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Three Sixty Solar Ltd. — Interim / Quarterly Report 2024
Feb 14, 2024
42916_rns_2024-02-14_62ae105d-748a-4816-a766-eaae8b9bd10b.pdf
Interim / Quarterly Report
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THREE SIXTY SOLAR LTD. (CBOE CA: VSOL; OTC: VSOLF)
Management’s Discussion & Analysis Fort the three months ended December 31, 2023 & 2022
1
Management's Discussion & Analysis
This Management’s Discussion and Analysis (“MD&A”) of Three Sixty Solar Ltd. (the “Company”) is dated for February 14, 2024, and provides an analysis of the Company’s unaudited condensed interim consolidated financial statements for the three months ended December 31, 2023 and 2022. The information contained in this MD&A was prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The information in this MD&A should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements for the three months ended December 31, 2023, as well as its audited financial statements for the year ended September 30, 2023.
Additional information relating to the Company is available on the Company’s website at www.threesixtysolar.com. The Company’s annual information form (“AIF”) and other public filings made by the Company with Canadian securities regulatory authorities can be found under the Company’s SEDAR+ profile at www.sedarplus.ca.
Unless otherwise noted, all currency amounts are expressed in Canadian dollars.
Cautionary Note Regarding Forward-Looking Information
This MD&A includes certain statements that may be deemed “forward-looking statements”. Forward-looking statements usually include words such as may, will, would, expect, plan, anticipate, budget, estimate, potential, believe, intend, or other similar words. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. The Company does not update or revise forward-looking information even if new information becomes available unless legislation requires the Company to do so. Investors should not place undue reliance on forward-looking statements. Additional details of the specific risks associated with the operations of the Company and such forward-looking statements are set out below under “Risks and Uncertainties”. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.
Non-IFRS Measures
This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to compliment those IFRS measures by providing further understanding of the results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. Non-IFRS measures including “Working Capital” (calculated as current assets less current liabilities) were used in order to facilitate operating performance comparisons from period to period.
Overview and Nature of Operations
The Company was incorporated in Canada on February 12, 1996. The address of the Company’s registered office and head office is 1500, 1055 West Georgia Street, Vancouver, BC, V6E 4N7. The Company’s stock trades on the Cboe Canada exchange (“Cboe Canada”) under the symbol “VSOL”.
All of the Company’s efforts are devoted to developing and selling a high-density clean energy solution. The Company’s patent-pending vertical solar structures use up to 90% less land space than conventional methods allowing customers to implement a clean energy solution without harming the environment or surrounding habitats. The vertical solar structures provide up to a 10% power increase from heat dissipation through stack effect airflow within the towers and up to a 20% power increase from reflective and direct light, depending upon location and orientation compared to conventional methods. The tower architecture also enables the addition of other utilities to projects, such as telecommunications equipment, backup battery storage and backup generation, security, lighting, and others. The Company is currently in the pre-commercial stage, and has built a single demonstration tower in Kelowna, British Columbia, Canada, that recently completed an 18-month test program.
2
Key Events
Reverse Takeover Transaction (“Transaction”)
On February 10, 2022, the Company and 1345100 B.C. Ltd., a newly created subsidiary of the Company (“Newco”), and Three Sixty Solar Ltd. (“Opco”) entered into an amalgamation agreement (the “Amalgamation Agreement”). The Amalgamation Agreement was amended on May 6, 2022. Under the Amalgamation Agreement, the Company consolidated all of its issued and outstanding common shares on a 2:1 basis and Newco amalgamated with Opco. All of the outstanding common shares of the Company were exchanged for common shares of Opco on a one for one basis. In addition, all of the outstanding convertible securities of Opco were exchanged for securities of the Company on a one for one basis and on substantially the same economic terms and conditions. The transaction was completed on August 4, 2022.
In consideration for the Transaction, the Company issued a total of 19,413,447 common shares of the Company to shareholders of Opco. As part of the transaction, the Company issued 3,833,334 performance warrants. The performance warrants vest when the Company has achieved $10,000,000 in cumulative gross revenue.
