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XTM Inc. — Management Reports 2021
May 5, 2021
47722_rns_2021-05-04_d44df8e7-1400-40c5-a61a-25d7ed0c9bf7.pdf
Management Reports
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XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
May 4, 2021
Introduction
The following Management’s Discussion & Analysis (“MD&A”) of XTM Inc. (the “Company” or “XTM”) for the year ended December 31, 2020 has been prepared to provide material updates to the business operations, liquidity, and capital resources of the Company.
This MD&A has been prepared in compliance with section 2.2.1 of Form 51-102F1, in accordance with National Instrument 51-102 – Continuous Disclosure Obligations. This discussion should be read in conjunction with the Company’s audited annual financial statements for the years ended December 31, 2020 and 2019, together with the notes thereto. Results are reported in Canadian dollars, unless otherwise noted. The Company’s audited financial statements and the financial information contained in this MD&A are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee. Accordingly, information contained herein is presented as of December 31, 2020, unless otherwise indicated.
For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors (the “Board”), considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company’s common shares; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.
Forward-Looking Statements
Certain sections of this MD&A may contain “forward-looking statements” within the meaning of applicable securities legislation. All statements, other than statements of historical fact, made by the Company that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Forward-looking statements may relate to the Company’s future financial conditions, results of operations, plans, objectives, performance or business developments. Forwardlooking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements.
There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management’s expectations and plans relating to the future. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements and those made in our other filings with applicable securities regulators
1
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
in Canada. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law.
Corporate Overview
The Company is a Toronto-based Fintech company in the Neo banking space providing mobile cloudbased banking solutions and card issuing solutions for payouts including tips and wages also facilitating earned wage access (EWA). XTM’s technology solutions, multiple Point of Sale (POS) software integrations, proprietary processing platform and partnership with Mastercard and Visa are driving financial inclusion and empowerment to millions of next-generation workers around the globe by providing instant access to their earnings at the end of their shifts or as earned. Founded in 2014, the Company is now planning a full United States rollout of its instant payment and mobile banking solutions to some of North America’s largest service worker employers. The head office, principal address and registered office of the Company is located at 67 Mowat Avenue, Suite 437, Toronto, Ontario, Canada, M6K 3E3 and the head United States office is located at 801 Brickel Ave Suite 902 Miami, FL. 33410
On April 15, 2018, the Company completed the acquisition of the Prepaid Card Business (“Prepaid Business”) previously operated by Zoompass Holdings, Inc.
On March 10, 2020, the common shares of the Company were listed on the Canadian Securities Exchange under the trading symbol PAID.
On April 29, 2020, the common shares of the Company were listed on the Frankfurt Stock Exchange (Deutsche Boerse AG) under the symbol “7XT”.
On March 5, 2021, the common shares of the Company were listed on the OTCQB Market under the symbol “XTMIF”.
Results of Operations
Selected financial information for the years ended December 31, 2020 and 2019
| 2020 | 2019 | |
|---|---|---|
| Gross revenue | $975,008 | $1,051,786 |
| Commissions and agent fees | (121,839) | (188,491) |
| Net revenue | 853,169 | 863,295 |
| Cost of sales(1) | 770,662 | 652,093 |
| Gross Profit | 82,507 | 211,202 |
| Gross Margin (%) | 8.5% | 20.1% |
| Net Income (Loss) | (3,597,417) | (2,010,177) |
| Basic and Diluted loss per share |
$ (0.04) | $ (0.02) |
(1) See “Definitions – IFRS, Additional GAAP and Non-GAAP Measures”
2
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Revenue
During the year ended December 31, 2020 the Company’s gross revenue decreased by $76,778 or 7.30% compared to gross revenue during the year ended December 31, 2019. The temporary shutdowns imposed on the operations of hospitality and service businesses as a result of COVID 19 throughout 2020 challenged not only the growth of the business but also affected existing business and revenues of the Company. The Company focused on client generation and onboarding in 2020 when many businesses welcomed an opportunity to prepare for a positive COVID exit. This increased the Gross Dollar Value loads (GDV) on the Today platform, allowing the Company to realize sustained growth. The Company will continue to launch multiple initiatives within the Today platform which will help drive user convenience and increases in revenue.
