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Trailbreaker Resources Ltd. — Interim / Quarterly Report 2021
May 27, 2021
44099_rns_2021-05-26_36055529-0171-435b-91e8-9ef42b3f53bd.pdf
Interim / Quarterly Report
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IDENTILLECT TECHNOLOGIES CORP.
Condensed Consolidated Interim Financial Statements (Unaudited – Prepared by Management) (Expressed in US Dollars)
As at and for the three months ended March 31, 2021 and 2020
IDENTILLECT TECHNOLOGIES CORP.
(the “Company” or “Identillect”)
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS As at and for the three months ended March 31, 2021 and 2020
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
The Management of the Company is responsible for the preparation of the accompanying unaudited condensed consolidated interim financial statements. The unaudited condensed consolidated interim financial statements have been prepared using accounting policies in compliance with International Financial Reporting Standards (“IFRS”) for the preparation of condensed consolidated interim financial statements and are in accordance with IAS 34 – Interim Financial Reporting.
The Company’s auditor has not performed a review of these condensed consolidated interim financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.
Condensed Consolidated Interim Statements of Financial Position (Unaudited – Prepared by Management) (Expressed in US dollars) As at,
Identillect Technologies Corp.
| March 31, | December 31, | |||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Assets | ||||
| Current Assets | ||||
| Cash | $ | 72,710 | $ | 24,858 |
| Accounts receivable | - | 9,144 | ||
| GST receivable | 75,486 | 72,665 | ||
| Prepaid expenses | 2,512 | 2,381 | ||
| 150,708 | 109,048 | |||
| Propertyand equipment(Note 4) | 1,233 | 1,667 | ||
| Total Assets | $ | 151,941 | $ | 110,715 |
| Liabilities and Shareholders’ Deficiency | ||||
| Current Liabilities | ||||
| Accounts payable and accrued liabilities (Note 5, 11) | $ | 586,215 | $ | 683,715 |
| Deferred revenue | 265,232 | 281,248 | ||
| Loans payable (Notes 5, 6) | 699,821 | 480,995 | ||
| Lease liabilities (Note 8) | - | 24,028 | ||
| Convertible debentures(Notes 5,7) | 272,824 | 264,862 | ||
| Total Liabilities | 1,824,092 | 1,734,848 | ||
| Shareholders’ Deficiency | ||||
| Share capital (Note 10) | 8,534,456 | 8,534,456 | ||
| Share-based payment reserve (Note 10) | 1,081,527 | 709,808 | ||
| Warrants reserve (Note 10) | 685,288 | 685,288 | ||
| Equity component of convertible debt (Note 7) | 9,324 | 9,324 | ||
| Accumulated other comprehensive loss | (70,088) | (62,863) | ||
| Deficit | (11,912,658) | (11,500,146) | ||
| Total Shareholders’ Deficiency | (1,672,151) | (1,624,133) | ||
| Total Liabilities and Shareholders’ Deficiency | $ | 151,941 | $ | 110,715 |
Nature and continuance of operations – Note 1
Approved on behalf of the Board by:
”Jeff Durno” _”Todd Sexton”_____ Director Director
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Identillect Technologies Corp.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss (Unaudited – Prepared by Management) (Expressed in US dollars)
| For the three months ended March 31, | 2021 | 2020 | ||
|---|---|---|---|---|
| Revenues | $ | 151,659 | $ | 139,619 |
| Cost of sales | (5,769) | (8,144) | ||
| Grossprofit | 145,890 | 131,475 | ||
| Expenses | ||||
| Depreciation (Note 4) | 434 | 17,172 | ||
| Filing fees | 5,226 | 8,892 | ||
| Finance costs (Notes 6 and 7) | 18,346 | 17,538 | ||
| General and administrative | 7,979 | 14,966 | ||
| Operating costs | 27,416 | 23,008 | ||
| Professional fees (Note 5) | 32,779 | 29,035 | ||
| Rent (Note 5) | 5,701 | 3,050 | ||
| Salaries and wages (Note 5) | 121,555 | 165,235 | ||
| Sales and marketing | 585 | 1,362 | ||
| Share-basedpayments(Note 5,10) | 371,719 | 397 | ||
| (591,740) | (280,655) | |||
| Operating loss | (445,850) | (149,180) | ||
| Foreign exchange (loss) gain | (4,003) | 7,867 | ||
| Lease accretion (Note 8) | - | (2,781) | ||
| Gain on termination of lease (Note 8) | 24,028 | - | ||
| Forgiveness of accountspayable | 13,313 | - | ||
| Loss for the period | (412,512) | (144,094) | ||
| Translation adjustment | (7,225) | 46,658 | ||
| Comprehensive loss for theperiod | $ | (419,737) | $ | (97,436) |
| Weighted average number of shares outstanding – basic and | ||||
| diluted | 147,215,961 | 111,501,675 | ||
| Basic and diluted lossper share | $ | (0.00) | $ | (0.01) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Identillect Technologies Corp.
