AI assistant
Light AI Inc. Management Reports 2025
46948_rns_2025-02-19_dc847d95-601d-419e-9781-2c9e774443ef.pdf
Management Reports
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LIGHT AI INC.
(formerly Mojave Brands Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2024 AND 2023
(Expressed in Canadian dollars unless otherwise stated)
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) has been prepared by the management of Light AI Inc. (the “Company”) as of January 29, 2025, and should be read in conjunction with the unaudited interim consolidated financial statements and related notes of the Company for the three months ended November 30, 2024 and 2023, and the audited consolidated financial statements of the Company together with the related notes thereto for the year ended August 31, 2024 and 2023. The unaudited condensed interim financial statements for the three months ended November 30, 2024 and 2023 have been prepared in accordance with IAS 34 and International Financial Reporting Standards (“IFRS”). Except as otherwise disclosed, all dollar figures included therein and in the following MD&A are quoted in Canadian dollars. Additional information related to the Company and its operations is available on SEDAR at www.sedarplus.ca.
COMPANY OVERVIEW
Light AI Inc. was incorporated under the name Infinity Minerals Corp. on November 12, 2010, under the laws of the Province of British Columbia, Canada. The name of the Company was changed to Herbal Clone Bank Canada Inc. on August 29, 2014, to High Hampton Holdings Corp. on June 18, 2015, to Mojave Jane Brands Inc. on June 11, 2019, to Mojave Brands Inc. on March 30, 2021, and subsequently to Light AI Inc. on December 13, 2024. The Company is a reporting issuer in British Columbia, Ontario and Alberta, and its common shares are traded on the Canadian Securities Exchange (the “CSE”) under the symbol “MOJO” and on the Frankfurt Exchange under the symbol “FSE: 0HCN”. The Company was engaged in identifying and evaluating potential business opportunities. Trading in the Company common shares was halted on June 19, 2024, pending review and approval of the Offering described below by the CBOE. On December 13, 2024, the Company completed a business combination transaction and changed its name from Mojave Brands Inc. to Light AI Inc. For additional details regarding the Transaction, please refer to the final long form prospectus, agency agreement and related documents filed under the Company’s profile on www.sedarplus.ca.
On January 8, 2025, the Company received final approval from Cboe Canada, and its common shares began trading on Cboe Canada under the symbol “ALGO” effective that same day.
Business Combination Transaction
On January 31, 2024, the Company entered into a binding letter of intent (“LOI”) with LAI SPV Corp. (“LAI SPV”) and Light AI Inc. (“Light AI”) under which the Company, LAI SPV and Light AI will combine their respective businesses by way of a share exchange, merger, amalgamation, plan of arrangement or such other similar form of transaction (the “Transaction”). The parties entered into a Business Combination Agreement on June 19, 2024 and subsequently amended on September 9, 2024 and October 24, 2024, whereby the Company, Light AI and LAI SPV agreed to effect the combination of their respective businesses and assets.
On December 13, 2024, the Company completed the amalgamation and terms and conditions of the amalgamation were as follows: (i) 1479875 B.C. Ltd. (“Subco”), a wholly owned subsidiary of the Company incorporated for the purpose of effecting the transaction, amalgamated with Light AI and LAI SPV to form Light AI Technologies Inc.; (ii) holders of common shares in the capital of Light AI received 3.89 common shares in the capital of the Company for each Light AI share held, and the Light AI shares were cancelled; (iii) holders of common shares in the capital of LAI SPV received one common share in the capital of the Company for each LAI SPV share held, and the LAI SPV shares were cancelled; (iv) Company share purchase warrants were issued to the holders of Light AI share purchase warrants, and LAI SPV share purchase warrants, in exchange and replacement for, and on an equivalent basis after giving effect to the applicable exchange ratio, such Light AI warrants and LAI SPV warrants were cancelled; (v) Company options were issued to holders of Light AI options and LAI SPV options in exchange and replacement for,
and on an equivalent basis after giving effect to the applicable exchange ratio, such Light AI options and LAI SPV options were cancelled; (vi) Light AI Technologies Inc. became a wholly owned subsidiary of the Company; and (vii) the Company changed its name to Light AI Inc. The Company will continue to carry on the business of Light AI.
Offering
On September 25, 2024, the Company signed an agreement to appoint Ventum Financial Corp. as the lead agent and sole bookrunner on behalf of a syndicate of agents (collectively the "Agents") in respect of a proposed public offering of a minimum of 18,181,818 units and a maximum of 27,272,727 units at $0.55 per unit to raise gross proceeds of a minimum of $10 million and a maximum of $15 million (the "Offering"). On December 5, 2024, the Company and its agents agreed to increase the maximum size of the proposed public offering from 27,272,727 units to 29,248,000 units with maximum gross proceeds of $16,086,400. Each unit will comprise one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one additional common share at an exercise price of $0.80 per share for a period of 18 months from the closing of the Offering. In consideration for the Agents' services, the Company has agreed to pay to the Agents: (i) a cash fee equal to 7% of the aggregate gross proceeds; (ii) common share purchase warrants equal to 7% of the units sold in the offering ("Broker Warrant"); and (iii) a corporate finance fee of $200,000 plus applicable taxes, payable at closing. Each Broker Warrant will entitle the holder thereof to acquire one common share at $0.55 per share for a period of 18 months from closing. The Company is entitled to sell units to certain purchasers designated by the Company on the president's list to a maximum of $3,000,000. The Company will pay to the Agents a reduced cash fee equal to 3.5% of the aggregate gross proceeds from the president's list purchasers and Broker Warrants equal to 3.5% of the units sold to the president's list purchasers. The Company will pay reasonable fees and expenses of the Agent's legal counsel up to a maximum of $250,000 and US$20,000. The Company will grant the Agents an option (the "Over-Allotment Option") to increase the size of the Offering by up to 15% of the units sold under the Offering. The maximum number of units issuable pursuant to the Overallotment Option is 4,387,200 units for aggregate gross proceeds of approximately $2,412,960, assuming the offering is fully subscribed and the overallotment option is exercised in full for the units. The Company intends to use the net proceeds from the Offering for operations, marketing, working capital and general corporate purposes.
