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Volta Metals Ltd. — Interim / Quarterly Report 2021
Aug 31, 2021
47702_rns_2021-08-30_32ebe19a-58b1-466c-ab0c-603746537068.pdf
Interim / Quarterly Report
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2021
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Management Discussion and Analysis
The following management discussion and analysis ( “MD&A” ) of the results of the operations and financial position of Wikileaf Technologies Inc. (the “ Company ”, “ we”, “us”, “our ”) prepared for the three and six months ended June 30, 2021, should be read in conjunction with the Company’s unaudited consolidated financial statements for the three and six months ended June 30, 2021, and 2020. All figures contained in this MD&A are presented in Canadian dollars. This MD&A contains information up to and including August 30, 2021.
Forward-Looking Statements
Certain statements contained in this MD&A may constitute forward-looking statements. These statements relate to future events or the Company’s future performance. All statements, other than statements of historical fact, may be forward-looking statements. The MD&A includes forwardlooking information with respect to our Wikileaf brand and its ability to capitalize on compelling opportunities in the future.
Forward-looking statements are often, but not always, identified using words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “propose”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon by investors as actual results may vary. These statements speak only as of the date of this MD&A and are expressly qualified, in their entirety, by this cautionary statement. The Company’s actual results could differ materially from those anticipated in these forward-looking statements because of various risk factors, including, but not limited to:
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assumptions about the ability of the Company to raise necessary capital for its existing operations and expansion plans,
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user traffic and other key metrics,
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sale of digital and intangible assets,
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the ability of the Company to retain key management personnel,
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assumptions related to our ability to attract and retain advertisers,
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the successful completion of the sale of Assets (as defined herein) to Fire & Flower Holdings Corp and Hifyre Inc,
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the use of proceeds from the sale of Assets to Fire & Flower Holdings Corp and Hifyre Inc,
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the ability of the Company to maintain the CSE’s listing requirements, and
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the ability of the Company to continue to increase organic user traffic on the platform which in turn attracts dispensary and brand advertisers.
Canadian Companies with US Marijuana-Related Assets
On February 8, 2018, the Canadian Securities Administrators published Staff Notice 51- 352 (Revised) Issuers with US Marijuana-Related Activities (the “Staff Notice”), which provides specific disclosure expectations for issuers that currently have, or are in the process of developing, cannabis-related activities in the US as permitted within a particular state’s regulatory framework. All issuers with US cannabis-related activities are expected to disclose certain prescribed information clearly and prominently in required disclosure documents.
Such disclosure includes, but is not limited to, (i) a description of the nature of a reporting issuer’s involvement in the US marijuana industry; (ii) disclosure that marijuana is illegal under US federal law and that enforcement of relevant laws is a significant risk; (iii) related risks including, among others, the risk that third party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the US; and (iv) a discussion of the reporting issuer’s ability to access public and private capital, including which financing options are and are not available to support continuing operations. Additional disclosures are required to the extent a reporting issuer is deemed to be directly or indirectly engaged in the US marijuana industry, or deemed to have “ancillary industry involvement”, all as further described in the Staff Notice. At this time, the Company’s involvement in the US cannabis industry is limited and its industry involvement of cannabis activities is “Ancillary” through direct control of a website that provides services to third parties who are involved in the US marijuana industry. In addition, the Company does not operate, nor control any subsidiary that is directly engaged in the cultivation or distribution of marijuana in accordance with any US state license. As a result of the Company having cannabis-related operations in the US, the Company is subject to the requirements of the Staff Notice and accordingly provides the following disclosures:
Compliance with Applicable State Laws in the US
The Company has not obtained legal advice regarding compliance with applicable state regulatory frameworks and exposure and implication arising from US federal laws in the states where it
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conducts operations. To the best of the Company’s knowledge, the Company is not aware of any non-compliance with applicable licensing requirements and the regulatory framework enacted by the applicable US state. The Company is not aware of: (i) any noncompliance with respect to marijuana-related activities, or (ii) any notices of violation with respect to its marijuana-related activities by its respective regulatory authorities.