Condensed Consolidated Interim Statements of Changes in Shareholders’ Deficiency (Unaudited – Prepared by Management)
(Expressed in US dollars)
| Expressed in US dollars) |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Accumulated | ||||||||||||||||
| Number of | Share-based | Equity portion | other | |||||||||||||
| Common | Share Capital | Warrant | payment | of | convertible | comprehensive | Shareholders’ | |||||||||
| Shares | Amount | reserve | reserve | debt | loss | Deficit | Deficiency | |||||||||
| Balance, December 31, 2019 | 97,215,961 | $ 8,172,371 | $ | 681,365 |
$ | 709,055 |
$ | 9,324 |
$ | (51,005) | $ (11,001,246) | $ | (1,480,136) | |||
| Private placement | 50,000,000 | 372,717 | - | - | - | - | - | 372,717 | ||||||||
| Share issuance costs – cash | - | (6,709) | - | - | - | - | - | (6,709) | ||||||||
| Share issuance costs – broker warrants |
- | (3,923) | 3,923 | - | - | - | - | - | ||||||||
| Share based payments | - | - | - | 397 | - | - | - | 397 | ||||||||
| Currency translation adjustment | - | - | - | - | - | 46,658 | - | 46,658 | ||||||||
| Net loss for theperiod | - | - | - | - | - | - | (144,094) | (144,094) | ||||||||
| Balance, March 31, 2020 | 147,215,961 | $ 8,534,456 | $ | 685,288 |
$ 709,452 | $ | 9,324 |
$ | (4,347) | $ (11,145,340) | $ | (1,211,167) | ||||
| Balance, December 31, 2020 | 147,215,961 | $ | 8,534,456 |
$ | 685,288 | $ | 709,808 | $ | 9,324 | $ | (62,863) | $ (11,500,146) | $ | (1,624,133) | ||
| Share-based payments | - | - | - | 371,719 | - | - | - | 371,719 | ||||||||
| Currency translation adjustment | - | - | - | - | - | (7,225) | - | (7,225) | ||||||||
| Net loss for theperiod | - | - | - | - | - | - | (412,512) | (412,512) | ||||||||
| Balance, March 31, 2021 | 147,215,961 | $ 8,534,456 | $ 685,288 | $ | 1,081,527 | $ | 9,324 |
$ | (70,088) | $ (11,912,658) | $ | (1,672,151) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Condensed Consolidated Interim Statements of Cash Flows (Unaudited – Prepared by Management) (Expressed in US dollars)
Identillect Technologies Corp.
