Mobi724 Global Solutions Inc.

Transcription

1 Condensed Interim Consolidated Financial Statements (Unaudited)

2 Condensed Interim Consolidated Financial Statements (Unaudited) Notice to Reader Under National Instrument , Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements; they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity s auditor. 2

3 Condensed Interim Consolidated Financial Statements (Unaudited) Table of contents: Interim Consolidated Statement of Financial Position 4 Interim Consolidated Statements of Net Income 5 Interim Consolidated Statements of Comprehensive Income 6 Interim Consolidated Statements of Changes in Equity 7-8 Interim Consolidated Statements of Cash Flows 9 Notes to the Condensed Interim Consolidated Financial Statements

4 Condensed Interim Consolidated Statements of Financial Position (Unaudited) As at June 30, 2017 and December 31, 2016 (in Canadian dollars) June 30, 2017 December 31, 2016 $ $ ASSETS Current assets Cash and cash equivalents 7,173,795 30,233 Trade and other receivables (Note 4) 799, ,651 Prepaid expenses 143, ,887 8,116,976 1,101,771 Non-Current assets Property and equipment 23,323 20,034 Intangible assets (Note 5) 2,799,808 3,435,992 Goodwill (Note 5) 5,930,466 5,930,466 8,753,597 9,386,492 16,870,573 10,488,263 LIABILITIES Current liabilities Bank loan 90,000 90,000 Accounts payable and accrued liabilities (Note 6) 2,433,979 2,270,351 Liability for the acquisition of non-controlling interest of Solutions Mobi724 Inc. (Note 10) 726,372 Convertible debt (Note 7) 216, ,253 Demand debt, 10% to 25% interest 576, ,247 Contingent consideration payable (Note 3) 4,286,947 Balance of purchase price payable (Note 3) 1,060,000 Current portion of long-term debt 60, ,258 4,436,789 8,560,428 Non-Current liabilities Long-term debt 105, ,137 Deferred income taxes 299, ,056 4,841,373 9,008,621 SHAREHOLDERS' EQUITY Share capital (Note 8) 28,593,759 21,197,288 Other equity accounts (Note 8) 18,506,231 8,418,275 Equity component of convertible debt (Note 7) 2,986,269 2,941,509 Deficit (37,836,893) (30,942,803) Cumulative translation account (220,166) (134,627) Total equity attributable to shareholders of the Company 12,029,200 1,479,642 Total liabilities and shareholder equity 16,870,573 10,488,263 Going concern (Note 2) 4

5 Condensed Interim Consolidated Statements of Net Income (Unaudited) (in Canadian dollars except share amounts) Three-month period Six-month period $ $ $ $ Revenues 782, ,542 1,428,836 1,162,927 Operating expenses Share-based payments expense (Note 8) 165,666 3, ,608 6,612 Salaries and benefits 1,007, ,539 1,475,662 1,004,493 Contract labor 146, , , ,245 Computer software development 88,319 58, , ,245 Travel 233,867 70, , ,699 Professional fees 391, , , ,397 Office expense 200, , , ,140 Marketing and promotion 65,919 13, ,901 43,561 Filing fees 17,500 4,187 26,600 16,022 Purchases 5,834 32,636 52,566 61,178 Loss (gain) on settlement of liabilities 145, ,096 (75,600) Foreign exchange loss 18,446 9,065 18,622 8,084 Depreciation of property and equipment 1,517 6,538 3,121 10,370 Amortization of intangible assets (Note 5) 303, , , ,781 Total operating expenses 2,793,531 1,339,752 5,188,156 2,596,227 Operating loss (2,011,088) (734,210) (3,759,320) (1,433,300) Net financial expenses (income) (1,100,605) (38,111) 4,594, ,368 Gain on renegotiation of purchase price (Note 3) (1,428,088) - (1,428,088) - Net income (loss) before income taxes 517,605 (696,099) (6,926,164) (1,693,668) Income tax expense 6,681 11,535 Recovery of deferred tax (33,980) (33,980) (43,609) (67,960) (27,299) (33,980) (32,074) (67,960) Net income (loss) 544,904 (662,119) (6,894,090) (1,625,708) Income (loss) per share (Note 12) Basic and diluted 0.00 (0.01) (0.05) (0.02) Weighted average number of outstanding common shares (Note 12) Basic and Diluted 146,783,722 99,196, ,862,104 99,196,720 The accompanying notes are an integral part of these consolidated financial statements. 5

