Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATION CFO MOBETIZE - MOBETIZE, CORP. | exhibit322.htm |
| EX-32.1 - CERTIFICATION CEO MOBETIZE - MOBETIZE, CORP. | exhibit321.htm |
| EX-31.2 - CERTIFICATION CFO MOBETIZE - MOBETIZE, CORP. | exhibit312.htm |
| EX-31.1 - CERTIFICATION CEO MOBETIZE - MOBETIZE, CORP. | exhibit311.htm |
| EX-21 - SUBSIDIARIES OF MOBETIZE - MOBETIZE, CORP. | exhibit21.htm |
| EX-10.11 - MANAGEMENT EMPLOYMENT AGREEMENT - MOBETIZE, CORP. | exhibit1011.htm |
| EX-10.10 - MANAGEMENT CONSULTING AGREEMENT - MOBETIZE, CORP. | exhibit1010.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2016.
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 000-28731
MOBETIZE CORP.
(Exact name of registrant as specified in its charter)
Nevada
99-0373704
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
8105 Birch Bay Square Street, Suite 205, Blaine, Washington 98230
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (778) 588-5563
Securities registered under Section 12(b) of the Act: none.
Securities registered under Section 12(g) of the Act: none.
DRAFT
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes oNo þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes oNo þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 þNo o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þNo o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes oNo þ
The aggregate market value of the registrant’s common stock, $0.001 par value held by non-affiliates (12,944,506) was
approximately $8,284,484 based on the last price ($0.64) at which its common stock was sold on September 30, 2015.
At July 4, 2016, the number of shares outstanding of the registrant’s common stock, $0.001 par value was 23,330,233, the
number of shares outstanding of registrant’s Series A preferred stock, $0.001 par value was 4,565,000, and the number of shares
outstanding of registrants Series B preferred stock, $0.001 par value was 5,420,648.
1
TABLE OF CONTENTS
PART I
BUSINESS OVERVIEW AND RISKS
Business
3
Risk Factors
13
Unresolved Staff Comments
13
Properties
13
Legal Proceedings
13
Mine Safety Disclosures
13
PART II
FINANCIAL AND MARKET INFORMATION
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
14
Selected Financial Data
20
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
21
Quantitative and Qualitative Disclosures About Market Risk
26
Financial Statements
26
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
52
Controls and Procedures
52
Other Information
54
PART III
RELATED PARTIES AND GOVERNDRAFT ANCE
Directors, Executive Officers and Corporate Governance
55
Executive Compensation
59
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
62
Certain Relationships and Related Transactions, and Director Independence
63
Principal Accounting Fees and Services
64
EXHIBITS
Exhibits, Financial Statement Schedules
65
66
2
PART I - BUSINESS OVERVIEW
ITEM 1.
As used herein the terms “Mobetize,” “we,” “our,” “us,” refer to Mobetize Corp., and our
predecessors, unless the context indicates otherwise.
BACKGROUND
We were incorporated in the State of Nevada on February 23, 2012, as Slavia Corp. in order to assist
international students enroll in accredited universities, institutes, colleges or schools in Canada. Since we
were not able to raise sufficient capital to fund development in this business segment, management
determined to consider alternative strategies to create value for our shareholders.
On July 9, 2013, we entered into an Asset Purchase and Sale Agreement with Mobetize Inc., a Nevada
corporation. The Asset Purchase and Sale Agreement caused us to acquire substantially all of the assets
and none of the liabilities of Mobetize Inc. in exchange for shares of our common stock. The assets
conveyed included a license agreement between Mobetize, Inc., Paysafe Group PLC (formerly Optimal
Payments PLC) and Rentmoola Payment Systems Inc. We changed our name to “Mobetize Corp.”
effective August 13, 2013, in connection with this transaction.
We offer services in the United States through our Nevada subsidiary Mobetize USA Inc. and to clients
outside the United States through our Canadian Subsidiary Mobetize Canada Inc.
Mobetize’s USA business office is located at 8105 Birch Bay Road, Suite 205, Blaine Washington 98230
and our Canadian operations are located at #1150 – 5DRA1FT 0 Burrard St. Vancouver, BC, V6C 3A8. Our
registered statutory office is located at Nevada Agency and Transfer Company 50 West Liberty Street,
Suite 880, Reno, Nevada 89501.
Mobetize trades on the OTCQB, an electronic trading platform owned by OTC Markets Group, Inc. under
the symbol “MPAY”.
OVERVIEW
Fintech — financial technology — is an umbrella term describing disruptive technologies involved in the
provision of financial services. Fintech is transforming the way money is managed and affects almost
every financial activity.
Mobetize is an emerging Fintech company which provides Fintech solutions and services that enable and
support the convergence of global telecom and financial services providers (the “Customers”) through our
Global Mobile B2B Fintech and Financial Services Marketplace (the “Hub”).
This Hub provides among other things a mobile financial services (“MFS”) white label technology
platform, including an individual MFS application program interface (“API”) consumption protocol to
enable and support services such as prepaid air-time and data top ups, international money transfers, P2P
transfers, Visa™/MasterCard™ programs and bill payments on personal computers and mobile devices
(the “Services”).
The Hub seamlessly integrates with Mobetize Customers; who subsequently offer the Services to their
subscribers and members (the “Users”).
3
Users access the Services from the Hub through multiple access points including:
1. Desktop Applications
2. Mobile Web Applications
3. Native Applications for Apple iOS Devices and Android Devices
REVENUE
The Mobetize HUB generates revenue from:
1)
Transactional processing fees based on volume of activity
2)
Revenue share based fees for financial services delivered by the Mobetize Hub
3)
Recurring platform fees for licensing of the Mobetize Hub
4)
Recurring fees for service level agreements
5)
Consulting and professional services fees
6)
Customization, integration, and deployment fees
Existing revenue is influenced by among other things, the growth of the consumption of telecom and
financial services over the Internet globally and the adoption of digitized financial services by Users and
their comfort with mobile as an access point to complete transactions. Future revenue will also be affected
by our ability to innovate new technology processes and systems that our Customers want to offer to their
Users. Our strategy is to drive growth by:
•
Leveraging our existing contracts to increase Customer and User adoption
•
Enhancing business development efforts to expand sales globally
•
Evaluating M&A strategies to grow inorganically
•
Continuing to bring innovative Fintech solutiDRAFTons and technology first-to-market.
FINTECH ECOSYSTEM
Globally FinTech “ecosystems” have stimulated technological innovation, made financial markets and
systems more efficient, and improved the overall customer experience. These ecosystems — include
telecom and financial service providers that are faced with heavy competition from enterprises like Apple
and Google who have cemented their positioning to compete in various parts of the Fintech ecosystem.
To remain competitive, telecoms and financial service providers are evaluating and adapting to the digital
age with a broad set of solutions, from pure channel adaptation to radical changes in business models.
Banking Industry
In a report published by the Economist Intelligence Unit titled: ‘The Disruption of Banking,’ over 100
senior bankers and 100 Fintech executives were interviewed to ascertain the likely landscape for the retail
banking industry over the next five years. When bankers were asked how Fintech might disrupt the
banking industry, more than 90% of the bankers believed that Fintech firms will have a significant impact
on the future landscape of banking, with more than a third believing that Fintech will win an equal share
or even dominate the market.
According to Juniper Research (July 2013), 800 million people would use mobile banking services in
2014, which number is expected to increase to 1.75 billion (32 percent of the global adult population) by
2019.
As of February 2015, bank spending on new technologies in North America was projected by Juniper
Research to reach $17 billion dollars in 2015 and increase to $19.9 billion dollars in 2017.
4
The online statistics Internet portal Statista at www.statista.com/topics/2404/fintech reported that the
value of investment in financial technology ventures on a global scale amounted to approximately $3
billion dollars in 2013 and was projected to grow to around $8 billion dollars in 2018. In 2013, 29 percent
of Fintech investments were in the banking and corporate finance area. Statista further reported that the
United States was the leading Fintech country in 2014, as the value of investment in U.S. financial
technology companies reached approximately $3.97 billion dollars. Silicon Valley, New York, and
London were the leading world Fintech locations that year.
Telecoms
According to The International Telecommunication Union (May 2014), there are nearly seven billion
mobile subscribers worldwide representing about 95.5 percent of the world population. Telcoms are
uniquely positioned to be the leading providers of mobile financial services to their customers by
leveraging their billing platforms. The fact that basic financial services can be done without a banking
relationship further strengthens the opportunity for telecoms.
Money Remittance
The World Bank estimated that in 2014 $131 billion dollars was sent from the United States by residents
and immigrant workers to their family members in their respective countries. The United States is the
largest market for these money transfer services accounting for over 22% of all global money transfers.
TECHNOLOGY SOLUTIONS AND PRODUCTS
DRAFT
![[mobetize10kfinaloldformat001.jpg]](mobetize10kfinaloldformat001.jpg)
The Mobetize Global Mobile B2B Fintech and Financial Services Marketplace/Hub offers the following:
5
smartWallet:
Our smartWallet solution is provided via mobile web and web OS Apple and Android app to the desktop,
iPad, or mobile phone.
The smartWallet is the core of our HUB and allows Users to load funds into their mobile wallet and
access global mobile financial services such as prepaid top-ups for themselves or for gifts for family
members, P2P money transfers, international money transfer remittances, bill payments and bill
management.
Users can load funds into their smartWallet from their bank account (ACH or real time ACH), via credit
or prepaid debit card, and PayPal.
The smartWallet can be integrated with an existing billing system to enable a mobile ‘my account’ as part
of a mobile wallet with features including:
•
Registration - sign in and sign up
•
User Account Settings - Allows the User to update their information, edit/add and save different
payment methods while changing password and saving account numbers to favorites for fast
access.
•
View Balance - Users are able to track their balances by viewing their real-time balance.
•
Add and Save Services -Create, save, and edit a list of favorites for easy and fast access to all
transactions.
•
Favorites - Create, save, and edit a list of favorite contacts, remittances, airtime transactions and
more for convenience and accessibility.
DRAFT
•
Stored Payment Methods - Safely store and edit a list of preferred method of payments to load the
smartWallet and increase convenience and accessibility including credit cards, debit cards, and
ACH.
smartRemit:
A fully integrated mobile platform dedicated to providing convenient, efficient, scalable, and inexpensive
global money transfer solutions for Customers and Users.
smartRemit enables Users to send funds cross-border via multiple payout channels such as, direct bank
account deposits, pick-up at agent location, and home delivery. Users can send funds in one currency and
have the beneficiary receive in another. Cash delivery options include:
•
Cash to cash
•
Cash to account
•
Door service
•
Mobile transfers
smartRemit is accessed outside the smartWallet to ensure full Money Transfer Licensing compliance.
smartRemit provides Users with 24/7 mobile money transfer remittance capabilities.
smartCharge:
6
smartCharge enables real time prepaid mobile top-ups to any mobile phone and recharge transfers to over
350 mobile network operators in 90 countries, reaching 3.6 billion prepaid users. Users can send air-time
top-ups to any prepaid mobile phone globally.
smartBill:
smartBill is supported by our MSB licensed billing partner and allows Users to pay bills at approximately
14,000 companies within the United States, including utilities, cable companies, and mobile phone
providers.
smartTel:
smartTel can be integrated by our telecom Customers, electronic bill presentment and payment systems or
directly connect to third-party billing platforms.
smartTel features allow Users the ability to view their telecom service invoices and account activity, pay
their outstanding invoices, and email themselves their records.
smartCard:
smartCard is our white label Visa/MasterCard program that allows users to request (during sign-up or at
any time via the Mobetize app) a prepaid MasterCard or Visa card, which is linked to their smartWallet.
Users are able to move any cleared funds from their smartWallet on to the MasterCard, allowing them to
make purchases both online and in retail locations, plus withdraw cash from ATMs.
Users are able to track the balance and see recent transactions via the Mobetize smartWallet and can
easily move money back to the smartWallet. The smaDRAFTrtCard has the same white-label branding as the
smartWallet for a seamless User experience.
Customer Relationship Management (“CRM”) and Reporting Tool:
Mobetize provides Customers an online CRM and data analytics reporting system for all transactions
processed through the Hub.
The reporting system can be configured so that different levels within a customer’s team can see and
access different levels of information. The reporting tool provides real time data, at different levels of
detail, allowing Customers to track User metrics as:
•
Transactions $ values
•
Transaction volume-by type of transaction
•
Number of registered users
•
Number of active users
•
Geographic splits
•
Other key performance Indicators
The web based CRM reporting tool also provides Customer’s access to User data such as:
•
User information (name, address, etc.)
•
User transaction history
•
User wallet balance
This data is a key driver for User support services.