| Identillect Technologies Corp. Condensed Consolidated Interim Statements of Cash Flows (Unaudited – Prepared by Management) (Expressed in US dollars) |
|||||
|---|---|---|---|---|---|
| For the three | months ended | ||||
| March 31, | |||||
| 2021 | 2020 | ||||
| Cash provided by (used for): | |||||
| Operating Activities: | |||||
| Loss for the period | $ | (412,512) | $ | (144,094) | |
| Items not affecting cash: | |||||
| Depreciation | 434 | 17,172 | |||
| Interest accrued | 18,233 | 17,450 | |||
| Share-based payments | 371,719 | 397 | |||
| Lease accretion | - | 2,781 | |||
| Gain on termination of lease | (24,028) | - | |||
| Foreign exchange | 4,050 | (24,953) | |||
| Changes in non-cash working capital items: | |||||
| Accounts receivable | 10,065 | (1,962) | |||
| GST receivable | (2,821) | - | |||
| Accounts payable and accrued liabilities | (100,924) | 37,264 | |||
| Deferred revenues | (16,016) | (20,111) | |||
| Prepaid expenses | (131) | - | |||
| (151,931) | (116,056) | ||||
| Financing Activities: | |||||
| Proceeds from share issuance, net of share issuance costs | - | 366,008 | |||
| Proceeds from loans payable | 201,483 | 93,619 | |||
| Repayment of loans payable | (1,700) | (36,826) | |||
| Payments towards lease liabilities | - | (17,892) | |||
| 199,783 | 404,909 | ||||
| Impact of foreign exchange on cash | - | (731) | |||
| Change in cash for the period | 47,852 | 288,122 | |||
| Cash, beginning of the period | 24,858 | 6,125 | |||
| Cash, end of the period | $ | 72,710 | $ | 294,247 | |
| Cash paid for interest | $ | - | $ | - | |
| Cashpaid for taxes | $ | - | $ | - |
Significant non-cash transactions (Note 9)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
1. NATURE AND CONTINUANCE OF OPERATIONS
Identillect Technologies Corp. (“Identillect” or the “Company”) is a Canadian public company that is listed on the TSX Venture Exchange (“Exchange”) under the symbol ID. The Company was incorporated under the Canada Corporations Business Act on December 27, 1985, registered extraprovincially under the British Columbia Company Act on July 9, 1987, and effective June 18, 2014, the Company was continued into British Columbia. The Company’s principle address is 1600 – 609 Granville Street, Vancouver, BC V7Y 1C3 and its registered and records office is 2200 – 885 West Georgia Street, Vancouver, BC, V6C 3E8.
Identillect Technologies Inc. is a wholly-owned subsidiary of the Company, which was incorporated under the Nevada Business Corporation Act on August 24, 2010. Identillect Technologies Inc. is a software company that has developed an email encryption software solution. The head office of Identillect Technologies Inc. is located at 34197 Pacific Coast Hwy, Suite 103, Dana Point, CA, 926293801.
These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company was not expected to continue operations for the foreseeable future. At March 31, 2021, the Company has not achieved profitable operations has a working capital deficiency of $1,673,384 (December 31, 2020 - $1,625,800) and has accumulated losses of $11,912,658 (December 31, 2020 – $11,500,146) since inception and expects to incur further losses in the development of its business. This material uncertainty may cast significant doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to attain profitable operations to generate funds and/or its ability to raise equity capital or borrowings sufficient to meet its current and future obligations. Although the Company has been successful in the past in raising funds to continue operations, there is no assurance it will be able to do so in the future.
On March 11, 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These condensed consolidated interim financial statements are prepared using accounting policies consistent with the Company’s annual audited consolidated financial statements issued under International Financial Reporting Standards (“IFRS”) for the year ended December 31, 2020.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
These condensed consolidated interim financial statements do not include all of the information required for the full annual financial statements and should be read in conjunction with the Company’s most recent audited annual consolidated financial statements for the year ended December 31, 2020. The Company’s consolidated interim financial statements were authorized for issue by the Board of Directors on May 26, 2021.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in conformity with IFRS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
a. Critical accounting estimates
Critical accounting estimates are estimates and assumptions made by management that may result in a material adjustment to the carrying amount of assets and liabilities within the next financial year and are, but are not limited to, the following:
i. Expected credit losses
Expected credit losses (“ECLs”) on trade receivables are calculated based on the expected credit loss for clients with an accounts receivable balance greater than 90 days past due. When determining ECLs, the Company considers the historic credit losses observed by the Company, customer-specific payment history and economic conditions.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience, informed credit assessment and forward-looking information.