On October 29, 2024, the Company filed and obtained a receipt for a preliminary prospectus in each of the provinces and territories of Canada, other than Quebec, in connection with the Offering. On December 17, 2024, the Company filed and obtained a final receipt for its long form prospectus.
On December 30, 2024, the Company announced that, pursuant to its long-form prospectus dated December 17, 2024, the Company completed its Offering by selling 30,878,200 units of the Company at $0.55 per unit (the "Units") for aggregate gross proceeds of $16,983,010, encompassing the primary offering of 29,248,000 Units for gross proceeds of $16,086,400 and the partial exercise of an Over-Allotment Option amounting to 1,630,200 Units for gross proceeds of $896,610. Each Unit is comprised of one common share and one-half of one Share purchase warrant (each whole warrant, a "Warrant"). Each Warrant entitles the holder thereof to acquire one common share at $0.80 per common share until June 30, 2026.
Pursuant to the Agency Agreement, on December 30, 2024, the Company paid $1,006,076 in cash commissions, paid $210,000 as a corporate finance fee and $333,592 in agent legal and other related costs. Additionally, the Company issued 1,829,230 broker warrants with an exercise price of $0.55 (the Broker Warrants"). The Broker Warrants expire on June 30, 2026.
On January 8, 2025, the Company announced the Agents have further exercised their Over-Allotment Option in full to purchase an additional 2,757,000 Units at a price of $0.55 per Unit for gross proceeds of $1,516,350. Each Unit is comprised of one common share and one-half of one Share purchase warrant (each whole warrant, a "Warrant"). Each Warrant entitles the holder thereof to acquire one common share at $0.80 per common share until July 8, 2026. Pursuant to the Agency Agreement, on January 8, 2025, the Company paid $106,145 in cash commissions and $37,752 in agent's legal and other related costs. Additionally, the Company issued 192,990 Broker Warrants with an exercise price of $0.55. The 192,990 Broker Warrants expire on July 8, 2026.
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On January 15, 2025, the Company granted 1,750,000 deferred share units and 5,573,000 stock options to directors, employees, advisors and consultants of the Company. The 5,573,000 stock options have an exercise price of $0.70 and expire on January 15, 2035.
The Company issued a total of 1,200,345 common shares from the exercise of warrants for aggregate proceeds of $541,982.
About Light AI Inc.
Light AI Inc. was incorporated on December 2, 2015 under the laws of the province of British Columbia, Canada. The registered and records office of the Company is 2500 - 700 West Georgia Street, Vancouver, BC, V7Y 1B3. The Company is an emerging healthcare technology company in the development stage of the first version of a commercial software specializing in medical imaging designed to differentiate between bacterial and viral infections at point-of-care ("POC"). The Company's artificial intelligence ("AI") uses advanced algorithms to identify key patterns in patient images to produce an effective probability score. The Company's technology utilizes smartphones with integrated cameras to capture images, which are then analyzed in order to differentiate between viral and bacterial infections using machine learning ("ML") algorithms and a proprietary database of images gathered since 2016. The terms AI and ML are often used interchangeably, but they refer to different concepts. AI is the overarching field focused on creating intelligent systems, while ML is a specific approach within AI that uses data and algorithms to enable machines to learn and make decisions.
The Company is currently completing the development of its technology for the differentiation between viral and bacterial infections in pharyngitis (sore throat). The Company intends to leverage the large world-wide footprint of smartphones to deploy its patented technology in POC facilities and through telemedicine, initially focussing on low middle-income countries ("LMIC").
The Company's initiative is to develop and commercialize its technology to improve healthcare quality and outcomes by providing healthcare professionals with real time results thus reducing or eliminating the cost and delay of currently available diagnostic tests, reducing unnecessary follow-up physician visits and reducing the over-prescription of antibiotics. The Company believes that by leveraging the use of smartphones for image data capture and applying AI to analyze the images data, the Company is developing a diagnostic/screening platform that will be provide rapid and accurate results in a cost-effective and globally scalable manner.
In POC diagnosis of pharyngitis, the main challenge is distinguishing between viral and bacterial infections, such as Group A Streptococcal ("GAS") infections since they often present with overlapping symptoms. Rapid diagnostic tools (like antigen and molecular tests) play a crucial role in determining whether an infection is viral or bacterial, which directly impacts treatment decisions such as the use of antibiotics. The inappropriate use of antibiotics can lead to antimicrobial resistance. By applying AI algorithms to smartphone images to identify infectious diseases in the throat and mouth, the Company is developing a patented, application-based software, non-invasive solution that requires no swabs, lab tests or proprietary hardware.
