AI assistant
GBLT Corp. — Management Reports 2022
Apr 28, 2022
47323_rns_2022-04-28_c012880c-8201-40e2-ac2a-b8519fe25d5b.pdf
Management Reports
Open in viewerOpens in your device viewer
GBLT CORP. MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2021
General
This Management’s Discussion and Analysis (“MD&A”) of GBLT Corp. (the “Company” or “GBLT”) is dated April 28, 2022 and provides an analysis of the GBLT’s financial results for the years ended December 31, 2021 and 2020. The following information should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2021, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, including statements regarding developments in the Company’s operations in future periods, adequacy of financial resources and future plans and objectives of Company. Actual results could differ materially from those discussed in these forward-looking statements due to a number of factors. There can be no assurance that such information will prove to be accurate, and readers are cautioned not to place undue reliance on this forward-looking information.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, including statements regarding developments in the Company’s operations in future periods, adequacy of financial resources and future plans and objectives of Company. Actual results could differ materially from those discussed in these forward-looking statements due to a number of factors. There can be no assurance that such information will prove to be accurate, and readers are cautioned not to place undue reliance on this forward-looking information.
All dollar figures are expressed in Euros unless otherwise stated.
Cautionary Statement Regarding Forward-Looking Statements
This report includes forward-looking statements about our activities, events and developments that we expect to, or anticipate may occur in the future including, for example, statements about our business outlook, assessment of market conditions, strategies, future plans and future sales. Forward-looking statements normally contain words like believe, expect, anticipate, plan, intend, continue, estimate, may, will, should and similar expressions. Such statements are not guarantees of future performance. They are based on management’s expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate in the circumstances.
We have based these statements on estimates and assumptions that we believed were reasonable when the statements were prepared. Our actual results could be substantially different because of the risks and uncertainties associated with our business. Important risks that could cause such differences include, but are not limited to, the length of sales cycles, rapid technological advancement, competition, the availability of critical inputs, foreign exchange rate occurrences and doing business in foreign countries. Additionally, differences could arise because of events that are announced or completed after the date of this report, including mergers, acquisitions, other business combinations and divestitures.
Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of the Company. Accordingly, readers should not place undue reliance on forward-looking statements or information. The Company undertakes no obligation to reissue or update any forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information herein are qualified by this cautionary statement.
Description of Business
GBLT Corp. (the “Company” or “GBLT”) was incorporated under the Business Corporation Act (Ontario) on December 19, 2014. The registered office is located at 4100-66 Wellington Street West, Toronto, Ontario, M5K 1B7, Canada.
Through its subsidiary, GBT German Battery Trading GmbH (“GBT”), manufactures and distributes a wide range of proprietary mobile power products including batteries, mobile storage systems, digital displays and LED lighting products. GBLT has brought to market mobile storage solutions that use lithium battery technology through world class brand names such as Polaroid, Kodak, and legacy brands GBT and AGFAPHOTO. Under the Dr. Senst brand they
1
manufacture and distribute Personal Protection equipment (PPE). Their product ranges combine basic electronical and basic consumer PPE products for mainly fragmented product categories.
Overview and products
GBLT Corp. (the “Company” or “GBLT”), is a leading Manufacturer AND LICENSEE of high-quality mobile energy, consumable batteries and electronics and light, including LED products, under the brands “AGFAPHOTO” “POLAROID/AVIDE and “KODAK”. Additionally, GBT increased its medical consumable range under the brand “DR:SENST”. All brands offer excellent brand recognition amongst retail and commercial customers. Its products can be found in supermarkets, department stores, drugstores, convenience stores, petrol stations etc. Governments, public services or big industrial customers are supplied by GBLT as well.
KODAK
GBT is the global licensee for KODAK mobile lithium-based storage systems and solar panels as well as a licensee for GBT´s home market for household storage systems. Besides the 100 % brand recognition of the KODAK brand, KODAK is a brand which increases the potential range of distribution channels by being a reliable brand partner for construction or DiY.
Avide / ENTAC
Together with a partner GBT created the brand of Avide / ENTAC lighting products, these brands are expanding steadily and are already represented in Europe, Africa and Australia. Since the ban on the sale of light bulbs and the disadvantages of the energy saving lamp (for example, delay in switching on, harmful substances), the sale of LED lamps has been rising steadily. Avide / ENTAC LED Lighting is established in this billion-dollar market with innovative products and promotes continuous development.
Dr Senst
The Dr. Senst brand was developed 5 years ago for the supply of personal protection consumables into the professional, medical sector. The brand hosts a wide range of articles for personal health protection available to professional users and private households. From face masks to disinfectants, from insect repellants to protective gloves. In addition to be a unique brand Dr. Senst offers electronical PPE products like fever thermometer, blood pressure oximeter etc. To keep up with the growth of this category, the Company continuously launches new products. With unique selling points while especially for PPE liquids we have a access to a patented technology. Focus is to enter globally fragmented product categories where we see a huge demand for a “new” German brand.
Private Label
GBLT is the manufacturer for a range of “private label” products that can be found on the shelves of leading supermarkets and do-it-yourself chains or e-commerce etc. under the customers own branding with competitive pricing. The Company uses state-of-the-art production facilities in Asia that are equally used by its competitors Philips, Osram, Panasonic and Varta, offering the same product quality as these brands. Whether chip-on-glass technology, the latest LED tubes, new battery chemical systems, or medical products (including hearing aid batteries and high quality latex gloves) – the innovations and trends come from factories of GBLT Corp.
