UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
FOR THE
QUARTERLY PERIOD ENDED June 30, 2020.
☐
|
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
IGEN Networks Corp.
|
(Exact name of
registrant as specified in its charter)
|
Nevada
|
|
20-5879021
|
(State or Other
Jurisdiction of
incorporation or
organization)
|
|
(I.R.S. Employer
Identification No.)
|
28375
Rostrata Ave. Lake Elsinore, CA 92532
(Address of principal
executive offices) (Zip Code)
1-855-912-5378
(Registrant’s telephone
number including area code)
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
☒ 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 ☒ 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.
Large accelerated
filer:
|
☐
|
Accelerated filer:
|
☐
|
Non-accelerated
filer:
|
☐
|
Smaller reporting
company:
|
☒
|
(Do not check if a
smaller reporting company)
|
Emerging growth
company
|
☐
|
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 ☐ No ☒
The number of shares of
the registrant’s common stock issued and outstanding as of August
12, 2020 is 1,089,088,573.
TABLE OF
CONTENTS
Part I
FINANCIAL
INFORMATION
Item 1. Financial
Statements
The Company’s unaudited
condensed consolidated interim financial statements for the three
and six month periods ended June 30, 2020 are included
herewith.
IGEN NETWORKS
CORP.
Condensed Consolidated
Interim Financial Statements
For the Three and Six
Months Ended June 30, 2020
(Unaudited – Expressed
in U.S. Dollars)
IGEN NETWORKS
CORP.
Condensed Consolidated
Interim Balance Sheets
(Expressed in U.S.
dollars)
|
|
June
30,
2020
|
|
|
December
31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$ |
- |
|
|
$ |
- |
|
Accounts and other
receivables, net
|
|
|
3,508 |
|
|
|
18,136 |
|
Inventory
|
|
|
8,375 |
|
|
|
4,334 |
|
Prepaid expenses and
deposits
|
|
|
- |
|
|
|
4,013 |
|
Total Current Assets
|
|
|
11,883 |
|
|
|
26,483 |
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
505,508 |
|
|
|
505,508 |
|
Total Assets
|
|
$ |
517,391 |
|
|
$ |
531,991 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$ |
926,772 |
|
|
$ |
983,358 |
|
Current portion of
deferred revenue, net of contract assets
|
|
|
142,621 |
|
|
|
207,566 |
|
PPP note payable
|
|
|
60,049 |
|
|
|
- |
|
Convertible debentures,
net of discount of $58,623 and $343,398, respectively
|
|
|
29,148 |
|
|
|
21,121 |
|
Derivative
liabilities
|
|
|
539,693 |
|
|
|
92,322 |
|
Total Current Liabilities
|
|
|
1,698,283 |
|
|
|
1,304,367 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue, net
of current portion and contract assets
|
|
|
47,057 |
|
|
|
54,899 |
|
Total Liabilities
|
|
|
1,745,340 |
|
|
|
1,359,266 |
|
|
|
|
|
|
|
|
|
|
Commitment and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible
preferred stock – Series A:
|
|
|
|
|
|
|
|
|
Authorized – 9,000,000 shares with $0.001 par value, 159,800 shares
and 160,600 shares issued and outstanding as of June 30, 2020 and
December 31, 2019, respectively, net of discount of $142,425 and
$121,934, respectively, aggregate liquidation preference of $88,375
and $153,862 as of June 30, 2020 and December 31, 2019,
respectively
|
|
|
67,305 |
|
|
|
31,927 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Series B preferred
stock: Authorized – 1,000,000 shares with $0.001 par value issued
and outstanding – 1,000,000 and 0 shares, as of June 30, 2020 and
December 31, 2019, respectively, aggregate liquidation preference
of $1,000 as of June 30, 2020
|
|
|
1,000 |
|
|
|
- |
|
Common stock:
Authorized – 1,490,000,000 shares with $0.001 par value issued and
outstanding – 1,009,665,261 and 74,242,196 shares, as of June 30,
2020 and December 31, 2019, respectively
|
|
|
1,009,665 |
|
|
|
74,242 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
|
12,516,383 |
|
|
|
10,697,216 |
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
|
(14,822,302 |
) |
|
|
(11,630,660 |
) |
Total Stockholders’
Deficit
|
|
|
(1,295,254 |
) |
|
|
(859,202 |
) |
Total Liabilities and
Stockholders’ Deficit
|
|
$ |
517,391 |
|
|
$ |
531,991 |
|
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Interim Statements of Operations
(Unaudited - Expressed
in U.S. dollars)
|
|
Three Months
Ended June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, services
|
|
$ |
97,058 |
|
|
$ |
198,481 |
|
|
$ |
207,183 |
|
|
$ |
443,878 |
|
Sales, other
|
|
|
6,762 |
|
|
|
- |
|
|
|
8,436 |
|
|
|
- |
|
Total Revenues
|
|
|
103,820 |
|
|
|
198,481 |
|
|
|
215,619 |
|
|
|
443,878 |
|
Cost of goods sold
|
|
|
24,595 |
|
|
|
114,098 |
|
|
|
92,544 |
|
|
|
251,121 |
|
Gross Profit
|
|
|
79,225 |
|
|
|
84,383 |
|
|
|
123,075 |
|
|
|
192,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
136,953 |
|
|
|
138,774 |
|
|
|
212,200 |
|
|
|
308,642 |
|
Management and consulting fees
|
|
|
61,784 |
|
|
|
34,414 |
|
|
|
114,836 |
|
|
|
79,898 |
|
Payroll and related
|
|
|
34,366 |
|
|
|
100,180 |
|
|
|
72,239 |
|
|
|
189,709 |
|
Stock-based director expense
|
|
|
- |
|
|
|
- |
|
|
|
277,543 |
|
|
|
- |
|
Total Expenses
|
|
|
233,103 |
|
|
|
273,368 |
|
|
|
676,818 |
|
|
|
578,249 |
|
Loss Before Other
Income (Expense)
|
|
|
(153,878 |
) |
|
|
(188,985 |
) |
|
|
(553,743 |
) |
|
|
(385,492 |
) |
Other Income
(Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures
|
|
|
(33,336 |
) |
|
|
- |
|
|
|
(110,064 |
) |
|
|
- |
|
Change in fair value of derivative liabilities
|
|
|
(1,048,462 |
) |
|
|
177,877 |
|
|
|
(1,347,701 |
) |
|
|
177,877 |
|
Loss on extinguishment of debt
|
|
|
(195,908 |
) |
|
|
- |
|
|
|
(273,518 |
) |
|
|
- |
|
Interest expense
|
|
|
(191,712 |
) |
|
|
(120,508 |
) |
|
|
(197,443 |
) |
|
|
(120,508 |
) |
Total Other Expense,
net
|
|
|
(1,469,418 |
) |
|
|
57,369 |
|
|
|
(1,928,726 |
) |
|
|
57,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(1,623,296 |
) |
|
|
(131,616 |
) |
|
|
(2,482,469 |
) |
|
|
(328,123 |
) |
Increase in value of
warrants
|
|
|
(370,726 |
) |
|
|
- |
|
|
|
(370,726 |
) |
|
|
- |
|
Accrued and deemed
dividends on redeemable convertible preferred stock
|
|
|
(245,676 |
) |
|
|
(169,709 |
) |
|
|
(338,447 |
) |
|
|
(169,709 |
) |
Net loss attributable
to common stockholders
|
|
$ |
(2,239,698 |
) |
|
$ |
(301,325 |
) |
|
$ |
(3,191,642 |
) |
|
$ |
(497,832 |
) |
Basic and Diluted Loss
per Common Share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
Weighted Average Number
of Common Shares Outstanding
|
|
|
711,546,667 |
|
|
$ |
68,214,970 |
|
|
$ |
406,173,893 |
|
|
$ |
67,680,440 |
|
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Deficit
(Unaudited - Expressed
in U.S. dollars)
|
|
Redeemable
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible
Preferred
Stock
|
|
|
Series
B
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid
In
|
|
|
Accumulated
|
|
|
Stockholders'
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance, December 31, 2019
|
|
|
160,600 |
|
|
$ |
31,927 |
|
|
|
- |
|
|
$ |
- |
|
|
|
74,242,196 |
|
|
$ |
74,242 |
|
|
$ |
10,697,216 |
|
|
$ |
(11,630,660 |
) |
|
$ |
(859,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock for cash,
net of costs and discounts
|
|
|
47,300 |
|
|
|
1,608 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
|
|
276,543 |
|
|
|
- |
|
|
|
277,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A preferred shares to
common stock
|
|
|
(107,700 |
) |
|
|
(21,411 |
) |
|
|
- |
|
|
|
- |
|
|
|
81,700,258 |
|
|
|
81,700 |
|
|
|
103,693 |
|
|
|
(91,029 |
) |
|
|
94,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
- |
|
|
|
1,742 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,742 |
) |
|
|
(1,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,750,000 |
|
|
|
26,750 |
|
|
|
124,500 |
|
|
|
- |
|
|
|
151,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for exercise of
convertible note, including fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
95,216,504 |
|
|
|
95,217 |
|
|
|
175,753 |
|
|
|
- |
|
|
|
270,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,906 |
|
|
|
- |
|
|
|
14,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(859,173 |
) |
|
|
(859,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
100,200 |
|
|
|
13,866 |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
277,908,958 |
|
|
|
277,909 |
|
|
|
11,392,611 |
|
|
|
(12,582,604 |
) |
|
|