6 Condensed Interim Consolidated Statements of Comprehensive income (Unaudited) (in Canadian dollars) Three-month period Six-month period $ $ $ $ Net income (loss) 544,904 (662,119) (6,894,090) (1,625,708) Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods Cumulative translation adjustment 11,857 (68,478) (85,539) 47,654 Comprehensive income (loss) 556,761 (730,597) (6,979,629) (1,578,054) The accompanying notes are an integral part of these consolidated financial statements. 6

7 Condensed Interim Consolidated Statements of Changes in Equity (Unaudited) For the six-month periods ended June 30, 2017 and 2016 (in Canadian dollars except share amounts) component of Cumulative Share capital Other equity convertible translation Number Share capital accounts debt Deficit adjustment Total equity $ $ $ $ $ $ Balance December 31, ,673,275 21,197,288 8,418,275 2,941,509 (30,942,803) (134,627) 1,479,642 Net loss for the period (6,894,090) (6,894,090) Other comprehensive loss (85,539) (85,539) Comprehensive loss for the period (6,894,090) (85,539) (6,979,629) Equity Interest expense on convertible debenture presented as equity (Note 7) 150, ,000 Conversion of convertible debt (Note 7) 5,254, ,910 (105,240) 346,670 Issuance of private placements (Note 8) 4,608, , ,025 Shares issued for business combination (Note 3) 19,913,021 6,036,529 6,036,529 Settlement of liabilities (Note 6) 2,194, , ,436 Warrants issued during the period (Note 8) 10,924,166 10,924,166 Exercise of warrants (Note 8) 67,500 11,336 (10,125) 1,211 Share-based payments (Note 8) 411, ,608 Exercise of share options (Note 8) 86,833 18,235 (5,210) 13,025 Warrant issue costs (Note 8) (1,232,483) (1,232,483) 32,124,498 7,396,471 10,087,956 44,760 17,529,187 Balance June 30, ,797,773 28,593,759 18,506,231 2,986,269 (37,836,893) (220,166) 12,029,200 The accompanying notes are an integral part of these consolidated financial statements. 7

8 Condensed Interim Consolidated Statements of Changes in Equity (Unaudited) For the six-month periods ended June 30, 2017 and 2016 (in Canadian dollars except share amounts) Equity component of Cumulative Share capital Other equity convertible translation Number Share capital accounts debt Deficit adjustment Total $ $ $ $ $ $ Balance December 31, ,152,482 19,038,170 8,186, ,184 (25,907,905) (59,096) 1,487,661 Net loss for the period (1,625,708) (1,625,708) Other comprehensive income 47,654 47,654 Comprehensive income (loss) for the period (1,625,708) 47,654 (1,578,054) Conversion of convertible debt (Note 7) 2,854, ,223 (105,255) 628,968 Exercise of warrants 3,030, , ,151 Warrants issued during the period (295,151) (295,151) Share-based payments (Note 8) 6,612 6,612 5,885,299 1,279,374 (288,539) (105,255) 885,580 Balance June 30, ,037,781 20,317,544 7,897, ,929 (27,533,613) (11,442) 795,187 The accompanying notes are an integral part of these consolidated financial statements. 8

