UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-105778
MOPALS.COM, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | | 05-0554486 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
109 Atlantic Avenue, Suite 308
Toronto, Ontario, CANADA, M6K 1X4
(Address of principal executive offices)(Zip Code)
(416) 362-4888
(Registrant’s telephone number, including area code)
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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No☐
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☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No☒
Indicate the number of shares outstanding of the Registrant’s common stock, as of the latest practicable date.
| Class | | Outstanding at May 23, 2016 |
| Common Stock, $0.0001 par value | | 52,200,700 |
MOPALS.COM, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2016
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | |
| | | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 5 |
| Item 4. | Controls and Procedures | 5 |
| | | |
| PART II - OTHER INFORMATION | |
| | | |
| Item 1. | Legal Proceedings | 7 |
| Item 1A. | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3. | Defaults Upon Senior Securities | 7 |
| Item 4. | Mine Safety Disclosures | 7 |
| Item 5. | Other Information | 7 |
| Item 6. | Exhibits | 8 |
| | | |
| SIGNATURES | 9 |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Basis of Presentation
The accompanying condensed and interim consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring adjustments) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016.
The condensed consolidated interim financial statements of the Company appear elsewhere in this report beginning with the Index to Financial Statements on page F-1 and ending on F-12.
MOPALS.COM, INC.
AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
UNAUDITED
MOPALS.COM, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
CONTENTS
| Condensed Interim Consolidated Balance Sheets as at March 31, 2016 & December 31, 2015 (unaudited) | F-2 |
| | |
| Condensed Interim Consolidated Statements of Operations and Comprehensive (Loss) for the three months ended March 31, 2016 and 2015 (unaudited) | F-3 |
| | |
| Condensed Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited) | F-4 |
| | |
| Condensed Interim Consolidated Statement of Stockholders' Deficit for the three months ended March 31, 2016 (unaudited) | F-5 |
| | |
| Notes to the Condensed Interim Consolidated Financial Statements (unaudited) | F-6 to F-11 |
MOPALS.COM, INC.
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
Unaudited
| | | March 31, | | | December 31, | |
| | | 2016 | | | 2015 | |
| ASSETS | | | | | | |
| Cash | | $ | 6,079 | | | $ | 6,079 | |
| Prepaid & Other Assets (Note 4) | | | 294,591 | | | | 295,253 | |
| Total Current Assets | | | 300,670 | | | | 301,332 | |
| | | | | | | | | |
| Equipment, net (Note 5) | | | 13,997 | | | | 16,768 | |
| Total Assets | | $ | 314,667 | | | $ | 318,100 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Accounts Payable & Accrued Liabilities | | | 256,502 | | | | 231,726 | |
| Employee Tax Deductions Payable | | | 1,009,252 | | | | 832,831 | |
| MoCoins™ Liability | | | 33,394 | | | | 2,644 | |
| Share Based Accrual | | | 14,924 | | | | 14,924 | |
| Loans from Shareholder (Note 6) | | | 1,822,117 | | | | 1,429,055 | |
| Total Liabilities | | $ | 3,136,189 | | | $ | 2,511,180 | |
| | | | | | | | | |
| Commitments and Contingencies(Note 7) | | | | | | | | |
| Capital Stock; par value $0.0001 (Note 8) | | | 5,220 | | | | 5,220 | |
| Additional Paid In Capital | | | 3,557,387 | | | | 3,469,078 | |
| Deficit | | | (6,688,605 | ) | | | (6,147,574 | ) |
| Foreign Currency Translation | | | 304,476 | | | | 480,196 | |
| Total Stockholders’ Deficit | | $ | (2,821,522 | ) | | $ | (2,193,080 | ) |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Deficit | | $ | 314,667 | | | $ | 318,100 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
MOPALS.COM, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Unaudited
| | | For the Three Months Ended | | | For the Three Months Ended | |
| | | March 31, 2016 | | | March 31, 2015 | |
| | | | | | | |
| EXPENSES | | | | | | |
| Salaries, Consultants & Contractors | | $ | 337,601 | | | $ | 291,421 | |