Immediately after the completion of the transaction, the former holders of Opco’s shares own 81% of the shares of the combined entity and the existing holders of the Company own 19% of the total combined entity shares. As a result of the Transaction, the former shareholders of Opco acquired control of the Company, thereby constituting a reverse takeover of the Company. The Transaction is considered a purchase of the Company’s net assets by the shareholders of Opco.
Business updates
On November 14, 2023, the Company signed a non-binding letter of intent (the “LOI”) with Greenlit Energy Systems (“Greenlit”) to proceed with the sale and installation of a Three Sixty Solar Tower in south India. Power generated from the tower will be utilized by a local university or similar institution, with potential grid connection for net metering.
The parties are already engaged with multiple fabricating organizations to source fabrication of solar towers in India, with the goal to finalize costs for a binding purchase order by early 2024. Greenlit Energy Systems is a Renewable Energy Services Company providing design, engineering, installation, and O&M services for utility and megawatt scale solar systems in India. The company provides end-to-end power solutions to customers and has delivered more than 10 MW of installed capacity in the last three years alone.
On November 27, 2023, the Company received a purchase order from Rocky Mountain Log and Timber (“RMLT”) to proceed with the sale and installation of a Three Sixty Solar Tower in Hamilton, MT, USA.
The purchase order is subject to final optimization engineering, permitting, and any necessary geotechnical and environmental assessments. The purchase order is valued in the high six figures.
Rocky Mountain Log and Timber is a builder of premium log homes based in Hamilton, Montana, and operating throughout the northwestern United States. With substantial energy demands to run their timber operation, the solar tower is intended to provide renewable energy to the operations while fitting in the space available on site.
On January 2, 2024, the Company signed of a Memorandum of Understanding (MOU) for the sourcing, fabrication, implementation, and distribution of vertical solar tower systems within the Middle East, North Africa, and Turkey.
The MOU is signed with a consortium of partners including Infraforward Strategies (US), Tareeq Al-Ahmadi Company (Iraq), Fibercom Company (Turkey), and Zamil Group Trade & Services Company (KSA). The MOU focuses on collectively rolling out Three Sixty Solar’s vertical solar tower technology in the Middle East, North Africa, and Turkey, with opportunities for future geographic expansion upon success in the defined region. The partners have already begun cooperative efforts on material and fabrication sourcing in the region as well as begun exploring commercial opportunities in Iraq, Saudi Arabia and Turkey
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Summary of Financings
During the three months ended December 31, 2023, the Company issued 343,472 common shares pursuant to the exercise of 343,472 warrants at $0.25 for proceeds of $85,868, including $10,250 subscription received in the year ended September 30, 2023, $3,435 was transferred from reserves to share capital.
Changes to the Governance Team
On October 13, 2023, the Company added Keegan Lang to its advisory board. Lang brings a wealth of experience in project development in the renewables space including managing the delivery of Engineering, Procurement, and Construction contracts in Canada and the United States. Lang is a seasoned professional in the field of business development and consultancy with a track record of accomplishments. With a background in the oil and gas industry, Keegan transitioned into the renewables sector in 2018, where he has since thrived. Keegan has played a pivotal role in the growth of renewable energy projects, leveraging his network of professionals in the sector. His commitment to customer satisfaction and a customer-focused approach have enabled him to deliver more than $200mm worth of installed projects over the last five years.
The Company granted 200,000 stock options to Lang exercisable at $0.60 until October 3, 2026, 10 % of these options vest immediately and 15% vest on February 4, 2024 and in equal tranches every 6 months thereafter.
Results of Operations
Balance sheet data
| As at | December 31, 2023 | September 30, 2023 | ||
|---|---|---|---|---|
| Total assets | $ | 707,569 | $ | 817,709 |
| Total liabilities | $ | 1,493,389 | $ | 1,564,557 |
| Shareholders’ deficiency | $ | (1,023,944) | $ | (746,848) |
Total assets as at December 31, 2023 and September 30, 2022 were $707,569 and $817,709, respectively. The decrease in total assets of $110,140 was primarily due to decreases prepaid expenses. The decrease in prepaids (December 31, 2023 - $ 287,411, September 30, 2023 - $382,628), is due to the Company using deposits on contracts for marketing.
