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Aztec Minerals Corp. Management Reports 2026
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Management Reports
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Management's Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended February 29, 2020 and February 28, 2019
The following Management's Discussion and Analysis ("MD&A") comments on the consolidated financial condition and results of operations of Personas Social Incorporated for the year ended February 29th, 2020. All data in this MD&A has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee. The information contained herein should be read in conjunction with Personas' annual audited consolidated financial statements for the year end ended February 29th, 2020 (the "financial statements"), and February 28, 2019.
Unless the context otherwise requires, all references to "Peeks", "Peeks Social", "Corporation", "Company", "our", "us", and "we" refers to Personas Social Incorporated as consolidated with its subsidiaries. Additional information regarding the Company is available at SEDAR at www.sedar.com.
This MD&A is dated August 13, 2020. All amounts are presented in Canadian dollars, unless otherwise noted.
AdvisoryRegarding Forward-Looking Statements
This MD&A contains forward-looking statements. When used in this MD&A the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. In particular, this MD&A contains forward-looking statements with respect to, among other things, our objectives, goals, strategies, intentions, plans, estimates, outlook, expected growth and business opportunities. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including without limitation, factors and assumptions regarding advertising revenues, platform fee revenues, operating costs and tariffs, taxes and fees, changes in market competition, governmental or regulatory developments, changes in tax legislation and general economic conditions. Actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things: the Company's ability to attract and retain users and increase the level of engagement of its users; the Company's expectations regarding its user growth rate and the usage of its web and mobile products; the Company's ability to attract advertisers and the revenue derived from these advertisers; the Company's ability to grow user monetization; the sufficiency of the Company's cash and cash generated from operations to meet its working capital and capital expenditure requirements; the ability of the Company to raise sufficient capital to fund operations and meet its financial obligations; and changes in accounting standards.
The Company cautions you that the foregoing list may not contain all of the forward-looking statements made in this document. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits that the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. When relying upon our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this document are made as at the date of this document and Personas Social Incorporated does not undertake any obligation to update publicly or to
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revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securitieslaws.
GOING CONCERN ASSUMPTION
While the consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") on a going concern basis that presumes the Company will continue in operation for the foreseeable future and that the realization of assets and discharge of liabilities and commitments will occur in the normal course of business, there are material uncertainties related to adverse conditions and events that cast significant doubt on the Company's ability to continue as a going concern.
During the year ended February 29, 2020, the Company incurred a net loss and comprehensive loss of \$4,412,295 (2019 - \$24,294,181) and as at February 29, 2020, the Company had accumulated a deficit of \$34,543,950 (2019 - \$30,910,264) and negative cash flows from operations of \$2,926,061 (2019 - \$2,245,994). Whether and when the Company can attain profitability and positive cash flows from operations is uncertain. These factors create material uncertainties that cast significant doubt upon the Company's ability to continue as a going concern.
The Company has not yet realized profitable operations and has mainly relied on non-operational sources of financing to fund operations. Management has been able to raise sufficient funds to finance its operations in the past through private placements of both equity and debt and will need to continue to do so to fund operations in the future. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
ABOUT PERSONAS SOCIAL INCORPORATED
Personas Social Incorporated (formerly, Peeks Social Ltd.) ("Personas", "Peeks Social", "Peeks", or the "Company"), was incorporated on May 20, 2004, under the Business Corporations Act (British Columbia) and on January 10, 2008, was continued under the laws of the Province of Alberta. The Company is publicly traded and listed on the TSX Venture Exchange ("TSX-V") under the symbol "PRSN". The Company's stock is also quoted in the United States on the OTCQB market under the symbol "PKSLF". The Company's head office is 181 University Ave, Suite 2000, Toronto, Canada, M5H 3M7.
The Company's core business is to generate revenue through the offering of live streaming social media products and services for use by consumers and businesses on its live streaming social media platform, with a focus on mobile (iOS and Android) products. The Company focuses on providing social commerce enabled products which allow for a monetizable user experience to all users, consumers and businesses alike. The Company accomplishes this by offering web-based products, including mobile applications which are complete with enterprise grade global ecommerce infrastructure including multi-currency, multi-lingual, turnkey mobile commerce suites for users.
On May 2, 2018, Peeks Social completed a reverse acquisition with Personas.com Corporation ("Personas"), a private Ontario company and a related party by nature of it being under the common control of Personas's CEO, Mark Itwaru. The transaction enabled the Company to fully own the live streaming technology platform that it was previously licensing from Personas for the use in its business.
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OVERVIEW OF THE BUSINESS AND OPERATIONAL HIGHLIGHTS
Products and Product Development
Until 2016, the Company's flagship product and core line of business was an online social video platform for both web and mobile (with an emphasis on mobile) which allowed users to upload and share personal videos of themselves or events surrounding them, their "self-expression". This product was known as "Keek".
In November 2016, the legacy Keek mobile apps were transitioned from a "social media" video platform to a "social commerce" livestreaming platform, at which time they were rebranded under the product name "Peeks Social". Peeks Social is best described as "a social commerce enabled livestreaming platform." The Company has developed three main social media apps for its platform, namely Peeks Social, Personas and WADSPro, as well as a number of services which vary within each social media app.
The Peeks Social Platform
The Peeks Social Platform is a robust live streaming, mobile enabled social commerce platform that provides broadcasters and content creators with a wide variety of proprietary content monetization services. Content creators can make money by charging their viewers monthly subscription fees (Subscription Service), by receiving donations from viewers (Tipping Service) and by charging viewers for access to content (Paywall Service). In addition, the Peeks Social Platform provides a proprietary AdShare Service. The AdShare service allows all content creators to make money through advertising by selecting sponsored ads that run on their video content. The AdShare network dynamically matches sponsors with content creators and allows the content creators to select their desired sponsors. The Company shares its cost per impression-based advertising revenues with the content creator; thereby allowing content creators an effortless way to make money. The Company's social media apps and various features are described below.