(911,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock for cash,
net of costs and discounts
|
|
|
100,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(156,472 |
) |
|
|
(156,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A preferred shares to
common stock
|
|
|
(40,500 |
) |
|
|
(10,115 |
) |
|
|
- |
|
|
|
- |
|
|
|
117,506,731 |
|
|
|
117,507 |
|
|
|
37,230 |
|
|
|
(25,650 |
) |
|
|
129,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
- |
|
|
|
63,554 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63,554 |
) |
|
|
(63,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for exercise of
convertible note, including fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
524,841,289 |
|
|
|
524,841 |
|
|
|
738,152 |
|
|
|
- |
|
|
|
1,262,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of warrant
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
62,579,483 |
|
|
|
62,579 |
|
|
|
(62,579 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of
payables
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,828,800 |
|
|
|
26,829 |
|
|
|
40,243 |
|
|
|
- |
|
|
|
67,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in value of warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
370,726 |
|
|
|
(370,726 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,623,296 |
) |
|
|
(1,623,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
159,800 |
|
|
$ |
67,305 |
|
|
|
1,000,000 |
|
|
$ |
1,000 |
|
|
|
1,009,665,261 |
|
|
$ |
1,009,665 |
|
|
$ |
12,516,383 |
|
|
$ |
(14,822,302 |
) |
|
$ |
(1,295,254 |
) |
|
|
Redeemable
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible
Preferred
Stock
|
|
|
Series
B
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid
In
|
|
|
Accumulated
|
|
|
Stockholders'
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance, December 31, 2018
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
66,714,970 |
|
|
$ |
66,715 |
|
|
$ |
10,426,245 |
|
|
$ |
(11,049,499 |
) |
|
$ |
(556,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
1,500 |
|
|
|
58,500 |
|
|
|
- |
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(196,507 |
) |
|
|
(196,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68,214,970 |
|
|
|
68,215 |
|
|
|
10,484,745 |
|
|
|
(11,246,006 |
) |
|
|
(693,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock issued for
cash, net of costs and discounts
|
|
|
144,300 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
|
|
|
|
1,642 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,642 |
) |
|
|
(1,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividends on Series A preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(168,067 |
) |
|
|
(168,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
|
|
- |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(131,616 |
) |
|
|
(131,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
144,300 |
|
|
$ |
1,642 |
|
|
|
- |
|
|
$ |
- |
|
|
|
68,214,970 |
|
|
$ |
68,215 |
|
|
$ |
10,499,745 |
|
|
$ |
(11,547,331 |
) |
|
$ |
(979,371 |
) |
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed
in U.S. dollars)
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from
Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,482,469 |
) |
|
$ |
(328,123 |
) |
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures
|
|
|
110,064 |
|
|
|
120,000 |
|
Change in fair value of derivative liabilities
|
|
|
1,347,701 |
|
|
|
(177,877 |
) |
Depreciation
|
|
|
- |
|
|
|
- |
|
Loss on extinguishment of debt
|
|
|
273,518 |
|
|
|
- |
|
Shares issued for services
|
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
292,449 |
|
|
|
34,500 |
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts and other
receivables
|
|
|
14,628 |
|
|
|
(2,695 |
) |
Inventory
|
|
|
(4,041 |
) |
|
|
33,460 |
|
Prepaid expenses and
deposits
|
|
|
- |
|
|
|
4,484 |
|
Accounts payable and
accrued liabilities
|
|
|
165,488 |
|
|
|
162,825 |
|
Deferred revenue
|
|
|
(72,787 |
) |
|
|
(115,246 |
) |
Net Cash Used in
Operating Activities
|
|
|
(355,449 |
) |
|
|
(268,672 |
) |
Cash Flows from
Financing Activities
|
|
|
|
|
|
|
|
|
Repayment of notes
payable and convertible debentures
|
|
|
(50,000 |
) |
|
|
- |
|
Proceeds from issuance
of common stock
|
|
|
151,250 |
|
|
|
60,000 |
|
Proceeds from notes
payable and convertible debentures, net
|
|
|
129,199 |
|
|
|
40,000 |
|
Proceeds from issuance
of preferred stock, net
|
|
|
125,000 |
|
|
|
125,000 |
|
Net Cash Provided by
Financing Activities
|
|
|
355,449 |
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
Change in Cash
|
|
|
- |
|
|
|
(43,672 |
) |
Cash, Beginning of
Period
|
|
|
- |
|
|
|
56,823 |
|
Cash, End of
Period
|
|
$ |
- |
|
|
$ |
13,151 |
|
Non-cash Investing and
Financing Activities:
|
|
|
|
|
|
|
|
|
Conversion of notes
payable and accrued interest:
|
|
|
|
|
|
|
|
|
Fair value of common shares issued
|
|
$ |
1,533,960 |
|
|
$ |
- |
|
Derecognition of notes payable and accrued interest
|
|
$ |
(321,776 |
) |
|
$ |
- |
|
Derecognition of unamortized discount
|
|
$ |
199,710 |
|
|
$ |
- |
|
Derecognition of derivative liabilities
|
|
$ |
(1,330,331 |
) |
|
$ |
- |
|
Conversion of preferred
stock
|
|
|
|
|
|
|
|
|
Fair value of common shares issued
|
|
$ |
340,132 |
|
|
$ |
- |
|
Derecognition of preferred stock
|
|
$ |
(208,839 |
) |
|
$ |
- |
|
Derecognition of unamortized discount
|
|
$ |
177,313 |
|
|
$ |
- |
|
Derecognition of derivative liabilities
|
|
$ |
(182,687 |
) |
|
$ |
- |
|
Deemed dividend
|
|
$ |
(314,437 |
) |
|
$ |
- |
|
Discount related to
issuance of preferred stock
|
|
$ |
131,962 |
|
|
$ |
125,000 |
|
Deemed dividends on
preferred stock (excluding conversions)
|
|
$ |
(65,286 |
) |
|
$ |
(169,709 |
) |
Cashless exercise of
warrants
|
|
$ |
62,579 |
|
|
$ |
- |
|
Original issue discount
on convertible debt
|
|
$ |
- |
|
|
$ |
8,500 |
|
Increase in value of
warrants
|
|
$ |
370,726 |
|
|
$ |
- |
|
Conversion of accrued
liabilities with issuance of common stock
|
|
$ |
67,073 |
|
|
$ |
- |
|
Reclassification of
security deposit to accounts payable
|
|
$ |
4,013 |
|
|
$ |
- |
|
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
June 30, 2020
(Unaudited - Expressed
in U.S. dollars)
1.
Organization and Description of Business
IGEN Networks Corp.
(“IGEN”, the “Company”, “we”, “our”) was incorporated in the State
of Nevada on November 14, 2006, under the name of Nurse Solutions
Inc. On September 19, 2008, the Company changed its name to Sync2
Entertainment Corporation and traded under the symbol SYTO. On
September 15, 2008, the Company became a reporting issuer in
British Columbia, Canada. On May 26, 2009, the Company changed its
name to IGEN Networks Corp. On March 25, 2015, the Company was
listed on the Canadian Securities Exchange (CSE) under the trading
symbol IGN and the Company became a reporting Venture Issuer in
British Columbia and Ontario, Canada.
The Company’s principal
business is the development and marketing of software services for
the automotive industry. The Company works with wireless carriers,
hardware suppliers and software developers to provide direct and
secure access to information on the vehicle and the driver’s
behavior. The software services are delivered from the AWS Cloud to
the consumer and their families over the wireless networks and
accessed from any mobile or desktop device. The software services
are marketed to automotive dealers, financial institutions, and
direct-to-consumer through various commercial and consumer
brands.
Going
Concern
The accompanying
condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has experienced recurring losses from operations, has
negative operating cash flows since inception, has a working
capital deficit of $1,686,400 and an accumulated deficit of
$14,822,302 as of June 30, 2020, and is dependent on its ability to
raise capital from stockholders or other sources to sustain
operations. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Ultimately, the
Company plans to achieve profitable operations through the increase
in revenue base and successfully grow its operations organically or
through acquisitions. The condensed consolidated financial
statements do not include any adjustments that might result from
the outcome of these uncertainties.
