The Company’s unaudited condensed consolidated interim financial statements for the three and six month periods ended June 30, 2021 are included herewith.
(Unaudited - Expressed in U.S. Dollars)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2021
(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 management and protection of commercial and consumer vehicle assets along with driving behavior and profile of these assets. The software services are delivered from AWS Cloud infrastructure over wireless networks and accessed from mobile or desktop devices. The software services are marketed to automotive dealers, financial institutions, governments, and direct-to-consumer markets through the Company’s 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 $1,071,718 and an accumulated deficit of $16,065,858 as of June 30, 2021, 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, 2020, 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, 2020. 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, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2021, 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, 2021 and December 31, 2020, the allowance for doubtful accounts was approximately $6,000 and $22,000, 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, 2021 and December 31, 2020.
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, 2021 and December 31, 2020, 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 substantially all our revenues from the sale of products and services combined into one performance obligation. Product revenue includes the shipment of product according to the agreement with our customers. Service revenue include vehicle tracking services and customer support (technical support), installations and consulting. A contract usually includes 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.
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 when cash payments are received from customers in advance of the Company’s performance. Contract assets represent the costs of (1) commission costs, (2) installation costs, and (3) the underlying hardware to enable the Company to perform on its contract with customers and are amortized using the same method and term as deferred revenues. As of June 30, 2021 and December 31, 2020, deferred revenues, net of contract assets totaled $117,593 and $138,812, respectively, and contract assets totaled $72,431 and $66,022, respectively. Any revenue that has been deferred and is expected to be recognized beyond one year is classified as deferred revenue, net of current portion.
During the six months ended June 30, 2021, the Company recorded additions to deferred revenues of $115,719 and recognized total revenues of $130,529 through the amortization of deferred revenues. During the six months ended June 30, 2021, the Company recognized revenues of $95,393 related to deferred revenues outstanding as of December 31, 2020 as the services were performed.
Financing Costs and Debt Discount
Financing costs and debt discounts are recorded as reductions to the carrying value of notes payable and convertible debentures. 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, 2021 and 2020, the Company has 259,115,326 and 400,697,063 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 is being amortized to interest expense over the term of the note using the effective interest method.
On July 10, 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 $61,000 and recorded a related derivative liability for that amount and a charge to interest expense of approximately $42,000. 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 is being 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 six months ended June 30, 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 gain 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 Paycheck Protection Program (“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 U.S. Small Business Administration (“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 proceeds. 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.
On July 7, 2020, the Company entered into a secured disaster loan with the SBA with a principal amount of $150,000. The SBA loan bears interest at 3.75% per annum and matures in July 2050. The Company is required to make monthly principal and interest payments of $731 beginning in July 2021.
As of June 30, 2021 long-term debt matures as follows
|
Year Ending
|
|
Notes Payable
|
|
|
Convertible Notes
|
|
|
Total
|
|
|
2021 (months remaining)
|
|
$
|
33,033
|
|
|
$
|
26,823
|
|
|
$
|
59,856
|
|
|
2022
|
|
|
33,908
|
|
|
|
165,100
|
|
|
|
199,008
|
|
|
2023
|
|
|
3,327
|
|
|
|
-
|
|
|
|
3,327
|
|
|
2024
|
|
|
3,454
|
|
|
|
-
|
|
|
|
3,454
|
|
|
2025
|
|
|
3,586
|
|
|
|
-
|
|
|
|
3,586
|
|
|
Thereafter
|
|
|
138,967
|
|
|
|
-
|
|
|
|
138,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
216,275
|
|
|
$
|
191,923
|
|
|
$
|
408,198
|
|
4. Derivative Liabilities
During the six months ended June 30, 2021 and during the year ended December 31, 2020, the Company had outstanding convertible debentures with variable exercise prices based on market rates (see Note 3). During the six months ended June 30, 2021 and during year ended December 31, 2020, 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, 2021, assuming no expected dividends:
|
|
|
June 30, 2021
|
|
Expected volatility
|
|
|
135 - 275
|
%
|
|
Risk free interest rate
|
|
|
0.05 – 0.15
|
%
|
|
Expected life (in years)
|
|
|
0 - 1.50
|
|
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, 2021.
