Core AI Holdings, Inc 6-K, filed Dec 1, 2020
Core AI Holdings, Inc. (CHAI)
About this 6-K
Core AI Holdings, Inc filed this 6-K on December 1, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of: December 2020 (Report No. 1)
Commission file number: 001-39557
SIYATA MOBILE INC.
(Translation of registrant’s name into English)
2200 - 885 West Georgia Street
Vancouver, BC V6C 3E8
514-500-1181
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulations S-T Rule 101(b)(1):_____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulations S-T Rule 101(b)(7):_____
CONTENTS
This Report of Foreign Private Issuer on Form 6-K consists of (i) the Registrant’s Interim Consolidated Financial Statements as of September 30, 2020, which is attached hereto as Exhibit 99.1 and (ii) the Registrant’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2020, which is attached hereto as Exhibit 99.2.
1
SIGNATURES
Pursuant to the requirements 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.
| SIYATA MOBILE INC. | ||
| (Registrant) | ||
| By: | /s/ Marc Seelenfreund | |
| Name: | Marc Seelenfreund | |
| Title: | Chief Executive Officer | |
Date: December 1, 2020
2
Exhibit 99.1
SIYATA MOBILE INC.
Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian Dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
Siyata Mobile Inc.
(the “Company” or “Siyata”)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the three and nine months ended September 30, 2020
NOTICE OF NO AUDITOR REVIEW OF INTERIM CONSOLIDTED FINANCIAL STATEMENTS
The Management of the Company is responsible for the preparation of the accompanying unaudited consolidated interim financial statements. The unaudited consolidated interim financial statements have been prepared using accounting policies in compliance with International Financial Reporting Standards (“IFRS”) for the preparation of consolidated interim financial statements and are in accordance with IAS 34 – Interim Financial Reporting.
The Company’s auditor has not performed a review of these consolidated interim financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.
2
Siyata Mobile Inc.
Consolidated Interim Statements of Financial Position
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
For the period ended September 30, 2020 and for the year ended December 31, 2020
| September 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current | ||||||||
| Cash | $ | 14,631,921 | $ | 3,465,371 | ||||
| Trade and Other Receivables (Note 4) | 5,361,300 | 1,943,828 | ||||||
| Prepaid expenses | 670,467 | 329,234 | ||||||
| Inventory (Note 5) | 3,338,551 | 4,400,623 | ||||||
| Advance to suppliers | 907,589 | 847,198 | ||||||
| 24,909,828 | 10,986,254 | |||||||
| Right of Use Assets (Note 6) | 509,804 | 266,830 | ||||||
| Loan to Director (Note 19) | 285,885 | 260,400 | ||||||
| Equipment | 62,592 | 51,750 | ||||||
| Intangible assets (Note 7) | 8,785,444 | 8,423,294 | ||||||
| Goodwill | 1,022,269 | 1,022,269 | ||||||
| Total assets | $ | 35,575,822 | $ | 21,010,797 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current | ||||||||
| Bank Loan (Note 9) | $ | 840,342 | $ | 42,230 | ||||
| Accounts payable and accrued liabilities | 4,525,424 | 2,565,802 | ||||||
| Due to Related Party (Note 19) | 77,483 | 100,079 | ||||||
| Lease Obligations (Note 8) | 157,066 | 151,437 | ||||||
| Current portion of Convertible Debenture (Note 11) | 1,514,230 | 1,364,055 | ||||||
| Current portion of long term debt (Note 10) | 72,000 | 58,000 | ||||||
| 7,186,545 | 4,281,603 | |||||||
| Lease Obligation (Note 8) | 335,397 | 101,582 | ||||||
| Other payables | 178,738 | 173,044 | ||||||
| Convertible Debenture (Note 11) | 5,989,356 | 5,272,252 | ||||||
| Long Term Debt (Note 10) | 84,000 | 138,000 | ||||||
| 6,587,491 | 5,684,878 | |||||||
| Total Liabilities | 13,774,036 | 9,966,481 | ||||||
| Shareholders’ equity | ||||||||
| Share capital (Note 12) | 49,309,843 | 37,346,168 | ||||||
| Reserves | 10,757,095 | 6,602,751 | ||||||
| Accumulated other comprehensive income ( loss) | (540,021 | ) | (125,084 | ) | ||||
| Deficit | (37,725,131 | ) | (32,779,519 | ) | ||||
| 21,801,786 | 11,044,316 | |||||||
| Total liabilities and shareholders’ equity | $ | 35,575,822 | $ | 21,010,797 | ||||
| Nature of operations and going concern (Note 1) | ||||||||
| Subsequent events (Note 23) | ||||||||
The accompanying notes are an integral part of these unaudited consolidated interim financial statements.
Approved on November 30, 2020 on behalf of the Board:
| “Michael Kron” | “Marc Seelenfreund” | |
| Michael Kron – Director | Marc Seelenfreund - Director |
3
Siyata Mobile Inc.
Consolidated Interim Statements of Loss and Comprehensive Loss
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
For the three and nine months ended September 30, 2020 and 2019
| For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue | $ | 9,030,208 | $ | 10,086,347 | $ | 3,013,957 | $ | 5,045,947 | ||||||||
| Cost of Sales (Note 13) | (6,095,943 | ) | (7,117,822 | ) | (2,047,276 | ) | (3,458,662 | ) | ||||||||
| Gross profit | 2,934,265 | 2,968,525 | 966,681 | 1,587,285 | ||||||||||||
| EXPENSES | - | |||||||||||||||
| Amortization and Depreciation (Note 8) | 1,312,464 | 738,559 | 455,982 | 245,932 | ||||||||||||
| Selling and marketing (Note 14) | 3,477,556 | 3,969,703 | 1,367,288 | 1,264,907 | ||||||||||||
| General and administrative (Note 15) | 2,003,860 | 1,677,475 | 778,491 | 659,488 | ||||||||||||
| Share-based payments (Note 12) | 274,068 | 1,304,590 | 61,462 | 233,732 | ||||||||||||
| Total Operating Expenses | (7,067,948 | ) | (7,690,327 | ) | (2,663,223 | ) | (2,404,059 | ) | ||||||||
| Net operating loss | (4,133,683 | ) | (4,721,802 | ) | (1,696,542 | ) | (816,774 | ) | ||||||||
| OTHER EXPENSES | ||||||||||||||||
| Finance expense (income) | 1,890,540 | 767,156 | 645,673 | 252,397 | ||||||||||||
| Foreign exchange | (1,078,611 | ) | 337,409 | 164,583 | 224,379 | |||||||||||
| Accretion and change in value of future purchase consideration | - | 30,000 | - | - | ||||||||||||
| Total other expenses | (811,929 | ) | (1,134,565 | ) | (810,256 | ) | (476,776 | ) | ||||||||
| Net loss for the period | (4,945,612 | ) | (5,856,367 | ) | (2,506,798 | ) | (1,293,550 | ) | ||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Translation Adjustment | (414,937 | ) | 13,832 | (51,623 | ) | 371,701 | ||||||||||
| Comprehensive loss for the period | (5,360,549 | ) | (5,842,535 | ) | (2,558,421 | ) | (921,849 | ) | ||||||||
| Weighted Average Shares | 902,407 | 769,220 | 979,589 | 832,603 | ||||||||||||
| Basic and diluted loss per share | $ | (5.48 | ) | $ | (7.61 | ) | $ | (2.56 | ) | $ | (1.55 | ) | ||||
See Subsequent Events note 23, that the Company had a reverse stock split of 1 to 145 common shares effective September 25, 2020. The number of shares above reflect the retroactive reverse split.
The accompanying notes are an integral part of these unaudited consolidated interim financial statements.
4
Siyata Mobile Inc.
Consolidated Interim Statement of Changes in Shareholders’ Equity
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
For the nine months ended September 30, 2020 and for the year ended December 31, 2019
| Number of Common Shares | Share Capital Amount | Reserves | Accumulated other comprehensive Income (loss) | Deficit | Total Shareholders’ Equity | |||||||||||||||||||
| Balance, December 31, 2018 | 715,300 | 27,638,100 | 3,750,999 | 260,137 | (22,619,168 | ) | $ | 9,030,068 | ||||||||||||||||
| Exercise of Warrants | 80,865 | 5,862,745 | - | - | - | 5,862,745 | ||||||||||||||||||
| Shares issued on acquisition of Signifi | 6,897 | 460,000 | - | - | - | 460,000 | ||||||||||||||||||
| Exercise of agents’ options | 5,668 | 458,885 | (130,128 | ) | - | - | 328,757 | |||||||||||||||||
| Non-brokered private placement | 51,724 | 3,000,000 | - | - | - | 3,000,000 | ||||||||||||||||||
| Share Issuance costs on capital raise | (243,379 | ) | - | (243,379 | ) | |||||||||||||||||||
| Shares issued as agent compensation for debenture | 3,324 | 154,217 | - | - | - | 154,217 | ||||||||||||||||||
| Expiry of agent’s options | - | 15,600 | (15,600 | ) | - | - | - | |||||||||||||||||
| Equity portion of the debenture bifurcated | - | - | 578,903 | - | - | 578,903 | ||||||||||||||||||
| Issuance of agents’ warrants | - | - | 61,407 | - | - | 61,407 | ||||||||||||||||||
| Issuance of warrants to debentureholders | - | - | 866,857 | - | - | 866,857 | ||||||||||||||||||
| Share based payments | - | - | 1,490,313 | - | - | 1,490,313 | ||||||||||||||||||
| Translation adjustment | - | - | - | (385,221 | ) | - | (385,221 | ) | ||||||||||||||||
| Loss for the period | - | - | - | - | (10,160,351 | ) | (10,160,351 | ) | ||||||||||||||||
| Balance, December 31, 2019 | 863,778 | $ | 37,346,168 | $ | 6,602,751 | $ | (125,084 | ) | $ | (32,779,519 | ) | $ | 11,044,316 | |||||||||||
| Equity portion of the debenture bifurcated | 86,029 | 86,029 | ||||||||||||||||||||||
| Share based payments | 274,068 | 274,068 | ||||||||||||||||||||||
| Share issuance on capital raise on NASDAQ | 2,192,500 | 13,864,219 | 3,565,779 | 17,429,998 | ||||||||||||||||||||
| Share issuance costs on capital raise to NASDAQ | (3,681,186 | ) | (3,681,186 | ) | ||||||||||||||||||||
| Issuance of agents’ options | 228,468 | 228,468 | ||||||||||||||||||||||
| Share issuance on capital raise | 148,276 | 2,150,000 | 2,150,000 | |||||||||||||||||||||
| Share issuance costs on capital raise | (444,358 | ) | (444,358 | ) | ||||||||||||||||||||
| Share issuance on conversion of convertible debt | 1,149 | 75,000 | 75,000 | |||||||||||||||||||||
| Translation adjustment | (414,937 | ) | (414,937 | ) | ||||||||||||||||||||
| Loss for the period | (4,945,612 | ) | (4,945,612 | ) | ||||||||||||||||||||
| Balance, September 30, 2020 | 3,205,703 | 49,309,843 | 10,757,095 | (540,021 | ) | (37,725,131 | ) | 21,801,786 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated interim financial statements.
5
Siyata Mobile Inc.
Consolidated Interim Statements of Cash Flows
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
For the nine months ended September 30, 2020 and 2019
| 2020 | 2019 | |||||||
| Cash provided by / (used for): | ||||||||
| Operating activities: | ||||||||
| Net loss for the period | $ | (4,945,612 | ) | $ | (5,856,367 | ) | ||
| Items not affecting cash: | ||||||||
| Amortization and depreciation | 1,336,594 | 738,559 | ||||||
| Accretion and change in value of future purchase consideration | - | 30,000 | ||||||
| Accretion of convertible debentures included in finance expense | 873,283 | 318,914 | ||||||
| Lease liability finance expense accretion | 9,927 | - | ||||||
| Share-based payments | 274,068 | 1,304,590 | ||||||
| Net change in non-cash working capital items: | ||||||||
| Trade and other receivables, prepaids, and advances to suppliers | (3,819,097 | ) | (2,852,623 | ) | ||||
| Inventory | 1,062,072 | 1,015,107 | ||||||
| Accounts payable and accrued liabilities | 1,959,622 | (1,319,878 | ) | |||||
| Due to/from related party | (22,596 | ) | (62,428 | ) | ||||
| Net cash used in operating activities | (3,295,869 | ) | (6,684,126 | ) | ||||
| Investing activities: | ||||||||
| Acquisition of equipment | (10,842 | ) | (5,016 | ) | ||||
| Right of use assets | (391,591 | ) | - | |||||
| Development costs included in intangible assets | (1,346,123 | ) | (2,768,540 | ) | ||||
| Net cash used in investing activities | (1,748,556 | ) | (2,773,556 | ) | ||||
| Financing activities: | ||||||||
| Proceeds of bank loan | 798,112 | - | ||||||
| Share Issue Costs | (4,125,544 | ) | (254,268 | ) | ||||
| Proceeds from capital raises | 19,579,998 | 3,000,000 | ||||||
| Loan to Director | - | (262,000 | ) | |||||
| Exercise of stock options | - | 328,758 | ||||||
| Exercise of warrants | - | 5,862,745 | ||||||
| Issuance of agent’s options | 228,468 | - | ||||||
| Proceeds of debentures from refinancing | 135,000 | - | ||||||
| Loan received net of repayments | (40,000 | ) | (22,000 | ) | ||||
| Lease payments, net | 233,047 | - | ||||||
| Net cash from financing activities | 16,809,081 | 8,652,235 | ||||||
| Effect of foreign exchange on cash | (598,106 | ) | 274,375 | |||||
| Change in cash for the period | 11,166,550 | (532,072 | ) | |||||
| Cash, beginning of period | 3,465,371 | 2,420,205 | ||||||
| Cash, end of period | 14,631,921 | 1,888,133 | ||||||
Supplemental disclosure with respect to cash flows (Note 22)
The accompanying notes are an integral part of these unaudited consolidated interim financial statements.