ii. Share-based payments
The fair value of stock options issued with Canadian dollar exercise prices are subject to the limitation of the Black-Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the volatility of share price, changes in the subjective input assumptions can materially affect the fair value estimate.
iii. Valuation of financial instruments
The Company is required to determine the valuation of convertible debentures at inception. The convertible notes valuation required discounted cash flow analysis that involved various estimates and assumptions (Note 7).
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
-
iv. Deferred income taxes In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. These factors may affect the final amount or the timing of tax payments.
-
v. Useful lives of property and equipment Management is required to assess the useful economic lives and residual values of the assets. These estimates are based on historical experience and are reviewed annually for changes.
b. Critical accounting judgements
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the statements are, but are not limited to, the following:
- i. Determination of functional currency The functional and reporting currency of the Company is the US dollar. The functional currency determination was conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes in Foreign Exchange Rates. The determination of functional currency involves certain judgments to determine the primary economic environment and the Company reconsiders the functional currency if there are changes in events and conditions of the factors used in the determination of the primary economic environment.
ii. Going Concern
- The preparation of these financial statements requires management to make judgments regarding the going concern of the Company. As at March 31, 2021, the Company had a working capital deficit of $1,673,384 (December 31, 2020 - $1,625,800). The Company likely has insufficient funds from which to finance its operating activities for the next 12 months; consequently, the Company remains dependent on external sources of financing until such time as it can internally generate sufficient income from software sales to service its on-going operating cost requirements.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
4. PROPERTY AND EQUIPMENT
| ROPERTY AND EQUIPMENT | |||||
|---|---|---|---|---|---|
| Costs | |||||
| Furniture & | Computer | Right-of- | |||
| Equipment | Equipment | Use Asset | Total | ||
| Balance, December 31, 2019 | $ 14,555 | $ 9,653 | $ 132,091 | $156,299 | |
| Additions | 1,300 | - | - | 1,300 | |
| Termination of office lease | - | - | (132,091) | (132,091) | |
| Balance, December 31, 2020 | |||||
| and March 31, 2021 | $ 15,855 | $ 9,653 | $ | - | $ 25,508 |
| Accumulated Depreciation | Accumulated Depreciation | |||
|---|---|---|---|---|
| Furniture | Computer | Right-of- | ||
| Equipment | Equipment | Use Asset | Total | |
| Balance, December 31, 2019 | $ 14,446 | $ 7,066 | $ 11,008 | $ 32,520 |
| Depreciation | 111 | 2,218 | 57,789 | 60,118 |
| Termination of office lease | - | - | (68,797) | (68,797) |
| Balance, December 31, 2020 | 14,557 | 9,284 | - | 23,841 |
| Depreciation | 65 | 369 | - | 434 |
| Balance, March 31, 2021 | $ 14,622 | $ 9,653 | $ - | $ 24,275 |
The right-of-use asset consists of leased office premises (Note 8).