2.
Summary of Significant Accounting Policies
Basis of
Presentation and Consolidation
These consolidated
financial statements and related notes include the records of the
Company and the Company’s wholly-owned subsidiary, Nimbo Tracking
LLC which is formed in the USA.
The condensed
consolidated balance sheet as of December 31, 2019, which has been
derived from audited consolidated financial statements, and these
unaudited condensed consolidated financial statements have been
prepared by management in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”), and include
all assets, liabilities, revenues and expenses of the Company and
its wholly-owned subsidiary. All material intercompany transactions
and balances have been eliminated. These interim unaudited
condensed consolidated financial statements and notes thereto
should be read in conjunction with Management’s Discussion and
Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended
December 31, 2019. Certain information required by U.S. GAAP has
been condensed or omitted in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission (“SEC”).
The results for the three and six month periods ended June 30, 2020
are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 2020, or for any future
period.
Use of
Estimates
The preparation of
these condensed consolidated financial statements in conformity
with U.S. GAAP 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 consolidated 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 and convertible debentures, fair value
of stock-based compensation and derivative liabilities, 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.
Cash and
Cash Equivalents
The Company considers
all highly liquid instruments purchased with an original maturity
of three months or less at the time of acquisition to be cash
equivalents.
Accounts
Receivable
Accounts receivable are
recognized and carried at the original invoice amount less an
allowance for expected uncollectible amounts. Inherent in the
assessment of the allowance for doubtful accounts are certain
judgments and estimates including, among others, the customer’s
willingness or ability to pay, the Company’s compliance with
customer invoicing requirements, the effect of general economic
conditions and the ongoing relationship with the customer. Accounts
with outstanding balances longer than the payment terms are
considered past due. We do not charge interest on past due
balances. The Company writes off trade receivables when all
reasonable collection efforts have been exhausted. Bad debt expense
is reflected as a component of general and administrative expenses
in the consolidated statements of operations. As of June 30, 2020
and December 31, 2019, the allowance for doubtful accounts was
approximately $36,000 and $21,000, respectively.
Inventory
Inventory consists of
vehicle tracking and recovery devices and is comprised entirely of
finished goods that can be resold. Inventory is stated at the lower
of cost or net realizable value. Cost is determined on a first-in,
first-out (FIFO) basis. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and selling costs. There was no provision for
inventory impairment recorded as of June 30, 2020 and December 31,
2019.
Equipment
Office equipment,
computer equipment, and software are recorded at cost. Depreciation
is provided annually at rates and methods over their estimated
useful lives. Management reviews the estimates of useful lives of
the assets every year and adjusts them on prospective basis, if
needed. All equipment was fully depreciated as of December 31,
2019. For purposes of computing depreciation, the method of
depreciating equipment is as follows:
Computer equipment
|
3 years
straight-line
|
Office equipment
|
5 years
straight-line
|
Software
|
3 years
straight-line
|
Goodwill
Goodwill represents the
excess of the acquisition price over the fair value of identifiable
net assets acquired. Goodwill is allocated at the date of the
business combination. Goodwill is not amortized, but is tested for
impairment annually on December 31 of each year or more frequently
if events or changes in circumstances indicate the asset may be
impaired. These events and circumstances may include a significant
change in legal factors or in the business climate, a significant
decline in the Company’s share price, an adverse action of
assessment by a regulator, unanticipated competition, a loss of key
personnel, significant disposal activity and the testing of
recoverability for a significant asset group.
Goodwill impairment is
measured as the amount by which a reporting unit’s carrying value
exceeds its fair value.
The Company has only
one reporting unit. Therefore, all of the Company’s goodwill
relates to that reporting unit, and at June 30, 2020 and December
31, 2019, the carrying value for that reporting unit is
negative.
Impairment
of Long-lived Assets
The Company reviews
long-lived assets, such as equipment, for impairment whenever
events or changes in the circumstances indicate that the carrying
value may not be recoverable. If the total of the estimated
undiscounted future cash flows is less than the carrying value of
the asset, an impairment loss is recognized for the excess of the
carrying value over the fair value of the asset during the year the
impairment occurs.
Financial
Instruments
In accordance with
Financial Accounting Standard Board (“FASB”) Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures,” the Company is to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to
measure fair value:
Level
1
Level 1 applies to
assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.
Level
2
Level 2 applies to
assets or liabilities for which there are inputs other than quoted
prices that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated
by, observable market data.
Level
3
Level 3 applies to
assets or liabilities for which there are unobservable inputs to
the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
See Note 4 for fair
value measurement information related to the Company’s derivative
liabilities.
The fair values of cash
and cash equivalents, accounts and other receivables, restricted
cash, and accounts payable and accrued liabilities, approximate
their carrying values due to the immediate or short-term maturity
of these financial instruments. Foreign currency transactions are
primarily undertaken in Canadian dollars. The fair value of cash
and cash equivalents is determined based on “Level 1” inputs and
the fair value of derivative liabilities is determined based on
“Level 3” inputs. The recorded values of notes payable, approximate
their current fair values because of their nature and respective
maturity dates or durations. The financial risk is the risk to the
Company’s operations that arise from fluctuations in foreign
exchange rates and the degree of volatility to these rates.
Currently, the Company does not use derivative instruments to
reduce its exposure to foreign currency risk. Financial instruments
that potentially subject the Company to concentrations of credit
risk consists of cash. The Company places its cash and cash
equivalents in what it believes to be credit-worthy financial
institutions.
Revenue
Recognition and Deferred Revenue
We recognize revenue in
accordance with ASC 606, “Revenue from Contracts with Customers”,
using the five-step model, including (1) identify the contract with
the customer, (2) identify the performance obligations in the
contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract,
and (5) recognize revenue in accordance with U.S. GAAP. Title and
risk of loss generally pass to our customers upon delivery, as we
have insurance for lost shipments. In limited circumstances where
either title or risk of loss pass upon destination or acceptance or
when collection is not reasonably assured, we defer revenue
recognition until such events occur. We derive revenues from two
primary sources: products and services. Product revenue includes
the shipment of product according to the agreement with our
customers and only represents a small percentage of our revenues,
less than 5%. Services include vehicle tracking services and
customer support (technical support), installations and consulting.
A contract may include both product and services. For these
contracts, the Company accounts for individual performance
obligations separately if they are distinct. Performance
obligations include, but are not limited to, pass-thru harnesses
and vehicle tracking services. Almost all of our revenues are
derived from customers located in United States of America in the
auto industry. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. Standalone selling prices are typically estimated based on
observable transactions when these services are not sold on a
standalone basis. At contract inception, an assessment of the goods
and services promised in the contracts with customers is performed
and a performance obligation is identified for each distinct
promise to transfer to the customer a good or service (or bundle of
goods or services). To identify the performance obligations, the
Company considers all of the goods or services promised in the
contract regardless of whether they are explicitly stated or are
implied by customary business practices. Revenue is recognized when
our performance obligation has been met. The Company considers
control to have transferred upon delivery because the Company has a
present right to payment at that time, the Company has transferred
use of the asset, and the customer is able to direct the use of,
and obtain substantially all of the remaining benefits from, the
asset. For arrangements under which the Company provides vehicle
tracking services, the Company satisfies its performance
obligations as those services are performed whereby the customer
simultaneously receives and consumes the benefits of such services
under the agreement. Revenues are recognized net of any taxes
collected from customers, which are subsequently remitted to
governmental authorities.
The Company provides
product warranties with varying lengths of time and terms. The
product warranties are considered to be assurance-type in nature
and do not cover anything beyond ensuring that the product is
functioning as intended. Based on the guidance in ASC 606,
assurance-type warranties do not represent separate performance
obligations. The Company has historically experienced a low rate of
product returns under the warranty program.
Management assesses the
business environment, customers’ financial condition, historical
collection experience, accounts receivable aging, and customer
disputes to determine whether collectability is reasonably assured.
If collectability is not reasonably assured at the time of sale,
the Company does not recognize revenue until collection occurs.
Revenue relating to the
sale of service fees on its vehicle tracking and recovery services
is recognized over the life of the contact. The service renewal
fees are offered in terms ranging from 12 to 36 months and are
generally payable upon delivery of the vehicle tracking devices or
in full upon renewal.
Deferred revenues are
recorded net of contract assets and when cash payments are received
from customers in advance of the Company’s performance. Deferred
revenues totaled $261,447 and $405,553 as of June 30, 2020 and
December 31, 2019, respectively. During the six months ended June
30, 2020, the Company recorded additions to deferred revenues of
$60,194 and recognized total revenues of $204,300 through the
amortization of deferred revenues. During the six months ended June
30, 2020, the Company recognized revenues of $187,766 related to
deferred revenues outstanding as of December 31, 2019 as the
services were performed.