Additionally, the Company's approach to applying AI to smartphone images can be expanded to other throat conditions, as well as other diseases that present in the oropharynx, including allergies, gastroesophageal reflux disease or Epstein Barr Virus. The Company's goal is to create unique digital data signatures that enable quick and accessible diagnosis using AI. The Company's algorithms can either be cloud-based or integrated into imaging devices for POC settings, eliminating the need for internet transmission of images and medical information.
The Company has trained a convolutional neural network ("CNN") using its proprietary oropharynx image database to discriminate between viral and bacterial infection. Live images are captured on-demand using a smartphone, and the data is segmented into distinct objects such as the tongue, uvula, and tonsils for precise evaluation. This segmentation allows the AI system to isolate and analyze specific anatomical features, leading to an accurate ability to differentiate between diseases.
The Company began developing its AI algorithm applications in 2016 and to ensure robust model development, the Company follows recognized machine learning practices, including a training-validation-test split, which divides the dataset into three parts for training, validating and testing the model. The Company's training data was collected at six different facilities across the United States. Those facilities had institutional review board protocols in place that
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provided for the enrolment of a diverse population, in age, sex and ethnicity, enhancing the model’s generalizability and reducing potential biases.
Currently, the Company is focused on developing technology to diagnose a range of conditions, in addition to GAS, including Nonspecific Viral Pharyngitis, Influenza, Respiratory Syncytial Virus, Mononucleosis, and Streptococcal Pneumonia.
The Company is integrating a closed or locked algorithm (rather than open AI) into a commercial smartphone app prototype as described below.
Light.AI (SCAN)
The Company is developing a software as a medical device under the brand name Light.AI (SCAN) to automatically diagnose GAS. Light.AI (SCAN) allows a healthcare provider to take a short video of the throat of an individual, who is suspected of having GAS pharyngitis, using a smart device, and submit it to the cloud for GAS diagnosis.
A cloud-based CNN ML model analyzes the video images and automatically generates a diagnostic output (i.e., GAS-positive or GAS-negative), for the purpose of aiding clinician’s treatment decisions. Light.AI (SCAN) is intended to rapidly diagnose GAS pharyngitis. This software as a medical device is intended to be used at POC facilities to aid in making a treatment decision by a healthcare provider for an individual who is suspected of having GAS pharyngitis, based on images of the back of the throat taken using a compatible smart device camera.
Device Components
The Light.AI (SCAN) consists of two software components:
- Light AI APP
Currently, the Light AI APP is installed in and run from an iOS smart device with a built-in camera. It performs data collection, video-to-image conversion, image segmentation and good/bad image classification locally, without a need to access the cloud. An Android version of the Light AI APP is targeted to be ready in 2025.
- Cloud-based LAI Diagnostic CNN Algorithm (“Diagnostic CNN Algorithm”)
The Diagnostic CNN Algorithm takes images that the Light AI APP has validated and uploaded, and automatically detects the presence of GAS using a convolutional neural network, a machine learning technology.
Light.AI (SCAN) uses ML models to perform different tasks including object segmentation, good/bad image classifier and diagnostic machine learning. The Object Segmentation algorithm identifies the oropharynx section of the throat in the image which is most relevant for GAS detection. The Good/Bad Image Classifier is a CNN model used to classify an oropharynx image as good or bad image based on image content and quality. A good quality oropharynx image shows all the necessary anatomical objects present in the back of throat, necessary for making further diagnostic decisions. A bad image does not contain all the necessary anatomical objects and/or has poor image quality. The Cloud-based CNN model is trained on good oropharynx images passed on from the Good/Bad Image Classifier.
The data used for training the Diagnostic CNN Algorithm was collected from sites in Canada, the United States and Uganda.
The Company is also accumulating images to develop classifiers in order to develop detection models across multiple health indications. The Company is investigating potential partnerships for development datasets specific to other diseases and believes its technology will have application for GAS, cardiovascular, autoimmune disorders and dermatology conditions.
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How It Works
(POC in person or Telemedicine Product Concept)
Either the HCP or the patient on a telemedicine consultation opens Light.AI (SCAN) app on a smartphone and follows basic instructions which include accessing the camera. The process takes approximately 30 seconds and approximately 10 seconds to analyze the image.
Commercialization Plans
The Company has partnered with Tech Care For All (“TC4A”) to roll out the Company’s platform to the LMIC market, initially focusing on Africa. TC4A is a social impact company whose goal is to accelerate digital health in Africa and Asia to improve health outcomes in underserved communities. TC4A developed and operates a global medical learning platform targeting healthcare professionals in LMIC markets. This partnership will allow the Company platform to be introduced as a screening tool in markets that do not require the United States Food and Drug Administration (“FDA”) approval, enabling the Company to seek a path to near-term revenue. The first phase of the project involves conducting a pilot go-to-market study to assess the clinical efficacy, clinical pathways, use cases, economics, reimbursement and subscription models and cloud infrastructure needs and deployment strategies in four initial countries – Kenya, Uganda, Nigeria and South Africa, with a plan to subsequently roll out the technology in such countries.
Assuming the successful conclusion of the first phase market study, the Company’s intention is to use the results of the pilot study to design go-to market strategies and roll out the technology in 16 additional African countries. Assuming the successful conclusion of the second phase roll out, the Company’s intention would be to launch a diagnostic offering, through global distributions partners, based on the technology in these countries following receipt of required regulatory approvals.