6
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 1. | NATURE OF OPERATIONS AND GOING CONCERN |
Siyata Mobile Inc. (“Siyata” or the “Company”) was incorporated under the Business Corporations Act, British Columbia on October 15, 1986. The Company’s shares are listed on NASDAQ under the symbol SYTA and warrants issued on September 29, 2020 at $6.85 USD are traded under the symbol SYTAW. As at September 30. 2020, the Company’s principal activity is the sale of vehicle mounted, cellular based communications platforms over advanced 4G mobile networks. The registered and records office is located at 2200 - 885 West Georgia Street, Vancouver, BC V6C 3E8.
On June 7, 2016, the Company acquired all of the issued and outstanding shares of Signifi Mobile Inc. (“Signifi”).
These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than a process of forced liquidation. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company incurred a net loss of $4,945,612 during the nine months ended September 30, 2020 (nine months ended September 30, 2019- ($5,856,367)) and, as of that date, the Company’s total deficit was $37,725,131. The Company’s continuation as a going concern is dependent upon the success of the Company’s sale of inventory, the existing cash flows, and the ability of the Company to obtain additional debt or equity financing, all of which are uncertain. These material uncertainties, along with those discussed in Note 23(a), may cast significant doubt on the Company’s ability to continue as a going concern.
| 2. | BASIS OF PREPARATION |
Statement of compliance
These unaudited consolidated interim financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
Basis of consolidation and presentation
These unaudited consolidated interim financial statements of the Company have been prepared on the historical cost basis, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value. In addition, the consolidated interim financial statements have been prepared using the accrual basis of accounting, except for the statement of cash flows.
These unaudited consolidated interim financial statements incorporate the financial statements of the Company and its wholly controlled subsidiaries. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated interim financial statements include the accounts of the Company and its direct wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
7
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 2. | BASIS OF PREPARATION (cont’d) |
Basis of consolidation and presentation (cont’d)
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries:
| Name of Subsidiary | Place of Incorporation | Ownership | ||||
| Queensgate Resources Corp. | British Columbia, Canada | 100 | % | |||
| Queensgate Resources US Corp. | Nevada, USA | 100 | % | |||
| Siyata Mobile (Canada) Inc. | British Columbia, Canada | 100 | % | |||
| Siyata Mobile Israel Ltd. | Israel | 100 | % | |||
| Signifi Mobile Inc. | Quebec, Canada | 100 | % | |||
These consolidated interim financial statements of the Company are presented in Canadian dollars, which is the functional currency of the Company.
Foreign currency translation
Items included in the financial statements of each entity in the Company are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”) and has been determined for each entity within the Company. The functional currency of Siyata Mobile Inc. is the Canadian dollar which is also the functional currency of all its subsidiaries except Siyata Mobile Israel Ltd. which is the United States dollar. The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21 The Effects of Changes in Foreign Exchange Rates.
Assets and liabilities of entities with a functional currency other than the Canadian dollar are translated into Canadian dollars at period end exchange rates. Income and expenses, and cash flows are translated into Canadian dollars using the average exchange rate. Exchange differences resulting from the translation of United States operations are recognized in other comprehensive income (loss) and accumulated in equity.
Transactions in currencies other than the entity’s functional currency are translated at the exchange rates in effect on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect as at the statement of financial position date. Non-monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at the time of the acquisition of the assets or assumption of the liabilities. Foreign currency differences arising on translation are recognized in the statement of loss and comprehensive loss.
Use of estimates and judgements
The preparation of the unaudited consolidated interim financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
8
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 2. | BASIS OF PREPARATION (cont’d) |
Use of estimates and judgements (cont’d)
| i) | Critical accounting estimates |
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are, but not limited to the following:
| ● | Income taxes - Tax provisions are based on enacted or substantively enacted laws. Changes in those laws could affect amounts recognized in profit or loss both in the period of change, which would include any impact on cumulative provisions, and future periods. Deferred tax assets, if any, are recognized to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse. |
| ● | Fair value of stock options and warrants - Determining the fair value of warrants and stock options requires judgments related to the choice of a pricing model, the estimation of stock price volatility, the expected forfeiture rate and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could have a significant impact on the Company’s future operating results or on other components of shareholders’ equity. |
| ● | Capitalization of development costs and their amortization rate – Development costs are capitalized in accordance with the accounting policy. To determine the amounts earmarked for capitalization, management estimates the cash flows which are expected to be derived from the asset for which the development is carried out and the expected benefit period. |
| ● | Inventory - Inventory is valued at the lower of cost and net realizable value. Cost of inventory includes cost of purchase (purchase price, import duties, transport, handling, and other costs directly attributable to the acquisition of inventories), cost of conversion, and other costs incurred in bringing the inventories to their present location and condition. Net realizable value for inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions are made in profit or loss of the current period on any difference between book value and net realizable value. |
| ● | Estimated product returns - Revenue from product sales is recognized net of estimated sales discounts, credits, returns, rebates and allowances. The return allowance is determined based on an analysis of the historical rate of returns, industry return data, and current market conditions, which is applied directly against sales. |
| ● | Impairment of non-financial assets - The Company assesses impairment at each reporting date by evaluating conditions specific to the Company that may lead to asset impairment. The recoverable amount of an asset or a cash-generating unit (“CGU”) is determined using the greater of fair value less costs to sell and value in use which requires the use of various judgments, estimates, and assumptions. The Company identifies CGUs as identifiable groups of assets that are largely independent of the cash inflows from other assets or groups of assets. Value in use calculations require estimations of discount rates and future cash flows derived from revenue growth, gross margin and operating costs. Fair value less costs to sell calculations require the Company to estimate fair value of an asset or a CGU using market values of similar assets as well as estimations of the related costs to sell. |
9
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 2. | BASIS OF PREPARATION (cont’d) |
Use of estimates and judgements (cont’d)
| ● | Useful life of intangible assets – The Company estimates the useful life used to amortize intangible assets which relates to the expected future performance of the assets acquired based on management estimate of the sales forecast. |
| ● | Future purchase consideration - In a business combination, the Company recognizes a contingent consideration at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in profit or loss, or as a change to other comprehensive income (“OCI”). If the contingent consideration is not within the scope of IAS 39, it is measured at fair value in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity. |
| ● | Contingent consideration from an asset acquisition is recognized when: the conditions associated with the contingency are met; the Company has a present legal or constructive obligation that can be estimated reliably; and it is probably that an outflow of economic benefits will be required to settle the obligation. |
| ii) | Critical accounting judgments |
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are, but are not limited to, the following:
| ● | Deferred income taxes – judgments are made by management to determine the likelihood of whether deferred income tax assets at the end of the reporting period will be realized from future taxable earnings. To the extent that assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognized in respect of deferred tax assets as well as the amounts recognized in profit or loss in the period in which the change occurs. |
| ● | Functional currency - The functional currency for the Company and each of its subsidiaries is the currency of the primary economic environment in which the respective entity operates. The Company has determined the functional currency of each entity to be the Canadian dollar with the exception of Siyata Mobile Israel Ltd. which has the functional currency of the US dollar. Such determination involves certain judgments to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment. |
| ● | Going concern – As disclosed in Note 1 to the consolidated interim financial statements. |
10
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Impairment of long lived assets |
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets if any, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
| (b) | Impairment of long lived assets |
If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in profit or loss.
| (c) | Intangible assets |
| i) | Research and development |
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and Siyata has the intention and sufficient resources to complete development and to use or sell the asset. The expenditure capitalized in respect of development activities includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditure is recognized in profit or loss as incurred.
In subsequent periods, capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.
11
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (c) | Intangible assets (cont’d) |
| ii) | Subsequent expenditure |
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.
| (d) | Intangible assets |
| iii) | Amortization |
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset less its estimated residual value.
Amortization is recognized in profit or loss on a straight line basis over the estimated useful lives of the intangible assets from the date they are available for use. See Note 7 for amortization rates and methods applied to each class of intangible assets. An annual review of the useful life of the intangibles asset are made by management and any changes in useful life are reflected prospectively.
Internally generated intangible assets are not systematically amortized as long as they are not available for use (i.e. they have not completed certifications and/or are in working condition for their intended use). Accordingly, these intangible assets, such as development costs, are tested for impairment at least once a year, until such date as they are available for use.
| (e) | Business Combinations |
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of acquisition, of assets transferred, liabilities incurred or assumed, and equity instruments issued by the Company. The acquiree’s identifiable assets and liabilities assumed are recognized at their fair value at the acquisition date. Acquisition-related costs are recognized in earnings as incurred. The excess of the consideration over the fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. Any gain on a bargain purchase is recorded in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. Any goodwill that arises is tested annually for impairment.
| (f) | Goodwill |
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortization but is tested for impairment annually.
12
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (g) | Inventory |
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out (FIFO) principle, and includes expenditure incurred in acquiring the inventories and the costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completing and selling expenses.
| (h) | Revenues |
Revenue from the sale of goods, in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted.
Revenue is recognized when persuasive evidence exists (usually in the form of an executed sales agreement), that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales on products in Israel, transfer usually occurs when the product is received at the customer’s warehouse, but for some international shipments transfer occurs upon loading the goods onto the relevant carrier.
| (i) | Financial Instruments |
Financial assets
On initial recognition, financial assets are recognized at fair value and are subsequently classified and measured at: (i) amortized cost; (ii) fair value through other comprehensive income (“FVOCI”); or (iii) fair value through profit or loss (“FVTPL”). The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. A financial asset is measured at fair value net of transaction costs that are directly attributable to its acquisition except for financial assets at FVTPL where transaction costs are expensed. All financial assets not classified and measured at amortized cost or FVOCI are measured at FVTPL. On initial recognition of an equity instrument that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive.
The classification determines the method by which the financial assets are carried on the balance sheet subsequent to inception and how changes in value are recorded. The Company has classified its cash and trade and other receivables at amortized cost.
13
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (i) | Financials Instruments (Cont’d) |
Impairment
An ‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period.
In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Financial liabilities
Financial liabilities are designated as either: (i) fair value through profit or loss; or (ii) other financial liabilities. All financial liabilities are classified and subsequently measured at amortized cost except for financial liabilities at FVTPL.
The classification determines the method by which the financial liabilities are carried on the balance sheet subsequent to inception and how changes in value are recorded. The Company has classified its bank loan, accounts payable and accrued liabilities, due to related party, convertible debentures and long term debt as other financial liabilities and carried on the balance sheet at amortized cost. Future purchase consideration is classified as FVTPL.
As at September 30, 2020, the Company does not have any derivative financial liabilities.
| (j) | Loss per share |
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted loss per share is calculated by dividing the loss by the weighted average number of common shares outstanding assuming that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. In the Company’s case diluted loss per share is the same as basic loss per share, as the effect of outstanding share options and warrants on loss per share would be anti-dilutive. The weighted average number of shares is retroactively changed to reflect the 1-to-145 reverse stock split that occurred on September 25, 2020,
14
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (k) | Share-based payments |
The stock option plan allows Company employees and consultants to acquire shares of the Company. The fair value of options granted is recognized as a share-based payment expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to share capital and the fair value of the option is reclassified from share-based payment reserve to share capital.
In situations where equity instruments are issued to non-employees and some or all of the services received by the entity as consideration cannot be specifically identified, they are all measured at the fair value of the share-based payment, otherwise, share-based payments are measured at the fair value of the services received.
The fair value is measured at grant date at each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive), as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where the effect is material, the provision is discounted to net present value using an appropriate current market-based pre-tax discount rate and the unwinding of the discount is included in profit or loss as interest expense from discounting obligations.
| (l) | Income taxes |
Current tax is the expected tax payable or receivable on the taxable income or loss for the year using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable operations, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
15
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (l) | Income taxes (cont’d) |
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
| (m) | Deferred charges |
Costs directly identifiable with the raising of capital will be charged against the related capital stock. Costs related to shares not yet issued are recorded as deferred financing costs. These costs will be deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related capital stock or charged to operations if the shares are not issued.
| (n) | New accounting pronouncements |
The following new accounting policies were adopted by the Company during the year ended December 31, 2019:
As of January 1, 2019, the Company adopted the following new accounting standards and interpretations on a modified retrospective approach:
IFRS 16, Leases
IFRS 16, Leases (“IFRS 16”), specifies how to recognize, measure, present, and disclose leases. The standard provides a single-lessee accounting model, requiring lessees to recognize a right-of-use asset representing its right to use the underlying asset and a liability representing its obligation to make lease payments (“lease obligation”), for all leases unless the Company elects to exclude leases when the lease term is twelve months or less, or the underlying asset has a low monetary value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17, Leases (“IAS 17”). The Company’s accounting policy under IFRS 16 is as follows:
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company adopted IFRS 16 using the modified retrospective approach and therefore, the comparative information has not been restated and continues to be reported under IAS 17 Leases and IFRIC 4 to determine whether an arrangement contains a lease.