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Operational Overview
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The Company
Overview
Wikileaf Technologies Inc. (“Wikileaf” or the “Company”) is the owner and operator of wikileaf.com, an online digital platform for cannabis enthusiasts to discover engaging and educational content, strain and product information and analytical tools allowing them to make informed purchasing decisions.
Wikileaf has created a data-generating advertisement inventory within an ecosystem of original content comprised of our online publication (“The Stash”), videos, podcasts, and repurposed shareable media across social platforms.
Each day, tens of thousands of cannabis consumers use the Wikileaf website to find new strain information and interact with local dispensaries to learn about and find the best prices for their desired cannabis strains and products. Dispensaries in turn use our free digital listing services to engage with consumers as an additional point of consumer engagement. Our active database includes thousands of licensed cannabis dispensaries thereby attracting a vibrant community of cannabis users seeking information on pricing, strains, products, and industry participants.
Our strain library makes it easy for users to find, review and read about thousands of cannabis strains; includes concise cannabis strain and use information in an app icon format that is easy to read. Users can then immediately locate the retailer offering the strain and the prices they are selling it for. Our dispensary finder shows all licensed dispensaries and deliveries in a users’ immediate vicinity, with real-time pricing and inventories based on the search query.
The Market Opportunity
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Cannabis Consumers: are limited in identifying accurate and engaging information with respect to cannabis, products, and reputable industry participants within their vicinity.
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Dispensaries and Brands : are challenged to properly advertise their cannabisbased products, identify new customers, and measure the effectiveness of their marketing efforts.
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Our Value Proposition
We believe cannabis consumers research strain and product pricing when they intend to buy. Wikileaf puts dispensaries in front of cannabis shoppers with immediate purchase intent.
Value Proposition for Users
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Content : Providing engaging content for users, members, and customers,
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Educational Tools : Wikileaf has over 600,000 listed strains and products priced and more than 8,300 dispensaries and thousands of customer reviews and pieces of content available to users to browse for free.[(1)]
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Price Transparency : The customer specifies a desired strain or product and instantly views multiple price quotes from dispensaries located nearby.
Value Proposition for Advertisers
- Location-target advertising : Dispensaries can understand the customer tastes based on their location-target advertising directly to cannabis users located nearby with digital advertising and tools.
For inquiries on the platform that are tied to specific geographical locations, Wikileaf endeavours to be able to provide an understanding of local customer behavioural trends and user psychographics to individual dispensaries that will help inform their inventory purchasing, product stocking and strain cultivation decisions. We intend to derive our revenue through brand advertising, data licensing and E-Commerce functionality from our prospective customers, who range from cannabis consumers to dispensaries, national cannabis brands, product manufacturers and licensed cannabis producers.
Since inception, the Company has incurred operating losses. As at June 30, 2021, the Company has an accumulated deficit of $20,891,249. The Company has not yet completed its efforts to establish a stabilized source of revenue sufficient to cover operating expenses and relies on support from its shareholders to cover such expenses.
(1) Source: Internal data as at June 30, 2021
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On August 4, 2021, the Company entered into a Definitive Agreement with Fire & Flower Holdings Corp and Hifyre Inc to sell all of its digital and intangible assets (the “Assets”) for share consideration valued at $7,500,000 in the form of 8,017,103 public common shares (the “Shares”) of Fire and Flower Holdings Corp. A special meeting of the shareholders is scheduled for September 8, 2021, to approve the sale of the Assets.
In the event that the sale of the Assets is approved by the shareholders of the Company and the transaction closes, the Company will receive the Shares as proceeds; however, the sale of 50% of the Shares are restricted with a four month hold period and the remaining 50% of the Shares are restricted with a seven month hold period following closing of the Asset sale. Until the Shares are able to be liquidated interim financing is required to continue operations. The Company is currently evaluating interim financing options to provide this necessary funding.
