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 June 30, 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)
Issuers 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 filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company.
Large accelerated filer ☐
Accelerated filer
☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). ☐ Yes ☒ No
At August 12, 2016, the number of shares outstanding of the registrants common stock, $0.001 par
value was 23,330,233, the number of shares outstanding of registrants 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 11,570,648.
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
Financial Statements:
3
3
Consolidated Statements of Operations
4
Consolidated statements of Stockholders Equity
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
7
Item 2 .
Management's Discussion and Analysis of Financial Condition and Results of
23
Operations
Item 3 .
Quantitative and Qualitative Disclosures about Market Risk
28
Item 4 .
Controls and Procedures
28
PART II-OTHER INFORMATION
Item 1 .
Legal Proceedings and Risk Factors
29
Item 2 .
Unregistered Sales of Equity Securities and Use of Proceeds
29
Defaults Upon Senior Securities
29
Mine Safety Disclosures
29
Item 5 .
Other Information
29
Item 6 .
Exhibits
31
30
2
MOBETIZE, CORP.
Consolidated Balance Sheets
June 30, 2016
(Unaudited)
US $
JUNE 30,
MARCH 31,
2016
2016
ASSETS
Current Assets:
Cash
$
19,075
$
210,341
Accounts receivable
72,215
43,729
Prepaid expenses and deposits
52,391
59,516
Prepaid expenses and deposits related party (Note 4d)
6,508
5,241
Total Current Assets
150,189
318,827
Property and equipment, net (Note 3)
10,995
11,828
TOTAL ASSETS
$
161,184
$
330,655
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
$
189,269
$
138,956
Accounts payable and accrued liabilities - related party (Note 4d)
124,357
75,749
Deposits due to customers
1,480
1,480
Promissory note related party (Note 4d)
75,000
50,000
Convertible debenture (Note 5f)
275,000
275,000
Total Current Liabilities
665,106
541,185
Shareholder loans (Notes 4d&e)
59,073
47,476
TOTAL LIABILITIES
$
724,179
$
588,661
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 Par Value: 525,000,000 authorized and 23,330,233
common shares issued and outstanding, respectively (Note 5)
$
23,330
$
28,751
Preferred stock Class A, $0.001 Par Value: 250,000,000 authorized and
4,565,000 preferred shares issues and outstanding (Note 5d)
4,565
4,565
Preferred stock Class B, $0.001 Par Value: 250,000,000 authorized and
5,420,648 preferred shares issues and outstanding (Note 5e)
5,421
-
Share subscriptions payable
30,000
-
Share purchase warrants (Note 6)
676,964
676,964
Share options (Note 7)
830,382
757,524
Additional paid-in capital
4,608,487
4,608,487
Accumulated other comprehensive loss
(9,394)
(9,236)
Accumulated deficit
(6,732,750)
(6,325,061)
Total Stockholders' Deficiency
(562,995)
(258,006)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
$
161,184
$
330,655
The accompanying notes are an integral part of these consolidated financial statements .
3
MOBETIZE CORP.
Consolidated Statements of Operations and Comprehensive Loss
For the three months ended June 30, 2016 and 2015
(Unaudited)
US$
THREE MONTHS ENDED
JUNE 30,
2016
2015
OPERATING REVENUES
Revenues
$
75,618
$
3,335
OPERATING EXPENSES
Depreciation
805
776
General and administrative
86,878
64,800
General and administrative - related party (Note
4a&c)
2,683
1,434
Investor relations and promotion
34,515
-
Listing fees
4,052
12,235
Management salaries and consulting fees
21,000
110,366
Management salaries and consulting fees - related
party (Note 4a)
37,210
30,000
Professional fees
84,703
27,267
Research and development
102,582
111,566
Research and development - related party (Note 4a)
27,154
631
Sales and marketing
8,867
3,925
Stock based compensation expense (Note 7)
72,858
-
Total operating expenses
483,307
363,000
NET LOSS
$
(407,689)
$
(359,665)
NET LOSS PER SHARE
Basic
$
(0.02)
$
(0.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic
27,070,480
30,226,095
COMPREHENSIVE LOSS
Net loss
$
(407,689)
$
(359,665)
Other comprehensive loss:
Foreign currency translation adjustment
(158)
1,599
Comprehensive loss:
$
(407,847)
$
(358,066)
The accompanying notes are an integral part of these consolidated financial statements .
4
MOBETIZE CORP.
Consolidated Statements of Stockholders Equity
For the three months ended June 30, 2016 and the year ended March 31, 2016
(Unaudited)
Preferred Shares
Preferred Shares
Common Shares
Class A
Class B
Warrants
Accumulated
Additional
Share
Options and
Other
Total
Paid-In
Subscriptions other Reserves
Accumulated Comprehensive
Shareholders
Number
Value
Number
Value
Number
Value
Capital
Payable
(Note 8)
Deficit
Loss
Equity
Balance - March 31, 2015
30,185,505 $
30,186
- $
- $
-
-
4,030,880 $
14,303 $
423,408 $
(4,255,516) $
(2,326) $
240,935
Stock payable for consultancy
services received (Note 5a)
-
-
-
-
-
-
-
18,181
-
-
-
18,181
Sale of 161,481 shares at
$0.50/share
(Notes 5b)
161,481
161
-
-
-
-
65,022
-
15,556
-
-
80,739
Sales of 2,724,688 shares at
$0.25/share, net of $12,122
financing fee (Note 5b)
2,724,668
2,725
-
-
-
-
403,850
-
262,470
-
-
669,045
Valuation of financing warrants on
sale of shares (Notes 6d)
-
-
-
-
-
-
-
-
3,372
-
-
3,372
Exercise of warrants in the period
(Note 6a)
189,500
189
-
-
-
-
94,561
-
-
-
-
94,750
Warrants issued on exercise of
expiring warrants (Note 6a)
-
-
-
-
-
-
(18,255)
-
18,255
-
-
-
Share options issued in the period
(Note 8)
-
-
-
-
-
-
-
-
711,427
-
-
711,427
Conversion of common to
preferred shares
(Note 5d)
(4,565,000)
(4,565) 4,565,000
4,565
-
-
-
-
-
-
-
Shares issued for services (Note
5a)
54,727
55
-
-
-
-
32,429
(32,484)
-
-
-
-
Net loss for the year
-
-
-
-
-
-
-
-
-
(2,069,545)
-
(2,069,545)
Comprehensive loss for the year
-
-
-
-
-
-
-
-
-
-
(6,910)
(6,910)
Balance March 31, 2016
28,750,881 $
28,751 4,565,000 $
4,565 $
- $
- $ 4,608,487 $
- $
1,434,488 $
(6,325,061) $
(9,236) $
(258,006)
Stock payable for consultancy
services received (Note 5a)
-
-
-
-
-
-
-
30,000
-
-
-
30,000
Conversion of common to
preferred shares (Note 5e)
(5,420,648)
(5,421)
-
- 5,420,648
5,421
-
-
-
-
-
-
Share option expense in the period
(Note 8)
-
-
-
-
-
-
-
-
72,858
-
-
72,858
Net Loss for the year
(407,689)
(407,689)
Comprehensive loss
(158)
(158)
Balance June 30, 2016
23,330,233 $
23,330 4,565,000 $
4,565 $ 5,240,648 $
5,421 $ 4,608,487 $
30,000 $
1,507,346 $
(6,732,750) $
(9,394) $
(562,995)
The accompanying notes are an integral part of these consolidated financial statements .
5
MOBETIZE CORP.
Consolidated Statements of Cash Flow
For the three months ended June 30, 2016 and 2015
(Unaudited)
US$
THREE MONTHS ENDED
JUNE 30,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(407,689)
$
(359,665)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense
805
776
Shares issued for services
30,000
6,630
Interest accrued on shareholder loans
950
-
Amounts due to related parties
10,647
-
Share based compensation
72,858
-
Changes in assets and liabilities
Accounts receivable
(28,486)
(3,431)
Accounts receivable related party
-
14,687
Prepaid expenses and deposits
7,125
17,335
Prepaid expenses and deposits related party
(1,267)
-
Accounts payables and accrued liabilities
50,313
42,218
Accounts payable - related party
48,608
(51,231)
Net cash used in operating activities
(216,136)
(332,681)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment
-
(1,742)
Net cash used in investing activities
-
(1,742)
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from sale of common stock
-
92,250
Proceeds from related party
25,000
81,106
Net cash provided by financing activities
25,000
173,356
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(130)
1,377
NET DECREASE IN CASH
(191,266)
(159,690)
CASH - BEGINNING OF PERIOD
210,341
312,899
CASH - END OF PERIOD
$
19,075
$
153,209
CASH PAID DURING THE PERIOD FOR:
Interest expense
$
-
$
-
Tax expense
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
6
MOBETIZE CORP.