16
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (n) | New accounting pronouncements (cont’d) |
IFRS 16, Leases (cont’d)
The Company as a lessee
The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The ROU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the ROU asset or the lease term. The lease term includes consideration of an option to renew or to terminate if the Company is reasonably certain to exercise that option. Current office and car lease terms range from 6 months to 45 months. In addition, the ROU asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments mainly include fixed, or in substance fixed, payments and variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in profit or loss if the carrying amount of the ROU asset has been reduced to zero.
17
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 3. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (o) | New accounting pronouncements |
Effective January 1, 2019 (date of initial application), the Company adopted IFRS 16 using the modified retrospective transition approach. Accordingly, comparative figures as at and for the year ended December 31, 2018 have not been restated and continue to be reported under IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease (“IFRIC 4”).
The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts entered into or modified on or after January 1, 2019.
At transition, the Company used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: applied a single discount rate to a portfolio of leases with similar characteristics; recognition exemption of short-term leases; recognition exemption of low-value leases; and used hindsight when determining the lease term if the contract contained options to extend or terminate the lease.
When applying the modified retrospective transition approach, for leases previously classified as operating leases under IAS 17 and IFRIC 4, on initial application, a lessee is permitted to measure the ROU asset, on a lease-by-lease basis, using one of two methods: (1) as if IFRS 16 had always been applied, using the incremental borrowing rate at the date of initial application; or (2) at an amount equal to the lease liability (subject to certain adjustments). For all leases, the Company applied the second method and recognized the ROU assets based on the corresponding lease liability. As at January 1, 2019, the Company recorded lease obligations of $407,776 and ROU assets of $407,776. When measuring lease liabilities, the Company discounted future lease payments using its incremental borrowing rate as at January 1, 2019. The weighted-average rate applied was 7.5%. During the year ended December 31, 2019, the Company recorded $147,946 of depreciation of ROU assets, and $14,827 of interest accretion on discounted lease obligations as a result of the adoption of IFRS 16.
The following table reconciles the Company’s operating lease commitments as at December 31, 2018, as previously disclosed in the Company’s annual audited consolidated financial statements, to the lease obligations recognized on initial application of IFRS 16 on January 1, 2019:
As at January 1, 2019 | Previously Reported under IAS 17 | IFRS 16 Transition Adjustments | As report under IFRS 16 | |||||||||
| Right of use Assets | $ | Nil | $ | 407,776 | $ | 407,776 | ||||||
| Lease Obligation | $ | Nil | $ | 407,776 | $ | 407,776 | ||||||
18
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 4. | TRADE AND OTHER RECEIVABLES |
| September 30, 2020 | December 31, 2019 | |||||||
| Trade receivables | $ | 4,876,249 | $ | 1,510,915 | ||||
| Taxes receivable | 485,051 | 144,150 | ||||||
| Other receivables | - | 288,763 | ||||||
| Total | $ | 5,361,300 | $ | 1,943,828 | ||||
Siyata Mobile Israel (“SMI”) has a factoring agreement on its trade receivables, whereby invoices are fully assigned to a funding entity in return for 80%-85% of the total sale to be paid to SMI by the funding entity in advance. The remaining 15-20% is paid to SMI when the funding entity receives payment from the customer.
SMI incurs a financing charge of 3.1% – 3.5% on advances received and is subject to certain covenants.
The 80-85% received upfront remains a liability from SMI to the funding entity until final settlement, however all such balances are fully insured in case of non-payment. As SMI has both the legally enforceable right and the intention to settle the receivable and liability on a net basis in accordance with IAS 32, trade receivables are presented net of the liability for amounts advanced. As at September 30, 2020 the total offset for amounts extended by the funding entity was $2,824,000 (December 31, 2019 - $2,455,000).
As part of its financing facility, TD Bank has a lien on certain assets including trade and other receivables of Signifi Mobile Inc. in the amount of up to $4,000,000.
| 5. | INVENTORY |
| September 30, 2020 | December 31, 2019 | |||||||
| Finished products | $ | 2,414,463 | $ | 3,584,263 | ||||
| Accessories and spare parts | 924,088 | 816,360 | ||||||
| Total | $ | 3,338,551 | $ | 4,400,623 | ||||
| 6. | RIGHT OF USE ASSETS |
| Office | Vehicle | Total | ||||||||||
| Balance Jan 1, 2019 | - | - | - | |||||||||
| Addition in the year | 100,134 | 307,642 | 407,776 | |||||||||
| Translation adjustment | - | (4,000 | ) | (4,000 | ) | |||||||
| Amortization in the year | (57,908 | ) | (79,038 | ) | (136,946 | ) | ||||||
| Balance December 31, 2019 | 42,226 | 224,604 | 266,830 | |||||||||
| Addition in the period | 368,362 | 23,229 | 391,591 | |||||||||
| Translation adjustment | - | (30 | ) | (30 | ) | |||||||
| Amortization in the period | (62,263 | ) | (86,324 | ) | (148,587 | ) | ||||||
| Balance September 30, 2020 | 348,325 | 161,479 | 509,804 | |||||||||
19
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 7. | INTANGIBLE ASSETS |
| Development Costs | Uniden License | E-Wave License | Total | |||||||||||||
| Cost: | ||||||||||||||||
| Balance at December 31, 2018 | 9,484,962 | 148,592 | 1,681,959 | 11,315,513 | ||||||||||||
| Additions | 2,757,875 | - | - | 2,757,875 | ||||||||||||
| Translation adjustment | (423,432 | ) | - | - | (423,432 | ) | ||||||||||
| Balance at December 31, 2019 | 11,819,405 | 148,592 | 1,681,959 | 13,649,956 | ||||||||||||
| Additions | 1,346,123 | - | - | 1,346,123 | ||||||||||||
| Translation adjustment | 282,289 | - | - | 282,289 | ||||||||||||
| Balance at September 30, 2020 | 13,447,817 | 148,592 | 1,681,959 | 15,278,368 | ||||||||||||
| Accumulated Amortization: | ||||||||||||||||
| Balance at December 31, 2018 | 3,336,380 | 69,621 | 420,490 | 3,826,491 | ||||||||||||
| Additions | 950,383 | 27,320 | 420,492 | 1,398,195 | ||||||||||||
| Impairment | - | - | 147,977 | 147,977 | ||||||||||||
| Translation adjustment | (146,001 | ) | - | - | (146,001 | ) | ||||||||||
| Balance at December 31, 2019 | 4,140,762 | 96,941 | 988,959 | 5,226,662 | ||||||||||||
| Additions | 889,492 | 20,490 | 258,000 | 1,167,982 | ||||||||||||
| Impairment | - | - | - | |||||||||||||
| Translation adjustment | 98,280 | - | - | 98,280 | ||||||||||||
| Balance at September 30, 2020 | 5,128,534 | 117,431 | 1,246,959 | 6,492,924 | ||||||||||||
| Net Book Value: | ||||||||||||||||
| Balance at December 31, 2019 | $ | 7,678,643 | $ | 51,651 | $ | 693,000 | $ | 8,423,294 | ||||||||
| Balance at September 30, 2020 | $ | 8,319,283 | $ | 31,161 | $ | 435,000 | $ | 8,785,444 | ||||||||
Development Costs
Development costs are internally generated and are capitalized in accordance with the IAS 38.
On an annual basis, the Company assesses capitalized development costs for indicators of impairment or when facts or circumstances suggest the carrying amount may exceed its recoverable amount.
The Company engaged a third-party valuator to determine the recoverable amount of the development costs. The recoverable amount was equal or in excess to the carrying amount and therefore no impairment was taken on development costs in 2019 (2018 - $1,954,000 impairment on legacy 3G products due to obsolescence, the majority of sales moving forwards would be 4G technology).
20
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 7. | INTANGIBLE ASSETS (cont’d) |
Development Costs (cont’d)
As part of the valuation process, the Company reduced the estimated useful life of certain products. This was considered to be a change in estimate and applied prospectively. As follows:
| Intangible Asset | Useful Economic Life 2018 | Useful Economic Life 2019 | Amortization Method | |||||||||
| 4G Devices | 7 years | 5 - 6 years | Straight line | |||||||||
| 3G Devices | 11 years | 5 years | Straight line | |||||||||
During the nine months ended September 30, 2020 there were no developments costs that were recorded in the profit and loss.
During the year ended December 31, 2019 the Company incurred $1,005,000 (2018 - $Nil) product development costs which did not satisfy the criteria for capitalization and were recorded in profit and loss. The product development costs recorded were for the following products: UR-7 $285,000, CP-100 $101,000 and UR-5 $619,000.
Uniden License
During 2016, the Company acquired a license agreement with Uniden America Corporation (“Uniden”). The agreement provides for the Company to use the trademark “Uniden”, along with associated designs and trade dress to distribute, market and sell its cellular signal booster and accessories during its term. The agreement includes renewal options up to December 31, 2022 and is subject to certain minimum royalties. The license agreement is amortized on a straight-line basis over its five year term. Based on the valuation report, the Company has determined that there is no impairment in the year.
E-Wave License
On an annual basis, the Company assesses its E-Wave License for indicators of impairment or when facts or circumstances suggest the carrying amount may exceed its recoverable amount. Indicators of impairment relating to the E-Wave License included a decline in demand for the products in the exclusive license agreement.
The Company engaged a third-party valuator to determine the recoverable amount of the E-Wave License, which was completed using value in use (“VIU”).
Value in use is an estimate that involves (a) estimating the future cash inflows and the outflows to be derived from continuing use of the asset and from its ultimate disposal and (b) applying the appropriate pre-tax discount rate to those future cash flows after considering and reflecting elements outlined in IAS 36.30.
The key assumptions used in the calculation of the recoverable amount include forecasting the next twelve months:
| i) | Revenues; and |
| ii) | Normalized Operating Expenses; |
VIU is determined with reference to risk adjusted cash flows and a discount rate of 35% based on individual characteristics of the Company’s CGU, the risk-free rate of return and other economic and operating factors.
The result is that the carrying amount of intangible assets relating to the E-Wave License exceeded their recoverable amount and as a result the Company recorded an impairment charge in the amount of $147,977.
21
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 8. | LEASE OBLIGATIONS |
| Lease Obligations | Total | |||
| Balance Jan 1, 2019 | - | |||
| Addition in the year | 407,776 | |||
| interest expense | 14,827 | |||
| Translation adjustment | (4,000 | ) | ||
| lease payments | (165,584 | ) | ||
| Balance December 31, 2019 | 253,019 | |||
| Addition in the period | 391,591 | |||
| interest expense | 9,927 | |||
| Translation adjustment | (3,530 | ) | ||
| lease payments | (158,544 | ) | ||
| Balance September 30, 2020 | 492,463 | |||
| Lease obligations Maturity Schedule: | ||||
| October 1, 2020-September 30, 2021 | 157,066 | |||
| October 1, 2021-September 30, 2022 | 144,589 | |||
| October 1, 2022-September 30, 2023 | 139,867 | |||
| October 1, 2023-September 30, 2024 | 50,941 | |||
| Total lease obligations | 492,463 | |||
During the nine month period ended September 30, 2020 and for the year ended December 31, 2019 the Company did not incur any expense related to short-term or low value leases exempt for IFRS 16 requirements.
| 9. | BANK LOAN |
Tthe Company had a line of credit with the TD bank up to a maximum of $1,500,000 Canadian. The loan is secured by a floating charge on the receivables, inventory, trademarks and a universal lien on all the assets of Signifi Mobile Inc. to a maximum of $1,500,000. The Export Development Corporation of Canada guarantees 50% of this debt. As of September 30, 2020 the loan balance was $840,342.
The loan bears interest at the bank’s prime lending rate plus 1.25% and is repayable on demand.
| 10. | LONG TERM DEBT |
On June 28, 2018 Signifi borrowed $250,000 from the Business Development Bank of Canada (“BDC”) for a term of four years, payable in monthly instalments of principal and interest. This loan bears interest at the bank’s base rate + 3.2%. The loan must be fully repaid by July 23, 2022. The loan is secured by the assets of Signifi and a guarantee by the Company and its Canadian subsidiaries.
| September 30, 2020 | December 31, 2019 | |||||||
| Balance, Beginning of Period | $ | 196,000 | $ | 230,000 | ||||
| Loan proceeds from the BDC | - | - | ||||||
| Capital repayments in the period | (40,000 | ) | (34,000 | ) | ||||
| $ | 156,000 | $ | 196,000 | |||||
| Less: current portion of long term debt | (72,000 | ) | (58,000 | ) | ||||
| Long Term Debt, End of Period | $ | 84,000 | $ | 138,000 | ||||
22
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 11. | CONVERTIBLE DEBENTURES |
| September 30, 2020 | December 31, 2019 | |||||||
| Balance, Beginning of Period | $ | 6,636,307 | $ | 3,904,831 | ||||
| Interest and accretion expense | 1,694,344 | 920,487 | ||||||
| Interest paid or accrued | (821,061 | ) | (483,000 | ) | ||||
| Rollover to the 10% convertible debenture | (250,000 | ) | (2,978,263 | ) | ||||
| Issuance of the 10% convertible debenture | 1,493,971 | 5,272,252 | ||||||
| Repayment of 10.5% convertible debenture | (1,195,000 | ) | - | |||||
| Convert $75,000 debentures into share capital | (54,975 | ) | - | |||||
| $ | 7,503,586 | $ | 6,636,307 | |||||
| Due within one year | (1,514,230 | ) | (1,364,055 | ) | ||||
| Balance, End of Year | $ | 5,989,356 | $ | 5,272,252 | ||||
| (a) | On December 28, 2017 the Company issued 46,000 unsecured convertible debentures at a price of $1,000 per unit, convertible into 11.5 common shares of the Company at $87.00 (the “Conversion Price”) per common share. |
Each Convertible Debenture unit bears an interest rate of 10.5% per annum from the date of issue, payable in cash quarterly in arrears. Any unpaid interest payments will accrue and be added to the principal amount of the Convertible Debenture. From January 1, 2020 until its maturity on June 28, 2020 the Company paid $75,863 (year ended December 31, 2019-$483,000) in interest related to the convertible debentures, included within finance expense in profit and loss.