In the event that the sale of the Assets is not approved by the shareholders the Company, or the transaction does not close, significant additional funding will be required to continue operations primarily through debt or equity financing or through other arrangements; however, there is no assurance that the Company will be successful in this or any of its endeavours or become financially viable and continue as a going concern. Consequently, these material uncertainties raise significant doubt regarding the Company’s ability to continue as a going concern.
Highlights
Asset Sale
On August 4, 2021, the Company entered into a Definitive Agreement with Fire & Flower Holdings Corp and Hifyre Inc to sell all of its digital and intangible assets (the “Assets”) for share consideration valued at $7,500,000 in the form of 8,017,103 of the public common shares (the “Shares”) of Fire and Flower Holdings Corp. based on the ten trading day volume weighted average price of the Shares as of the date of the Definitive Agreement. A special meeting of the shareholders is scheduled for September 8, 2021, to approve the sale of the Assets. If the shareholders vote to approve the sale of the Assets and the transaction closes, the Company will no longer continue its current business operations. After the completion of sale of the Assets transaction, the Company may no longer meet the CSE’s continued
Listing requirements and therefor the CSE may designate the Company as inactive, assign it to a different industry segment, suspend trading or delist the Company’s Common Shares from trading on the CSE. The business activities of the Company is expected to include the search and evaluation of
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new investment opportunities along with consideration of other strategic alternatives such as the distribution of assets to shareholders.
Company Restructuring
During the three and six months ended June 30, 2021, the Company continued an organizational and strategic review that was initiated by the Board in fiscal year 2020, to identify opportunities for monetization and to streamline the Company’s cost structure. The objective of this initiative was to build sustainable value within changing market conditions and to significantly reduce operating costs. Restructuring efforts in fiscal year 2020 resulted in the downsizing of the Seattle and Ottawa offices which including termination of month-to-month office leases in both locations. Throughout the first three and six months of fiscal year 2021 the Company incurred significantly lower operating costs due to the ongoing streamlining endeavours.
Financing
During the three and six months ended June 30, 2021, the Company successfully raised $1.25 million in equity financing. On January 29, 2021, the Company issued $300,000 of convertible notes, which bear interest at an annual rate of 12%. The convertible notes come to maturity on their one-year anniversary date and are convertible into common shares or in the event the Company completes an equity financing prior to April 15, 2021, the holder of the notes is obligated to convert their convertible notes and accrued interest thereon into equity instruments on the same terms of the equity financing. In the event the holder of the notes does not exercise their conversion rights, the Company shall repay the notes with interest on the maturity date. On March 4, 2021, the Company announced a private placement whereby 19,000,000 units were sold for gross proceeds of $950,000. Each unit consists of one common share at a price of $0.05 per share and one share purchase warrant exercisable at $0.075 per share for a period of two years from the date of closing. In addition to the private placement, the $300,000 convertible notes were converted into common shares under the same terms as the private placement for 6,094,681 units.
Management Transition
On January 4, 2021, the Company announced that Dan Nelson has departed as Chief Growth Officer and Manoj Hippola as Chief Financial Officer of the Company. Mike Best was appointed Chief Financial Officer of the Company. Dan Nelson remains a member of the board of directors.
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Monetization Plan
During fiscal year 2020, the Company’s board of directors established a Monetization Committee, which consists of a group of internal board members and external advisors who have specific domain experience, specifically in monetizing Internet traffic and platforms. On February 25, 2020, the Committee presented the FY2020 Monetization plan, which was approved and ratified by the Company’s board of directors.
Pursuant to this plan, the Company began investigating various online revenue opportunities. Management believes the Wikileaf Platform provides a compelling opportunity for companies who want to be in tune with cannabis users and enthusiasts and their purchasing intentions, and that an effective way to reach this audience is through the use of entertaining and informative content.
Wikileaf has created, and continues to create, a data-generating advertisement inventory comprised of items such as original content including articles, videos, podcasts, and re-purposed shareable media on social platforms. Through the Wikileaf platform, cannabis consumers provide a wealth of valuable information that we feel can be monetized synergistically with a content driven advertising model.