7
Latest Technology and Product Developments
Technology
In April 2015, we completed the production version of Mobile Web application 1.0. This suite of products
includes smartCard, Paypal, bank ACH, and credit card processing as cash-in options and smartCharge,
smartBill, person-to-person transfers, and smartCard for ATM withdrawals and POS purchases as cash-
out options. The CRM, reporting, and incident management tools are active in addition to a desktop
version and Representation State Transfer (“REST”) Application Program Interface (“API”) with all of
the above features.
In October 2015, we completed the development of Version 2.0 for rollout to our Customers. Version 2.0
includes the most significant component and key differentiator of our offerings to date by enabling
international money transfer capabilities globally via our international money transfer partners. Version
2.0 also supports multi-language web services, with the Spanish language being the first non-English
language offered. Existing customers equipped with Version 2.0 can initiate international money transfers
from the United States via a network of nearly 200,000 payout agent locations, and instruct bank transfers
to over six hundred banks worldwide.
In March 2016, we completed the development of Version 2.1, which incorporates a new registration
system. The system includes text message verification and allows faster password recovery as well as
faster completion of the registration process on a mobile device.
DRAFT
We are now in the final stages of completing Version 2.2, which will enable instantaneous bank account
verification functionalities that will permit Mobetize to scrutinize User financial credentials. We expect
to launch Version 2.2 in the third quarter of 2016.
The Mobetize Hub will continue to be developed as a Fintech marketplace that offers stand alone
Services, REST API services for our financial technology products, and solutions that allow clients with
existing technologies, such as virtual wallets, to be able to include Mobetize Services in their systems.
Native applications for iOS and Android are also expected to be completed in the third quarter of 2016.
BUSINESS
On September 3, 2014, Mobetize was selected by DCR Strategies Inc. (“DCR”), an alternative financial
services company (“AFSC”), that specializes in designing, hosting and sustaining prepaid card programs;
to support its “TruCash” brand as a mobile financial services provider. We have since fully integrated our
smartWallet into TruCash prepaid card mobile applications. Millions of existing DCR prepaid card users
can access DCR services through our smartWallet in the United States and Canada. DCR is planning to
launch their Mobetize supported services in the third quarter of 2016.
The successful testing and integration of our Hub with DCR proves that our model for account to account
interoperability and API consumption with existing AFSCs is viable. This validation represents a
significant milestone for Mobetize as we are now able to market our Hub to major alternative AFSCs like
Apple, Inc. and its Apple Pay brand. Our relationship with DCR has resulted in processing revenues.
8
On September 8, 2014, we entered into an agreement with Impact Telecom (“Impact”), a global provider
of voice, messaging, and data services, to offer the Mobetize smartWallet for the delivery of international
money transfers, mobile airtime top-up, and bill payments to Impact’s extensive customer base in the
United States and Canada. To date our agreement with Impact has not generated any revenue, however,
Impact was instrumental in the successful negotiation of an agreement with CostMaster Communications
Inc.
During the year ended March 31, 2016, Mobetize realized processing revenues from CostMaster
Communications Inc. (“CMC”) a worldwide communication carrier based in Vancouver, Canada. As a
pioneer in long distance VoIP, CMC is now a major carrier in several markets around the globe. CMC
implemented Mobetize’s smartCard for delivery of its foreign payroll. To date we have processed and
distributed over $1 million dollars in payroll for CMC. The Services provided to CMC proved our
metrics and Mobetize’s ability to handle payroll services via our smartRemit product that utilizes
international person to person (P2P) mobile money transfers on the MasterCard™ network.
Mobetize was selected from over 100 technology companies to speak and present at the 2015 Innovation
Showcase Event on May 29, 2015, held by the Telecom Council of Silicon Valley in Sunnyvale,
California. Mobetize showcased its Hub to decision level executives and had more than ten individual
meetings and demos with some of largest telecom companies in the world. The meetings resulted in
numerous NDA’s and ongoing discussions with several large global telecoms.
On August 10, 2015, Mobetize showcased Version 2.0 at the Prepaid Expo in Las Vegas, Nevada, a
product suite that incorporates the full mobile money product solution that can be white-labeled by any
telecom operator. The suite consists of a mobile wallDeRAFT t with key financial services offerings that include
global money transfer capabilities, US bill payments, global gifting of prepaid air-time top ups and paid
Visa™/MasterCard™ programs for telecom operators. Mobetize allows its telecom operators to pick and
choose the financial services they want to deliver branded for their respective customers, which can be
launched through APIs, or as a stand-alone system.
On October 7, 2015, Mobetize announced that it had formed a strategic partnership to deliver mobile
wallet and financial services to customers of Pure Minutes, Ltd. (“PML”). PML is a leading provider of
prepaid international calling services and mobile phone payment services for domestic and international
mobile carriers with an addressable customer base of over 1.1 million in the United States. In June 2016,
PML completed a white label application of the Mobetize smartWallet under the brand Digibux. The
online portal www.mydigibux.com has also been completed and PML expects to be launching the
services to their customers in the third quarter of 2016.
On October 15, 2015, Mobetize signed a consulting services agreement with Tata Communications
(America) Inc., (“TATA”), a global provider of communications services and infrastructure, to license
Mobetize solution as their core mobile money platform. Mobetize and Tata are working closely to create
a global business to business (B2B) channel strategy to deliver a financial technology services hub for
telecom companies, enterprise and alternative financial service providers that Tata supports globally in its
telecom network. We are also discussing opportunities in India and other global markets where Tata has
significant brand and product presence.
9
On November 3, 2015, Mobetize announced that it had formed a strategic partnership with Global Service
Solutions, Inc. (“Global Service”) to deliver a mobile money and financial services platform under its
new brand Gotawallet™. Global Service, through its’ Got Prepaid™ brand, provides distribution,
through a nation-wide channel of large distributors and retailers, to over one million end-users in the
United States covering over fifty different prepaid cellular products. The products include a combination
of hard card, real time replenishments, and e-pin formats. The Got Prepaid™ brand is highly regarded
within the prepaid segment of the market for its ability to provide quality customer service and technical
support. Got Prepaid™ provides recharge capabilities for wireless AT&T, Verizon, T Mobile, H20, Red
Pocket and many other telecom providers. The project to deliver a mobile financial services platform was
completed in the second quarter of 2016. We are now actively working with Global Service to discuss
various market launch strategies.
During the second quarter of 2016 Mobetize entered into a development agreement with a financial
institution in Canada to explore the potential expansion of Mobetize Hub to deliver digitized/mobile
lending capabilities in compliance with and supported by the bank regulatory framework. The successful
development of such a platform could significantly disrupt the traditional lending model for financial
institutions. Work is presently underway to advance this project.
During the second quarter of 2016, Mobetize also signed a letter of intent with another financial
institution in Canada, which maintains an ATM Network comprised of more than one hundred and fifty
banks that could potentially integrate our Mobetize Hub into their bank client ecosystem. The purpose of
these discussions is the next step in our vision to become a leading technology company resolute on the
convergence of telecom and financial services. For example, imagine for a moment, a mobile lending
service delivered by a bank integrated to our MFS Hub. Banks could offer their mobile lending services
directly to telecom customers. Mobetize Hub could bDRAeFT the central platform connecting the respective
parties and clearing the related transactions. The eventual transformation of a mobile lending service
could extend to include consumer products, insurance, mortgages, and much more. A technology
transformation of this magnitude would represent a huge disruption to traditional retail banking. Should
we proceed to an agreement in this instance, the successful integration of our Hub with the bank’s ATM
Network would be an industry first move that would impact millions of bank customers.
COMPETITION
The global Fintech industry is highly competitive. We compete against businesses in varied industries,
many of which are larger than we are, have a dominant and secure position in other industries, or offer
other goods and services to consumers and merchants which we do not offer. We compete against all
forms of Fintech service providers, including credit and debit cards providers, automated clearing house
and bank transfers providers, other online payment services providers, mobile payments providers, and
offline payment methods, including cash and check.
We compete primarily on the basis of the following:
•
ability to attract, retain, and engage customers and their users
•
ability to show that customers will achieve incremental sales by using our Mobetize Hub
•
security of transactions and the ability for customers to integrate our Mobetize Hub products and
services
•
fee structure
•
ability to develop services across multiple customer channels, including telecom and Fintech
service providers
•
customer service
10
•
brand recognition
•
website, mobile platform and application onboarding, ease-of-use, and accessibility
•
system reliability and data security
•
ease and quality of integration into third-party mobile applications and operating systems
•
quality of developer tools such as our Mobetize Hub programming interfaces
Mobetize seeks to differentiate itself from other industry participants. The vision of the Mobetize Hub is
to create an open marketplace of Fintech services and partnerships. Our open Fintech architecture for
telecoms and financial institutions uniquely positions us to potentially disrupt the current money services
infrastructure.
COMPETITIVE ADVANTAGES
Mobetize has developed a unique business and partnership model to simplify and orchestrate mobile
financial services. There are two key business relationships which give us a competitive advantage:
Telecoms and Financial Institutions – These are revenue share business partnerships that are our
channels to acquire customers and maximize transactional volumes. These partnerships can white
label the Mobetize Hub or integrate via the API consumption model to market the various MFS
products to end users.
Financial Partners – These are our strategic financial services partners who traditionally have
bricks and mortar style financial services and products. We digitize their regulatory compliance
and service fulfillment.
Advantages
DRAFT
1.
Customer Acquisition: Mobetize is scalable and is attractive to significant numbers of customers
cost-effectively.
2.
Lower Customer Costs: Mobetize provides economic advantages of digital distribution over
physical distribution.
3.
Advanced Analytics: Mobetize generates data for advanced analytics which provides customers
with several significant advantages, including the ability to redesign products to developing contextual
offers based on better understanding of customer needs.
4.
Leveraging Existing Infrastructure: Mobetize engages with the existing ecosystem of telcom
and financial service providers. Successful Fintech companies leverage what currently exists.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, and Labor
Contracts
Mobetize has no patents, registered trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts other than as detailed in this report. However, we do assert common law trademark rights
for the following names in the field of mobile commerce:
smartWallet
smartRemit
smartCharge
smartTel
smartcard
11
Common law trademark rights are enforceable in provincial courts in Canada, and may be asserted
against those who appropriate, dilute, or damage the goodwill of our business by using the same or
similar trade names or trademarks. Unlike statutory trademark rights, which are acquired by registration
and provide nation-wide protection, common law trademark rights are acquired automatically and provide
protection only in the jurisdiction where a business uses a name or logo in commerce. We intend to rely
on common law trademark protection until such time as we deem it economical for our business to
register our trade names or trademarks.
We have not registered for the protection of any rights under trademark, patent, or copyright in any
jurisdiction.
GOVERNMENT REGULATION
Government regulation impacts key aspects of our business. We are subject to regulations that affect the
payments industry in the markets we operate.
Payments Regulation. Various laws and regulations govern the payments industry in the United States
and globally. In the United States, our partners hold licenses to operate as a money transmitter (or its
equivalent), which, among other things, relieve us from reporting requirements, bonding requirements,
limitations on the investment of customer funds and inspection by state regulatory agencies.
Outside the United States, the laws and regulations applicable to the payments industry in any given
jurisdiction are subject to interpretation and change.
Banking Agency Supervision. Based on our relationships with financial institutions in the United States,
we are subject to indirect regulation and examinationDRAFTby these financial institutions’ regulators.
Consumer Financial Protection Bureau. The Consumer Financial Protection Bureau (the “CFPB”) has
significant authority to regulate consumer financial products in the United States, including consumer
credit, deposit, payment, and similar products. The CFPB and other similar regulatory agencies in other
jurisdictions may have broad consumer protection mandates that could result in the promulgation and
interpretation of rules and regulations that may affect our business.
Anti-Money Laundering and Counter Terrorist Financing. Mobetize is not subject to anti-money
laundering (“AML”) laws and regulations in the United States and other jurisdictions outside of the
United States, as well as laws designed to prevent the use of the financial systems to facilitate terrorist
activities. Regardless of the nature of our business, we do intend to implement a comprehensive AML
program designed to prevent our Hub from being used to facilitate money laundering, terrorist financing,
and other illicit activities.
The mobile commerce industry is also subject to requirements, codes and standards imposed by various
insurance, approval, listing, and standards organizations. Depending upon the type of commerce product
and requirements of the applicable local governmental jurisdiction, adherence to requirements, codes and
standards of such organizations is mandatory in some instances and voluntary in others.
RESEARCH AND DEVELOPMENT
We have spent $541,801 and $320,777 on research and development activities during the years ended
March 31, 2016 and 2015 respectively. This work has focused on building and enhancing the Mobetize
Hub.
12
EMPLOYEES
Mobetize had eight employees at March 31, 2016. Management uses consultants, attorneys, and
accountants to assist in the conduct of our business as deemed necessary.
ITEM 1A.
Risk Factors
Not required of smaller reporting companies.
ITEM 1B.
Unresolved Staff Comments
Not required of smaller reporting companies.
ITEM 2.