Peeks Social App
The Peeks Social app allows users to view and interact with content or to livestream or broadcast themselves (a "Broadcaster") on a personal interactive social commerce enabled mobile platform. By simply tapping their screen, users of the Peeks Social app can send "likes", tip Broadcasters real money, chat, and interact with content providers, all in real-time. The Peek Social app differentiates itself from its competitors in several ways – (1) Peeks Social provides a real-time, engaging, and monetizable user experience to all of its users; (2) its enterprise grade global social commerce infrastructure is a multi-currency, multi-lingual, turnkey mobile commerce suite for all of its Broadcasters and viewers, complete with an individual e-wallet for every user.
WADSPro App
WADSPro is a purpose built eGaming/eSports video streaming service built on the Peeks Social Platform. The Company's goal for WASDPro is to capture and monetize a significant share of the market with 355 billion minutes of eSports and gaming streams watched in 2017 -- a 22% year over year increase as compared to 2016.
The Company believes that the unique features of the WASDPro service will provide eGamers and their fans, with one of the most satisfying eGaming streaming experiences in the industry today. According to Goldman Sachs 3.5 billion people are online today and nearly 2.2 billion are active video gamers. Video Gaming today is a US\$180 billion industry projecting to grow at a 5% compounded annual growth rate. By 2022, the relatively new eSports segment of the industry is projected to reach an audience of 276,000,000 people similar in size to the audience of the National Football League (NFL). Currently 50 colleges have varsity eSports teams and discussions have been held for inclusion of eSports in the 2024 Paris Olympics. Goldman Sachs has identified the opportunity for live-
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streaming to monetize the growth of eSports in a way that few other businesses can. The WADSPro app is currently in beta testing and development.
Product Development
During the year ended February 29, 2020, the core development team at the Company was primarily engaged in the continued advancement of the Peeks Social Platform. A high-level timeline since the start of the calendar year in 2019 relating to the integration and development of the Company's products is provided below:
- January 2019 The Company announced that development work on Personas release 1.0 was complete. Personas is an ecommerce enabled video and image sharing social network that provides users with a video chat-based payments system (ChatCash). Personas' ChatCash service allows users to provide (and charge for) one-on-one private tutorials, consulting services, help desk services, and any other service that is typically delivered through one-on-one chat. Personas entered beta-testing, and subsequently made a submission to the Apple AppStore and Google Play Store.
- February 2019 Apple suspended the Peeks Social app for download from the Apple AppStore pending the completion of technical and procedural changes to the Peeks Social app and the Peeks Service. Peeks Social users who had the app installed on iOS supported devices continued to have access to content and full functionality of the iOS app. This did not impact the Android platform.
- March 2019 Apple approved Peeks Social app for download in the Apple Store. The Company successfully negotiated with Apple the use of 3rd party payment processing services for purchases on the Peeks Platform. The Company was previously obligated to use Apple's in-app purchases at a cost of 30% per transaction and funds settlement period of 45 days. Similarly, the Company also migrated approximately 80% of its Android traffic from Google in-app payments to 3rd party payment processing services. Google's fees and settlement periods for in-app are similar to Apple. The high cost of in-app payment and the long settlement periods had disrupted the Company's prior business model and resulted in a poor quality of service to users and a significant amount of complaints. As a result, the Company's App ratings suffered as did the use of the Peeks Service by Broadcasters.
- April 2019 The Company announced the upcoming launch of its WASDPro eGaming and eSports streaming service www.wasdpro.tv. WASDPro is a purpose built eGaming/eSports video streaming service built on the Peeks Social Platform. The Company's goal for WASDPro is to capture and monetize a significant share of this growing market which currently produces 355bn minutes of eSports and gaming streams watched in 2017 — a 22% year over year increase compared to 2016. One of the unique features of WASDPro will be an intelligent subscription service. This service will facilitate intelligent subscriptions which may deployed across the Company's applications.
- April 2019 The Company announced that it had qualified for conditional funding from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP). This particular research and development project supported the Company's development of the WASDPro app. The WASDPro beta site was subsequently made available in May 2019.
- May 2019 The Company announced the official launch of the Personas Social Network (Personas) for download in both the iOS and Android Appstores. Personas is an ecommerce enabled video and image sharing social network that provides users with a video chat-based payment system (ChatCash). Personas' ChatCash service allows users to provide (and charge for) one-on-one private tutorials, consulting services, help desk services and any other service that is typically delivered through one-on-one chat.
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- January 2020 The Company restructured its payment protocol and implemented faster payout on a number of its services which have resulted in Broadcasters receiving payouts in days on average as opposed to the several weeks that they experienced in 2019. The Company added direct deposit and email money transfer as payout options for Broadcasters. Email money transfer is restricted to VIP Broadcasters and settles as fast as several minutes. Direct deposit settles in 1 to 3 days. The improvement in payouts to Broadcasters has significantly improved user satisfaction to the extent to which the App ratings in the US iOS AppStore have recovered to over 4 stars on average.
- July 2020 The company launched its Personas.com Enhanced Video Conferencing Platform. Personas.com is a full featured video conferencing platform that is purpose built to meet the needs of the "new normal" and beyond. The COVID-19 global pandemic has changed the way we work, learn, interact, and entertain ourselves; in ways that will far outlast the pandemic.