9 Condensed Interim Consolidated Statements of Cash Flows (Unaudited) (in Canadian dollars) Three-month period Six-month period $ $ $ $ OPERATING ACTIVITIES Net income (loss) 544,904 (662,119) (6,894,090) (1,625,708) Adjustments for items not involving cash Depreciation of property and equipment 1,517 6,538 3,121 10,370 Amortization of intangible assets 303, , , ,781 Share-based payments expense 165,666 3, ,608 6,612 Non-cash professional fees 7,038 Loss (gain) on settlement of liabilities 145, ,096 (75,600) Fair value adjustment on liability for the acquisition of the non-controlling interest of Mobi (1,249,198) (238,495) 4,042,903 (119,600) Gain on renegotiation of purchase price (1,428,088) (1,428,088) Accretion expense on convertible debt 95,000 89, , ,636 Accretion interest on contingent consideration payable 241,141 Recovery of deferred taxes (33,980) (33,980) (43,609) (67,960) (1,454,683) (620,369) (2,572,409) (1,249,469) Change in non-cash working capital items 198, , ,325 (163,424) (1,255,926) (415,801) (1,917,084) (1,412,893) INVESTING ACTIVITIES Business combination (800,000) (800,000) Acquisition of property and equipment (3,868) (6,140) (6,410) (7,031) Proceeds on disposal of property and equipment 18,474 18,474 Acquisition of intangibles assets (64) (785,394) (6,140) (788,000) (7,031) FINANCING ACTIVITIES Bank loan 60,000 Proceeds from long-term debt 1,692 Repayment of long-term debt (34,408) (2,870) (67,258) (2,870) Proceeds from excercise of stock options 13,025 Proceeds from demand debt 40, , , ,501 Repayment of demand debt (360,000) (360,000) Proceeds from issue of common shares 235, ,025 Net proceeds from issuance of warrants 9,138,683 9,691,683 Proceeds from exercise of warrants 1,211 1, ,000 9,080, ,631 9,913, ,323 Effect of the exchange rate changes on cash 32,073 (65,323) Variation in cash during the period 7,071,547 (126,310) 7,143,562 (600,601) Cash, beginning of the period 102,248 (43,312) 30, ,979 Cash, end of the period 7,173,795 (169,622) 7,173,795 (169,622) The accompanying notes are an integral part of these consolidated financial statements. 9

10 1 - STATUTE OF INCORPORATION AND NATURE OF ACTIVITIES Mobi724 Global Solutions Inc. (the Company or Mobi724 ) was incorporated under the Business Corporations Act (Alberta) on February 8, The Company s registered office and its head office is located at 257 Sherbrooke Street East, Suite 400, Montreal, Quebec H2X 1E3. The consolidated financial statements comprise the Company and its wholly-owned subsidiaries First Equity Strategy LLC ( First Equity ), incorporated in the State of Delaware, Hybrid-PayTech Asia Pacific (HK) Limited, incorporated in Hong Kong, Vault Acquiring Solutions LLC, incorporated in the state of Delaware, USA, Mobi724 Asia Inc., incorporated in the Philippines and Solutions Mobi724 Inc., incorporated under the Corporations Act (Canada) including Solutions Mobi724 Inc. s fully owned subsidiary, Mobi724 Solutions S.R.L., incorporated in Argentina, and as of January 1, 2016, I.Q. 7/24 Inc., incorporated under the Canada Business Corporations Act. The Company is a technology leader in digital incentives (such as mobile couponing and loyalty rewards) and payment solutions (including mobile payments). Mobi724 is a provider of both payment and couponing / rewards transactions for both online and offline points of sale. The Company is a technology leader in digital incentives (such as mobile couponing and loyalty rewards) and payment solutions (including mobile payments). Mobi724 is a provider of both payment and couponing / rewards transactions for both online and offline points of sale. The common shares of Mobi724 are traded under the symbol MOS on the Canadian Securities Exchange ( CSE ). 2 - BASIS OF PREPARATION AND GOING CONCERN a) Statement of compliance These condensed interim consolidated financial statements and the notes thereto have been prepared in accordance with International Accounting Standards ( IAS ) 34, Interim Financial Reporting. They do not include all of the information required in the full annual financial statements. Certain information and footnote disclosures normally included in annual financial statements were omitted or condensed where such information is not considered material to the understanding of the Company s interim financial information. As such, they should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31,

11 2 - BASIS OF PREPARATION AND GOING CONCERN (Continued) The condensed interim consolidated financial statements were authorized for issue by the Board of Directors on August 25, The preparation of financial data is based on accounting principles and methods of computation consistent with those used in the preparation of the audited annual financial statements as at December 31, Other new or amended accounting standards had no significant impact on the Company s accounting methods. b) Going concern These consolidated financial statements have been prepared on a going concern basis in compliance with IFRS. A going concern basis contemplates the realization of the carrying value of assets and the settlement of liabilities in the normal course of business as they come due, which is dependent on future events including amongst other things, attaining a satisfactory revenue level from its mobile POS technology system and e-couponing solutions, attainment of profitable operations, the generation of cash from operations and the ability to secure new financing arrangements and new capital to carry out its business plan. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events and conditions that may cast a significant doubt upon the Company s ability to continue as a going concern as described in the following paragraphs, and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect the adjustment to the carrying values of assets and liabilities, expenses and financial position classifications that would be necessary if the going concern assumption was not appropriate. These adjustments could be material. The Company has generated limited revenues since inception and has generated losses from continuing operations totaling $7,014,090 for the six-months ended June 30, 2017 and an accumulated deficit of $37,956,893 since the Company s inception on February 8, During the six-month period ended June 30, 2017, the Company received approximately $9,900,000 in additional funds from equity financing and in the form of demand debt. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. 11