Any revenue that has
been deferred and is expected to be recognized beyond one year is
classified as deferred revenue, net of current portion.
Deferred revenues are
recorded net of contract assets. Contract assets represent the
costs of the underlying hardware to enable the Company to perform
on its contracts with customers. As of June 30, 2020 and December
31, 2019, the contract asset balance totaled $71,769 and $143,088,
respectively, which have been recorded as reductions in deferred
revenues in the accompanying condensed consolidated balance
sheets.
Financing
Costs and Debt Discount
Financing costs and
debt discounts are recorded net of notes payable and convertible
debentures in the consolidated balance sheets. Amortization of
financing costs and the debt discounts is calculated using the
effective interest method over the term of the debt and is recorded
as interest expense in the consolidated statement of
operations.
Income
Taxes
Deferred income taxes
are provided on the asset and liability method whereby deferred
income tax assets are recognized for deductible temporary
differences and operating loss and tax credit carry-forwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred income tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred income tax assets will not be
realized. Deferred income tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Stock-based
Compensation
The Company accounts
for stock-based payments in accordance with stock-based payment
accounting guidance which requires all stock-based payments to be
recognized based upon their fair values. The fair value of
stock-based awards is estimated at the grant date using the
Black-Scholes Option Pricing Model and the portion that is
ultimately expected to vest is recognized as compensation cost over
the requisite service period. The determination of fair value using
the Black-Scholes Option Pricing Model is affected by the Company’s
stock price as well as assumptions regarding a number of complex
and subjective variables, including expected stock price
volatility, risk-free interest rate, expected dividends and
projected employee stock option exercise behaviors. The Company
accounts for forfeitures of unvested awards as they occur.
Derivative
Financial Instruments
The Company classifies
as equity any contracts that require physical settlement or
net-share settlement or provide us a choice of net cash settlement
or settlement in our own shares (physical settlement or net-share
settlement) provided that such contracts are indexed to our own
stock as defined in ASC Topic 815-40 "Contracts in Entity's Own
Equity." The Company classifies as assets or liabilities any
contracts that require net-cash settlement including a requirement
to net cash settle the contract if an event occurs and if that
event is outside our control or give the counterparty a choice of
net-cash settlement or settlement in shares. The Company assesses
classification of its free-standing derivatives at each reporting
date to determine whether a change in classification between assets
and liabilities is required.
Loss Per
Share
Basic earnings (loss)
per share are computed by dividing net income (loss) available to
common shareholders (numerator) by the weighted average number of
shares outstanding (denominator) during the period. Diluted
earnings per share give effect to all dilutive potential common
shares outstanding during the period including stock options and
warrants, using the treasury stock method, and convertible
debentures, using the if-converted method. In computing diluted
earnings (loss) per share, the average stock price for the period
is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Diluted earnings
(loss) per share exclude all potentially issuable shares if their
effect is anti-dilutive. Because the effect of conversion of the
Company’s dilutive securities is anti-dilutive, diluted loss per
share is the same as basic loss per share for the periods
presented. As of June 30, 2020 and 2019, the Company has
400,697,063 and 8,089,673 potentially dilutive shares outstanding,
respectively.
Recent
Accounting Pronouncements
In August 2020, the
FASB issued ASU 2020-06, “Debt – Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815 –
40)” (“ASU 2020-06”).
ASU 2020-06 simplifies the accounting for certain
financial instruments with characteristics of liabilities and
equity, including convertible instruments and contracts on an
entity’s own equity. The ASU is part of the FASB’s simplification
initiative, which aims to reduce unnecessary complexity in U.S.
GAAP. The ASU’s amendments are effective for fiscal years beginning
after December 15, 2023, and interim periods within those fiscal
years. The Company is currently evaluating the impact
ASU 2020-06 will have on its financial statements.
3.
Convertible Debentures and Notes Payable
On May 17, 2019, the
Company entered into a Convertible Promissory Note (“Promissory
Note”) with Crown Bridge Partners, LLC (the “Holder”) for a total
principal amount of up to $150,000 with cash proceeds of up to
$124,500, resulting in an original issue discount of up to $25,500.
The Promissory Note bears interest at 7% per annum (with the
understanding that the first 12 months of interest of each tranche
will be guaranteed). The maturity date is 18 months from the
effective date of each payment.
The Conversion Price,
as defined in the agreement, is the lesser of (i) the lowest
Trading Price (as defined below) during the previous 25 trading day
period ending on the latest complete trading day prior to the date
of this Promissory Note or (ii) the Variable Conversion Price (as
defined below). The Variable Conversion Price means the lowest one
Trading Price (as defined below) for the common stock during the 25
Trading Day period ending on the last complete Trading Day prior to
the Conversion Date. Trading Price means, for any security as of
any date, the lesser of the (i) lowest traded price and (ii) lowest
closing bid price. Based on the Company’s examination of the
conversion feature and the relative accounting guidance, the
Company has determined that the conversion feature should be
treated as a derivative liability for accounting purposes.
Additionally, if at any
time while the Promissory Note is outstanding, the Conversion Price
is equal to or lower than $0.025, then an additional $10,000 will
be automatically added to the principal balance of each tranche
funded under the Note. During the quarter ended June 30, 2019,
$10,000 was added to the principal balance for the first
tranche.
In connection with the
Promissory Note, the Company also entered into a Securities
Purchase Agreement with the Holder which states that the Company
will also issue to the Holder a warrant to purchase an amount of
shares of its common stock equal to 50% of the face value of each
respective tranche divided by $0.10 (for illustrative purposes, the
first tranche face value is equal to $50,000, which resulted in the
issuance of a warrant to purchase 250,000 shares of the Company’s
common stock).
Per the terms of the
Common Stock Purchase Warrant agreement, on May 17, 2019, the
Company issued a warrant to purchase 250,000 shares of common stock
with an Exercise Price of $0.10 subject to adjustment (standard
anti-dilution features). The agreement contains a down-round
provision that automatically resets the exercise price of the
warrant to a new exercise price that is equal to the per share
price of common stock subsequently issued (including conversions of
debt and preferred stock). Upon the lowing of the exercise
price, the number of warrants will be increased such that the total
proceeds upon exercise is the same amount (see Note 7). If
the Market Price of one shares of common stock is greater than the
Exercise Price, the Holder may elect to receive Warrant Shares
pursuant to cashless exercise, in lieu of cash exercise, per a
defined formula in the agreement.
During the quarter
ended June 30, 2019, the Company received $40,000 in net cash
proceeds, after paying $1,500 of direct funding costs. The related
principal amount due for the first tranche (“First Tranche”) was
$50,000. For the first tranche, using the Binomial Lattice Model,
the Company computed the estimated fair value of the embedded
conversion feature to be $100,000 and recorded a related derivative
liability. Related to the derivative liability, the bonus interest,
and the direct financing costs, the Company recorded a full debt
discount of $60,000 for the Promissory Note, which will be
amortized to interest expense over the term of the Promissory Note
using the effective interest method and an additional $50,000
directly to interest expense.
On December 9, 2019,
the Holder converted a portion of the Promissory Note into shares
of common stock. The Holder received 300,000 shares of common stock
for the conversion of principal, accrued interest, and fees
totaling $7,165.
During the quarter
ended September 30, 2019, the Company received an aggregate of
$213,250 in net cash proceeds, after paying $6,750 of direct
funding costs, from three note holders under the same terms as the
Promissory Note. The related principal amount due for the
convertible debt instruments entered into during the quarter ended
September 30, 2019 was $255,000. Using the Binomial Lattice Model,
the Company computed the estimated fair value of the embedded
conversion features to be approximately $354,000 and recorded the
related derivative liabilities. Related to the derivative
liabilities, the bonus interest, and the direct financing costs,
the Company recorded full debt discounts totaling approximately
$255,000 for the notes which will be amortized to interest expense
over the term of the notes using the effective interest method and
an additional approximately $106,000 directly to interest expense.
As the Conversion Price fell below $0.025 per share, during the
quarter ended September 30, 2019, $10,000 was added to the
principal balance on one of the notes (per the terms of that
note).
Related to the notes
issued during the quarter ended September 30, 2019, the Company
issued warrants to purchase a total of 525,000 shares of common
stock with an Exercise Price of $0.10 subject to adjustment
(standard anti-dilution features). If the Market Price of one
shares of common stock is greater than the Exercise Price, the
Holder may elect to receive Warrant Shares pursuant to cashless
exercise, in lieu of cash exercise, per a defined formula in the
agreement.