Most of our competitors provide videoconferencing services that, in their pricing and design, are built for large corporations and do not cater to the current needs of individuals and groups. Personas provides its users a full suite of productivity tools that allow users to do everything from: run a home-based business, attend classes, or to entertain themselves by watching a movie with friends and family. Personas includes a powerful WebApp feature that allows users to have custom interactions in their video conferences such as, but not limited to, self-marking exams, surveys and interactive games. Users can request and pay for the development of custom web apps. Personas will be adding a paid invite service that will allow home based business users to charge for online training and services. The paid invite service will support onetime payments subscriptions and other types of recurring payments.
Personas.com also allows users to livestream their videoconferences to popular social media sites such as YouTube and Facebook. The Company will be rebranding its Mii.tv ecommerce enabled livestreaming service to Personas.TV. Personas.TV will act as a livestreaming companion service to Personas.com videoconferencing platform. The combination of the two services will allow users to create, broadcast and monetize quality multi-participant content such as, esports events, online talk shows, online news networks or global conferences.
Personas offers a free monthly trial and three paid subscription levels at various price points. Personas paid subscriptions cost significantly less than its competitors on average. Personas will monetize its platform via, paid subscriptions, payment processing services and advertising.
Product Features, Monetization and Revenue
The Company currently derives its revenue by charging fees (described below) on transactions processed on the Peeks Social Platform. The Peeks Platform is utilized by both content providers and by viewers (users). Users can currently transact inside Peeks by "tipping" a Broadcaster or by paying to access a "paid broadcast". All users (both Broadcasters and viewers) have a "wallet" inside the app to which they can deposit funds via a number of methods including credit card and in-app purchase (depending on their device), or withdraw funds via a variety of options depending on their geographical location. Users may utilize the funds inside their wallet to send tips to Broadcasters or to purchase access to the paid streams of other users. Wallets may contain USD, CAD, or a digital currency referred to as "coins". A "coin" has a value which approximates \$0.05USD. Coins may be purchased on both the iOS and Android platforms, or on the web at www.peeks.com.
Platform fees
Upon receipt of a tip or payment for a paid stream, the Company charges the Broadcaster a platform fee based on a percentage of the payments received by the Broadcaster. The platform fee varies with the Broadcaster's rating as determined by the viewers of the Broadcaster's content. The current platform fees are as follows:
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| Stars (Broadcaster's "Rating") |
Platform Fee |
|---|---|
| 0.0 - 0.9 | 70% |
| 1.0 - 1.9 | 60% |
| 2.0 - 2.9 | 50% |
| 3.0 - 4.4 | 39.9% |
| 4.5 - 5.0 | 24.9% |
For the year ended February 29, 2020, the average platform fee charged by the Company on transactions in the Peeks Social service was approximately 31%.
Tipping
The tipping mechanism is available to viewers of content in the Peeks Social app, the Personas App and the WASDPro app and allows a viewer to send tips to a Broadcaster in either real-time or on a previously recorded livestream or uploaded video. Tip amounts currently available on the Android platform are \$0.25, \$0.50, \$1.00, \$5.00, \$10.00. On the iOS platform, tips may be sent in the amounts of 5, 10, 20, 100, or 200 coins. Once sent, the tip(s) are then withdrawn from the viewer's wallet and deposited to the Broadcaster's wallet.
Paid Broadcasts
A paid broadcast is a livestream (or previously recorded livestream) where the Broadcaster has selected to charge a fee for access to that content. This is available in the Peeks Social app, the Personas App and the WASDPro app. The amount of the fee is determined by the Broadcaster and currently from \$0.50-\$50.00 (in either USD or CAD) for Android Broadcasters and 10-1,000 coins for iOS Broadcasters. Should a viewer choose to purchase access to the content, the fee is withdrawn from their wallet and deposited to the Broadcaster's wallet.
Get Popular
The Get Popular service is a self-promotion tool which will allow Broadcasters to purchase advertising units for themselves or for their content to be featured in certain positions in the Peeks Social app's Popular Channel, Live Channels, and similar pages on all the Company's applications. This is available in the Peeks Social App, the Personas app, and the WASDPro app. The feature was launched in October 2017 in the Peeks Social App. The current pricing for the Get Popular service is as follows:
| Impression Package (# of impressions) |
Fee (USD) |
||
|---|---|---|---|
| 5,000 | 79 coins | ||
| 10,000 | (\$3.95) 139 coins |
||
| 50,000 | (\$6.95) 499 coins |
||
| (\$24.95) |
OfferBox
The OfferBox was the first merchant tool to be added to the Peeks Social app. This feature can be activated in Personas and in WASDPro. Using the OfferBox technology, users such as brands, influencers, and consumers, can
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create actionable incentives which can be distributed to their live audiences. This allows users to create individual live home shopping channels with a global reach. Using the OfferBox technology, a Broadcaster can deliver a call to action to their viewers inside a live stream which can allow for the instant purchase of the product or service being advertised. The offer may include information such as pictures, product or service descriptions, geographical availability, quantity, pricing, and terms of sale.
The function of OfferBox is illustrated by the images below:
From Left to Right:
- A Broadcaster selling "Mini Drones" inside a livestream on the Peeks Social app.
- A viewer receives an offer to purchase a "Mini Drone" for \$59.99 USD while watching a livestream.
- A viewer reviews the details of the offer to purchase a "Mini Drone".
AdShare Program
The AdShare Program was launched in January 2018 and was purposely built to facilitate the sale of ad units available for sale on broadcast television and on digital platforms. Specifically, the AdShare Program facilitates the sale of product placement ads, Cost per Install (CPI) ads, Cost per Action (CPA) ads, onscreen overlays and affiliate marketing programs. The Adshare program is available in both the Peeks Social app and WASDPro.