| Net Book Value | ||||
|---|---|---|---|---|
| Furniture | Computer | Right-of- | ||
| Equipment | Equipment | Use Asset | Total | |
| Net book value, December 31, 2020 | $ 1,298 | $ 369 | $ - | $ 1,667 |
| Net book value, March 31, 2021 | $ 1,233 | $ - | $ - | $ 1,233 |
5. RELATED PARTY TRANSACTIONS
Key management personnel are the persons responsible for the planning, directing and controlling the activities of the Company and include both executive and non-executive directors, and entities controlled by such persons. The Company defines key management personnel as directors and officers. The following table summarizes the Company’s activities with key management personnel:
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
5. RELATED PARTY TRANSACTIONS (continued)
| Type of Service | Nature of Relationship | March 31, | March 31, |
|---|---|---|---|
| 2021 | 2020 | ||
| Professional fees | Emprise Capital Corp, a company | ||
| related to the CFO and a director of | $30,805 | $29,014 | |
| the Company | |||
| Salaries and wages | Todd Sexton, CEO, and Einar Mykletun, CTO |
41,898 | 49,424 |
| Rent | Todd Sexton, CEO | 2,100 | 3,050 |
| Share-basedpayments | Officers/Directors | 309,441 | 397 |
| $ 384,244 | $81,884 |
The following represents amounts due to related parties included in liabilities:
| Type of Service | Nature of Relationship | March 31, | December 31, |
|---|---|---|---|
| 2020 | 2020 | ||
| Included in loans payable | |||
| Loan payable (Note 6) | The Emprise Special Opportunities | ||
| Fund (2017) LP, a fund related to the | $ 438,120 | $ 312,334 | |
| CFO and a director of the Company | |||
| Loan payable (Note 6) | Natgar Capital Corp., a company related to a director of the Company |
24,179 | 23,306 |
| Loan payable (Note 6) | Todd Sexton, CEO | - | 850 |
| Included in convertible debentures | |||
| Convertible debenture | Natgar Capital Corp., a company | ||
| payable (Note 7) | related to a director of the Company | 141,116 | 136,998 |
| Included in accounts payable | and accrued liabilities | ||
| Other payables | Emprise Capital Corp, a company | ||
| related to the CFO and a director of | 176,183 | 214,420 | |
| the Company | |||
| Other payables | The Emprise Special Opportunities | ||
| Fund (2013) LP, a fund related to the | - | 10,456 | |
| CFO and a director of the Company | |||
| Cassels Brock & Blackwell LLP, a law | |||
| Legal Fees payable | firm in which a director of the | 4,658 | 4,601 |
| Company is a partner | |||
| Salaries and wages | Todd Sexton, CEO | 226,322 | 252,853 |
| $ 1,010,578 | $ 955,818 |
Unless otherwise specified, amounts payable from the provision of services and expense reimbursements to related parties referred to are non-interest bearing, unsecured, payable on demand, and have arisen.
11
Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
Identillect Technologies Corp.
6. LOANS PAYABLE
| Loanspayable | Principal | Accumulated Interest | Total Debt |
|---|---|---|---|
| December 31, 2019 | $ 454,998 | $ 63,984 | $ 518,982 |
| Proceeds | 300,417 | - | 300,417 |
| Repayments | (284,734) | - | (284,734) |
| Interest accrued | - | 42,206 | 42,206 |
| Loan forgiven | (89,995) | - | (89,995) |
| Translation adjustment | (8,382) | 2,501 | (5,881) |
| December 31, 2020 | $372,304 | $108,691 | $480,995 |
| Proceeds | 201,483 | - | 201,483 |
| Repayments | (1,700) | - | (1,700) |
| Interest accrued | - | 13,609 | 13,609 |
| Translation adjustment | 4,450 | 984 | 5,434 |
| March 31, 2021 | $ 576,537 | $ 123,284 | $ 699,821 |
On August 14, 2018, the Company issued a promissory note with a principal amount of CDN$260,000 to a limited partnership whose general partner has a common director with the Company. The promissory note accrues interest at a rate of 10% per annum, payable quarterly, and is due on demand. The promissory note is unsecured. During the period ended March 31, 2021, the Company received additional proceeds of CDN$141,000 (December 31, 2020 - CDN$190,123) from the lender and repaid CDN$nil (December 31, 2020 - CDN$300,000).
During the year ended December 31, 2020, the Company received a paycheck protection loan provided by the U.S. Small Business Administration in the amount of $89,995. The Company met the criteria for loan forgiveness and made an application to have the entire amount forgiven. The application was approved, and the Company wrote the balance of $89,995 off to the statement of loss and comprehensive loss. During the period ended March 31, 2021, the Company received another paycheck protection loan in the amount of $89,995.