The Company anticipates that smartphones will be supplied to practitioners by TC4A agents on behalf of the Company. Initially, iPhones will be supplied for the first six (6) months of distribution as the platform currently runs on iOS. The Android app is expected to be completed in 2025 and is currently under development by the Company.
Following the completion of the market landscape analysis in Africa, the Company and TC4A have agreed to conduct a similar analysis for the Indian market, with the potential for TC4A to manage licensing and regulations on a country-by-country basis.
Economic Impact
Timely detection of GAS at the point of care has the potential to generate material financial savings for healthcare payers.
Implementing the Company’s smartphone-based tool for GAS in Africa and LMIC markets could yield a substantial dollar saving by reducing the need for in-clinic testing and minimizing the expensive treatment costs associated with untreated cases. Additionally early intervention can prevent indirect costs related to productivity losses, estimated to be a significant economic strain on families, who often rely on income from daily work to meet essential needs.
Wellness Initiative
The Company is currently developing a business model to access the viability of its GAS app to be deployed in the Wellness App market. Designing a wellness app platform to triage pharyngitis, especially cases potentially caused by GAS, represents a significant business opportunity. The Company expects the Wellness app market to be its largest market and it intends to leverage large distribution ecosystems such as major smartphone manufacturers, pharmacy chains and technology platforms.
The Company’s AI driven and symptom checking algorithms may be applied to assess sore throat symptoms, providing users with guidance on whether they should seek medical care. The Company believes that this platform would cater to an emerging consumer demand for accessible, digital health solutions that reduce unnecessary doctor visits and improve health management from home. Beyond consumer applications, the platform could be marketed to healthcare providers and telemedicine services enhancing their capacity to manage sore throats remotely and efficiently. Such a tool would also align well with the goals of healthcare systems and insurers to reduce the costs associated with in-office visits and diagnostics for common infections.
Business development activity
The Company is currently optimizing the user interface and backend cloud system and exploring the market to test a pilot study using a Wellness version of the Light.AI$^{(\mathrm{SCAN})}$.
USA Market FDA and EU Regulatory and Commercial Pathways
The costs associated with managing GAS infections in the United States can be substantial, impacting both the healthcare system and individual patients. Direct medical expenses include doctor visits, diagnostic tests, and treatment, often with antibiotics such as penicillin or amoxicillin. For individuals without insurance, the costs can be considerably higher, especially if the infection leads to complications like rheumatic fever or abscesses, which require additional care. Indirect costs, such as lost wages from missed work or school and childcare expenses, add to the financial burden. These cumulative costs underscore the financial impact of GAS on both individuals and the broader healthcare system.
Government Regulation
In the United States, the Company’s products and operations will be subject to extensive regulation by federal governmental authorities, such as the FDA, and state and local regulatory agencies to ensure the devices are safe and effective. Similar international regulations apply overseas. These regulations, which include the United States Federal Food Drug, and Cosmetic Act of 1938, as amended (the “FDA Act”) and regulations promulgated by the FDA, govern, among other things, the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, sale and marketing and disposal of medical devices, post market surveillance and reporting of serious injuries and death, repairs, replacements, recalls and other matters relating to medical devices. State regulations are extensive and vary from state to state. The Company’s products constitute medical devices subject to these regulations.
Under the FDC Act, each medical device manufacturer must comply with quality system regulations that are strictly enforced by the FDA. Unless an exception applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other significant change in, existing currently marketed medical device obtain either
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510(k) pre-market notification clearance or pre-market approval ("PMA") before it can market or sell those products in the United States.
If the Company cannot establish that a proposed product is substantially equivalent to a legally marketed device, the Company may seek PMA through a PMA application, or submit a de novo request. The de novo request, or evaluation of automatic class III designation, provides a pathway to Class I or Class II classification for medical devices for which general and special controls provide a reasonable assurance of safety and effectiveness, but for which there is no legally marketed predicate device. The Company must seek PMA through a PMA application. Under the PMA process, the applicant submits extensive supporting data, including, in most cases, data from clinical studies, in the PMA application to establish reasonable evidence of the safety and effectiveness of the product. This process typically takes at least one to two years from the date the PMA is accepted for filing but can take significantly longer for the FDA to review.
The Company filed a submission request with the FDA requesting feedback to the proposed regulatory pathway and subsequently met with the FDA in a pre-submission meeting held on June 21, 2024 to discuss the regulatory pathway and clinical validation study design for the Company's product. Based on this discussion, the Company expects that the likely regulatory pathway will be a de novo process to establish a new class regulation for this type of novel software as a medical device or software as a medical device. The Company expects that the likely steps towards the de novo classification request will involve establishing a Quality Management System ("QMS") by completing product development, verification and validation, following QMS procedures and requirements. Accordingly, the Company intends to submit a de novo classification request for the Light.AI $^{\text{(SCAN)}}$ , following successful completion of product development, verification and validation activities.
The Company has also partnered with Elevance Health's CRO (Carelon Health) to conduct FDA trials in the United States. The clinical trials are expected to begin following the completion of Institutional Review Board review, which is expected to be in September 2025, and the study will begin as GAS becomes more common from late fall to early spring. The trial plans to be carried out at 15 sites, and the data collection period is expected to take approximately one to two months, followed by data analysis and submission preparation that is expected to take approximately three months. Once the FDA submission is made, the FDA must submit a reply to the submission within 150 days. The FDA and the Federal Trade Commission also regulate advertising and promotion of the Company's products to ensure that the claims the Company makes are consistent with its regulatory clearances, that there are adequate and reasonable scientific data to substantiate the claims and that its promotional labeling and advertising is neither false nor misleading.