The AdShare Program interacts with the OfferBox so that ads can result in direct sales. The AdShare Program allows broadcasters to become advertisers if they so choose. Advertisers have the ability to target advertisements based on a wide variety of viewer demographics including location, age, gender and individual tastes. Upon starting a livestream, broadcasters are able to select brands to promote through the OfferBox on their streams. Broadcasters are then able to earn on a CPA or CPI basis. The CPA or CPI earnings are split between the Broadcaster and the Company.
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Product Performance (KPIs)
The Company routinely monitors certain key performance indicators or KPIs that it has identified as important in understanding the performance of the Peeks Social product. The charts below present select KPIs on a quarterly basis for the Company's fiscal year ended February, and the table below provides a summary of select recent quarterly KPIs for the Peeks Social app. KPIs are published quarterly.
| Q4 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| No of Sessions | 2,889,800 | 5,106,716 | 4,630,674 | 5,733,942 | 6,263,948 | 6,202,592 | 6,501,365 | 5,911,332 | 5,235,131 | 4,270,586 | 4,156,656 | 3,547,982 | 3,010,184 |
| Avg. Duration | |||||||||||||
| (mm:ss) | 8:20 | 7:42 | 7:57 | 8:13 | 8:15 | 8:42 | 8:06 | 7:58 | 7:41 | 6:20 | 6:24 | 7:21 | 8:34 |
- These two KPIs represent the number of times the Peeks Social app was accessed by users and the average duration of use, respectively. Data was provided through Google Analytics. For additional information on Google Analytics'
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- definition of a "session" and the methods of calculating "sessions", please refer to https://support.google.com/analytics.
-
- Starting from November 2019, Google revised their data tracking method for mobile devices (including iOS and Android) due to the change from Google Analytics to Firebase Analytics.
MARKET TRENDS, PRODUCT DEVELOPMENT, AND BUSINESS OUTLOOK
Peeks Social has deployed a global platform for public self-expression, communication, and monetary transaction in real time. The Company's apps are free for download. Having demonstrated through its legacy products that a global video-centric social network can attract audiences (the legacy Keek product attracted 75 million registered users over 5 years), the next milestone for the Company is to confirm that this community can sustain itself from a relevance, enhanced value creation and monetization perspective. In order to do so, Management is of the belief that sustainability and growth must come from a product-first approach, and therefore the Company plans to focus its attention towards the growth of the Peeks Social live-streaming commerce network through its social media apps.
As a social commerce platform, Peeks Social connects content providers, viewers, advertisers, brands and retailers in a seamless organic social commerce ecosystem. The Company's platform allows premium content creators to monetize their popularity by sharing in advertising revenues and by being able to charge viewers for access to content. Additionally, the platform allows content creators to charge their viewers for goods and services and will allow viewers to make instantaneous purchases on their mobile devices through the OfferBox technology. Apart from premium content and enhanced product features and tools, the Peeks Social Platform and community will remain a free service for existing and future users.
Management believes that livestreaming will continue to achieve extremely rapid adoption rates in the social media marketplace. The Company expects the adoption rates of livestreaming video, in a social media context, will easily surpass those previously achieved by pre-recorded video and podcasts. Over its history, the Company has been successful in driving vast amounts of users to its products. Management is planning to replicate similar user growth strategies for Peeks Social. This user driven business strategy can be paired with new customer services and an innovative monetization strategy across different verticals, such as the existing tipping, paid broadcasts, monetization features such as the OfferBox, as well as potential subscription sales as described above (see "Products and Product Development" above and "Outlook" below).
The user driven business strategy will be focused on performance metrics which the Company has identified as being key to the performance of the Peeks Social product and the growth of the business (see Product Performance (KPIs)). These metrics are: the percentage of spending users; the average spend per user; and the activity levels of the users. In its early stages, the Peeks Social product has already proven its ability to monetize users in a social network.
Outlook
The Company announced the launch of an Agent Referral Program that allows approved agents to recruit new users for the Peeks Social Platform. Affiliate marketers are paid a commission on the platform fees charged to Broadcasters. The Company has built integrated affiliate marketing software into its wallet that allows affiliate marketers to track both the performance of the users they have attracted to Peeks Social and to track their commissions. The initial response has been strong and the Company expects this feature to have a material impact on the year ended February 28, 2021 and beyond.
The Company has also completed the development of its subscription services. Subscription services will allow users to pay a monthly subscription to access individual Broadcaster content. The addition of subscription services allows the Company to compete with other subscription-based services such as Only Fans and Patreon which provide content creators with the ability to monetize their social media presence. The above efforts are part of
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what the Company has called the Peeks 2020 Reboot launch. The intent of the Peeks 2020 initiative is to reengage its Broadcaster base to achieve the levels of engagement it previously experienced in prior fiscal periods.
It is Management's belief that the changes the Company has made over the last 12 months should promote improved fiscal stability. The Company's strategy also involves continuing its ongoing discussions with potential partners to develop additional revenue streams which are expected to involve licensing the Peeks Social Platform (white labeling) for different content based verticals. The Company expects to be in a position to provide a more substantive update on its licensing efforts in its next financial report for the year ended February 28, 2021.
SUMMARY OF FINANCIAL AND OPERATING RESULTS
Year Ended February 29, 2020, and Year Ended February 28, 2019
During the year ended February 29, 2020, the Company reported a total of \$2,879,947 in revenue, of which \$2,076,898 related to tipping revenue, and \$803,049 related to virtual currency revenue. This is compared to \$7,388,340 reported for the year ended February 29, 2019, of which \$5,168,962 related to tipping revenue, and \$2,219,378 related to virtual currency revenue. This drop in revenue is due to payment related issues to Broadcasters due to cashflow difficulties throughout fiscal 2020. The Company has now launched its 'Peeks Reboot 2020' which includes accelerated Broadcaster payout services and the launch of an agent referral program that allows approved agents to recruit new users for the Peeks Platform.