Merger & Acquisition Committee
On June 30, 2020, the Company’s board of directors established a Mergers & Acquisition (‘M&A’) Committee, which consists of a group of internal board members and executives who have been given the mandate to evaluate possible merger candidates and/or analyze specific acquisition targets presented to the Company’s board.
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Key Metrics[(1) ]
Management has identified organic site traffic, page views, unique users, and dispensary locations as relevant to investors' assessment of our operational results.
During the three and six months ended June 30, 2021, site traffic declined significantly for unique users, organic sessions and page views compared to the same periods in fiscal year 2020. Management reviewed certain website performance issues that may have led to a decline in unique users and organic sessions. Based on the review it was determined that overall slower loading and refresh speeds of the website were a possible cause for the decrease in site visits. Additionally, traffic decline is also likely due to Google core algorithm updates and significant growth in competitive websites. To address these issues the Company signed an agreement with a third-party contractor on March 25, 2021, to conduct a detailed audit of the Company’s website including key infrastructure performance issues. The agreement provides for refactoring and consolidating of the backend code of the website and to create a plan and recommendations for future infrastructure and migration implementation plans.
Subsequent to June 30, 2021, Google completed a core algorithm re-indexing process which caused user traffic to decline further on a month over month basis to approximately 500,000 in July 2021 compared to 600,000 in June 2021. Management, with the assistance of consultants, have continued to make changes to the site with an emphasis on speed and performance in an effort to compensate for the effect of the re-indexing and try to stabilize and restore user traffic to historic levels. Management will continue these efforts in an effort to restore metrics to historic levels, but the timing and extent of the increase is not known.
Organic Site Traffic
We calculate desktop and mobile user ‘engagement’ as the number of organic user sessions (traffic) as measured by Google Analytics. This traffic metric is a good indicator of our user’s level of engagement with our desktop website, mobile website, and mobile apps. This metric is solely our organic traffic and does not represent traffic acquired via our content partner sites, which display a Wikileaf widget for price comparison, deals and strain information. We believe highly engaged users conducting price comparison and informational searches are more likely to be ‘purchase-ready’ consumers and therefore more soughtafter by our prospective advertising clients.
1) Source Google Analytics, Internal data as at June 30, 2021
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Page Views
A page view is triggered when any page is loaded by visitors to our website. Our dispensary and strain content are informative and well designed which has engaged our users to continue searching our site looking for more. Page views are important because each page view calculates an ad impression for each ad on the page. The Company’s ads are sold on a cost per thousand views basis, and page view totals is an important metric for Company growth.
For the Three Months Ended June 30, 2021 and 2020
(in thousands)
| 2021 | 2020 |
2020 to 2021 |
|
|---|---|---|---|
| % change | |||
| Average Monthly Traffic | 715.3 | 1,213.1 |
-41.0% |
| Average Monthly Page Views | 1,691.2 | 2,586.9 |
-34.6% |
Unique Users
We calculate unique visitors as the number of individuals ‘users’ as measured by Google Analytics who have visited our desktop, mobile website and mobile apps at least once in a given month, averaged over the reporting period.
Measuring unique visitors is important to us because our future revenue will depend in part on our ability to enable dispensaries to connect with our users. We count unique visitor the first time the individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses our website using a web browser in a calendar month.
For the Three Ended June 30, 2021 and 2020
(in thousands)
| 2021 | 2020 |
2020 to 2021 |
|
|---|---|---|---|
| % change | |||
| Average Monthly Unique Users | 541.5 | 882.9 |
-38.7% |
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Active Dispensary Locations
Active Dispensary Locations represents the cumulative number of licensed cannabis dispensaries and delivery services that are viewable on Wikileaf.com that have been actively engaged with the site over the previous 30 days. We define a dispensary location as each individual dispensary address or multisite delivery operation operating legally within their respective jurisdiction with a free business listing on Wikileaf.com available to be viewed by our users.
