AI assistant
Three Sixty Solar Ltd. — Management Reports 2023
Dec 30, 2023
42916_rns_2023-12-29_436c0727-d0f1-4054-94d5-938218f0c175.pdf
Management Reports
Open in viewerOpens in your device viewer
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) of Three Sixty Solar Ltd. (the “Company”) is dated for December 29, 2023, and provides an analysis of the Company’s audited financial statements for the years ended September 30, 2023 and September 30, 2022 “the Financial Statements”. The Financial Statements and the financial information contained in this MD&A were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. The information in this MD&A should be read in conjunction to the Financial Statements. Unless otherwise noted, all currency amounts are expressed in Canadian dollars. 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.
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 NEO Exchange (“NEO”) under the symbol “VSOL”.
1
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.
Key Events
Reverse Takeover (“RTO”)
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 RTO, 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 RTO, the former shareholders of Opco acquired control of the Company, thereby constituting a reverse takeover of the Company. The RTO is considered a purchase of the Company’s net assets by the shareholders of Opco.
Summary of Financings
On January 5, 2022, the Company completed a warrant financing of $0.01 warrants, issuing 20,500,000 warrants for proceeds of $205,000. Each warrant entitles the holder to purchase one common share at a price of $0.25 per share until August 15, 2025.
On January 5, 2022, the Company completed a private placement of common shares at $0.025 per share, issuing 6,416,653 common shares for total proceeds of $160,417.
2
On January 5, 2022, the Company completed a unit private placement at $0.025 per unit, issuing 4,080,127 units for total proceeds of $102,003. Each unit consisted of one common share and one warrant with each warrant entitling the holder to purchase one additional common share of the Company at a price of $0.10 per share until January 5, 2025.
On January 5, 2022, the Company completed a private placement of common shares at $0.02 per share, issuing 1,250,000 common shares for total proceeds of $25,000.
On August 4, 2022, the Company completed a private placement of 1,996,000 financing warrants (the “Financing Warrants”) concurrently with the close of the RTO. The Financing Warrants were issued at a price of $1.00 per warrant for gross proceeds of $1,996,000. Each Financing Warrant was exercisable into one share of the Company at the option of the holder at any time for six months following the closing of the transaction. If not earlier exercised, the Financing Warrants automatically converted to one unit six months following the closing date of the transaction of August 4, 2022. Each unit consists of one share and one warrant (the “Additional Warrant”). Each Additional Warrant allows the holder to purchase one share at an exercise price of $2.00 per share for 24 months following the date of issue. In connection to the private placement of Financing Warrants, the Company incurred agent commissions of $63,765 and legal and advisory costs of $150,897 and issued 100,345 broker warrants entitling the purchase of up to 100,345 common shares at a price of $2.00 per share until August 4, 2024.
On June 9, 2023 the Company closed the first tranche of a unit private placement pursuant to the listed issuer financing exemption under Part 5A of National Instrument 45-106 (the “LIFE Financing”). On this same date, the Company closed the first tranche of a unit private placement occurring concurrently with the LIFE Financing (the “Concurrent Financing”). The units under these tranches were offered at $0.60 per unit and each unit consisted of one common share and one warrant with each warrant entitling the holder to purchase one additional common share at a price of $0.75 per share until June 9, 2025. Under these tranches, 1,715,553 units were issued for gross proceeds of $1,029,332. In connection to these tranches, the Company incurred agent commissions of $22,667 and issued 37,450 broker warrants with each broker warrant entitling its holder to purchase one common share at a price of $0.60 per share until June 9, 2028.
On June 26, 2023, the Company closed the second tranches of the LIFE and Concurrent Financings. The units under these tranches were offered at $0.60 per unit and each unit consisted of one common share and one warrant, with each warrant entitling the holder to purchase one additional common share at a price of $0.75 per share until June 26, 2025. Under these tranches 809,034 units were issued for gross proceeds of $485,420. In connection to these tranches, the Company incurred agent commissions of $3,990 and issued 6,650 broker warrants with each broker warrant entitling it holder to purchase one common share at a price of $0.60 per share until June 26, 2028.
In connection to the financings described above, to date:
- The Company has issued 15,741,558 shares for the exercise of 2,976,152 and 12,765,406 warrants at $0.10 and $0.25 per warrant respectively for proceeds of $3,488,967.