12 3 - BUSINESS COMBINATIONS Acquisition of IQ 7/24 Inc. Effective January 1, 2016, in an effort to further its business objectives, the Company acquired 100% of the common shares of I.Q. 7/24 Inc., a company operating in Montreal, Canada (hereinafter "IQ"). The total purchase price was estimated at $3,715,061 payable through cash already paid of $250,000 and through a contingent consideration of $3,465,061. The contingent consideration payable has been discounted using an effective interest rate of 22.5%. The undiscounted estimated amount payable consisted of $5,720,962 payable in 2017 and $162,899 payable in Accretion interest recorded during the six-month period ended June 30, 2017 amounted to $241,141. $ Fair value of the consideration transferred Amount settled in cash 250,000 Fair value of contingent consideration payable 3,465,061 Total consideration transferred 3,715,061 $ Identifiable net assets acquired Accounts receivable (fair value is equal to gross contractual amount) 287,416 Prepaid expenses 54,589 Property and equipment 2,290 Software technology 975,000 Customer relationships 1,175,000 Bank overdraft (81,669) Bank debt (319,602) Due to previous IQ shareholders (180,777) Trade and other payables (342,671) Deferred revenues (5,790) Deferred income tax liability (640,000) Total identifiable net assets 923,786 Goodwill on acquisition 2,791,275 3,715,061 12

13 3 - BUSINESS COMBINATIONS (continued) The IQ acquisition will allow the Company to create gains in operational efficiencies and allow for synergies between the existing E-couponing cash-generating unit and IQ's existing business. This explains the goodwill arising from the transaction. The acquired goodwill was allocated to the Digital Marketing cash-generating unit. The goodwill that arose from this business combination is not expected to be deductible for tax purposes. On April 28, 2017, the Company signed an addendum to the IQ acquisition agreement modifying the purchase price. Subsequent to this modification, the contingent consideration payable for the acquisition of IQ was modified to a fixed purchase price for a total of $3,100,000. The amount is payable $1,860,000 in cash and the remainder is to be paid through the issue of common shares. The entire amount is payable during the year ended December 31, Acquisition of Mobi On July 12, 2013, in an effort to further its business objectives, the Company acquired 51% of the common shares of Solutions Mobi724 Inc. ( Mobi ). On July 12, 2014, one year after the closing date, the Company was to purchase the remaining Mobi shares from the remaining Mobi shareholders at an evaluation price determined, at that time, as per the contractual agreement, and mostly based on expected future revenues of Mobi. At acquisition date, because the Company has an obligation to acquire the non-controlling interest of Mobi, the Company recorded a liability, at fair value, for the future acquisition of the remaining Mobi share. The remaining Mobi shares were acquired in During the year ended December 31, 2014, the Company also entered into an amendment to the acquisition agreement that modified the terms of the obligation to acquire the non-controlling interest of Mobi. The liability is to be settled by issuing the remaining Mobi shareholders a certain number of shares of the Company that will ensure the remaining Mobi shareholders a fixed percentage ownership of the Company. During the period ended June 30, 2017, 16,420,063 shares were issued having a value of $4,796,529. The previous shareholders of Mobi are all current officers and directors of the company. The entire liability has been settled as at June 30, TRADE AND OTHER RECEIVABLES June 30, December 31, $ $ Trade receivables 439, ,906 Sales tax receivable 35,048 76,990 Tax credit receivable 265, ,885 Share subscription receivable 167,500 Other receivable 60,160 4, , ,651 13