As at June 30, 2021 and 2020
(in thousands)
| 2021 | 2020 |
2020 to 2021 |
|
|---|---|---|---|
| % change | |||
| Active Dispensary Locations | 8,302 | 6,602 |
25.8% |
As at June 30, 2021, our active dispensary location count represented approximately 85% U.S. market presence based on dispensary count statistics provided by Cannabiz Media (CNB Media, LLC) and our own internal calculations based on site issued dispensary licences. Wikileaf only lists licensed operators on its website and endeavours to remove any dispensary location operating unlicensed and illegally within its individual state’s regulatory regime. The number of active dispensary locations have increased on our website primarily due to the greater number of legal dispensaries that have started operating in the U.S. over the previous fiscal year.
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Financial
Overview
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Selected Financial Information
The following tables highlight certain information and financial data of the Company for each of the two most recently completed financial years ended June 30, 2021. Information set forth below should be read in conjunction with the Company’s audited consolidated financial statements for the indicated years ended.
Summary of Quarterly Results
| CDN $ | Q2 Q1 2021 2021 |
Q4 Q3 Q2 Q1 2020 2020 2020 2020 |
Q4 Q3 2019 2019 |
|---|---|---|---|
| Revenue | 28,617 26,297 |
42,993 34,140 8,074 13,824 |
2,545- |
| Net loss | (547,285) (518,568) |
(674,216) (613,330) (987,232) (1,308,787) |
(2,433,777) (1,610,566) |
| Cash | 545,241 1,067,753 |
286,248 854,081 1,454,193 2,321,588 |
3,562,858 5,738,132 |
| Total assets | 598,108 1,106,291 |
333,439 868,628 1,533,215 2,407,608 |
3,721,960 5,839,754 |
| Total liabilities | 245,249 250,208 |
224,888 3,196,325 3,328,329 3,373,954 |
3,215,309 3,735,498 |
Revenue
The Company’s revenue for the three months ended June 30, 2021, and 2020, totalled $28,617 and $8,074, respectively and $54,914 and $21,898 for the six months ended June 30, 2021 and 2020 respectively. Revenue was derived primarily from the submission of Wikileaf.com to an online advertising network as a publisher website.
Operating Expenses
Operating expenses during the three months ended June 30, 2021, and 2020 totalled $575,902 and $995,306, respectively and $1,120,765 and $2,317,917 for the six months ended June 30, 2021, and 2020 respectively. The significant decrease in operating expenses for the three and six months ended June 30, 2021, is due primarily to the Company’s workforce restructuring in fiscal year 2020 as well as a decrease in consulting fees incurred in the development of the Company’s website Wikileaf.com.
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Salaries and Benefits
| For the Three Months Ended | ||
|---|---|---|
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Salaries and Benefits | 224,853 376,699 |
-40% |
| For the Six Months Ended | ||
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Salaries and Benefits | 557,497 1,104,391 |
-50% |
Salaries and benefits expense during the three months ended June 30, 2021, and 2020 totalled $224,853 and $376,699 respectively and $557,497 and $1,104,391 for the six months ended June 30, 2021, and 2020 respectively. The decrease in salaries and benefits can be attributed to the Company’s workforce restructuring in fiscal year 2020. This decrease was partially offset by executive settlement and employee severance payments pursuant to the Company’s workforce restructuring earlier in the year.
Professional Fees
| For the Three Months Ended | ||
|---|---|---|
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Professional Fees | 210,251 440,686 |
-52% |
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For the Six Months Ended June 30, 2021 and 2020
| 2021 | 2020 | 2020 | to 2021 | |
|---|---|---|---|---|
| % | Change | |||
| Professional Fees | 290,010 | 782,354 | -63% |
Professional fee expenses during the three ended June 30, 2021, and 2020 totalled $210,251 and $440,686, respectively, and $290,010 and $782,354 for the six months ended June 30, 2021 and 2020, respectively. The decrease period-to-period can be attributed to lower website development costs in the three- and six-month periods ended June 30, 2021 compared to the three and six-month periods ended June 30, 2020.