For the year ended February 29, 2020, the Company generated \$1,422 interest income as compared to \$5,423 for the year ended February 28, 2019. Interest income is derived from cash on hand which is invested in daily interestbearing accounts.
Selected financial information for the Company for the indicated periods is provided below:
| Periods Ended | ||||
|---|---|---|---|---|
| February 29, 2020 | February 28, 2019 | |||
| \$ | \$ | |||
| Tipping revenue | 2,067,898 | 5,168,962 | ||
| Virtual currency revenue | 803,049 | 2,219,378 | ||
| Total revenue | 2,879,947 | 7,388,340 | ||
| Cost of Sales | 1,734,151 | 5,609,276 | ||
| Gross Margin | 1,145,796 | 1,779,064 | ||
| Operating expenses | 5,698,760 | 6,268,359 | ||
| Net loss for the period | 4,412,295 | 24,294,181 | ||
| Net loss per share – basic | (0.016) | (0.109) | ||
| Net loss per share – diluted | (0.016) | (0.109) |
Operating expenses for the year ended February 29, 2020, were \$5,698,760 as compared to \$6,268,359 for the year ended February 28, 2019. The decrease of \$569,599 was mainly due to the decrease in salaries and benefits, general and administration and advertising and communications, driven by the Company's cost cutting strategy as discussed below.
The following is the breakdown of operating expenses for the year ended February 29, 2020, and the year ended February 28, 2019. Details of the changes between periods are described in the notes to the table below.
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Summary of Operating Expenses
| Year ended February 29, 2020 |
Year ended February 28, 2019 |
|
|---|---|---|
| Wages and benefits | 1,929,531 | 2,676,410 |
| General and administrative | 694,170 | 1,431,468 |
| Stock-based compensation | 947,230 | - |
| Advertising and promotion | 111,279 | 644,077 |
| Consulting fees | 775,531 | 588,725 |
| Professional fees | 692,297 | 501,322 |
| Insurance | 32,265 | 40,108 |
| Rent | 354,868 | 298,372 |
| Depreciation | 161,589 | 87,877 |
| 5,698,760 | 6,268,359 |
Notes:
- (a) Salaries and benefits costs decreased by \$746,879 as compared to the year ended February 28, 2019. This is due to cost cutting measures made by management in the forms of reduction of head count.
- (b) General and administrative expenses decreased by \$737,298 as compared to the year ended February 28, 2019. This is due to cost cutting measured made by management associated with IT infrastructure costs.
- (c) The stock-based compensation for the year ended February 29, 2020 was \$947,230 as compared to nil for the year ended February 28, 2019. This was due to the company issuing stock options during the financial year.
- (d) Advertising and marketing decreased by \$532,798 as compared to the year ended February 28, 2019. The decrease is due to significantly decrease in marketing activities relating to the Peeks Social product and discontinuance of event sponsorship.
- (e) Consulting fees increased by \$186,806 as compared to the year ended February 28, 2019. This increase is mainly due to the hiring of extra consultants by management relating to management, marketing, and business development services.
- (f) Professional fees significantly increased by \$190,975 as compared to the year ended February 29, 2019. This increase is mainly due to the increase in audit fees for the audit for the year ended February 29, 2019, given the increased scope and complexity of work.
- (g) Occupancy costs increased by \$56,496 as compared to the year ended February 28, 2019. The increase was due to company's lease ending and renewing at a higher market rate.
- (h) Depreciation increased by \$73,712 as compared to the year ended February 28, 2019. This is due to the recent adoption of IFRS 16.
- (i) The net loss per share for the year ended February 29, 2020, was \$0.016 as compared to \$0.109 for the year ended February 28, 2019, due primarily to the larger number of shares outstanding.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow for the year ended February 29, 2020 and February 28, 2019
Net cash used in operating activities was \$2,926,061 for the year ended February 29, 2020, as compared to net cash used in operating activities of \$2,245,994, for the year ended February 28, 2019. During the year ended February 29, 2020, the Company had a decrease of \$404,970 of accounts receivables, a decrease of \$111,922 of other receivables, an increase of \$1,480 of prepaid expenses, an increase of \$593,415 in accounts payable and accrued liabilities, a decrease of \$237,903 in related party payable and an increase of \$282,479 of customer deposit liabilities.
For the year ended February 29, 2020, net cash generated (used) from financing activities was \$2,547,389 as compared to the net cash generated (used) from financing activities of (\$1,707,064) for the year ended February 28, 2019. Financing activities for the year ended February 29, 2020, included the repayment of secured notes of \$467,711, proceeds from issuance of shares of \$3,308,364, proceeds of the exercise of warrants of \$22,500, interest payments of \$72,857, and payment of finance lease obligation of \$242,908. For more information on the financing activities please see "Capital Transactions".
For the year ended February 29, 2020, net cash generated from investing activities was \$307,273 which was due to the proceeds from the sale of short-term investments and the payment received on finance lease receivable.
Liquidity
During the year ended February 29, 2020, the Company reported a total of \$2,879,947 in revenue, compared to \$7,388,340 for the year ended February 28, 2019. The Company will need to continue to rely upon capital raising activities, such as private placement debt and equity financings, to fund its future operations. While there is no written commitment, the principal shareholder and CEO, Mark Itwaru, has historically provided financial support to the Company in times of cash shortages in between funding events. However, there is no guarantee such support will be available in the future. See "Liquidity Risk" below.