14 5 - INTANGIBLE ASSETS Licenced Customer Software EMV payment Total software relationships technology switch Patents intangibles Goodwill $ $ $ $ $ $ $ Cost Balance January 1, ,175,000 3,869,540 1,028,441 80,378 6,153,360 5,930,466 Additions, separately acquired Disposal (18,474) (18,474) Balance June 30, ,175,000 3,851,130 1,028,441 80,378 6,134,950 5,930,466 Accumulated amortization and impairment Balance January 1, ,000 2,272, ,646 26,689 2,717,368 Amortization 117, ,922 73,458 6, ,774 Balance June 30, ,500 2,691, ,104 33,583 3,335,142 Net Book Value June 30, ,500 1,159, ,337 46,795 2,799,808 5,930,466 Licenced Customer Software EMV payment Total software relationships technology switch Patents intangibles Goodwill $ $ $ $ $ $ Cost Balance January 1, ,894,540 1,028,441 80,378 4,003,360 3,139,191 Additions, acquired through a business combination 1,175, ,000 2,150,000 2,791,275 Balance December 31, ,175,000 3,869,540 1,028,441 80,378 6,153,360 5,930,466 Accumulated amortization and impairment Balance January 1, ,412,121 36,730 14,023 1,462,874 Amortization 235, , ,916 12,666 1,254,494 Balance December 31, ,000 2,272, ,646 26,689 2,717,368 Net Book Value December 31, ,000 1,597, ,795 53,689 3,435,992 5,930,466 14

15 5 - INTANGIBLE ASSETS (Continued) The goodwill is allocated to the cash-generating units as follows: June 30 December $ $ E-couponing 3,139,191 3,139,191 Digital marketing 2,791,275 2,791,275 5,930,466 5,930, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES June 30 December $ $ Accounts payable and accrued liabilities (a) 1,737,270 1,287,100 Salaries and related benefits 279, ,710 Amounts due to former directors 128, ,626 Liability for third party garnishment resulting from assumption of judgment against former directors and other contingent liabilities (b) 288, ,915 2,433,979 2,270,351 a) During the six-month period ended June 30, 2017, the Company settled certain amounts due to suppliers resulting in a decrease of accounts payable and accrued liabilities in the amount of $363,340 (including $66,000 due to a director) through the issue of share capital having a value of $643,436 ($63,108 for the amount due to a director). This loss of $280,096 was recorded in the consolidated statement of net loss in Loss (gain) on settlement of liabilities. During the six-month period ended June 30, 2016, the Company negotiated certain accounts payable with suppliers resulting in a gain of $75,600. b) In February 2014, the Company assumed a liability in the amount of $1,000,000 for the settlement of a judgement rendered by the Quebec Superior Court issued on December 4, 2013 against two former directors and founders of the Company and the Company with respect to a garnishment issued against the Company pursuant to a judgement issued against the former directors and founders. An amount of $750,000 was paid at signing in February 2014, and the balance including interest to be paid no later than June 27, As at June 30, 2017 an amount of $250,000 remains payable. 15

16 7 - CONVERTIBLE DEBT During the six-month period ended June 30, 2017, debentures, for an aggregate amount of $451,910 (capital and accrued interest), have been converted into 5,254,338 common shares. The following tables summarize the components of the convertible debt: Embedded Embedded Liability conversion warrant Total equity component option reserve reserve component Total $ $ $ $ $ Balance, January 1, ,253 2,941,509 2,941,509 3,464,762 Interest and accretion interest expense 39, , , ,697 Convertible debt converted during the period (346,670) (105,240) (105,240) (451,910) Balance, June 30, ,280 2,986,269 2,986,269 3,202,549 During the year ended December 31, 2016, debentures, for an aggregate amount of $1,062,665 (capital and accrued interest), have been converted into 8,186,426 common shares. Embedded Embedded Liability conversion warrant Total equity component option reserve reserve component Total $ $ $ $ $ Balance, January 1, ,036, ,487 15, ,184 2,266,570 Convertible debt issued during year 305, , , ,000 Deferred income tax on above debt (52,304) (52,304) (52,304) Convertible debenture issued during the year reflected in equity 2,664,143 2,664,143 2,664,143 Interest and accretion interest expense 250, , , ,514 Extinction of a convertible debt (1,127,496) (74,000) (74,000) (1,201,496) Convertible debt converted during the year (941,713) (105,255) (15,697) (120,952) (1,062,665) Balance, December 31, ,253 2,941,509 2,941,509 3,464,762 16