Commissions and agent fees
Prior to Q2 2019 the Company had some contracts that included the Company paying commissions and or agent fees and or a revenue share. All new contracts singed after Q2 2019 do not have any commissions, agent fees or revenue sharing. During the year ended December 31, 2020, the Company paid commissions and agent fees of $121,839 compared to $188,491 in the year ended December 31, 2019. As a result, the net revenue decreased by $10,126 or 1.17% in the year ended December 31, 2020 compared to the year ended December 31, 2019 (2020-$857,214, 2019- $863,295).
Gross profit (loss)
During the year ended December 31, 2020, the Company’s gross profit was $82,507 (8.5%) compared to the gross profit of $211,202 (20.1%) in the year ended December 31, 2019. The decline was due to the temporary closure and or restrictions on capacity of service businesses due to COVID 19. With the addition of new features and functionality with the Today Mastercard and Visa and the Today mobile wallet, as well as the continuous user growth, the Company expects the gross margin percentage to increase as GDV volumes increase. The Company has many static fees associated with banking relationships and processing costs that are included in the cost of sales but will not increase as the Company GDV and revenues increase. This will also have a positive effect on the gross margin percentage. While the management controls and monitors costs, the processor charges to support revenue growth and increase in customer support expenses to service the Company’s larger customer base were still significant.
Included in the cost of goods sold are one time card production and fulfillment costs to board a new client. All of the Visa and Mastercard’s issued for the Today employee payout solution have a 3 year from production expiry date. This one-time cost for a client card boarding including a dual interface (NFC contactless payments) card, card holder, secure envelope and shipping is approximately $6.50. Total revenue associated with card sales was $164,560 in 2020. In 2019 and early 2020 the Company was subsidizing 100% of the card costs to generate new sales. When demand continued to increase the Company reduced these subsidies to a point where in Q1 2021 all new card issuance and fulfillment costs are passed on to the service business at or slightly above the Company cost.
When removing one time card issuing costs and other fixed banking minimum costs the Company has a normalized gross margin percentage of approx. 45%. With continued GDV growth the Company expects to increase this to ~60%.
3
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Net loss
For the year ended December 31, 2020, the Company had the net loss of $3,597,417 compared to a net loss of $2,010,117 for the year ended December 31, 2019.
The overall increase in the operating expenses from $2,221,379 in the year ended December 31, 2019 to $4,016,102 in the year ended December 31, 2020 was mainly due to increased workforce and salaries, including stock based compensation, to support the growth of the Company’s Today mobile banking and tip payment solution business, its imminent launch into the US, and increased marketing and promotion fees to facilitate client generation.
Business acquisition and goodwill
On April 15, 2018, the Company completed the asset acquisition of the Prepaid Card Business (“Prepaid Business”) previously operated by Zoompass Holdings, Inc. The Company issued purchase price consideration consisting of 42,000,000 common shares with a fair value of $1,130,000 based on the fair value of common shares issued in the most recent private placement prior to the close of the asset acquisition. The adjustment to the prior period consideration was made to account for the allocation between common shares and common share purchase warrants issued in the private placement. The Company did not assume any of the bank accounts, trade receivables or accounts payable and accrued liabilities of the Prepaid Business. The Company acquired the trust assets and liabilities.