The Company will be subject to data privacy and security regulation by both the federal government and the states in which it conducts its business. As a participant in the healthcare industry, the Company is also subject to extensive laws and regulations protecting the privacy and integrity of patient medical information that the Company receives, including the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which established uniform federal standards for "covered entities," which include certain healthcare providers, healthcare clearinghouses, and health plans, governing the conduct of specified electronic healthcare transactions and protecting the security and privacy of protected health information. The Company is also subject to "fraud and abuse" laws and regulations, including, physician self-referral prohibitions, and false claims laws.
From time to time, these laws and regulations may be revised or interpreted in ways that could make it more difficult for the Company's customers to conduct their businesses, such as recent proposed revisions to the laws prohibiting physician self-referrals, and such revisions could have an adverse effect on the demand for its products, and therefore its business and results of operations (see also heading 'Risks').
The Company's operations, sales and service of products outside the United States are subject to regulatory requirements that vary from country to country and may differ significantly from those in the United States. In general, The Company's products are regulated outside the United States as medical devices by foreign governmental agencies similar to the FDA.
In order for the Company to market its products internationally, the Company must obtain clearances or approvals for products and product modifications. The Company is required to affix the Conformité Européenne mark to its products in order to sell them in member countries of the European Economic Area (the "EEA"). The Conformité Européenne mark is an international symbol of adherence to certain essential principles of safety and effectiveness, which once
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affixed enables a product to be sold in member countries of the EEA. The Conformité Européenne mark is also recognized in many countries outside the EEA, such as Switzerland and Australia, and can assist in the clearance process.
In order to receive permission to affix the Conformité Européenne mark to its products, the Company must obtain quality system certification and must otherwise have a QMS that complies with the EU Medical Device Directive.
In addition to the United States laws regarding the privacy and integrity of patient medical information, the Company is subject to similar laws and regulations in foreign countries covering data privacy and other protection of health and employee information. Particularly within Europe, data protection legislation is comprehensive and complex and there has been a recent trend toward more stringent enforcement of requirements regarding protection and confidentiality of personal data, as well as enactment of stricter legislation. The Company is also subject to international "fraud and abuse" laws and regulations, as well as false claims and misleading advertisement laws.
Intellectual Property
As a health care technology company, the Company's intellectual property and proprietary information is a fundamental element of its success. The Company protects its proprietary rights through a combination of copyright, trade-mark and trade secret laws as well as contractual provisions. The source code for its software is generally protected under Canadian and United States copyright laws. The Company has been issued three US patents, one Australian patent and the Company has received notice of intention to grant one European Union patent as follows:
Image Processing of Streptococcal infection in Pharyngitis Subjects
United States
1) Patent number: 11,369,318
2) Patent number: 11,602,312
3) Patent number: 12,148,150
Australia
1) Patent number: 2019357949
European Union
1) Patent number: 3864669 (Date of grant effective December 4, 2024)
The Company also has one Israel patent application and one Canada patent application filed with respect to the Image Processing of Streptococcal Infection in Pharyngitis Subjects. The Company also has one US patent application, one Canadian patent application and one European Union patent application filed in respect of the Infection Detection Using Image Date Analysis. The grant of these patents depend on the number of comments the Company receives from the patent examiner and the volume of applications the patent examiner is reviewing. At this time, it could be up to two years before the patents are granted.
DISCUSSION OF OPERATIONS
During the three months ended November 30, 2024, the Company reported a net loss of $308,348 compared to a net loss of $214,056 for the three months ended November 30, 2023. The net loss for the 2024 quarter was primarily attributed to general operating expenses of $308,378 (2023 - $178,924). The substantial increase in general operating expenses was mainly due to legal fees of $240,717 (2023 - $Nil) primarily related to the business combination transaction with the Company, Light AI and LAI SPV. Additional operating expense items included accounting and audit fees of $42,500 (2023 - $3,000) and management fees of $15,000 (2023 - $11,000).
During the three months ended November 30, 2023, the Company reported a net loss of $214,056 compared to a net loss of $16,006 for the three months ended November 30, 2022. The net loss for the 2023 quarter is primarily attributed to general operating expenses of $178,924 (2022 - $32,413), a foreign exchange loss of $4,917 (2022 - a gain of $15,061) and a provision for GST recoverable of $30,513 (2022 - $1,544). The significant increase in general operating expenses is mainly attributable to the consulting fees of $155,238, $145,238 of which is related to the consulting
agreement with Commodity Partners Inc. for capital market advisory services. Commodity Partners Inc. became a significant shareholder of the Company through the non-brokered private placement completed in December 2023. Other expense items are generally consistent with the comparative period.