| General & Administrative Expenses | | | 74,511 | | | | 110,459 | |
| Occupancy Costs | | | 27,601 | | | | 33,362 | |
| Stock Based Compensation (Note 9) | | | 97,658 | | | | 98,927 | |
| Depreciation | | | 3,660 | | | | 3,821 | |
| Total Operating Expense & Loss before Income Taxes | | | 541,031 | | | | 537,990 | |
| Net loss | | | (541,031 | ) | | | (537,990 | ) |
| Foreign Currency Translation Adjustment, Net of Taxes | | | (175,720 | ) | | | (135,097 | ) |
| Other Comprehensive Income | | | (175,720 | ) | | | (135,097 | ) |
| | | | | | | | | |
| Total Comprehensive Loss | | $ | (365,311 | ) | | $ | (402,893 | ) |
| | | | | | | | | |
| Loss per common share (Note 10): | | | | | | | | |
| Basic and diluted: | | | | | | | | |
| Net (Loss) per common share | | $ | (0.01 | ) | | $ | (0.01 | ) |
| | | | | | | | | |
| Weighted Average Number of Shares Outstanding - Basic and diluted during the period | | | 52,200,700 | | | | 45,804,884 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
MOPALS.COM, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
| | | For the Three Months Ended | | | For the Three Months Ended | |
| | | March 31,
2016 | | | March 31,
2015 | |
| Cash Flows used in Operating Activities | | | | | | | | |
| Net (Loss) | | $ | (541,031 | ) | | $ | (537,990 | ) |
| Adjustments to reconcile net (loss) income to net cash from operating activities: | | | | | | | | |
| Depreciation | | | 3,660 | | | | 3,821 | |
| Stock-based compensation expense | | | 88,309 | | | | 98,927 | |
| Increase (Decrease) in net assets: | | | | | | | | |
| (Decrease) in Prepaids & Other Assets | | | (9,853 | ) | | | (1,675 | ) |
| Increase (Decrease) in MoCoins™ liability | | | 28,897 | | | | (158 | ) |
| Increase (Decrease) in Accounts Payable & Accrued Liabilities and Employee Tax Deductions Payable | | | 128,246 | | | | (3,612 | ) |
| Net Cash Flows used in Operating Activities | | | (301,771 | ) | | | (440,687 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Shares to be issued | | | - | | | | 70 | |
| Additional Paid In Capital (Cash portion) | | | - | | | | 204,397 | |
| Increase in Shareholder’s Loan | | | 282,064 | | | | 120,840 | |
| Net Cash Flows from Financing Activities | | | 282,064 | | | | 325,307 | |
| | | | | | | | | |
| Cash Flows used in Investing Activities | | | | | | | | |
| Purchases of Capital Equipment | | | - | | | | (1,129 | ) |
| Net Cash Flows used in Investing Activities | | | - | | | | (1,129 | ) |
| | | | | | | | | |
| Net Cash Flows | | $ | (19,707 | ) | | $ | (116,509 | ) |
| | | | | | | | | |
| Effects of Exchange Rate on Cash | | | 19,707 | | | | 38,737 | |
| | | | | | | | | |
| Cash – Beginning of Period | | | 6,079 | | | | 143,482 | |
| Cash – End of Period | | $ | 6,079 | | | $ | 65,710 | |
| | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | |
| Interest Paid | | $ | - | | | $ | - | |
| Income Taxes Paid | | | - | | | | - | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
MOPALS.COM, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
Unaudited
| | | | | | | | | | | | Accumulated | | | | |
| | | | | | Additional | | | | | | other | | | Total | |
| | | Common Stock | | | Paid in | | | Accumulated | | | Comprehensive | | | Shareholders | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Deficit | |
| | | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2016 | | | 52,200,700 | | | $ | 5,220 | | | $ | 3,469,078 | | | $ | (6,147,574 | ) | | $ | 480,196 | | | $ | (2,193,080 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares granted to employees (Note 9) | | | - | | | | - | | | | 88,309 | | | | - | | | | - | | | | 88,309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of director stock options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | - | | | | - | | | | - | | | | - | | | | (175,720 | ) | | | (175,720 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | - | | | | - | | | | - | | | | (541,031 | ) | | | - | | | | (541,031 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2016 | | | 52,200,700 | | | | 5,220 | | | | 3,557,387 | | | | (6,688,605 | ) | | | 304,476 | | | | (2,821,522 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
| 1. | NATURE OF OPERATIONS AND ORGANIZATION |
Mopals.com, Inc. ("Mopals" or the “Company”) was incorporated August 7, 2012 and was organized under the laws of the State of Nevada.
