regarding Mobetize’s ability to continue as a going concern. The continuation of
Mobetize as a going concern is dependent upon continued financial support from management, increasing
revenue, procuring additional debt or equity financing as necessary, decreasing operating costs, realizing
commercially viable products, and generating a profit. These financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should Mobetize be unable to continue as a going concern.
CRITITCAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in Note 2 to our financial statements. While the
selection and application of any accounting policy may involve some level of subjective judgments and
estimates, we believe the following accounting policies are the most critical to our financial statements,
potentially involve the most subjective judgments in their selection and application, and are the most
susceptible to uncertainties and changing conditions.
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 statement 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.
21
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.
22
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 December 31, 2016, 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.
23
PART II. –- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any
other party involving us or our properties. As of the date of this report, no director, officer or affiliate is
(i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or that have been
threatened against us or our properties except as follows below:
Stephen J. Fowler
Mobetize received a Citation and Notice of Assessment dated October 14, 2016 (“Citation”), that Stephen
J. Fowler (“Fowler”), its former CFO, 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 $3,368.74, and a penalty of
$4,500. On November 8, 2016, Mobetize entered an appeal alleging that the calculation of amounts due
to Fowler was incorrect and that Fowler had improperly obtained shares of its common stock which it
intends to recover. Mobetize received a response from the Department of Labor and Industries dated
November 18, 2016, in which it was advised that Fowler’s claim had been transferred to the Office of the
Attorney General and that a hearing on the matter would be requested of the Office of Administrative
Hearings. A date for the hearing is yet to be assigned.
ITEM 1A. RISK FACTORS
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the
information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 21, 2016, our board of directors authorized the issuance of a convertible debenture to
Donald Duberstein convertible into shares of Mobetize’s common stock for an aggregate amount of
$20,000, net of $2,400 in pre paid interest of 6% over a one year term convertible at the option of holder
after 180 days of issuance at a $0.25 per share pursuant to the exemptions from registration provided by
Section 4(2) and Regulation D of the Securities Act of 1933, as amended (“Securities Act”).
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuance was an isolated private transaction by Mobetize that did not involve a
public offering; (2) the offeree had access to the kind of information which registration would disclose;
and (3) the offeree was a director of Mobetize and (4) the offeree was financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securities; (ii) offering only to accredited offerees; (iii)
having not violated antifraud prohibitions with the information provided to the offerees; (iv) being
available to answer questions by the offerees; and (v) providing restricted common shares and warrants to
the offerees.
On December 1, 2016, our board of directors authorized the issuance of 275,000 Series B Preferred
Shares to Kent Carasquero at a price of $0.10 per share to settle $27,500 due for agreed services pursuant
to the exemptions from registration provided by Section 4(2) and Regulation S of the Securities Act.
24
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuance was an isolated private transaction by the Company that did not
involve a public offering; (2) the offeree had access to the kind of information which registration would
disclose; and (3) the offeree was financially sophisticated.
Mobetize complied with the requirements of Regulation S of the Securities Act by having directed no
offering efforts in the United States, by offering preferred shares and only to an offeree who were outside
of the United States at the time of the offering, and ensuring that the offeree to whom the securities were
offered and authorized was a non-U.S. offerees with an address in a foreign country.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 27 of this Form 10-Q, and are incorporated herein by this reference.
25
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOBETIZE CORP.
DATE
/s/ Ajay Hans
February 14, 2017
By: Ajay Hans
Its: Chief Executive Officer and Chief Financial Officer
26
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
3.1*
Articles of Incorporation, incorporated hereto by reference to the Form S-1, filed with the Commission on
May 30, 2012.
3.1.1*
Certificate of Amendment filed on August 8, 2013 incorporated by reference to the Form 8-K filed with the
Commission on August 15, 2013.
3.1.2*
Certificate of Designation Series A Preferred filed on February 4, 2016, incorporated by reference to the
Form 8-K filed with the Commission on February 11, 2016.
3.1.3*
Certificate of Amended Designation Series A Preferred filed on May 20, 2016, incorporated by reference to
the Form 8-K filed with the Commission on June 3, 2016.