SUMMARY OF QUARTERLY RESULTS
The following table sets forth selected unaudited financial information for the Company’s eight most recent quarters ending with the last quarter for the three months ended November 30, 2024.
| For the Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | ||||||
| Nov. 30, 2024 | Aug. 31, 2024 | May 31, 2024 | Feb. 29, 2024 | Nov. 30, 2023 | Aug. 31, 2023 | May 31, 2023 | Feb. 28, 2023 | |
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |
| Total revenues | - | - | - | - | - | - | - | - |
| Net income (loss) from continuing operations | (308,348) | (382,107) | (215,926) | (346,299) | (214,056) | 37,523 | (60,948) | (29,427) |
| Net income (loss) | (308,348) | (382,107) | (215,926) | (346,299) | (214,056) | 37,523 | (60,948) | (29,427) |
| Net income (loss) from continuing operations per share - basic and diluted | (0.03) | (0.04) | (0.02) | (0.04) | (0.08) | 0.01 | (0.01) | (0.01) |
| Net income (loss) per share - basic and diluted | (0.03) | (0.04) | (0.02) | (0.04) | (0.08) | 0.01 | (0.01) | (0.01) |
Factors That Affect the Comparability of the Quarterly Financial Data Disclosed Above
General operating expenses increased significantly during fiscal 2024 largely due to consulting fees paid to Commodity Partners Inc. and expanded marketing activities. The significant losses in the fourth quarter of fiscal 2024 and the first quarter of fiscal 2025 were mainly attributable to legal fees related to the business combination transaction. The net income in the fourth quarter of fiscal 2023 primarily resulted from a gain on extinguishment of accounts payable totalling $103,869.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2024, the Company held a cash balance of $9,275, a decrease of $25,426 from the cash balance of $34,701 as of August 31, 2024. The Company spent $106,426 on operating activities and received $81,000 of loan proceeds from LAI SPV.
The Company had a working capital deficiency of $377,705 as of November 30, 2024 compared to a working capital deficiency of $69,357 as of August 31, 2024.
Going Concern
As at the date of this MD&A, the Company had not yet achieved profitable operations and expects to incur further losses in the development of its business objectives. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due and to attain future profitable operations. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. Further, if an equity offering is used
to raise required additional capital, it may result in dilution to existing shareholders based on the size of such an offering. The aforementioned factors indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.
Please see heading 'Company Overview' relating to the completion of the Offering and public listing.
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 its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
RELATED PARTY TRANSACTIONS AND BALANCES
Included in accounts payable is $10,500 (August 31, 2024 - $10,500) in management fees owed to the Company's directors and officers. These amounts are unsecured, non-interest bearing, and have no specific terms of repayment.
Key management personnel include directors (executive and non-executive) and officers of the Company. The compensation paid or payable to key management personnel and entities over which they have control or significant influence during the three month periods ended November 30 is as follows:
| 2024 | 2023 | |
|---|---|---|
| Management fees | $ 15,000 | $ 11,000 |
The Company entered into the following transactions with related parties during the three months ended November 30, 2024:
a) Incurred management fees of $7,500 (2023 - $2,500) the former Chief Executive Officer ("CEO") of the Company.
b) Incurred management fees of $7,500 (2023 - $1,000) to a company controlled by the former Chief Financial Officer ("CFO") of the Company.
c) Incurred management fees of $nil (2023 - $7,500) to Varshney Capital Corp. a company partially controlled by Peeyush Varshney, a former director of the Company.
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 financial statements and reported amounts of revenues 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 those estimates and judgments. The impacts of such estimates are pervasive throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised.
Areas requiring a significant degree of estimation and judgment by the Company's management relate to but are not limited to:
- the fair value measurements for financial instruments;
- the recoverability and measurement of deferred tax assets and liabilities; and
- whether the Company has sufficient financing to operate as a going concern.
Actual results may differ from those estimates and judgments.
FINANCIAL INSTRUMENTS
As of November 30, 2024, the carrying amounts of accounts payable, and loans payable carried at amortized cost, are considered a reasonable approximation of their fair values due to the relatively short period to maturity of these financial instruments. Cash and loan receivable are carried at fair value.
Financial Instruments
Fair Values
The following provides an analysis of financial instruments that are measured, subsequent to initial recognition, at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
- Level 1 – quoted prices in active markets for identical investments
- Level 2 – inputs other than quoted prices included in Level 1 that are observable for the investment, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3 – inputs for the investments that are not based on observable market data
The level in the fair value hierarchy within which the financial asset or financial liability is categorized is determined on the basis of the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of cash and cash equivalents, loans receivable, accounts payable and loans payable. In management’s opinion, the Company’s carrying values of cash and cash equivalents, loans receivable, accounts payable and loans payable approximate their fair values due to the immediate or short-term maturity of these instruments.
Financial risk management
The Company’s financial risks arising from its financial instruments are credit risk, liquidity risk, and interest rate risk. Risk management is carried out by the Company's management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.
Credit risk
Credit risk is the risk of potential loss to the Company if the counter party to a financial instrument fails to meet its contractual obligations. The credit risk of the Company is associated with cash and loan receivable.
The credit risk with respect to its cash is minimal as they are held with high-credit quality financial institutions. The loan receivable pertains to a loan extended to Light AI, with which the Company completed the Transaction subsequently. Following the Transaction, the loan became an intercompany balance.
Liquidity risk
The Company's approach to managing liquidity risk is to ensure that it will have enough liquidity to meet liabilities when due. as they fall due. As at November 30, 2024, the Company has a cash balance of $9,275 and current liabilities of $730,992. The Company's accounts payable have contractual maturities of less than 30 days and are subject to normal trade terms. Following the Transaction, the loans payable were reclassified as an intercompany balance.
Interest rate risk
The Company is exposed to interest rate risk arising from cash held in Canadian financial institutions. The interest rate risk on cash is not considered significant due to its short-term nature and maturity. The exposure to interest rates for the Company is considered minimal.
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SHARE CAPITAL
At November 30, 2024 and August 31, 2024, the Company had 9,360,414 common shares outstanding.