Marketing Expenses
| Marketing Expenses | ||
|---|---|---|
| For the Three Months Ended | ||
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Marketing & Entertainment | 26,073 9,877 |
164% |
| For the Six Months Ended | ||
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Marketing & Entertainment | 45,252 23,942 |
89% |
Marketing expenses during the three months ended June 30, 2021, and 2020 totalled $26,073 and $9,877, respectively, and $45,252 and $23,942 for the six months ended June 30, 2021, and 2020 respectively. The increase in marketing expenditures period-to-period is primarily due to the purchasing of merchandise for gift bags and other costs incurred for our podcast hosts and guests.
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Rent Expense
| For the Three Months Ended | |||
|---|---|---|---|
| June 30, 2021 and 2020 | |||
| 2021 2020 |
2020 to 2021 | ||
| % Change | |||
| Rent Expense | 0 | 13,913 |
-100% |
| For the Six Months Ended | |||
| June 30, 2021 and 2020 | |||
| 2021 2020 |
2020 to 2021 | ||
| % Change | |||
| Rent Expense | 0 | 40,277 |
-100% |
Rent expense during the three months ended June 30, 2021, and 2020 totalled nil and $13,913, respectively and nil and $40,277 for the six months ended June 30, 2001 and 2020, respectively. The elimination of rental costs is due to the Company’s restructuring. The restructuring initiative included cancellation of the Ottawa and Seattle month-to-month rental agreements in the fourth quarter of fiscal year 2020.
Office Supplies
| For the Three Months Ended | ||
|---|---|---|
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Office Supplies | 8,785 12,805 |
-31% |
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| For the Six Months Ended | ||
|---|---|---|
| June 30, 2021 and 2020 | ||
| 2021 2020 |
2020 to 2021 | |
| % Change | ||
| Office Supplies | 25,043 31,611 |
-21% |
Office supplies expense during the three months ended June 30, 2021, and 2020 totalled $8,785 and $12,805 respectively and $25,043 and $31,611 for the six months ended June 30, 2021, and 2020 respectively. The decrease can be attributed to the Company’s restructuring throughout the year. The reduction of staffing levels and the elimination of the month-to-month rental agreements in both Ottawa and Seattle were the primary reasons for the reductions in office supply expenses during the first six months of the year. The period-over-period decrease was offset marginally due to higher software expenses in the three and six months ended June 30, 2021.
Summary of Outstanding Share Data
The Company had the following securities issued and outstanding as at the date of this of this MD&A:
| Securities(1) | Units Outstanding |
|---|---|
| Issued and outstanding common shares | 144,860,165 |
| Warrants | 25,094,681 |
| Stock options | 13,047,900 |
| Restricted Stock Units | 1,750,000 |
(1) Refer to the Company’s Consolidated Financial Statements for a detailed description of these securities.
On March 4, 2021, the Company announced a private placement whereby it issued a total of 19,000,000 units at a price of $0.05 per unit for gross proceeds of $950,000. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one common share at a price of $0.075 for a period of two years from the date of closing. Upon closing, the Company paid $20,000 as finder fees.
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On January 15, 2021, the Company issued convertible notes in the amount of $300,000, bearing interest at an annual rate of 12%. The convertible notes mature after one-year and are convertible into common shares or, in the event the Company completes an equity financing prior to April 15, 2021, the holder of the notes is obligated to convert their notes and accrued interest thereon into equity instruments on the same terms of the equity financing. In the event the holder of the notes does not exercise their conversion rights, the Company shall repay the notes with interest on the maturity date. On March 4, 2021, the convertible notes, and their incurred interest of $4,734 were converted into units at the same terms as above, resulting in the issuance of 6,094,681 common shares. The fair value of the Company's share price at the date of issuance of the units was $0.055, which is higher than the unit price and as a result, the entire amount of proceeds was allocated to the common shares issued.
As at June 30, 2021, all the 25,094,681 warrants issued, remain outstanding.