AGFAPHOTO
As a global licensee of the brand name AGFAPHOTO, GBLT manufactures and distributes a wide range of mobile energy products worldwide, such as batteries, rechargeable batteries and chargers, at the same time increasing brand awareness throughout the world. Products can be found in supermarkets, department stores, drugstores, convenience stores, petrol stations etc. Governments, public services or big industrial customers are supplied by GBLT as well. With the change of ownership of Duracell, Varta, Panasonic there will be massively more growth possibilities for our Agfaphoto brand activities, we see lower competition in an increasing market.
The Company continues to expand its product offerings of mobile storage and battery solutions while continuously striving to add new products to its portfolio. This includes the launch of multimedia products not previously offered by GBLT and in partnership with a global brand.
Highlights for the year ended December 31, 2021 to the date of this MD&A
Financial highlights:
-
Revenues of €31,112,337 for the year ended December 31, 2021, an increase of 30% from 2020;
-
Net loss of €173,775 for the year ended December 31, 2021, due to one-time write-offs and fees of €419,370,
-
• EBITDA of €32,556 and adjusted EBITDA of €671,148 for the year ended December 31, 2021.
2
Operational Highlights
January 19, 2021 - The Company received an order of €1.4m for Dr. Senst branded thermometers from one of Europe’s largest retailer chains. GBLT anticipates delivering this order in late Q1’21 and into early Q2’21. This is the Company’s third order for thermometers from this major retailer, with GBLT now having received a total of €2.8m in thermometer orders from this client. This third order will see Dr. Senst branded thermometers delivered to European countries that had not been previously carrying the Dr. Senst brand. This continues a planned expansion by the retailer of Dr. Senst Personal Protective Equipment (“PPE”) into stores throughout Europe for their chain of stores. The Company anticipates additional orders throughout the remainder of this year as well as continued delivery of FFP2 masks.
January 21, 2021 - The Company received an order of USD $4.8 million from one of Europe’s biggest mass merchandisers to provide private label batteries. This merchandiser had previously been a client of GBLT’s however this is the first time they have selected GBLT as a vendor without having an open tender process.
February 2, 2021 - The Company has added a proprietary line of insect repellent products to its Dr. Senst brand of Personal Protective Equipment (“PPE”) solutions. The addition of this new and innovative product line results from successful adoption and strong brand loyalty from existing Dr. Senst branded PPE products, including thermometers and masks, that are currently for sale through Europe’s largest retailers.
February 18, 2021 - The Company received a follow-on order of USD $2.7 million from one of Europe’s biggest mass merchandisers to provide private label batteries. This merchandiser had previously placed an order for USD $4.8m as announced on January 21st, 2021 and has now placed a follow-on order due to overwhelming customer demand.
March 12, 2021 - As a result of a strategic partnership and overwhelming customer demand, the Company will relaunch its Solar Energy division. GBLT, in partnership with German engineering firm Gebäude Technologie Center GmbH, will deliver solar panel hardware to one of Europe’s largest chemicals & consumer goods. The initial order received is for €200,000.
March 30, 2021 - The Company received an order for LED torches to one of the five largest global retailers. The €780,000 order is part of a promotional program that will run throughout the second half of 2021 and will be labelled under a popular brand flashlight and lifestyle products.
April 20, 2021 - The Company received an order of USD $20.4 million from a global mass merchandiser to become the exclusive provider of private label batteries over a period of three years. This global merchandiser most recently purchased a combined $7.5 million in private label batteries, as previously announced on January 21st, 2021.
June 8, 2021- The Company received an order for USD $3.3m for private label batteries, deliverable in 2021, from one of the five largest drug store chains (the “Client”) in the world. GBLT had previously been supplying this Client with mobile energy solutions.
June 29, 2021 – The Company announced that it expanded its licensee agreement with AgfaPhoto Holding GmbH (“AgfaPhoto”) to allow GBLT to provide AgfaPhoto’s entire suite of mobile energy and storage solutions products globally. As a result of overwhelming demand for AgfaPhoto products delivered to GBLT customers in Europe, AgfaPhoto has extended the term of the license to December 31, 2026 that was initially scheduled to terminate at the end of 2022 while expanding the scope of the agreement to cover the entire globe in addition to increasing the range of products that can be sold by GBLT.
July 6, 2021 – The Company received an additional order of USD $2.5m for private label batteries, deliverable in Q3 & Q4 2021, from the Client. This is the second order from the Client in 2021 and marks a significant expansion from the initial order of USD $3.3m and significantly exceeds the expected order size.
July 29, 2021 – The Company received an order for its proprietary Dr. Senst branded thermometers from one of the world’s largest retailers, amounting to €4.4m. The order is deliverable in the first half of 2022 and represents continued market penetration of the Company’s growing Dr. Senst branded healthcare solutions in Germany, Italy, France and Poland.
August 9, 2021 – The Company received an initial order of USD $235,000 for new line of rechargeable battery products. The order comes from an existing client, a global mass merchandiser, that has currently engaged GBLT to deliver their line of private battery solutions with a $20.4m contract to be delivered over the next three years. With 360,000 employees globally and 63 billion euros in annual turnover, this client is one of the largest retailers globally. The rechargeable battery market reached a value of USD $94.6B in 2020 and is expected to exhibit continued growth into 2026.