On December 22, 2019, a portion of the 10.5% debenture holders rolled over the net present value of their holdings totaling $2,978,263 with a maturity value of $3,155,000 into $3,319,000 of face value 12% convertibles debentures as more fully described below.
The exchange of debt instruments between the debenture holders and the Company satisfied the criteria under IFRS 9 as a substantial modification, and therefore was treated as an extinguishment of the previous debt and a recognition of a new financial liability. In connection, a loss of $176,737 was recorded within finance expense (income) in profit or loss, as the difference between the carrying amount of the financial liability extinguished and the consideration paid, which is comprised of the newly issued debentures.
The remaining portion of the 10.5% Convertible Debentures matured on June 28, 2020 (the “Maturity Date”) and was repaid at its face value of $1,445,000 except for $250,000 that was rolled over, for a net repayment of $1,195,000 as more fully described in 10(d).
| (b) | On December 23, 2019 the Company issued 7,866,000 unsecured convertible debentures at a price of $1.00 per unit, convertible into 0.0153 common shares of the Company at $65.25 (the “Conversion Price”) per common share. The discounted liability for this convertible debenture at December 23, 2019 is $5,272,252. The amount allocated to contributed surplus is $578,903 and the balance of $2,014,845 is the transaction costs incurred. |
Each Convertible Debenture unit bears an interest rate of 12% per annum from the date of issue, payable in cash quarterly in arrears. Any unpaid interest payments will accrue and be added to the principal amount of the Convertible Debenture. From January 1, 2020 until September 30, 2020 the Company paid $707,940 (year ended December 31, 2019-$0) in interest related to the convertible debentures, included within finance expense in profit and loss.
The Convertible Debentures will mature on December 23, 2021 (the “Maturity Date”) and are convertible into common shares at the Conversion Price, at the option of the holder, at any time prior to the close of business on the earlier of: (i) the last business day immediately preceding the Maturity Date, and (ii) the date fixed for redemption in the event of a change of control. The Company has the right to repay the convertible debenture at 101% of face value anytime after December 23, 2020.
23
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 11. | CONVERTIBLE DEBENTURES (Cont’d) |
| (c) | On June 23, 2020 The Company entered into a non-brokered private placement financing agreement with Accel Telecom Inc., a reporting insider. Accel Telecom will subscribe for 1,330 senior unsecured 10% convertible debentures maturing one year from the issue date at an issue price of CDN$1,000 per Convertible Debenture for aggregate gross proceeds of approximately $1,330,000. Each Convertible Debenture will be convertible, at the option of the holder, into 23 common shares in the capital of the Company at a price of CDN$43.50 per Common Share, subject to adjustment in certain events and are redeemable at 101% of the face value at any time after the closing date. On the closing date, Accel will also receive 0.0069 non-transferrable common share purchase warrant (each, a “Warrant”) for each CDN$1.00 principal amount of the Convertible Debentures purchased. Each Warrant will entitle the holder to acquire one Common Share (each, a “Warrant Share”) at an exercise price of CDN$43.50 per Warrant Share for a period of twelve (12) months after the date of issue. |
| (d) | On June 28, 2020, one of the 10.5% convertible debentureholders, see 10 (a), elected to participate on the exact same terms and conditions in the 10% convertible debenture described in 11 (c) for their $250,000 face value that would otherwise have matured on June 28, 2020. |
| 12. | SHARE CAPITAL |
| (a) | Authorized | Unlimited number of common shares without par value |
Unlimited number of preferred shares without par value
As at September 30, 2020, the Company had 3,205,672 common shares issued and outstanding.
| (b) | Common share transactions |
Transactions for the nine months ended September 30, 2020 are as follows:
| (i) | On June 22, 2020 Issued 1,149 shares as a result of a conversion of convertible debt at $65.25 per share for proceeds of $75,000; |
| (ii) | On August 4, 2020, Siyata completed a two part non-brokered private placement raising aggregate gross proceeds of $2,150,000 CAD through the issuance of 148,276 units at a price of $14.50 CAD per unit. Each Unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole Warrant is exercisable at a price of $26.10 CAD for a period of two years. The Company paid a cash commission of $24,681.60 CAD and issued 1,702 broker warrants on the same terms as the Warrants and other share issuance costs of $410,208; |
| (iii) | On September 29, 2020 Siyata completed an initial public offering of 2,100,000 Units at $6.00 USD per unit for gross proceeds of $12,600,00 USD. Each Unit consisting of one Common Share and one warrant to purchase one Common Share. Each warrant will have an exercise price of $6.85 USD per share, is exercisable immediately and will expire five (5) years from the date of issuance. The Common Shares and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering. The common shares using the residual vakue approach were valued at $4.73 USD per share ($6.32 CAD) and each warrant was valued at $1.27 USD per warrant( $1.70 CAD) |
| (iv) | Siyata consolidated the common shares of the Company (each, a “Share”) on the basis of 145 pre-consolidation Shares for one (1) post-consolidation Share (the “Consolidation”). The Consolidation became effective at the close of market on September 24, 2020 and the post-consolidated Shares commenced trading at the open of the market on Friday September 25th. The new CUSIP number is 83013Q509; |
| (v) | Siyata common shares began trading on the NASDAQ stock exchange as of September 25, 2020 under the symbol SYTA; |
| (vi) | Siyata warrants issued on September 29, 2020 began trading on the NASDAQ stock exchange as of September 25, 2020 under the symbol SYTAW; |
| (vii) | Siyata delisted from the OTCQX market as of the end of trading on September 24, 2020; |
See Note 23 Subsequent events for common shares and agent option transactions that have taken place after September 30, 2020.
24
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 12. | SHARE CAPITAL (cont'd) |
| (b) | Common share transactions (cont'd) |
Transactions for the year ended December 31, 2019 are as follows:
| i) | Issued 5,668 common shares in connection with exercised of agents’ options for proceeds of $328,757. |
| ii) | Issued 80,8650 common shares in connection with exercise of warrants for proceeds of $5,862,745. | |
| iii) | Issued 6,897 common shares in connection with purchase consideration for Signifi with the value of the shares as $460,000. | |
| iv) | On August 29, 2019 the Company completed a non-brokered private placement of 51,724 units at a price of $58.00 per unit for gross proceeds of $3,000,000. Each unit consisted of one common share and one half share purchase warrant. Each warrant is exercisable at a price of $87.00 for a period of two years. In conjunction with the placement, the Company incurred share issuance costs of $243,379. | |
| v) | On December 23, 2019, the Company issued 3,324 common shares as compensation to the agents’ in connection to the issuance of the convertible debentures (Note 11) |
Transactions for the year ended December 31, 2018 are as follows:
| vi) | Issued 2,733 common shares in connection with exercised of agents’ options for proceeds of $143,564. | |
| vii) | Issued 6,897 common shares in connection with purchase consideration for Signifi with the value of the shares as $370,000. | |
| viii) | Issued 4,476 common shares in connection with exercise of warrants for proceeds of $1,324,464. | |
| ix) | Issued 8,966 common shares in connection with the exercise of options for proceeds of $410,000. | |
| x) | Closed a private placement of 31,888 units at a price of $65.25 per unit for gross proceeds of $2,080,710. Each unit consisted of one common share and one share purchase warrant. Each warrant is exercisable at a price of $87.00 for a period of three years. In conjunction with the placement, the Company incurred finders’ fees and other cash share issuance costs of $375,423 and issued 1,572 agents’ options exercisable at a price of $0.60 per common share for a period of three years. |
25
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 12. | SHARE CAPITAL (cont’d) |
| (c) | Stock options |
The Company has a shareholder approved “rolling” stock option plan (the “Plan”) in compliance with TSX-V policies. Under the Plan the maximum number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding common shares at the time of granting. The exercise price of each stock option shall not be less than the market price of the Company’s stock at the date of grant, less a discount of up to 25%. Options can have a maximum term of ten years and typically terminate 90 days following the termination of the optionee’s employment or engagement, except in the case of retirement or death. Vesting of options is at the discretion of the Board of Directors at the time the options are granted.
A summary of the Company’s stock option activity is as follows:
| Number of Stock Options | Weighted Average Exercise Price | |||||||
| Outstanding options, December 31, 2018 | 65,448 | $ | 63.80 | |||||
| Granted | 17,655 | 78.30 | ||||||
| Expired | (517 | ) | 87.00 | |||||
| Outstanding options, December 31, 2019 | 82,586 | $ | 68.15 | |||||
| Granted | 2,690 | 72.50 | ||||||
| Expired | (27,069 | ) | 45.16 | |||||
| Outstanding options, September 30, 2020 | 58,207 | $ | 78.45 | |||||
26
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 12. | SHARE CAPITAL (cont’d) |
| (c) | Stock options (cont’d) |
At September 30, 2020 stock options outstanding are as follows:
| Grant Date | Number of options outstanding | Number of options exercisable | Weighted Average Exercise Price | Expiry date | Remaining contractual life (years) | |||||||||||||
| 01-Jan-17 | 2,207 | 2,207 | 52.20 | 01-Jan-22 | 1.25 | |||||||||||||
| 11-Jan-17 | 2,483 | 2,483 | 52.20 | 11-Jan-22 | 1.28 | |||||||||||||
| 04-Apr-17 | 6,897 | 6,897 | 65.25 | 04-Apr-22 | 1.52 | |||||||||||||
| 24-Jul-17 | 11,034 | 11,034 | 100.05 | 24-Jul-22 | 1.81 | |||||||||||||
| 24-Dec-18 | 15,241 | 11,046 | 72.50 | 24-Dec-23 | 3.23 | |||||||||||||
| 15-Jan-19 | 2,207 | 1,103 | 72.50 | 15-Jan-24 | 3.29 | |||||||||||||
| 21-Mar-19 | 12,345 | 10,241 | 79.75 | 21-Mar-24 | 3.47 | |||||||||||||
| 01-Dec-19 | 3,103 | 776 | 72.50 | 01-Dec-23 | 3.17 | |||||||||||||
| 01-Jan-20 | 2,690 | 448 | 72.50 | 01-Jan-24 | 3.25 | |||||||||||||
| Total | 58,207 | 46,235 | 68.15 | 2.65 | ||||||||||||||
During the period ended September 30, 2020 the Company recorded share-based payments expense of $274,068 (for the nine month’s ended September 30, 2019 $1,304,590) in relation to options vesting.
On November 15, 2020 the Company issued 276,500 stock options at an exercise price of $6.00USD per common share estimated at $8.03 CAD.
The following weighted average assumptions have been used for the Black-Scholes valuation for the stock options granted:
| 2020 | 2019 | 2018 | ||||||||||
| Stock price | $ | 47.85 | $ | 72.50 | $ | 62.35 | ||||||
| Risk-free interest rate | 1.68 | % | 1.5 | % | 1.9 | % | ||||||
| Expected life | 5 | 4.8 | 5 | |||||||||
| Annualized volatility | 67 | % | 143 | % | 148 | % | ||||||
| Dividend rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
27
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 12. | SHARE CAPITAL (cont’d) |
| (d) | Agents’ options |
A summary of the Company’s agents’ options activity is as follows:
The Company issued 1,702 agents’ options on the closing of the August 2020 capital raise at an exercise price of $26.10 CAD per common share and these agents’ options expire on July 28, 2022.
