IGEN NETWORKS CORP - Quarter Report: 2017 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

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FORM 10-Q

 

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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2017.

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.

 

Commission File No. 333-141875

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes x No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ☐

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No ☒

 

The number of shares of the registrant’s common stock issued and outstanding as of May 18, 2017 is 34,716,827.

TABLE OF CONTENTS

 

 

Part I

FINANCIAL INFORMATION

Item 1.  Financial Statements

 

The Company’s unaudited condensed consolidated interim financial statements for the three month period ended March 31, 2017 are included herewith.

 

 

 

 

 

IGEN NETWORKS CORP.

 

Condensed Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2017

(Unaudited – Expressed in U.S. Dollars)

 

IGEN NETWORKS CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in U.S. dollars)

  

 

 

IGEN NETWORKS CORP.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Unaudited - Expressed in U.S. dollars)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

IGEN NETWORKS CORP.

Condensed Consolidated Interim Statement of Stockholders’ Equity (Deficit)

(Unaudited - Expressed in U.S. dollars)

 

 

IGEN NETWORKS CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited - Expressed in U.S. dollars)

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

IGEN NETWORKS CORP.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2017

(Unaudited - Expressed in U.S. dollars)

1.    Nature and Continuance of Operations

 

IGEN Networks Corp, (“IGEN”, or the “Company”) was incorporated in the State of Nevada on November 14, 2006. IGEN has three lines of businesses: (i) investing in and managing private high-tech companies that offer products and services in the domains of wireless broadband and machine-to-machine communications and applications; (ii) negotiating distribution agreements with relevant organizations and selling their products and services through the distribution channels of IGEN; and (iii) commencing May 5, 2014, providing lot inventory management, asset tracking, and stolen vehicle recovery solutions to the automotive dealership industry and its customers after the acquisition of Nimbo, LLC.

The accompanying condensed consolidated interim financial statements of the Company should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.

The preparation of these condensed consolidated interim financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.

These condensed consolidated interim financial statements have been prepared on a going concern basis, which imply the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, on the ability of the Company to grow its revenue base, on its ability to successfully grow the companies in which it is invested, and on the ability of the Company to obtain necessary equity financing to both support the latter objectives and to invest in and grow new companies. The Company has recurring losses since inception, and incurred a net loss of $234,761 during the period ended March 31, 2017, and had accumulated losses of $8,747,071 and a working capital deficit of $830,740 as at March 31, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations into the future. These condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

2.    Summary of Significant Accounting Policies

 

(a)

Basic of Presentation and Consolidation

These condensed consolidated interim financial statements and related notes include the records of the Company and the following wholly-owned subsidiaries:

All inter-company transactions and balances have been eliminated. These condensed consolidated interim financial statements are presented in accordance with accounting principles generally accepted in the United States, are expressed in U.S. dollars, and, in management’s opinion, have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.

 

(b)

Reclassifications

Certain reclassifications have been made to the prior period’s condensed consolidated interim financial statements to conform to the current period’s presentation.

 

2.    Summary of Significant Accounting Policies (continued)

 

(c)

Use of Estimates

The preparation of these condensed consolidated interim financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, valuation of inventory, the useful life and recoverability of equipment, impairment of goodwill, valuation of notes payable, fair value of derivative liabilities, fair value of stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

(d)

Recent Accounting Pronouncements

A number of new standards, and amendments to standards and interpretations, are not yet effective for the period ended March 31, 2017, and have not been applied in preparing these condensed consolidated interim financial statements.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). ASU 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendment should be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which update the guidance as to how restricted cash should be presented and classified. The updates are intended to reduce diversity in practice. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which updated the guidance in ASC Topic 606, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and in May 2016, ASU 2016-12, Revenues from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients both of which provide supplemental adoption guidance and clarification to ASU 2014-09. ASU 2016-10 and ASU 2016-12 must be adopted concurrently with the adoption of ASU 2014-09.