3
September 13, 2021 – The Company received an order for USD $237,000 for battery chargers from a global retailer and one of the three largest merchandisers in Germany (the “Client”). This is a new product offering for the Client and marks an expansion into environmentally friendly battery solutions. The Client had previously ordered private label batteries from GBLT and this new product continues to broaden GBLT’s position within the organization.
September 22, 2021- The Company received an order for €2.1m (CDN $3.2m) from Europe’s largest retailer to deliver the Company’s newest product line, Dr. Senst branded blood pressure monitors and nebulizers. Products will be sold in markets that include France, Spain, Portugal and Italy and GBLT expects to distribute these products in additional markets going forward.
October 21, 2021 – The Company received TSX Venture Exchange acceptance of the debt conversion agreements with its four directors in respect of director sitting fees for the three months ended March 31, 2021 and the three months ended June 30, 2021. Pursuant to the agreements each director has agreed to accept 17,857 common shares at a price of $0.21 per share in satisfaction of CAD$3,750 of indebtedness owed to each director. The shares were issued on October 18, 2021 and are subject to the statutory hold period of four months and one day.
November 22, 2021 – The Company received an order for USD $3.9 million from the one of the biggest retail chains in Germany for private label batteries, delivered over the course of 2022. This marks continued expansion for the Company within existing retailer accounts, and with over 10,000 stores throughout Europe, further expands GBLT’s presence with consumers.
January 11, 2022 – The Company announced the acquisition of a majority stake in Gebäude Technologie Center (“GTC”), an engineering company focused on the renewable energy and solar panel industry. Through the acquisition, GBLT anticipates additional revenue of approximately €2m and over €275,000 in Adjusted EBITDA in fiscal year 2022. GTC has a dedicated team of top engineers and is well known for premium and innovative planning and solutions. GTC offers private installations of solar panels for residential homes, and is currently expanding into industrial and commercial projects, supported by an existing contract with one of the largest industrial companies in Germany.
February 22, 2022 – The Company entered into debt conversion agreements with its four directors in respect of director sitting fees for the three months ended September 30, 2021 and the three months ended December 31, 2021. Pursuant to the agreements each director has agreed to accept 37,500 common shares at a price of $0.10 per share in satisfaction of $3,750 of indebtedness owed to each director.
Annual Information
| For the years ended | 2021 | 2020 | 2019 |
|---|---|---|---|
| € | € | € | |
| Revenue | 31,112,337 | 23,796,735 | 20,428,698 |
| Expenses | 2,718,202 | 2,344,631 | 1,900,425 |
| Net income (loss) | (173,775) | 527,478 | (995,895) |
| Basic and fully diluted loss per share | (0.00) | (0.00) | (0.01) |
| Cash flows from (used in) operating activities | (810,896) | 39,444 | 324,545 |
| Cash flows from (used in) investing activities | (27,383) | 62,917 | (1,564) |
| Cash flows from (used in) financing activities | 1,031,205 | (252,599) | (92,373) |
| Increase (decrease) in cash in year | 332,828 | (150,238) | 230,608 |
| **As at December 31 ** | 2021 | 2020 | 2019 |
| Total Assets | 7,129,438 | 6,015,169 | 7,222,325 |
| Total long-term financial liabilities | 234,792 | 572,714 | 8,140,239 |
| Cash dividends declared for all classes of shares | Nil | Nil | Nil |
Results of Operations
For the year ended December 31, 2021, the Company recorded a net (loss) of €(173,775) compared to a net income of €527,478 for the year ended December 31, 2020.
In 2021, the Company achieved record revenues of €31,112,337 compared to €23,796,735 in 2020.
4
The gross margins in 2021 were 8% compared to 12% in 2020. In 2020, as a result of a significant order of high margin masks (related to COVID-19), overall margin for 2020 was above normal levels. In general, the margins continue to improve, but were offset by increased logistic costs.
The Company focused on growing its core business of mobile products and PPE products. The efforts were slowed by COVID-19 in Q1 2020 (which is why revenue for 2020 is comparatively low), but began showing results in the second half of 2020 and continue to grow in 2021.
The increase in revenue for 2021, was the result of the increasing demand for the Company’s Dr. Senst brand and mobile energy products, as many of the Company’s battery customers in Germany were able to stay open during the COVID-19 restrictions in 2021. Q1 2020 was negatively affected by COVID-19 and related logistic issues.
The Company also launched some new PPE Dr. Senst products to the European market. In 2021 the Company successfully entered the market with DR. Senst electronic PPE products, and thermometers, after introducing masks in 2020.