Mopals’ operations are presently conducted through the Company’s wholly owned subsidiary, Mopals Canada Inc. (an Ontario, Canada company). The planned operations of the Company consist of becoming a social media rewards platform in Canada and the United States. The Company is currently conducting development activities to operationalize certain technology that the Company has developed so it can attract users to its platform. The Company also is in the process of raising additional equity capital to support the completion of its development activities to begin the launch of its application.
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company’s current technology before another company develops similar technology and applications.
These unaudited condensed interim consolidated financial statements should be read in conjunction with the annual financial statements for Mopals.com, Inc. for the most recently completed fiscal year ended December 31, 2015. These unaudited condensed interim consolidated financial statements do not include all disclosures required in annual financial statements, but rather are prepared in accordance with recommendations for interim financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited condensed interim consolidated financial statements have been prepared using the same accounting policies and methods as those used by the Company in the annual consolidated financial statements for the year ended December 31, 2015, except when disclosed below.
The unaudited condensed interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the financial position of the Company as at March 31, 2016, and the results of its operations for the three month periods ended March 31, 2016 and 2015 and its cash flows for the three month periods ended March 31, 2016 and 2015. Note disclosures have been presented for material updates to the information previously reported in the annual consolidated financial statements.
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
| 2. | BASIS OF PRESENTATION (Continued) |
a) Estimates
The preparation of these consolidated financial statements has required management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to accrued liabilities, income taxes and stock based compensation. The Company bases its estimates on historical experiences and on various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. As adjustments become necessary, they are reported in earnings in the period in which they become known.
These financial statements have been prepared assuming the Company will continue on a going-concern basis. The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations. The Company has suffered recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. The Company has incurred losses since inception and the ability of the Company to continue as a going-concern depends upon its ability to develop profitable operations and to continue to raise adequate financing. Accumulated losses from inception to March 31, 2016 total $6,688,605 and the Company had a working capital deficiency of $2,835,519 as at March 31, 2016. In order for the Company to meet its liabilities as they come due and to continue its operations, the Company is solely dependent upon its ability to generate such financing. The Company will continue to seek additional forms of debt or equity financing, but it cannot provide assurances that it will be successful in doing so. These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The accompanying condensed consolidated interim financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.
| 4. | PREPAID AND OTHER ASSETS |
| | | March 31, | | | December 31, | |
| | | 2015 | | | 2015 | |
| | | | | | | |
| Prepaid Assets | | $ | 145,521 | | | $ | 158,894 | |
| Harmonized Sales Tax | | | 149,070 | | | | 136,359 | |
| Total | | $ | 294,591 | | | $ | 295,253 | |
The Harmonized Sales Tax (“HST”) is a federal - provincial harmonized sales tax that applies to the supply of most property and services in Canada. Generally, HST registrants must charge and account for the HST on taxable supplies of property and services made in Canada. The HST rate in Ontario is 13%. Registrants collect the HST on most of their sales and pay HST on most purchases they make to operate their business. They can claim an input tax credit, to recover the HST paid or payable on the purchases they use in their commercial activities.