Notes to the Consolidated Financial Statements
June 30, 2016
(Unaudited)
1. Nature of Operations and Continuance of Business
Mobetize, Corp. (the Company) was incorporated in the state of Nevada on February 23, 2012,
under the name Slavia, Corp.
Mobetize Corp. is an emerging Fintech Company which provides Fintech solutions and services to
enable and support the convergence of global telecom and financial services providers (Customers).
This is achieved through the Companys Global Mobile B2B Fintech and Financial Services
Marketplace (Hub). Mobetize is focused on selling Fintech solutions and services to global telecom
and financial services providers.
The Companys activities are subject to significant risks and uncertainties, including the need to
secure additional funding to operationalize the Companys current technology before another
company develops competitive products.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies
that the Company will continue to realize its assets and discharge its liabilities in the normal course of
business. As of June 30, 2016, the Company has an accumulated deficit of $6,732,750, a history of
net losses and cash used in operating activities, and working capital deficiency of $514,917. These
factors raise substantial doubt regarding the Companys ability to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the continued financial support
from its management, generating higher sales in the upcoming quarterly periods according to the
budget, managements ability to obtain the necessary debt or equity financing, cutting operating costs,
launching viable products, and generating profitable operations overall from the Companys future
operations. These financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
The interim consolidated financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States (US GAAP) which include
the accounts of Mobetize Canada Inc. and Mobetize USA Inc., both of which are wholly-owned
subsidiaries of the Company. The consolidated financial statements are expressed in U.S. dollars.
All significant intercompany transactions and balances have been eliminated. The Companys
fiscal year end is March 31.
b) Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
7
The Company regularly evaluates estimates and assumptions related to the collectability of
accounts receivable, valuation of intangible assets, revenue recognition, fair value of stock-based
compensation, and deferred income tax asset valuation allowances. The Company bases its
estimates and assumptions on current facts, historical experience and various other factors that it
believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced by the Company
may differ materially and adversely from the Companys estimates. To the extent there are
material differences between the estimates and the actual results, future results of operations will
be affected.
c) Financial Statements
These consolidated financial statements have been prepared in the opinion of management to
reflect all adjustments, which include only normal recurring adjustments, necessary to present
fairly the Companys financial position, results of operations and cash flows for the periods
shown. The results of operations for such periods are not necessarily indicative of the results
expected for a full year or for any future period.
d) Cash
The Company considers all highly liquid instruments with maturity of three months or less at the
time of issuance to be cash equivalents. As of June 30, 2016 and 2015, the Company had no cash
equivalents.
e) Accounts Receivable
The Company evaluates the collectability of accounts receivable based on the age of receivable
balances and customer credit-worthiness. If the Company determines that financial conditions of
its customers have deteriorated, an allowance for doubtful accounts may be made or the accounts
receivable written off if all collection attempts have failed.
f) Prepaid Expenses
The Company pays for some services in advance and recognizes these expenses as prepaid at the
balance sheet date. If certain prepaid expenses extend beyond one-year, those are classified as
non-current assets.
g) Revenue Recognition
The Company recognizes revenue from licensing and professional fees. Revenue will be
recognized only when the price is fixed and determinable, persuasive evidence of an arrangement
exists, the service has been provided, and collectability is reasonably assured.
h) Property and Equipment
Property and equipment is accounted for at cost less accumulated depreciation and includes
computer equipment and office furniture. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, which are five years.
i) Research and Development Costs
The Company incurs research and development costs during the course of its operations. The
costs are expensed except in cases where development costs meet certain identifiable criteria for
capitalization. Capitalized development costs are amortized over the life of the related
commercial production.
8
j) Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation
Stock Compensation, which requires the measurement and recognition of compensation expense
based on estimated fair values for all share-based awards made to employees and directors,
including stock options.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant
using an option-pricing model. The Company uses the Black-Scholes option-pricing model as its
method of determining fair value. This model is affected by the Companys stock price as well as
assumptions regarding a number of subjective variables.
These subjective variables include, but are not limited to the Companys 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 comprehensive loss over the requisite service
period.
Options granted to consultants are valued at the fair value of the equity instruments issued, or the
fair value of the services received, whichever is more reliably measureable.
k) Income Taxes
Deferred income taxes are determined using the liability method for the temporary differences
between the financial reporting basis and income tax basis of the Companys assets and liabilities.
Deferred income taxes are measured based on the tax rates expected to be in effect when the
temporary differences are included in the Companys tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their respective tax bases.
The Companys policy is to recognize penalties and interest, if any, related to uncertain tax
positions as general and administrative expense.
l) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per
Share. ASC 260 requires presentation of basic and diluted earnings per share (EPS) on the face
of the income statement. Basic EPS is computed by dividing net loss available to common
shareholders and preferred shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the
exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their
effect is anti-dilutive. Due to the continued losses in the Company, all convertible instruments,
stock options, and warrants are considered anti-dilutive. Consequently, as of June 30, 2016, the
Company has nil (2015 nil) potentially dilutive shares.
m) Comprehensive Loss
ASC 220, Comprehensive Income , establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements.
9
n) Financial Instruments / Concentration
Financial instruments consist principally of cash, accounts receivable, accounts payable, deposits
due to customers, promissory note, shareholder loans, and due to related parties. Pursuant to ASC
820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments the fair
value of cash is determined based on Level 1 inputs, which consist of quoted prices in active
markets for identical assets.
The recorded values of all other financial instruments approximate their current fair values
because of their nature and respective relatively short maturity dates and current market rates for
similar instruments. The Company is exposed to credit risk through its cash and accounts
receivable, but mitigates this risk by keeping deposits at major financial institutions and
advancing credit only to bona fide creditworthy entities. The maximum amount of credit risk is
equal to the carrying amount.
o) Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures , an entity is required to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure fair value. A financial
instruments categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels
that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for
identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market
data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation
methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Companys financial instruments consist principally of cash, amounts receivable, accounts
payable and accrued liabilities, and amounts due to related parties. Pursuant to ASC 820, the fair
value of our cash is determined based on Level 1 inputs, which consist of quoted prices in
active markets for identical assets. We believe that the recorded values of all of our other
financial instruments approximate their current fair values because of their nature and respective
maturity dates or durations.
10
p) Embedded Conversion Features
The Company 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 earnings. 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.
q) Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. The Company evaluates all of it financial instruments, including stock
purchase warrants, 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. For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the
derivative instruments at inception and subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
r) Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the
Company records a Beneficial Conversion Feature (the "BCF") and related debt discount.
When the Company records a BCF, the intrinsic value method of the BCF is recorded as a debt
discount against the face amount of the respective debt instrument (offset to additional paid in
capital) and amortized to interest expense over the life of the debt. The Company has determined
that there is no BCF with its convertible debt.
s) Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as
warrants). These costs are amortized to interest expense over the life of the debt. If a conversion
of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately
expensed.
11
t) Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. The Company evaluates all of it financial instruments, including stock
purchase warrants, 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. For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the
derivative instruments at inception and subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
u) Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the
Company records a Beneficial Conversion Feature (the "BCF") and related debt discount.
When the Company records a BCF, the intrinsic value method of the BCF is recorded as a debt
discount against the face amount of the respective debt instrument (offset to additional paid in
capital) and amortized to interest expense over the life of the debt. The Company has determined
that there is no BCF with its convertible debt.
v) Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as
warrants). These costs are amortized to interest expense over the life of the debt. If a conversion
of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately
expensed.
w) Foreign Currency
The functional and reporting currency of the Company and its subsidiary, Mobetize USA Inc. is
the United States Dollar. The functional currency of the Companys international subsidiary,
Mobetize Canada Inc., is the local currency, which is Canadian dollar. The Company translates
the financial statements of this subsidiary to U.S. dollars in accordance with ASC 740, Foreign
Currency Translation Matters using month-end rates of exchange for assets and liabilities, and
average rates for the annual period are derived from daily spot rates for revenues and expenses.
Translation gains and losses are recorded in accumulated other comprehensive income as a
component of stockholders equity. The Company has not, to the date of these consolidated
financial statements, entered into derivative instruments to offset the impact of foreign currency
fluctuations.
12
x) 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 the Companys 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. The Company
adopted this ASU on April 1, 2016 prospectively. The adoption of this ASU does not have a
material effect on the Companys consolidated financial statements.
y) Recent Accounting Pronouncements
In May 2014, ASU guidance was issued related to revenue from contracts with customers. The
new standard provides a five-step approach to be applied to all contracts with customers and also
requires expanded disclosures about revenue recognition. The ASU is effective for annual
reporting periods beginning after December 15, 2017, including interim periods and is to be
retrospectively applied. Early application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting
period. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
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 in a classified 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. The Company is
currently evaluating this guidance and the impact it will have on its consolidated financial
statements.