17 8 - SHAREHOLDERS' EQUITY a) Share Capital Authorized Unlimited number of common voting shares. Unlimited number of preferred shares without nominal value or par value, which may be issued in one or more series, the directors having been authorized to determine the designation rights, privileges, restrictions and conditions attached to the shares. Movements in the Company s share capital are as follows: June 30, 2017 June 30, 2016 Number of Number of common common shares Amount shares Amount $ $ Balance, beginning of period 123,673,275 21,197,288 94,152,482 19,038,170 Shares issued for private placement (1) 4,608, ,025 Shares issued for business combination (Note 3) 19,913,021 6,036,529 Shares issued for conversion of convertible debt (2) 5,254, ,910 2,854, ,223 Shares issued for exercise of warrants (3) 67,500 11,336 3,030, ,151 Shares issued for settlement of liabilities (Note 6) 2,194, ,436 Shares issued for exercise of share options 86,833 18,235 Balance, end of period 155,797,773 28,593, ,037,781 20,317,544 17

18 8 - SHAREHOLDERS' EQUITY (Continued) a) Share Capital Authorized (continued) (1) Shares issued as part of a private placement During the six-month period ended June 30, 2017, a total of 4,608,331 shares were issued at $0.12 per share as part of a private placement for a total cash consideration of $553,000. As part of the private placement, the investors also received a total of 4,608,331 warrants of the Company exercisable at $0.20. A total of $317,975 of the issue price was allocated to the warrants. (2) Shares issued on conversion of convertible debt During the six-month period ended June 30, 2017, 5,254,338 shares were issued in relation to the conversion of convertible debt. A total amount of $451,910 from the conversion of the debt was reclassified from liabilities and other equity accounts to share capital. During the six-month period ended June 30, 2016, 2,854,996 shares were issued in relation to the Unsecured Convertible Debenture conversion for an aggregate amount of $734,223. (3) Shares issued for exercise of warrants During the six-month period ended June 30, 2016, a total of 3,030,303 warrants were exercised for a cash consideration of $250,000 (exercise price at $0.0825). An amount of $295,151 from the exercise of the warrants was reclassified from warrant reserve to share capital. b) Share Purchase Options The Company has adopted an incentive stock option plan (the Stock Option Plan ) which provides that the Board of Directors of the Company may from time to time, at its discretion, grant to directors, officers, employees and other key personnel of the Company, options to purchase common shares, provided that the number of common shares reserved for issuance under the Stock Option Plan shall not exceed ten percent (10%) of the issued and outstanding common shares exercisable for a period of up to five (5) years. The stock options vest over a period of time approved by the Board of Directors. The price per common share, which is defined by the CSE at the date of grant, and the number of common shares, which is determined by the members of the board, may be allotted to each director, officer, employee or other key personnel of the Company and all other terms and conditions of the options granted under the Stock Option Plan. 18

19 8 - SHAREHOLDERS' EQUITY (Continued) June 30, 2017 December 31, 2016 Weighted Weighted Number of average Number of average options exercise price options exercise price $ $ Balance, beginning of period 6,121, ,086, Granted 6,236, Exercised (86,833) 0.15 Forfeited (100,000) 0.15 Expired (180,000) 0.50 (865,000) 0.68 Balance, end of period 12,090, ,121, Exercisable options 9,922, ,844, Outstanding options as at June 30, 2017 are as follows: Weighted average Weighted Range of residual life Outstanding average Exercisable Weighted exercise prices span (in years) options exercise price options average price ,353, ,063, , , ,667, ,362, , , to ,090, ,922, Share options outstanding at the end of the period have the following expiry date and exercise prices: Share options June 30, Expiry date Exercise price 2017 July 10, ,000 December 4, ,000 December 4, ,000 December 4, ,000 September 8, ,000 December 9, ,167 January 9, ,985,000 February 7, ,500 May 9, ,000 June 30, ,000 December 9, ,200,000 January 23, ,000 12,090,667 19

20 8 - SHAREHOLDERS' EQUITY (Continued) b) Share Purchase Options (continued) For the period ended June 30, 2017, 86,833 share options were exercised (none in 2016). An amount of $411,608 has been expensed as share-based payment awards for the period ended June 30, 2017 ($6,612 for 2016). The offsetting credit has been recorded as option reserve. The stock based compensation expense was calculated according to the weighted average fair value of options granted based on the Black-Scholes valuation model using the assumptions shown below based on the expected number of options expected to vest. The volatility on the Company's common shares was estimated based on historical information over the expected life of the options. The fair value of each option granted was estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions: For the period ended June 30, 2017 January 9, January 23, February 7, May 9, June 30, Share price Exercise price Risk-free interest rate 0.83% 0.81% 0.89% 0.79% 1.17% Expected life 3 years 4 years 3 years 3 years 3 years Expected estimated volatility 270% 241% 273% 270% 268% Dividend yield nil nil nil nil nil Fair value of options granted c) Other equity accounts June 30, December 31, $ $ Contributed Surplus 7,861,306 7,675,658 Option reserve 686, ,662 Warrant reserve 9,958, ,955 18,506,231 8,418,275 20