 

4.     Equipment

5.     Accounts Payable and Accrued Liabilities

6.     Notes Payable

(a)

On September 30, 2014, the Company issued a note payable for $95,000 in exchange for settlement of accounts payable. The note payable is unsecured, bears interest at 5% per annum, and is due on demand. The note payable was accounted for at amortized cost using the effective interest rate method with the effective interest rate of 14% per annum. The Company recorded a debt discount of $16,163 to the note payable, which is amortized over the term of the note, and a corresponding amount to additional paid-in capital at issuance. During the year ended December 31, 2016, the Company repaid $30,000 of the principal. During the three months ended March 31, 2017, the Company repaid $25,000 of the principal. As at March 31, 2017, the carrying value of the note payable is $40,000 (December 31, 2016 – $65,000) and the Company recorded accrued interest of $10,711 (December 31, 2016 – $10,711), which has been included in accounts payable and accrued liabilities.

(b)

As at March 31, 2017, the Company had a note payable of $14,886 (Cdn$20,000) (December 31, 2016 – $14,998 (Cdn$20,000)) owed to a director, which is unsecured, bears interest at 5% per annum, and is due on October 30, 2017. As at March 31, 2017, the Company recorded accrued interest of $1,949 (Cdn$2,619) (December 31, 2016 – $1,767 (Cdn$2,373)), which has been included in accounts payable and accrued liabilities.

(c)

On March 23, 2017, the Company entered into the loan agreement with a third party for a principal amount of $8,695, which includes a one-time loan fee of $695, which was charged to interest expense. The note payable is unsecured, non-interest bearing, and requires minimum payments of 10% of the loan every ninety days from the start date of March 26, 2017. 25% of all funds processed through the Company's PayPal account will be used to pay off the loan until the loan is repaid in full. As at March 31, 2017, the balance of the note payable was $8,407 (December 31, 2016 - $nil).

 

On March 30, 2017, the Company issued a convertible debenture to a third party in the principal amount of $50,000. Under the terms of the debenture, the amount is unsecured, bears interest at 12% per annum, calculated monthly and not in advance, and is due on September 30, 2017. Subject to the approval of the holder of the convertible debenture, the Company may convert any or all of the principal and/or interest at any time following the six month anniversary of the issuance date of the convertible debenture (September 30, 2017) into common shares of the Company at a price per share equal to a 20% discount to the fair market value of the Company’s common stock.

The Company analyzed the conversion option under ASC 815, “Derivative and Hedging” (“ASC 815”), and determined that the conversion feature should be classified as a liability and recorded at fair value due to there being no explicit limit to the number of shares to be delivered upon settlement of the conversion option.  The fair value of the derivative liability resulted in a discount to the convertible debenture of $32,127. The carrying value of the convertible debenture will be accreted over the term of the convertible debenture up to the value of $50,000. During the three months ended March 31, 2017, $21 (2016 - $nil) of accretion expense had been recorded. As at March 31, 2017, the carrying value of the convertible debenture is $17,894 (December 31, 2016 - $nil).

8.     Derivative Liabilities

During the year ended December 31, 2016, the Company issued share purchase warrants as part of private placements with exercise prices denominated in Canadian dollars, which differs from the Company’s functional currency of U.S. dollars and cannot be considered to be indexed to the Company’s own stock. The Company records the fair value of its share purchase warrants with a Cdn$ exercise price in accordance with ASC 815. The fair value of the derivative liabilities is revalued quarterly with corresponding gains and losses recorded in the consolidated statement of operations. As at March 31, 2017, the Company had a derivative liability of $42,642 (December 31, 2016 - $27,930) relating to the share purchase warrants. The Company uses a multi-nominal lattice model to fair value the derivative liabilities. The following inputs and assumptions were used to value the share purchase warrants denominated in Canadian dollars during the three months ended March 31, 2017, assuming no expected dividends:

During the three months ended March 31, 2017, the Company issued a convertible debenture with variable exercise prices based on market rates (Note 7). The Company records the fair value of its convertible debenture with variable exercise prices based on future market rates in accordance with ASC 815. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. As at March 31, 2017, the Company had a derivative liability of $39,832 (December 31, 2016 - $nil) relating to the conversion feature of the convertible debenture. The Company uses a multi-nominal lattice model to fair value the derivative liabilities. The following inputs and assumptions were used to value the convertible debentures outstanding during the three months ended March 31, 2017, assuming no expected dividends:

During the three months ended March 31, 2017, the Company recorded a loss on fair value of derivative liabilities of $22,417 (2016 – $10,549).