Total financial liabilities as at December 31, 2023 and September 30, 2023 were $1,731,513 and $1,564,557, respectively. The increase in total liabilities of $166,956 was primarily due to accounts payable, accrued liabilities, a $40,000 loan payable, and $31,500 of deferred other income related to a prepaid sublease of the office space.
Shareholder’s deficiency as at December 31, 2023 and September 30, 2023 were $1,023,944 and $746,848 respectively. The decrease in shareholders’ equity is mainly due to losses sustained during the year, offset by additions to shareholders’ equity stemming from warrant exercises.
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Income statement data for the three months ended December 31, 2023 and 2022
| December 30, | December 30, | ||||||
|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change ($) | Change (%) | ||||
| Operating expenses | |||||||
| Corporate | $ | 56,400 |
$ | 51,561 |
$ | 4,839 | 9% |
| Depreciation | 26,881 | 45,253 | (18,372) | (41%) | |||
| Marketing | 67,586 | 22,726 | 44,860 | 197% | |||
| Office | 76,578 | 63,858 | 12,720 | 20% | |||
| Professional fees | 119,714 | 344,545 | (224,831) | (65%) | |||
| Research and development | 13,888 | - | 13,888 | 100% | |||
| Salaries and wages | 45,000 | 61,390 | (16,390) | (27%) | |||
| Share-based compensation | 21,811 | 333,898 | (312,087) | (93%) | |||
| Interest expenses | 170 | - | 170 | 100% | |||
| Travel | 1,613 | 2,130 | (517) | (24%) | |||
| Total operating expenses | $ | (429,641) |
$ | (925,361) |
495,720 | (54%) | |
| Other loss | |||||||
| Interest Income | - | 401 | (401) | (100%) | |||
| Foreign exchange gain | 360 | (3,111) | 3,471 | (112%) | |||
| Other income | 35,756 | - | 35,756 | 100% | |||
| Net and comprehensive loss | $ | (393,525) |
$ | (928,071) |
534,546 | (58%) |
Net and comprehensive loss decrease by $534,546 from $928,071 for the three months ended December 31, 2022 to $393,525 for the three months ended December 31, 2023. The change in net and comprehensive loss is due to the following factors:
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A decrease in depreciation expense of $18,372 is due to the leasehold improvements, and furniture assets that were fully amortized during the year ended September 30, 2023.
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An increase in marketing expense of $44,860 as a result of corporate and investor relations marketing services. The purpose of these marketing services is to increase investor awareness in the Company to enable the Company to continue its operational plan and gain market share in the solar industry.
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An increase in office expense of $12,720 is due to higher interest expenses on the lease liability as a results of extended office lease.
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A decrease in professional fees expense of $224,831 mostly due to the Company’s curtail of consulting services, and adjustment for accrued legal expenses.
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An increase in research and development expense of $13,888 due the cost of feasibility study in connection with potential customers.
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A decrease in salaries and wages expense of $16,390 due to the Company paying directors’ fee during the three months ended December 31, 2022. The Company did not pay director’s fee during the three months ended December 30, 2023.
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A decrease in share-based compensation expense of $312,087 due to the vesting and granting of less stock options, offset by the vesting of RSUs during the three months ended December 31, 2023.