21 8 - SHAREHOLDERS' EQUITY (Continued) c) Other equity accounts (continued) Contributed surplus June 30, December 31, $ $ Balance, beginning of period 7,675,658 6,378,488 Warrant expired/cancelled during the period 95, ,620 Stock options expired or forfeited 90, ,550 Extinguished conversion option 74,000 Balance, end of period 7,861,306 7,675,658 Option reserve June 30, December 31, $ $ Balance, beginning of period 369, ,638 Stock based payments 411,608 9,574 Stock options expired or forfeited (90,000) (429,550) Stock options exercised (5,210) Balance, end of period 686, ,662 21

22 Notes to the Condensed Interim Consolidated Financial Statements (Unaudited) 8 - SHAREHOLDERS' EQUITY (Continued) Warrants reserve June 30, 2017 December 31, 2016 Weighted Weighted Number of average Number of average warrants Amount exercise price warrants Amount exercise price $ $ $ $ $ $ Warrants issued and outstanding Balance, beginning of the period 20,788, , ,367,845 1,018, Expired/cancelled during the period (5,331,430) (95,648) 0.08 (10,423,893) (793,620) 0.13 Issued during the period 35,108,151 10,915, ,874, , Exercised during the period (67,500) (10,125) 0.15 (3,030,303) (303,030) 0.08 Warrant issue costs (1,223,569) Balance, end of the period 50,497,667 9,958, ,788, , During the six-month period ended June 30, 2017, the Company issued 961,617 broker warrants valued at $258,906. During the six-month period ended June 30, 2017, 4,608,331 warrants were issued in connection with a private placement and were recorded in warrant reserve at the value attributed to them at the time of the issue of the private placement being $317,975. During the six-month period ended June 30, 2017, 29,538,203 special warrants were issued at a price of $0.35 per special warrant. Each warrant is exercisab into one unit of the Company entitling the holder to one common share and half a purchase warrant. 22

23 9 - INFORMATION INCLUDED IN NET LOSS Financial expenses comprises of the following: June 30, June 30, $ $ Interest and banking fees 6,706 34,055 Interest expense on long term debt 114, ,277 Interest and accretion expense on convertible debt 189, ,636 Accretion interest on contingent consideration payable 241,141 Fair value adjustment on liability for acquisition of Mobi (Note 10) 4,042,903 (119,600) Total finance expenses 4,594, , FINANCIAL INSTRUMENTS The Company is exposed to a certain number of risks at different levels. a) Measurement categories The following table shows the carrying values of assets and liabilities for each of these categories as at June 30, 2017 and December 31, June 30, December 31, $ $ Assets Loans and receivables Cash and cash equivalents 7,173,795 30,233 Trade and other receivables (excluding sales taxes and tax credit receivable) 499, ,406 Total loans and receivables 7,673, ,639 Liabilities Amortized cost Bank loan 90,000 90,000 Accounts payable and accrued liabilities (excluding salaries and related benefits) 2,154,738 1,855,641 Convertible debt 216, ,253 Demand debt 576, ,247 Long term debt 165, ,395 Balance of purchase price payable 1,060,000 Total amortized cost 4,262,685 3,237,536 Fair Value Liability for the acquisition of Solutions Mobi724 Inc. 726,372 Contingent consideration payable 4,286,947 Total fair value 5,013,319 23

24 10 - FINANCIAL INSTRUMENTS (Continued) b) Fair value The net carrying amount of the cash, trade and other receivables (excluding non-financial assets) and accounts payable and accrued liabilities (excluding non financial liabilities) is considered a reasonable approximation of fair value since all amounts are short-term in nature. The fair values of the convertible debt, demand debt and purchase price payable are approximately equal to their carrying value due to their short-term maturity dates. The fair value of the long-term debt is not significantly different than its carrying amount and it's estimated using a discounted cash flow approach, which discounts the contractual cash flows using discount rates derived from observable market interest rates of similar loans with similar risk. These debts have been categorized within Level 2 of the fair value hierarchy. The estimated fair value of the liability for the acquisition of Solutions Mobi724 Inc. is categorized within Level 2 of the fair value hierarchy. The fair value was determined based on an estimated number of common shares to be issued to the previous shareholders of Mobi times the share price of the Company as at June 30, The liability was settled during the six-month period ended June 30, The reconciliation of the liability for the acquisition of Solutions Mobi724 Inc. June 30, December 31, $ $ Opening balance 726, ,000 Partial settlement of liability (Note 8) (4,769,275) (204,600) Fair value adjustment on liability (a) 4,042, ,972 Ending balance 726,372 (a) The fair value adjustment on liability increased due to the increase in the number of shares to be issued to settle the liability (Note 3) as well as the increase in the share price of the Company during the six-month period ended June 30,