The purchase price was allocated as follows:
| purchase price was allocated as follows: | |||
|---|---|---|---|
| As previously | Adjustment | YE 2019 | |
| reported | ($) | ($) | |
| ($) | |||
| Purchase price: | |||
| Common shares | 2,100,000 | (970,000) | 1,130,000 |
| Less: Fair value of net assets acquired | |||
| Cash held in trust and customer deposits | - | 2,371,181 | 2,371,181 |
| Client funds | - | (2,371,181) | (2,371,181) |
| Less: Fair value of intangible assets | |||
| Servers and hardware | 25,000 | - | 25,000 |
| Software platform | 1,800,000 | (1,615,000) | 185,000 |
| Goodwill | - | 920,000 | 920,000 |
The Company has assessed goodwill calculated as at December 31, 2019 and determined there is no impairment necessary as at December 31, 2020. The acquired goodwill is primarily related to personnel and value attributed to acquiring a company that is experiencing accelerated growth.
Amortization and depreciation
The amortization of intangible assets and depreciation of property and equipment was $167,846 the year ended December 31, 2020 compared to $170,120 in the year ended December 31, 2019. This is mainly attributed to the significant capital expenditures during the year ended December 31, 2018 associated with Zoompass asset acquisition and the corresponding amortization and depreciation expenses during the year ended 2020.
4
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Share capital
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares. As at December 31, 2020, the Company had 110,182,897 common shares issued and outstanding (2019 – 82,489,218).
| and outstanding (2019 – 82,489,218). | ||
|---|---|---|
| Number of | ||
| common shares | $ | |
| **Shares issued and outstanding ** | ||
| Shares issued and outstanding as at January 1, 2019 | 76,970,100 | 2,670,459 |
| Shares issued, net of issuance costs (i) | 5,519,118 | 409,144 |
| Shares issued and outstanding as at December 31, 2019 | 82,489,218 | 3,079,603 |
| Shares issued in private placements (ii) | 7,324,011 | 1,135,543 |
| Share issuance costs, including broker warrants (ii) | - | (72,162) |
| Allocation to warrants (ii) (iii) | - | (401,702) |
| Shares issued for subscription receipts (iii) | 3,825,000 | 595,945 |
| Shares issued for the exercise of warrants (iv) | 7,244,667 | 788,611 |
| Shares issued for the exercise of stock options (v) | 4,275,000 | 373,303 |
| Shares issued for stock-based compensation (vi) | 1,740,000 | 222,720 |
| Shares issued for restricted stock units | 3,285,001 | 465,506 |
| Additionalcommonshares | 6,627,398 | - |
| Shares issued and outstanding as at December 31, 2020 | 116,810,295 | **6,187,367 ** |
Year ended December 31, 2019
- (i) On February 28, 2019, the Company issued a total of 2,375,000 units at a price of $0.10 per unit raising gross proceeds of $237,500. The units consisted of one common share and one common share purchase warrant with each whole warrant entitling the holder to acquire one additional common share of the Company at a price of $0.13 per share for a period of two years from the date of closing.
The Company paid a finders’ fee of $19,000 and a legal fee of $9,773 in cash and issued 104,400 warrants entitling the holder to acquire one additional common share of the Company at a price of $0.13 per share for a period of two years.
The Company recorded $59,827 as fair value of the warrants issued using the Black-Scholes option pricing model assuming risk-free interest rate of 1.75%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
On April 30, 2019, the Company issued a total of 2,250,000 units at a price of $0.10 per unit raising gross proceeds of $225,000. The units consisted of one common share and one common share purchase warrant with each whole warrant entitling the holder to acquire one additional common share of the Company at a price of $0.13 per share for a period of two years from the date of closing.
The Company paid a finders’ fee of $18,000 and a legal fee of $10,000 in cash and issued 104,400 warrants entitling the holder to acquire one additional common share of the Company at a price of $0.13 per share for a period of two years.
The Company recorded $56,543 as fair value of the warrants issued using the Black-Scholes option pricing model assuming risk-free interest rate of 1.75%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
5
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
On December 27, 2019, the Company issued a total of 894,118 units at a price of $0.17 per unit raising gross proceeds of $152,000. The units consisted of one common share and one common share purchase warrant with each whole warrant entitling the holder to acquire one additional common share of the Company at a price of $0.23 per share for a period of two years from the date of closing.