13
In February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840,
Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under previous
GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize lease assets and lease
liabilities. If a lessee makes this election, it should recognize lease expense for such leases
generally on a straight-line basis over the lease term. The accounting applied by a lessor is
largely unchanged from that applied under previous GAAP. Topic 842 will be effective for
annual reporting periods beginning after December 15, 2018, including interim periods within
those annual periods and is to be retrospectively applied. Earlier application is permitted. The
Company 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. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
3. Property and Equipment
Property and equipment, net consisted of the following:
June 30,
March 31,
2016
2016
Computer equipment
$ 14,743
$ 14,787
Furniture
1,200
1,204
Total
15,943
15,991
Less: Accumulated amortization
4,948
4,163
Property and equipment, net
$ 10,995
$ 11,828
During the three months ended June 30, 2016, property and equipment decreased by $35 as a result of
foreign currency translation adjustments.
14
4. Related Party Transactions
a) During the three month period ended June 30, 2016, the Company incurred $22,500 (2015 -
$30,000) of management fees, $27,154 (2015 - $631) of development and engineering fees, and
$2,233 (2015 - $1,434) of general and administrative expenses to companies controlled by the
Chief Executive Officer (CEO) of the Company.
b) During the three month period ended June 30, 2016, the Company received an advance of
$25,000 (2015 - $nil) from a company controlled by the CEO.
c) During the three month period ended June 30, 2016, the Company incurred $450 (2015 - $nil) of
general and administrative expenses to the former Chief Financial Officer (Former CFO), also a
significant shareholder of the Company.
d) As at June 30, 2016, the Company owes to companies controlled by the CEO $42,033 (March 31,
2016 - $41,533) in shareholder loans, $52,500 (March 31, 2016 - $30,000) in management fees,
$71,857 (March 31, 2016 - $45,749) in amounts payable for services received and expenses
incurred by the Company, and $68,492 (March 31, 2016 - $44,759) in two promissory notes
(described below) which comprise $75,000 (March 31, 2016 - $50,000) principal less $6,508
(March 31, 2016 - $5,241) in prepaid interest. The first promissory note has a twelve month term
with $50,000 (March 31, 2016 - $50,000) principal due on maturity (February 14, 2017) and 12%
annual interest rate with $6,000 (March 31, 2016 - $6,000) interest prepaid to the holder. The
second promissory note has a twelve month term with $25,000 (March 31, 2016 - $nil) principal
due on maturity (June 2, 2017) and 12% annual interest rate with $3,000 (March 31, 2016 - $nil)
interest prepaid to the holder.
e) As at June 30, 2016, the Company has recorded an obligation of $17,040 (March 31, 2016 -
$5,943) to the Former CFO or a company controlled by the Former CFO in shareholder loan.
Amount owed to the Former CFO is unsecured and due on demand.
15
5. Common Stock and Preferred Stock
a) Shares for Services:
During the three month period ended June 30, 2016 and the twelve month period ended March
31, 2016, the Company entered into various consulting and advisory agreements with consultants
and advisors to provide services in exchange for shares and/or cash, as applicable. Shares issued
for services have been valued at the service value amount and exchanged to common shares
based on either the quoted closing price of the Companys common stock on the date of
settlement, or where issuance is delayed, at the average market price of the Companys stock for
the respective period of service, as applicable.
During the three month period ended June 30, 2016, the Company incurred $30,000 (twelve
month period ended March 31, 2016 - $18,181) in shares for services, and settled $nil (twelve
month period ended March 31, 2016 - $32,484) of services into common shares with nil (twelve
month period ended March 31, 2016 - 54,727) common shares issued at $0.001 per share and $nil
(twelve month period ended March 31, 2016 - $32,429) recorded to additional paid-in capital as
follows:
§ On March 31, 2016, the Company issued 54,727 shares at $0.001 per share with $32,429
recorded to additional paid-in capital to settle $32,484 of services payable in common
shares.
§ As at June 30, 2016, $30,000 (March 31, 2016 - $nil) was included in share subscriptions
payable for consulting services provided.
b) Private Placements:
During the three month period ended June 30, 2016 and the twelve month period ended March
31, 2016, the Company conducted four private placements of investment units comprising
common shares and warrants, as follows:
§ On September 1, 2015, the Company closed a private placement under which it sold
2,724,668 investment units for $0.25 per unit for gross proceeds of $681,167, which were
exclusively offered to subscribers of previous $0.75 private placements. Each investment
unit consists of one common share of the Companys stock and one half-warrant. The
1,362,332 warrants are exercisable at $1.00 per share and are valid for three years from
the date of issue. $8,750 cash financing fees and 17,500 financing warrants with a value
of $3,372 are payable with this private placement.
§ On September 1, 2015, the Company closed a private placement under which it sold
161,481 investment units for $0.50 per unit for gross proceeds of $80,739. Each
investment unit consists of one common share of the Companys stock and one half-
warrant. The 80,740 warrants are exercisable at $1.00 per share and are valid for three
years from the date of issue. Neither financing fees nor financing warrants were payable
with this private placement.
16
c) Issuance of Shares on Exercise of Warrants, Options, and Settlement of Amounts:
§ On June 10, 2015, the Company issued 184,500 shares at a price of $0.50 per share for
proceeds of $92,250 upon the exercise of warrants. $184 was recorded to common shares
at the par value of $0.001 per share and $92,066 was recorded to additional paid-in
capital.
§ On August 15, 2015, the Company issued 5,000 shares at a price of $0.50 per share for
proceeds of $2,500 upon the exercise of warrants. $5 was recorded to common shares at
the par value of $0.001 per share and $2,495 was recorded to additional paid-in capital.
d) Authorization and Issuance of Series A Preferred Shares:
During the year ended March 31, 2016, the Company 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 sell the shares for a period of 2 years from the date
of issue.
On February 4, 2016, the Company converted 4,565,000 common shares held by the CEO of the
Company into 4,565,000 Series A Preferred Shares.
As at June 30, 2016 4,565,000 (March 31, 2016 - 4,565,000) Series A Preferred Shares were
issued and outstanding.
e) Authorization and Issuance of Series B Preferred Shares:
During the three months ended June 30, 2016, the Company designated 25,000,000 shares of the
authorized preferred stock as Series B preferred shares (Series B Preferred Shares). The Series
B Preferred Shares have the same rights and privileges as the common 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, the Company 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
the Companys Chairman and Director into 300,000 Series B Preferred Shares, and 1,039,167
common shares held by the Companys Director into 1,039,167 Series B Preferred Shares.
As at June 30, 2016, 5,420,648 (March 31, 2016 nil) Series B Preferred Shares were issued and
outstanding.
17
f) Convertible Debenture:
In March 2016, the Company closed a convertible debenture financing for gross proceeds of
$275,000 (the Convertible Debentures), net of $30,000 of prepaid interest, noting that $3,000 of
prepaid interest was paid by the Company to one Convertible Debenture holder after year end.
The Convertible Debentures have a 12 month term, 12% annual interest rate, pay the holder 12
months of prepaid interest on issuance, and have a conversion feature exercisable at the option of
the holder (the Conversion Feature). The Conversion Feature enables the holder to convert any
portion of their outstanding Convertible Debenture principal balance into common shares at a
variable and discounted conversion price (Conversion Price - see below) after 180 days from
issue date, but no later than the maturity date. The Conversion Price is calculated as a 50%
discount to the average of the three lowest closing market prices over any ten day trading period,
ending one day prior to a notice of conversion provided by the holder. The Conversion Feature
represents an embedded contingent redemption feature and is accounted for as a derivative. The
fair value of the contingent redemption feature is immaterial and therefore not recognized at
inception, at March 31, 2016, and at June 30, 2016.