On October 1, 2019, the
Company received $37,500 in net cash proceeds from a note holder
under the same terms as the Promissory Note. The related principal
amount due for the convertible debt instrument was $44,000. In
connection with the note, the Company issued 100,000 shares of
common stock, which were valued at the market price on the date of
issuance of $0.05 per share. Using the Binomial Lattice Model, the
Company computed the estimated fair value of the embedded
conversion feature to be approximately $29,000 and recorded a
related derivative liability. Related to the derivative liability,
the shares issued, the bonus interest, and the direct financing
costs, the Company recorded a debt discount totaling $41,000 for
the note, which will be amortized to interest expense over the term
of the note using the effective interest method.
On June 19, 2020, the
Company received $19,250 in net cash proceeds from a note holder
under the same terms as the Promissory Note. The related principal
amount due for the convertible debt instrument was $25,000. Using
the Binomial Lattice Model, the Company computed the estimated fair
value of the embedded conversion feature to be approximately
$142,000 and recorded a related derivative liability for that
amount and a charge to interest expense of approximately $122,000.
Related to the derivative liability, the shares issued, the bonus
interest, and the direct financing costs, the Company recorded a
debt discount totaling $25,000 for the note, which will be
amortized to interest expense over the term of the note using the
effective interest method.
During the six months
ended June 30, 2020, the holders of the convertible notes converted
a total of $321,776 of principal, interest and fees for a total of
620,057,793 shares of common stock. Related to these conversions
during the quarter ended March 31, 2020, the Company recorded a
reduction of the associated derivative liability for the conversion
features of $1,138,404 and a reduction of the debt discount of
$199,710 as components of the loss on settlement of debt. During
the six months ended June 30, 2020, the Company recorded $110,064
of interest expense related to the amortization of the debt
discounts.
During the three months
ended March 31, 2020 the Company borrowed $50,000 from a
shareholder under the terms of a note payable bearing interest of
8% per annum. The note was repaid with interest (totaling $922)
during the three months ended March 31, 2020.
On May 4, 2020, the
Company entered into a PPP Loan with a principal amount of $59,949
through a financial institution under the PPP administered by the
SBA and established as part of the CARES Act. The PPP Loan bears
interest at 1.0% per annum and matures on May 4, 2022 with the
first six months of interest and principal payments deferred. The
amount borrowed under the PPP Loan is guaranteed by the SBA and is
eligible for forgiveness in an amount equal to the sum of the
eligible costs, including payroll, benefits, rent and utilities,
incurred by the Company during the 24-week period beginning on the
date the Company received the procceds. The PPP Loan contains
customary events of default, and the occurrence of an event of
default may result in a claim for the immediate repayment of all
amounts outstanding under the PPP Loan.
4.
Derivative Liabilities
During the six months
ended June 30, 2020 and during the year ended December 31, 2019,
the Company had outstanding convertible debentures with variable
exercise prices based on market rates (see Note 3). During the six
month ended Jun 30, 2020 and during year ended December 31, 2019,
the Company also issued series A preferred stock with variable
exercise prices based on market rates (see Note 6). The Company
records the fair value of the conversion features with variable
exercise prices based on future market rates in accordance with ASC
815. The fair value of the derivative liabilities is revalued on
each balance sheet date with corresponding gains and losses
recorded in the consolidated statements of operations. The Company
uses a multi-nominal lattice model to fair value the derivative
liabilities. The following inputs and assumptions were used to
value the conversion features outstanding during the six months
ended June 30, 2020, assuming no expected dividends:
|
|
June
30,
2020
|
Expected volatility
|
|
|
271 – 322
|
%
|
Risk free interest
rate
|
|
|
0.3 – 1.41
|
%
|
Expected life (in
years)
|
|
|
0.5 – 1.5
|
|
The following table
presents the Company’s embedded conversion features of its
convertible debt and preferred stock measured at fair value on a
recurring basis as of June 30, 2020.
|
|
Level
3
Carrying
Value as
of
June
30,
2020
|
|
Derivative
liabilities:
|
|
|
|
Embedded conversion
feature – convertible debt
|
|
$ |
425,352 |
|
Embedded conversion
feature – preferred stock
|
|
|
114,341 |
|
|
|
$ |
539,693 |
|
The following table
provides a reconciliation of the beginning and ending balances for
the Company’s derivative liabilities measured at fair value using
Level 3 inputs:
|
|
For
The
Six
Months
Ended
June
30,
2020
|
|
Embedded Conversion
Features – Convertible Debt
|
|
|
|
Balances, as of the
beginning of the year
|
|
$ |
87,571 |
|
Derivative liabilities
recorded upon issuance of convertible debt
|
|
|
141,667 |
|
Derivative liabilities
derecognized upon debt conversion
|
|
|
(1,138,404 |
) |
Net changes in fair
value included in net loss
|
|
|
1,334,518 |
|
Ending balance
|
|
$ |
425,352 |
|
|
|
|
|
|
Embedded Conversion
Features – Preferred Stock
|
|
|
|
|
Balances, as of the
beginning of the year
|
|
$ |
4,751 |
|
Derivative liabilities
recorded upon issuance of preferred stock
|
|
|
288,435 |
|
Derivative liabilities
removed upon preferred stock conversion
|
|
|
(191,927 |
) |
Net changes in fair
value included in net loss
|
|
|
13,082 |
|
Ending balance
|
|
$ |
114,341 |
|
|
|
|
|
|
Total ending
balance
|
|
$ |
539,693 |
|
5.
Related Party Transactions
(a)
|
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$73,000 and $59,000, respectively, in management and consulting
fees with an officer and an entity controlled by him. As of June
30, 2020 and December 31, 2019, the Company owed approximately
$103,000 and $190,000, respectively, to directors and officers and
a company controlled by a director, which is included in accounts
payable and accrued liabilities. The amounts owed are unsecured,
non-interest bearing, and due on demand.
|
|
|
(b)
|
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$11,000 and $53,000, respectively, in purchases of hardware from a
vendor controlled by a director of the Company. As of June 30, 2020
and December 31, 2019, the amounts owed to this related-party
vendor were approximately $25,000 and $45,000 respectively.
|
(c)
|
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of $67,072 of accrued expenses owed to the
CEO and VP of Operations.
|
6.
Redeemable Preferred Stock and
Stockholders’ Deficit
Preferred
Stock
The Company is
authorized to issue 10,000,000 shares of preferred stock with a par
value of $0.001 per share. The Company has designated 9,000,000 of
these shares as Series A Convertible Preferred Stock.
On April 9, 2019 and
separately on June 11, 2019, the Company entered into a Series A
Preferred Stock Purchase Agreement with an investor. On April 9,
2019, the Company issued 86,000 shares for net proceeds of $75,000
(after deducting $3,000 of direct legal costs) and on June 11,
2019, the Company issued 58,300 shares for net proceeds of $50,000
(after $3,000 deduction of direct legal costs).
On September 17, 2019,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 58,300 shares for
net proceeds of $50,000 (after $3,000 deduction of direct legal
costs).
On February 25, 2020,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 47,300 shares for
proceeds of $43,000.
During the quarter
ended June 30, 2020, the Company entered into two Series A
Preferred Stock Purchase Agreements with an investor. The Company
issued 100,100 shares for proceeds of $91,000.
Rights and
Privileges of the Series A Preferred Stock
|
☐
|
Voting – Series A Preferred Stock holders
have no voting rights
|
|
☐
|
Dividends – 8% cumulative dividend,
compounded daily, payable solely upon redemption, liquidation, or
conversion. (increases to 22% for an event of default)
|
|
☐
|
Redemption – Company has the right to
redeem the shares from the issuance date through 270 days following
the issuance date using the table noted in the Certificate of
Designations, Preferences, Rights and Limitations of Series A
Convertible Preferred Stock agreement. After 270 days, except for
the Mandatory Redemption, the Company does not have the right to
redeem the shares.
|
|
☐
|
Mandatory
Redemption – 18 months after the Issuance Date or upon
the occurrence of an Event of Default, the Company is required to
redeem all of the shares of Series A Preferred Stock of the Holder.