The Company recorded $37,756 as fair value of the warrants issued using the Black-Scholes option pricing model assuming risk-free interest rate of 1.75%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
Year ended December 31, 2020
- (ii) On January 24, 2020, the Company issued 810,000 units at $0.17 per unit for gross proceeds of $137,700. Each units consist of one common share and one common shares purchase warrant exercisable for a period of two years at $0.23 per common share. The Company issued 64,800 finder warrants entitling the holder to acquire one additional common share of the Company at a price of $0.17 per share for a period of two years. The fair value of warrants was $33,915 and finder warrants of $3,356 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.498%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
On February 4, 2020, the Company issued 890,000 units at $0.17 per unit for gross proceeds of $151,300. Each units consist of one common share and one common shares purchase warrant exercisable for a period of two years at $0.23 per common share. The Company issued 24,000 finder warrants entitling the holder to acquire one additional common share of the Company at a price of $0.17 per share for a period of two years. The fair value of warrants was $37,257 and finders warrants of $1,242 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 1.484%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
On June 9, 2020, the Company issued 147,059 units at $0.17 per unit for gross proceeds of $25,000. Each units consist of one common share and one common shares purchase warrant exercisable for a period of two years at $0.23 per common share. The fair value of the warrants was $7,644 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.279%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
On October 26, 2020, the Company issued 2,810,152 units at $0.15 per unit for gross proceeds of $421,523. Each units consist of one common share and one common shares purchase warrant exercisable for a period of two years at $0.30 per common share. The Company issued 84,008 finder warrants entitling the holder to acquire one additional common share of the Company at a price of $0.30 per share for a period of two years. The fair value of warrants was $89,528 and finders warrants of $1,238 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.206%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
On December 29, 2020, the Company issued 2,666,800 units at $0.15 per unit for gross proceeds of $400,020. Each units consist of one common share and one common shares purchase warrant exercisable for a period of two years at $0.30 per common share. The Company issued 84,008 finder warrants entitling the holder to acquire one additional common share of the Company at a price of $0.30 per share for a period of two years. The fair value of warrants was $87,035 and finders warrants of $2,102 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.208%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
6
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
During the year ended December 31, 2020, the Company incurred cash share issuance costs of $66.098.
- (iii) At December 31, 2019, 3,825,000 subscription receipts were issued and outstanding pursuant to the subscription receipt private placements on September 19, 2019, September 30, 2019 and November 29, 2019 for gross proceeds of $650,250. The Company incurred issue costs of $54,305. As at December 31, 2019, the net proceeds have been presented as subscription receipt funds on the statement of financial position. Each subscription receipt was sold at a price of $0.17 per subscription receipt and entitled the holder to receive, immediately upon the receipt of conditional approval of the CSE to list and trade the common shares on the CSE on or before February 14, 2020, without any further action by the holder, one common share and one warrant. Each warrant will be exercisable to acquire one common share at a price of $0.23 for 24 months from the date of issuance.
On February 14, 2020, the Ontario Securities Commission cleared the Company to file its final Prospectus and become a reporting issuer in the provinces of Ontario, British Columbia and Alberta. The Company also received conditional approval from the Canadian Securities Exchange (the ‘CSE’) for the listing of its common shares on the CSE subject to the completion of customary requirements of the CSE, including the receipt of all required documentation. Concurrent with the listing, all 3,825,000 Subscription receipts were converted to 3,825,000 common shares and 3,825,000 warrants. The net subscription receipt funds of $595,945 were released to the Company. The Company recorded $160,120 as fair value of the warrants issued using the Black-Scholes option pricing model assuming risk-free interest rate of 1.484%, expected life of 2 years and stock price volatility of 89% with zero dividend yield.
- (iv) Additional common shares of 6,627,398 were issued in error in connection with the Company’s listing on the CSE. Subsequent to year end, 4,877,500 of these common shares were returned to treasury and cancelled.