18
6. Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
Weighted average
Number of warrants
exercise price (US$)
Balance, March 31, 2015
1,581,084
0.90
Exercised, June 10, 2015
(184,500)
0.50
Exercised, August 15, 2015
(5,000)
0.50
Issued, July 15, 2015
94,750
1.00
Issued, September 1, 2015
1,460,572
1.00
Expired, September 2, 2015
(310,500)
0.50
Balance, March 31, 2016
2,636,406
1.04
Balance, June 30, 2016
2,636,406
1.04
a) On July 15, 2015, 94,750 warrants were issued with an exercise price of $1.00 and a three year
term ending September 1, 2018 to holders of the September 3, 2013 warrants who had exercised a
total of 189,500 warrants during the six months ended September 30, 2015 prior to the expiry
date of September 2, 2015. These warrant holders each received a half warrant for each full
warrant they exercised. These warrants were valued at $18,255 using the Black Scholes method
criteria as below.
b) On September 1, 2015, 1,362,332 warrants were issued with an exercise price of $1.00 and a
three year term ending September 1, 2018 to the parties participating in the $0.25 private
placement for common shares ($0.25 PP) in the quarter. Each subscriber to the private
placement received a half warrant for each common share they subscribed for. These warrants
were valued at $262,470 using the Black Scholes method criteria as below.
c) On September 1, 2015, 80,740 warrants were issued with an exercise price of $1.00 and a three
year term ending September 1, 2018 to the parties participating in the $0.50 private placement for
common shares ($0.50 PP) in the quarter. Each subscriber to the private placement received a
half warrant for each common share they subscribed for. These warrants were valued at $15,566
using the Black Scholes method criteria as below.
d) On September 1, 2015, 17,500 finders warrants were issued with an exercise price of $1.00 and a
three year term ending September 1, 2018 to an arms-length third party assisting in the $0.25 PP.
These warrants were valued at $3,372 using the Black Scholes method criteria as below.
Each of the warrant issuances above were valued using the Black Scholes method, which included
the dividend yield as nil, risk-free interest rate of 1.07%, expected volatility of 70.42%, and expected
term of 3 years.
As at June 30, 2016, the following share purchase warrants were outstanding:
Number of warrants
Exercise
outstanding
price (US$)
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
19
7. Share Options
The following table summarizes the continuity of share purchase options:
Weighted average
Number of options
exercise price (US$)
Balance, March 31, 2015
57,291
1.25
Issued in period
2,630,000
0.60
Expired in period
(36,000)
0.65
Cancelled in period
(270,029)
0.74
Balance, March 31, 2016
2,381,262
0.60
Expired in period
(40,129)
0.60
Cancelled in period
(30,400)
0.60
Balance, June 30, 2016
2,310,733
0.60
As at June 30, 2016, the following share purchase options were outstanding:
Number of options
Number of options
Exercise
outstanding
vested
price (US$)
Expiry date
2,310,733
1,417,233
0.60
September 30, 2020
On August 10, 2015, the Companys directors adopted the 2015 Stock Option Plan (Stock Option
Plan) which permits the Company to issue stock options for up to 3,000,000 common shares of the
Company to directors, officers, employees and consultants of the Company. The 3,000,000 shares
allocation was approximately 10% of the issued and outstanding shares as of August 10, 2015.
On October 1, 2015, 2,630,000 stock options from the Stock Option Plan were issued to directors,
employees, advisors and consultants for the exercise of up to 2,630,000 common shares with a $0.60
exercise price, a 5 year life, and vesting terms ranging from immediate to 32 months depending,
generally, on the tenure of staff.
The vested options are measured using the Black Scholes method, which included the dividend yield
of nil, risk-free interest rate of 0.68%, expected volatility of 76.7%, and expected term of 5 years. As
at March 31, 2016, 1,294,262, of the granted options were vested, nil were exercised, 36,000 expired,
and 212,738 of the unvested options were cancelled leaving 1,087,000 options unvested.
As at June 30, 2016, 1,417,233 of the granted options were vested, nil were exercised, 40,129
expired, and 30,400 of the unvested options were cancelled leaving 893,500 options unvested.
During the three months ended June 30, 2016 $72,858 (2015 - $nil) in stock based compensation
expense was recorded.
20
8. Reserves
The Company had the following Share Purchase Warrants and Share Options in Reserves:
Share Purchase
Warrants
Share Options
Total
(Note 7)
(Note 7)
Reserves
Balance - March 31, 2015
$
377,311 $
46,097
$
423,408
Sale of 161,481 shares at
$0.50/share (Note 7c)
15,556
-
15,556
Sale of 2,724,688 shares at
$0.25/share, net of $12,122
financing fee (Note 7b)
262,470
-
262,470
Valuation of financing warrants
(Note 7d)
3,372
-
3,372
Warrants issued on exercise of
expiring warrants (Note 7a)
18,255
-
18,255
Share options issued in the period
-
711,427
711,427
Balance March 31, 2016
$
676,964 $
757,524
$
1,434,488
Share option compensation
incurred in the period
-
72,858
72,858
Balance June 30, 2016
$
676,964 $
830,382
$
1,507,346
9. Concentration of Risk
During the three months period ending June 30, 2016, revenues generated were $75,618 compared to
revenues of $3,335 during the same period in 2015. Revenues are generated through consulting
services provided by Mobetize to existing customers, payment processing, and licensing.
During the three months ended June 30, 2016 the Company had revenues from five customers (2015
revenues from two customers) with 77% (2015 nil) of revenues generated from the Companys
largest customer.
10. Commitment and Contingencies
The Company has an obligation under a rental lease for its operating office. As of June 30, 2016, the
remaining term of the lease is three months with monthly payments of $4,900. The Companys lease
includes a renewal option.
11. Supplemental Cash Flow Disclosures
US$
Quarter ended June 30,
2016
2015
SUPPLEMENTAL NONCASH
INFORMATION:
Shares issued for services
30,000
6,630
21
12. Segment Information
The Company has currently one operating segment located in Canada. Therefore, there is a single
reportable segment and operating unit structure. The Companys chief operating decision maker
reviews financial information presented on a consolidated basis for purposes of allocating resources
and evaluating financial performance.
13. Subsequent Events
Subsequent to June 30, 2016, the Company continues to seek recovery of 578,733 common shares
and 101,726 share purchase warrants issued as an overpayment to the Former CFO of the Company in
consulting services and settlement of expenses and liabilities.
On July 12, 2016, the Company issued a CAD $25,000, equivalent to USD $19,231, promissory note
to the Companys CEO. The note has a 12 month term, 12% annual interest rate, and pays the holder
12 months of prepaid interest on issuance.
On July 15, 2016, the Company entered into Consulting Agreement with the company controlled by
the Companys Chairman pursuant to which a monthly compensation of $1,000 is to be paid by the
Company for consulting services provided.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company
controlled by the Companys Chairman pursuant to which the Company agreed to settle an amount of
$24,000 for services rendered by the Chairman in exchange for 1,300,000 Series B Preferred Shares.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company
controlled by the Companys CEO pursuant to which the Company agreed to settle an amount of
$46,500, which included a principal of $50,000 less prepaid interest of $2,500, in outstanding
promissory note in exchange for 4,650,000 Series B Preferred Shares.
On July 22, 2016, the Company issued a $25,000 convertible note, net of $3,000 prepaid interest to a
Director of the Company. The note has a 12 month term, 12% annual interest rate, pays the holder 12
months of prepaid interest on issuance, and has a Conversion Feature 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 common shares at a variable and discounted Conversion
Price after 180 days from issue date, but no later than the maturity date. The Conversion Price is
calculated as a 50% discount to the average of the three lowest closing market prices over any ten day
trading period, ending one day prior to a notice of conversion provided by the holder.
On July 26, 2016, the Company adopted Audit Committee Charter, Business Code of Conduct and
Ethics, Insider Trading Policy, appointed the Companys Chairman and Director as members of the
Audit Committee, and appointed the Companys Chief Financial Officer as the Corporations
Compliance Officer.
22
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our financial statements, which are included
elsewhere in this Form 10-Q (Report). This Report contains forward-looking statements which relate to
future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, expects, plans, anticipates, believes,
estimates, predicts, potential or continue or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown risks, uncertainties,
and other factors that may cause our or our industrys actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
In evaluating these statements, you should consider various factors which may cause our actual results to
differ materially from any forward-looking statements. Although we believe that the predictions reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
We are considered a development stage company. Our auditors have issued a going concern opinion on
the financial statements for the year ended March 31, 2016. The continuation of Mobetize as a going
concern is dependent upon the continued financial support from its management, and its ability to identify
future investment opportunities and obtain the necessary debt or equity financing, cutting operating costs,
launching a viable product, and generating profitable operations from our future operations.
Mobetizes plan of operation for the coming year is to finalize Version 2.2 of our Fintech suite, complete
the development and qualification of products in our pipeline, and 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 focused on the convergence of telecom and
financial services.
RESULTS OF OPERATION
Operating Revenues, Operating Expenses and Net Loss
US$
Three Months Ended
June 30,
2016
2015
Operating revenues
$
75,618
$
3,335
Operating expenses
483,307
363,000
Net loss from operations
(407,689)
(359,665)
Net loss
(407,689)
(359,665)
During the three month period ending June 30, 2016, revenues generated were $75,618 compared to
revenues of $3,335 during the same period in 2015. Revenues are currently generated through licensing,
consulting, and payment processing services provided by Mobetize to our existing Customers.