Financial summary of 2021 and 2020 are as follows:
| December 31, | December 31, | |||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Revenue | € | 31,112,337 | € | 23,796,735 |
| Cost of Sales | 28,567,910 | 20,916,680 | ||
| Gross Margin | 2,544,427 | 2,880,055 | ||
| Expenses | ||||
| Marketing and travel | 164,055 | 82,919 | ||
| Wages | 732,859 | 601,654 | ||
| Professional fees | 142,961 | 177,332 | ||
| Interest and bank charges | 156,124 | 101,709 | ||
| General and administrative | 665,981 | 714,352 | ||
| Bad debt expense and factoring fees | 419,370 | 608,825 | ||
| Rent expense | 13,917 | 9,368 | ||
| Consulting fees | 122,523 | 72,216 | ||
| Depreciation | 50,207 | 52,036 | ||
| Foreign exchange (gain) loss | 100,652 | (117,148) | ||
| Listing and filing fees | 30,983 | 26,620 | ||
| Share based payments | 118,570 | 14,748 | ||
| Totalexpenses | 2,718,202 | 2,344,631 | ||
| Income (Loss) before Other Items | (173,775) | 535,424 | ||
| Other Items | ||||
| Loss on accounts payable settlement | - | (7,946) | ||
| Net Income (Loss) | (173,775) | 527,478 |
Operating expenses have stayed within management’s expectations and operating budgets. Marketing and travel, comprised of advertising and vehicle expenses, remained low as a result of travel restrictions in place from COVID-19. The Company expects marketing and travel expenditures to increase as restrictions are lifted and as it works to build out the GBLT brand and awareness of it to increase sales. Wages increased due to additional staff hired to support the increased level of activity. Professional fees are mainly comprised on legal and other fees for public company disclosure obligations. The decrease in general and administrative is due to the efforts to reduce discretionary expenses and relate to the expenses needed to support the day-today administrative operations. The increase in consulting fees resulted from the commencement of an investor relations program initiated in the second half of 2020. Share based payments represent the value of stock options that vested during 2021.
Comprehensive (loss) income in 2021 was €(318,496) compared to a comprehensive income for 2020 of €466,808. The difference between the net income and comprehensive income, is due to the impact of a foreign exchange gain/loss, and an impairment loss (in 2020).
Reconciliation of Adjusted EBITDA
Adjusted EBITDA is a non-IFRS financial measure that we calculate as income (loss) before income taxes excluding depreciation and amortization, bad debt provision, non- recurring non-operating expenses, interest expense, and share based payments. Adjusted EBITDA is a measure used by management and the Board to understand and evaluate our core operating performance and trends. This measure differs from contribution in that adjusted EBITDA includes
5
additional operating costs, such as general and administration expenses and marketing, but excludes funding interest costs.
The following table presents a reconciliation of adjusted EBITDA to loss before income taxes, the most comparable IFRS financial measure for each of the periods indicated:
| EBITDA | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Net Income (Loss) for the Period | € | (173,775) | € | 527,478 |
| Depreciation | 50,207 | 52,036 | ||
| Interest | 156,124 | 101,709 | ||
| EBITDA | € | 32,556 | € | 681,223 |
| Bad debt expense | 419,370 | 608,825 | ||
| Currency exchange (gain) loss | 100,652 | (117,148) | ||
| Share basedpayments | 118,570 | 14,748 | ||
| Adjusted EBITDA | € | 671,148 | € | 1,187,648 |
Summary of Quarterly Results
The table below presents selected financial data for the Company’s four most recently completed quarters, all prepared in accordance with IFRS.
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
|---|---|---|---|---|---|---|---|---|
| 2021 | 2021 | 2021 | 2021 | 2020 | 2020 | 2020 | 2020 | |
| € | € | € | € | € | € | € | € | |
| Financial Results | ||||||||
| Revenue | 7,956,477 | 7,842,562 | 6,497,773 | 8,815,525 | 4,277,330 | 9,746,182 | 7,132,450 | 2,640,773 |
| Gross Profit | 312,570 | 569,694 | 803,203 | 858,960 | 580,307 | 973,397 | 1,234,525 | 91,826 |
| Total Expenses | -991,139 | -531,861 | -737,973 | -457,229 | -984,455 | -404,477 | -618,417 | -337,282 |
| Net Income (Loss) | -703,239 | 37,833 | 89,900 | 401,731 | -418,792 | 575,618 | 616,108 | -245,456 |
| Basic and diluted income (loss) per share |
0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.01 | 0.00 | 0.00 |
| Financial Position | ||||||||
| Total Assets | 7,129,438 | 8,649,298 | 4,845,651 | 6,078,320 | 6,015,169 | 7,514,121 | 6,590,981 | 4,123,978 |
| Total Liabilities | 7,705,318 | 8,544,143 | 4,771,293 | 6,095,439 | 6,416,765 | 7,486,852 | 7,159,060 | 5,293,896 |
| - | ||||||||
| Shareholders’ Equity | -575,880 | 105,155 | 74,358 | -17,119 | -401,596 | 27,269 | -568,080 | 1,169,918 |
Discussion of Quarterly Results
Revenue
Revenue typically shows a certain seasonality with the quarter ended March 31 showing the lowest revenue in a given cycle. Q1 2020 was also negatively impacted by the outbreak of COVID-19. The Company expects to receive increased purchase orders from all existent costumers. Furthermore, with the introduction of new product categories the Company is confident that it will be able to meet customer demands better, which will result in revenue increase in the future.
Gross Profit and Margins
Gross margin for Q1 2020 were impacted by COVID-19, and then increased in Q2 and Q3 with higher margin sales (ie Dr. Senst product line of COVID masks). 2021, gross margins returned to more expected levels
6
Q4 2021
For the three months ended December 31, 2021 the Company recorded revenue of €7,956,477, gross profit €312,570 and a net loss of €703,239. The primary reasons for the net loss during the quarter was a one-time bad debt expense of €79,907 from GBLT Africa (due to the further impact of COVID-19), €100,652 negative impact of foreign exchange, and €118,570 of share-based compensation related to the vesting of stock options.