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Summary of Quarterly Results
| Net and | |||
|---|---|---|---|
| Total revenue | comprehensive loss | Basic loss per share | |
| ($) | ($) | ($) | |
| December 31, 2023 (Q1, 2024) | Nil | (393,525) | (0.01) |
| September 30, 2023 (Q4, 2023) | Nil | (2,147,835) | (0.05) |
| June 30, 2023 (Q3,2023) | Nil | (2,101,955) | (0.05) |
| March 31, 2023 (Q2, 2023) | Nil | (4,105,556) | (0.13) |
| December 31, 2022 (Q1, 2023) | Nil | (928,071) | (0.04) |
| September 30, 2022 (Q4, 2022) | Nil | (2,390,569) | (0.13) |
| June 30, 2022 (Q3, 2022) | Nil | (401,342) | (0.02) |
| March 31, 2022 (Q2, 2022) | Nil | (325,280) | (0.02) |
Historical quarterly results of operations and loss per share data do not necessarily reflect any recurring expenditure patterns or predictable trends. The Company’s expenditures have, to date, been subject to the availability of financing to fund continued operations. The Company has realized significantly higher net and comprehensive losses during the most recent four quarters. These higher net and comprehensive losses in recent quarters are explained as follows:
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The $2,390,569 net and comprehensive loss for Q4 2022 is largely due to listing expenses resulting from the Transaction which was completed during the quarter. Also contributing to the net and comprehensive loss for Q4 2022 are professional and regulatory fees associated with the Transaction, as well as share based payment expenses derived from the vesting of options that were issued during the quarter. Higher losses for Q4 2022 and following quarters is also partially attributed to the assumption and consolidation of expenses from an additional company as a result of the Transaction.
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The decrease in net and comprehensive loss to $928,071 for Q1 2023 from $2,390,569 for Q4 2022 is mostly a result of listing expenses incurred in Q4 2022 in connection to the Transaction which resulted in a comparatively higher net and comprehensive loss for Q4 2022. Share based payment expenses were also lower in Q1 2023 in comparison to Q4 2022 as a result of the timing of the vesting periods of outstanding options and restricted share units.
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The $4,105,556 and $2,101,955 net and comprehensive losses for Q2 2023 and Q3 2023 respectively are characterized by the Company incurring higher marketing expenses than in prior quarters. In these quarters, the Company incurred high marketing costs related to corporate and investor relations marketing services. These marketing services were acquired by the Company to encourage investment in the Company that will enable the Company to continue its operational plan and gain market share in the solar industry.
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The $2,147,835 net and comprehensive loss for Q4 2023 increased slightly compared to Q3 2023. There was an increase in corporate expenses and marketing services due to the Company incurring high marketing costs related to corporate and investor relations marketing services, offset by a decrease in professional fees and share-based compensation.
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The $393,525 net and comprehensive loss for Q1 2024 decreased significantly compared to Q4 2024. The decrease was driven by the $1,629,221 decrease in marketing costs as the CDMG and Promethean work orders were completed during Q4 2023.
Off-Balance Sheet Arrangements
As at the date of this MD&A, the Company has not entered into any off-balance sheet or income statement arrangements.
6
Proposed Transactions
In the normal course of business, the Company evaluates transactions and, in some cases, makes or is presented with proposals. These proposals, which are usually subject to Board, regulatory and sometimes shareholder approvals, may involve future payments, share issuances, or other commitments. These future obligations are usually contingent in nature. As of the date of this report, the Company has possible transactions that it is examining. Management is uncertain whether any of these proposals will ultimately be completed.
Liquidity and Capital Resources
The following table summarizes the Company’s cash flows for the three months ended December 31, 2023 and 2022:
| For the three months ended December 31, 2023 For the three months ended December 31, 2022 |
For the three months ended December 31, 2023 For the three months ended December 31, 2022 |
|---|---|
| Cash used in operating activities $ Cash provided by investing activities Cash provided by financing activities Increase (decrease) in cash Cash, beginning of period Cash, end of period $ |
(118,866) $ (1,909,564) - - 107,158 101,599 |
| (11,708) (1,807,965) 36,057 2,708,553 |
|
24,349 $ 900,588 |
Cash used in operating activities for the three months ended December 31, 2023 of $118,886 was lower by $1,790,698 in comparison to the cash used in operating activities for the three months ended December 31, 2022. The decrease in cash used is mainly due to amounts spent in the comparable period on corporate and investor relations marketing services in support of encouraging investment in the Company. In conjunction with the amounts spent on marketing services, the Company also spent higher amounts on operational costs as a result of increased operational and business development activity during the comparable period.
Cash provided by investing activities for the three months ended December 31, 2023 and 2022 was $Nil.
Cash provided by financing activities for the three months ended December 31, 2023 of $107,158 was higher by $5,559 in comparison to the cash provided by financing activities for the comparable period of the three months ended December 31, 2022. Cash provided by financing activities during both of these periods were derived from proceeds received relating to the issuance of shares and warrants under various financings that closed during those fiscal periods.