Of the remaining amount, $24,179 (December 31, 2020 - $23,306) is owing to a Company related to a director. The loans payable of the Company are unsecured, bear interest at 10% per annum, and are due on demand.
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Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
Identillect Technologies Corp.
7. CONVERTIBLE DEBENTURES
| Convertible Debenture | Total Debt |
|---|---|
| Balance, December 31, 2019 | $ 242,091 |
| Finance expense | 16,994 |
| Translation adjustment | 5,777 |
| Balance, December 31, 2020 | 264,862 |
| Finance expense | 4,624 |
| Translation adjustment | 3,338 |
| Balance, March 31, 2021 | $ 272,824 |
| Equity component of convertible debentures | $ 9,324 |
The convertible debentures were due on May 31, 2020, bearing interest at 7% per annum and are convertible into common shares, at the option of the holders, at Cdn$0.30 per share. The conversion feature was valued at the date of issuance as the residual value of the present value of the principal on the convertible debentures (Cdn$580,000) at a discount rate of 10% which is the borrowing rate the Company has achieved for non-convertible instruments. On May 31, 2019, the term of the convertible debentures was extended for one year and became due on May 31, 2020. The convertible debentures are currently past due.
8. LEASE LIABILITIES
The Company entered into an office lease agreement during 2016. The lease term ended on October 31, 2019 with remaining lease payments of $56,232 as at December 31, 2018. During the year ended December 31, 2019, the Company extended the lease to October 2021 for total undiscounted payments of $145,181. Using an annual discount rate of 10%, the Company recognized additions to lease liabilities and Right-of-Use Assets of $132,091 (Note 4). The Company terminated the lease on November 15, 2020 reducing lease liabilities by $64,489, Right-of-Use Assets by $63,294 and the rent deposit by $5,623, resulting in the recognition of a $4,428 loss on the termination of the lease. During the period ended March 31, 2021, the remaining payments were forgiven and the Company recognize a gain of $24,028 to the statement of loss and comprehensive loss. The Company has no other leases for which IFRS 16 applies as at March 31, 2021.
The following is a reconciliation of the changes in the lease liabilities:
| Lease Liability | ||
|---|---|---|
| Balance, December 31, 2019 | $122,224 | |
| Lease accretion | 8,041 | |
| Payments | (41,748) | |
| Termination of office lease | (64,489) | |
| Balance, December 31, 2020 | 24,028 | |
| Termination of office lease | (24,028) | |
| Balance, March 31, 2021 | $ | - |
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
9. SIGNIFICANT NON-CASH TRANSACTIONS
There were no non-cash transactions for the period ended March 31, 2021.
During the period ended March 31, 2020, the Company recognized $3,923 relating to the fair value of brokers warrants granted (Note 10).
10. SHARE CAPITAL AND RESERVES
a. Authorized
Unlimited number of common shares without par value Unlimited number of preferred shares without par value
b. Issued and outstanding
For the period ended March 31, 2021:
The Company did not issue any shares during the period ended March 31, 2021.
For the year ended December 31, 2020:
During the year ended December 31, 2020, the Company closed a non-brokered private placement by issuing 50,000,000 common shares at a price of CDN$0.01 per common share for gross proceeds of $372,717 (CDN$500,000). In connection with the offering, the Company paid a cash commission $6,709 of (CDN$9,000) and issued 900,000 finder’s warrants. Each finder warrant entitles the holder to purchase an additional common share of the Company at a price of CDN$0.05 for a period of one year from closing. The warrants were recognized with a fair value of $3,923 using the Black-Scholes valuation model and the following assumptions: expected life of one year, risk-free rate of 0.81%, expected annualized volatility of 250.42%, and expected dividend rate of 0%. The finder’s warrants expired unexercised.