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
The net book value of equipment as of March 31, 2016 was as follows:
| | | Cost | | | Amortization | | | NBV | |
| Computer Hardware | | $ | 21,577 | | | $ | 14,735 | | | $ | 6,842 | |
| Computer Software | | | 24,923 | | | | 20,983 | | | | 3,940 | |
| Furniture & Equipment | | | 7,700 | | | | 4,485 | | | | 3,215 | |
| Total | | $ | 54,200 | | | $ | 40,203 | | | $ | 13,997 | |
The net book value of property, plant & equipment as of December 31, 2015 was as follows:
| | | Cost | | | Amortization | | | NBV | |
| Computer hardware | | $ | 20,247 | | | $ | 12,308 | | | $ | 7,939 | |
| Computer Software | | | 23,387 | | | | 17,936 | | | | 5,451 | |
| Furniture & Equipment | | | 7,225 | | | | 3,847 | | | | 3,378 | |
| Total | | $ | 50,859 | | | $ | 34,091 | | | $ | 16,768 | |
Depreciation expense for the three months ending March 31, 2016 and 2015 was $3,660 and $3,821, respectively.
| 6. | LOANS FROM SHAREHOLDER |
As of March 31, 2016, the controlling shareholder and Chief Executive Officer of the Company had advanced $1,822,117 (December 31, 2015 - $1,429,055) to fund the working capital of the Company. The advances are unsecured, non-interest bearing and due on demand.
| 7. | COMMITMENTS & CONTINGENCIES |
On February 10, 2014, the Company entered into a lease agreement for office space. The schedule below outlines the expected remaining lease payments over the life of the lease.
| 2016 | | | 99,660 | |
| 2017 | | | 139,542 | |
| 2018 | | | 47,466 | |
In the normal course of business, the Company becomes involved in various legal actions seeking compensatory and occasionally punitive damages, including actions brought on behalf of various purported classes of claimants and claims relating to employee and third-parties.
a) Authorized
100,000,000 Common Shares with a par value of $0.0001.
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
| 9. | STOCK-BASED COMPENSATION |
The Company’s Stock Option Plan is currently being established in order to enable the Company to attract and retain the services of highly qualified and experienced directors, officers, employees and consultants, and to give such persons an interest in the success of the Company and its subsidiaries. The options and awards will be granted at the discretion of the Board of Directors. The fair value of each option granted is estimated at the time of grant using the Black-Scholes option pricing model.
During the year ended December 31, 2015, the Company agreed to grant 2,109,000 common shares to certain employees. Of these common shares, 675,000 vest over 12 months, 750,000 vest over 18 months and the remaining 684,000 vested immediately. These shares were valued at $527,250 based on the current stock price at the date of grant of $0.25 and an estimate forfeiture rate of 56%, of which $385,756 was recorded at March 31, 2016 (December 31, 2015 - $214,947) as additional paid in capital and recorded as stock based compensation on the condensed consolidated interim statements of operations. During the year ended December 31, 2015, 50,000 common shares were issued in accordance with an employment agreement and valued at $12,500.
As at March 31, 2016, the Company had 1,194,000 (December 31, 2015 - 704,000) vested share grants. As at March 31, 2016, the number of unvested share grants expected to vest (including the impact of expected forfeitures) was estimated at 1,425,000 (December 31, 2015 – 1,425,000). As at March 31, 2016, the total fair value of future expense to be recorded in subsequent periods (assuming no forfeiture occurs) is $268,994 (December 31, 2015 - $254,802). The weighted average time remaining for these share grants to vest is 0.85 years (December 31, 2015 – 0.86 years).
The following table summarizes the stock option activities of the Company:
| | | Number of Options | | | Weighted Average Exercise Price | |
| Balance, December 31, 2014 | | | 3,050,000 | | | $ | 0.36 | |
| Exercised | | | (600,000 | ) | | | 0.30 | |
| Options Forfeited | | | (1,300,000 | ) | | | 0.35 | |
| Balance, December 31, 2015 and March 31, 2016 | | | 1,150,000 | | | $ | 0.41 | |
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
| 9. | STOCK-BASED COMPENSATION (Continued) |
The Company’s computation of expected volatility for the periods ended March 31, 2016 is based on the Company’s market close price over the period equal to the expected life of the options. The Company’s computation of expected life reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options.