Although the Company anticipates it will have positive cash flows from operating activities in future periods, to the extent that the Company has negative cash flows in any future periods, net proceeds from future financings may be used to fund such negative cash flows from operating activities, if any.
As at December 31, 2023, the Company had an accumulated deficit of $13,639,910 (September 30, 2023 - $13,246,385). As at December 31, 2023, the Company had a cash balance of $24,349 (September 30, 2023 - $36,057) and working capital deficit of $1,063,573 (September 30, 2023 - $782,216). The Company does not have any commitments for capital expenditures.
To fund operations to date, the Company has depended on funds from a related company, and external financings including equity issuances and debt financing. Management will determine whether to accept any future offer for financing, weighing such factors as the financing terms, share price at the time and current market conditions, among other factors. Circumstances that could impair the Company’s ability to raise additional funds include general economic conditions and the other factors set forth under the “ Risks and Uncertainties ” section of this MD&A.
On an ongoing basis, management evaluates and adjusts its planned level of activities to maintain adequate levels of working capital.
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Going Concern
The Company’s financial statements have been prepared on the basis that the Company will continue as a going concern which assumes that the Company will be able to meet its commitments, continue operations, and realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception, has no recurring source of revenue and, as at December 31, 2023 had an accumulated deficit of $13,639,910. These material uncertainties cast significant doubt upon the Company’s ability to continue as a going concern.
To fund future operations and to cover administrative expenses, if required, the Company will take part in additional financings including but not limited to the issuance of debt and additional equity. However, the Company has no assurance that such financing will be available when required or if such financing will be available on favourable terms. Factors that could affect the availability of financing include the Company’s performance, the state of international debt and equity markets, investor perceptions and expectations, and the global financial markets.
Related Party Transactions
The Company’s related parties are its key management personnel and the companies controlled by its key management personnel. Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole.
The Company has determined that key management personnel consist of members of the Company's Board of Directors and corporate officers.
During the three months ended December 31, 2023 and 2022, the Company incurred the following related party transactions:
| For the three months ended | For the three months ended | For the three months ended | For the three months ended | |
|---|---|---|---|---|
| December 31, 2023 | December | 31, 2022 | ||
| Salaries and benefits | ||||
| Brian Roth, Chief Executive Officer | $ | 45,000 | $ | 44,308 |
| Robert Birmingham, Director | - | 3,182 | ||
| Kyle Stevenson, Director | - | 6,414 | ||
| Professional fees | ||||
| Austin Thornberry, Chief Financial Officer | 9,000 | 5,000 | ||
| Share-based payments | ||||
| Austin Thornberry, Chief Financial Officer | - | 52,553 | ||
| Scott Mcleod, Director | - | 27,693 | ||
| $ | 54,000 | $ | 139,150 |
Related Party Balances
As at December 31, 2023 included in accounts payable and accrued liabilities is $11,077 (September 30, 2023 - $11,077) due to Brian Roth, Chief Executive Officer of the Company, for vacation payables.
As at December 31, 2023, the loans payable balance included $12,700 (September 30, 2023 - $12,700) due to Peter Sherba, Director of the Company. The amount is non-interest bearing, unsecured and payable on demand.
Outstanding Share Data
The Company is authorized to issue an unlimited number of common shares without par value.