c. Stock Options
A summary of the Company’s stock option activity is as follows:
| Weighted Average | ||
|---|---|---|
| Number of | Exercise Price | |
| Options | (Cdn$) | |
| Balance, December 31, 2019 | 6,596,875 | $ 0.17 |
| Cancelled | (1,537,500) | 0.19 |
| Balance, December 31, 2020 | 5,059,375 | $ 0.17 |
| Granted | 9,550,000 | 0.05 |
| Balance, March 31, 2021 | 14,609,375 | $ 0.09 |
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
10. SHARE CAPITAL AND RESERVES ( continued )
c. Stock Options (continued)
As at March 31, 2021, a summary of stock options outstanding and exercisable is as follows:
| Number of | Number of | Exercise | Remaining | ||
|---|---|---|---|---|---|
| Options | Options | Price | contractual life | ||
| Grant Date | Outstanding | Exercisable | (Cdn$) | Expiry date | (years) |
| May 24, 2016 | 2,330,625* | 2,330,625 | $0.200 | May 24, 2021 | 0.15 |
| November 23, 2016 | 278,750 | 278,750 | $0.130 | November 23, 2021 | 0.65 |
| March 1, 2017 | 250,000 | 250,000 | $0.110 | March 1, 2022 | 0.92 |
| November 3, 2017 | 1,950,000 | 1,950,000 | $0.155 | November 3, 2022 | 1.59 |
| August 14, 2018 | 250,000 | 250,000 | $0.065 | August 14, 2021 | 0.37 |
| February12,2021 | 9,550,000 | 9,550,000 | $0.050 | February12,2026 | 4.87 |
| 14,609,375 | 14,609,375 | 3.46 |
*subsequent to the period ended March 31, 2021, these options expired unexercised.
Share-based payments
During the period ended March 31, 2021, the Company granted 9,550,000 (December 31, 2020 – nil) stock options with a weighted average fair value per option of CDN$0.05 (December 31, 2020 - $nil). Total share-based payments expensed for options granted and vested during the period was $371,719 (2020 - $397).
The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted and vesting during the period:
| March 31, | December 31, | |
|---|---|---|
| 2021 | 2020 | |
| Risk-free interest rate | 0.49% | - |
| Expected life of options | 5 years | - |
| Expected annualized volatility | 228.53% | - |
| Dividendyield | 0% | - |
d. Share purchase warrants
The Company did not have any outstanding share purchase warrants as at March 31, 2021 or December 31, 2020.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
10. SHARE CAPITAL AND RESERVES ( continued )
e. Broker warrants
A summary of the Company’s broker warrant activity is as follows:
| Weighted average | ||
|---|---|---|
| Number of warrants | exerciseprice(Cdn$) | |
| Balance, December 31, 2019 | - | $ - |
| Granted | 900,000 | 0.05 |
| Balance, December 31, 2020 | 900,000 | $0.05 |
| Expired | (900,000) | 0.05 |
| Balance, March 31, 2021 | - | - |
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a. Fair value of financial instruments
As at March 31, 2021 and December 31, 2020, the Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, loans, convertible debentures, and lease liability.
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| December 31, 2020 | ||||
| Cash | $ 24,858 | $ - | $ - | $ 24,858 |
| Convertible debentures | - | (264,862) | - | (264,862) |
| Lease liabilities | - | (24,028) | - | (24,028) |
| $ 24,858 | $(288,890) | $ - | $(264,032) | |
| March 31, 2021 | ||||
| Cash | $ 72,710 | $ - | $ - | $ 72,710 |
| Convertible debentures | - | (272,824) | - | (272,824) |
| $ 72,710 | $(272,824) | $ - | $(200,114) |
Cash is measured using Level 1 fair value inputs. The fair value of convertible debentures is determined based on level 2 inputs and estimated using the fair value of a similar liability that does not have an equity conversion option. The fair value of lease liabilities is determined based on level 2 inputs and estimated based on the present value of future cash flows using current interest rates for financial instruments with similar conditions and maturity.