The Company issued 105,000 agents’ options to the underwriter of the NASDAQ IPO at an exercise price of $6.60 USD per common share and these agents’ options expire on September 28, 2025.
| Number of options | Weighted average exercise price | |||||||
| Outstanding agent options, December 31, 2018 | 8,050 | $ | 65.25 | |||||
| Granted | 5,025 | 60.90 | ||||||
| Exercised | (5,668 | ) | 58.00 | |||||
| Expired | (810 | ) | 69.60 | |||||
| Outstanding agent options, December 31, 2019 | 6,597 | $ | 67.12 | |||||
| Granted | 106,702 | 9.12 | ||||||
| Exercised | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding agent options, September 30, 2020 | 113,299 | $ | 12.46 | |||||
At September 30, 2020 agents’ options outstanding are as follows:
| Grant Date | Number of options outstanding | Number of options exercisable | Weighted Average Exercise Price | Expiry date | Remaining contractual life (years) | |||||||||||||
| December 24, 2018 | 1,572 | 1,572 | 87.00 | December 24, 2021 | 1.22 | |||||||||||||
| December 23, 2019 | 5,025 | 5,025 | 60.18 | December 23, 2021 | 1.22 | |||||||||||||
| July 28, 2020 | 1,702 | 1,702 | $ | 26.10 | July 28, 2022 | 1.82 | ||||||||||||
| September 29, 2020 | 105,000 | 105,000 | $ | 8.84 | ** | September 28, 2025 | 4.99 | |||||||||||
| Total | 113,299 | 113,299 | $ | 67.12 | 4.73 | |||||||||||||
| ** | Exercise price is $6.60 USD and was converted at the period end date to arrive at $8.84 CAD. |
28
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 12. | SHARE CAPITAL (cont’d) |
| (e) | Share purchase warrants |
A summary of the Company’s warrant activity is as follows:
| (i) | On June 23, 2020 the Company issued 10,897 share purchase warrants at an exercise price of $43.50 with an expiry of June 23, 2021. | |
| (ii) | On July 28, 2020 the Company issued 74,138 share purchase warrants at an exercise price of $26.10 with an expiry date of July 28, 2022. | |
| (iii) | On September 29, 2020 the Company issued 2,100,000 share purchase warrants at an exercise price of $6.89 USD (estimated at $9.22 CAD) with an expiry date of September 28, 2025. | |
| (iv) |
| Number of warrants | Weighted average exercise price | |||||||
| Outstanding, December 31, 2018 | 149,674 | 81.00 | ||||||
| Granted | 80,110 | 73.00 | ||||||
| Exercised | (80,865 | ) | 73.00 | |||||
| Expired | (36,920 | ) | 97.00 | |||||
| Outstanding, December 31, 2019 | 111,999 | 76.70 | ||||||
| Granted | 2,185,035 | 9.95 | ||||||
| Exercised | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding, September 30, 2020 | 2,297,034 | $ | 13.21 | |||||
At September 30, 2020, share purchase warrants outstanding and exercisable are as follows:
| Grant Date | Number of Warrants outstanding and exercisable | Exercise Price | Expiry date | |||||||
| 24-Dec-18 | 31,888 | $ | 87.00 | 24-Dec-21 | ||||||
| 29-Aug-19 | 25,863 | $ | 87.00 | 29-Aug-21 | ||||||
| 23-Dec-19 | 54,248 | $ | 65.25 | 23-Dec-22 | ||||||
| 23-Jun-20 | 10,897 | 43.50 | 23-Jun-21 | |||||||
| July 28, 2020 | 74,138 | $ | 26.10 | 28-Jul-22 | ||||||
| September 29, 2020 | 2,100,000 | $ | 9.21 | 28-Sep-25 | ||||||
29
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 13. | COST OF SALES |
| For the three months ending | For the nine months ending | |||||||||||||||
(in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||||||||
| Materials and merchandise | $ | 1,449 | $ | 2,377 | $ | 3,536 | $ | 5,163 | ||||||||
| Royalties | 147 | 93 | 338 | 279 | ||||||||||||
| Other expenses | 307 | 320 | 847 | 774 | ||||||||||||
| Change in inventory | 144 | 669 | 1,375 | 902 | ||||||||||||
| Total | $ | 2,047 | $ | 3,459 | $ | 6,096 | $ | 7,118 | ||||||||
| 14. | SELLING AND MARKETING EXPENSES |
| For the three months ending | For the nine months ending | |||||||||||||||
| (in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||||||||
| Salaries and related expenses | $ | 411 | $ | 480 | $ | 1,668 | $ | 1,340 | ||||||||
| Advertising and marketing | 948 | 672 | 1,606 | 2,295 | ||||||||||||
| Travel and conferences | 8 | 113 | 204 | 335 | ||||||||||||
| Total | $ | 1,367 | $ | 1,265 | $ | 3,478 | $ | 3,970 | ||||||||
| 15. | GENERAL AND ADMINISTRATIVE EXPENSES |
| For the three months ending | For the nine months ending | |||||||||||||||
(in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||||||||
| Salaries and related expenses | $ | 49 | $ | 57 | $ | 179 | $ | 207 | ||||||||
| Professional services | 37 | 22 | 285 | 97 | ||||||||||||
| Consulting and director fees | 583 | 412 | 946 | 778 | ||||||||||||
| Management fees | 13 | 34 | 134 | 184 | ||||||||||||
| Travel | 13 | 40 | 50 | 100 | ||||||||||||
| Office and general | 50 | 46 | 226 | 131 | ||||||||||||
| Regulatory and filing fees | 16 | 10 | 84 | 26 | ||||||||||||
| Shareholder relations | 18 | 38 | 100 | 154 | ||||||||||||
| Total | $ | 779 | $ | 659 | $ | 2,004 | $ | 1,677 | ||||||||
30
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 16. | INCOME TAXES |
The reconciliation of income taxes at statutory rates is as follows:
| September 30, 2020 | December 31, 2019 | |||||||
| Net loss before taxes | $ | 4,945,612 | $ | 10,160,351 | ||||
| Expected income tax (recovery) | (1,335,000 | ) | (2,743,000 | ) | ||||
| Impact of difference in statutory tax rates on earnings of subsidiaries | 43,000 | 89,000 | ||||||
| Impact of future income tax rates applied versus current statutory rate and changes in future tax rate from prior year | - | - | ||||||
| Permanent differences | 200,000 | 410,000 | ||||||
| Unrecognized (recognized) benefit of operating loss carry-forwards | 1,049,000 | 2,156,000 | ||||||
| Impact of convertible debenture | 328,000 | 142,000 | ||||||
| Share issue costs and transaction costs | (355,000 | ) | (66,000 | ) | ||||
| Adjustment to prior years provision versus statutory tax returns and expiry of non-capital losses | 70,000 | 12,000 | ||||||
| Total income tax expense (recovery) | $ | - | $ | - | ||||
| Current income tax | $ | - | $ | - | ||||
| Deferred tax recovery | $ | - | $ | - | ||||
The significant components of the Company’s deductible temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:
| 2020 | Expiry Date Range | 2019 | Expiry Date Range | |||||||||
| Temporary Differences | ||||||||||||
| Property, plant, and equipment and intangibles | 3,729,000 | No expiry date | 2,002,000 | No expiry date | ||||||||
| Share issue costs and transaction costs for convertible note | - | No expiry date | 1,787,000 | No expiry date | ||||||||
| Allowable capital losses | 50,000 | No expiry date | 50,000 | No expiry date | ||||||||
| Non-capital losses available for future period | 31.841,000 | See below | 26,895,000 | See below | ||||||||
The Company has approximately $31,841,000 (2019 - $26,895,000) of operating tax loss carry-forwards. Of these, $14.6 million arise from Israel (2019 - $13.7 million) which do not expire, and the remaining balance arise from Canada which expire through to 2039.
31
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 17. | CAPITAL MANAGEMENT |
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Company defines capital as consisting of shareholder’s equity. The Company’s objectives when managing capital are to support the creation of shareholder value, as well as to ensure that the Company is able to meet its financial obligations as they become due.
The Company manages its capital structure to maximize its financial flexibility making adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital, but rather relies on the expertise of the Company’s management to sustain the future development of the business. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
As at September 30, 2020, the Company is only subject to externally imposed capital requirements arising from the quarterly payments of interest on the debenture as described in Note 10, and the monthly principal and interest payments from the BDC loan described in Note 9. SMI is also subject to a debt covenant in relation to the factoring agreement described in Note 4. At no time during the year was the Company in breach of the covenant.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
| 18. | FINANCIAL INSTRUMENTS |
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values.
Financial instruments measured at fair value are classified into three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly;
Level 3 – Inputs that are not based on observable market data.
The fair values of the Company’s cash, trade and other receivables, due to/from related party, accounts payable and accrued liabilities, long term debt, and convertible debentures approximate carrying value, which is the amount recorded on the consolidated interim statement of financial position.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company places its cash with institutions of high credit worthiness. Management has assessed there to be a low level of credit risk associated with its cash balances.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Approximately 17% of the Company’s revenue for the nine- month period ended September 30, 2020 (year to date ended September 30, 2019 -24%) is attributable to sales transactions with a single customer.
32
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 18. | FINANCIAL INSTRUMENTS (cont’d) |
Credit risk (cont’d)
The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.
More than 80% of the Company’s customers have been active with the Company for over four years, and no impairment loss has been recognized against these customers. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Trade and other receivables relate mainly to the Company’s wholesale customers. Customers that are graded as “high risk” are placed on a restricted customer list and monitored by the Company, and future sales are made on a prepayment basis.
The carrying amount of financial assets represents the maximum credit exposure, notwithstanding the carrying amount of security or any other credit enhancements.
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was as follows:
(in thousands) | September 30, | December 31,
| ||||||
| EMEA | $ | 1,692 | $ | 793 | ||||
| North America | 3,669 | 1,151 | ||||||
| Total | $ | 5,361 | $ | 1,944 | ||||
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
The Company examines current forecasts of its liquidity requirements so as to make certain that there is sufficient cash for its operating needs, and it is careful at all times to have enough unused credit facilities so that the Company does not exceed its credit limits and is in compliance with its financial covenants (if any). These forecasts take into consideration matters such as the Company’s plan to use debt for financing its activity, compliance with required financial covenants, compliance with certain liquidity ratios, and compliance with external requirements such as laws or regulation.
33
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 18. | FINANCIAL INSTRUMENTS (cont’d) |
Liquidity risk (cont’d)
The Company uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
The Company has a factoring agreement with external funding (Note 4).
With the exception of employee benefits, the Company’s accounts payable and accrued liabilities have contractual terms of 90 days. The employment benefits included in accrued liabilities have variable maturities within the coming year.
Market risk
| a) | Currency Risk |
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The functional currency of Siyata Israel is the US dollar (“USD”). Revenues are predominantly incurred in the US dollar with expenses in the Israeli New Sheqel (“NIS”). As at June 30, 2020 the Company’s exposure to foreign currency risk with respect to financial instruments is as follows:
| (in CAD thousands) | USD | NIS | CAD | Total | ||||||||||||
| Financial assets and financial liabilities: | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash | 14,159 | 42 | 431 | 14,632 | ||||||||||||
| Trade and other receivables | 2,667 | 1,362 | 1,332 | 5,361 | ||||||||||||
| Due from director | 286 | - | - | 286 | ||||||||||||
| Current liabilities | ||||||||||||||||
| Bank loan | (840 | ) | - | - | (840 | ) | ||||||||||
| Accounts payable and accrued liabilities | (3,179 | ) | (97 | ) | (1,249 | ) | (4,525 | ) | ||||||||
| Due to related party | (77 | ) | - | - | (77 | ) | ||||||||||
| Convertible debentures | (7,504 | ) | (7,504 | ) | ||||||||||||
| Long term debt | - | - | (156 | ) | (156 | ) | ||||||||||
| Total | 13,016 | 1,307 | (7,146 | ) | 7,177 | |||||||||||
34
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 18. | FINANCIAL INSTRUMENTS (cont’d) |
Market risk (cont’d)
| b) | Interest Rate Risk |
Interest rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in interest rates. The Company’s sensitively to interest rates is limited to the BDC loan, and is therefore currently immaterial as the rest of the Company’s debt bears interest at fixed rates.
| c) | Price Risk |
The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
| 19. | RELATED PARTY TRANSACTIONS |
Key Personnel Compensation
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of executive and non-executive members of the Company’s Board of Directors and corporate officers. The remuneration of directors and key management personnel for the six months ended June 30, 2020 and 2019 are as follows:
| 2020 | 2019 | |||||||
| Payments to key management personnel: | ||||||||
| Salaries, consulting and directors’ fees | $ | 745,679 | $ | 902,207 | ||||
| Share-based payments | 124,020 | 815,334 | ||||||
| Total | $ | 869,699 | $ | 1,717,541 | ||||
Other related party transactions are as follows:
| (in thousands) | ||||||||||
| Type of Service | Nature of Relationship | 2020 | 2019 | |||||||
| Selling and marketing expenses | VP Technology | 90 | 124 | |||||||
| General and administrative expense | Companies controlled by the CEO, CFO and Directors | 655 | 778 | |||||||
35
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 19. | RELATED PARTY TRANSACTIONS (cont’d) |
Loan to Director
On April 1, 2019 the Company loaned to a Director $200,000 USD. This loan is for a term of 5 years with interest charged at rate of 7% per annum payable quarterly. As of January 1, 2020, the interest rate on the loan has been increased to 12% per annum. There are no capital repayment requirements until the end of the term when a balloon payment of the principal balance is required.
Balances and transactions with Accel Telecom Ltd.
The Company had a management agreement with a related company, Accel Telecom Ltd. (“Accel”). As part of the agreement, the Company paid Accel $US 11,000 per month for management services (including services related to finance, general operations, insurance, administration, and other). For the six months ended 2020, the management fee was $89,462 CDN (year ended December 31, 2019 totalled $170,000 CDN).
Included in due to related party as at September 30, 2020 is a balance payable to Accel of $77,483 (December 31, 2019 - balance payable to Accel of $100,079). The balance is non-interest bearing.
Accel Telecom Ltd. acquired $1,330,000 of face value of 9,172 convertible debentures on June 23, 2020 bear interest at the rate of 10% per annum payable quarterly, that mature on June 23, 2021. Included with these debentures were 9,172 share purchase warrants with a strike price of $43.50 per common share that expire on June 23, 2021.
| 20. | SEGMENTED INFORMATION |
The Company is domiciled in Canada and it operates and produces its income primarily in Israel, Europe and North America.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of the customers and is as follows:
| External Revenues (in thousands) | September 30, 2020 | September 30, 2019 | ||||||
| EMEA | $ | 3,456 | $ | 6,276 | ||||
| USA | 2,955 | 2,163 | ||||||
| Canada | 2,178 | 1,503 | ||||||
| Australia and New Zealand | 441 | 144 4 | ||||||
| Total | $ | 9,030 | $ | 10,086 | ||||
| 21. | MAJOR CUSTOMERS |
Revenues from three customers of the Company for the nine months ended September 30, 2020 represent approximately $3,455,000 or 38% of the Company’s total revenues (year to date period ended September30, 2019 is five customers representing $6,055,000 or 60% of total revenues).