At December 31, 2023, the Company had a total of 45,125,347 issued and outstanding common shares as well as the following warrants and options:
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| Outstanding | Exercisable | ||
|---|---|---|---|
| number of options | number of options | Exercise price | Expiry date |
| 1,370,000 | 1,370,000 | $1.00 | August 9, 2024 |
| 350,000 | 350,000 | $0.62 | October 25, 2024 |
| 75,000 | 37,500 | $1.00 | December 2, 2024 |
| 50,000 | 50,000 | $1.00 | April 19, 2025 |
| 50,000 | 50,000 | $1.00 | July 12, 2025 |
| 200,000 | 20,000 | $0.60 | October 3, 2026 |
| 2,095,000 | 2,095,000 |
| Outstanding | ||
|---|---|---|
| number of warrants | Exercise price | Expiry date |
| 7,391,122 | $0.25 | August 4, 2025 |
| 1,103,975 | $0.10 | January 25, 2025 |
| 100,345 | $2.00 | August 4, 2024 |
| 3,833,334 | $0.05 | August 4, 2027 |
| 1,715,553 | $0.75 | June 9, 2025 |
| 37,450 | $0.60 | June 9, 2028 |
| 809,034 | $0.75 | June 26, 2025 |
| 6,650 | $0.60 | June 26, 2028 |
| 14,997,463 |
On February 6, 2023, 1,943,000 Financing Warrants automatically converted to one unit as per the Financing Warrant agreements. Each unit consists of one share and one Additional Warrant. As at December 31, 2023, the Company has 1,943,000 Additional Warrants outstanding.
As at December 31, 2023, the Company also had 280,000 restricted share units outstanding, 67,500 units are exercisable.
As at the date of this MD&A, the Company had a total of 45,390,147 issued and outstanding common shares as well as the following warrants and options:
| Outstanding | Exercisable | ||
|---|---|---|---|
| number of options | number of options | Exercise price | Expiry date |
| 1,370,000 | 1,370,000 | $1.00 | August 9, 2024 |
| 350,000 | 350,000 | $0.62 | October 25, 2024 |
| 75,000 | 75,000 | $1.00 | December 2, 2024 |
| 50,000 | 50,000 | $1.00 | April 19, 2025 |
| 50,000 | 50,000 | $1.00 | July 12, 2025 |
| 200,000 | 20,000 | $0.60 | October 3, 2026 |
| 2,095,000 | 1,915,000 |
| Outstanding | ||
|---|---|---|
| number of warrants | Exercise price | Expiry date |
| 7,126,322 | $0.25 | August 4, 2025 |
| 1,103,975 | $0.10 | January 25, 2025 |
| 100,345 | $2.00 | August 4, 2024 |
| 3,833,334 | $0.05 | August 4, 2027 |
| 1,715,553 | $0.75 | June 9, 2025 |
| 37,450 | $0.60 | June 9, 2028 |
| 809,034 | $0.75 | June 26, 2025 |
| 6,650 | $0.60 | June 26, 2028 |
| 14,732,663 |
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As at the date of the MD&A, there are 1,943,000 Additional Warrants outstanding.
As at the date of this MD&A, there is 280,000 restricted share units outstanding (“RSU”s). 400,000 of these RSUs were granted on January 27, 2023, and vest 10% on August 4, 2023, and 15% each six months thereafter, 187,500 of these RSUs were forfeited. None of these RSUs shall vest and be exercisable until the board of directors has determined the Company has earned cumulative gross revenue of at least $10,000,000 as determined by the Company's financial statements. These RSUs expire at the earlier of 5 years from the date of vesting and January 27, 2033. 67,500 of these RSUs vest 50% in 15 days from the date of grant, and the remaining 50% vest in 45 days from the grant date. These RSUs expire on January 16, 2028.
Internal Controls Over Financial Reporting
Internal control over financial reporting should include those policies and procedures that establish the following:
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maintenance of records in reasonable detail that accurately and fairly reflect the transactions and dispositions of assets;
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reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;
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receipts and expenditures are only made in accordance with authorizations of management or the Board; and
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reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial instruments.
The Company’s management, with the participation of the CEO and the CFO, assessed the effectiveness of the Company’s internal controls over financial reporting and concluded that as at December 31, 2023, the Company’s internal control over financial reporting was effective.
During the three months ended December 31, 2023, the Company did not make any significant changes to its internal controls over financial reporting in place for the year ended September 30, 2023, that would have materially affected, or reasonably likely to materially affect, its internal controls over financial reporting.
Disclosure Controls
Management is also responsible for the design and operation of disclosure controls and procedures to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to the Company’s certifying officers. The Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the design and effectiveness of the Company’s disclosure controls and procedures as of the date of this report and have concluded that these controls and procedures are effective.