Share Capitalization
Basic and diluted loss per share for the three ended June 30, 2021, and 2020 was ($0.004) per share and ($0.009) per share respectively, The decrease in loss per share is a result of the decrease in operating expenses from period-to-period, related primarily to salaries and benefits, professional fees, and lower rent expenses due to the closing of the Ottawa and Seattle office locations as well as increased number of shares outstanding.
Basic and diluted loss per share for the six months ended June 30, 2021 and 2020 was ($0.008) per share and ($0.02) per share respectively, The decrease in loss per share is a result of the decrease in operating expenses from period-to-period, related primarily to salaries and benefits, professional fees, rent expense, and other cost reductions related to the Company’s reverse take over, lower share-based compensation expenses, and a decrease in management fees paid to the former parent company as well as increased number of shares outstanding.
Stock Options
| Stockoptions on January 1, 2021 | 12,347,900 |
|---|---|
| Issuance of stock options | 700,000 |
| Forfeited stock options | - |
| Stock options on June 30, 2021 | 13,047,900 |
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On February 19, 2021, the Company granted 700,000 stock options to employees and consultants, at an exercise price of $0.07 per share and maturing in 10 years from the date of issuance. 220,000 of the stock options vest one-tenth on the grant date and the remaining on a monthly basis for the twelve months thereafter. 280,000 of the stock options vest one-third at the one-year anniversary date of the grant and the remaining over the 36 months thereafter. 200,000 of the stock options vest one-half at the date of the grant and the remaining on a monthly basis for the twelve months thereafter. The fair value of options granted has been estimated at $32,745 using the Black-Scholes option pricing model with the assumptions in the table below.
Restricted Stock Units
On July 6, 2020, the Company granted 1,750,000 RSUs to its directors, expiring in 10 years from the date of issuance. On November 23, 2020, the Company granted 250,000 RSUs to two of its directors, vesting immediately on the date of issuance. As of the date June 30, 2021, 1,750,000 restricted stock units (‘RSU’s) remain outstanding and 130,000 have vested, with the remaining balance being unvested.
| No. of RSUs 1,750,000 - - 1,750,000 |
|
|---|---|
| RSUs on January 1, 2021 | |
| Issuance of RSUs | |
| Exercise of RSUs | |
| RSUs on June 30, 2021 |
As of the date of this MD&A, 1,750,000 RSU’s are outstanding.
Liquidity and Capital Resources
| Three months Ending | ||
|---|---|---|
| June 30, | ||
| 2021 | 2020 | |
| Net cash used in operating activities | (517,854) | (856,900) |
| Net cash used in investing activities | - | (67) |
| Net cash from financing activities | - | - |
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| Six months Ending | ||
|---|---|---|
| June 30, | ||
| 2021 | 2020 | |
| Net cash used in operating activities | (963,161) | (2,115,466) |
| Net cash from investing activities | 2,400 | 4,512 |
| Net cash from financing activities | 1,230,000 | - |
The Company’s net cash used in operations for the three ended June 30, 2021, was $517,854 (2020: $856,900) and $963,161 (2020: $2,115,466) for the six months ended June 30. The decrease was largely attributed to lower operating expenditures. The Company continues to anticipate negative cash flows from operations for the foreseeable future.
The Company’s net cash used in investing for the three ended June 30, 2021, was nil (2020: -$67) and $2,400 (2020: $4,512) for the six months ended June 30[th] . The amounts for both periods relate to proceeds from disposal of equipment.
The Company’s net cash from financing for the three months ended June 30, 2021, was $0 (2020: nil) and $1,230,000 (2020: nil) for first six months of the fiscal year 2021. During the first six months of fiscal year 2021, $950,000 (less $20,000 issue costs) was raised from the issuance of private placement units and $300,000 from the issuance of convertible notes.