Share consolidation
On October 25, 2023, the Company completed a consolidation of the Company’s issued and outstanding common shares, stock options and warrants on a basis of one (1) post-consolidation common share for every four (4) pre-consolidation common shares. All information relating to basic and diluted loss per share, issued and outstanding common shares, stock options and warrants in these financial statements have been adjusted and restated retrospectively to reflect the share consolidation.
Share Issuances
The Company did not issue any common shares during the three months ended November 30, 2024 and 2023. During the six months ended February 29, 2024, the Company completed a non-brokered private placement of 6,799,800 units at a price of $0.07 per unit for gross proceeds of $475,986. Each unit is comprised of one common share and one-half of share purchase warrant; each whole warrant entitles the holder to acquire one additional common share for a period of 24 months at an exercise price of $0.11. No proceeds were allocated to the warrants based on the residual method. The Company incurred filing and other expenses of $22,233 in connection with the private placement.
Stock options
The Company’s Board of Directors approved the implementation of an aggregate maximum of 10% of the issued and outstanding common shares may be issued for granting of options to directors, senior officers, full time employees of the Company, affiliates or subsidiaries, or any consultants to the Company. The terms of the awards under the Plan are determined by the Board of Directors.
Stock option transactions are summarized as follows:
| Number of options | Weighted Average Exercise Price | |
|---|---|---|
| Balance, August 31, 2023 | 5,000 | $ 34.00 |
| Forfeited | (5,000) | 34.00 |
| Balance, August 31, 2024 and November 30, 2024 | - | $ - |
Performance Share Units and Restricted Share Units
The Company’s Board of Directors approved the implementation of a restricted share unit plan (the "RSU Plan"). Under the RSU Plan, eligible persons may (at the discretion of the Board) be allocated several RSUs as the Board deems appropriate, with vesting provisions also to be determined by the Board, subject to a maximum vesting term of three (3) years from the end of the calendar year in which RSUs were granted. Upon vesting, eligible participants shall be entitled to a cash payment equal to the number of RSUs granted, multiplied by the fair market value of the Company's common shares on the redemption date. The Company shall also have the option (at the discretion of the Board) to settle amounts owing to eligible persons via the issuance of common shares of the Company.
The Company had no RSU transactions during the year ended August 31, 2024 and the three months ended November 30, 2024. There were no RSUs outstanding as at August 31, 2024 and November 30, 2024.
Warrants
Warrants are issued as private placement incentives and measured using the residual method. Agents' warrants are measured at fair value on the date of the grant determined using the Black-Scholes Option Pricing Model.
| Number of Warrants | Weighted Average Exercise Price | |
|---|---|---|
| Balance, August 31, 2023 | 1,437,500 | $ 0.60 |
| Issued | 3,399,900 | 0.11 |
| Balance, August 31, 2024 and November 30, 2024 | 4,837,400 | $ 0.26 |
As at November 30, 2024, the following warrants were outstanding:
| Number of Warrants | Exercise Price | Expiry Date |
|---|---|---|
| 1,437,500 | $ 0.60 | July 12, 2025 |
| 3,399,900 | $ 0.11 | December 15, 2025 |
| 4,837,400 |
The share-based payment reserve records items recognized as share-based compensation expense and other share-based payments until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital.
OUTSTANDING SHARE DATA
The Company had the following common shares, stock options and warrants outstanding as at the date of this report:
| Issued and Outstanding Common shares | 117,431,016 |
|---|---|
| Stock options | 12,686,945 |
| Deferred share units | 1,750,000 |
| Warrants | 25,432,110 |
| 157,300,071 |
Stock Options
As of the date of this report, the Company had the following 12,686,945 stock option outstanding as follows:
| Volume | Exercise Price | Expiration Date |
|---|---|---|
| 600,000 | $ 0.10 | 13-Dec-26 |
| 755,000 | $ 0.25 | 13-Dec-26 |
| 700,000 | $ 0.35 | 13-Dec-26 |
| 4,446,270 | $ 0.36 | 1-Jul-28 |
| 612,675 | $ 0.36 | 1-Jan-29 |
| 5,573,000 | $ 0.70 | 15-Jan-35 |
| 12,686,945 |
Deferred Share Units
As of the date of this report, the Company had the 1,750,000 Deferred Share Units.
Warrants
As of the date of this report, the Company had 25,432,110 warrants outstanding as follows:
| Volume | Exercise Price | Expiration Date |
|---|---|---|
| 1,431,250 | $ 0.60 | 12-Jul-25 |
| 3,374,900 | $ 0.11 | 15-Dec-25 |
| 714,500 | $ 0.11 | 11-Mar-26 |
| 700,000 | $ 0.10 | 24-Apr-26 |
| 524,640 | $ 0.25 | 13-Dec-26 |
| 15,286,100 | $ 0.80 | 30-Jun-26 |
| 1,378,500 | $ 0.80 | 8-Jul-26 |
| 1,829,230 | $ 0.55 | 30-Jun-26 |
| 192,990 | $ 0.55 | 8-Jul-26 |
| 25,432,110 |
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
New accounting standards
There were no new or amended IFRS pronouncements effective September 1, 2024 that are expected to impact the Company's consolidated financial statements.