25 11 - RELATED PARTY TRANSACTIONS The following table summarizes the transactions and balances outstanding with related parties of the Company: $ $ $ $ Transactions: Rent paid to company controlled by significant shareholder 31,443 62,886 Consulting fee paid in shares to a directo 66,000 66,000 June 30, December 31, $ $ Balances outstanding: Amounts due to officers 151,073 Demand debt due to director and significant shareholder 53,760 50,000 Demand debt due to director 127, ,000 Amounts due to company controlled by an officer 128, , ,626 Compensation of key management personnel For the three-month period ended June 30, The remuneration of directors and other members of key management personnel during the period were as follows: For the three-month period For the six-month period ended June 30, For the six-month period ended June 30, ended June 30, $ $ $ $ Management fees, commissions and salaries 165, , , ,463 Share-based payments compensation - 3, , , , ,769 Please see Notes 3 and 6 for additional information on transactions with key management, directors an officers. 25

26 12 - LOSS PER SHARE a) Basic Basic earnings (loss) per common share are calculated by dividing the net income (loss) attributable to the owners of the Company by the weighted average number of outstanding common shares during the period. Net loss attributable to the $ $ $ $ shareholders of the Company 544,904 (662,119) (6,894,090) (1,625,708) Weighted average number of common shares outstanding 146,783,722 99,196, ,862,104 99,196,720 b) Diluted For the three-month period For the six-month period ended June 30, ended June 30, For the periods ended June 30, 2017 and 2016, diluted net loss per share was calculated based on the net loss attributable to owners of the parent using the basic weighted average number of shares outstanding, since the convertible debt, all the outstanding warrants and stock options and the potential share issuance for the business acquisition have been excluded from the calculation of diluted net loss per share because they were anti-dilutive. Accordingly, diluted net loss per share for each period was the same as the basic net loss per share. 26

27 13 - SEGMENTED REPORTING The Company operates and reports its results as three operating segments, which are the development of new internet technologies to facilitate point of sale payments, e-couponing and digital marketing, as these are monitored by the Company s chief decision maker and strategic decisions are made on the basis of segment operating results. Each of the operating segments is a reportable segment for financial reporting purposes. The segments do not earn any inter-segment revenues. The Company also operates in three different geographies. The Company s financial information by reportable segment is as follows: Payment Digital June 30, 2017 solution E-couponing marketing Unallocated Consolidated Revenues from external customers 92, , ,261 1,428,836 Total operating expenses 1,816, ,245 1,487,649 1,229,764 5,188,156 Operating loss (profit) 1,724, , ,388 1,229,764 3,759,320 Net financial expenses 587 2,541 13,426 4,578,378 4,594,932 Gain on renegotiation of purchase price (1,428,088) (1,428,088) Net loss before income taxes 1,724, , ,814 4,380,054 6,926,164 Payment Digital June 30, 2016 solution E-couponing marketing Unallocated Consolidated Revenues from external customers 55, , ,091 1,162,927 Total operating expenses 488,057 1,464, ,179 (192,179) 2,596,227 Operating loss (profit) 433,020 1,279,371 (86,912) (192,179) 1,433,300 Net financial expenses 61, ,512 15, ,368 Net loss (income) before income taxes 494,190 1,462,883 (71,226) (192,179) 1,693,668 27

28 13 - SEGMENTED REPORTING (Continued) The Company s financial information by geographic location is as follows: June 30, June 30, $ $ Sales from external customers South America 342, ,799 Canada 994, ,358 Caribbean 92,403 54,770 All of the Company's non-current assets are located in Canada COMPARATIVE FIGURES 1,428,836 1,162,927 Certain comparative figures have been reclassified to conform with the presentation adopted in the current period. 28