3
-
The Company issued 53,000 shares for the exercise of 53,000 Financing Warrants for no consideration. The remaining 1,943,000 Financing Warrants were automatically converted to 1,943,000 units, where each unit consists of one common share and one Additional Warrant.
-
In addition, the Company issued 435,000 common shares for the exercise of 435,000 RSUs.
Changes to the Governance Team
On January 18, 2023, Kyle Stevenson resigned from his positions as Director of the Company and Chair of the Company’s Audit Committee. On the same date, the following appointments were made:
-
Scott McLeod as Chair of the Company’s Audit Committee
-
Brian Roth, as an interim member of the Company’s Audit Committee
On April 19, 2023, Benjamin Parsons was appointed to the Company’s Board of Directors and as a member of the Company’s Audit Committee. On the same date, Brian Roth resigned from his interim position from the Company’s Audit Committee.
On July 12, 2023, Rob Birmingham resigned from his positions as a Director of the Company and member of the Company’s Audit Committee. On the same date, Manavdeep (Mark) Mukhija was appointed to the Company’s Board of the Directors and as a member of the Company’s Audit Committee.
Results of Operations
Selected Annual Information
The following tables set out selected annual financial information for the Company, which has been prepared in accordance with IFRS:
Balance sheet data
| For the year ended | For the year ended | For the year ended | |||
|---|---|---|---|---|---|
| September 30, 2023 | September 30, 2022 | September 30, 2021 | |||
| Total revenue | $ | - | $ | - | $- |
| Net loss and comprehensive loss | $ | (9,283,417) | $ | (3,339,795) | $ (313,444) |
| Weighted average number of shares | 34,999,145 | 17,021,188 | 7,666,667 | ||
| Basic and diluted lossper share | $ | (0.27) | $ | (0.20) | $ (0.04) |
4
Balance sheet data
| As at | September 30, 2023 | September 30, 2022 | September 30, 2021 | ||
|---|---|---|---|---|---|
| Total assets | $ | 817,709 | $ | 3,753,382 | $ 211,229 |
| Total liabilities | $ | 1,564,557 | $ | 706,933 | $ 339,638 |
| Shareholders’ deficiency (equity) | $ | (746,848) | $ | 3,046,449 | $ (128,409) |
Total assets as at September 30, 2023 and September 30, 2022 were $817,709 and $3,753,382, respectively. The decrease in total assets of $2,935,673 was primarily due to decreases in cash and prepaid expenses. The decrease in cash (September 30, 2023 – $36,057, September 30, 2022 - $2,708,553), is as a result of the payments for marketing service and operating costs. The decrease in prepaids (September 30, 2023 - $382,628, September 30, 2022 - $782,873), is due to the Company using deposits on contracts for marketing.
Total financial liabilities as at September 30, 2023 and September 30, 2022 were $1,564,557 and $706,933, respectively. The increase in total liabilities of $857,624 was primarily due to accounts payable, accrued liabilities, and a lease liability due to the renewal of the Company’s lease contract.
Shareholder’s deficiency (equity) as at September 30, 2023 and September 30, 2022 were $746,848 (deficit) and $3,046,449 (equity) respectively. The decrease in shareholders’ equity is mainly due to losses sustained during the year, offset by additions to shareholders’ equity stemming from vesting stock options and restricted share units, warrant exercises, the LIFE and the Private Placement.