Selected financial information about the Company's financial position as at the indicated dates is provided below:
| February 29, 2020 | February 28, 2019 | |
|---|---|---|
| \$ | \$ | |
| Cash | 28,479 | 99,878 |
| Total assets | 8,114,393 | 7,064,186 |
| Long-term liabilities | ||
| Total liabilities | 6,753,275 | 6,323,653 |
| Share capital, contributed surplus, and warrants reserve |
||
| Deficit | (34,543,950) | (30,910,264) |
| Working capital (deficiency) | (4,290,274) | (4,922,548) |
During the year ended February 29 2020, the Company incurred a net loss of \$4,412,295 (Year ended February 28, 2019 - \$24,294,181) and, as of that date, the Company had accumulated a deficit of \$34,543,950 (February 28, 2019 - \$30,910,264). Whether and when the Company can attain profitability and positive cash flows from operations is uncertain. These factors create material uncertainties that cast significant doubt upon the Company's ability to continue as a going concern.
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The Company has not yet realized profitable operations and has mainly relied on non-operational sources of financing to fund operations. Management has been able to raise sufficient funds to finance its operations in the past through private placements of both equity and debt and will need to continue to do so to fund operations in the future.
The Company is not currently paying most of its past payables relating to the now retired Keek products but is paying its ongoing monthly operational costs. The Company continues to negotiate its past payables as the need arises.
Financing efforts for the year ended February 29, 2020 have included the following:
Private Placements:
| Date | Unit Price | Units Sold | Gross Consideration |
|---|---|---|---|
| June 27, 2019 | \$0.05 | 22,325,940 | \$1,116,297 |
| June 27, 2019 | \$0.05 | 500,000 | \$25,000 |
| January 13, 2020 | \$0.05 | 37,141,340 | \$1,857,067 |
| February 13, 2020 | \$0.05 | 6,200,000 | \$310,000 |
Secured Notes:
As at February 29, 2020, the Company had outstanding secured notes in the principal amount of \$250,000. During the year ended February 29, 2020, the Company repaid secured notes of \$522,100 and converted \$125,000 to common shares pursuant to the terms of the instruments. Please refer to note 12 in the Consolidated Audited Financial Statements for full details of the notes.
Legal Proceedings
The Company, in the course of its normal operations, is subject to claims, lawsuits, and contingencies. Accruals are made in instances where it is probable that liabilities may be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company has no reason to believe that the ultimate outcome of these matters would have a significant impact on its consolidated financial position.
During the year ended February 28, 2017, a claim was initiated against the Company regarding finder's fees for brokering investments and business partnerships. The Plaintiff claimed damages in the amount of \$15,650,000. The Company is defending the lawsuit and believes the claim is completely without merit. Although the outcome of the claim is not determinable, Management strongly believes the financial impact is insignificant and has accrued the estimated financial effect of \$50,000. There has been no significant activity relating to the claim, however, the claim remains outstanding as at February 29, 2020.
Management of Capital
The Company considers its capital to be its equity attributable to shareholders, which is comprised of share capital, contributed surplus, warrants reserve, and deficit, which as at February 29, 2020, amounted to \$1,777,118 (February 28, 2019 - \$740,533).
The Company's objectives when managing capital are: to safeguard its ability to continue as a going concern; and, to have sufficient capital to fund the growth and operations of its social media products and technologies for the benefit of its shareholders.
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There were no changes in the Company's management of its capital during the year ended February 29, 2020. The Company is not subject to any externally imposed capital requirements.
In order to maintain its capital structure, the Company is dependent on equity and/or debt funding and, when necessary, raises capital through the issuance of equity instruments, comprised of common shares, warrants, and incentive stock options, and through the issuance of debt instruments. The Company reviews its capital management methods and requirements on an ongoing basis and makes adjustments accordingly.
Capital Transactions
Year ended February 29, 2020 and the year ended February 28, 2019.
On March 21, 2019, the Company issued 2,771,211 shares at a price of \$0.07 per share for a total of \$193,985 to settle debts and 857,143 shares at a price of \$0.07 per share for a total of \$60,000 in exchange for services provided.
On June 28, 2019, the Company issued an aggregate of 22,825,940 units at a price of \$0.05 per unit, including 22,325,940 units issued to Mark Itwaru, CEO of the Company for gross proceeds of \$1,141,298. Each paid unit consisted of one common share and one common share purchase warrant of the Company. Each warrant is exercisable to purchase one additional common share of the Company at an exercise price of \$0.10 per share for a period of 24 months from the date of issuance. The common shares and warrants were subject to a four month hold period. The Company allocated \$786,721 to share capital and \$354,577 to warrants reserve based on a relative fair value basis. The relative fair value of the warrants was calculated using the following inputs to the Black-Scholes model: Stock price \$0.03; Exercise price \$0.1; Dividend Yield Nil; Expected volatility – 126.3% to 145.5%; Risk free interest rate – 1.49%; and Expected life – 1 to 2 years.
In July 2019, the Company has also received notification from holders of the Company's senior secured convertible debentures seeking conversion of part of their holdings. The debentures issued in a series of two (2) tranches on December 27, 2018 and January 11, 2019 have a term of two years and bear interest at a rate of 8% per annum. Total proceeds from both the tranches came to a total of \$525,000, of which \$125,000 of the note was converted at a price of \$0.05 whereby a total of 2,500,000 shares were issued to holders of the debenture.
On January 13, 2020, The Company issued an aggregate of 37,141,340 units at a price of \$0.05 per unit to Mark Itwaru, the Chief Executive Officer of the Company for gross proceeds of \$1,857,067. Each unit consists of one common share and one half of a common share purchase warrant of the Company. Each whole warrant is exercisable to purchase one additional common share of the Company at an exercise price of \$0.075 per share for a period of 12 months from the date of issuance. The common shares and warrants were subject to a four month hold period. The Company used Black Scholes model for calculation of fair value of warrants. The relative fair value allocated to warrants was \$ 480,380. The relative fair value of the warrants was calculated using the following inputs to the Black-Scholes model: Stock price \$0.13; Exercise price \$0.075; Dividend Yield Nil; Expected volatility – 164.0%; Risk free interest rate – 1.69%; and Expected life – 1 year.