RISK AND UNCERTAINTIES
The Company's business is subject to risks inherent in a high growth, heavily regulated enterprise, and the Company has identified certain risks pertinent to its business that may materially and adversely affect our business, products, financial condition and operating results. There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or discussed in the forward-looking statements set forth in this report relating to our financial results, operations and business prospects. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of this MD&A. These risks include, but are not limited to the following:
Additional funding requirements
The Company has not generated positive cash flows from operating activities. As a result of the Company's negative cash flow from operating activities, the Company continues to rely on the issuance of securities or other sources of financing to generate the funds required to fund its business. The Company may continue to have negative operating cash flow for the foreseeable future. The Company expects to continue to increase operating expenses as it implements initiatives to grow its business. If the Company's revenues do not increase to offset these expected increases in costs and operating expenses, the Company will not be profitable. There is no assurance that the Company will be successful in achieving a return on shareholders' investments and the likelihood of success must be considered in light of the early stage of operations.
Business acquisition risk
A number of risks associated with business acquisition include: (i) potential disruption of our ongoing business; (ii) distraction of management; (iii) increased financial leverage; (iv) the anticipated benefits and cost savings of those transactions may not be realized fully, or at all, or may take longer to realize than expected; (v) increased scope and complexity of our operations; and (vi) loss or reduction of control over certain of our assets. The presence of one or
more material liabilities and/or commitments of an acquired company that are unknown to us at the time of acquisition could have a material adverse effect on our results of operations, business prospects and financial condition. A strategic transaction may result in a significant change in the nature of our business, operations and strategy. In addition, we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our existing operations.
DISCLOSURE CONTROLS
In connection with Exemption Orders issued by each of the securities commissions across Canada, the Chief Executive Officer and Chief Financial Officer of the Company will file a Venture Issuer Basic Certificate with respect to the financial information contained in the audited annual financial statements and respective accompanying Management’s Discussion and Analysis.
In contrast to the certificates under National Instrument (“NI”) 52-109 (Certification of disclosure in an Issuer’s Annual and Interim Filings), the Venture Issuer Basic Certification does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting as defined in NI 52-109.
CORPORATE GOVERNANCE
Pursuant to the Transaction, On December 13, 2024, the Company’s current board of directors and officers all resigned and were replaced with the following:
Directors:
Steven Semmelmayer
Mark Attanasio
Hugh Cleland
Emmanuel Blin
Officers:
Peter Whitehead – Chief Executive Officer
Thomas Scarnecchia – Chief Operating Officer
Darren Tindale – Chief Financial Officer
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements (collectively, “forward-looking statements”) in this MD&A about the Company’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements and/or forward-looking statements within the meaning of applicable securities legislation, securities regulation and securities rules, as amended, and the policies, notices, instruments and blanket orders in force from time to time that are applicable to an issuer.
In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “might”, “will”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “indicate”, “seek”, “believe”, “predict” or “likely”, or the negative of these terms, or other similar expressions intended to identify forward-looking statements.
The Company has based these forward-looking statements on its current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs.
These forward-looking statements include, among other things, statements relating to:
- the intentions, plans and future actions of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the expectations regarding the proceeds raised, expenses and operations of the Company, LAI SPV, Mojave and the Resulting Issuer;
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- the business and future activities of the Company, LAI SPV, Mojave and the Resulting Issuer and anticipated developments in the operations of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the competitive position and regulatory environment in which the Company, LAI SPV, Mojave and the Resulting Issuer expects to operate;
- the business objectives and estimated costs for the next twelve (12) months or more of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the anticipated cash and additional financing needs of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the ability of the Company, LAI SPV, Mojave and the Resulting Issuer to obtain necessary funding;
- the performance of the Company, LAI SPV, Mojave and the Resulting Issuer’s business and operations as its relates to its investments;
- the future liquidity and financial capacity of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the effect on the Company, LAI SPV, Mojave and the Resulting Issuer of any changes to existing or new legislation, policy or government regulation;
- the length of time required to obtain permits, certifications and approvals;
- the availability of labour and talent;
- estimated budgets of the Company, LAI SPV, Mojave and the Resulting Issuer;
- limitations on insurance coverage of the Company, LAI SPV, Mojave and the Resulting Issuer;
- the timing of and issuance of closing the Transaction in a timely manner, and the receipt of regulatory and other required approvals;
- the use of available funds, as may be proposed by the Company, LAI SPV, Mojave and the Resulting Issuer;
- the Resulting Issuer’s expected reliance on key management personnel, advisors and consultants;
- expectations regarding trends in the healthcare industry;
- results and expectation concerning various partnerships, strategic alliances, projects and marketing strategies of the Company, LAI SPV, Mojave and the Resulting Issuer; and
- the economy generally.
Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect.
Forward-looking statements pertaining to the Company’s need for and ability to raise capital in the future are based on the projected costs of operating the Company and management’s experience with raising funds in current market circumstances. Please also refer to the Risk Factors disclosed in the prospectus filed by the Company on Sedarplus.
Forward-looking statements regarding treatment by governmental authorities assumes no material change in regulations, policies, or the application of the same by such authorities. Forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Accordingly, readers should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which such statement is made. New factors emerge from time to time, and it is not possible for the Company’s management to predict all of such factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The Company does not undertake any obligation to update any forward-looking statements to reflect information, events, results, circumstances or otherwise after the date hereof or to reflect the occurrence of unanticipated events, except as required by law including securities laws.
Actual results could differ materially from those anticipated in the forward-looking statements as a result of the risk factors set forth above and elsewhere in this MD&A.
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APPROVAL
The Board of Directors of Light AI Inc. has approved the contents of this management discussion and analysis on January 29, 2025.