36
Siyata Mobile Inc.
Notes to the Consolidated Interim Financial Statements
(Unaudited-Prepared by Management)
(Expressed in Canadian dollars)
As at and for the three and nine months ended September 30, 2020 and 2019
| 22. | SUPPLEMENTAL INFORMATION WITH RESPECT TO CASH FLOWS |
During the nine months ended September 30, 2020, the Company paid $821,061 (September 30, 2019 - $262,250) in interest and $Nil (September 30, 2019 - $Nil) in income taxes.
During the nine months ended September 30, 2020 the Company incurred the following non-cash investing or financing activities:
| a) | Reclassified $75,000 from convertible debenture to share capital as the result of a conversion of $75,000 of debentures inti 1,149 shares during the period., |
| b) | Recognized $873,283 of accretion of the convertible debentures, classified $72,000 of long-term debt, $157,066 of lease obligations and $1,514,230 of convertible debentures all as current liabilities. |
| 23. | SUBSEQUENT EVENTS |
| (a) | The Company, at its own request, delisted their common shares from the TSX.V as of the end of trading on October19, 2020. | |
| (b) | The underwriter exercised their over-allotment by purchasing 266,000 warrants at $0.01 USD per warrant for gross proceeds of $2,660 USD. These warrants are exercisable at $6.89 USD per share and expire five years from the date of issue and were tradeable when issued. | |
| (c) | The underwriter exercised in two tranches a portion of the over-allotment by purchasing 170,000 common shares at $5.99 USD per common share for gross proceeds of $1,018,300 USD. | |
| (d) | On November 15, 2020 the Company issued 276,500 stock options to Directors, officers and key employees. The options were issued at an exercise price of $6.00 USD per option. 95,000 options expire on November 14, 2030 and the balance expire on November 14, 2025. |
37
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
AS AT NOVEMBER 30, 2020
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
November 30, 2020
Management’s Responsibility for Financial Reporting
The following Management Discussion and Analysis (“MD&A”) reports on the operating results, financial condition and business risks of Siyata Mobile Inc. (formerly Teslin River Resources Corp.) (“Siyata” or the “Company”) and is designed to help the reader understand the results of operations and financial condition of the Company for the three and nine months ended September 30, 2020. This MD&A should be read in conjunction with the Company’s audited consolidated financial statements for the years ended December 31, 2019 and 2018 and the notes thereto (collectively the “Financial Statements”) which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”). Other information contained in these documents has also been prepared by management and is consistent with the data contained in the Financial Statements. All dollar amounts referred to in this MD&A are expressed in Canadian dollars except where indicated otherwise.
The Company’s certifying officers, based on their knowledge, having exercised reasonable diligence, are also responsible to ensure that these filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by these filings. These Financial Statements together with the other financial information included in these filings fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the years presented in this filing. The Board of Directors approves the Financial Statements and MD&A and ensures that management has discharged its financial responsibilities. The Board’s review is accomplished principally through the Audit Committee, which meets periodically to review all financial reports, prior to filing.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This MD&A includes "forward-looking statements", within the meaning of applicable securities legislation, which are based on the opinions and estimates of management and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words suggesting future outcomes or statements regarding an outlook. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. These forward looking statements include but are not limited to statements concerning:
| ● | The Company’s strategies and objectives | |
| ● | The Company’s other financial operating objectives |
2
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION (CONT’D…)
| ● | The availability of qualified employees for business operations |
| ● | General business and economic conditions |
| ● | The Company’s ability to meet its financial obligations as they become due |
| ● | The positive cash flows and financial viability of its operations and new business opportunities |
| ● | The Company’s ability to manage growth with respect to its operations and new business opportunities |
| ● | The Company’s tax position, anticipated tax refunds and the tax rates applicable to the Company |
Readers are cautioned that the preceding list of risks, uncertainties, assumptions and other factors are not exhaustive. Events or circumstances could cause actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. The forward-looking statements contained in this document are made as of the date of this MD&A.
CORPORATE Overview
Siyata Mobile Inc. is a leading global developer of innovative cellular based communications solutions over advanced 4G mobile networks under the Uniden® Cellular and Siyata brands. Siyata’s three product categories include In-Vehicle communications solutions for commercial fleet vehicles, rugged handheld mobile devices for industrial workers, and cellular amplifiers to boost the cellular signal inside homes, buildings, and vehicles.
Siyata In-Vehicle communications devices are specifically designed for professional vehicles such as trucks, vans, buses, emergency service vehicles and other enterprise vehicles. The Company’s innovative platform is designed to facilitate replacement of the current in-vehicle, multi-device status quo with a single device (the flagship Uniden® UV350 4G device) that incorporates voice, Push-to-Talk over Cellular (“PoC”), data fleet management solutions and other Android based professional applications. The UV350 also supports Band 14 for FirstNet compatibility which is the U.S. First Responders 4G LTE network with PoC capabilities that aims to replace aging two-way radio systems currently in use.
Siyata’s customer base includes cellular network operators and their dealers, as well as commercial vehicle technology distributors for fleets of all sizes in the U.S., Canada, Europe, Australia and the Middle East.
Siyata launched its flagship 4G UV350 commercial vehicle smartphone device at Bell Mobility in late Q4 2018, at AT&T as well as at their first responder cellular network FirstNet in late Q2 and with Rogers Wireless and Verizon Wireless in Q4 2019. These are major milestones for the Company following Siyata’s seven years of experience perfecting in-vehicle cellular based technology, vehicle installations, software integration with various Push-to-Talk (PTT) solutions and intensive carrier certifications.
3
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
CORPORATE Overview (CONT’d…)
The two U.S Tier 1 cellular carriers that Siyata are working with have distribution and sales channels many times larger than the existing sales channels of the Company. With an estimated 20 million commercial vehicles including 3.5 million first responder vehicles, the Company sees the U.S market as its largest opportunity with a total addressable market over $20 billion USD. These Tier 1 cellular carriers have a keen interest in launching the UV350 as it allows for new SIM card activations in commercial vehicles and increased ARPU from existing customers with corporate and first responder fleets while targeting new customers with a unique, dedicated, multi-purpose in-vehicle smartphone.
In Q1 2020 Siyata Mobile Inc. signed a supply agreement with a leading global Land Mobile Radio (“LMR”) provider as an additional major channel for sales of the UV350.
Siyata launched the innovative CP250 tablet/DVR connected vehicle 4G device, which is built for cellular voice calls, Push-to-Talk Over Cellular (“PoC”), data, and navigation with a built-in DVR camera and more. This device was designed to be installed on the dash or mounted on a windshield, specifically for lighter commercial vehicles such as taxis, vans and delivery trucks. The 5” wide screen display tablet-based design ensures better communication capabilities for professional drivers. Sales of the CP250 device are focused in Europe, Australia and the Middle East.
In addition to its connected vehicle product portfolio, the Company develops, manufactures, markets, and sells 4G/LTE rugged handheld Push to Talk smartphone devices for industrial users. These rugged B2B environments are focused towards similar enterprise customers that Siyata sells its connected vehicle devices to and include first responders, construction workers, security guards, government agencies and various mobile workers in multiple industries.
Siyata also manufactures, markets, and sells Uniden® cellular signal boosters and accessories for homes, buildings, manufacturing facilities and vehicles with poor cell coverage across Canada and the United States. The vehicle vertical in this portfolio well complements the UV350 vehicle smartphone as the company begins to get sales of the UV350 bundled with its Uniden vehicle boosters.
As of September 25, 2020 the Company is listed on the NASDAQ CAPITAL MARKETS (“NASDAQ”) under the symbol SYTA for its common shares and the Company’s warrants issued at $6.85USD and expire in 5 years trade under the symbol SYTAW.
The registered and records office is located at 2200 - 885 West Georgia Street, Vancouver, BC V6C 3E8.
4
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
SIGNIFICANT HIGHLIGHTS
The following highlights and developments for the three months ended September 30, 2020 and to the date of this MD&A:
| ● | Siyata consolidated the common shares of the Company (each, a “Share”) on the basis of 145 pre-consolidation Shares for one (1) post-consolidation Share (the “Consolidation”). The Consolidation became effective at the close of market on September 24, 2020 and the post-consolidated Shares commenced trading at the open of the market on Friday September 25th. The new CUSIP number is 83013Q509; |
| ● | Siyata began trading on the NASDAQ stock exchange as of September 25, 2020 under the symbol SYTA; |
| ● | Siyata delisted from the OTCQX market as of the end of trading on September 24, 2020; |
| ● | Siyata raised $12.6mm USD in conjunction with its NASDAQ uplisting; |
| ● | Siyata launched the new “Uniden® Hero Series” line of cellular signal boosters dedicated to first responders in the USA. |
| ● | Siyata entered into a distribution agreement for its Uniden® UV350 with Source Inc., a wireless integrator and part of the Verizon Elite Partner Program that focuses on Verizon sales and activations in the United States. |
| ● | Siyata entered into an agreement with Insight, a NASDAQ listed Fortune 500 US distribution company offering innovative solutions to support the modern workforce by simplifying device management for distribution of the Company’s cellular booster line of business. |
| ● | Siyata aligned with Vive Wireless, an Authorized Wireless Bell Dealer in Canada, to engage in multiple opportunities for the Uniden UV350 in conjunction with an initial purchase order from a leading Canadian construction company through Vive Wireless. |
| ● | Siyata announced the appointment of Nicholas Yaeger as VP of Sales for the Company’s Verizon account; |
| ● | Siyata received a $600,000 purchase order for its 4G/LTE UR5 device from a customer in the Middle East. This device will mainly be used for enterprise workers who require a cost-effective rugged Push-to-Talk (PTT) device. |
| ● | Siyata entered into a new alliance with Hyperion Partners, a leading master agent that specializes in mobility across all national US wireless carriers. |
5
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
SIGNIFICANT HIGHLIGHTS (Cont’d…)
Licensing Agreement with Uniden® America Corp
Siyata Mobile has exclusive rights in North America to market and distribute their innovative devices under the Uniden® brand in categories of cellular amplifiers, connected vehicle cellular devices and rugged cellular products. Uniden brings strong brand recognition for Siyata’s devices and introduces a more unified brand to the current dealers, operators and future customers in North America.
Licensing Agreement with Via Licensing
Siyata Mobile Inc. has been granted a license for its cellular devices from the patent holder, Via Licensing Corporation for the rights to the LTE patent portfolio worldwide. Siyata Mobile Inc. has also been granted a license patent from the patent holder, Via Licensing Corporation for the rights to the advanced coding of audio information patent, known as “AAC” worldwide.
Licensing Agreement with Wilson Electronics, LLC
Siyata Mobile Inc. has been granted a license patent for its cellular booster portfolio of products from Wilson Electronics, LLC, for the rights to the cellular booster technology on a worldwide basis.
Licensing Agreement with Ozmo Licensing, LLC
Siyata Mobile Inc. has been granted a license patent for its cellular phone portfolio of products from Ozmo Licensing, LLC for the rights to the Wi-Fi Direct Standards in the United States.
Financing Initiatives
| ● | On September 29, 2020 Siyata completed an initial public offering of 2,100,000 Units at $6.00 USD per unit for gross proceeds of $12,600,00 USD. Each Unit consisting of one Common Share and one warrant to purchase one Common Share. Each warrant will have an exercise price of $6.85 USD per share, is exercisable immediately and will expire five (5) years from the date of issuance. The Common Shares and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering. |
| ● | On August 4, 2020, Siyata completed a two part non-brokered private placement raising aggregate gross proceeds of $2,150,000 CAD through the issuance of 148,276 units at a price of $14.50 CAD per unit. Each Unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole Warrant is exercisable at a price of $26.10 CAD for a period of two years. The Company paid a cash commission of $24,681.60 CAD and issued 1,702 broker warrants on the same terms as the Warrants. |
6
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
SIGNIFICANT HIGHLIGHTS (Cont’d…)
SUBSEQUENT EVENTS
Subsequent to September 30th, 2020:
Siyata announced the appointment of LaRue Martz as U.S. VP Sales for the Company’s Uniden® cellular signal booster portfolio. Mr. Martz’s 20 years of experience working with AT&T and most recently as Director of Sales at Nextivity, has yielded significant new, large scale opportunities to bring the Company’s cellular booster portfolio into the United States.
Siyata announced a collaboration with Fleet Complete for FirstNet to help enhance fleet management and communications solutions for school bus transportation safety within the U.S.
Siyata announced a partnership with OnTech Smart Services to bring installation services to our full range of Uniden® cellular signal boosters throughout the U.S.
Siyata entered into a distribution agreement with pei tel Communications GmbH, a distributor based in Germany, for our UV350, for distribution into Germany, Austria, Switzerland, Belgium, Netherlands and Luxembourg.