On February 13, 2020, The Company issued an aggregate of 6,200,000 units at a price of \$0.05 per unit to Mark Itwaru, the Chief Executive Officer of the Company and other investors for gross proceeds of \$310,000. Each unit consists of one common share and one half of a common share purchase warrant of the Company. Each whole warrant is exercisable to purchase one additional common share of the Company at an exercise price of \$0.075 per share for a period of 12 months from the date of issuance. The common shares and warrants were subject to a four month hold period. The Company used the Black Scholes model for calculation of fair value of warrants. The relative fair value allocated to warrants was \$75,141. The relative fair value of the warrants was calculated using
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the following inputs to the Black-Scholes model: Stock price \$0.06; Exercise price \$0.075; Dividend Yield Nil; Expected volatility – 196.6%; Risk free interest rate – 1.55%; and Expected life – 1 year.
Disclosure of Outstanding Share Data
The Company had the following shares and securities convertible into shares outstanding at the following dates:
| February 29, 2020 |
February 28, 2019 |
|
|---|---|---|
| Common Shares | 321,839,359 | 243,636,725 |
| Warrants, convertible into Common Shares | 57,069,110 | 16,222,500 |
| Stock Options, convertible into Common Shares | 45,903,633 | 7,182,831 |
| Total Outstanding | 424,812,102 | 267,042,056 |
See "Notes to the Consolidated Financial Statements for the year ended February 29, 2020 and the year ended February 28, 2019".
RELATED PARTY TRANSACTIONS
Related party transactions are in the normal course of business and are measured at the exchange amount which is the amount of consideration established by and agreed to by the related parties. Related party transactions for the year ended February 29, 2020, are as follows:
a) The Company paid \$450,000 (2019 - \$150,000) in consulting fees to Riavera Corp., a company owned by the controlling shareholder of the Company (CEO of Personas Social), in relation to management consulting and technology integration services. The balance is unsecured, non -interest bearing with no set terms of repayment.
Key management compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise). The compensation paid to key management , which included all directors as well as Chief Executive Officer and Chief Financial Officer for the year ended February 29, 2020, was \$1,364,144 (year ended February 28, 2019: \$297,461) included in wages and benefits. The amount is inclusive of stock based compensation expense of \$873,628 (February 28, 2019: Nil).
SUBSEQUENT EVENTS
The following significant transactions occurred subsequent to year ended February 29, 2020:
- a) On July 13, 2020 Personas Social Incorporated held a special meeting of its shareholders and announced that it has formally changed its name to "Personas Social Incorporated" and also changed its fiscal year end date of February 28 to December 31;
- b) The Company may be impacted by business interruptions resulting from pandemics and public health emergencies, including those related to COVID-19. An outbreak of infectious disease, a pandemic, or a similar public health threat, such as the recent outbreak of COVID-19, or a fear of any of the foregoing, could adversely impact the Company and its investees by causing operating, supply chain, and project development delays and disruptions, labour shortages, travel, and shipping disruption and shutdowns (including as a result of government regulation and prevention measures). Global markets have experienced significant volatility and weakness. Governments and central banks have reacted with
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significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID19 outbreak is unknown currently, as is the efficacy of the government and central bank interventions. Presently, it is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operations in future periods. The Company has not recorded any impairment or adjustments. The Company is monitoring for possible disruptions to the businesses as a result of COVID‐19. The extent of any disruption and the long‐term consequences is not yet clear.
OFF-BALANCE SHEET ARRANGEMENTS
The company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
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INVESTOR RELATIONS
Investor relations were performed by the Company for year ended February 29, 2020.
SEGMENTED INFORMATION
The Company operates in one operating segment. Management assesses performance and makes decisions about allocating resources based on this one business segment. All of the Company's assets are located in Canada. The following table shows the revenue for year ended February 29, 2020 and the year ended February 28, 2019 based on the geographic location of the customer:
Revenue based on the geographic location of the customer (\$)
| February 29, 2020 | February 28, 2019 | |
|---|---|---|
| Canada | \$70,012 | \$205,775 |
| United States | 1,994,646 | 5,601,644 |
| Africa, The Middle East, and India | 566,518 | 948,850 |
| Europe | 164,232 | 509,864 |
| Other | 84,539 | 122,207 |
| Total | \$2,879,947 | \$7,388,340 |
CHANGES IN ACCOUNTING POLICIES INCLUDING INTITIAL ADOPTION
IFRS 16 Leases
The Company has adopted IFRS 16 with an initial adoption date of March 1, 2019. The Company used the modified retrospective method to adopt the new standard and therefore, the comparative information has not been restated and continues to be reported under IAS 17 and related interpretations.
IFRS 16 specifies how leases will be recognized, measured, presented and disclosed and it provides a single lessee model, requiring lessees to recognize right-of-use assets and lease liabilities for all major leases. The Company's accounting policy under IFRS 16 is as follows:
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of use asset or the lease term using the straightline method. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the right-of-use asset can be periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's borrowing rate. The Company used its borrowing rate as the discount rate.
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The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.