The Company’s expected dividend yield is 0%, since there is no history of paying dividends and there are no plans to pay dividends. The Company’s risk-free interest rate is the Canadian Treasury Bond rate for the period equal to the expected term.
The total number of options outstanding as at March 31, 2016 was 1,150,000 (December 31, 2015 – 1,150,000).
As at March 31, 2016, the Company had 1,150,000 (December 31, 2015 – 1,150,000) vested options. As at March 31, 2016, the number of unvested options expected to vest (including the impact of expected forfeitures) had been estimated at nil (December 31, 2015 – nil) with a weighted average contractual life of n/a years (2015 – n/a years) and exercise price of $n/a (2015 - $n/a).
The Company recognizes compensation expense for the fair values of stock options using the graded vesting method over the requisite service period for the entire award.
The following table presents information relating to stock options outstanding and exercisable at March 31, 2016.
| Options Outstanding | | | Options Exercisable | |
Number
of Shares | | | Weighted Average Remaining Contractual
Life (Years) | | | Weighted Average Exercise Price | | | Number
of Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual
Life (Years) | |
| | 900,000 | | | | 0.39 | | | $ | 0.25 | | | | 900,000 | | | $ | 0.25 | | | | 0.39 | |
| | 250,000 | | | | 2.07 | | | | 1.00 | | | | 250,000 | | | | 1.00 | | | | 2.07 | |
| | 1,150,000 | | | | 0.76 | | | $ | 0.41 | | | | 1,150,000 | | | $ | 0.41 | | | | 0.76 | |
The Company recorded $97,658 for share-based compensation expense for the three month period ending March 31, 2016 (2015 - $98,927).
MOPALS.COM, INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
The Company calculates basic loss per common share using net loss divided by the weighted-average number of common shares outstanding. The Company calculates diluted earnings per common share in the same manner as basic, except we use the weighted-average number of diluted common shares outstanding in the denominator, when the stock options and warrants are not anti-dilutive.
| | | Three Months ended March 31, 2016 | | | Three months ended
March 31, 2015 | |
| Weighted average number of common shares outstanding | | | 52,200,700 | | | | 45,804,884 | |
| Weighted-average number of diluted common shares outstanding | | | 52,200,700 | | | | 45,804,884 | |
The Company accounts for income taxes in accordance with ASC 740-20. ASC 740-20 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. The effects of future changes in tax laws or rates are not anticipated.
Under ASC 740-20 income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes.
As of March 31, 2016, the Company did not have any amounts recorded pertaining to uncertain tax positions. Deferred taxes as at March 31, 2016 and December 31, 2015 have not been recorded due to the fact that they are fully reserved. All tax years remain open to examination by the Internal Revenue Service and the Canada Revenue Agency.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the consolidated financial condition and results of operations of Mopals.com, Inc. (“Mopals”, the “Company”, “we”, and “our”) for the three month period ended March 31, 2016. The following information should be read in conjunction with the consolidated interim financial statements for the period ended March 31, 2016 and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”).
Overview
Mopals.com, Inc. was incorporated under the laws of Delaware on February 6, 2003 as MagnaData, Inc. In February of 2005, articles of amendment were filed with the State of Delaware changing the name of our company to MortgageBrokers.com Holdings, Inc. and thereafter, operated as a mortgage brokerage in Canada. On March 26, 2013, articles of amendments were filed with the State of Delaware changing the name of our company to Mopals.com, Inc. pursuant to execution of an asset spin out and shareholder loan cancellation agreement and subsequent execution of a share exchange agreement. Pursuant to the terms of the share exchange agreement, the Company acquired 100% of the issued and outstanding equity securities of Mopals Inc., a Nevada private corporation, in exchange for the issuance of 50,000,000 shares of the Company’s common stock.
Mopals carries out all business through its wholly owned subsidiary, Mopals Canada Inc. Mopals Canada Inc. (formerly IQIC.com Inc.) was incorporated federally in Canada on August 7, 2012.