3.1.4*
Certificate of Designation Series B Preferred filed on May 23, 2016, incorporated by reference to the Form 8-
K filed with the Commission on June 3, 2016.
3.1.5*
Certificate of Amended Designation Series B Preferred filed on May 31, 2016, incorporated by reference to
the Form 8-K filed with the Commission on June 3, 2016.
3.2*
Bylaws, incorporated by reference to the Form S-1, filed with the Commission on May 30, 2012.
3.2.1*
Amended Bylaws, incorporated by reference to the Form 8-K filed with the Commission on February 11,
2016.
10.1*
Management Services Agreement between Mobetize and Alligato, Inc. dated June 1, 2013, incorporated by
reference to the Form 8-K filed with the Commission on September 16, 2013.
10.2*
Management Services Agreement between Mobetize and 053574 BC Ltd. dated June 1, 2013, incorporated
hereto by reference to the Form 8-K filed with the Commission on September 16, 2013.
10.3*
Consulting Agreement between Mobetize and Stephen Fowler dated July 15, 2013, incorporated hereto by
reference to the Form 8KA filed with the Commission on October 28, 2013.
10.4*
Assignment of Debt Agreement between Mobetize and Stephen Fowler dated April 4, 2012, incorporated by
reference to the Form 8-K/A filed with the Commission on November 22, 2013.
10.5*
License Assignment Agreement between Telepay, Inc. and Baccarat Overseas Ltd. dated August 21, 2012,
incorporated by reference to the Form 8-K filed with the Commission on September 16, 2013.
10.6*
Consulting agreement between Mobetize and Tanuki Business Consulting, Inc. dated September 23, 2013,
incorporated by reference to the Form 8-K filed with the Commission on October 1, 2013.
10.7*
Consulting Agreement between Mobetize and Hugo Cuevas-Mohr dated October 1, 2013, incorporated by
reference to the Form 8-K filed with the Commission on March 18, 2014.
10.8*
Consulting agreement between Mobetize and Institutional Marketing Services, Inc. dated November 13,
2013, incorporated by reference to the Form 8-K filed with the Commission on March 18, 2014.
10.9*
Form of Subscription Agreement with the Subscribers dated June 25, 2014, incorporated by reference to the
Form 10-K filed with the Commission on June 30, 2014.
10.10*
Management Consulting Agreement between Mobetize Corp. and Ajay Hans dated July 1, 2014, incorporated
by reference to the Form 10-K/A filed with the Commission on July 13, 2016.
Software Application License, Customization Development and Service Level Agreement dated September
20, 2016, between Mobetize and GF Financial Group (certain commercial terms have been omitted in
connection with an application pending with the Commission for confidential treatment).
Joint Venture Agreement dated January 17, 2017 between Mobetize and CPT Secure Inc.
10.13*
Software Application License, Customization Development and Service Level Agreement dated February 1,
2017, effective December 15, 2016, between Mobeitze USA Inc. and Tata Communications (America) Inc.
incorporated by reference to the Form 8-K filed with the Commission on February 6, 2017 (certain
commercial terms have been omitted in connection with an application pending with the Commission for
confidential treatment).
14 *
Code of Business Conduct and Ethics adopted by Mobetize Corp.’s Board of Directors on July 26, 2016,
incorporated by reference to the Form 10-Q filed with the Commission on August 12, 2016.
21*
Subsidiaries of Mobetize incorporated by reference to the Form 10-K/A filed with the Commission on July
13, 2016
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the
Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attached.
32.
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.
99*
2015 Mobetize Stock Option Plan dated August 10, 2015, incorporated by reference to the Form 8-K filed
with the Commission on August 11, 2015.
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB
XBRL Taxonomy Extension Label Linkbase†
101. DEF
XBRL Taxonomy Extension Label Linkbase†
101. CAL
XBRL Taxonomy Extension Label Linkbase†
101. SCH
XBRL Taxonomy Extension Schema†
*
Incorporated by reference to previous filings of the Company.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed”
or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933,
or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934,
and otherwise is not subject to liability under these section.
27