23
Our operating expenses for the three months ended June 30, 2016 and 2015 are outlined in the following
table:
US$
Three Months Ended
June 30,
2016
2015
Depreciation
$
805
$
776
General and administrative
86,878
64,800
General and administrative - related party
2,683
1,434
Investor relations and promotion
34,515
-
Listing fees
4,052
12,235
Management salaries and consulting fees
21,000
110,366
Management salaries and consulting fees - related
party
37,210
30,000
Professional fees
84,703
27,267
Research and development
102,582
111,566
Research and development - related party
27,154
631
Sales and marketing
8,867
3,925
Stock based compensation expense
72,858
-
Total
483,307
363,000
During the three months ended June 30, 2016 operating costs were $483,307 compared with $363,000
during the three months ended June 30, 2015. Compared to the three month period ended June 30, 2015,
general and administrative costs increased by $23,327, investor relations and promotion increased by
$34,515, professional fees increased by $57,436, research and development increased by $17,539, and
stock based compensation expense increased by $72,858. The increases were offset by a $82,156 decrease
in management salaries and consulting fees.
During the three months ended June 30, 2016, the Company recorded a net loss of $407,689 compared
with a net loss of $359,665 for the three months ended June 30, 2015. The $48,024 increase in net loss is
mostly due to a $72,858 increase in stock based compensation expense and a $34,515 increase in investor
relations and promotion expense, partially offset by a $82,156 decrease in management salaries and
consulting fees during the three months ended June 30, 2016, compared to the three months ended June
30, 2015.
Liquidity and Capital Resources
US $
June 30, 2016
March 31, 2016
Current assets
$
150,189 $
318,827
Current liabilities
665,106
541,185
Working capital deficiency
$
514,917 $
222,358
As at June 30, 2016, our companys cash balance was $19,075 and total assets were $196,270, compared
to cash balance of $210,341 and total assets of $330,655 as at March 31, 2016. The decrease in the cash
balance is attributed to the ongoing use of cash in operating activities.
As at June 30, 2016, our company had total liabilities of $724,179 compared with total liabilities of
$588,661 as at March 31, 2016. The increase in total liabilities is attributed to increases in accounts
payable and amounts due to related parties.
As at June 30, 2016, our company had working capital deficiency of $514,917 compared with working
capital deficiency of $222,358 at March 31, 2016 with the increase in working capital deficiency
attributed to the ongoing use of cash in operating activities.
24
Cash Flows
US$
Three Months Ended
June 30,
2016
2015
Cash flows used in operating activities
$
(216,136)
$
(332,681)
Cash flows used in investing activities
-
(1,742)
Cash flows provided by financing activities
25,000
173,356
Effect of Exchange rate changes on cash
(130)
1,377
Net Change in Cash During Period
$
(191,266)
$
(159,690)
Cash flow used in Operating Activities
During the three months ended June 30, 2016, our company used $216,136 of cash for operating activities
compared to $332,681 of cash for operating activities during the three months ended June 30, 2015. The
decrease in the use of cash for operating activities is mostly due to increase in accounts payable and
amounts due to related parties.
Cash flow used in Investing Activities
During the three months ended June 30, 2016 our company did not use any cash in investing activities
compared to $1,742 cash used to purchase computer equipment during the three months ended June 30,
2015.
Cash flow from Financing Activities
During the three months ended June 30, 2016, our company received $25,000 of proceeds from financing
activities in return for the issuance of promissory note to the Companys CEO. During the three months
ended June 30, 2015, our company received $173,356 in financing proceeds, which consisted of the
exercise of warrant shares issued in September 2013 for $92,250, an advance of $40,085 from the CEO,
and an advance of $41,021 from the Former CFO during the three months ended June 30, 2015.
SUBSEQUENT DEVELOPMENTS
Subsequent to June 30, 2016, the Company continues to seek recovery of 578,733 common shares and
101,726 share purchase warrants issued as an overpayment to the Former CFO of the Company in
consulting services and settlement of expenses and liabilities.
On July 12, 2016, the Company issued a CAD $25,000, equivalent to USD $19,231, promissory note to
the Companys CEO. The note has a 12 month term, 12% annual interest rate, and pays the holder 12
months of prepaid interest on issuance.
On July 15, 2016, the Company entered into Consulting Agreement with the company controlled by the
Companys Chairman pursuant to which a monthly compensation of $1,000 is to be paid by the Company
for consulting services provided.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company controlled
by the Companys Chairman pursuant to which the Company agreed to settle an amount of $24,000 for
services rendered by the Chairman in exchange for 1,300,000 Series B Preferred Shares.
On July 15, 2016, the Company entered into a Debt Settlement Agreement with the company controlled
by the Companys CEO pursuant to which the Company agreed to settle an amount of $46,500, which
included a principal of $50,000 less prepaid interest of $3,500, in outstanding promissory note in
exchange for 4,650,000 Series B Preferred Shares.
25
On July 22, 2016, the Company issued a $25,000 convertible note, net of $3,000 prepaid interest to a
Director of the Company. The note has a 12 month term, 12% annual interest rate, pays the holder 12
months of prepaid interest on issuance, and has a Conversion Feature 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 common shares at a variable and discounted Conversion Price after 180
days from issue date, but no later than the maturity date. The Conversion Price is calculated as a 50%
discount to the average of the three lowest closing market prices over any ten day trading period, ending
one day prior to a notice of conversion provided by the holder.
On July 26, 2016, the Company adopted Audit Committee Charter, Business Code of Conduct and Ethics,
Insider Trading Policy, appointed the Companys Chairman and Director as members of the Audit
Committee, and appointed the Companys Chief Financial Officer as the Corporations Compliance
Officer.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through a combination of
increased sales during upcoming quarterly periods, our existing funds, further issuances of securities in
the form of debt or equity. Our working capital requirements are expected to increase in line with the
growth of our business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to
be adequate to fund our operations over the next twelve months. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through the proceeds of the
private placement of equity, advances from directors, and issuance of Promissory Notes as well as
Convertible Debentures. In connection with our business plan, management anticipates additional
increases in operating expenses and capital expenditures relating to: (i) developmental expenses
associated with a start-up business and (ii) marketing expenses. We intend to finance these expenses with
further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional
capital and generate revenues to meet long-term operating requirements. We currently have no
agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of
credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability
to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable
company. Additional issuances of equity or convertible debt securities will result in dilution to our current
shareholders. Further, such securities might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are
not available or are not available on acceptable terms, we may not be able to take advantage of
prospective new business endeavors or opportunities, which could significantly and materially restrict our
business operations.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Report, we do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our March 31, 2016 financial statements contained an
explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
26
These consolidated financial statements have been prepared on a going concern basis, which implies that
the Company will continue to realize its assets and discharge its liabilities in the normal course of
business. As of June 30, 2016, the Company has an accumulated deficit of $6,732,750, a history of net
losses and cash used in operating activities, and working capital deficiency of $514,917. These factors
raise substantial doubt regarding the Companys ability to continue as a going concern. The continuation
of the Company as a going concern is dependent upon the continued financial support from its
management, generating higher sales in the upcoming quarterly periods according to the budget,
managements ability to obtain the necessary debt or equity financing, cutting operating costs, launching a
viable product, and generating profitable operations overall from the Companys future operations. These
financial statements do not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
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 consulting 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 Mobetizes stock price as well as assumptions regarding
a number of subjective variables. These subjective variables include, but are not limited to Mobetizes
expected stock price volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is
recognized as an expense in the statement of consolidated comprehensive loss over the requisite service
period. Options granted to consultants are valued at the fair value of the equity instruments issued, or the
fair value of the services received, whichever is more reliably measureable.
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 earnings.
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.
27
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, 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. 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 (the "BCF") 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, Mobetizes 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
Commissions rules and forms, and 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 June 30, 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
28
PART II. OTHER INFORMATION
ITEM 1.
LEGAL
PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any
other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or
affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or that have been
threatened against us or our properties.
ITEM 1A.
RISK
FACTORS
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 June 2, 2016, our board of directors authorized the conversion of 5,420,648 common shares into
shares of Series B Preferred in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended
(Securities Act), the (i) Company is the same issuer of the common shares and the Series B Preferred
Stock, (ii) no additional consideration was given to offerees for the exchange, (iii) offerees are existing
security holders of the Company, and (iv) the Company did not pay any commission or remuneration for
the exchange. The offering was conducted pursuant to the exemptions from registration provided by
Section 4(2) and Regulation D of the Securities Act to the following persons:
Name
Consideration
Exchange Series B
Exemptions
Common Shares
Preferred Shares
Alligato, Inc.*
4,081,481
4,081,481
Section 4(2)/Reg D
Malek Ladki**
300,000
300,000
Section 4(2)/Reg D
Donald Duberstein**
1,039,167
1,039,167
Section 4(2)/Reg D
* Alligato, Inc. is a company owned and controlled by the Companys CEO.