As at June 30, 2021, the Company had a cash balance of $545,241 (June 30, 2020: $1,454,193). Since inception, the Company has incurred operating losses. As at June 30, 2021, the Company has an accumulated deficit of $20,891,249 ($19,825,398 as at December 31, 2020). The Company has not yet completed its efforts to establish a stabilized source of revenue sufficient to cover operating expenses and relies on support from its shareholders and other potential financing arrangements to cover operating expenses.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements from the date of its incorporation to the date of this MD&A.
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Related Party Transactions
Transactions with related party exercising significant influence
The Company had an agreement with its former parent company, which required the Company to pay a fee $5,000 per month (US$60,000 per quarter for the month of January 2020, US$12,000 for the month of February 2020 and $5,000 per month starting March 2020) for management services rendered. On December 10, 2020, the Company came to an agreement with the former parent company to settle the management fees payable as at that date and following the payment of the January 2021 management fee, the agreement was terminated. As at June 30, 2021 and December 31, 2020, there are no management fees payable. The amount included in expenses for the three and six-month period ended June 30, 2021, is nil and $5,000 ($15,000 and $63,387 (US$32,000 and $20,000) in 2020) respectively.
Notes payable to related parties
Unsecured promissory notes were issued to the former parent company, which now exercises significant influence over the Company. On December 10, 2020, the Company came to an agreement to settle the notes. As a result, there were no amounts outstanding as at June 30, 2021 or December 31, 2020.
The notes bore interest at prime plus 1% and the interest expense for the three and six-month periods ended June 30, 2020, was $5,386 (US$4,896) and $11,971 (US$8,770).
On March 31, 2021, the parent company (Nesta Holding Co. Ltd.) privately sold a portion of their common shares of the Issuer to a third party and, as a result, it no longer has control over the Company, however they exercise significant influence I.
Financial Instruments and Other Instruments
The Company’s financial instruments consist of cash and current liabilities. Management has disclosed the impact of credit, liquidity, foreign currency, and interest rate risk below and in the audited consolidated financial statements.
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FINANCIAL RISKS
Risk management objectives and policies
The Company is exposed to various risks in relation to financial instruments. The Company's financial assets are cash and trade accounts receivable, which are classified at amortized cost.
The main types of risks are credit risk, liquidity risk and foreign exchange risk.
The Company does not actively engage in the trading of financial assets for speculative purposes.
Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company is subject to credit risk due to its cash and trade accounts receivable. The Company limits its exposure to credit risk for cash by placing its cash with high credit quality financial institutions.
Liquidity risk
Liquidity risk is the risk that the Company might be unable to meet its obligations as they come due. This relies on the Company's ability to raise additional equity financing in excess of anticipated needs or increasing revenues.
The Company considers expected cash flows from financial assets in assessing and managing liquidity risk, in particular, its cash resources.
Foreign exchange risk
Foreign currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign exchange risk is not considered significant as most of the Company's cash is in Canadian dollars; however, some expenses are settled in U.S. dollars. Currency risk results from the Company's expenses denominated in U.S. dollars.
COVID-19 Risk
The outbreak of the COVID-19 Coronavirus (“COVID-19”) pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. The duration and
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impact of the COVID-19 pandemic is not known at this time, nor is the efficacy of the government and central bank monetary and fiscal interventions designed to stabilize economic conditions. As a result, it is not possible to reliably estimate the length and severity of these developments or the impact on the financial position and financial results of the Company in future periods.
Risks and Uncertainties
A discussion of the Company’s business and operational risks is set out in the Company’s MD&A for the year ended December 31, 2020. If any of such risks or uncertainties actually occur, the Company’s business, financial condition or operating results could be harmed substantially and could differ materially from the plans and other forward information discussed in this MD&A.
Critical Accounting Policies and Estimates
The Company has prepared the accompanying audited consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”). Significant accounting policies and estimates are described in Notes 4 and 5 of the Company’s consolidated financial statements as at June 30, 2021.
The preparation of consolidated financial statements according to IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates.
Significant accounting estimates:
The valuation of share-based compensation.
Significant accounting judgments:
The evaluation of the Company’s ability to continue as a going concern.
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