Our principal executive office is located at 8150 Birch Bay Square Street, Suite 205, Blaine Washington
98230. Our telephone number is (778) 588-5563. We pay rent of approximately $30 per month for the use
of this space.
Our principal operating office is located at 1150-510 Burrard Street, Vancouver, British Columbia V6C
3A8. Our telephone number is (778) 588-5563. We pay rent of $4,900 per month for the use of this space.
We believe that we have sufficient office space for the foreseeable future.
ITEM 3.
Legal Proceedings
DRAFT
None.
ITEM 4.
Mine Safety Disclosures
Not applicable.
13
PART II – FINANCIAL AND MARKET INFORMATION
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Mobetize common stock is quoted on the OTCQB, a service maintained by OTC Link under the symbol
“MPAY.” Trading in the common stock over-the-counter market has been limited and sporadic and the
quotations set forth below are not necessarily indicative of actual market conditions. These prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect
actual transactions. The high and low bid prices for the common stock for each quarter of the years ended
March 31, 2016 and 2015 are as follows:
Year
Quarter Ended
High
Low
2016
March 31
$0.29
$0.29
December 31
$0.30
$0.30
September 30
$0.65
$0.64
June 30
$0.73
$0.70
2015
March 31
$0.98
$0.51
December 31
$1.30
$0.83
September 30
$1.34
$1.05
June 30
$1.35
$1.05
The following is a summary of the material terms of our capital stock outstanding securities. This
summary is subject to and qualified by our articles of incorporation and bylaws.
DRAFT
Common Stock
As of March 31, 2016, there were 60 shareholders of record holding 28,750,881 shares of fully paid and
non-assessable common stock of the 525,000,000 shares of common stock, par value $0.001, authorized.
The Board of Directors believes that the number of beneficial owners is greater than the number of record
holders because a portion of our outstanding common stock is held in broker “street names” for the
benefit of individual investors. The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no
preemptive rights and no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock.
Preferred Stock – Series A
On February 4, 2016, we authorized 250,000,000 preferred shares and designated 10,000,000 of the
preferred shares as Series A preferred stock. The par value of the preferred stock is $0.001 per share. As
of March 31, 2016, there was one shareholder of record holding 4,565,000 shares of fully paid and non-
assessable Series A preferred stock.
Preferred Stock – Series B
On May 23, 2016, we designated 25,000,000 of the authorized preferred shares as Series B preferred
stock. The par value of the preferred stock is $0.001 per share. As of the date of this report there were
three shareholders of record holding 5,420,648 shares of fully paid and non-assessable Series B preferred
stock.
14
Convertible Debentures
As of March 31, 2016, we had five convertible debt securities convertible into the shares of our common
stock for an aggregate principal amount of $275,000 including accrued interest. The convertible
debentures have a 12 month term at 12% annual interest that paid the respective holders 12 months of
prepaid interest on issuance, with 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 180 days from the
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.
Stock Options
On August 7, 2015, our directors approved the adoption of our 2015 Stock Option Plan, which permits
Mobetize to grant up to 3,000,000 options to acquire shares of common stock, to its directors, officers,
employees, and consultants.
As of March 31, 2016, we have granted 2,630,000 stock options of which 2,381,262 remain outstanding,
each with five year terms, to directors, employees, advisors, and consultants, pursuant to the 2015 Stock
Option Plan, to purchase shares of our common stock at an exercise price of $0.60 that vested on grant or
will vest over time based on tenure with Mobetize.
We do not have in effect any other compensation plans under which our equity securities are authorized
for issuance.
DRAFT
Warrants
As of March 31, 2016, we have 2,636,406 share purchase warrants outstanding. We issued 694,414 share
purchase warrants on June 25, 2014, with an exercise price of $1.00 per share that expire on June 24,
2018; 305,000 share purchase warrants on December 11, 2014 with an exercise price of $1.25 that expire
on December 10, 2018; 81,670 share purchase warrants on March 17, 2015, with an exercise price of
$1.25 that expire on December 10, 2018; 94,750 share purchase warrants on July 15, 2015, with an
exercise price of $1.00 that expire on August 30, 2018; and 1,460,572 share purchase warrants on August
31, 2015, with an exercise price of $1.00 that expire on August 30, 2018.
Dividends
We have not declared any cash dividends since inception and do not anticipate paying any dividends in
the near future. The payment of dividends on our common stock is within the discretion of the Board of
Directors subject to earnings, capital requirements, financial condition, and other relevant factors
including those contractual restrictions related to certain debt obligations and those limitations generally
imposed by applicable state law.
Transfer Agent and Registrar
Our transfer agent is VStock Transfer, LLC located at 18 Lafayette Place, Woodmere, New York, 11598
having a telephone number at (212) 818-8436 and a facsimile number at (646) 536-3179.
15
Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities
On March 31, 2016, our board of directors authorized the issuance of five convertible debentures
convertible into shares of our common stock for an aggregate amount of $275,000, net of $30,000 in pre
paid interest valued at 12% over a one year term convertible at the option of holder at a 50% discount to
the average of the three lowest closing market prices over any ten day trading period. The offering was
conducted pursuant to the exemptions from registration provided by Section 4(2) and Regulation D of the
Securities Act of 1933, as amended (“Securities Act”) to the following persons:
Name
Issue Date
Consideration
Exemption
Charles M. Zatzkin
03/16/2016
$50,000
Section 4(2)/Reg D
Jonathan Kalikow
03/21/2016
$100,000
Section 4(2)/Reg D
Donald Duberstein
03/22/2016
$50,000
Section 4(2)/Reg D
Wendy Klein
03/30/2016
$50,000
Section 4(2)/Reg D
Alan Rothschild
03/31/2016
$25,000
Section 4(2)/Reg D
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transactions by Mobetize which did not involve
a public offering; (2) the offerees had access to the kind of information which registration would disclose;
and (3) the offerees are financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securities; (ii) offering only to accredited offerees; (iii)
having not violated antifraud prohibitions with the information provided to the offerees; (iv) being
available to answer questions by the offerees; and (v) providing restricted securities to each offeree.
DRAFT
No commissions or financing fees were paid in connection with this offering.
On September 1, 2015, our board of directors authorized the issuance of 2,724,668 investment units for
aggregate proceeds of $681,167. Each investment unit consisted of one common share and one half-
warrant, two of which half warrants entitling the holder to purchase an additional share of our common
stock for $1.00 for three years from the date of issue. 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:
16
Name
Consideration
Shares
Exemption
James A. Weil
$100,000.00
400,000
Section 4(2)/Reg D
Alan H Rothschild as Trustee of the Joshua
Caspi 2011 Gift Trust
$33,333.00
133,333
Section 4(2)/Reg D
Alan H Rothschild as Trustee of the Laura
Caspi 2011 Gift Trust
$33,334.00
133,336
Section 4(2)/Reg D
Alan H Rothschild as Trustee of the Andrew
Caspi 2011 Gift Trust
$33,333.00
133,333
Section 4(2)/Reg D
Donald Duberstein
$125,000.00
500,000
Section 4(2)/Reg D
Jason Feingold
$8,333.25
33,333
Section 4(2)/Reg D
Charles M. Zatzkin
$12,500
50,000
Section 4(2)/Reg D
Lambert Wayne LeRoux
$20,000
80,000
Section 4(2)/Reg D
Alan H. Rothschild
$25,000
100,000
Section 4(2)/Reg D
Frank Weil
$2,000
8,000
Section 4(2)/Reg D
David Duberstein
$10,000
40,000
Section 4(2)/Reg D
William Duberstein
$10,000
40,000
Section 4(2)/Reg D
Avenue T Fund, L.P.
$25,000
100,000
Section 4(2)/Reg D
Carol Fowler
$135,000
540,000
Section 4(2)/Reg D
Carol Fowler as Trustee of Ellis A Jackson
$15,000
60,000
Section 4(2)/Reg D
Carol Fowler as Trustee of Anya Jackson
$12,500
50,000
Section 4(2)/Reg D
Carol Fowler as Trustee of Lucy Jackson
$12,500
50,000
Section 4(2)/Reg D
Scott Gurfein
$10,000
40,000
Section 4(2)/Reg D
NBCN Inc. IFT Ron Gesser
$27,500
110,000
Section 4(2)/Reg D
NBCN Inc. IFT Nator Holdings Ltd.
DRAFT $22,500
90,000
Section 4(2)/Reg D
James R. Connolly
$8,333.25
33,333
Section 4(2)/Reg D
Alligato, Inc.
$40,740.50
81,481
Section 4(2)/Reg D
NBCN Inc. IFT Estate of Halina Weinreb
$25,000
50,000
Section 4(2)/Reg D
Helston Capital Corp L.P.
$15,000
30,000
Section 4(2)/Reg D
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transactions by Mobetize which did not involve
a public offering; (2) the offerees had access to the kind of information which registration would disclose;
and (3) the offerees are financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securities; (ii) offering only to accredited offerees; (iii)
having not violated antifraud prohibitions with the information provided to the offerees; (iv) being
available to answer questions by the offerees; and (v) providing restricted securities to each offeree.
We paid $8,750 in financing fees and 17,500 financing warrants worth an estimated $3,372 and issued on
the same terms as those in the investment units authorized in connection with this offering.
17
On September 1, 2015, our board of directors authorized the issuance of 161,481 investment units for
aggregate proceeds of $80,739 each investment unit consisted of one common share and one half-warrant,
two of which half warrants entitling the holder to purchase an additional share of our common stock for
$1.00 for three years from the date of issue. The offering was conducted pursuant to the exemptions from
registration provided by Section 4(2), Regulation D and Regulation S of the Securities Act to the
following persons:
Name
Consideration
Shares
Exemption
Alligato, Inc.
$40,740.50
81,481
Section 4(2)/Reg S
NBCN Inc. ITF Estate of
Halina Weinreb
$25,000
50,000
Section 4(2)/Reg D
Helston Capital Corp L.P.
$15,000
30,000
Section 4(2)/Reg D
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transactions by Mobetize which did not involve
a public offering; (2) the offerees had access to the kind of information which registration would disclose;
and (3) the offerees are financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securities; (ii) offering only to accredited offerees; (iii)
having not violated antifraud prohibitions with the information provided to the offerees; (iv) being
available to answer questions by the offerees; and (v) providing restricted securities to each offeree.
Mobetize complied with the exemption requirements of Regulation S by having directed no offering
efforts in the United States, by offering common shares only to offerees who was outside the United
States at the time of the offering, and ensuring that thDRAeFT offerees to whom the securities were offered were
non-U.S. offerees with addresses in foreign countries.
No commissions or financing fees were paid in connection with this offering.
On August 15, 2015, our board of directors authorized the issuance of 5,000 shares of common stock at a
price of $0.50 per share for proceeds of $2,500 upon the exercise of 5,000 warrants, issued in September
2013, to Kynaston Costa Correia pursuant to the exemptions from registration provided by Section 4(2)
and Regulation D of the Securities Act.
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuance was an isolated private transaction by Mobetize which did not involve
a public offering; (2) the offeree had access to the kind of information which registration would disclose;
and (3) the offeree is financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securities; (ii) offering only to an accredited offeree; (iii)
having not violated antifraud prohibitions with the information provided to the offeree; (iv) being
available to answer questions by the offeree; and (v) providing restricted securities to the offerree.
No commissions or financing fees were paid in connection with this offering.
On June 10, 2015, our board of directors authorized the issuance of 184,500 shares at a price of $0.50 per
share for proceeds of $92,250 upon the exercise of 184,500 warrants pursuant to the exemptions from
registration provided by Section 4(2) and Regulation S of the Securities Act to the following persons.
18
Name
Consideration
Shares
Exemption
Forte Finance LLC
$12,500
25,000
4(2)/Reg S
Helston Capital Corp.
$5,250
10,500
4(2)/Reg S
Nator Holdings, Ltd.
$12,500
25,000
4(2)/Reg S
Christopher Hlady
$3,000
6,000
4(2)/Reg S
Kynaston Costa Correia
$4,000
8,000
4(2)/Reg S
Wayne LeRoux
$10,000
20,000
4(2)/Reg S
Ron Gesser
$45,000
90,000
4(2)/Reg S
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transaction by Mobetize which did not involve a
public offering; (2) the offerees had access to the kind of information which registration would disclose;
and (3) the offerees are financially sophisticated.
Mobetize complied with the exemption requirements of Regulation S by having directed no offering
efforts in the United States, by offering common shares only to offerees who were outside the United
States at the time of the offering, and ensuring that the offerees to whom the securities were offered were
non-U.S. offerees with addresses in foreign countries.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On September 1, 2015, our board of directors authorized the issuance of 81,481 shares at a price of $0.50
per share for proceeds of $40,741 to Alligato, Inc., a company controlled by our chief executive officer,
pursuant to the exemptions from registration provided by Section 4(2) and Regulation S of the Securities
Act.