** Mr. Ladki and Mr. Duberstein
serve on the Companys board of directors.
ITEM 3.
DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM 4.
MINE
SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER
INFORMATION
None.
ITEM 6.
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 31 of this Form 10-Q, and are incorporated herein by this reference.
29
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
August 12, 2016
By: Ajay Hans
Its: Chief Executive Officer
/s/ Elena Karamushko
August 12, 2016
By Elena Karamushko
Its: Chief Financial Officer and Principal Accounting Officer
30
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
2.1
*
Purchase and Sale Agreement with Mobetize, Inc., dated July 9, 2013, incorporated by reference to our Form 10-
Q/A filed with the Commission on September 10, 2013.
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.
10.11*
Management Employment Agreement between Mobetize
Canada Inc. and Elena Karamushko dated February 4,
2016, incorporated by reference to the Form 10-K/A filed with the Commisson on July 13, 2016.
Code of Business Conduct and Ethics adopted by Mobetize Corp.s Board of Directors on July 26, 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 pursuant to Rule 13a-14 of the Exchange Act as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, attached.
Certification of the 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.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, attached.
Certification of the 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.
31
Exhibit 14
CODE OF BUSINESS CONDUCT AND ETHICS
1. Policy Statement
Good corporate governance requires that Mobetize Corp. (the Company) provide a code of
conduct for its officers, employees and directors within the meaning of Section 406 of the
Sarbanes-Oxley Act of 2002 and Item 406(b) of Regulation S-K of the Securities Exchange Act of
1934, as amended. This Code of Business Conduct and Ethics (the Code) reflects the Companys
commitment to conduct business in an honest and ethical manner.
Individuals, who work for or serve the Company, are an extension of the Company. Our commitment
to honesty and ethical conduct only can be achieved if you, individually, accept your responsibility to
promote integrity and demonstrate the highest level of ethical conduct in all of your activities.
Activities that may compromise the Company's reputation or integrity must be avoided. While the
Company realizes that not every situation is black or white, the key to compliance with this Code is
exercising good judgment. This means following both the letter and the spirit of this Code and all
applicable laws, doing the "right" thing, and acting ethically at all times, even when the law or this
Code may not address specifically the issue at hand.
We rely in part on our managers to set an example for other employees and to supervise the actions
of others. Every manager and supervisor is expected to take any action necessary to ensure
compliance with this Code, to provide guidance and assist employees in resolving questions
concerning the Code and to permit employees to express any concerns regarding compliance with
this Code. No one has the authority to order another employee to act contrary to this Code.
2. Conflicts of Interest and Corporate Opportunities
You must avoid any situation in which your personal interests conflict or even appear to conflict
with the Company's interests. You owe a duty to the Company to advance its legitimate interests
when the opportunity to do so arises in the course of your employment or service. You should
never compromise any of the Company's legitimate interests.
You must perform your duties to the Company in an honest and ethical manner. You must handle all
actual or apparent conflicts of interest between your personal and professional relationships in an
ethical manner.
You should avoid situations in which your immediate family, financial or other personal interests
conflict, or even appear to conflict, with those of the Company. You may not engage in activities that
compete with the Company or place the Company's interests at risk. You should not take, for your
own benefit, opportunities discovered in the course of employment that may otherwise benefit the
Company. The following are examples of actual or potential conflicts:
1
Exhibit 14
you, or a member of your immediate family, receive improper personal benefits (including
but not limited to the receipt of gifts) as a result of your position in the Company;
you use the Company's property for your personal benefit;
you engage in activities that interfere with your loyalty to the Company or your ability to
perform Company duties or responsibilities effectively;
you work simultaneously (whether as an employee or a consultant) for a competitor,
customer or supplier;
you, or a member of your immediate family, have a financial interest in a customer, supplier,
or competitor which is significant enough to cause divided loyalty with the Company or the
appearance of divided loyalty (the significance of a financial interest depends on many factors, such
as size of investment in relation to your income, net worth and/or financial needs, your potential to
influence decisions that could impact your interests, and the nature of the business or level of
competition between the Company and the supplier, customer or competitor);
you, or a member of your immediate family, acquire an interest in property (such as real
estate, patent or other intellectual property rights or securities) in which you have reason to know
the Company has, or might have, a legitimate interest;
you, or a member of your immediate family, receive a loan or a guarantee of a loan from a
customer, supplier or competitor (other than a loan from a financial institution made in the ordinary
course of business and on an arm's-length basis);
you make gifts or payments, or provide special favors, to customers, suppliers or competitors
(or their immediate family members) with a value significant enough to cause the customer, supplier
or competitor to make a purchase, or take or forego other action, which is beneficial to the Company
and which the customer, supplier or competitor would not otherwise have taken; or
you are given the right to buy stock in other companies or you receive cash or other payments
in return for promoting the services of an advisor, such as an investment banker, to the Company.
The existence of a conflict is not always readily apparent. If you become aware of a conflict described
above or any other conflict, potential conflict, or have a question as to a potential conflict, you should
consult with higher levels of management or the Company's Audit Committee and/or follow the
procedures described in Sections 9 and 10 of this Code. If you become involved in a situation that
gives rise to an actual conflict, you must inform higher levels of management or the Company's Audit
Committee of the conflict. Our Audit Committee is identified in Section 10 of this Code.
2
Exhibit 14
3. Confidentiality
All confidential information concerning the Company is the property of the Company and must
be protected.
Confidential information includes all non-public information that might be of use to competitors, or
harmful to the Company or its customers, if disclosed. You must maintain the confidentiality of such
information entrusted to you by the Company, its customers and its suppliers, except when
disclosure is authorized by the Company or required by law.
Examples of confidential information include, but are not limited to: the Company's trade secrets;
business trends and projections; information about financial performance; new product or
marketing plans; research and development ideas or information; manufacturing processes;
information about potential acquisitions, divestitures and investments; stock splits, public or private
securities offerings or changes in dividend policies or amounts; significant personnel changes; and
the acquisition, loss or changes of or to existing or potential major contracts, orders, suppliers,
customers or finance sources.
Your obligation with respect to confidential information extends beyond your activities in the
workplace. In that respect, it applies to communications with your immediate family members and
continues to apply even after your employment or director relationship with the Company
terminates.
4. Insider Trading
You should never trade securities on the basis of confidential information acquired through your
employment or fiduciary relationship with the Company.
Under both federal law and Company policy, you are not permitted to purchase or sell Company
stock, directly or indirectly, on the basis of material non-public information concerning the Company.
Any person possessing material non-public information about the Company must not engage in
transactions involving Company securities until this information has been released to the public.
Generally, material information is information that would be expected to affect the investment
decisions of a reasonable investor or the market price of the stock. You are not allowed to trade in
the stock of other publicly held companies, such as existing or potential customers or suppliers, on
the basis of material confidential information obtained in the course of your employment or service
as a director. It also is illegal to recommend a stock to (i.e., "tip") someone else on the basis of such
information. If you have a question concerning appropriateness or legality of a particular securities
transaction, consult with corporate counsel. Directors, officers and certain other employees of the
Company are subject to additional responsibilities under the Company's insider trading compliance
policy, a copy of which has been provided to each such director, officer and employee.
3
Exhibit 14
5. Fair Dealing
Our goal is to conduct our business with integrity.
You should make every effort to deal honestly with the Company's customers, suppliers, competitors,
and employees. Under federal and state laws, the Company is prohibited from engaging in unfair
methods of competition, and unfair or deceptive acts and practices. You should not take unfair
advantage of anyone through manipulation, concealment, abuse of privileged information,
misrepresentation of material facts, or any other unfair dealing.
Examples of prohibited conduct include, but are not limited to:
bribery or payoffs to induce business or breaches of contracts by others;
acquiring a competitor's trade secrets through bribery or theft; or
making false, deceptive or disparaging claims or comparisons about competitors or their
products or services.
6. Protection and Proper Use of Company Assets
You should endeavor to protect the Company's assets and ensure their proper use.
Company assets, both tangible and intangible, are to be used solely for legitimate business purposes
of the Company and only by authorized employees or consultants. Intangible assets include
intellectual property such as trade secrets, patents, trademarks and copyrights, business, marketing
and service plans, engineering and manufacturing ideas, designs, databases, Company records, salary
information, and any unpublished financial data and reports. Unauthorized alteration, destruction,
use, disclosure or distribution of Company assets violates Company policy and this Code. Theft or
waste of, or carelessness in using, these assets have a direct adverse impact on the Company's
operations and profitability and will not be tolerated.