 

 

(a)

During the three months ended March 31, 2017, the Company incurred $72,164 (2016 - $58,438) in management and consulting fees to companies controlled by three officers of the Company.

(b)

As at March 31, 2017, the Company was owed $180,919 (Cdn$241,003) (December 31, 2016 - $179,505 (Cdn$241,003)) from Gogiro, a company of which the Company has significant influence for cash advances. Of this amount, $30,403 (Cdn$40,500) (December 31, 2016 - $30,165 (Cdn$40,500)) is unsecured, bears interest at 5% per annum, and is due on demand. The remaining amounts due are unsecured, non-interest bearing, and due on demand. During the year ended December 31, 2015, the Company recorded an allowance of $180,919 (Cdn$241,003) against the outstanding balance.

(c)

As at March 31, 2017, the Company owed $150,757 (December 31, 2016 - $132,053) to officers of the Company and companies controlled by officers of the Company, which is included in accounts payable and accrued liabilities. The amounts owed are unsecured, non-interest bearing, and due on demand.

10.   Common Stock

  

Share transactions for the period ended March 31, 2017:

(a)

On March 2, 2017, the Company issued 2,222,222 units at $0.09 per unit for proceeds of $200,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable until March 2, 2019. The share purchase warrant is exercisable at $0.18 per share for the first year and $0.23 per share thereafter.

(b)

On March 2, 2017, the Company issued 56,000 shares of common stock with a fair value of $5,640 for consulting services rendered by a company controlled by the Vice President of Finance of the Company.

(c)

As at March 31, 2017 and December 31, 2016, the Company has share subscriptions received of $25,000 for the issuance of units at $0.17 per unit. Each unit will consist of one common share and one share purchase warrant exercisable at $0.35 per share for a period expiring two years from their date of issuance.

(d)

During the year ended December 31, 2015, the Company issued 498,801 common shares with a fair value of $107,944 for services. Of this amount, $70,300 relates to services to be rendered, which was recorded as deferred compensation. The fair value of the common stock was determined based on the closing price of the Company’s common stock. During the three months ended March 31, 2017, the Company expensed $8,548 (2016 - $8,409) of the deferred compensation as consulting fees, which reflects the pro-rata portion of the services provided to March 31, 2017.

11.   Share Purchase Warrants

The following table summarizes the continuity schedule of the Company’s share purchase warrants:

 

 

As at March 31, 2017, the following share purchase warrants were outstanding:

 

During the three months ended March 31, 2017, the Company issued 50,000 share purchase warrants with a fair value of $2,185 as contract fees to a third party for future financing, which was recorded in stock-based compensation. The Company uses the Black-Scholes option pricing model to establish the fair value of warrants issued assuming no expected dividends or forfeitures and the following weighted average assumptions:

12.   Stock Options

The following table summarizes the continuity schedule of the Company’s stock options:

 

IGEN NETWORKS CORP.

Notes to the Condensed Consolidated Interim Financial Statements

March 31, 2017

(Unaudited - Expressed in U.S. dollars)

 

12.   Stock Options (continued)

The fair values of stock options granted are amortized over the vesting period where applicable. During the three months ended March 31, 2017, the Company recorded $6,673 (2016 - $14,990) in stock-based compensation in connection with the vesting of options granted. The Company uses the Black-Scholes option pricing model to establish the fair value of options granted assuming no expected dividends or forfeitures and the following weighted average assumptions:

13.   Segmented Information

The Company has one reportable segment: vehicle tracking and recovery solutions. The Company allocates resources to and assesses the performance of each reportable segment using information about its revenue and operating income (loss). The Company does not evaluate operating segments using discrete asset information.