DRAFT
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuance was an isolated private transaction by Mobetize which did not involve
a public offering; (2) the offeree had access to the kind of information which registration would disclose;
and (3) the offeree is financially sophisticated.
Mobetize complied with the exemption requirements of Regulation S by having directed no offering
efforts in the United States, by offering common shares only to an offeree who was outside the United
States at the time of the offering, and ensuring that the offeree to whom the securities were offered was a
non-U.S. offeree with an address in a foreign country.
On September 1, 2015, our board of directors authorized the issuance of 700,000 shares at a price of
$0.25 per share for proceeds of $175,000 and permitted the exercise of 25,000 warrants in exchange for
25,000 common shares at a price of $0.50 share for gross proceeds of $12,500 to certain entities and
persons affiliated with our former chief financial officer, pursuant to the exemptions from registration
provided by Section 4(2), Regulation D and Regulation S of the Securities Act as follows:
19
Name
Consideration
Shares
Exemption
Carol Fowler
$135,000
540,000
Section 4(2)/Reg D
Carol Fowler as Trustee
of Ellis A. Jackson
$15,000
60,000
Section 4(2)/Reg D
Carol Fowler as Trustee
of Anya Jackson
$12,500
50,000
Section 4(2)/Reg D
Carol Fowler as Trustee
of Lucy Jackson
$12,500
50,000
Section 4(2)/Reg D
Forte Finance LLC
$12,500
25,000
Section 4(2)/Reg D
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transactions by Mobetize which did not involve
a public offering; (2) the offerees had access to the kind of information which registration would disclose;
and (3) the offerees are financially sophisticated.
On _September 1, 2015, our board of directors authorized the issuance of 500,000 shares at a price of
$0.25 per share for proceeds of $125,000 to Donald Duberstein, one of our directors, pursuant to the
exemptions from registration provided by Section 4(2) and Regulation D of the Securities Act.
Mobetize complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuance was an isolated private transaction by Mobetize which did not involve
a public offering; (2) the offeree had access to the kind of information which registration would disclose;
and (3) the offeree is financially sophisticated.
Mobetize complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any
general solicitation or advertising to market the securDRAiFT ties; (ii) offering only to an accredited offeree; (iii)
having not violated antifraud prohibitions with the information provided to the offeree; (iv) being
available to answer questions by the offeree; and (v) providing restricted securities to the offerree.
ITEM 6.
Selected Financial Data
Not required of smaller reporting companies.
20
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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-K (the “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 industry’s 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 statement
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 necessDRAFaT ry debt or equity financing, cutting operating costs,
launching a viable product, and generating profitable operations from our future operations.
Mobetize’s 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 $
Year Ended
March 31,
2016
2015
Operating Revenues
$
125,934 $
101,835
Operating Expenses
2,195,479
1,607,330
Net Loss from Operations
(2,069,545)
(1,505,495)
Net Loss
(2,069,545)
(3,009,018)
Mobetize generated $125,934 of revenue in the year ended March 31, 2016, compared to revenues of
$101,835 during the same period in 2015. Revenues are currently generated through licensing, consulting,
and payment processing services provided by Mobetize to our existing Customers. We expect to generate
additional revenues in the next 12 months from all Mobetize Hub revenue sources.
21
Our operating expenses for the year ended March 31, 2016 and 2015 are outlined in the following table:
US $
Year Ended
March 31,
2016
2015
Depreciation
$
3,107 $
1,148
General and administrative
280,709
200,674
General and administrative – related party
2,913
99,695
Stock based compensation expense
711,427
46,097
Investor relations and promotion
31,881
138,142
Listing fees
46,655
30,984
Management salaries and consulting fees
299,916
438,193
Management salaries and consulting fees – related party
120,000
222,382
Professional fees
72,244
74,954
Research and development
467,574
59,170
Research and development – related party
74,227
261,607
Sales and marketing
84,826
31,646
Sales and marketing – related party
-
2,638
Total Operating Expenses
2,195,479
1,607,330
For the year ended March 31, 2016 operating costs were $2,195,479 compared with $1,607,330 for the
year ended March 31, 2015.
DRAFT
This $588,149 increase is primarily attributed to a $221,024 increase in research and development as we
continued to focus on product research and development, and a $665,330 increase in stock based
compensation due to the issuance of stock options to management and employees offset by a $106,261
decrease to investor relations as the result of terminating an investor relations services contract, and a
$240,659 decrease in management salaries and consulting fees as we optimized the management structure
to reduce overhead cost.
During the year ended March 31, 2016, Mobetize recorded a net loss of $2,069,545 compared with a net
loss of $3,009,018 for the year ended March 31, 2015. The decrease in net losses is primarily attributed to
the loss on sale of investment of $1,503,523 in the prior period ended March 31, 2015.
Liquidity and Capital Resources
US $
March 31, 2016
March 31, 2015
Current Assets
318,827
390,544
Current Liabilities
266,185
110,110
Working Capital
52,642
280,434
As at March 31, 2016, Mobetize’s cash balance was $210,341 and total assets were $330,655, compared
to a cash balance of $312,899 and total assets of $404,150 as at March 31, 2015.
22
As at March 31, 2016, Mobetize had total liabilities of $588,661 compared with total liabilities of
$163,215 as at March 31, 2015. The increase in total liabilities is attributed to a $104,595 increase in
accounts payable and accrued liabilities, an increase of $50,000 in amounts due to a related party, an
increase of $47,476 due to funds advanced to us in the form of a shareholder loan, and an increase of
$275,000 in convertible debenture.
As at March 31, 2016, Mobetize had working capital deficit of $223,358 compared with working capital
of $280,434 at March 31, 2015. The decrease in working capital can be attributed to the decrease in
current assets, particularly cash used for business purposes, and the increase in current liabilities, mostly
accounts payable and accrued liabilities, promissory note, and convertible debentures.
Cash Flows
US $
Year Ended
March 31,
2016
2015
Cash flows used in Operating Activities
(1,254,120)
(1,164,772)
Cash flows used in Investing Activities
(1,659)
115,867
Cash flows provided by Financing Activities
1,159,802
1,273,623
Effect of exchange rate changes on cash
(6,581)
(2,326)
Net Increase in Cash During Period
(102,558)
222,392
Cash flow used in Operating Activities
During the year ended March 31, 2016, Mobetize used $1,254,120 in net cash for operating activities
compared to $1,164,772 of net cash used in operatingDRAFT activities during the year ended March 31, 2015.
The $89,348 increase in net cash used in operating activities in the current period is primarily attributed to
the increase in general and administrative costs for day-to-day activities, as well as the increase in
research and development expenses.
Mobetize expects to continue to use cash flow in operating activities over the next twelve months as it
continues the development of its product suites.
Cash flow used in Investing Activities
During the year ended March 31, 2016, Mobetize used $1,659 in net cash for investing activities
compared to net cash of $115,867 provided by investing activities in 2015. Cash used in investing
activities during the year ended March 31, 2016 was due to the purchase of computer equipment while
cash provided by investing activities during the same period in 2015 was due to $130,526 in proceeds
from the sale of an investment offset by $14,659 cash spent to purchase computer equipment.
Mobetize expects to continue to use cash flow in investing activities over the next twelve months as it
seeks to expand the reach of its business.
23
Cash flow from Financing Activities
During the year ended March 31, 2016, Mobetize received $1,159,802 in proceeds from financing
activities compared to $1,273,623 in proceeds from financing activities during the year ended March 31,
2015. Mobetize realized $619,667 in net proceeds from the issuance of common stock, $245,000 in
proceeds from convertible debentures, $44,000 in proceeds from related party loans, $76,000 in proceeds
from shareholder loans, and $228,240 in related party stock issuances to our chief executive officer and
former chief financial officers, offset by $53,105 in related party loan repayment during the year ended
March 31, 2016. Mobetize realized $1,273,623 in net proceeds from the issuance of common stock.
Mobetize expects to continue to use cash during the year ended March 31, 2015.
Mobetize expects to continue to realize net cash flow from financing activities over the next twelve
months as its business will require additional funding to meet forecast capital requirements to develop its
product line and expand its commercial reach.
We expect that working capital requirements will continue to be funded through a combination of existing
funds and further issuances of securities as either debt or equity are expected to increase in line with the
growth of our business.
Existing working capital, further advances and debt or equity instruments that Mobetize plans to issue, in
combination with 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 and advances from
directors. In connection with our business plan, management anticipates additional increases in operating
expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses;
and (iii) marketing expenses. We intend to finance thDRAeFT se 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.
24
GOING CONCERN
The independent auditors' report accompanying our March 31, 2016, financial statements contained an
explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
These financial statements included in this Report for March 31, 2016 have been prepared on a going
concern basis, which implies that our company will continue to realize its assets and discharge its
liabilities in the normal course of business. As of March 31, 2016, Mobetize has an accumulated deficit of
$6,325,061 and has accumulated other comprehensive losses of $6,910. 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, and generating
profitable operations from future operations. These factors raise substantial doubt regarding Mobetize’s
ability to continue as a going concern. These financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and classification of liabilities that might be
necessary should Mobetize be unable to continue as a going conce
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.
Revenue Recognition
Mobetize recognizes revenue from payment processiDnRAFT g, 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 Mobetize’s stock price as well as assumptions regarding
a number of subjective variables. These subjective variables include, but are not limited to Mobetize’s
expected stock price volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is
recognized as an expense in the 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.
25
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.
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 cDRAFoT nversion is below market value, Mobetize records a
Beneficial Conversion Feature (the "BCF") and related debt discount.
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
Not required of smaller reporting companies.
ITEM 8.
Financial Statements and Supplementary Data
Our audited financial statements and notes thereto for the years ended March 31, 2016 and 2015 are
attached hereto as F-1 through F-25.
26
![[mobetize10kfinaloldformat002.jpg]](mobetize10kfinaloldformat002.jpg)
Report of Independent Registered
Public Accounting Firm
Grant Thornton LLP
T (604) 687-2711
Suite 1600, Grant Thornton Place
F (604) 685-6569
333 Seymour Street
www.GrantThornton.ca
Vancouver, BC
V6B 0A4
To the Board of Directors and Stockholders of
Mobetize Corp.
We have audited the accompanying consolidated balance sheets of Mobetize Corp. (a Nevada corporation) and
subsidiaries (collectively, the “Company”) as of March 31, 2016 and March 31, 2015, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the
two years in the period ended March 31, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstDRAFTatement. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Mobetize Corp. and subsidiaries as of March 31, 2016 and March 31, 2015, and the results of
their operations and their cash flows for each of the two years in the period ended March 31, 2016, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a history of
operating losses. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Vancouver, Canada
/s/ Grant Thornton LLP
July 11, 2016
Chartered Professional Accountants
F-1
MOBETIZE, CORP.
Consolidated Balance Sheets
As at March 31, 2016 and 2015
US $
MARCH 31,
MARCH 31,
2016
2015
ASSETS
Current Assets:
Cash
$
210,341 $
312,899
Accounts receivable
43,729
6,534
Accounts receivable – related party (Note 5)
-
14,687
Prepaid expenses and deposits
59,516
56,424
Prepaid expenses and deposits – related party (Note 5e)
5,241
-
Total Current Assets
318,827
390,544
Property and equipment, net (Note 3)
11,828
13,606
TOTAL ASSETS
$
330,655 $
404,150
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
$
168,956 $
37,300
Accounts payable and accrued liabilities - related party (Note 5e)
45,749
72,810
Deposits due to customers
1,480
-
Promissory note – related party (Note 5e)
50,000
-
Convertible debenture (Note 6e)
275,000
-
Total Current Liabilities
541,185
110,110
Due to related party (Note 5)
5,943
53,105
Shareholder loan (Note 5d&e)
41,533
-
TOTAL LIABILITIES
588,661
163,215
STOCKHOLDERS'(DEFICIENCY) EQUITY
Common stock, $0.001 Par Value: 525,000,000 authorized and 28,750,881 common
shares issued and outstanding (Note 6)
28,751
30,186
Preferred stock, $0.001 Par Value: 250,000,000 authorized and 4,565,000 preferred
shares issues and outstanding (Note 6a)
4,565
-
Additional paid-in capital
4,608,487
4,030,880
Share subscriptions payable (Note 6a)
-
14,303
Share purchase warrants (Note 7)
676,964
377,311
Share options (Note 8)
757,524
46,097
Accumulated deficit
(6,325,061)
(4,255,516)
Accumulated other comprehensive loss
(9,236)
(2,326)
Total Stockholders' (Deficiency)Equity
(258,006)
240,935
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)EQUITY
$
330,655 $
404,150
The accompanying notes are an integral part of these consolidated financial statements.