Liquidity and Capital Resources
As at December 31 2021, the Company had cash of €580,253 (December 31, 2020 - €387,327) and a working capital deficit of €748,585 (December 31, 2020 – working capital deficit €229,425).
Cash (used in) from operating activities in 2021 was €(669,276) compared to cash from operating activities of €39,444 in 2020. The main items that caused the increase was more cash was required for working capital items. The Company placed a large deposit of over €900,000 for the purchase of inventory required to support sales orders, which were delivered subsequent to the year end.
Cash (used in) provided by investing activities was €(27,383) in 2021 for acquisition of equipment and loan advance. In 2020, the Company received €65,845 in loan advances.
Cash from (used in) financing activities was €1,029,487 in 2021 compared to €(252,599) in 2020. Cash from financing activities in 2021 was primarily related to proceeds of a short-term loan of €1,000,000 received for the purpose of inventory acquisition. Other financing activity included advances from related parties, and draws on the line of credit, offset by lease liability payments.
In 2020 the Company managed to get an increase of their factoring credit line from €700,000 to €2,500,000 to help further growth with big global retailers. In 2021, the Company received a €1,000,000 loan, as well as some advances from related parties, so help alleviate any cash flow issues.
Management cannot provide any assurance that the Company will achieve continuous profitable operations, continued to be cash flow positive or will be able to raise additional debt and/or equity capital. Management intends to continue to support the operations as needed with financing initiatives primarily through, but not limited to, operating cash flow, the issuance of equity, which the Company was successful in completing in the past. Alternative financing options may include obtaining bank credit facilities and short-term loans from third parties. If the Company is unable to raise additional capital in the future, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Commitments and Contingencies
The Company has entered into key licensing contracts on its products. Under these arrangements, the Company is required to pay sale-based royalties of between 3%-5%. The Company is required to make future minimum royalty payments, excluding any optional renewal periods, as follows:
| December, 2021 | ||
|---|---|---|
| 2022 | € | 20,000 |
| Total | € | 20,000 |
As of the date of this MD&A, the Company is in the process of renegotiating some of its licensing agreements, and some commitments may decrease or increase in the near term as a result.
Capital Structure
As at the date of this MD&A, the Company has 113,478,090 common shares issued and outstanding.
7
Stock Options
The following table summarizes the options outstanding at the date of this MD&A:
| Number of options | Exercise price | Expiry date |
|---|---|---|
| 5,584,713 | € 0.0343 | March 22, 2023 |
| 450,000 | 0.0325 | August 7, 2025 |
| 6,034,713 | € 0.0343 |
The remaining contractual life of the outstanding options at December 31, 2021 is 1.45 years.
Warrants
No warrants are outstanding at the date of this MD&A.
Use of Financial Instruments
The Company classifies all financial instruments as either financial assets or liabilities at fair value through profit or loss (“FVTPL”), loans and receivables or other financial liabilities. Loans and receivables and other financial instruments are measured at amortized cost.
The Company has designated its cash as FVTPL, which is measured at fair value. Trade receivables and other receivables are classified as loans and receivables, which are measured at amortized cost. Trade and other payables are classified as other financial liabilities which are measured at amortized cost.
Financial Risk Management
The Company’s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk. These risks arise from the normal course of operations and all transactions are undertaken to support the Company’s ability to continue as a going concern. Risk management is carried out by management under policies approved by the Board of Directors. Management identifies and evaluates the financial risks in cooperation with the Company’s operating units. The Company’s overall risk management program seeks to minimize potential adverse effects on the Company’s financial performance, in the context of its general capital management objectives.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is in its cash accounts, accounts receivable and loans receivable. This risk related to cash is managed through the use of a major financial institution which has high credit quality as determined by the rating agencies. Accounts receivable mainly consists of receivables from its customers.
In order to reduce its credit risk related to accounts receivable, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit limits. In some cases, the Company requires bank letters of credit or subscribes to credit insurance.
As at December 31, 2021, 21% of the Company’s trade receivable balance is over 90 days past due (2020 - 22%). The carrying amounts of accounts receivable and loans receivable as at December 31, 2021 is €3,221,414 (2020 - €3,001,406).
As at December 31, 2021, three of the Company's customers individually constituted more than 10% of the total trade receivable balance (2020 - three customers).
Credit risk associated with accounts receivable is considered medium.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.
8
The Company’s ongoing liquidity is impacted by various external events and conditions. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows, as well as future equity and debt financing.
The Company coordinates this planning and budgeting process with its financing activities through the capital management process described in Note 19 of the financial statements for the year ended December 31, 2021. The Company’s financial liabilities are comprised of its trade payables, loans payable and amounts due to related parties.
Liquidity risk is assessed as high.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in market interest rate.
Although the Company has bank indebtedness subject to a variable interest rate the Company has no significant exposure at December 31, 2021 or December 31, 2020 to interest rate risk through its financial instruments.