The following table summarizes the financial performance of the Company’s reportable segments:

Segmentation by geographical location is not presented as all revenues are earned in U.S. Total assets by segment are not presented as that information is not used to allocate resources or assess performance at the segment level and is not reviewed by the Chief Operating Decision Maker of the Company.

14.   Concentration Risk

The Company extends credit to customers on an unsecured basis in the normal course of business. The Company’s policy is to perform an analysis of the recoverability of its receivables at the end of each reporting period and to establish allowances where appropriate. The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.

During the three months ended March 31, 2017, the Company had two (2016 - three) customers which accounted for 77% (2016 - 49%) of total revenues.

As at March 31, 2017, the Company had two (December 31, 2016 - two) customers which accounted for 99% (December 31, 2016 - 90%) of accounts receivable.

15.   Commitment

On July 19, 2016, the Company entered into a settlement agreement with a creditor, whereby the Company would pay $259,828 to the creditor as full repayment of a promissory note (Note 6(a)) and all outstanding payables over a 14 month payment plan.

 

 

(a)	On April 20, 2017, the Company issued 49,020 shares of common stock for consulting services.

(b)

On May 11, 2017, the Company granted 1,550,000 stock options to officers, directors, employees, and consultants of the Company, which are exercisable at $0.13 per share and expire on May 11, 2022. Of this amount, 1,150,000 vests on the date of grant, 50,000 vests on October 21, 2017, 50,000 vests on November 11, 2017, and the remaining 300,000 vests on May 11, 2018.

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information for the three-month period ended March 31, 2017.  This MD&A should be read together with our unaudited condensed consolidated interim financial statements and the accompanying notes for the three-month period ended March 31, 2017 (the “consolidated financial statements”). The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Except where otherwise specifically indicated, all amounts in this MD&A are expressed in United States dollars.

Certain statements in this MD&A constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws. You should carefully read the cautionary note in this MD&A regarding forward-looking statements and should not place undue reliance on any such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”.

Additional information about the Company, including our most recent consolidated financial statements and our Annual Information Form, is available on our website at www.igen-networks.com, or on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Cautionary Note Regarding Forward-looking Statements

 

Certain statements and information in this MD&A may not be based on historical facts and may constitute forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws (“forward-looking statements”), including our business outlook for the short and longer term and our strategy, plans and future operating performance. Forward-looking statements are provided to help you understand our views of our short and longer term prospects. We caution you that forward-looking statements may not be appropriate for other purposes. We will not update or revise any forward-looking statements unless we are required to do so by securities laws. Forward-looking statements:

• Typically include words and phrases about the future such as “outlook”, “may”, “estimates”, “intends”, “believes”, “plans”, “anticipates” and “expects”

• Are not promises or guarantees of future performance. They represent our current views and may change significantly;

• Are based on a number of assumptions, including those listed below, which could prove to be significantly incorrect:

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Our ability to find viable companies in which to invest

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Our ability successfully manage companies in which we invest

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Our ability to successfully raise capital

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Our ability to successfully expand and leverage the distribution channels of our portfolio companies;

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Our ability to develop new distribution partnerships and channels

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Expected tax rates and foreign exchange rates.

 

• Are subject to substantial known and unknown material risks and uncertainties. Many factors could cause our actual results, achievements and developments in our business to differ significantly from those expressed or implied by our forward-looking statements.  Actual revenues and growth projections of the Company or companies in which we are invested may be lower than we expect for any reason, including, without limitation:

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the continuing uncertain economic conditions

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price and product competition

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changing product mixes,

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the loss of any significant customers,

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competition from new or established companies,

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higher than expected product, service, or operating costs,

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inability to leverage intellectual property rights,

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delayed product or service introductions

Investors are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results.