Income statement data for the years ended September 30, 2023 and 2022
| September | September | ||||||
|---|---|---|---|---|---|---|---|
| 30, 2023 | 30, 2022 | Change ($) | Change (%) | ||||
| Operating expenses | |||||||
| Corporate | $ | 196,219 | $ | 85,874 | $ | 110,345 | 128% |
| Depreciation | 204,855 | 30,039 | 174,816 | 582% | |||
| Marketing | 6,563,238 | 177,894 | 6,385,344 | 3,589% | |||
| Office | 305,495 | 87,031 | 218,464 | 251% | |||
| Professional fees | 1,188,135 | 862,744 | 325,391 | 38% | |||
| Research and development | 4,059 | 75,135 | (71,076) | (95%) | |||
| Salaries and wages | 198,706 | 259,161 | (60,455) | (23%) | |||
| Share-based compensation | 595,713 | 642,896 | 47,183 | (7%) | |||
| Travel | 36,147 | 115,600 | (79,453) | (69%) | |||
| Total operating expenses | $ | (9,292,567) | $ | (2,336,374) | $ | (6,956,193) | 298% |
| Other loss | |||||||
| Interest Income | 855 | 7,998 | (7,143) | (89%) | |||
| Foreign exchange gain | 8,295 | (326) | 8,621 | (2,644%) | |||
| Listing Expense | - | (1,011,093) | 1,011,093 | (100%) | |||
| Net and comprehensive loss | $ | (9,283,417) | $ | (3,339,795) | $ | (5,943,622) | 178% |
5
Net and comprehensive loss increased by $5,943,622 from $3,339,795 for the year ended September 30, 2022 to $9,283,417 for the year ended September 30, 2023. The change in net and comprehensive loss is due to the following factors:
-
An increase in corporate expense of $110,345 due to listing, filing, and other fees incurred in maintenance of the Company being publicly listed during the year ended September 30, 2023. The Company was only publicly listed for part of the year ended September 30, 2022.
-
An increase in depreciation expense of $174,816 due to depreciation of the right-of-use asset, leasehold improvements, and furniture assumed on the RTO that completed on August 4, 2022.
-
An increase in marketing expense of $6,385,344 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.
-
An increase in office expense of $218,464 is mostly due to the assumption of the expenses of an additional company as a result of the RTO. Office expenses assumed on the RTO include operating and interest costs associated with an office lease and additional insurance premiums and bank fees, among other office-related expenses. The increase in office expense is also a result of the Company incurring directors’ and officers’ insurance costs as a result of the Company becoming publicly listed in August 2022 and higher subscription costs stemming from the use of market research tools during the year ended September 30, 2023.
-
An increase in professional fees expense of $325,391 mostly due to the Company receiving more consulting services in support of the development and maintenance of the Company’s operations. Professional fees also increased as a result of the Company retaining a significant service engagement with a consultant assumed from the RTO.
-
A decrease in research and development expense of $71,076 due to higher amounts incurred during the year ended September 30, 2022 for structural engineering work in connection with solar tower design and investigation of possible value-adding improvements that could be made to the towers.
-
A decrease in salaries and wages expense of $60,455 due to the Company paying a salary to a sales director during the year ended September 30, 2022. The Company did not employ a sales director during the year ended September 30, 2023.
-
An decrease in share-based compensation expense of $47,183 as a result of vesting and granting of less stock options during the year ended September 30, 2023.
-
A decrease in travel and entertainment of $79,453 due to higher amount incurred during the year ended September 30, 2022 for travel associated with attending trade shows and other business matters, amounts spent in supporting acquiring investment.
6
- The listing expense of $1,011,093 incurred during the year ended September 30, 2022 stems from the RTO and is representative of the difference in consideration issued to acquire the net assets of the Company and the value of the net assets of the Company.
Income statement data for the three months ended September 30, 2023 and 2022
| September | September | ||||||
|---|---|---|---|---|---|---|---|
| 30, 2023 | 30, 2022 | Change ($) | Change (%) | ||||
| Operating expenses | |||||||
| Corporate | $ | 38,015 | $ | 74,414 | $ | (36,399) | (49%) |
| Depreciation | 42,339 | 29,856 | 12,483 | 42% | |||
| Marketing | 1,696,807 | 104,751 | 1,592,056 | 1,520% | |||
| Office | 77,392 | 34,902 | 42,490 | 122% | |||
| Professional fees | 284,797 | 340,767 | (55,970) | (16%) | |||
| Research and development | - | 8,497 | (8,497) | (100%) | |||
| Salaries and wages | 45,517 | 52,762 | (7,245) | (14%) | |||
| Share-based compensation | (48,456) | 642,896 | (691,352) | (108%) | |||
| Travel | 10,901 | 97,131 | (86,230) | (89%) | |||
| Total operating expenses | $ | (2,147,312) | $ | (1,385,976) | $ | (760,336) | (55%) |
| Other loss | |||||||
| Interest income | - | 7,998 | (7,998) | (100%) | |||
| Foreign exchange gain | (523) | (498) | (25) | 5% | |||
| Listing expense | - | (1,011,093) | 1,011,093 | 100% | |||
| Net and comprehensive loss | $ | (2,147,835) | $ | (2,389,569) | $ | 242,734 | (10%) |
Net and comprehensive loss decreased by $242,734 from $2,389,569 for the three months ended September 30, 2022 to $2,147,835 for the three months ended September 30, 2023. The change in net and comprehensive loss is due to the following factors:
-
A decrease in corporate expenses of $36,399 due to more services incurred for the preparation of the Company being publicly listed during the three months period ended September 30, 2022.