Significant Accounting Policies, Estimates, and Judgements
The significant accounting policies, estimates, and judgements followed by the Company are set out in notes 2 and 3 of the audited consolidated financial statements for the years ended September 30, 2023, and 2022. There have been no changes in accounting policies as of the date of this MD&A.
Risks Arising from Financial Instruments
The Company’s financial instruments are comprised of cash and cash equivalents, other receivables, accounts payable and accrued liabilities, loans payable, and lease liabilities. Fair values of financial instruments are classified in a fair value hierarchy based on the inputs used to determine fair values. The levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: Inputs that are not based on observable market data (unobservable inputs).
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As at December 31, 2023, the fair value of cash held by the Company was based on Level 1 of the fair value hierarchy. The fair values of other receivables, accounts payable and accrued liabilities, loans payable and lease liabilities approximate their carrying values due to their short-term maturity.
The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows associated with a financial instrument will fluctuate because of changes to market interest rates. The Company has lease liabilities whereby an incremental borrowing rate was used to measure the lease liabilities. There is no interest rate risk associated with the lease liabilities as variations in the incremental borrowing rate do not impact cashflow. The Company has no other interest-bearing debt or interestgenerating assets. Overall, Management does not believe the Company is exposed to significant interest rate risk.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk arises principally from cash and other receivables. The exposure to credit loss on other receivables is limited as other receivables consist of refundable goods and services tax and subscriptions receivable relating to the second tranches of the LIFE and Concurrent Financings. Refundable goods and services tax bears minimal credit risk as it is receivable from the Canadian Government. The subscriptions receivable balance was received by the Company in full prior to the date of this MD&A. Overall, Management does not believe the Company is exposed to significant credit risk.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Company seeks to ensure there is sufficient capital in order to meet short-term business requirements after taking into account cash flows from operations and the Company’s holdings of cash. As at December 31, 2023, the Company had a cash balance of $24,349 to settle current liabilities of $1,493,389. Management continues to explore numerous financing strategies and continues to receive capital through equity instrument exercises frequently to address the Company’s liquidity risk.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to foreign currency risk on its foreign currency denominated cash and accounts payable. As at December 31, 2023, the Company had CAD $205 (September 30, 2023 – CAD $231) in cash denominated in the United States Dollar and CAD $17,379 (September 30, 2023 - $20,149) in accounts payable denominated in the United States Dollar. Assuming all other variables remain constant, a 10% change in the value of the Canadian dollar against the US dollar would result in an approximate CAD $1,758 change in profit or loss.
Risks and Uncertainties
Limited Operating History
The Company is subject to many of the risks common to early-stage enterprises, including under- capitalization, cash shortages, limitations with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and the likelihood of success must be considered during these early stages of operations. The Company expects to generate earnings in the near future. The success of the Company will depend entirely on the expertise, ability, judgment, discretion, integrity and good faith of its management.
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Inability to Protect Intellectual Property
The Company’s success is heavily dependent upon its intangible property and technology. The Company relies upon patents, trade secrets, unpatented proprietary know-how and continuing innovation to protect the intangible property, technology and information that are considered important to the development of the business.
The Company relies on various methods to protect its proprietary rights, including confidentiality agreements with consultants, service providers and management that contain terms and conditions prohibiting unauthorized use and disclosure of confidential information. However, despite efforts to protect intangible property rights, unauthorized parties may attempt to copy or replicate intangible property, technology, or processes. There can be no assurances that the steps taken by the Company to protect its intangible property, technology and information will be adequate to prevent misappropriation or independent third-party development of the Company’s intangible property, technology, or processes. It is likely that other companies can duplicate a process similar to the Company’s. To the extent that any of the above would occur, revenue could be negatively affected, and in the future, the Company may have to litigate to enforce its intangible property rights, which could result in substantial costs and divert management's attention and other resources.
The Company’s ability to successfully implement its business plan depends in part on its ability to obtain, maintain and build brand recognition using its trademarks, service marks, trade dress, domain names and other intellectual property rights, including the Company's names and logos. If the Company's efforts to protect its intellectual property are unsuccessful or inadequate, or if any third party misappropriates or infringes on its intellectual property, the value of its brands may be harmed, which could have a material adverse effect on the Company’s business and might prevent its brands from achieving or maintaining market acceptance.