F-2
MOBETIZE CORP.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended March 31, 2016 and 2015
US $
YEAR ENDED MARCH 31,
2016
2015
OPERATING REVENUES
Revenues
$
125,934
$
88,442
Revenues – related party
-
13,393
Total Operating Revenues
125,934
101,835
OPERATING EXPENSES
Depreciation
3,107
1,052
General and administrative
280,709
200,770
General and administrative – related party (Note 5)
2,913
99,695
Stock based compensation expense (Note 8)
711,427
46,097
Investor relations and promotion
31,881
138,142
Listing fees
46,655
30,984
Management salaries and consulting fees
299,916
438,193
Management salaries and consulting fees - related
party (Note 5)
120,000
222,382
Professional fees
72,244
74,954
Research and development
467,574
59,170
Research and development – related party (Note 5)
74,227
261,607
Sales and marketing
84,826
31,646
Sales and marketing – related party (Note 5)
-
2,638
Total Operating Expenses
2,195,479
1,607,330
NET LOSS FROM OPERATIONS
(2,069,545)
(1,505,495)
OTHER INCOME (EXPENSE)
Loss on sale of investment (Note 4)
-
(1,503,523)
Total Other Income (expense)
-
(1,503,523)
NET LOSS
$
(2,069,545)
$
(3,009,018)
LOSS PER SHARE
Basic and diluted
$
(0.07)
$
(0.10)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted
31,810,036
29,997,256
COMPREHENSIVE LOSS
Net loss
$
(2,069,545)
$
(3,009,018)
Other comprehensive loss:
Foreign currency translation adjustment
(6,910)
(2,326)
TOTAL COMPREHENSIVE LOSS
$
(2,076,455)
$
(3,011,344)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
MOBETIZE CORP.
Consolidated Statements of Stockholders’ Equity
For the years ended March 31, 2016 and 2015
Common Shares
Preferred Shares
Warrants
Accumulated
Additional
Share
Options and
Other
Total
Paid-In
Subscriptions
other Reserves
Accumulated Comprehensive Shareholder’s
Number
Value
Number
Value
Capital
Payable
(Note 9)
Deficit
Loss
Equity
Balance - March 31, 2014
28,364,200 $
28,364
$
$
2,992,747 $
- $
- $
(1,246,498) $
- $
1,774,613
Shares issued for consultancy services (Note 6a)
19,861
20
-
-
24,367
-
-
-
-
24,387
Sale of 1,122,831 shares at $0.75/share net of
$58,500 financing fees (Notes 6b)
1,122,831
1,123
-
-
631,841
-
150,659
-
-
783,623
Sale of 490,000 shares at $1.00/share (Note 6b)
490,000
490
-
-
377,058
-
112,452
-
-
490,000
Shares issued due to repricing of December 2014
private placement from $1.00/share to $0.75/share
(Note 6b)
163,333
163
-
-
(163)
-
-
-
-
Valuation of financing warrants on sale of shares
(Notes 6b)
-
-
-
-
-
-
114,200
-
-
114,200
Valuation of options issued for consultancy
services received - cancelled (Note 8)
-
-
-
-
-
-
46,097
-
-
46,097
Stock payable for consultancy services received
(Note 6a)
-
-
-
-
-
14,303
-
-
-
14,303
Conversion of interest payable (Note 6c)
25,280
26
-
-
5,030
-
-
-
-
5,056
Net loss for the year
-
-
-
-
-
-
-
(3,009,018)
-
(3,009,018)
Comprehensive loss for the year
-
-
-
-
-
-
-
-
(2,326)
(2,326)
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 6a)
-
-
-
-
-
18,181
-
-
-
18,181
Sale of 161,481 shares at $0.50/share
(Notes 6b)
161,481
161
-
-
65,022
-
15,556
-
-
80,739
Sale of 2,724,668 shares at $0.25/share, net of
$12,122 financing fee (Notes 6b)
2,724,668
2,725
-
-
403,850
-
262,470
-
-
669,045
Valuation of financing warrants on sale of shares
(Notes 7d)
-
-
-
-
-
-
3,372
-
-
3,372
Exercise of warrants in the period (Note 6c)
189,500
189
-
-
94,561
-
-
-
-
94,750
Warrants issued on exercise of expiring warrants
(Note 7a)
-
-
-
-
(18,255)
-
18,255
-
-
-
Share options issued in the period (Note 8)
-
-
-
-
-
-
711,427
-
-
711,427
Conversion of common to preferred shares
(Note 6d)
(4,565,000)
(4,565)
4,565,000
4,565
-
-
-
-
-
Shares issued for services (Note 6a)
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)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
MOBETIZE CORP.
Consolidated Statements of Cash Flows
For the years ended March 31, 2016 and 2015
US $
YEAR ENDED MARCH 31,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(2,069,545)
$
(3,009,018)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation expense
3,107
1,052
Loss on sale of investment
-
1,503,523
Settlement of shareholder loans adjusted to wages
(31,437)
-
Shares issued for services
18,181
243,674
Interest accrued on shareholder loans
2,913
-
Share based payments
711,427
46,097-
Interest settled in shares
-
5,056
Changes in working capital assets and liabilities
Accounts receivable
(37,195)
72,439
Accounts receivable – related party
14,687
(14,687)
Prepaid expenses
26,908
(42,105)
Prepaid expenses – related party
759
-
Accounts payable and accrued liabilities
133,136
18,218
Accounts payable and accrued liabilities– related party
(27,061)
10,979
Net cash used in operating activities
(1,254,120)
(1,164,772)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment
(1,659)
(14,659)
Proceeds from sale of investment
-
130,526
Net cash provided by (used in) investing activities
(1,659)
115,867
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from stock issuance, net of financing costs
619,667
1,273,623
Proceeds from convertible debenture, net of prepaid interest
245,000
-
Proceeds from related party loan, net of prepaid interest
44,000
-
Proceeds from shareholder loan
76,000
-
Proceeds from stock issuance – related party
228,240
-
Repayments to related party
(53,105)
-
Net cash provided by financing activities
1,159,802
1,273,623
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(6,581)
(2,326)
NET INCREASE (DECREASE) IN CASH
(102,558)
222,392
CASH - BEGINNING OF PERIOD
312,899
90,507
CASH - END OF PERIOD
$
210,341
$
312,899
Supplemental Cash Flow Disclosures – Note 12
The accompanying notes are an integral part of these consolidated financial statements.
F-5
MOBETIZE CORP.
Notes to the Consolidated Financial Statements
March 31, 2016 and 2015
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 Company’s Global Mobile B2B Fintech and Financial Services
Marketplace (the “Hub”). Mobetize is focused on selling fintech solutions and services to global
telecom and financial services providers.
The Company’s activities are subject to significant risks and uncertainties, including the need to
secure additional funding to operationalize the Company’s 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 March 31, 2016, the Company has an accumulated deficit of $6,325,061 and a history
of net losses and cash used in operating activities. These factors raise substantial doubt regarding the
Company’s ability to continue as a going concern. The continuation of the Company as a going
concern is dependent upon 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 the Company’s
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.
F-6
2. Summary of Significant Accounting Policies
a) Basis of Presentation
The 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 Company’s
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.
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 Company’s estimates. To the extent there are
material differences between the estimates and the actual results, future results of operations will
be affected.
c) 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 Company’s financial position, results of operations and cash flows for the periods
shown. The results of operations for such periods are the results for a full year but not necessarily
indicative 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 March 31, 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-7
2. Summary of Significant Accounting Policies – Continued
f) 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.
g) 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.
h) 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.
i) 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.
j) 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.
F-8
2. Summary of Significant Accounting Policies – Continued
k) Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation –
Stock Compensation, which requires the measurement and recognition of compensation expense
based on estimated fair values for all share-based awards made to employees and directors,
including stock options.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant
using an option-pricing model. The Company uses the Black-Scholes option-pricing model as its
method of determining fair value. This model is affected by the Company’s stock price as well as
assumptions regarding a number of subjective variables.
These subjective variables include, but are not limited to the Company’s expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise
behaviours. 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.
l) Income Taxes
Deferred income taxes are determined using the liability method for the temporary differences
between the financial reporting basis and income tax basis of the Company’s assets and liabilities.
Deferred income taxes are measured based on the tax rates expected to be in effect when the
temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their respective tax bases.
The Company’s policy is to recognize penalties and interest, if any, related to uncertain tax
positions as general and administrative expense.
m) 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 March 31, 2016, the
Company has nil (2014 – nil) potentially dilutive shares.
F-9
2. Summary of Significant Accounting Policies – Continued
n) Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements.
o) 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.
p) 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
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels
that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for
identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market
data.
F-10
2. Summary of Significant Accounting Policies – Continued
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 Company’s 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.
q) 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.
r) 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.
s) 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.
F-11
2. Summary of Significant Accounting Policies – Continued
t) 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.
u) 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 Company’s 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.
v) 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 adoption of the pronouncement did not have a material effect on the Company’s consolidated
financial statements.
In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements. The amendments in this Update
remove the definition of a development stage entity from the Master Glossary of the Accounting
Standards Codification, thereby removing the financial reporting distinction between
development stage entities and other reporting entities. In addition, the amendments eliminate the
requirements for development stage entities to (1) present inception-to-date information in the
statements of income, cash flows, and shareholder equity, (2) label the financial statements as
those of a development stage entity, (3) disclose a description of the development stage activities
in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a
development stage entity that in prior years it had been in the development stage. This ASU was
effective for annual periods beginning after December 15, 2014. Early adoption is permitted.
Accordingly, we have elected to adopt ASU No. 2014-10 on April 1, 2014.
F-12
2. Summary of Significant Accounting Policies – Continued
w) 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 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
does not expect the amendments in this ASU to have any impact 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.
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.
F-13
2. Summary of Significant Accounting Policies - Continued
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:
March 31,
March 31,
2016
2015
Computer equipment
$ 14,787
$ 13,428
Furniture
1,204
1,231
Total
15,991
14,659
Less: accumulated amortization
4,163
1,053
Property and equipment, net
$ 11,828
$ 13,606
During the year ended March 31, 2016, property and equipment decreased by $1,778 (2015 - $nil) as
a result of foreign currency translation adjustments.
4. Investment
On December 24, 2013 the Company completed a debt for equity swap transaction, through which it
converted the notes receivable and accrued interest it held from Telupay International Inc. (“Telupay”)
into 3,268,097 common shares in Telupay. As a result of this transaction, the Company owned
approximately 2.02% of the outstanding share capital of Telupay.
The Company recognizes the holding of these shares as an investment available for sale and values it
at the fair value of the shares. As Telupay is a public company on the OTC market, the shares are
valued at the market price.
During the year ended March 31, 2015, the Company fully liquidated 3,268,097 common shares of
Telupay for $130,527 in cash proceeds, realizing a loss on sale of investment of $1,503,523. As at
March 31, 2016, the value of the Telupay shares was $nil (2015 - $nil).
F-14
5. Related Party Transactions
a) During the year ended March 31, 2016, the Company incurred $nil (2015 - $114,382) of
management fees, and $1,380 (2015 - $94,168) of general and administrative expenses to the
former President and former Chief Financial Officer (the “Former CFO”) of the Company, noting
that the Former CFO resigned from the role on February 4, 2016. In 2016 the Former CFO was
remunerated as an employee.
b) During the year ended March 31, 2016, the Company incurred $120,000 (2015 - $108,000) of
management fees, $74,227 (2015 - $261,607) of development and engineering fees, $1,533 (2015
- $5,527) of general and administration expenses, and $nil (2015 - $2,638) of sales and marketing
expenses to a company controlled by the Chief Executive Officer (the “CEO”) of the Company.
c) During the year ended March 31, 2016, the Company generated $nil (2015 - $13,393) in revenues
from a company controlled by the CEO.
d) As at March 31, 2016, the Company owes to the Former CFO or a company controlled by the
Former CFO $5,943 (March 31, 2015 - $53,105) for advances, management fees, and/or
shareholder loans, as applicable, incurred but unpaid during the year. Amounts owing to the
Former CFO are unsecured, non-interest bearing, and due on demand.
e) As at March 31, 2016, the Company owes to the CEO or a company controlled by the CEO
$41,533 (2015 - $nil) in shareholder loans, $44,759 (2015 - $nil) in a promissory note (described
below) which comprises $50,000 principal less $5,241 in prepaid interest, and $45,749 (2015 –
$72,810) in amounts payable for services and expenses received by the Company. The $50,000
promissory note (the “Promissory Note”) has a twelve month term with principal due on maturity
(February 14, 2017), 12% annual interest rate with $6,000 interest prepaid to the holder. The
other amounts owing to the CEO are unsecured, non-interest bearing, and due on demand.
f) During the year ended March 31, 2016, the Company received additional advances of $137,000
(2015 - $nil) from the Former CFO, which were reinvested during the year as part of a $175,000
private placement for common shares of the Company (see Note 7(h)) by the CFO and direct
members of the CFO’s family. During the year ended March 31, 2016, the Company also paid
$994 (2015 - $nil) in interest to the CFO relating to the above noted advances.
g) During the year ended March 31, 2016, the Former CFO exercised 25,000 warrants at $0.50 (see
Note 7(f)).
h) During the year ended March 31, 2016, the Company received additional advances of $40,741
(2015 - $nil) from the CEO, which were reinvested during the year as part of a $40,741 private
placement for common shares of the Company (see Note 7(i)) by a company controlled by the
CEO.