-
An increase in depreciation expense of $12,483 due to the depreciation of the right-of-use asset, leasehold improvements, and furniture assumed on the RTO.
-
An increase in marketing expense of $1,592,056 resulting from 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.
-
An increase in office expense of $42,490 mostly due to the assumption of expenses of an additional company as a result of the RTO. Office expenses assumed on the RTO include
7
operating and interest costs associated with an office lease and additional insurance premiums and bank fees, among other office-related expenses. The increase in office expense is also a result of the Company incurring directors and officers insurance costs as a result of the Company becoming publicly listed and also higher subscription costs stemming from the use of market research tools during the three months ended September 30, 2023.
-
A decrease in professional fees expense of $55,970 due to more accounting, audit and legal services that were required for the RTO, and financing incurred during the three-month period ended September 30, 2022
-
A decrease in research and development expense of $8,497 is due to higher amounts incurred during the three months ended September 30, 2022, for structural engineering work relating to solar tower design.
-
A decrease in salaries and wages expense of $7,245 due to the Company paying a salary to a sales director during the three months ended September 30, 2022. The Company did not employ a sales director during the three months ended September 30, 2023.
-
An decrease in share-based compensation expense of $691,352 as a result of reversed share-based compensation expenses due to termination of a consultant, and the fact that more stock options were granted that vested immediately during the three-months ended September 30, 2022 compared to the current quarter.
-
A decrease in travel expense of $86,230 due to higher amount incurred during the three months ended September 30, 2022 for travel associated with attending trade shows and other business matters, amounts spent in supporting acquiring investment.
-
The listing expense of $1,011,093 incurred during the three months ended September 30, 2022 stems from the RTO and is representative of the difference in consideration issued to acquire the net assets of the Company and the value of the net assets of the Company.
Summary of Quarterly Results
| Summary of Quarterly Results | |||
|---|---|---|---|
| Net and | |||
| Total revenue | comprehensive loss | Basic loss per share | |
| ($) | ($) | ($) | |
| 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) |
| December 31, 2022 (Q1, 2022) | Nil | (222,604) | (0.03) |
8
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:
-
The $2,390,569 net and comprehensive loss for Q4 2022 is largely due to listing expenses resulting from the RTO 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 RTO, 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 RTO.
-
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 RTO 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.
-
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.
-
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.
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.
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.
9
Liquidity and Capital Resources
The following table summarizes the Company’s cash flows for the year ended September 30, 2023 and 2022:
| For the year ended September 30, 2023 For the year ended September 30, 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 $ |
(7,526,532) $ (2,505,124) - 3,011,117 4,854,037 1,992,307 |
| (2,672,496) 2,498,300 2,708,553 210,253 |
|
36,057 $ 2,708,553 |
Cash used in operating activities for the year ended September 30, 2023 of $7,526,532 was higher by $5,021,408 in comparison to the cash used in operating activities for the year ended September 30, 2022. The increase in cash used is mainly due to amounts spent on corporate and investor relations marketing services in support of encouraging investment in the Company. In conjunction with the amounts spend on marketing services, the Company also spent higher amounts on operational costs as a result of increased operational and business development activity during year ended September 30, 2023 as compared to the year ended September 30, 2022.
Cash provided by investing activities for the year ended September 30, 2022 was $3,011,117. Substantially all cash provided by investing activities in fiscal 2022 was cash assumed on the RTO. No cash was used in or provided by investing activities for the year ended September 30, 2023.
Cash provided by financing activities for the year ended September 30, 2023 of $4,854,037 was higher by $2,861,730 in comparison to the cash used in financing activities for the year ended September 30, 2022. Cash provided by financing activities during the year ended September 30, 2023 and 2022 was derived from proceeds received relating to the issuance of shares and warrants under various financings that closed during the fiscal years.