The Company may be unable to obtain registrations for its intellectual property rights for various reasons, including refusal by regulatory authorities to register trademarks or other intellectual property protections, prior registrations of which it is not aware, or it may encounter claims from prior users of similar intellectual property in areas where it operates or intends to conduct operations. This could harm its image, brand or competitive position and cause the Company to incur significant penalties and costs.
On January 26, 2023, the Company received a positive review from African Regional Intellectual Property Organization (ARIPO) regarding its patent application which helps to mitigate this risk.
Competition
The industry in which the Company operates is highly competitive, is evolving and is characterized by technological change. Current or future competitors may have longer operating histories, larger customer bases, greater brand recognition and more extensive commercial relationships in certain jurisdictions, and greater financial, technical, marketing and other resources than the Company. As a result, the Company’s competitors may be able to develop products better received by customers or may be able to respond more quickly and effectively than the Company can to new or changing opportunities, technologies, regulations or customer requirements. In addition, larger competitors may be able to leverage a larger installed customer base and distribution network to adopt more aggressive pricing policies and offer more attractive sales terms, which could cause the Company to lose potential sales or to sell its solutions at lower prices.
Competition may intensify as the Company’s competitors enter into business combinations or alliances or raise additional capital, or as established companies in other market segments or geographic markets expand into the Company’s market segments or geographic markets. The Company also expects to face additional competition from new entrants. To remain competitive, the Company will require a continued high level of investment in research and development, marketing, sales and customer support. If the Company cannot compete against existing and future competitors, its business, results of operations and financial condition could be materially and adversely affected.
The Company’s success will be dependent on its ability to market its products and services. There is no guarantee that the Company’s products and services will remain competitive. Unforeseen competition, and the inability of the Company to effectively develop and expand the market for its products and services, could have a significant adverse effect on the growth potential of the Company. The Company cannot assure that it will be able to compete effectively
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against existing and future competitors. In addition, competition or other competitive pressures may result in price reductions, reduced margins or loss of market share, any of which could have a material adverse effect on the Company’s business, financial condition or results of operations.
Reliance on Management
The success of the Company is currently largely dependent on the performance of its directors and officers. There is no assurance that the Company can maintain the services of its directors, officers or other qualified personnel required to operate its business.
Reporting Issuer Status
On becoming a reporting issuer, the Company is subject to reporting requirements under applicable securities law, the listing requirements of Cboe Canada and other applicable securities rules and regulations. Compliance with these requirements has increased legal and financial compliance costs, made some activities more difficult, time consuming or costly, and increased demand on existing systems and resources. Among other things, the Company is required to file annual, quarterly and current reports with respect to its business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm the Company’s business and results of operations. The Company may need to hire additional employees to comply with these requirements in the future, which would increase its costs and expense.
Financial Risk
Negative Operating Cash Flow
The Company reported negative operating cash flow for the three months ended December 31, 2023. It is anticipated that the Company will continue to report negative operating cash flows in future periods.
Additional Financing
The continued development of the Company will require additional financing. There is no guarantee that the Company will be able to achieve its current business strategy. The Company intends to fund its business objectives by way of additional offerings of equity or debt financing as well as through anticipated positive cash flow from operations in the future. The failure to raise or procure such additional funds or the failure to achieve positive cash flow could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities, existing shareholders could suffer significant dilution. The Company will require additional financing to fund its operations until positive cash flow is achieved.
Going Concern Risk
The Company’s financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Company’s future operations are dependent upon the identification and successful completion of equity or debt financings and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company will be successful in completing equity or debt financings or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
Difficulty in Forecasting
The Company must rely largely on its own market research to forecast revenues as detailed forecasts are not generally obtainable from other sources at this early stage of the industry. Market research and projections by the Company are
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based on assumptions from limited and unreliable market data. A failure in demand could materialize as a result of competition, technological change or other factors and could have a material adverse effect on the business, results of operations and financial condition of the Company.
Internal control systems
Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation.
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