Under the lessor capacity, at inception of a contract, the Company recognizes assets held under a finance lease in its statement of financial position by derecognizing the underlying asset, and recognizing a financial lease receivable at an amount equal to the net investment in the lease, which equals the gross investment in the lease discounted at the interest rate implicit in the lease. Finance income is recognized over the lease term in a systematic and rational basis by applying a constant periodic rate of return to the lessor's net investment in the lease. The lease payments received in the period are applied against the gross investment in the lease to reduce both the principal and the unearned finance income.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair Values
The carrying value of cash, accounts receivable, accounts payable and accrued liabilities, customer deposits, shortterm loans payable, and due to related parties approximate their fair values due to the short-term maturities of these instruments. Fair value represents the amount that would be exchanged in an arm's length transaction between willing parties and is best evidenced by a quoted market price, if one exists. The fair values of the secured notes approximate their carrying amounts as they bear terms similar to that of comparable instruments.
The Company follows a three tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company's investments. The hierarchy is summarized as:
- Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities
- Level 2 inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data
- Level 3 inputs for assets and liabilities not based upon observable market data
As at February 29, 2020, and February 28, 2019, cash was carried at Level 1 in the fair value hierarchy.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company's interest rate risk is primarily related to the Company's interest-bearing debts on its consolidated statements of financial position. The secured notes bear interest at fixed rates of 12% and 15%, and the short-term loans payable bear interest at a fixed rate of 10%, and as such, are not subject to cash flow interest rate risk resulting from market fluctuations thereby minimizing the Company's exposure to cash flow interest rate risk.
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Foreign Currency Risk
The Company is subject to foreign exchange rate risk as it enters into transactions denominated in currencies other than the Company's functional currency, which is the Canadian dollar. The maximum exposure to foreign currency risk is equal to amounts held in foreign currencies at the Statement of Financial Position date. As at the reporting date only trade receivables of the Company had exposure to currency risk being represented in USD. As on February 29, 2020 Company has USD 75,949 (2019: USD 398,671) in trade receivables.
If the Canadian dollar had gained or lost 5% against USD, the increase (decrease) in profit and loss for the year ended February 29, 2020 would have been CAD 5,099 ( 2019: CAD 26,250).
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure as outlined in Note 20(e) to the consolidated financial statements. The Company has revenue from operations however continues to rely on equity and debt funding to support its growth and corporate activities. Should the need for further equity or debt funding arise, there is a risk that the Company may not be able to sell new common shares at an acceptable price or debt instruments at an acceptable interest rate level.
The Company has sustained losses over the last number of periods and has financed these losses mainly through a combination of equity and debt offerings. The Company has sustained losses over the last number of periods and has financed these losses mainly through a combination of equity and debt offerings. Management has been able to raise sufficient funds to finance its operations in the past through private placements of both equity and debt and believes that it has the ability to raise sufficient cash to meet all of its contractual debt that is coming due in 2020 and to fund any operating losses that may occur in the upcoming periods.
With the exception on of the contractual obligations for lease liabilities disclosed in Note 17, all contractual obligations are due within one year.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge their obligations. Financial instruments that potentially expose the Company to this risk consist of cash, trade receivables, and finance lease receivables. The Company's cash is on deposit with Canadian Tier 1 chartered banks therefore the associated credit risk is low. Trade receivable, and finance lease receivables are in the normal course of business. The Company's maximum exposure to credit loss is the carrying amount of financial assets at the reporting date, as summarised below:
| February 29, | February 28, | |
|---|---|---|
| 2020 | 2019 | |
| \$ | \$ | |
| Cash | \$ 28,479 |
\$ 99,878 |
| Trade receivables | 116,252 | 509,296 |
| Finance lease receivable | 752,208 | - |
| Total | \$ 896,939 | \$ 609,174 |
The Company reviews the banks and financial institutions it deals with to ensure that standards of credit worthiness are maintained. Trade receivables are with large credit card processing companies with stable financial conditions thereby mitigating company's credit risk. Historically, the company has not suffered any material losses related to credit risk. The Company believes it is not exposed to significant credit risk.
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Other Risks and Uncertainty
- If the Company is unable to advance its product and technology, specifically in the transition to the livestreaming space, its technology may become obsolete with significant impact to its ability to raise additional capital.
- If the Company is unable to compete effectively for users and advertiser spend, its business and operating results will be harmed.
- The Company has incurred significant operating losses in the past, and it may not be able to achieve or subsequently maintain profitability.
- The Company has a limited operating history in a new and unproven market for its platform, which makes it difficult to evaluate its future prospects and may increase the risk that it will not be successful.
- If the Company fails to grow its user base, or if user engagement or ad engagement on its platform declines, its revenue, business and operating results may be harmed.
- The Company's products and services may contain undetected software errors, which could harm its business and operating results.
- Regulatory investigations and settlements could cause the Company to incur additional expenses or change its business practices in a manner materially adverse to its business.
- Privacy concerns relating to the Company's products and services could damage its reputation and deter current and potential users and advertisers from using the products and services.
- The Company may face lawsuits or incur liability as a result of content published or made available through its products and services.
- The Company's intellectual property rights are valuable, and any inability to protect them could reduce the value of its products, services and brand.
- The Company requires additional capital to support its operations and the growth of its business, and it cannot be certain that this capital will be available on reasonable terms.
Investors should carefully consider the risks and uncertainties described above and in the financial statements. The risks and uncertainties described in the Company's financial statements and MD&A are not the only ones it faces. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect its business. For a more complete discussion of the risks and uncertainties which apply to the Company's business and its operating results, please see the Company's Management Information Circulars and other filings with Canadian securities regulatory authorities on SEDAR at www.sedar.com.
ADDITIONAL INFORMATION:
Additional information relating to the Company including the unaudited interim consolidated financial statements For the year ended February 29, 2020, the audited consolidated annual financial statements of Personas Social Incorporated for the year ended February 28, 2019, Management Information Circulars, and press releases issued by the Company, are available under the Company's profile on SEDAR at www.sedar.com or at investors.k.to.