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 September 30, 2023, the Company had an accumulated deficit of $13,246,385 (September 30, 2022 - $3,962,968). As at September 30, 2023, the Company had a cash balance of $36,057 (September 30, 2022 - $2,708,553) and working capital deficit of $782,216 (September 30, 2022 - $2,893,785). 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
10
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.
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 September 30, 2023 had an accumulated deficit of $13,246,385. 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 year ended September 30, 2023 and 2022, the Company incurred the following related party transactions:
11
| For the year ended | For the year ended | For the year ended | |
|---|---|---|---|
| September 30, 2023 | September | 30, 2022 | |
| Salaries and benefits | |||
| Brian Roth, Chief Executive Officer | $ 182,769 | $ | 193,070 |
| Robert Birmingham, Director | 530 | 2,125 | |
| Kyle Stevenson, Director | 1,069 | 4,283 | |
| Professional fees | |||
| Austin Thornberry, Chief Financial Officer | 35,000 | 9,000 | |
| Number Eight Management Ltd.(1) | - | 72,600 | |
| Krueger Electric(2) | - | 20,567 | |
| Share-based payments | |||
| Brian Roth, Chief Executive Officer | - | 82,688 | |
| Austin Thornberry, Chief Financial Officer | 55,860 | 41,344 | |
| Peter Sherba, Director | - | 20,672 | |
| Robert Birmingham, Former Director | 5,775 | 24,806 | |
| Mark Mukhija, Director | 17,985 | ||
| Kyle Stephenson, Director | - | 31,008 | |
| Scott Mcleod, Director | 31,000 | 41,344 | |
| Benjamin Parsons, Director | 24,007 | - | |
| $ 353,995 | $ | 543,507 |
Related Party Balances
As at September 30, 2023 included in accounts payable and accrued liabilities is $11,077 (September 30, 2022 - $11,845) due to Brian Roth, Chief Executive Officer of the Company, for expense reimbursements and vacation payables.
As at September 30, 2023, included in accounts payable and accrued liabilities is $nil (September 30, 2022 - $2,639) in expenses to be reimbursed to Peter Sherba, Director of the Company.
As at September 30, 2023, the loans payable balance of $12,700 (September 30, 2022 - $12,700) consists solely of a loan 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 September 30, 2023, the Company had a total of 44,781,875 issued and outstanding common shares as well as the following warrants and options:
12
| Outstanding | Exercisable | ||
|---|---|---|---|
| number of options | number of options | Exercise price | Expiry date |
| 1,430,000 | 1,430,000 | $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 |
| 1,955,000 | 1,917,500 |
| Outstanding | ||
|---|---|---|
| number of warrants | Exercise price | Expiry date |
| 7,734,594 | $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 |
| 15,340,935 |
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 September 30, 2023, the Company has 1,943,000 Additional Warrants outstanding.
As at September 30, 2023, the Company also had 467,500 restricted share units outstanding, 40,000 have vested, but restricted from exercising.
As at the date of this MD&A, the Company had a total of 45,125,347 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 |
13
| 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 |
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 467,500 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. 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:
-
maintenance of records in reasonable detail that accurately and fairly reflect the transactions and dispositions of assets;
-
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;
-
receipts and expenditures are only made in accordance with authorizations of management or the Board; and
-
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 September 30, 2023, the Company’s internal control over financial reporting was effective.
During the year ended September 30, 2023, the Company did not make any significant changes to its internal controls over financial reporting in place for the year ended September 30, 2022 that would have materially affected, or reasonably likely to materially affect, its internal controls over financial reporting.
14
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).
As at September 30, 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 interest-generating assets. Overall, Management does not believe the Company is exposed to significant interest rate risk.
15
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 September 30, 2023, the Company had a cash balance of $36,057 to settle current liabilities of $1,295,291. 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 September 30, 2023, the Company had CAD $231 (September 30, 2022 – CAD $3,201) in cash denominated in the United States Dollar and CAD $20,149 (September 30, 2022 - $Nil) 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 $2,014 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 undercapitalization, 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.
Inability to Protect Intellectual Property
16
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
17
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 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 the NEO Exchange 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
18
The Company reported negative operating cash flow for the year ended September 30, 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 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.
19