|
|
|
Level 3
Carrying
Value as of
June 30, 2021
|
|
|
Derivative liabilities:
|
|
|
|
|
Embedded conversion feature - convertible debt
|
|
$
|
69,827
|
|
|
Embedded conversion feature - preferred stock
|
|
|
125,922
|
|
|
|
|
$
|
195,749
|
|
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,
2021
|
|
|
Embedded Conversion Features - Convertible Debt
|
|
|
|
|
Balances, as of the beginning of the year
|
|
$
|
97,024
|
|
|
Derivative liabilities recorded upon issuance of convertible debt
|
|
|
-
|
|
|
Derivative liabilities derecognized upon debt conversion
|
|
|
(8,994
|
)
|
|
Net changes in fair value included in net loss
|
|
|
(18,203
|
)
|
|
Ending balance
|
|
$
|
69,827
|
|
|
|
|
|
|
|
|
Embedded Conversion Features - Preferred Stock
|
|
|
|
|
|
Balances, as of the beginning of the year
|
|
$
|
92,751
|
|
|
Derivative liabilities recorded upon issuance of preferred stock
|
|
|
254,636
|
|
|
Derivative liabilities derecognized upon preferred stock conversion
|
|
|
(116,165
|
)
|
|
Net changes in fair value included in net loss
|
|
|
(105,300
|
)
|
|
Ending balance
|
|
$
|
125,922
|
|
|
|
|
|
|
|
|
Total ending balance
|
|
$
|
195,749
|
|
5. Related Party Transactions
|
(a)
|
During the six months ended June 30, 2021 and 2020, the Company incurred approximately $75,000 and $73,000, respectively, in management and consulting fees with an officer and an entity controlled by him. As of June 30, 2021 and December 31, 2020, the Company owed approximately $6,000and $9,000, 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, 2021 and 2020, the Company incurred approximately $9,000 and $11,000, respectively, in purchases of hardware from a vendor controlled by a director of the Company. As of June 30, 2021 and December 31, 2020, the amounts owed to this related-party vendor were approximately $21,000 and $12,000, respectively.
|
|
|
|
|
(c)
|
During the six months ended June 30, 2021, the Company issued 3,243,785 shares of common stock for the conversion of approximately $17,000 of accrued expenses owed to the VP and General Manager.
|
|
|
|
|
(d)
|
During the six months ended June 30, 2021 and 2020, the Company recorded approximately $7,000 and $2,000, respectively, to the VP and General Manager for rent and other office expenses. As of June 30, 2021 and December 31, 2020, the amounts owed to the VP and General Manager were approximately $2,000 and $0, respectively.
|
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 1,250,000 of these shares as Series A Convertible Preferred Stock and 2,000,000 of these shares as Series B Super Voting Preferred Stock.
On February 1, 2021, the Company entered into a Series A Preferred Stock Purchase Agreement with an investor. The Company issued 58,850 shares for proceeds of $53,500.
On March 1, 2021, the Company entered into a Series A Preferred Stock Purchase Agreements with an investor. The Company issued 80,850 shares for proceeds of $73,500.
On April 5, 2021, the Company entered into a Series A Preferred Stock Purchase Agreements with an investor. The Company issued 58,850 shares for proceeds of $53,500.
On April 30, 2021, the Company entered into a Series A Preferred Stock Purchase Agreements with an investor. The Company issued 59,125 shares for proceeds of $53,750.
On June 17, 2021, the Company entered into a Series A Preferred Stock Purchase Agreements with an investor. The Company issued 60,500 shares for proceeds of $55,000.
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.
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|
☐
|
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 the six months ended June 30, 2021, the Company issued 318,175 shares of series A preferred stock for proceeds of $289,250. Related to these issuances, the Company recorded derivative liabilities of $254,636 and discounts to the preferred stock of $191,185, which is being amortized to deemed dividends over the redemption period. Also related to these issuances the Company recorded deemed dividends of $63,451.
During the six months ended June 30, 2021, the holder of the series A preferred stock converted 186,450 shares of series A preferred stock and accrued dividends into 27,743,006 shares of common stock. Related to these conversions during the six months ended June 30, 2021, the Company recorded a reduction of the associated derivative liability for the conversion features of $116,165 and a reduction of the preferred stock discount of $86,774 and $79,316 of deemed dividend.