The Company’s accounts receivable, accounts payable and accrued liabilities and loans payable approximate their carrying values because of their short-term nature and/or the existence of market related interest rates on the instruments.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
b. Financial Instrument risk
The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:
i. Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company places its cash with institutions of highcredit worthiness. Management has assessed there to be a low level of credit risk associated with its cash balances. As at March 31, 2021, receivables had a balance of $nil (December 31, 2020 - $9,144) and GST receivables had a balance of $75,486 (December 31, 2020 - $72,665). The GST receivable is from the government of Canada, the Company considers the credit risk associated with this amount to be low.
The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables are assessed primarily based on days past due. The total provisions recorded during the period ended March 31, 2021 were $nil.
ii. Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has not yet achieved profitable operations and expects to incur further losses in the development of its business. The Company’s objective in managing liquidity risk is to minimize operational costs and to maintain sufficient liquidity in order to meet its operational requirements at any point in time. The Company manages liquidity risk through the management of its capital structure as outlined in Note 12 of these consolidated financial statements.
Until such time as the Company’s operations are profitable and can internally generate sufficient funds to finance its operating costs, the Company remains dependent upon the financial support of its shareholders. If the Company is unable to finance itself through these means, it is possible that the Company will be unable to continue as a going concern.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
b. Financial Instrument risk (continued)
ii. Liquidity risk (continued)
As at March 31, 2021, the Company has a working capital deficiency of $1,673,384 (December 31, 2020 – $1,625,800) and the Company has insufficient working capital to fund its operating requirements for the next 12 months. The Company’s continued operations will remain dependent on external sources of financing until such time as it can internally generate sufficient income from software sales to service its on-going operating cost requirements. Future funding may be obtained by means of issuing share capital, the exercise of warrants, the exercise of stock options or debt financing. Based on these facts, the Company is significantly exposed to liquidity risk.
iii. Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.
a. Interest rate risk
As of March 31, 2021, the Company did not have any investments in investment-grade short-term deposit certificates, and interest exposure with respect to its cash balances is minimal.
As at March 31, 2021, the Company had loans bearing interest at a fixed rate of 10% and convertible debentures bearing interest at a fixed rate of 7% per annum and as such is not significantly exposed to interest rate fluctuations.
b. Foreign currency risk
As at March 31, 2021, $221,969 (December 31, 2020 - $346,468) of Identillect Technologies Inc.’s liabilities and $2,860 (December 31, 2020 - $879) of its current assets are denominated in Canadian funds. A 1% change in the Canadian/US dollar exchange rate would result in a $2,245 net impact on the Company’s foreign exchange gain or loss. As at March 31, 2021, the Company is moderately exposed to foreign exchange fluctuations.
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Identillect Technologies Corp. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Unaudited – Prepared by Management) (Expressed in US dollars)
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
c. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities is comprised of the following:
| March 31, | December 31, | |
|---|---|---|
| 2021 | 2020 | |
| $ | $ | |
| Trade payables | 344,943 | 415,912 |
| Payroll liabilities | 241,272 | 267,803 |
| Accountspayable and accrued liabilities | 586,215 | 683,715 |
12. CAPITAL MANAGEMENT
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to fund existing operations and thereby provide returns to its shareholders. The Company does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain the future development of the business. The Company defines capital that it manages as the aggregate of its issued common shares, share-based payments reverses, warrants, and stock options and its cash balances.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt, acquire or dispose of assets or adjust the amount of cash and investments. The Company requires capital to maintain its operating businesses, sustain corporate operations and repay existing obligations. The Company currently is not able to internally finance on-going operating costs of its businesses and therefore will require additional financing by means of issuing share capital, the sale of assets or debt financing.
There can be no certainty of the Company’s ability to raise any additional financing from any of these sources.
Management reviews its capital management approach on an ongoing basis and believes that this approach given the relative size of the Company is reasonable. The Company is not subject to any externally imposed capital requirements or debt covenants. There was no change to the Company’s approach to capital management during the period ended March 31, 2021.
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