Currency Risk
Currency risk is the risk that the Company will be subject to foreign currency fluctuations in satisfying obligations related to its foreign activities. The Company’s manages its foreign currency risk by holding a portion of its cash and cash equivalents in US dollars. The following is an analysis of the Euro equivalent of financial assets and liabilities that are denominated in US and CAD dollars as at December 31, 2021 and December 31, 2020:
| December 31, 2021 December 31, 2020 |
|
|---|---|
| Cash Accounts receivable Accounts payable Debentures |
€ 3,747 € 226,430 2,361,665 2,136,713 (3,327,932) (3,351,332) (177,188) (160,173) |
| € (1,139,708) € (1,148,362) |
Off-Balance Sheet Arrangements
The Corporation has no off-balance sheet arrangements.
Related Party Transactions
Parties are considered to be related, if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Due to Related Parties:
Parties are considered to be related, if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
9
Due to Related Parties:
| December 31, | December 31, | |||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Dr. Peter Wolfram Senst (i) | € | 111,143 | € | 156,519 |
| SWT (ii) | 102,296 | 103,025 | ||
| Dr. Thilo Senst (iii) | 124,058 | - | ||
| Accrued interest and other | 65,029 | 58,992 | ||
| 402,526 | 318,536 | |||
| Less: current portion | 355,482 | 193,112 | ||
| € | 47,044 | € | 125,424 |
-
(i) Loan agreement with Dr. Peter Wolfram Senst, a former director of the Company and a relative of a current director, originally dated December 31, 2011 for €330,000. Of that amount, €320,000 bears annual interest of 3.25% and €10,000 bears no interest. The total amount is repayable in 132 monthly payments of €2,500 plus interest commencing October 2011. During the year and additional €100,000 was advanced.
-
(ii) Loan agreements with SWT dated April 6, 2016 for €50,000, May 3, 2016 for €75,000, and July 12, 2019 for €62,000 bearing interest at 2% per annum. Principal and interest are repayable at the end of the two-year term of the loan. These loans were all extended to December 31, 2025.
(iii) During the year €150,000 was advanced.
During the year ended December 31, 2021 and 2020, the Company entered into the following transactions with related parties and key management:
| 2021 | 2020 | |||
|---|---|---|---|---|
| Management fees included in wages | € | 193,250 | € | 187,600 |
| Director fees | 20,232 | 30,000 | ||
| Professional fees | 27,435 | 26,147 | ||
| Legal fees paid to a company where the corporate | ||||
| secretary is a partner | - | 5,200 | ||
| Interest | 18,315 | 5,520 | ||
| Sales to GBT Asia* | 10,017,860 | 5,259,030 | ||
| € | 10,277,092 | € | 5,513,497 |
*GBT Asia is used as a vehicle to place sales with end customers that are required by law to source products from Asia. As at December 31, 2021 the Company had trade receivables from GBT Asia of €1,567,531 (2020 - €1,339,726) (Note 6).
During the year ended December 31, 2021, the Company had revenue from GBT Africa in the amount of €nil (2020 - €104,636). Included in accounts receivable as at December 31, 2021 is a net amount after a provision of €200,000 (2020 - €265,643) (Note 18). As at December 31, 2021, the Company had recorded and impairment of $389,495 on these receivables as a provision for bad debts, an increase in the provision of €79,907 over the prior year.
Critical Accounting Estimates
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of income and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
Areas requiring a significant degree of estimation and judgment relate to the fair value measurements for financial instruments and share-based payments, the recoverability and measurement of deferred tax assets and liabilities, inventory valuation and the ability to continue as a going concern. Actual results may differ from those estimates and judgments.
10
The critical judgments and estimates applied in the preparation of the Company’s condensed interim consolidated financial statements for the three and nine months ended September 30, 2021, are disclosed in Note 4 to the Company’s condensed interim consolidated financial statements.
New accounting standards
There are no other pending IFRSs or IFRIC interpretations that are expected to have a material impact on the Company’s consolidated financial statements.
Risk Factors
The following are major risk factors management has identified which relate to the Company’s business activities. Such risk factors could materially affect the Company's future financial results and could cause events to differ materially from those described in forward-looking statements relating to the Company. Though the following are major risk factors identified by management, they do not comprise a definitive list of all risk factors related to the Company's business and operations. Other specific risk factors are discussed elsewhere in this MD&A.
Capitalization and Commercial Viability
The Company will require additional funds to continue operations. The Company has limited financial resources, and there is no assurance that additional funding will be available to the Company to carry out the completion of all proposed activities. Although the Company has been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the curtailment of operations, liquidation of assets, seeking additional capital on less favorable terms and/or other remedial measures.
History of Operating Losses
The Company has an accumulated deficit since its incorporation through December 31, 2021 of €12,845,626. The deficit may increase in the near term, as the Company continues its product development and establishes sales channels for its new products and business expansion.
General Economic Conditions
The Company currently operates worldwide and, like all global businesses, it has been subject to the impact of the current global credit and financial crisis on consumers in its areas of operations and the discretionary spending available to them. General economic conditions have resulted in reduced consumer and government spending and have impacted the Company’s financial results. Should these conditions continue to prevail, there will be further pressure on the Company’s financial results.
Key Employees
The success of the Company is largely dependent on the performance of its key employees and directors. The failure to retain key employees and directors and to attract and retain additional key employees with necessary skills could have a material adverse impact upon the Company's growth and profitability. Competition for highly skilled management, technical and other employees is intense. There can be no assurance that the Company will be successful in attracting and retaining such personnel and the departure of any of the members of the Company's executive team or key directors could have a material adverse effect on the Company's business, results of operations and financial condition.