The Company shall make a cash payment in an amount equal to the
total number of shares of Series A Preferred Stock held by the
Holder multiplied by the then current Stated Value as adjusted
(including but not limited to the addition of any accrued unpaid
dividends and the Default Adjustment
|
|
☐
|
Conversion – At any time after 6 months
following the Issuance Date, the Holder may convert all or any part
of the outstanding Series A Preferred Stock into shares of Common
Stock. The Variable Conversion Price is defined as 75% of the the
Market Price. The Market Price is defined as the average of the 3
lowest Trading Prices for the Common Stock during the 15 day
Trading Period ending on the last complete Trading Day prior to the
Conversion Date.
|
|
☐
|
Default
Adjustments – Upon the occurrence of any Event of
Default, the Stated Value will be increased between 150% and 200%,
depending on the Event of Default.
|
Based on the terms of
the conversion feature, the Company could be required to issue an
infinite number of shares of common stock. As such, the Company has
determined the conversion feature to be a derivative liability
under relevant accounting guidance. The Company estimated the fair
value of the conversion feature using the Binomial Lattice Model on
the date of issuance, on the date of each conversion notice, and
remeasures the fair value at each reporting period. During 2019, on
the issuance dates of the series A preferred stock, the combined
estimated fair value of the conversion features were determined to
be $207,000. In connection with the fair value of the derivative
liability, the Company recorded a total discount to the series A
preferred stock of $161,000 and also recorded a deemed distribution
of $55,000. During the three months ended March 31, 2020, the
Company issued 47,300 shares of series A preferred stock for
proceeds of $40,000 and $3,000 of legal costs. Related to this
issuance, the Company recorded a derivative liability and discount
to the preferred stock of $41,392, which will be amortized to
deemed dividends over the redemption period.
During 2019, holders
converted 42,000 shares of Series A Preferred stock into 2,977,226
shares of common stock at the Variable Conversion Price as defined
above, resulting in a loss on extinguishment of $23,000.
During the six months
ended June 30, 2020, the holder of the series A preferred stock
converted 148,200 shares of series A preferred stock and accrued
dividends into 199,206,989 shares of common stock. Related to these
conversions during the six months ended June 30, 2020, the Company
recorded a reduction of the associated derivative liability for the
conversion features of $191,927 and a reduction of the preferred
stock discount of $177,313 and $116,672 of deemed dividend.
Rights and
Privileges of the Series B Preferred Stock
On February 10, 2020,
the Company designated and subsequently issued 1,000,000 shares of
its newly formed Series B Super Voting Preferred Stock. Each share
of Series B preferred stock has voting rights equal to 500 shares
of common stock, is not entitled to receive dividends, is not
convertible into shares of common stock. If the holder of the
Series B preferred stock ceases to be a Board Member, the Company
will repurchase any Series B preferred stock from the holder for a
price of $0.001 per share. If the holder of the Series B preferred
stock proposes to transfer any shares of Series B preferred stock,
the Company will have 90 days to repurchase the shares for a price
of $0.001 per share. The grant date fair value of the Series B
preferred stock issued during the three months ended March 31, 2020
was $277,543 and was recorded to stock-based director compensation
expense in the accompanying condensed consolidated statement of
operations.
Common
Stock
2020
During the six months
ended June 30, 2020, the Company sold a total of 26,750,000 shares
of common stock for proceeds of $151,250.
During the six months
ended June 30, 2020, the Company issued a total of 819,264,782
shares of common stock for the conversion of debt, accrued interest
and fees, and the conversion of series A preferred stock and
accrued dividends.
During the six months
ended June 30, 2020, the Company issued 62,579,483 shares of common
stock for the cashless exercise of warrants.
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of accrued expenses owed to the CEO and VP
of Operations.
2019
During the six months
ended June 30, 2019, the Company sold a total of 1,500,000 shares
of common stock for proceeds of $60,000.
7.
Share Purchase Warrants
The following table
summarizes the continuity schedule of the Company’s share purchase
warrants:
|
|
Number
of
warrants
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
|
4,527,614 |
|
|
|
0.18 |
|
Issued
|
|
|
- |
|
|
|
- |
|
Adjusted for triggered
down-round provisions
|
|
|
315,521,528 |
|
|
|
0.00 |
|
Exercised
|
|
|
(63,623,768 |
) |
|
|
0.00 |
|
Expired
|
|
|
(500,000 |
) |
|
|
0.12 |
|
Balance, June 30,
2020
|
|
|
255,925,374 |
|
|
$ |
0.00 |
|
As of June 30, 2020,
the following share purchase warrants were outstanding:
Number of
warrants outstanding
|
|
|
Exercise
price
|
|
|
Expiration
date
|
|
|
2,222,222
|
|
|
$
|
0.23
|
|
|
February 23, 2022
|
|
|
252,672,760
|
|
|
$
|
0.00
|
|
|
September 23, 2024
|
|
|
980,392
|
|
|
$
|
0.15
|
|
|
December 2, 2021
|
|
|
50,000
|
|
|
$
|
0.20
|
|
|
January 2, 2022
|
|
|
255,925,374
|
|
|
|
|
|
|
|
|
During the six months
ended June 30, 2020, the Company recognized the triggering of the
down-round provisions of certain warrants associated with the
convertible debt instruments issued in 2019. As a result,
reset the exercise price and increased the number of warrant shares
accordingly. As of June 30, 2020, the new exercise price for
the warrants is $0.000245 per share. Per the relevant
accounting guidance, the Company valued the warrants before and
after each triggering event and recorded the total increase in
value as a deemed dividend to the warrant holder with an offset to
additional paid in capital. For the six months ended June 30,
2020, the increase in value of the warrants due to the triggering
events totaled $370,726 and was properly included in the Company’s
earnings per share amounts on the accompanying statement of
operations.
8.Stock
Options
The following table
summarizes the Company’s stock options:
|
|
Number
of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
|
5,690,000 |
|
|
$ |
0.13 |
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
Cancelled /
forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
Balance, June 30,
2020
|
|
|
5,690,000 |
|
|
$ |
0.13 |
|
|
$ |
- |
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range
of
exercise
prices
|
|
|
Number
of
shares
|
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
|
Weighted
average
exercise
price
|
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
0.04 |
|
|
|
1,500,000 |
|
|
|
4.1 |
|
|
|
|
|
0.04 |
|
|
|
1,125,000 |
|
|
|
|
|
0.04 |
|
$
|
|
|
0.08 |
|
|
|
250,000 |
|
|
|
2.5 |
|
|
|
|
|
0.08 |
|
|
|
250,000 |
|
|
|
|
|
0.08 |
|
$
|
|
|
0.13 |
|
|
|
1,425,000 |
|
|
|
2.1 |
|
|
|
|
|
0.13 |
|
|
|
1,425,000 |
|
|
|
|
|
0.13 |
|
$
|
|
|
0.16 |
|
|
|
225,000 |
|
|
|
0.9 |
|
|
|
|
|
0.16 |
|
|
|
225,000 |
|
|
|
|
|
0.16 |
|
$
|
|
|
0.19 |
|
|
|
2,270,000 |
|
|
|
0.5 |
|
|
|
|
|
0.19 |
|
|
|
2,270,000 |
|
|
|
|
|
0.19 |
|
Cdn$
|
|
|
0.25 |
|
|
|
20,000 |
|
|
|
0.5 |
|
|
Cdn$
|
|
|
0.25 |
|
|
|
20,000 |
|
|
Cdn$
|
|
|
0.25 |
|
|
|
|
|
|
|
|
5,690,000 |
|
|
|
2.4 |
|
|
$
|
|
|
0.13 |
|
|
|
5,315,000 |
|
|
$
|
|
|
0.14 |
|
During the six months
ended June 30, 2020, the Company did not issued any options to
employees. During the six months ended June 30, 2020 and 2019, the
Company recorded $15,000 and $15,000, respectively, of stock-based
compensation expense related to stock option grants. As of June 30,
2020, the Company had no unrecognized compensation expense.
9.
Segments
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.
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.
10.
Risks & Uncertainties
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 six months
ended June 30, 2020 and 2019, the Company had four and two
customers which accounted for 82% and 67%, respectively, of total
invoiced amounts, which are recorded as deferred revenues and
amortized over the related service period to revenues.
As of June 30, 2020 and
December 31, 2019, the Company had five and four customers,
respectively, which accounted for 94% and 99%, respectively, of the
gross accounts receivable balance.
On January 30, 2020,
the World Health Organization (“WHO”) announced a global health
emergency in response to a new strain of a coronavirus (the
“COVID-19 outbreak”). In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic based on the rapid increase in
exposure globally. The full impact of the COVID-19 outbreak
continues to evolve as of the date of this report. Management is
actively monitoring the global situation and its effects on the
Company’s industry, financial condition, liquidity, and operations.
Through June 30, 2020, COVID-19 has had an impact on the economy,
the auto industry, and the Company’s 2020 revenue activity. Looking
forward, it could continue to have a material adverse effect on the
Company’s business, financial condition, liquidity, results of
operations, and cash flows.
11.
Commitments and Contingencies
Indemnities
and Guarantees
We have made certain
indemnities and guarantees, under which we may be required to make
payments to a guaranteed or indemnified party, in relation to
certain transactions. We indemnify our officers and directors to
the maximum extent permitted under the laws of the State of Nevada.