Restricted stock units
On December 1, 2020, the Company adopted a restricted share unit ("RSU") plan (the "RSU Plan") pursuant to which the Company may grant options and RSUs to attract, motivate and retain directors, officers, employees and consultants, and to align the interests of plan participants with those of the Company's shareholders. The maximum number of RSUs issuable under the RSU Plan together with the number of stock options issuable under the Company’s existing stock option plan (the “Stock Option Plan”) may not exceed 20% of the number of issued and outstanding common shares of the Company as at the date of a grant under the RSU Plan or the Stock Option Plan.
On November 30, 2020, the Company granted 2,685,001 RSUs to one employee and five consultants of the Company under the RSU Plan, which RSUs vest immediately upon their grant. The RSU’s issued had a grant date fair value of $377,233 based on the closing price per common share. The expense is recorded in stock-based compensation on the statement of loss and comprehensive loss.
On December 31, 2020, the Company issued 600,000 RSUs to its Chief Financial Officer and two Board directors which vested immediately upon their grant. The RSU’s issued had a grant date fair value of $88,273 based on the closing price per common share. The expense is recorded in stockbased compensation on the statement of loss and comprehensive loss.
7
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Escrow shares
As at December 31, 2020, 4,090,125 (December 31, 2019 – 5,910,000) common shares were subject to escrow. Under the escrow agreement, 10% of the shares were released upon the listing of the Company’s securities on the CSE, and 15% are to be released every 6 months thereafter, subject to acceleration provisions provided for in NP 46-201.
Stock options
The Board initially adopted a stock option plan on March 1, 2018 which was established to provide incentive to directors, officers, employees, and consultants. The plan provided for issuance of common shares upon exercise of options equal to a maximum of 10% of the issued and outstanding common shares from time to time. The plan was approved by the shareholders on March 1, 2018.
| Year Ended | Year Ended | Year Ended | Year Ended | |
|---|---|---|---|---|
| December 31, 2020 | December 31, 2019 | |||
| Number of | Weighted | Number of | Weighted | |
| Options | Average | Options | Average | |
| Exercise Price | Exercise Price | |||
| Balance outstanding, beginning of | ||||
| year | 5,905,000 | $0.09 | 5,455,000 | $0.08 |
| Granted | 5,000,000 | 0.17 | 50,000 | 0.10 |
| Granted | - | - | 400,000 | 0.20 |
| Exercised | (4,275,000) | 0.09 | ||
| Balance outstanding, end ofyear | 6,630,000 | $0.15 | 5,905,000 | $0.09 |
On May 20, 2020, the Company issued 5,000,000 stock options to directors, management, and consultants. The options have an exercise price of $0.17 and expiry of two years. The options vest 25% on grant date and an additional 25% each 6 months after grant date.
On November 1, 2020, the Company extended 1,000,000 stock options to March 1, 2021 and 180,000 stock options to March 31, 2021. The Company recorded an incremental fair value of $8,400 to stockbased compensation for the year ended December 31, 2020.
During the year ended December 31, 2020, the Company recorded $185,558 in stock based compensation (2019 - $8,444) related to stock options issued.
The fair value of stock options was determined using the Black Scholes model with the following assumptions:
| assumptions: | ||
|---|---|---|
| December 31, | December 31, | |
| 2020 | 2019 | |
| Share price | $0.16 | $0.07 |
| Exercise price | $0.17 | $0.10 to $0.20 |
| Term | 2 years | 2 to 3 years |
| Dividend rate | 0% | 0% |
| Risk-free rate | 1.72% | 1.61% to 1.63% |
| Volatility | 89% | 89% |
| Forfeiture rate | 0% | 0% |
Details of options outstanding as at December 31, 2020:
8
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
| Number of | |||
|---|---|---|---|
| Expiry Date | Number of Options | Exercise Price ($) | Options Exercisable |
| March 1, 2021 | 1,000,000 | 0.05 | 1,000,000 |
| March 31, 2021 | 180,000 | 0.10 | 180,000 |
| May15, 2022 | 50,000 | 0.10 | 50,000 |
| July8, 2021 | 400,000 | 0.20 | 400,000 |
| May20, 2022 | 5,000,000 | 0.17 | 2,500,000 |
The weighted average life of the options outstanding and exercisable at December 31, 2020 is 1.12 years. (2019 –0.62 years) and weighted average exercise price of $0.15 per stock option (2019 - $0.09).