Overview

 

During the first quarter of 2017 the Company continued to focus on initiatives to grow revenue, expand its customer base, and develop new revenue streams for its wholly owned subsidiary Nimbo LLC.  The company also continued to pursue strategic merger and acquisition activities with targeted technologies and technology companies, and raising required capital.

Notable highlights of the 3 months period ended March 31, 2017 include the following Company achievements:

-	On January 17, 2017, the Company announced a new nation-wide marketing initiative for increased exposure through Verizon Wireless’ B2B channels to automotive dealerships across the US.

-	On March 7, 2017, the Company announced receipt of new orders for Nimbo’s pre-loaded automotive dealership product and services.

-	On March 7, 2017, the Company announced expansion of Nimbo’s sales force including increased staffing in California and the opening of new sales office in Charlotte, NC.

-	Quarterly revenue growth.

·	Q1 2017 Revenues of $323,376;

o	3% growth over the previous quarter;

o	18% growth over the similar period in 2016.

-	Gross Profit growth (quarter-on-previous-quarter):

·	Q1 2016 Gross Profit of $133,567

o	49% growth over the previous quarter

o	5% reduction over the similar period in 2016

-	Healthy Gross Margin

·	Q1 2017 Gross margins of 41%

o	Up from 29% in previous quarter, and 34.5% for all of 2016

o	Down from 51% in the similar period in 2016

 

-	Improved Net Loss (quarter-on-previous-quarter)

·	Net loss of ($234,761)

o	18% reduction over previous quarter

o	24% increase over similar period in 2016

Financial Condition and Results of Operations

Capital Resources and Liquidity

Current Assets and Liabilities, Working Capital, Net Debt

 

As of March 31, 2017, the Company’s current assets were $245,546, a marginal reduction of 3% over the quarter.  The most significant increase to current assets was an increase in restricted cash and prepaid expenses of $16,033, which was primarily increases to existing deposits and secured letters of credits for vendors, and the most significant reduction was an $18,688 reduction in accounts receivables.

Current liabilities dropped $13,686, or 1%, over the quarter.  The company was able to reduce its accounts payable and notes payable by a total of $56,490, but this was offset by a $50,000 in a new convertible debenture.  The Company also saw a net reduction of $29,634 in the current portion of its deferred revenue that was converted to revenue recognized during the period.

The Company finished the third quarter with a working capital deficiency of ($830,740), an improvement of $5,743 over the quarter. Of the total working capital deficiency, ($209,534) is short-term deferred revenue liabilities that will convert to revenue, ($82,474) is non-cash derivative liabilities associated with estimating potential foreign-exchange impact on warrants issued in Canadian dollars and with fluctuating conversion prices for the convertible debenture (see Note 8 to the consolidated financial statements), and ($50,000) is a new convertible debenture, offset by $32,106 of unamortized discount on the convertible debenture.  The Company intends to improve its working capital position through ongoing equity and debt financing and continued focus on growth in its cash flow.

The Company monitors its net debt¹ to ensure that its capital structure is maintained by a strong balance sheet to fund its future growth. Net debt is used in this document in the context of liquidity and is calculated as the total of the Company’s current liabilities, less deferred revenue and derivative liabilities, less current assets.  There is no U.S. GAAP measure that is reasonably comparable to net debt. The Company’s net debt for the period ended March 31, 2017 was $538,732, a decrease of 5% over the quarter. 

 

Total Assets and Liabilities, Net Assets

 

The Company’s total assets as of March 31, 2017 were $757,039, a reduction of $9,343 over the quarter.  This decrease was commensurate with the respective changes in current assets previously discussed; changes in noncurrent assets were not significant.

 

Total liabilities increased marginally ($19,467, or 2%) over the quarter.  This increase was composed primarily of the $33,153 increase in net non-current deferred revenue offset by the $13,686 decrease in current liabilities previously discussed.  Non-current deferred revenue accounts for pre-paid services that are to be provided beyond a one-year timeframe.  This liability is eventually converted first to current deferred revenue as it comes within one year, and then to recognized or earned revenue.