Rights and Privileges of the Series B Preferred Stock
In February 2020 and in February 2021, the Company issued 1,000,000 and 500,000 shares, respectively of its 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 six months ended June 30, 2021 and 2020 was $278,447 and $277,543, respectively and was recorded to stock-based compensation expense in the accompanying condensed consolidated statements of operations.
Common Stock
2021
During the six months ended June 30, 2021, the Company sold a total of 53,768,383 shares of common stock for proceeds of $274,457.
During the six months ended June 30, 2021, the Company issued a total of 5,034,146 shares of common stock for the conversion of $54,470 of accrued expenses owed to the VP and General Manager and another employee.
During the six months ended June 30, 2021, the Company issued 27,743,006 shares of common stock for the conversion of Series A preferred stock and accrued dividends.
During the six months ended June 30, 2021, the Company issued 1,780,825 shares of common stock for the conversion of debt and accrued interest.
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.
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, 2020
|
|
|
166,517,918
|
|
|
|
-
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
Adjusted for triggered down-round provisions
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
Balance, June 30, 2021
|
|
|
166,517,918
|
|
|
$
|
-
|
|
As of June 30, 2021, the following share purchase warrants were outstanding:
|
Number of warrants outstanding
|
|
|
Exercise price
|
|
|
Expiration date
|
|
|
|
2,222,222
|
|
|
$
|
0.03
|
|
|
December 2, 2024
|
|
|
|
163,265,304
|
|
|
$
|
0.00
|
|
|
September 23, 2024
|
|
|
|
980,392
|
|
|
$
|
0.15
|
|
|
December 2, 2021
|
|
|
|
50,000
|
|
|
$
|
0.20
|
|
|
January 2, 2022
|
|
|
|
166,517,918
|
|
|
|
|
|
|
|
|
During the year ended December 31, 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, the reset exercise price increased the number of warrant shares accordingly. As of December 31, 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 year ended December 31, 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.
On August 21, 2020, the Company modified 2,222,222 warrants held by two investors. Per the terms of the modifications, the Company reduced the exercise price from $0.23 to $0.03 and extended the term of the warrants to now expire on December 2, 2024. In accordance with relevant accounting guidance, the Company valued the warrants before and after modification. There was no change in valuation due to the modifications.
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, 2020
|
|
|
3,250,000
|
|
|
$
|
0.09
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Cancelled / forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance, June 30, 2021
|
|
|
3,250,000
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
|
|
|
|
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
|
|
|
|
2.9
|
|
|
|
0.04
|
|
|
|
1,500,000
|
|
|
|
0.04
|
|
|
$
|
0.08
|
|
|
|
250,000
|
|
|
|
1.3
|
|
|
|
0.08
|
|
|
|
250,000
|
|
|
|
0.08
|
|
|
$
|
0.13
|
|
|
|
1,425,000
|
|
|
|
0.9
|
|
|
|
0.13
|
|
|
|
1,425,000
|
|
|
|
0.13
|
|
|
$
|
0.16
|
|
|
|
75,000
|
|
|
|
0.2
|
|
|
|
0.16
|
|
|
|
75,000
|
|
|
|
0.16
|
|
|
|
|
|
|
|
3,250,000
|
|
|
|
1.8
|
|
|
$
|
0.09
|
|
|
|
3,250,000
|
|
|
$
|
0.09
|
|
During the six months ended June 30, 2021, the Company did not issue any options to employees. During the six months ended June 30, 2021 and 2020, the Company recorded $0 and $15,000, respectively, of stock-based compensation expense related to stock option grants. As of June 30, 2021, 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, 2021 and 2020, the Company had two and four customers which accounted for 86% and 82%, respectively, of total invoiced amounts, which are recorded as deferred revenues and amortized over the related service period to revenues.
As of June 30, 2021 and December 31, 2020, the Company had two and three customers, respectively, which accounted for 98% and 99%, respectively, of the net accounts receivable balance.
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 filed a lawsuit against a former distributor for breach of contract resulting in losses to the Company estimated to be in excess of $1,000,000. The Company reached a settlement with the former distributor and defendant on May 21, 2021 for undisclosed terms.
12. 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.
Subsequent to June 30, 2021, the Company issued a total of 21,100,000 shares of common stock for cash proceeds of $101,890.
Subsequent to June 30, 2021, the Company issued a total of 693,333 shares of common stock for the conversion of accrued commissions of $3,120.