Warrants
Summary of the warrant activity is as follows:
| Weighted Avg. | ||
|---|---|---|
| Number of Warrants | Exercise Price | |
| ($) | ||
| Balance, January 1, 2019 | - | - |
| Issued February 28, 2019 | 2,375,000 | 0.13 |
| Issued April 30, 2019 | 2,250,000 | 0.13 |
| Issued September 18, 2019 | 5,000,000 | 0.17 |
| Issued December 27, 2019 | 894,118 | 0.23 |
| Balance December 31, 2019 | 23,929,118 | 0.12 |
| Issued January 24, 2020 | 810,000 | 0.23 |
| Issued February 4, 2020 | 890,000 | 0.23 |
| Issued February 14, 2020 | 3,825,000 | 0.23 |
| Issued June 9, 2020 | 147,059 | 0.23 |
| Issued October 26, 2020 | 2,810,152 | 0.30 |
| Issued December 29, 2020 | 2,666,800 | 0.30 |
| Exercised | (6,416,667) | 0.08 |
| Balance December 31, 2020 | 28,661,462 | 0.19 |
Warrants outstanding as at December 31, 2020 were as follows:
| Expiry Date | Number of Warrants | Exercise Price ($) |
|---|---|---|
| March 21, 2021 | 2,183,333 | 0.05 |
| March 31, 2021* | 300,000 | 0.13 |
| March 31, 2021* | 50,000 | 0.13 |
| March 31, 2021* | 4,460,000 | 0.13 |
| February 28, 2021 | 2,375,000 | 0.13 |
| April 30, 2021 | 2,250,000 | 0.13 |
| September 18, 2021 | 5,000,000 | 0.17 |
| December 27, 2021 | 894,118 | 0.23 |
9
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
| January 24, 2022 | 810,000 | 0.23 |
|---|---|---|
| February 4, 2022 | 890,000 | 0.23 |
| February 14, 2022 | 3,825,000 | 0.23 |
| June 9, 2022 | 147,059 | 0.23 |
| October 26, 2022 | 2,810,152 | 0.30 |
| December 29, 2022 | 2,666,800 | 0.30 |
*The Company extended the expiry date for 4,810,000 warrants with the exercised price $0.13 to March 31, 2021
The weighted average life of the warrants outstanding and exercisable at December 31, 2020 is 0.76 years (2019 – 1.25 years).
Finder warrants
Summary of the finder warrants activity is as follows:
| Number of | Weighted Average | |
|---|---|---|
| Warrants | Exercise Price ($) | |
| Balance, December 31, 2018 | 720,000 | 0.09 |
| Issued February 28, 2019 | 186,000 | 0.10 |
| Issued April 30, 2019 | 180,000 | 0.10 |
| Balance, December 31, 2019 | 1,086,000 | 0.09 |
| Issued January 24, 2020 | 64,800 | 0.17 |
| Issued February 4, 2020 | 24,000 | 0.17 |
| Issued October 26, 2020 | 34,004 | 0.30 |
| Issued December 29, 2020 | 50,004 | 0.30 |
| Exercised | (828,000) | 0.11 |
| Balance December 31, 2020 | 430,808 | 0.15 |
Finder warrants outstanding as at December 31, 2020 were as follows:
| Expiry Date | Number of Warrants | Exercise Price ($) |
|---|---|---|
| February 28, 2021 | 186,000 | 0.10 |
| April 30, 2021 | 72,000 | 0.10 |
| January 24, 2022 | 64,800 | 0.17 |
| February 4, 2022 | 24,000 | 0.17 |
| October 26, 2022 | 34,004 | 0.30 |
| December 29, 2022 | 50,004 | 0.30 |
The weighted average life of the finder’s warrants outstanding at December 31, 2020 is 0.70 years (2019 – 1.02 years).