Supply Chain
The Company relies on major components to be manufactured on an Original Equipment Manufacturer (OEM) basis. Reliance on OEMs, as well as industry supply conditions generally involves several risks, including the possibility of defective products (which can adversely affect the Company’s reputation for reliability), a shortage of components and delays in delivery schedules (which can adversely affect the Company’s distribution schedules), and increases in component costs (which can adversely affect the Company’s profitability). The Company has single-sourced manufacturer relationships, either because alternative sources are not readily or economically available or because the relationship is advantageous due to performance, quality, support, delivery, capacity, or price considerations. If these sources are unable or unwilling to manufacture our products in a timely and reliable manner, the Company could experience temporary distribution interruptions, delays, or inefficiencies, adversely affecting our results of operations. Even where alternative OEMs are available, qualification of the alternative manufacturers and establishment of reliable
11
suppliers could result in delays affecting operating results adversely. Overall GBT tries to reduce their risks by a strong mix of Asian and European production.
New Products and Technology Change Risk
The Company operates in a competitive marketplace; there are no guarantees that the Company can maintain or expand its advantages. The Company invests significant resources in the development of products and continually seeks to improve its current product offerings. The success of the Company continues to depend upon market acceptance of its new products, its existing products and its ability to refine and enhance current product lines. In some situations, new legislation is driving requirements for various subsets of the Company’s products particularly in the area of recording license plates of vehicles illegally passing a school bus. Should legislation change or public opinion change relating to various issues surrounding right of privacy, there would be no guarantee that the Company would maintain sales of these products.
New Market Risk
The ability of the Company to successfully enter new markets is subject to uncertainties. We have been successful in the past, and we continue to develop important alliances in new markets to ensure future success. However, there are no guarantees that we can establish new distribution channels or continue to develop new strategic partnerships.
Competition
The Company’s markets are competitive and rapidly changing. Many competitors have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger installed customer base. As this market develops, a number of companies with greater resources could attempt to increase their presence in this market by acquiring or forming strategic alliances with our competitors or business partners.
Many competitors are also divisions or subsidiaries of larger enterprises, many of which also focus on the manufacture and sale of components or mass-market products. Many competitors also offer a broader line of energy product solutions that may include high-quality mobile energy and light products. Even though our products may offer a competitive advantage, some competitors have the ability to provide a solution to an end-user at a price that may render our products uncompetitive.
The Company’s success will depend significantly on management’s ability to adapt to these competing forces, to develop more advanced products more rapidly and less expensively than our competitors, and to educate potential customers as to the benefits of using the Company’s services. The Company’s future and existing competitors could introduce products with superior features, scalability and functionality at lower prices than our products and could bundle existing or new products with other more established products in order to compete with the Company. The Company expects additional competition from other established and emerging companies. Increased competition may result in price reductions, reduced gross margin and loss of market share, any of which could materially and adversely affect the Company’s business. The Company may not be able to compete successfully against current and future competitors, and failure to do so would harm the business.
Ability to Maintain Profitability and Manage Growth
There can be no assurance that the Company’s business and growth strategy will enable the Company to be profitable in the future. The Company’s future operating results will depend on a number of factors, including (i) the efficiency and effectiveness of the Company’s marketing and advertising programs, (ii) the Company’s ability to continuously improve its service to achieve new and enhanced customer benefits, better quality service and reduced costs, (iii) the Company’s ability to successfully identify and respond to emerging trends in the battery and lighting as well in the energy storage industry, (iv) the level of competition in the battery and lighting/energy storage industry and (v) the ability to manage attrition level and subscriber replacement costs. There can be no assurance that the Company will be able to effectively manage its growth, and any failure to do so could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations.
Intellectual Property Risks
The Company has taken steps to protect its proprietary technology. The Company relies on a combination of trademark, trade secrets, laws and other intellectual property protection methods to protect its proprietary technology. These steps may not completely protect the Company’s proprietary technology, nor give it a competitive edge. Others may independently develop substantially equivalent technology or gain access to our trade secrets. If the Company is unable to protect its intellectual property, the business over time could be materially affected. The Company will pursue all
12
avenues available to it, if necessary, to enforce its patents, and to protect its trademarks and other intellectual property rights owned by the Company.
Technological Change, New Products and Standards
The technology industry is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices that could render the Company’s existing products and systems obsolete. The Company’s products employ complex technology and may not always be compatible with current and evolving technical standards and products developed by others. Failure or delays by the Company to meet or comply with the requisite and evolving industry or user standards could have a material adverse effect on the Company’s business, results of operations and financial condition.
Intellectual Property Risks
Because much of the Company's potential success and value lies in its ownership and use of intellectual property, its failure to protect its intellectual property may negatively affect its business and value. The Company typically enters into confidentiality or license agreements with its employees, consultants, customers, strategic partners and vendors in an effort to control access to and distribution of its products, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's proprietary technology without authorization.