Mopals is a development stage internet and mobile based social media brand-loyalty Company. Mopals has launched the first version of our web and mobile software application for both the iOS and Android mobile device operating systems. It is our intent that the Mopals technology platform under development will allow consumers to earn incentives for their spending and referral behavior with retail businesses and allow retail businesses to build their customer base and enhance customer experiences through promotional programs. Using a unique digital currency, MoCoins™, members can be rewarded for making a purchase at participating retailers, buying and referring offers, creating and completing polls, liking brands, uploading photos, writing reviews, and inviting friends. Through MoPals™, social media influencers monetize their following. Similarly, retailers who use the MoPals™ platform have a means to engage and convert their current social media following to brand ambassadors who foster word-of-mouth advertising. Our members can earn reward incentives (MoCoins) for a number of online and ‘in-store’ behaviors within a consumer’s social network including rewards for promotional participation; ‘liking’, sharing or reviewing an experience at a business; referring business promotions; creating content driving polls; or referring friends to join the Mopals community. Mopals aims to be a leader in how brands inspire customer loyalty, driving online, brand enhancing behavior and sales. It is our aim that our technology platform will enable businesses to connect with their customers, giving them a cost effective means to encourage and reward brand enhancing behavior. It is our intent that our proprietary platform ‘Big Data IQ Engine’ under development will also allow businesses to receive Big Data insights and analytics associated with their consumer’s behavior from which they can use to provide targeted offers and marketing strategies.
It is Mopal’s plan to earn revenue from business subscriptions and transaction fees to receive ongoing consumer data and as well as from receiving a percentage of promotion-based sales revenue from participating businesses couponing engine.
In addition to the financial condition and results of operations of the Company, it is management’s belief that growth of our Company will also, in part, be demonstrated through the metrics of MoCoins points sold, the total number of consumers signed up and making use of the Mopals platform and the number of retail businesses who sign on to and offer promotions through the Mopals community.
As of May 16, 2016, we had one (1) full-time employee and ten (10) independent contractors. None of these employees are represented by collective bargaining agreements. The Company considers its relations with its employees and independent contractors to be in good standing.
The Company’s corporate offices are located at 109 Atlantic Avenue, Suite 308, Toronto, Ontario, CANADA, M6K 1X4. Our current contact information for our Ontario office is telephone number: (416) 362-4888. Our internet website can be found under the domain name:www.mopals.com.
Results of Operations
Three months ended March 31, 2016 and 2015
Mopals had no reported revenue in the first quarter of 2016 and 2015.
The Company’s reported operating expenses during the three month period ended March 31, 2016 were $541,031. Comparatively, the Company’s reported operating expenses during the three month period ended March 31, 2015 were $537,990. The primary components that comprise our operating expenses during the three months ended March 31, 2016 reporting period were salaries and consultant/contractor fees, general and administrative expenses, occupancy costs and stock-based compensation which are explained in detail as follows:
| ● | 62.4% of the operating expenses in the reporting period were associated with salaries, contractor expenses and consulting fees (2015 – 54.2%). |
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| ● | 18.1% of the operating expenses in the reporting period were associated with stock-based compensation (2015 – 18.4%). |
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| ● | 14.4% of the operating expenses in the reporting period were associated with general and administrative expenses (2015 – 20.5%). |
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| ● | 5.1% of our operating expenses in the reporting period were associated with occupancy costs associated with an office lease (2015 – 6.2%). |
Liquidity and Capital Resources
At March 31, 2016, we had $6,079 in cash, $149,070 in harmonized sales tax receivable, $145,521 in prepaid assets and $13,997 in equipment, computer software, computer hardware and furniture for a total of $314,667 in assets. Comparatively as at December 31, 2015, we had $6,079 in cash, $136,359 in harmonized sales tax receivable, $158,894 in prepaid expenses, and $16,768 in equipment, computer hardware, computer software and furniture for a total of $318,100 in assets.