The Company provides computers, voice mail, electronic mail (e-mail), internet access, and other
Company resources to certain employees for the purpose of achieving the Company's business
objectives. As a result, the Company has the right to access, reprint, publish, or retain any information
created, sent or contained in any of the Company's computers or e-mail systems of any Company
machine. You may not use any Company resource for any illegal purpose, or in any manner that is
contrary to the Company's policies or the standards embodied in this Code.
You should not make copies of, or resell or transfer (externally or internally), copyrighted
publications, including software, manuals, articles, books, and databases being used in the Company,
that were created by another entity and licensed to the Company, unless you are authorized to do so
under the applicable license agreement. In no event should you load or use, on any Company
computer, any software, third party content or database without receiving the prior written
permission to do so. You must refrain from transferring any data or information to any Company
computer other than for Company use. You may use a handheld computing device or mobile phone
in connection with your work for the Company, but must not use such device or phone to access, load
or transfer content, software or data in violation of any applicable law or regulation or without the
permission of the owner of such content, software or data. If you should have any questions, please
consult with the Company's Chief Financial Officer.
4
Exhibit 14
7. Compliance with Laws and Regulations
The Company seeks to comply with both the letter and spirit of the laws and regulations in all
countries in which it operates.
The Company is committed to total compliance with the laws and regulations of the cities, states and
countries in which it operates. You must comply with all applicable laws, rules and regulations in
performing your duties for the Company. Various federal, state and local laws and regulations define
and establish obligations with which the Company, its officers, employees, directors and agents must
comply. Under certain circumstances, local country law may establish requirements that differ from
this Code. You are expected to comply with all local country laws in conducting the Company's
business. If you violate these laws or regulations in performing your duties for the Company, you not
only risk individual indictment, prosecution and penalties, and civil actions and penalties, you also
subject the Company to the same risks and penalties. Any violation of these laws may subject you to
immediate disciplinary action, up to and including termination of your employment or affiliation with
the Company.
8. Ethics Obligations for Employees with Financial Reporting Responsibilities
Senior management bears a special responsibility for promoting integrity throughout the
Company.
The Company's Chief Executive Officer, Chief Financial Officer, principal accounting officer or
controller and persons performing similar functions, persons who meet the requirements of Item
406 of Regulation S-K, and such other Company officers as are designated from time to time by the
Audit Committee, shall be deemed the Senior Officers of the Company. Senior Officers have a
responsibility to foster a culture throughout the Company as a whole that mandates the fair and
timely reporting of the Company's results of operations and financial condition and other financial
information. Due to this special role, Senior Officers are also bound by the following senior
management code of ethics, and by accepting the Code of Business Conduct and Ethics, each agrees
that he or she will:
perform his or her duties in an honest and ethical manner;
address all actual or apparent conflicts of interest between his or her personal and
professional relationships in an ethical manner;
undertake all necessary actions to ensure complete, accurate, thorough, timely, and
understandable disclosure in reports and documents that the Company files with, or submits to,
government agencies and in other public communications; and
proactively encourage and provide an example of ethical behavior in the work environment.
5
Exhibit 14
9. Reporting Violations of Company Policies and Receipt of Complaints Regarding Financial Reporting
or Accounting Issues
You should report any violation or suspected violation of this Code to the appropriate Company
personnel or via the Company's anonymous and confidential reporting procedures.
The Company's efforts to ensure observance of, and adherence to, the goals and policies outlined in
this Code require that you promptly bring to the attention of the Audit Committee, any material
transaction, relationship, act, failure to act, occurrence or practice that you believe, in good faith, is
inconsistent with, in violation of, or reasonably could be expected to give rise to a violation of, this
Code. You should report any suspected violations of the Company's financial reporting obligations or
any complaints or concerns about questionable accounting or auditing practices in accordance with
the procedures set forth below.
Here are some approaches to handling your reporting obligations:
in the event you believe a violation of the Code, or a violation of applicable laws and/or
governmental regulations has occurred, or you have observed or become aware of conduct which
appears to be contrary to the Code, immediately report the situation to your supervisor, or the Audit
Committee. Supervisors or managers who receive any report of a suspected violation must report the
matter to the Audit Committee.
if you have or receive notice of a complaint or concern regarding the Company's financial
disclosure, accounting practices, internal accounting controls, auditing, or questionable accounting
or auditing matters, you must immediately advise your supervisor, or the Audit Committee.
Should you wish to report any such matters anonymously or confidentially, then you may do so as
follows:
Mail a description of the suspected violation or other complaint or concern to:
Audit Committee
Mobetize Corp.
8105 Birch Bay Square Street, Suite 205
Blaine, Washington 98230
Other Guiding Principles
A.
Use common sense and good judgment. Act in good faith. You should become familiar with and
understand the requirements of this Code. If you become aware of a suspected violation, do not try
to investigate it or resolve it on your own. Instead, promptly disclose the violation to the appropriate
parties in order to assure a thorough and timely investigation and resolution. The circumstances
should be reviewed by appropriate personnel as quickly as possible, since a delay may affect the
results of an investigation. A violation of the Code, or of applicable laws and/or governmental
regulations, is a serious matter and could have legal implications. Allegations of such behavior are
not taken lightly, and should not be made to embarrass someone, or put him or her in a false light.
Reports of suspected violations always should be made in good faith.
6
Exhibit 14
B.
Internal investigation. When an alleged violation of this Code, applicable laws and/or
governmental regulations is reported, the Company will take appropriate action in accordance with
the compliance procedures outlined in Section 10 of the Code. You are expected to cooperate in
internal investigations of alleged misconduct or violations of the Code or of applicable laws or
regulations.
C.
No fear of retaliation. It is the Company's policy that there will be no intentional retaliation
against any person who provides truthful information to a company or law enforcement official
concerning a possible violation of any law, regulation or Company policy, including this Code. Persons
who retaliate may be subject to civil, criminal and administrative penalties, as well as disciplinary
action, up to and including termination of employment. In cases in which you report a suspected
violation in good faith and are not engaged in the questionable conduct, the Company will attempt to
keep its discussions with you confidential to the extent reasonably possible. In the course of its
investigation, the Company may find it necessary to share information with others on a "need to
know" basis. No retaliation will be taken against you by the Company for reporting alleged violations
while acting in good faith. Similarly, if you believe you are being retaliated against, as a result of your
having reported a suspected violation in good faith, you should immediately report that information
to your supervisor or the Audit Committee.
10. Compliance Procedures
The Company has established this Code as part of its overall policies and procedures. To the
extent that other Company policies and procedures conflict with this Code, you should follow this
Code. The Code applies to all Company directors and Company employees, including all officers,
in all locations.
The Code is based on the Company's core values, good business practices and applicable law. The
existence of a Code, however, does not assure that officers, employees and directors will comply with
it or act in a legal and ethical manner. To achieve optimal legal and ethical behavior, the individuals
subject to this Code must know and understand the Code as it applies to them and as it applies to
others. You must promote the Code and assist others in knowing and understanding it.
Compliance. You are expected to become familiar with and understand the requirements of
this Code. Most importantly, you must comply with it.
CEO Responsibility. The Company's Chief Executive Officer shall be responsible for ensuring
that this Code is established and effectively communicated to all officers, employees and directors.
Although the day-to-day compliance issues will be the responsibility of the Company's managers, the
Chief Executive Officer has ultimate accountability with respect to the overall implementation of and
successful compliance with the Code.
Corporate Compliance Management. The Chief Executive Officer and the Audit Committee
shall be responsible for assuring that the Code becomes an integral part of the Company's culture.
The current members of the Audit Committee are Dr. Malek Ladki, and Donald Duberstein. Any
complaints or concerns related to the Company's financial disclosures, accounting, internal controls
and auditing matters, will be promptly directed to the Audit Committee.
Internal Reporting of Violations. The Company's efforts to assure observance of, and
adherence to, the goals and policies outlined in this Code mandate that all officers, employees and
directors of the Company report suspected violations in accordance with Section 9 of this Code.
7
Exhibit 14
Screening of Employees. The Company shall exercise due diligence when hiring and
promoting employees and, in particular, when conducting an employment search for a position
involving the exercise of substantial discretionary authority, such as a member of the executive team,
a senior management position or an employee with financial management responsibilities. The
Company will make reasonable inquiries into the background of each individual who is a candidate
for such a position. All such inquiries shall be made in accordance with applicable law and good
business practice.