10
XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Loan receivable
On March 1, 2019, the Company entered into a loan agreement with Payfare Inc. in the amount of $150,000 with interest payable at 5% per annum and maturity date of December 31, 2019. On April 28, 2020, the Company entered into an amended loan agreement for the principal amount of $150,000 with interest of 14% per annum, payable quarterly with a maturity date of April 28, 2021.
On September 18, 2020, the loan was paid in full.
Loan payable
On September 17, 2019, the Company entered into a loan agreement for bridge financing up to a maximum amount of $1,000,000. Advances from the maximum amount shall be available in the form of draws from the credit facility. The initial advance of $250,000 was received on September 20, 2019. Each subsequent advance should be in the amount of at least $100,000. The credit facility is payable 18 months from the initial advance.
The lender has the option to convert all or any outstanding loan amount into common shares at a fixed price of $0.17 per common share up to maturity. The conversion feature on the initial advance of $250,000 was determined to $19,870, recorded to contributed surplus, using a debt discount rate of 20%.
During the year ended December 31, 2020, the Company received an additional $250,000 advance on the loan payable facility. The conversion feature on the additional advance of $250,000 was determined to $16,089, recorded to contributed surplus, using a debt discount rate of 20%.
The Company also issued the lender 5,000,000 warrants to acquire one common share of the Company at an exercise price of $0.17 per common share for a period of two years. The warrants have a fair value of $101,542 using the Black Scholes model with the following assumptions; exercise price of $0.17, expected life of two years, volatility of 89% and risk free rate of 1.6%. The warrants have been treated as a debt issue costs and are amortized over the term of the loan.
The interest is calculated at the rate per annum as set out below:
| Period: to March 18, 2020 March 19, 2020 to September 18, 2020 September 19, 2020 to March 18, 2021 As of March 19, 2021 As at |
Interest rate 12% 14% 16% 18% December 31 December 31 2020 2019 |
|
|---|---|---|
| $ $ |
||
| Opening balance Advances Conversion feature Debt issue costs - warrants Accretion expense |
152,942 - 250,000 250,000 (16,089) - 73,194 (19,870) (101,542) 24,354 |
|
| Endingbalance | 460,047 152,942 |
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XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Commitments and contingencies
In the ordinary course of operating, the Company may from time to time be subject to various claims or possible claims. Management believes that there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows. These matters are inherently uncertain, and management’s view of these matters may change in the future.
Related party balances and transactions
Key management personnel remuneration comprises the Company’s President and Chief Executive Officer and Chief Financial Officer.
During the year ended December 31, 2020, the Company incurred related party expenses of $182,000 (December 31, 2019 - $186,200). These amounts related to salaries and employee benefits to the Company's Chief Executive Officer.
For the year ended December 31, 2020, the Company incurred related party expenses of $60,000 (December 31, 2019 - $35,000). These expenses related to the payment of consulting fees to the Company's Chief Financial Officer.
During the year ended December 31, 2020, the Company issued the following to officers and directors; 600,000 RSU’s with a fair value of $88,273 and 1,500,000 stock options with a corresponding expense to stock based compensation of $82,855.
At December 31, 2020, the Company has a balance receivable of $302,254 (December 31, 2019 - $203,654) from the entities controlled by a director of the Company.
At December 31, 2020, the Company has a balance payable of $126,283 (December 31, 2019 - $126,428) to a related party controlled by a director of the Company.
The amounts due from and to related parties in the normal course of business are unsecured, non-interest bearing and have no specific terms of repayment.
Cash held in trust and customer deposits and client funds
Acting as a paying agent, the Company had $6,153,784 in restricted funds on deposit and a corresponding liability for client deposits as at December 31, 2020 (December 31, 2019 - $2,578,353), which represents amounts received from customers to load on prepaid cards. Cash held in trust and customer deposits are segregated in separate bank accounts, controlled by the Company, from which the Company earns interest. The Company cannot utilize the cash held in trust and customer deposits outside the scope of the client contracts.