F-15
6. Common Stock and Preferred Stock
a) Shares for Services:
During the years ended March 31, 2016 and 2015, 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
Company’s common stock on the date of settlement, or where issuance is delayed, at the average
market price of the Company’s stock for the respective period of service, as applicable.
During the year ended March 31, 2016, the Company incurred $18,181 (2015 - $38,690) in shares
for services, and settled $32,484 (2015 - $24,388) of services into common shares with 54,727
(2015 – 19,861) common shares issued at $0.001 per share and $32,429 (2015 - $24,367)
recorded to additional paid-in capital as follows:
On April 4, 2014, the Company issued 1,334 common shares at $0.001 per share with
$1,799 recorded to additional paid-in capital in exchange for services in the amount of
$1,800.
On September 8, 2014, the Company issued 9,990 common shares at $0.001 per share
with $12,078 recorded to additional paid-in capital in exchange for services in the amount
of $12,087.
§ On March 4, 2015, the Company issued 8,537 shares at $0.001 per share with $10,491
recorded to additional paid-in capital to settle $10,500 of services payable in common
shares.
§ 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 March 31, 2016, $ nil (2015 - $14,303) was included in share subscriptions payable.
F-16
6. Common Stock and Preferred Stock – Continued
b) Private Placements:
During the years ended March 31, 2016 and 2015, the Company conducted four private
placements of investment units (comprising common shares and warrants), some of which had
repricing and warrant term extensions as follows:
§ On June 25, 2014 the Company closed a private placement under which it sold 1,122,831
investment units for proceeds of $783,623, net of financing fees of $58,500 paid in cash.
Each investment unit consisted of one common share of the Company’s stock and one
half-warrant. The 561,414 warrants are exercisable at $1.00 per share and were initially
valid for two years from the date of issue with an extension provided on March 17, 2015
for an additional two years (see Note 7e). 133,000 financing warrants were issued on the
same terms, plus extension, as those in the investment units (seen Note 7f).
§ On December 11, 2014 the Company closed a private placement under which it sold
490,000 investment units for proceeds of $490,000. Each investment unit consisted of
one common share of the Company’s stock and one half-warrant. On March 17, 2015, the
Company repriced the investment units from $1.00 per unit to $0.75 per unit resulting in
additional 163,333 investment units issued and provided an extension of one year to the
warrant term. The resulting 326,670 warrants are exercisable at $1.25 per share and were
initially valid for three years from the date of issue with the March 17, 2015 extension
extending the term an additional one year (see Note 7g). 60,000 financing warrants were
issued on the same terms, plus extension, as those in the investment units (seen Note 7h).
§ 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 Company’s 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 (see Note 7b). $8,750 cash financing fees and 17,500 financing warrants
with a value of $3,372 (see Note 7d) 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 Company’s 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 (see Note 7(c)). Neither financing fees nor financing warrants
were payable with this private placement.
F-17
6. Common Stock and Preferred Stock - Continued
c) Issuance of Shares on Exercise of Warrants, Options, and Settlement of Amounts:
§ On March 4, 2015, the Company issued 25,280 shares at a price of $0.20 per share to
convert interest payable on notes payable in the amount of $5,056 to equity.
§ 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 (the “Preferred Shares”). The Preferred Shares have
the same rights and privileges as the common shares, with the exception that Preferred Share
holder has 10 votes per Preferred Share versus one vote per common share.
On February 4, 2016, the Company converted 4,565,000 common shares held by the CEO of the
Company into 4,565,000 Preferred Shares. As at March 31, 2016, 4,565,000 (2015 – nil)
Preferred Shares were issued and outstanding.
e) 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 $3,000 of
prepaid interest was paid by the Company to one Convertible Debenture holder after year end.
The Convertible Debentures have a 12 month term, 12% annual interest rate, pay the holder 12
months of prepaid interest on issuance, and have a conversion feature exercisable at the option of
the holder (the “Conversion Feature”). The Conversion Feature enables the holder to convert any
portion of their outstanding Convertible Debenture principal balance into common shares at a
variable and discounted conversion price (the “Conversion Price” - see below) after 180 days
from issue date, but no later than the maturity date. The Conversion Price is calculated as a 50%
discount to the average of the three lowest closing market prices over any ten day trading period,
ending one day prior to a notice of conversion provided by the holder. The Conversion Feature
represents an embedded contingent redemption feature and is accounted for as a derivative. The
fair value of the contingent redemption feature is immaterial and therefore not recognized at
inception and at March 31, 2016.
F-18
7. Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
Weighted average
Number of warrants
exercise price (US$)
Balance, March 31, 2014
500,000
0.50
Issued, June 25, 2014
694,414
1.00
Issued, December 11, 2014
305,000
1.25
Issued, March 17, 2015
81,670
1.25
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
During the year ended March 31, 2016, the Company issued the following tranches of warrants
relating to private placements (refer to Note 6b) in the year:
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 (the “$0.25 PP”) in the quarter (see Note 6b). 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 (the “$0.50 PP”) in the quarter (see Note 6b). 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 finder’s 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
(see Note 6b). 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.
F-19
7. Share Purchase Warrants - Continued
During the year ended March 31, 2015, the Company issued the following tranches of warrants
relating to private placements (refer to Note 6b) in the year:
e) On June 25, 2014, 561,414 warrants were issued with an exercise price of $1.00 and a two year
term ending June 18, 2016. On March 17, 2015, the term was extended two years to June 18,
2018. The extended warrants were valued at $150,659 using the Black Scholes method, which
included a dividend yield of nil, risk-free interest rate of 1.07%, expected volatility of 107.0%,
and expected term of 3.3 years.
f) On June 25, 2014, 133,000 financing warrants were issued with an exercise price of $1.00 and a
two year term ending June 18, 2016. On March 17, 2015, the term was extended two years to
June 18, 2018. The warrants were valued at $103,356 using the Black Scholes method, which
included a dividend yield of nil, risk-free interest rate of 0.47%, expected volatility of 111.0%,
and expected term of 2 years. No amount was recorded relating to the extension.
g) On December 11, 2014, 326,670 warrants were issued with an exercise price of $1.25 and a three
year term ending December 10, 2017. On March 17, 2015, the term was extended one year to
December 10, 2018. The extended warrants were valued at $112,452 using the Black Scholes
method, which included a dividend yield of nil, risk-free interest rate of 1.32%, expected
volatility of 168%, and expected term of 3.7 years.
h) On December 11, 2014, 60,000 financing warrants were issued with an exercise price of $1.25
and a three year term ending December 10, 2017. On March 17, 2015, the term was extended one
year to December 10, 2018. The warrants were valued at $38,074 using the Black Scholes
method, which included a dividend yield of nil, risk-free interest rate of 1.10%, expected
volatility of 96.4%, and expected term of 4 years. No amount was recorded relating to the
extension.
As at March 31, 2016, the following share purchase warrants were outstanding:
Number of warrants
Exercise
outstanding
price (US$)
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
F-20
8. Share Options
The following table summarizes the continuity of share purchase options:
Number of options
Weighted average
outstanding
exercise price (US$)
Balance, March 31, 2014
5,500
1.00
Issued in period
250,000
1.25
Expired in period
(5,500)
1.00
Cancelled in period
(192,709)
1.25
Balance, March 31, 2015
57,291
1.25
Issued in period
2,630,000
0.60
Expired in period
(36,000)
0.65
Cancelled in period
(270,029)
0.74
Balance, March 31, 2016
2,381,262
0.60
As at March 31, 2016, the following share purchase options were outstanding:
Number of options
Number of options
Exercise
outstanding
vested
price (US$)
Expiry date
2,381,262
1,294,262
0.60
September 30, 2020
On September 1, 2014 the Company issued 250,000 share options for consulting services with a three
year term, expiring on August 31, 2017. The options vested monthly in equal installments and were
valued at $201,150 using the Black Scholes method, which included the dividend yield of nil, risk-
free interest rate of 0.99%, expected volatility of 111.0%, and expected term of 3 years. At March 31,
2015 192,709 options were cancelled as a result of the termination of consulting services while
57,291 options were cancelled at March 31, 2016. There were no options exercised since the date of
issue. For the year ended March 31, 2016, $nil (2015 - $46,097) stock based compensation expense
was recorded, noting that for the year ended March 31, 2015 $46,097 of the value of the vested
options were cancelled and $46,097 was recorded to additional paid in capital. The remaining
cancelled balance did not vest.
On August 10, 2015, the Company’s directors adopted the 2015 Stock Option Plan (“the 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 are vested, nil have been exercised, 36,000 have
expired and 212,738 of the unvested options have been cancelled leaving 1,087,000 options unvested.
For the year ended March 31, 2016 $711,427 (2015 - $46,097) stock based compensation expense
was recorded.
F-21
9. Reserves
The Company had the following Share Purchase Warrants and Share Options in Reserves:
Share Purchase
Share
Warrants
Options
Total
(Note 7)
(Note 8)
Reserves
Balance - March 31, 2014
$
- $
-
$
-
Sale of 1,122,831 shares at
$0.75/share net of $58,500
financing fees (Note 7e)
150,659
-
150,659
Sale of 490,000 shares at
$1.00/share (Note 7g)
112,452
-
112,452
Valuation of financing warrants
on sale of shares (Notes 6b)
114,200
-
114,200
Valuation of options issued for
consultancy services received -
cancelled (Note 8)
-
46,097
46,097
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
F-22
10. Income Taxes
At March 31, 2016 the Company had no deferred tax assets.
At March 31, 2016, the Company had a federal operating loss in the amount of $2,069,545 for the
year and cumulative losses of $6,325,061. Non-capital losses amounted to $2,069,545 with
$1,386,822 of the losses occurring within the State of Washington, USA, and $682,723 of the losses
occurring within the Province of British Columbia, Canada.
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and
federal statutory rate for the periods ended March 31, 2016 and 2015 is summarized as follows:
US$
Years ended March 31,
2016
2015
Loss before income taxes
$
2,069,545 $
3,009,018
Income tax recovery at statutory rates
(662,255)
(992,976)
Non-deductible expenses
257,059
591,669
Change in unrecognized deferred tax asset
519,671
453,105
Foreign exchange impact
(958)
29,030
Other
(113,518)
(80,828)
Income tax expense
- -
-
The valuation allowance for deferred tax assets as of March 31, 2016 and 2015 was $1,323,411 and
$803,740, respectively, which will begin to expire in 2033. In assessing the recovery of the deferred
tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income in the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of future deferred tax assets, projected
future taxable income, and tax planning strategies in making this assessment. As a result,
management determined it was more likely than not the deferred tax assets would not be realized as
of March 31, 2016 and 2015 and maintained a full valuation allowance.
The unrecognized deferred tax assets include tax losses and difference between the carrying amount
and tax basis of the following items.
US$
Years ended March 31,
2016
2015
Deferred tax assets:
Losses available for deductions
$
1,323,411
$
725,440
Share issuance costs carried forward
-
78,300
1,323,411
803,740
Less unrecognized deferred tax assets
(1,323,411)
(803,740)
Recognized deferred tax assets
$
-
$
-
F-23
11. Concentration of Risk
During the year ended March 31, 2016, revenues generated were $125,934 compared to revenues of
$101,835 during the same period in 2015. Revenues are generated through consulting services
provided by Mobetize to existing customers, payment processing, and licensing.
During the year ended March 31, 2016, the Company had revenues from five customers (2015 –
revenues from four customers) with 75% (2015 – 55%) of revenues generated from the Company’s
largest customer. During the year ended March 31, 2016, the Company had $nil (2015 - $13,716)
revenues from Alligato Inc.
12. Commitment and Contingencies
The Company has an obligation under a rental lease for its operating office. As of March 31, 2016,
the remaining term of the lease is six months with monthly payments of $4,900. The Company’s lease
includes a renewal option.
13. Supplemental Cash Flow Disclosures
US$
Years ended March 31,
2016
2015
CASH PAID DURING THE PERIOD FOR:
Interest paid
$
36,000
$
-
SUPPLEMENTAL NONCASH
INFORMATION:
Shares issued for services
32,484
289,771
Shares issued to settle debt
-
5,056
14. Segment Information
The company has currently one operating segment located in Canada. Therefore, there is a single
reportable segment and operating unit structure. The Company’s chief operating decision maker
reviews financial information presented on a consolidated basis for purposes of allocating resources
and evaluating financial performance.
15. Comparative Periods
Certain comparative amounts for the prior period have been reclassified to conform to the current
period presentation.