Access to the Code. The Company shall assure that employees, officers and directors may
access this Code on the Company's web site. In addition, each current employee will be provided with
a copy of the Code. New employees will receive a copy of the Code as part of their new hire
information.
Monitoring. The officers of the Company shall be responsible to review the Code with all of
the Company's managers. In turn, the Company's managers with supervisory responsibilities should
review the Code with their direct reports. Managers are the "go to" persons for employee questions
and concerns relating to this Code, especially in the event of a potential violation. Managers or
supervisors will immediately report any violations or allegations of violations to the Audit
Committee. Managers will work with the Audit Committee in assessing areas of concern, potential
violations, any needs for enhancement of the Code or remedial actions to effect the Code's policies
and overall compliance with the Code and other related policies.
Auditing. Resources selected by the Audit Committee will be responsible for auditing the
Company's compliance with the Code.
Internal Investigation . When an alleged violation of the Code is reported, the Company will
take prompt and appropriate action in accordance with the law and regulations and otherwise
consistent with good business practice. If the suspected violation appears to involve either a possible
violation of law or an issue of significant corporate interest, or if the report involves a complaint or
concern of any person, whether an employee, a shareholder or other interested person regarding the
Company's financial disclosure, internal accounting controls, questionable auditing or accounting
matters or practices or other issues relating to the Company's accounting or auditing, then the
manager or investigator should immediately notify the Audit Committee and/or his or her manager
or other corporate officer. If a suspected violation involves any director or executive officer, or if the
suspected violation concerns any fraud, whether or not material, involving management or other
employees who have a significant role in the Company's internal controls, the Audit Committee or
any person who received such report should immediately report the alleged violation to the Board
of Directors. The Board of Directors shall assess the situation and determine the appropriate course
of action. At a point in the process consistent with the need not to compromise the investigation, a
person who is suspected of a violation shall be apprised of the alleged violation, and shall have an
opportunity to provide a response to the investigator.
8
Exhibit 14
Disciplinary Actions. Subject to the following sentence, the Board of Directors, after
consultation with legal counsel, shall be responsible for implementing the appropriate disciplinary
action in accordance with the Company's policies and procedures for any employee who is found to
have violated this Code. Any violation of applicable law or any deviation from the standards
embodied in this Code will result in disciplinary action, up to and including termination of
employment. Any employee engaged in the exercise of substantial discretionary authority, including
any officer, who is found to have engaged in a violation of law or unethical conduct in connection
with the performance of his or her duties for the Company, shall be removed from his or her position
and not assigned to any other position involving the exercise of substantial discretionary authority.
In addition to imposing discipline upon employees involved in non-compliant conduct, the Company
also will impose discipline, as appropriate, upon an employee's supervisor, if any, who directs or
approves such employee's improper actions, or is aware of those actions but does not act
appropriately to correct them, and upon other individuals who fail to report known non-compliant
conduct.
Retention of Reports and Complaints. All reports and complaints made to, or received by, the
Audit Committee shall be logged into a record maintained for this purpose by the Audit Committee
and this record of such report shall be retained for not less than five (5) years.
Required Government Reporting. Whenever conduct occurs that requires a report to the
government, the Audit Committee, after consultation with legal counsel, shall be responsible for
complying with such reporting requirements.
Corrective Actions. Subject to the following sentence, in the event of a violation of this Code,
the manager and Audit Committee should assess the situation to determine whether the violation
demonstrates a problem that requires remedial action as to Company policies and procedures. If a
violation has been reported to the Audit Committee, that committee shall be involved in the
determination of appropriate remedial or corrective actions. Corrective action may include providing
revised public disclosure, retraining Company employees, modifying Company policies and
procedures, improving monitoring of compliance under existing procedures and other action
necessary to detect similar non-compliant conduct and prevent it from occurring in the future. Any
corrective action shall be documented, as appropriate.
9
Exhibit 14
11. Complete, Timely and Understandable Disclosure
It is of crucial importance that all disclosure in reports and documents that the Company files
with, or submits to, the Securities & Exchange Commission, and in other public communications
made by the Company is full, fair, accurate, timely and understandable. You must take all steps
available to aid the Company in these responsibilities consistent with your role within the
Company. In particular, you are required to provide prompt and accurate answers to all
inquiries made to you in connection with the Company's preparation of its public reports and
disclosure.
The Company's Chief Executive Officer and Chief Financial Officer are responsible for designing,
establishing, implementing, reviewing and evaluating, on a quarterly basis, the effectiveness of the
Company's disclosure controls and procedures (as such term is defined by applicable Securities &
Exchange Commission rules). The Company's Chief Executive Officer, Chief Financial Officer,
principal accounting officer or controller and persons performing similar functions, persons who
meet the requirements of Item 406 of Regulation S-K, and such other Company officers as are
designated from time to time by the Audit Committee, shall be deemed the Senior Officers of the
Company Senior Officers shall take all steps necessary and suitable to ensure that all disclosure in
reports and documents filed with or submitted to the Securities & Exchange Commission, and all
disclosure in other public communication made by the Company is full, fair, accurate, timely and
understandable.
Senior Officers are also responsible for implementing and maintaining adequate internal control over
financial reporting to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with Generally
Accepted Accounting Principles. Senior Officers shall take all necessary steps to ensure compliance
with established accounting procedures, the Company's system of internal controls and Generally
Accepted Accounting Principles. Senior Officers shall make sure that the Company maintains and
keeps books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company. Senior Officers also shall assure that the
Company devises and implements a system of internal accounting controls sufficient to provide
reasonable assurances that:
transactions are executed with management's general or specific authorization;
transactions are recorded as necessary (a) to permit preparation of financial statements in
conformity with Generally Accepted Accounting Principles or any other criteria applicable to such
statements, and (b) to maintain accountability for assets;
access to assets is permitted, and receipts and expenditures are made, only in accordance
with management's general or specific authorization; and
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences, all to permit prevention or
timely detection of unauthorized acquisition, use or disposition of assets that could have a material
effect on the Company's financial statements.
Any attempt to enter inaccurate or fraudulent information into the Company's accounting system
will not be tolerated and will result in disciplinary action, up to and including termination of
employment.
10
Exhibit 14
12. Publication of the Code of Business Conduct and Ethics; Amendments and Waivers
The most current version of this Code will be posted and maintained on the Company's web site
and filed as an exhibit to the Company's next succeeding Annual or Quarterly Report filed with
the Securities & Exchange Commission. The Report shall disclose that the Code is maintained on
the Company's web site and shall disclose that substantive amendments and waivers also will
be posted on our web site.
Only substantive amendments relating to the specified elements of this Code of Business Conduct
and Ethics must be disclosed. Any waiver of the Code for executive officers or directors may be made
only by the Board of Directors, and must be promptly disclosed to shareholders. Any amendment to
the Code of Business Conduct and Ethics, or the approval of any waivers by the Board of Directors,
will be disclosed within five (5) business days of such action (a) on the Company's web site for a
period of not less than twelve (12) months and (b) in a Form 8-K filed with the Securities and
Exchange Commission. Such disclosure shall include the reasons for any waiver. The Company will
retain the disclosure relating to any such amendment or waiver for not less than five (5) years.
11
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14 of THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ajay Hans, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Mobetize Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: August 12 th , 2016
/s/ Ajay Hans
Ajay Hans
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14 of THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Elena Karamushko, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Mobetize Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: August 12 th , 2016
/s/ Elena Karamushko
Elena Karamushko
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report on Form 10-Q of Mobetize Corp. for the quarterly period ended June 30,
2016, as filed with the Securities and Exchange Commission on the date hereof, I Ajay Hans do hereby
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2)
the information contained in this report fairly presents, in all material respects, the financial
condition of the registrant at the end of the period covered by this report and results of operations
of the registrant for the period covered by this report.
Dated: August 12 th , 2016
/s/ Ajay Hans
Ajay Hans
Chief Executive Officer
(Principal Executive Officer)
This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the
registrant for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. This
certification shall not be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of
this report), irrespective of any general incorporation language contained in such filing.
A signed original of this written statement required by Section 906 has been provided to the registrant and
will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report on Form 10-Q of Mobetize Corp. for the quarterly period ended June 30,
2016, as filed with the Securities and Exchange Commission on the date hereof, I Elena Karamushko do
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2)
the information contained in this report fairly presents, in all material respects, the financial
condition of the registrant at the end of the period covered by this report and results of operations
of the registrant for the period covered by this report.
Dated: August 12 th , 2016
/s/ Elena Karamushko
Elena Karamushko
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the
registrant for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. This
certification shall not be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of
this report), irrespective of any general incorporation language contained in such filing.
A signed original of this written statement required by Section 906 has been provided to the registrant and
will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff
upon request.