At March 31, 2016, we had $256,502 in accounts payable and accrued liabilities, $1,009,252 in employee tax deductions payable due to Canada Revenue Agency, $14,924 in accruals for stock-based compensation associated with former discontinued operations, $33,394 in MoCoins payable and $1,822,117 in loans payable to the Company’s principal shareholder for a total of $3,136,189 in liabilities. Comparatively as at December 31, 2015, we had $231,726 in accounts payable and accrued liabilities, $832,831 in employee tax deductions payable due to Canada Revenue Agency, $14,924 in accruals for stock-based compensation associated with former discontinued operations, $2,644 in MoCoins payable, and $1,429,055 in loans payable to the Company’s principal shareholder for a total of $2,511,180 in liabilities.
Management makes the following comments regarding the most significant factors affecting the Company’s liquidity and capital resources and their measured trends over the reporting period:
The Company’s cash position did not change over the first three months of 2016 associated with the following:
| ● | the Company used $301,771 in cash from operating activities over the first three months of 2016. As a development stage company, Mopals has no revenue yet while it is building its products and services, hires software development, marketing and sales staff and establishes market partners to launch our business; and, |
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| ● | the Company received $282,064 in cash from financing activities over the first three months of 2016 from our principal shareholder. |
The Company reported a net cash flow loss from operating activities for the first three months of 2016 of $301,771 with a net increase in cash flow from financing activities of $282,064 and a positive effect of exchange rate on cash of $19,707 during the same period for an overall net cash flow of $nil out of the Company during the three month period.
The Company needs to raise additional capital to fund our development stage Company activities and to position the Company for a market launch of its planned products and services or to generate revenue before the existing capital resources are depleted.
In the event that the Company runs out of available working capital resources or experiences an unforeseen negative impact to cash flow, our Company will need to rely upon the issuance of common stock and additional capital contributions from shareholders and/or loans from shareholders and third-party lenders to meet its working capital needs. There is no certainty that shareholders will be able to provide capital contributions or loans to the Company. There is no certainty that there will be a market for the Company’s capital stock. There is no certainty that lenders will find the Company’s financial health and development stage suitable to provide debt financing.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Going Concern
The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
For the three months reporting period ended March 31, 2016, the Company reported a net loss from operations of $541,031 with a working capital deficiency of $2,835,519. Certain conditions noted below raise doubt about the Company’s ability to continue as a going concern.
As a development stage company, the Company’s ability to continue as a going concern is contingent upon its ability to secure additional debt or equity financing. Management’s plan is to secure additional working capital funds through future debt or equity financings. There is no certainty that there will be a market for the Company’s capital stock. There is also no certainty that shareholders will be able to provide future capital contributions or loans to the Company.
The interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on the evaluation of the Company’s disclosure controls and procedures, the Company’s principal executive officer and principal financial officer, with the participation of the Company’s management, have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2016, to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Specifically, our management identified certain matters involving internal control and our operations that it considered to be material weaknesses. As defined in the Exchange Act, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified by our management as of March 31, 2016, is described below:
| | i. | We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result. |
As a result of the material weakness identified above, our internal control over financial reporting was not effective as of March 31, 2016.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the three month period ending March 31, 2016.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. Other than as disclosed above, we are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit No. | | Description |
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| 31.1 | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002 |
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| 32.1+ | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002 |
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| 101.INS | | XBRL Instance Document |
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| 101.SCH | | XBRL Taxonomy Schema |
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| 101.CAL | | XBRL Taxonomy Calculation Linkbase |
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| 101.DEF | | XBRL Taxonomy Definition Linkbase |
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| 101.LAB | | XBRL Taxonomy Label Linkbase |
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| 101.PRE | | XBRL Taxonomy Presentation Linkbase |
+ In accordance with SEC Release 33-8238, Exhibits 32.1 is furnished and not filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| | MOPALS.COM, INC. |
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| Dated: May 23, 2016 | By: | /s/ Alex Haditaghi |
| | | Alex Haditaghi |
| | | Chief Executive Officer, |
| | | Chief Financial Officer, |
| | | President, Secretary and Director |
| | | (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer) |
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