The above resulted in net assets of ($426,385), a decrease over the quarter of ($28,810).  However, 74% of this is $316,672 in deferred revenue, both current and longer term, that will eventually become earned.

As of the date these financial statements were issued the Company believes it has access to adequate working capital and projected net revenues to maintain existing operations for approximately two months without requiring additional funding.  The Company’s business plan is predicated on raising further capital for the purpose of further investment and acquisition of targeted technologies and companies, to fund growth in these technologies and companies, and to expand sales and distribution channels for companies it currently owns or is invested.  It is anticipated the Company will continue to raise additional capital through private placements and debt financing in the both the near and medium term.

 

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¹See non-GAAP Measures discussion on page 7

Results of Operations

 

Revenues and Net Income (Loss)

 

Revenues

 

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²See non-GAAP Measures discussion on page 7

Non-GAAP Measures

This document contains the terms “funds flow from operations”, and “net debt” which are not recognized measures under U.S. GAAP and may not be comparable to similar measures presented by other companies.

a)         The Company considers funds flow from operations to be a key measure that indicates the Company’s ability to generate the funds necessary to support future growth through capital investment and to repay any debt. Funds flow from operations is a measure that represents cash generated by operating activities, including deferred revenue generated in the period, before changes in non-cash working capital, and may not be comparable to measures used by other companies. Funds flow from operations per share is calculated using the same weighted-average number of shares outstanding, as in the case of the earnings per share calculation for the period.

A reconciliation of funds flow from operations to cash provided by operating activities is presented as follows:

b)         Net debt (working capital) is closely monitored by the Company to ensure that its capital structure is maintained by a strong balance sheet to fund its future growth. Net debt is used in this document in the context of liquidity and is calculated as the total of the Company’s current liabilities, less deferred revenue and derivative liabilities, less current assets.  There is no U.S. GAAP measure that is reasonably comparable to net debt.

The following table outlines the Company calculation of net debt:

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, the Company is not required to provide the information required by this item.

Item 4. Controls and Procedures.

 

The Company carried out an evaluation, with the participation of all the Company’s officers, of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2017.  The conclusions of the Company’s principal officers was that the disclosure controls and procedures in place are adequately effective such that, with some exceptions, the information required to be disclosed in our exchange and commission reports was a) recorded, processed, summarized and reported within the time periods specified in the appropriate exchange and commission rules and forms, and b) accumulated and communicated to our management, including our chief executive offer and chief operating officer, as appropriate to allow timely decisions regarding required disclosure.

During the last fiscal quarter there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II

OTHER INFORMATION

Item 1. Legal Proceedings

 

The Company is not party to any legal proceedings.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, the Company is not required to provide the information required by this item, however for a discussion of risk factors affecting the Company please refer to the Cautionary Note Regarding Forward-looking Statements included in Part I Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the three months covered by this report and ended March 31, 2017, the following securities were sold or issued:

 

On March 2, 2017, the Company issued 2,222,222 units at $0.09 per unit for proceeds of $200,000. Each unit consisted of one share of common stock and one share purchase warrant exercisable until March 2, 2019. The share purchase warrant is exercisable at $0.18 per share for the first year and $0.23 per share thereafter.

On March 2, 2017, the Company issued 56,000 shares of common stock for consulting services.

 

Item 3. Defaults Upon Senior Securities.

There has been no material default in the payment of any element of indebtedness of the Company.  The Company has no preferred stock for which dividends are paid, hence no related arrearage or delinquencies in payments of dividends.

 

Item 4. Mine Safety Disclosures.

The Company is not an operator, nor has a subsidiary that is an operator, of a coal or other mine.

Item 5. Other Information.

 

During the period covered by this report there was no information, required to be disclosed in a report on Form 8-K, that was not reported.

During the period covered by this report there were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

Item 6. Exhibits.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.