Reliance on Information Systems and Technology
The Company’s business relies upon information technology systems to effectively service its customers at the point of sale. Its information technology systems may be vulnerable to unauthorized access, computer viruses, system failures, other malicious acts or acts of nature. Should a significant disruption to its information technology to occur, the Company’s earnings could be adversely affected through loss of revenue and the costs to rectify the disruption. The Company is in an industry with many competitors that lay claim to intellectual property. The Company may receive notice from a third party asserting the Company has infringed on their intellectual property rights. As a result of such claims the Company’s earnings could be adversely affected by costly litigation, product injunctions or consumption of management attention.
Reliance on Third Party Licenses
The Company relies on certain software that it licenses from third parties, including a software program that is integrated with internally developed software and used in the Company’s products to perform key functions. There can be no assurance that these third-party licenses will continue to be available to the Company on commercially reasonable terms. The loss of, or inability to maintain, any of these licenses, could result in delays or reductions in product and service deployment until equivalent software can be developed, identified, licensed and integrated, which could materially adversely affect the Company's business, results of operations and financial condition.
Effectiveness and Efficiency of Sales and Marketing Expenditures
The Company’s future growth and profitability will be dependent in part on the effectiveness and efficiency of the Company’s sales and marketing expenditures, including the ability of the Company to (i) create greater awareness of the Company’s products and services, (ii) determine the appropriate messaging and media mix for future sales and marketing expenditures, and (iii) effectively manage sales and marketing costs in order to maintain acceptable operating margins. There can be no assurance that the Company will experience benefits from sales and marketing expenditures in the future. In addition, no assurance can be given that the Company’s planned sales and marketing expenditures will result in increased sales, will generate sufficient levels of product and service awareness or that the Company will be able to manage such sales and marketing expenditures on a cost-effective basis.
Product Liability
We face the inherent risk of exposure to product liability claims in the use of our products. While we will continue to attempt to take appropriate precautions including the purchase of product liability insurance, there can be no assurance that we will avoid significant product liability exposure. There can be no assurance that adequate insurance coverage for future coverage for future commercial activities will be available at all, or at acceptable cost, or that a product liability claim would not materially adversely affect our business or financial condition.
Risk Associated with International Operations
13
Management of the Company believes that its future growth and profitability opportunities will require expansion of its sales further in the Middle East and especially in the US; Canada; Australia and Mexico and into other foreign markets and into other foreign markets. This expansion will require significant management attention and financial resources and could adversely affect the Company's operating margins. In order to increase international sales in subsequent periods, the Company may establish additional foreign operations, incur substantial infrastructure costs, hire additional personnel and recruit international resellers. To the extent that the Company is unable to expand international sales in a timely and cost-effective manner, the Company's business, results of operations and financial condition could be materially adversely affected. In addition, even with the possible recruitment of additional personnel and international resellers, there can be no assurance that the Company will be successful in maintaining or increasing international market demand for the Company's products and services. The risk associated with currency fluctuations comprise mainly of the Company’s United States denominated sales, component purchases and other expenses. In the future, it is expected that a portion of revenues may be realized in other foreign currencies as a result of international sales fluctuations in the exchange rate between the Euro and other currencies, particularly the US dollar, may have a material adverse effect on the Company's results of operations, financial condition and any business prospects. The Company may use hedges to mitigate the risk of foreign currency exposure.
Key Employees
The success of the Company is largely dependent on the performance of its key employees and directors. Failure to retain key employees and directors and to attract and retain additional key employees with necessary skills could have a material adverse impact upon the Company's growth and profitability. Competition for highly skilled management, technical and other employees is intense. There can be no assurance that the Company will be successful in attracting and retaining such personnel and the departure of any of the members of the Company's executive team or key directors could have a material adverse effect on the Company's business, results of operations and financial condition.
Expansion
The success of the Company’s continued expansion will depend upon many factors, including the ability of the Company to maintain acceptable attrition rates and control of operating costs and generate positive cash flow over an extended period. There can be no assurance that the Company will be able to grow or achieve its continued expansion. Such risks, if they materialize, could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations.
Available Workforce
Our continued success will depend on the performance and continued service of the Company’s employees. We rely on the ability to attract new engineers, research and development staff, production personnel and key sales and marketing employees. During the coming year, we will continue to develop our employees and search for key new hires, however there is no assurance that the Company will be able to retain existing personnel or attract, hire and retain additional qualified personnel.
Possible Adverse Effect of Future Government Regulations
The Company’s operations are subject to a variety of laws, regulations and licensing requirements of federal, state, provincial, county, and municipal authorities. The loss of such licenses, or the imposition of conditions to the granting or retention of such licenses, could have a material adverse effect on the Company. The Company believes that it is in material compliance with applicable laws and regulatory requirements.
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the Company’s financial results.
Disclosure Controls and Procedures
The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining the Company’s disclosure controls and procedures and internal controls over financial reporting to provide
14
reasonable assurance that material information about the Company and its subsidiaries would have been known to them and regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
The CEO and CFO have evaluated and concluded that the Company’s disclosure controls and procedures are adequate and effective for providing reasonable assurance that material information relating to the Company, including its consolidated subsidiary, would have been known to them as of December 31, 2021.
As well, as of the end of the years ended December 31, 2021 and 2020, the CEO and CFO have evaluated and concluded that the Company’s internal controls over financial reporting have been adequate to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. However, control systems, no matter how well designed and operated, have inherent limitations, therefore, those systems, although determined to be adequately designed, can provide only reasonable assurance that the objectives of the system are met. During the years ended December 31, 2021 and 2020, there was no change in the Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
15