The duration of these indemnities and guarantees varies and, in
certain cases, is indefinite. These indemnities and guarantees do
not provide for any limitation of the maximum potential future
payments we could be obligated to make. Historically, we have not
been obligated to make any payments for these obligations and no
liabilities have been recorded for these indemnities and guarantees
in the accompanying condensed consolidated balance sheets.
Legal
Matters
In the ordinary course
of business, we may face various claims brought by third parties
and may, from time to time, make claims or take legal actions to
assert our rights, including intellectual property disputes,
contractual disputes and other commercial disputes. Any of these
claims could subject us to litigation. Management believes there
are currently no claims that are likely to have a material effect
on our consolidated financial position and results of
operations.
The Company has filed a
lawsuit against a distributor for breach of contract resulting in
losses to the Company estimated to be in excess of
$1,000,000. Management believes the currently scheduled trial
date in October 2020 will be delayed into early 2021 as a result of
the backlog of cases due to COVID-19.
12.
Restatements
During 2019, we
discovered that an accounting error had been made related to the
Company not properly recording contract assets as required under
the relevant accounting guidance for revenue recognition. (As
discussed in Note 1 “Revenue Recognition and Deferred Revenue”,
contract assets are netted with deferred revenues for balance sheet
presentation purposes.) It was determined that the error is
immaterial to the 2018 consolidated financial statements; however,
correcting the error related to 2018 in 2019 would materially
misstate the condensed consolidated financial statements for the
three and six months ended June 30, 2019. As such, we recorded the
appropriate adjustment in 2018 and also computed the appropriate
amounts related to June 30, 2019 and recorded such in the
accompanying condensed consolidated financial statements. See below
for a summary of the corrections made for this error:
Account
|
|
Previously
Recorded
Balance
|
|
|
Corrected
Balance
|
|
|
Correction
Made
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
2019:
|
|
|
|
|
|
|
|
|
|
Statement of
Operations
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
85,098 |
|
|
$ |
114,098 |
|
|
$ |
29,000 |
|
Net loss
|
|
$ |
(102,616 |
) |
|
$ |
(131,616 |
) |
|
$ |
29,000 |
|
Loss per share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
117,121 |
|
|
$ |
251,121 |
|
|
$ |
134,000 |
|
Net loss
|
|
$ |
(194,123 |
) |
|
$ |
(328,123 |
) |
|
$ |
134,000 |
|
Loss per share
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues,
net
|
|
$ |
(249,246 |
) |
|
$ |
(115,495 |
) |
|
$ |
(134,000 |
) |
13. Subsequent
Events
The Company evaluates
subsequent events and transactions that occur after the balance
sheet date up to the date that the consolidated financial
statements are available to be issued. Any material events that
occur between the balance sheet date and the date that the
consolidated financial statements were available for issuance are
disclosed as subsequent events, while the consolidated financial
statements are adjusted to reflect any conditions that existed at
the balance sheet date. Based upon this review, except as disclosed
within the footnotes or as discussed below, the Company did not
identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the consolidated
financial statements.
In December 2019, a
novel strain of coronavirus diseases (“COVID-19”) was first
reported in Wuhan, China. Less than four months later, on March 11,
2020, the World Health Organization declared COVID-19 a global
pandemic. The extent of COVID-19’s effect on the Company’s
operational and financial performance will depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considered the rapidly evolving landscape. The Company is currently
analyzing the potential impacts to its business. Through June 30,
2020, COVID-19 has had an impact on the economy, the auto industry,
and the Company’s 2020 revenue activity. Looking forward, it could
continue to have a material adverse effect on the Company’s
business, financial condition, liquidity, results of operations,
and cash flows.
Subsequent to June 30,
2020, the Company issued a total of 38,964,105 shares of common
stock for the conversion of debt, accrued interest and fees
totaling $51,178, issued 32,459,207 shares of common stock for the
cashless exercise of warrants, and issued 8,000,000 shares of
common stock valued at $56,000 as a commitment fee in connection
with the Equity Purchase Agreement signed with an investor.
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 and six month periods ended June 30, 2020. This MD&A
should be read together with our unaudited condensed consolidated
interim financial statements and the accompanying notes for the
three and six month periods ended June 30, 2019 (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:
|
|
-
|
Our ability to find
viable companies in which to invest
|
|
-
|
Our ability
successfully manage companies in which we invest
|
|
-
|
Our ability to
successfully raise capital
|
|
-
|
Our ability to
successfully expand and leverage the distribution channels of our
portfolio companies;
|
|
-
|
Our ability to develop
new distribution partnerships and channels
|
|
-
|
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:
|
|
-
|
the continuing
uncertain economic conditions
|
|
-
|
price and product
competition
|
|
-
|
changing product
mixes,
|
|
-
|
the loss of any
significant customers,
|
|
-
|
competition from new or
established companies,
|
|
-
|
higher than expected
product, service, or operating costs,
|
|
-
|
inability to leverage
intellectual property rights,
|
|
-
|
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 six months
of 2020, the Company continues to focus on initiatives to grow
revenue, expand its customer base, and develop new channels through
its wholly owned subsidiary Nimbo Tracking LLC and direct to
customer brands Medallion GPS PRO and CU TRAK. In addition to the
Company’s Master Distributors and Sales Agents, all three brands
are marketed through the T-Mobile IOT Factory platform and its
respective Sales & Marketing Channels across the United States
of America in seven geographic markets and the Territory of Puerto
Rico.
Notable highlights of
the six-month period ended June 30, 2020 include the following
Company achievements:
The
Company announced an exclusive and multi-year Nationwide
Partnership Agreement with County Executives of America
representing 700 Counties with over 450,000 self-insured commercial
assets.
The
Company launched Medallion GPS PRO for Light-Commercial Fleets with
its Patent-Pending Digital Telematics Signature used for
normalizing and scoring of driver behavior based on actuarial
insurance metrics.
The
Company signed a Sales & Marketing Agreement with Michigan
Credit Union League Service Corporation (“MCULSC”) for the
distribution of CU TRAK product line enabling Credit Unions to
finance more members, improve loan performance, and to provide
peace-of-mind for members and their families.
The
Company launched the Next-Generation (NextGen) Platform for the
Consumer Automotive Markets that included IGEN’s Patented “Digital
Telematics Signature” for Universal Scoring of Driving Behavior.The
NextGen Platform establishes a framework for the Company to expand
its online presence along with expanding its customer base across
the consumer automotive markets.
COVID-19
On January 30, 2020,
the World Health Organization (“WHO”) announced a global health
emergency in response to a new strain of a coronavirus (the
“COVID-19 outbreak”). In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic based on the rapid increase in
exposure globally. The full impact of the COVID-19 outbreak
continues to evolve as of the date of this report. Management is
actively monitoring the global situation and its effects on the
Company’s industry, financial condition, liquidity, and operations.
Through June 30, 2020, COVID-19 has had an impact on the economy,
the auto industry, and the Company’s 2020 revenue activity. Looking
forward, it could continue to have a material adverse effect on the
Company’s business, financial condition, liquidity, results of
operations, and cash flows.
Financial
Condition and Results of Operations
Capital
Resources and Liquidity
Current
Assets and Liabilities, Working Capital, Net Debt
As of June 30, 2020,
the Company’s current assets were $11,883, a decrease of 55% over
the six-month period. Contributing to the net decrease to current
assets was the reduction in sales during the period as a result of
COVID-19 impacting Franchise and Pre-Owned Automotive Dealerships
and the breach of terms of a distributor responsible for one of the
Company’s house accounts. The Company expects to recover this loss
business or receive monetary proceeds from settlement in 2020. The
Company will focus its sales efforts on higher-margin opportunities
across the T-Mobile/Sprint IoT Platform for all Company brands
along with a focus on County Executive and Credit Union
opportunities through recently announced partnerships.
Current liabilities
increased $393,916, or 30%, over the three months, primarily due to
the derivative liabilities that were established during 2019 and
the six months ended June 30, 2020, and the amortization of debt
issuance costs.
The Company finished
the six-month period ended June 30, 2020, with a working capital
deficiency of $1,686,400, a deterioration of $408,516 over the six
months. Of the total working capital deficiency, $142,621 is
short-term deferred revenue liabilities, net that will convert to
revenues and cost of sales. During the six months ended June 30,
2020, the Company raised a total of $405,449 in cash proceeds from
(1) the sale of shares of the Company’s common stock and series A
preferred stock, (2) from the proceeds of a PPP loan and (3) a
convertible note. The Company intends to improve its working
capital position through ongoing equity and debt financing and
continued focus on growth in its cash flow.
Total
Assets and Liabilities, Total Stockholders’
Deficit
The Company’s total
assets as of June 30, 2020 were $517,391, a decrease of $14,600
over the six months. This decrease was commensurate with the
respective changes in current assets previously discussed.