Off balance sheet arrangements
The Company does not have any off balance sheet arrangements
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XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
Risk factors
The fair value of cash, subscription receipt funds, trade receivables, loan receivable, due from related parties, accounts payable and accrued liabilities, and due to shareholders approximate their carrying values due to the relatively short-term nature of these financial instruments. The carrying value of the loan payable and government loan approximates its fair value as the interest rates are consistent with the current rates offered to the Company for loans with similar terms.
The Company’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company.
The Company uses various methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks.
Internal controls over financial reporting and disclosure of controls and procedures
The Company’s Chief Executive Officer and the Chief Financial Officer are responsible for the design of internal controls over financial reporting within the Company in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. There were no changes in the Company's internal controls over financial reporting during the Company's most recent period that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management of capital
At December 31, 2020, the Company’s capital consists of the shareholders’ equity in the amount of $843,242 (December 31, 2019 - $1,396,103).
The Company's capital management is designed to ensure that it has sufficient financial flexibility both in the short and long-term to support its financial obligations and the future development of the business.
The Company manages its capital with the following objectives:
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a) Ensuring sufficient liquidity is available to support its financial obligations and to execute its operating strategic plans;
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b) Maintaining financial capacity and flexibility through access to capital to support future development of the business;
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c) Minimizing its cost of capital and considering current and future industry, market and economic risks and conditions; and
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d) Utilizing short term funding sources to manage its working capital requirements and long term funding sources to match the long-term nature of the property, plant and equipment of the business.
Subsequent events
On February 26, 2021, the Company closed non-brokered placement offering with strategic investors. The placement consisted of 7,966,663 units at a price of $0.15 per unit for gross proceeds of $1,195,000. Each unit consists of one common share and one warrant exercisable for one common share at a price of $0.30 for a period of 24 months after closing.
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XTM Inc.
Management’s Discussion & Analysis For the year ended December 31, 2020
On March 5, 2021, XTM’s shares started trading on the OTCQB Venture Market, a US trading platform that is operated by OTC Markets Group in New York. The Company’s symbol is ‘XTMIF”. The QB US listing supports broader investor interest as the business rapidly expands into the US market.
On March 20, 2021, the loan payable with a face value of $500,000 was converted into 2,941,176 common shares at an exercise price of $0.17.
Subsequent to year end, the Company issued 12,101,353 common shares for warrants and options exercised for gross proceeds of $2,088,945.
On April 27, 2021, 4,877,500 of the additional common shares issued were returned to the treasury and cancelled.
Definitions – IFRS, Additional GAAP and NON-GAAP Measures
IFRS Measures
Cost of services
Cost of services consists of expenses related to servicing the customers instant pay and mobile banking solutions. These expenses include interchange and related network fees, ATM (Automated Teller Machine) fees, card set-up and printing costs and customer support expenses for resources directly associated with the cost of services.
Gross profit margin
Gross profit margin is revenue less cost of services.
Other operating expenses
Other operating expenses includes consultant & professional fees, legal expenses, travel & entertainment expenses, bad debt expense, customer acquisition costs, computer and software purchases, marketing expenses, recruiting expenses, rent expense for office facilities, insurance, telecom expenses, office supplies and maintenance expenses.
Finance costs
Finance costs consist of interest charged on our loan payable, amortization of deferred financing costs and accretion expense. The deferred financing costs are amortized using the effective interest method over the term of the loan.
Additional GAAP Measures
Loss from operations
Loss from operations exclude foreign exchange loss, income taxes, finance costs and change in fair value of derivative liability. We consider loss from operations to be representative of the activities that would normally be regarded as operating for the Company. We believe this measure provides relevant information that can be used to assess the consolidated performance of the Company and therefore, provides meaningful information to investors.
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