OUTLOOK
The Company is a global developer and provider of a vehicle mounted communications platform over advanced mobile networks. Customers include cellular operators and their dealers, commercial vehicle technology distributors and fleets of all sizes in Canada, Europe, Australia and the Middle East. The Company’s “Connected-Vehicle” devices and various accessories are specifically designed for enterprise customers and professional fleets such as trucks, vans, buses, ambulances, government cars and more. The Company aims to provide greater mobile connectivity for professional drivers and facilitate replacement of the current in-vehicle, multi device status quo with a single device that incorporates voice, data and fleet management solutions with the new suite of 4G UV350 and UV250 products. In addition, the Company develops, markets and sells rugged Push to Talk mobile devices, cellular amplifiers and various accessories for both consumer and enterprise customers with sales across North America, Europe and the Middle East to multiple retailers, distributors and cellular dealers.
Siyata has continued to lay the foundation for greater distribution with expanded partnerships, key new sale hires and expanded product offerings into North America.
Siyata received device approval for its Uniden® UV350 from AT&T, Verizon and FirstNet in the U.S. as well as at Tier 1 Canadian carriers, Bell Mobility and Rogers Wireless. Siyata offers a complete product offering including the UV350 device and multiple accessory peripherals as well as integration with multiple fleet applications which has resulted in initial purchase orders in the USA and Canada.
Over 20 million commercial and first responder vehicles in North America represents a multi-billion-dollar opportunity for Siyata which it plans to continue to aggressively target . In addition, Siyata is working closely with Motorola’s Push to Talk software subsidiary Kodiak. The Company already launched the UV350 in partnership with Motorola and plans to sell this device to multiple Kodiak partners in North America and globally. Siyata’s management believes that these key partnerships have unlocked large scale sales opportunities for its products which it expects will continue over the coming years and will also result in a paradigm shift in our revenue base to predominantly the North American market.
7
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
SUMMARY OF QUARTERLY RESULTS
| 3rd Quarter Ended Sept 30, 2020 | 2nd
Quarter Ended June 30, 2020 | 1st Quarter Ended Mar 31, 2020 | 4th Quarter Ended Dec 31, 2019 | |||||||||||||
| Income/(loss) | $ | (2,506,798 | ) | $ | (869,028 | ) | $ | (1,569,786 | ) | $ | (4,303,984 | ) | ||||
| Comprehensive income/(loss) for the period | $ | (2,558,421 | ) | $ | (2,362,203 | ) | $ | (439,925 | ) | $ | (4,703,037 | ) | ||||
| Loss per share | $ | (2.56 | ) | $ | (1.01 | ) | $ | (1.99 | ) | $ | (5.00 | ) | ||||
| 3rd Quarter Ended Sept 30, 2019 | 2nd Quarter Ended Jun 30, 2019 | 1st Quarter Ended Mar 31, 2019 | 4th Quarter Ended Dec 31, 2018 | |||||||||||||
| Income/(loss) | $ | (1,293,550 | ) | $ | (2,407,376 | ) | $ | (2,155,441 | ) | $ | (8,664,631 | ) | ||||
| Comprehensive income/(loss) for the period | $ | (921,849 | ) | $ | (2,621,427 | ) | $ | (2,299,259 | ) | $ | (7,748,589 | ) | ||||
| Loss per share | $ | (1.55 | ) | $ | (3.00 | ) | $ | (2.93 | ) | $ | (12.81 | ) | ||||
8
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2020
The following is an analysis of the Company’s operating results for the three months ended September 30, 2020 and includes a comparison against the three months ended September 30, 2019.
Operations:
Revenues for the three months ended September 30, 2020 were $3,013,957 compared to $5,045,947 for the same period in the previous year. This negative variance of $2,031,990 (40.3%) is due mainly to the delay in customer budget approvals due to Covid that we expect will only delay, not cancel potential sales of our products in North America. In addition, certain EMEA government contracts have historically been a strong market for Siyata and since a certain government has not approved its annual budget, this resulted in delayed contracts and sales to this market. Included in the North American figures are booster sales which increased in Q3 2020 over Q3 2019 by 33%.
Cost of sales for the three months ended September 30, 2020 were $2,047,2766 compared to $3,458,662 for the same period in the previous year. The gross margin dollars for this period was positive $966,681 (32.1% of sales) compared to $1,587,285 (31.5% of sales in the same period in the previous year) a negative variance of $620,604. The decrease in gross margin dollars is mainly due to the reduced sales volume resulting from North American sales and EMEA timing of sales.
Amortization and depreciation costs for the three months ended September 30, 2020 was $455,982 compared to $245,932 for the same period in the previous year. The negative variance of $210,050 relates mainly due to increase in amortization of the UV350 included in the intangible assets of $137,095 and the IFRS-16 amortization of $72,955 in Q3 2020 versus zero in Q3 2019.
Selling and marketing costs for the three months ended September 30, 2020 were $1,367,288 compared to $1,264,907 for the same period in the previous year. This negative variance of $102,381 is due mainly to the increase of 4 additional sales people in the North American market and offset by the decrease in travel and tradeshow expenses for the quarter.
General and administrative costs for the three months ended September 30, 2020 of $778,491 compared to $659,488 for the same period in the previous year. This negative variance of $119,003 relates mainly to the increase in consulting fees and professional fees required for the company to be prepared for the IPO that took place in the quarter offset by the decrease in travel and management fees.
Share-based payments for the three months ended September 30, 2020 was $61,462 compared to $233,732 for the same period in the previous year, a positive variance of $172,270. This variance relates to the valuation of stock options vested during the period.
Finance expenses for the three months ended September 30, 2020 was $645,673 compared to an expense of $252,397 for the same period in the previous year for a negative variance of $393,276. This variance consists mainly of the accretion of interest on the debenture debt as well as the increase in interest paid and accrued on the overall increase in debenture debt in the period.
9
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2020 (CONT’D…)
Foreign exchange loss (income) for the three months ended September 30, 2020 of $164,583 compared to an expense of $224,379 for the same period in the previous year for a positive variance of $59,796. This variance resulted from foreign currency fluctuations in the period.
Net loss for the period
The Company experienced a net loss for the three-month period ended September 30, 2020 of ($2,506,798) as compared to net loss of ($1,293,550) for the same period in the previous year representing a negative variance of $1,213,248. This negative variance is due mainly to negative variances in gross margin of $620,604, amortization of $210,050, selling expenses of $102,381, G&A of $119,003 and finance expenses of $393,276 offset by the decrease in share based compensation of $172,270, foreign exchange of $59,796 and share based compensation of $172,270.
Loss and comprehensive loss for the period
As a result of the activities discussed above, the Company experienced a comprehensive loss for the three months ended September 30, 2020 of ($2,558,421) as compared to a comprehensive loss of ($921,849) for the same period in the previous year representing a negative variance of $1,636,572.
Adjusted EBITDA
For the three months ended September 30, 2020 the adjusted EBITDA is negative ($1,179,098) versus negative ($337,110)) in the same period in 2019, a negative variance of $841,988. Adjusted EBITDA is defined as the EBITDA plus share-based compensation expense.
10
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2020
The following is an analysis of the Company’s operating results for the nine months ended September 30, 2020 and includes a comparison against the nine months ended September 30, 2019.
Operations:
Revenues for the nine months ended September 30, 2020 were $9,030,208 compared to $10,086,347 for the same period in the previous year. This negative variance of $1,056,139 (10.5%) is due mainly to the decrease in sales in EMEA of $2.8MM for the year to date offset by the increase in revenues from North American of the Uniden® UV350 4G in North America as a direct result of certification with Tier One mobile operators of $1.5MM and the increase in sales in Australia of $300K. Booster sales increased by 22% 2020 year to date over 2019 year to date. The decrease in sales in the EMEA is due to Siyata’s government contract tenders have been delayed since that country’s national budgets have not been approved by their government resulting in a temporary delay in those sales until the budgeted are approved so that the necessary funds can be released for these government tenders. As a result the geographic mix of North American sales is 57% of total sales in YTD Q3 2020 versus 36% in YTD Q3 2019.
Cost of sales for the nine months ended September 30, 2020 were $6,095,943 compared to $7,117,822 for the same period in the previous year. The gross margin dollars for this year to date was $2,934,265 (32.5% of sales) compared to $2,968,525 (29.4% of sales in the previous year) a positive variance in gross margin percentage and a negative variance of $34,260 in gross margin dollars. The marginal decrease in gross margin dollars is attributable to the 10.5% decrease in sales for the period, offset by the increased margins from 32.5% from 29.4% due to the increase in demand for both our ruggedized Uniden® UV350 4G In-vehicle suite of products in North America as a direct result of certification with Tier One mobile operators as well as the 22% increase in sales in our booster business. As well due to the decease in sales as previously mentioned in EMEA, Siyata’s gross margin percentage has increased as our product suite in North America has yielded historically stronger margins.
Amortization and depreciation costs for the nine months ended September 30, 2020 was $1,312,464 compared to $738,559 for the same period in the previous year. The negative variance of $573,905 relates mainly due to increase in amortization of the UV350 included in the intangible assets of $425,318 and the IFRS-16 amortization of $148,587in 2020 versus zero in 2019.
Selling and marketing costs for the nine months ended September 30, 2020 were $3,477,556 compared to $3,969,703 for the same period in the previous year. This positive variance of $492,147 is due mainly to the reduction in advertising and marketing costs by leveraging carrier sales staff and the decrease in travel and tradeshow expenses offset by the $328K increase in our US sales team headcount in the year.
11
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 (CONT’D…)
General and administrative costs for the nine months ended September 30, 2020 of $2,003,860 compared to $1,677,475 for the same period in the previous year. This negative variance of $326,385 relates mainly to the increase in consulting and professional fees for the IPO and the increase in office and general expenses, offset by drop in investor relations, travel and other management fees.
Share-based payments for the nine months ended September 30, 2020 was $274,068 compared to $1,304,590 for the same period in the previous year, a positive variance of $1,030,522. This variance relates to the valuation of stock options vested during the period.
Finance expenses for the nine months ended September 30, 2020 was $1,890,540 compared to an expense of $767,156 for the same period in the previous year for a negative variance of $1,123,384. This variance consists mainly of the increase in the accretion of interest on the debenture debt of $543K as well as the increase in the debenture interest for 9 months which in 2019 was at 10.5% on $4,600,000, versus 12% interest on $7,866,000 for nine months which is a negative variance of $425K, the interest and accretive interest of $60K on the $1,580,000 convertible debenture, lease liability interest expense of $10K plus the increase in interest paid on the lines of credit and factoring agreements.
Foreign exchange loss (income) for the nine months ended September 30, 2020 of income of ($1,078,611) compared to an expense of $337,409 for the same period in the previous year for a positive variance of $1,416,020. This variance resulted from foreign currency fluctuations in the period.
Accretion and change in value of future contingent consideration resulted in an expense for the nine months ended September 30, 2020 of $0 versus an expense of $30,000 for the same period in 2019, a positive variance of $30,000 and relates to 2020 the future purchase considerations were all extinguished.
Net loss for the period
The Company experienced a net loss for the nine-month period ended September 30, 2020 of ($4,945,612) as compared to net loss of ($5,842,535) for the same period in the previous year representing a positive variance of $910,755. This positive variance is due mainly to positive variances in, selling expenses of $492,147, share based compensation of $1,030,522, foreign exchange of $1,416,020, and accretion of contingent consideration of $30,000, reduced by negative variances in gross margin of $34,260, amortization of $573,905, general and administrative expenses of $326,385 and the financing expenses of $1,123,384.
Loss and comprehensive loss for the period
As a result of the activities discussed above, the Company experienced a comprehensive loss for the nine months ended September 30, 2020 of ($5,360,549) as compared to a comprehensive loss of ($5,842,535) for the same period in the previous year representing a positive variance of $481,986.
12
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 (CONT’D…)
Adjusted EBITDA
For the nine months ended September 30, 2020 the adjusted EBITDA is negative ($2,547,151) versus negative ($2,678,653) in the same period in 2019, a positive variance of $131,502. Adjusted EBITDA is defined as the EBITDA plus share-based compensation expense.
Risks and Uncertainties
Ongoing Need for Financing/Possible Dilution to Present and Prospective Shareholders
It is intended that the Company will continue to make investments to support business growth and may require additional funds to respond to business challenges, including the need to develop new products and services or enhance existing products and services, enhance operating infrastructure and acquire complementary businesses and technologies. Accordingly, the Company may need to engage in equity or debt financings to secure additional funds. If additional funds are raised through further issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of Company’s shares. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, additional financing may not be available on favourable terms, if at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to them, when they require it, their ability to continue to support business growth and to respond to business challenges could be significantly limited. From time to time, the Company may enter into transactions to acquire the assets or shares of other corporations. These transactions may be financed wholly or partially with debt, which may temporarily increase the Company's debt levels above industry standards. The level of the Company's indebtedness from time to time could impair its ability to obtain additional financing in the future, on a timely basis, to take advantage of business opportunities that may arise.
Lack of Trading
The lack of trading volume of the Company’s shares reduces the liquidity of an investment in the Company’s shares.
Volatility of Share Price
Market prices for shares of companies on the NASDAQ and TSX.V are often volatile. Factors such as announcements of financial results, and other factors could have a significant effect on the price of the Company’s shares.
Lack of Dividend Policy
The Company does not presently intend to pay cash dividends in the foreseeable future, as any earnings are expected to be retained for use in developing and expanding its business. However, the actual amount of dividends received from the Company will remain subject to the discretion of the Company’s Board of Directors and will depend on results of operations, cash requirements and future prospects of the Company and other factors.