Total liabilities
increased $386,074 or 28% over the six months. This increase was
composed primarily of the $515,447 increase in derivative
liabilities, PPP loan, and convertible debt, net, and a decrease of
$129,373 of accounts payable and deferred revenues, net, during the
six months.
The above resulted in
total stockholders’ deficit of $1,295,254, an increase of $436,052
from December 31, 2019. This change is a result of the net loss and
deemed dividends for the six months ended June 30, 2020, offset by
the $276,250 of cash proceeds from the sale of shares of the
Company’s common stock and series A preferred stock during the six
months.
As of the date of these
financial statements, the Company requires additional capital to
maintain adequate working capital and projected net revenues. 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 to fund growth
and achieve profitability.
In December 2019, a
novel strain of coronavirus diseases (“COVID-19”) was first
reported in Wuhan, China. Less than four months later, on March 11,
2020, the World Health Organization declared COVID-19 a global
pandemic. The extent of COVID-19’s effect on the Company’s
operational and financial performance will depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considered the rapidly evolving landscape. The Company is currently
analyzing the potential impacts to its business. At this time, it
is not possible to determine the magnitude of the overall impact of
COVID-19 on the Company. However, it could have a material adverse
effect on the Company’s business, financial condition, liquidity,
results of operations, and cash flows.
Results of
Operations
Revenues
and Net Loss For the Three Months Ended June 30,
2020
Revenues
The Company had
revenues of $103,820 for the three months ended June 30, 2020, a
48% decrease over the similar period in 2019. Sales decrease was
attributed to COVID-19 and its impact on Franchise and Pre-owned
automotive dealerships along with the breach of terms of a
distributor responsible for one of the Company’s house accounts. As
stated in the CEO Outlook for 2020, the Company expects resolution
on breach of terms with its house account along with additional
revenue contribution from its new partnerships with County
Executives and MCULSC in second half of 2020.
The three-month gross
profit of $79,225 representing 76% gross margin compared to $84,383
and 43% gross margin over the similar period in 2019. During the
three months ended June 30, 2020, the Company had a one-time
correction to the amounts owed its main supplier of GPS units,
resulting in a reduction of cost of sales of approximately $20,000,
or an increase in margin of 19%. Additionally, the Company
continues to focus its sales efforts on sales that generate higher
than average margins.
The Company continues
to review hardware, inventory, and order fulfillment strategies as
well as product and service pricing and delivery models to grow
sales and maximize overall margins.
Expenses
Operating expenses for
the three months ended June 30, 2020 totaled $233,103 representing
a 15% decrease in the operating expenses reported in the same
period in 2019. Included in other income (expenses) for the three
months ended June 30, 2020 and 2019 is $(1,048,462) and $177,877,
respectively of change in fair value of derivative liabilities.
During the three months ended June 30, 2020, the Company recorded a
loss on the settlement of debt totaling $195,908 for the
conversions of debt. During the three months ended June 30, 2020,
the Company recorded $191,712 of interest expense related to its
convertible debt and embedded conversion feature. The Company
anticipates increases in development-associated labor and material
costs as it completes the launch of its next generation platform.
The Company will also expand its sales channels to support the
Sprint IoT Factory initiatives.
Net Loss
The Company had a net
loss of $1,623,296 for the three months ended June 30, 2020, an
increase of $1,491,680 over the same period in 2019, for the
reasons noted above.
The Company continues
to invest in personnel, channels, and product development in order
to drive revenue growth and increase gross profits sufficient to
enable the Company to achieve profitability.
Revenues
and Net Loss For the Six Months Ended June 30,
2020
Revenues
The Company had
revenues of $215,619 for the six months ended June 30, 2020, a 51%
decrease over the similar period in 2019. Sales decrease was
attributed to COVID-19 and its impact on Franchise and Pre-owned
automotive dealerships along with the breach of terms of a
distributor responsible for one of the Company’s house accounts. As
stated in the CEO Outlook for 2020, the Company expects resolution
on breach of terms with its house account along with additional
revenue contribution from its new partnerships with County
Executives and MCULSC in second half of 2020.
The six-month gross
profit of $123,075 represents a 57% gross margin compared to
$192,757 and 43% gross margin over the similar period in 2019.
During the six months ended June 30, 2020, the Company had a
one-time correction to the amounts owed its main supplier of GPS
units, resulting in a reduction of cost of sales of approximately
$20,000. As revenues have decreased over the prior year, more of
the Company’s sales are with one particular distributor whose
pricing with the Company is lower than our average selling price,
resulting in lower margins for the six-month period ended June 30,
2020 compared to the same period during 2019.
The Company continues
to review hardware, inventory, and order fulfillment strategies as
well as product and service pricing and delivery models to grow
sales and maximize overall margins.
Expenses
Operating expenses for
the six months ended June 30, 2020 totaled $676,818 representing a
17% increase in the operating expenses reported in the same period
in 2019. This increase is due to the value of the Series B
preferred stock that was issued during the six months ended June
30, 2020 and valued at $277,543. Included in other income
(expenses) for the six months ended June 30, 2020 and 2019 is
$(1,347,701) and $177,877, respectively of change in fair value of
derivative liabilities. During the six months ended June 30, 2020,
the Company recorded a loss on the settlement of debt totaling
$273,518 for the conversions of debt. During the six months ended
June 30, 2020, the Company recorded $197,443 of interest expense
related to its convertible debt and embedded conversion feature.
The Company anticipates increases in development-associated labor
and material costs as it completes the launch of its next
generation platform. The Company will also expand its sales
channels to support the Sprint IoT Factory initiatives.
Net Loss
The Company had a net
loss of $2,482,469 for the six months ended June 30, 2020, an
increase of $2,154,346 over the same period in 2019, for the
reasons noted above.
The Company continues
to invest in personnel, channels, and product development in order
to drive revenue growth and increase gross profits sufficient to
enable the Company to achieve profitability.
Cash Flows
and Cash Position
The Company saw no
change in its ending cash balance ($0) over the six months ended
June 30, 2020. Net cash of $355,449 used in operating activities
was offset by net financing cash of $355,449 raised via private
placements and from the issuance of convertible debt and a PPP
loan. Cash at the end of the period was $0.
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.
Disclosure 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 June 30, 2020. The conclusions of the
Company’s principal officers was that the controls and procedures
in place were not effective such that, 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.
Internal Control
over Financial Reporting
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. In evaluating the effectiveness of our
internal control over financial reporting, our management used the
criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control – Integrated
Framework (2013). We identified the following material
weakness:
☐
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Our discovery of an
error that was corrected in 2019, to properly account for our
contract assets in accordance with relevant accounting guidance for
revenue recognition.
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As additional resources
become available, we will work to remediate this identified
material weakness.
Part II
OTHER
INFORMATION
Item 1. Legal
Proceedings
The Company has filed a
lawsuit against a distributor for breach of contract resulting in
losses to the Company estimated to be in excess of
$1,000,000. Management believes the currently scheduled trial
date in October 2020 will be delayed into early 2021 as a result of
the backlog of cases due to COVID-19.
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 six months
covered by this report and ended June 30, 2020, the following
securities were sold or issued:
During the six months
ended June 30, 2020, the Company sold a total of 26,750,000 shares
of common stock for proceeds of $151,250.
During the six months
ended June 30, 2020, the Company issued a total of 819,264,782
shares of common stock for the conversion of debt, accrued interest
and fees, and the conversion of series A preferred stock and
accrued dividends.
During the six months
ended June 30, 2020, the Company issued 62,579,483 shares of common
stock for the cashless exercise of warrants.
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of accrued expenses owed to the CEO and VP
of Operations.
On April 9, 2019 and
separately on June 11, 2019, the Company entered into a Series A
Preferred Stock Purchase Agreement with an investor. On April 9,
2019, the Company issued 86,000 shares for net proceeds of $75,000
(after deducting $3,000 of direct legal costs) and on June 11,
2019, the Company issued 58,300 shares for net proceeds of $50,000
(after $3,000 deduction of direct legal costs).
On September 17, 2019,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 58,300 shares for
net proceeds of $50,000 (after $3,000 deduction of direct legal
costs).
On February 25, 2020,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 47,300 shares for
proceeds of $43,000.
During the quarter
ended June 30, 2020, the Company entered into two Series A
Preferred Stock Purchase Agreements with an investor. The Company
issued 100,100 shares for proceeds of $91,000.
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.
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IGEN Networks
Corp
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August 19, 2020
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By:
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/s/ Neil
Chan
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Neil Chan
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Chief Executive Officer
and Director
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(Principal Executive
Officer, Principal Financing
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Officer and Principal
Accounting Officer)
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iGen Networks (QB) (USOTC:IGEN)
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