F-24
16. Subsequent Events
Subsequent to year end, the Company has sought recovery of 578,733 common shares and 101,726
share purchase warrants issued as an overpayment in settlement of expenses and liabilities.
On May 20, 2016, the Company filed a Certificate of Amendment to its Articles of Incorporation (the
“Series A Amendment”) with the Nevada Secretary of State to amend its Designation of Series A
Preferred Stock dated February 25, 2016 (the “Series A Preferred Designation”), in its entirety, to
amend the provision related to conversion adjustments.
On May 23, 2016, the Company filed a Certificate of Designation for Series B Preferred Stock (the
“Series B Preferred Designation”) with the Nevada Secretary of State. The Series B Designation was
approved by the Board on May 11, 2016. The Series B Preferred Designation designated twenty five
million (25,000,000) shares of the authorized preferred share capital as Series B Preferred Stock and
provides certain preferences to holders of Series B Preferred Stock over those rights held by holders
of the Company’s common stock
On May 31, 2016, the Company filed a Certificate of Amendment to its Articles of Incorporation (the
“Series B Amendment”) with the Nevada Secretary of State to amend its Designation of Series B
Preferred Stock dated May 23, 2016, in its entirety, to amend the protection provision related to the
limitations placed on the issuance of Series B Preferred Stock.
On June 1, 2016, the Company entered into Consulting and Debt Settlement Agreements with
Francisco Kent Carasquero pursuant to which the Company agreed to settle an amount of $30,000 for
services rendered by Mr. Carasquero in exchange for 200,000 shares of Series B Preferred Stock in
total satisfaction of the amounts owed and to enter into a monthly consulting arrangement.
On June 2, 2016, the Company and Alligato, Inc. entered into a Share Exchange Agreement pursuant
to which Alligato exchanged 4,081,481 shares of the Company’s common stock for 4,081,481 shares
of the Company’s Series B Preferred Stock.
On June 2, 2016, the Company and Don Duberstein, a member of the board of directors, entered into
a Share Exchange Agreement pursuant to which Mr. Duberstein exchanged 1,039,167 shares of the
Company’s common stock for 1,039,167 shares of the Company’s Series B Preferred Stock.
On June 2, 2016, the Company” and Malek Ladki, a member of the board of directors, entered into a
Share Exchange Agreement pursuant to which Mr. Ladki exchanged 300,000 shares of the
Company’s common stock for 300,000 shares of the Company’s series B Preferred Stock.
F-25
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
ITEM 9A.
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 (the "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 (the “Commission”), and that such information is accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosures.
Based on that evaluation, Mobetize’s management concluded, as of the end of the period covered by this
report, that our disclosure controls and procedures were not effective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and 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.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange
Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief
Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and procedures that:
§ pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
§ provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and our Board of Directors; and
§ provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial
statements
Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
52
Mobetize’s management conducted an assessment of the effectiveness of our internal control over
financial reporting as of March 31, 2016, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission, which assessment identified material weaknesses in internal control over financial
reporting.
A material weakness is a control deficiency, or a combination of deficiencies in internal control over
financial reporting that creates a reasonable possibility that a material misstatement in annual or interim
financial statements will not be prevented or detected on a timely basis. Since the assessment of the
effectiveness of our internal control over financial reporting did identify material weaknesses,
management concluded its internal control over financial reporting to be ineffective.
The matters involving internal control over financial reporting that our management considered to be
material weaknesses were:
1. lack of a functioning audit committee due to the number of independent members on our board of
directors, resulting in ineffective oversight in the establishment and monitoring of required
internal controls and procedures;
2. insufficient written policies and procedures for accounting and financial reporting with respect to
the requirements and application of US GAAP and Commission disclosure requirements;
We do not believe the material weaknesses described above caused any material misstatement of our
financial condition and results of operations for the year ended March 31, 2016. However, management
believes that the lack of a functioning audit committee and the absence of sufficient written policies and
procedures results in ineffective oversight in the estabDRAFT lishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our financial statements in
future periods.
Mobetize intends to remedy its material weaknesses as follows:
We intend to form an audit committee from two of our existing members of our board of directors that
will act in a separate capacity to their responsibilities on the board as independent directors. When
practical, we intend to appoint a third independent member to an audit committee with the financial
expertise necessary for a fully functioning audit committee. Our board of directors is in the process of
reviewing an audit charter and expects to adopt the charter and move forward with forming an audit
committee in short order.
We plan to task management with the responsibility for ensuring that sufficient written policies and
procedures for accounting and financial reporting with respect to the requirements and application of US
GAAP and Commission disclosure requirements as prepared and adopted by the board of directors as
soon as is practicable.
We believe the remediation measures described above will remediate the material weaknesses we have
identified and strengthen our internal control over financial reporting. We are committed to continuing to
improve our internal control processes and will continue to diligently and vigorously review our financial
reporting controls and procedures. As we continue to evaluate and work to improve our internal control
over financial reporting, we may determine to take additional measures to address control deficiencies or
determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures
described above.
53
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were not required to have, nor have we,
engaged our independent registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to provide only management’s
report in this annual report.
Changes in Internal Controls over Financial Reporting
During the quarter ended March 31, 2016, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
ITEM 9B.
Other Information
Mobetize determined, subsequent to the period ended March 31, 2016, that certain amounts accrued to its
former chief financial officer and persons or entities affiliated with him, as the result of consulting fees,
transactional contracts, expense reimbursements and shareholder loans, that were settled with shares of
common stock and share purchase warrants were overstated. Mobetize has communicated to its former
chief financial officer its demand that 578,733 shares of its common stock be returned for cancellation
and return to authorized share capital and that 101,726 share purchase warrants be returned for
cancellation. We are yet to receive a response to our correspondence in this matter and will act as the
situation demands to remedy this discrepancy.
DRAFT
54
PART III – RELATED PARTIES AND GOVERNANCE
ITEM 10.
Directors, Executive Officers and Corporate Governance
The following individuals serve as the directors and executive officers of Mobetize as of the date of this
annual report.
Name
Positions Held
Age
Date Elected or Appointed
Ajay Hans
CEO and Director
43
July 09, 2014
Elena Karamushko CFO and PAO
34
February 4, 2016
Malek Ladki
Director & Chairman
50
July 09, 2014
Donald Duberstein Director
63
September 14, 2015
Business Experience
The following is a brief account of the education and business experience during at least the past five
years of each director, executive officer and key employee of Mobetize, indicating the person's principal
occupation during that period, and the name and principal business of the organization in which such
occupation and employment were carried out.
Ajay Hans – Chief Executive Officer and Director
Business Experience
Mr. Hans has over 15 years of technology new venture development and financial experience in the
development, marketing and implementation of compDRAFTlex billing and payment related software
technologies dedicated for MNO’s and MVNO’s. Mr. Hans has served as CEO & COO of Dyneget; VP
Operations OAN Services Canada – OAN pioneered telecom billing and clearing solutions across North
America processing $500 million annually in LEC Billing transactions (ie. a form of billing for internet-
based or other usually electronic services where the user is charged through his account with the local
telephone company (also known as the Local Exchange Carrier), rather than directly from the provider of
the service). Additionally, he is actively involved in speaking engagements for Pacific Crest Securities.
Mr. Hans oversees our strategic vision and tactical execution. He has held senior executive positions with
leading telecom software technology companies where he successfully implemented solutions for brands
including SaskTel, Sprint, and AT&T.
Officer and Director Responsibilities and Qualifications
Mr. Hans is responsible for the overall management of Mobetize and is involved in many of its day-to-
day operations, including technology development, finance, and overall business strategy.
Mr. Hans holds a Bachelor’s Degree in Business Management, Economics, and Marketing from British
Columbia Institute of Technology and has completed an Executive Management Program at Simon Fraser
University as well as the Executive Managerial Success Program from Harvard Business School.
Other Public Company Directorships in the Last Five Years
None.
55
Elena Karamushko – Chief Financial Officer and Principal Accounting Officer
Business Experience
Ms. Karamushko brings to her new position management skills and an expert accounting background
with 15 years of accounting, management, and consultancy experience. She is a Chartered Professional
Accountant who started her accounting career in the audit practice of BDO Canada LLP managing
international public company audit engagements. A few of her responsibilities included the audit and
review of multicurrency financial statements, continuous reporting material of public companies,
performance of detailed analysis of consolidations of multiple foreign entities, and analysis of internal
controls. For the past five years, Ms. Karamushko worked in senior roles with organizations including
Powerex, a company involved in buying and supplying physical wholesale power, natural gas, and
ancillary services, as well as Mobetize, and provided expert consulting services in the areas of finance and
accounting to various entities.
Officer Responsibilities and Qualifications
Ms. Karamushko is responsible for finance, overall business strategy, and day to day administration.
Ms. Karamushko earned a Bachelor of Business Administration Degree with a Major in Accounting from
Simon Fraser University.
Public Company Directorships in the Last Five Years
None.
DRAFT
Malek Ladki – Director & Chairman
Business Experience
Dr. Ladki is a highly experienced TMT executive with over 21 years of experience of starting, growing
and exiting businesses internationally, running global telecoms infrastructure projects and holding a
variety of senior management roles with network operators, and FTSE100 software vendors. Dr. Ladki
has also held several board-level roles with multinational telecoms infrastructure solutions and suppliers.
He has founded and successfully exited three highly innovative Telecoms and IT products/solutions
businesses while helped launch a number of 1st tier telecoms in Europe and the United States. His
technical expertise spans several disciplines in Telecoms, IT, Software and Hardware development and he
holds three patents in network optimization. His vast experience in leading hyper-growth startups,
growing emerging technologies and restructuring business is an asset to Mobetize.
Director Responsibilities and Qualifications
Dr. Ladki also serves as the Chairman of the Board of Directors.
Dr. Ladki graduated with a Bachelor of Electronics Engineering in 1987 and went on to study for a
Doctorate in Engineering and earned his PhD in the telecommunications from the University of Liverpool
in 1990.
Other Public Company Directorships in the Last Five Years
None.
56
Donald Duberstein – Director
Business Experience
Mr. Duberstein is an experienced entrepreneur, portfolio manager, and active investor. Apart from
owning and managing an extensive portfolio of residential and commercial properties across the United
States over the past 38 years, Mr. Duberstein has co-founded and chaired a cosmeceutical skin care
company and has been actively involved in a number of private and public companies.
From 1995 through 1999 Mr. Duberstein was also on the Board of Directors of Selvac Corporation, a
public company.
Officer and Director Responsibilities and Qualifications
Mr. Duberstein graduated from the University of Pennsylvania Phi Beta Kappa, Magna Cum Laude in
1973 and NYU Law School in 1976. He became a member of the New York and Florida Bars in
1977.
Other Public Company Directorships in the Last Five Years
None.
Family Relationships
There are no family relationships between or among the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years there are no events that occurred related to an involvement in legal proceedings
that are material to an evaluation of the ability or integrity of Mobetize’s directors, or persons nominated
to become directors or executive officers.
Term of Office
Our directors were appointed for a one (1) year term to hold office until the next annual meeting of our
shareholders or until removed from office in accordance with our bylaws. Our officers were appointed by
our Board of Directors and will hold office until the expiration of their employment contracts or removal
by the board.
No other persons are expected to make any significant contributions to Mobetize’s executive decisions
who are not executive officers or directors of Mobetize.
Compliance with Section 16(A) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and
directors and persons who own more than 10% of a registered class of our equity securities to file with the
SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports
concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and
5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports they file.
57
Based solely on our review of the copies of such forms received by us, or representations from certain
reporting persons, we believe that during fiscal year ended March 31, 2016, all filing requirements
applicable to our officers, directors and greater than 10% percent beneficial owners were complete.
Code of Ethics
We have not yet adopted a Code of Business Conduct and Ethics that applies to our officers, directors and
employees.
Committees of the Board
All proceedings of our board of directors were conducted by resolutions consented to in writing by all the
directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in
writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to
the corporate laws of the state of Nevada and the bylaws of Mobetize, as valid and effective as if they had
been passed at a meeting of the directors duly called and held.
We had not formed an audit committee as of March 31, 2016, and are in the process of adopting an audit
charter and have determined to form an audit committee comprised of two independent directors.
Mobetize’s board of directors has not established a compensation committee.
Mobetize’s Bylaws define the procedure requirements for shareholders to submit recommendations or
nominations for directors.
A shareholder who wishes to communicate with our board of directors may also do so by directing a
written request addressed to our president, at the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
Our board of directors has determined that it has two members that would qualify as independent for the
purposes of serving on an audit committee but does not have a prospective member of our audit
committee that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of
Regulation S-K, and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.
We believe that the members of our board of directors, who will act as our audit committee in fulfilling
that function, are collectively capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial reporting. We believe that retaining an
independent director who would qualify as an "audit committee financial expert" would be overly costly
and burdensome and is not warranted in our circumstances given the early stages of our development and
the fact that we have not generated any material revenues to date.
58
ITEM 11.
Executive Compensation
Summary
The following table provides summary information for the years ended March 31, 2016 and 2015
concerning cash and non-cash compensation paid or accrued by Mobetize to or on behalf of (i) the Chief
Executive Officer and the Chief Financial Officer and (ii) any other employee to receive compensation in
excess of $100,000:
SUMMARY COMPENSATION TABLE
Change in
Pension Value
and Non-
Non-
qualified
Name
Equity Incentive
Deferred
and
Stock
Option
Plan
Compensation
All Other
Principal
Salary Bonus Awards Awards Compensation
Earnings
Compensation
Position
Year
($)
($)
($)
($)
($)
($)
($)
Total
Ajay Hans,
2016
Nil
Nil
Nil
$140,638
Nil
Nil
$120,000
$260,638
Chief
Executive
2015
Nil
Nil
Nil
Nil
Nil
Nil
$108,000
$108,000
Officer and
Director(2)
Stephen
2016 $90,000
Nil
Nil
$140,638
Nil
Nil
Nil
$230,638
Fowler, Chief
Financial
2015
Nil
Nil
Nil
Nil
Nil
Nil
$108,000
$108,000
Officer, and
Director(1)
Elena
2016 $15,428
Nil
Nil
$16,073
Nil
Nil
$48,931
$80,432
Karamushko
Chief Financial
Officer(3)
(1) Stephen Fowler was appointed as an officer and director of Mobetize on July 12, 2013. Mr. Fowler resigned as
Chief Financial Officer and as a Director on February 4, 2016.
(2) Ajay Hans was appointed to as Chief Executive Officer and as a Director of Mobetize on September 4, 2013.
(3) Elena Karamushko was appointed as Chief Financial Officer and Principal Accounting Officer on February 4,
2016.
Chief Executive Officer
Our Chief Executive Officer serves pursuant to a consulting agreement dated effective July 1, 2014, that
entitles our Chief Executive Officer to a management fee of $10,000 per month and eligibility to receive
stock options. Prior to his current management services agreement, our Chief Executive Officer served
pursuant to a management services agreement in exchange for $6,000 per month. The current
management services agreement is in effect unless terminated by the Company or the Chief Executive
Officer. The compensation package is deemed appropriate for our Chief Executive Officer and was
approved by Mobetize’s Board of Directors.
59
For the year ended March 31, 2016, $230,638 was paid to or accrued for our Chief Executive Officer of
which $120,000 was a management services fee and $140,638 was due to the grant of stock options. For
the year ended March 31, 2015, $108,000 was paid in service management fees. The increase in executive
compensation for our Chief Executive Officer in the current period can be attributed to increases in the
monthly fees over the respective periods and the grant of stock options in the current period.
Chief Financial Officer (Former)
Our former Chief Financial Officer served pursuant to a management employment agreement dated
effective January 1, 2015, that entitled our former Chief Financial Officer to a salary of $9,000 per month
and eligibility to receive stock options. Prior to the effective date of the January 1, 2015, Mr. Fowler
served pursuant to a consulting agreement in exchange for $8,750 per month in consulting fees and an
office allowance of $250 per month. The compensation package was deemed appropriate for our Chief
Financial Officer and was approved by Mobetize’s Board of Directors. Mr. Fowler resigned as Chief
Financial Officer and as a director of Mobetize effective February 04, 2016.
For the year ended March 31, 2016, $230,638 was paid to or accrued for our former Chief Financial
Officer of which $90,000 was salary and $140,638 was due to the grant of stock options. For the year
ended March 31, 2015, $108,000 was paid in consulting fees and office allowance. The increase in
executive compensation for our former Chief Financial Officer in the current period can be attributed to
the grant of stock options in the current period.
Chief Financial Officer (Current)
Our current Chief Financial Officer serves pursuant to a management employment agreement dated
effective February 4, 2016, that entitles our current Chief Financial Officer to a salary of $10,417 CAD
per month and eligibility to receive 120,000 sign in stock options. Prior to the effective date of February
4, 2016, Ms. Karamushko served pursuant to a management consulting agreement dated effective
December 15, 2014, that entitled her to a consulting fee of $8,000 CAD per month and eligibility to
receive stock options. The compensation package is deemed appropriate for our current Chief Financial
Officer and was approved by Mobetize’s Board of Directors.
For the year ended March 31, 2016, $80,432 was paid to or accrued for our current Chief Financial
Officer in salaries and consulting fees as well as due to the grant of stock options respectively.
Stock Option Plan and Grant
Our board of directors adopted and approved the 2015 Mobetize Stock Option Plan (“Plan”) on August
7, 2015, which provides for the granting and issuance of up to 3,000,000 million shares of our common
stock. Mobetize has granted 1,730,000 stock options from the Plan at a $0.60 exercise price per share
for five years to our named officers and directors. At March 31, 2016, the Plan had 618,738 options
available for future grant.
Our board of directors administers the Plan, however, they may delegate this authority to a committee
formed to perform the administrative function of the Plan. The board of directors or a committee of the
board has the authority to construe and interpret provisions of the Plan as well as to determine the terms
of an award. Our board of directors may amend or modify the Plan at any time. However, no amendment
or modification shall adversely affect the rights and obligations with respect to outstanding awards unless
the holder consents to that amendment or modification.
60
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive
for performance.
Compensation of Directors
The following table provides summary information for the year ended March 31, 2016, concerning cash
and non-cash compensation paid or accrued by Mobetize to or on behalf of its non-executive directors.
Director Summary Compensation Table
Name
Fees earned or
Stock
Option
Non-equity
Nonqualified
All other
Total
paid in cash
awards
Awards
incentive plan
deferred
compensation
($)
($)
($)
($)
compensation
compensation
($)
($)
($)
Dr. Malek Ladki
-
-
$202,656
-
-
-
$202,656
Donald Duberstein
-
-
$56,953
-
-
-
$56,953
Outstanding Equity Awards at Fiscal Year End
No equity awards were outstanding as of the year ended March 31, 2016.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for
directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash
or non-cash compensation is or may be paid to our directors or executive officers, except that stock
options may be granted at the discretion of the board of directors or a committee there.
61
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The following table sets forth the total number of shares owned beneficially by each of our directors,
named executive officers, individually and as a group, and the present owners of 5% or more of our total
outstanding shares of Common Stock, Series A Preferred Shares and Series B Preferred Shares. Mobetize
has 23,330,233 common shares, 4,565,000 Series A preferred shares and 5,420,648 Series B preferred
shares issued and outstanding as of July 11, 2016.
Series A Preferred
Series B Preferred
Common Shares
Shares
Shares
Amount and
Amount and
Nature of
Nature of
Beneficial
Amount and Nature of
Beneficial
Ownership
Name and Address of
Beneficial Ownership Percentage Ownership Percentage
(1)
Percentage
Beneficial Owner
(1)
of Class
(1)
of Class
of Class
Ajay Hans
1018 Cornwall Street
-
4,565,000 (2)
4,081,481(2)
New Westminster, BC V3M
Direct and Indirect
0%
Direct
100%
Indirect
75%
1S2
Donald Duberstein
49 Bristol Drive
-
Boynton Beach, FL 33436
Direct
0%
-
-
1,039,167
19%
Malek Ladki
59 Kilbarry Crescent
-
Ottawa, ON K1K 0H2
Direct
0%
-
-
300,000
6%
Elena Karamushko
204-2638 Ash Street
6,667
Vancouver, BC V5Z 4K3
Direct
< 1%
-
-
-
-
Directors and Executive
6,667
Officers as a Group
Direct and Indirect
< 1%
4,565,000
5,420,648
Direct
100%
Direct and
100%
Indirect
5%+ Shareholders
Stephen Fowler
51 Bay View Drive
10,231,000 (3)
Point Roberts, WA 98281
Direct and Indirect
44%
-
-
-
-
CAT Brokerage AG
Gutenbergstrasse 10
Zurich, CH-8027
1,678,000
Switzerland
Direct
7.2%
-
-
-
-
(1) Beneficial Ownership is determined in accordance with the rules of the Commission and generally includes voting
or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership and
sole voting power and with respect to the shares of our Common Stock or Preferred Stock, as applicable.
(2) Ajay Hans directly holds 4,565,000 shares of Series A Preferred and indirectly holds 4,081,481 shares of Series B
Preferred comprised of 4,081,481 as the principal of Alligato Inc.
(3) Stephen Fowler directly holds 6,851,000 shares and indirectly holds 3,380,000 shares comprised of 75,000 as the
principal of Forte Finance, LLC, 2,605,000 as the principal of Forte Finance Limited, in addition to directing
160,000 shares held in trust for his family members and 540,000 held by his wife.
62
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Neither our directors or executive officers, nor any proposed nominee for election as a director, nor any
person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate family (including spouse,
parents, children, siblings, and in−laws) of any of the foregoing persons has any material interest, direct
or indirect, in any transaction since the beginning of our last fiscal year or in any presently proposed
transaction which, in either case, has or will materially affect us except as follows:
a) During the year ended March 31, 2016, Mobetize incurred $nil (2015 - $114,382) of management
fees, and $1,380 (2015 - $94,168) of general and administrative expenses to the former president
and former chief financial officer, Stephen Fowler, noting that the former officer and director
resigned from all roles on February 4, 2016. In 2016 the former chief financial officer was
remunerated as an employee.
b) During the year ended March 31, 2016, Mobetize incurred $120,000 (2015 - $108,000) of
management fees, $74,227 (2015 - $261,607) of development and engineering fees, $1,533 (2015
- $5,527) of general and administration expenses, and $nil (2015 - $2,638) of sales and marketing
expenses to a company controlled by our chief executive officer.
c) During the year ended March 31, 2016, Mobetize received additional advances of $137,000 (2015
- $nil) from the former chief financial officer, which were reinvested during the year as part of a
$175,000 private placement for common shares of Mobetize by the former chief financial officer
and direct members of his family. During the year ended March 31, 2016, Mobetize also paid
$994 (2015 - $nil) in interest to the former chief financial officer in connection with the above
noted advances.
d) During the year ended March 31, 2016, the former chief financial officer exercised 25,000
warrants at $0.50.
e) During the year ended March 31, 2016, Mobetize received additional advances of $40,741 (2015
- $nil) from its chief executive officer, which advances were reinvested during the year as part of
a $40,741 private placement for our common shares by Alligato, Inc, a company controlled by the
chief executive officer.
Director Independence
Mobetize is quoted on the OTCQB inter-dealer quotation system, which does not have director
independence requirements. However, for purposes of determining director independence, we have
applied the definitions set out in NASDAQ Rule 4200(a)(15), which states that a director is not
considered to be independent if he or she is also an executive officer or employee of the corporation.
Accordingly, as of March 31, 2016, we consider two of our directors independent, neither of whom is
employed by us.
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ITEM 14.
Principal Accounting Fees and Services
The aggregate fees billed for the most recently completed fiscal years ended March 31, 2016 and 2015 for
professional services rendered by the principal accountant for the audit of our annual financial statements
and review of the financial statements included in our quarterly reports on Form 10-Q and services that
are normally provided by the accountant in connection with statutory and regulatory filings or
engagements for these fiscal periods were as follows:
Years ended,
March 31, 2016
March 31, 2015
$
$
Audit Fees
33,500
29,500
Audit Related Fees
6,660
-
Tax Fees
8,260
10,000
All Other Fees
-
-
Total
48,420
39,500
Our board of directors pre-approves all services provided by our independent auditors. All of the above
services and fees were reviewed and approved by the board of directors either before or after the
respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors
and believes that the provision of services for activities unrelated to the audit is compatible with
maintaining our independent auditors’ independence.
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PART IV - EXHIBITS
ITEM 15.
Exhibits, Financial Statement Schedules
(a) Consolidated Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
F-1 through F-25, and are included as part of this Form 10-K:
Financial Statements of the Company for the years ended March 31, 2016 and 2015:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 67 of this Form 10-K, and are incorporated herein by this reference.
(c) Financial Statement Schedules
We are not filing any financial statement schedules as part of this Form 10-K because such schedules are
either not applicable or the required information is included in the financial statements or notes thereto.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 July 11, 2016
Ajay Hans
Chief Executive Officer and Director
/s/ Elena Karamushko July 11, 2016
Elena Karamushko
Chief Financial Officer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Malek Ladki Director July 11, 2016
Malek Ladki
/s/ Ajay Hans Director, Chief Executive Officer July 11, 2016
Ajay Hans
/s/ Don Duberstein Director July 11, 2016
Don Duberstein
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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.
10.11 Management Employment Agreement between Mobetize Canada Inc. and Elena Karamushko dated February 4, 2016.
21 Subsidiaries of Mobetize.
31.1 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.
31.2 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.
32.1 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.
32.2 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 sections.
67