13
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
History of losses
The Company has a history of net losses, may incur net losses in the future and may not achieve or maintain profitability. The Company may not be able to achieve or maintain profitability and may continue to incur losses in the future. In addition, it is expected that the Company will continue to increase operating expenses as it implements initiatives to continue to grow its business. If the Company’s revenues do not increase to offset these expected increases in costs and operating expenses, the Company will not be profitable. If the Company is unable to attract new customers or to sell additional products to its existing customers, the Company’s revenue growth will be adversely affected.
Customers
To increase the Company’s revenues, it must regularly add new customers, sell additional products and/or services to existing customers and encourage existing customers to increase their minimum commitment levels. If the Company’s existing and prospective customers do not perceive the Company’s products to be of sufficiently high value and quality, the Company may not be able to attract new customers or increase sales to existing customers and its operating results will be adversely affected.
Quarterly Results
The Company’s quarterly results of operations may fluctuate as a result of a variety of factors, many of which are outside of its control. If the Company’s quarterly results of operations fall below the expectations of securities analysts or investors, the price of the Company's shares could decline substantially. Fluctuations in quarterly results of operations may be due to a number of factors, including, but not limited to, those listed below:
| ● | the Company’s ability to increase sales to existing customers and attract new customers; |
| ● | the addition or loss of large customers; |
| ● | the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of the Company’s business, operations and infrastructure; |
| ● | the timing and success of any new product/service introductions by the Company or its competitors; |
| ● | changes in the Company’s pricing policies or those of competitors; |
| ● | service outages or security breaches; |
| ● | the extent to which any of the Company’s significant customers terminate their service agreements; |
| ● | increasing competition; |
| ● | new advancement in technology; |
| ● | limitations of the capacity of the Company’s network and systems; |
| ● | the timing of costs related to the development or acquisition of technologies, products and services or businesses; |
| ● | delays in manufacturing or in component purchases; |
| ● | possible key component end of life; |
| ● | general economic, industry and market conditions; and |
| ● | geopolitical events such as war, threat of war or terrorist actions. |
The quarterly revenues and results of operations of the Company may vary significantly in the future and period-to-period comparisons of the Company’s operating results may not be meaningful.
14
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
Business Related Regulatory Matters
The operations carried on by the Company are subject to government legislation, policies and controls. The exercise of discretion by governmental authorities under existing regulations, the implementation of new regulations or the modification of existing regulations affecting the industry are beyond the control of the Company and could have a material adverse impact on the Company and its business.
Consumer's Personal Information
On behalf of its customers, the Company collects and uses anonymous and personal information and information derived from the activities of consumers. This enables the Company to provide its customers with anonymous or personally identifiable information from and about such consumers. Government bodies and agencies have adopted or are considering adopting laws regarding the collection, use and disclosure of this information. The Company’s compliance with privacy laws and regulations and its reputation among the public depend on its customers’ adherence to privacy laws and regulations and their use of the Company’s products in ways consistent with consumers’ expectations. The Company also relies on representations made to it by its customers that their own use of the Company’s products and the information the Company provides to them via its products and services do not violate any applicable privacy laws, rules and regulations or their own privacy policies. If these representations are false or if the Company’s customers do not otherwise comply with applicable privacy laws, the Company could face potential adverse publicity and possible legal or other regulatory action.
Competition
The Company competes in a rapidly evolving and highly competitive market. Some of the Company’s potential competitors have longer operating histories, greater name recognition, access to larger customer bases and substantially greater resources, including sales and marketing, financial and other resources. As a result, these competitors may be able to:
| ● | absorb costs associated with providing their products at a lower price; |
| ● | devote more resources to new customer acquisitions; |
| ● | respond to evolving market needs more quickly than the Company; and |
| ● | finance more research and development activities to develop better products. |
In addition, many of these companies may have pre-existing relationships with the Company’s current and potential customers. If the Company is not able to compete successfully against its current and future competitors, it will be difficult to acquire and retain customers, and the Company may experience limited revenue growth, reduced revenues and operating margins and loss of market share.
During Q2 2020, Motorola Solutions announced the launch of the TLK150, an In-Vehicle LTE cellular device designed solely for Push-to-Talk over Cellular. This device can only do PTT calls, it is not a Smartphone like our UV350 device and cannot download or run Android fleet apps or even make cellular phone calls. To our knowledge this device is not being offered by Motorola Solutions to wireless carriers and we do not believe carriers will be launching this product.
15
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (Cont’d…)
Technology Changes
The market for the Company’s products and services is characterized by rapid technological advances, changes in customer requirements, changes in protocols and evolving industry standards. If the Company is unable to develop enhancements to, and new features for, its existing products and services or acceptable new products and services that keep pace with rapid technological developments, its products and services may become obsolete, less marketable and less competitive and the Company’s business will be harmed.
The Company has plans for growth in future periods
If the Company fails to manage its growth effectively, it may be unable to execute its business plan, maintain high levels of service or address competitive challenges adequately in its constantly evolving technology arena. The Company plans to substantially expand its overall business, customer base, headcount and operations in future periods both organically and through acquisitions. In addition, the Company has and will make substantial investments in its overall operations as a result of its plans for growth. The Company will need to continue to expand its business. It is anticipated that this expansion will require substantial management effort and significant additional investment. In addition, the Company will be required to continue to improve its operational, financial and management controls and its reporting procedures. As such, the Company may be unable to manage its expenses effectively in the future, which may negatively impact gross margins or cause operating expenses to increase in any particular quarter. If the Company is unable to manage its growth successfully, its business will be harmed. Failure to effectively expand the Company’s sales and marketing capabilities could harm its ability to increase its customer base and achieve broader market acceptance of products. Increasing the Company’s customer base and achieving broader market acceptance of its products will depend to a significant extent on its ability to expand its sales and marketing operations. It is expected that the Company will be substantially dependent on its direct sales force to obtain new customers. There is significant competition for direct sales personnel with the sales skills that the Company requires. The Company’s ability to achieve significant growth in revenues in the future will depend, in large part, on its success in recruiting, training and retaining sufficient numbers of direct sales personnel. New hires require significant training and, in most cases, take a significant period of time before they achieve full productivity. The Company’s hires may not become as productive as it would like, and the Company may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where it does business. The Company’s business will be seriously harmed if these expansion efforts do not generate a corresponding significant increase in revenues.
Vendor Certification Process
Siyata is required as a vendor to Tier 1 cellular operators to undergo a lengthy certification and customization process. The substantial investment in operating expenses, and failure to obtain such certification would adversely impact our results of operations and financial condition.
16
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (Cont’d…)
Potential Conflicts of Interest
Certain directors or officers of the Company are also directors, officers, shareholders and/or Promoters of other reporting and non-reporting issuers. Such associations may give rise to conflicts of interest from time to time. The directors and officers of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the Board of Directors, any director in a conflict will disclose his interest and abstain from voting on such matter. Conflicts of interest, if any, will be subject to, and will be resolved in accordance with, the procedures and remedies under the BCBCA.
Reliance on Others and Key Personnel
The success of the Company is largely dependent upon the performance of its management and key employees, as well as the talents of its outside consultants and suppliers. The Company may not have any "key man" insurance policies, and therefore there is a risk that the death or departure of any one or more members of management or any key employee could have a material adverse effect on the Company. The Company also faces intense competition for qualified personnel and there can be no assurance that the Company will be able to attract and retain the employees, personnel and/or consultants necessary to successfully carry out its activities.
Limited Number of Customers
Historically, the Company has had a limited number of customers. The loss of any significant customer or any significant reduction in orders by a significant customer may have a material adverse effect on the Company's business, financial condition and results of operations. Additionally, as a result of the limited number of customers, credit risk on receivables is concentrated.
Reliance on Suppliers
Manufacturing of the Company's products and other devices for its services depends on obtaining adequate supplies of components on a timely basis. The Company sources several key components used in the manufacture of its products and devices from a limited number of suppliers, and in some instances, a single source supplier.
17
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (Cont’d…)
In addition, these components are often acquired through purchase orders and the Company may have no long-term commitments regarding supply or pricing from the suppliers. Lead-times for various components may lengthen, which may make certain components scarce. As component demand increases and lead-times become longer, the suppliers may increase component costs. The Company will also depend on anticipated product and service orders to determine its materials requirements. Lead-times for limited-source materials and components can vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. From time to time, shortages in allocations of components may result in delays in filling orders. Shortages and delays in obtaining components in the future could impede the Company's ability to meet customer orders. Any of these sole source or limited source suppliers could stop producing the components, cease operations entirely, or be acquired by, or enter into exclusive arrangements with, the Company's competitors. As a result, these sole source and limited source suppliers may stop selling their components to outsourced manufacturers at commercially reasonable prices, or at all. Any such interruption, delay or inability to obtain these components from alternate sources at acceptable prices and within a reasonable amount of time would adversely affect the Company's ability to meet scheduled product and service deliveries to its customers and reduce margins realized.
Alternative sources of components are not always available or available at acceptable prices. In addition, the Company relies on, but has limited control over, the quality, reliability and availability of the components supplied. If the Company cannot manufacture its products or devices for its services due to a lack of components, or is unable to redesign its products or devices with other components in a timely manner, its business, results of operations and financial condition could be adversely affected.
Reliance on Technology and Intellectual Property
The Company will require continuous technological improvements in order to remain competitive. There can be no assurance that the Company will be successful in its efforts in this regard. While Siyata anticipates that its research and development experience will allow it to explore additional business opportunities, there is no guarantee that such business opportunities will be presented or realized. The commercial advantage of the Company may depend to an extent on its intellectual property and its ability to prevent others from copying such proprietary technologies and any patents it may hold. In the future, the Company may seek additional patents or other similar protections in respect of a particular technology or process; however, there can be no assurance that any future patent applications will actually result in issued patents, or that, even if patents are issued, they (or any existing patents) will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to the Company. Moreover, the process of seeking patent protection can itself be long and expensive. In the meantime, competitors may develop technologies that are similar or superior to the technology of the Company or design around the patents owned by the Company, thereby adversely affecting the Company’s competitive advantage in one or more of its businesses. Despite the efforts of the Company, its intellectual property rights may be invalidated, circumvented, challenged, infringed or required to be licensed to others. It cannot be assured that any steps it may take to protect its intellectual property rights and other rights to such proprietary technologies that are central to the Company’s operations will prevent misappropriation or infringement of such technologies. If a third party asserts that the Company is infringing its intellectual property, whether successful or not, it could subject the Resulting Issuer to costly and time-consuming litigation or expensive licenses, and the Company’s business may be harmed.
18
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (Cont’d…)
Technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. As the Company faces increasing competition, the possibility of intellectual property rights claims against it will grow. The Company’s technologies may not be able to withstand any third-party claims or rights against their use. Furthermore, if there are any existing agreements that require Siyata to indemnify its customers for third-party intellectual property infringements claims, Siyata's costs would increase as a result of defending such claims and may require that the Company pay damages if there were an adverse ruling in any such claims. These types of claims could harm the Company’s relationships with its customers, may deter future customers from subscribing to its products and services or could expose the Company to litigation to these claims.
Product Defects
Complex software, as well as multiple components, displays, plastics and assemblies used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product. Defects in our products may result in a loss of sales, product malfunction, delay in market acceptance and potential injuries to our customers which can bring to injury in our reputation and increased warranty costs.
Additionally, our software may contain undetected errors, defects or bugs. Although we have not suffered significant harm from any errors, defects or bugs to date, we may discover significant errors, defects, or bugs in the future that we may not be able to correct or correct in a timely manner. It is possible that errors, defects or bugs will be found in our existing or future software and/or hardware products and related services with the potential for delays in, or loss of market acceptance of, our products and services, diversion of our resources, injury to our reputation, increased service and warranty expenses, and payment of damages.
Further, errors, defects or bugs in our solutions could be exploited by hackers or could otherwise result in an actual or perceived breach of our information systems. Alleviating any of these problems could require significant expense and could cause interruptions, delays or cessation of our product licensing, which would reduce demand for our products and result in a loss of sales, delay in market acceptance and injure our reputation and could adversely impact our business, results of operations and financial condition.
Third-party supplier dependency
We depend on certain suppliers for the delivery of components used in the assembly of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components and reduced control over pricing and timing of delivery of components. In particular, we have little to no control over the prices at which our suppliers sell materials and components to us. Certain supplies of our components are available only from a single source or limited sources and we may not be able to diversify sources in a timely manner. We have experienced shortages in the past that have negatively impacted our results of operations and may experience such shortages in the future.
19
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (Cont’d…)
We also do not have long-term supply agreements with any of our suppliers. Our current contracts with certain suppliers may be canceled or not extended by such suppliers and, therefore, do not afford us with sufficient protection against a reduction or interruption in supplies. Moreover, in the event any of these suppliers breach their contracts with us, our legal remedies associated with such a breach may be insufficient to compensate us for any damages we may suffer.
Any interruption of supply for any material components of our products, or inability to obtain required components from our third-party suppliers, could significantly delay the production and shipment of our products and harm our revenues, profitability and financial condition.
Rate of Deployment of the dedicated public safety LTE networks
A key part of the Company’s strategy is to further expand the use of solutions over dedicated LTE and 5G networks in the public safety market. If the deployment of dedicated LTE and 5G networks is delayed or such networks are not adopted at the rate the Company anticipates, demand for the Company’s solutions may not develop as anticipated, which would have a negative effect on revenues.
Risks associated with sourcing and manufacturing
The Company does not own or operate any of the manufacturing facilities for its products and rely on a concentrated number of independent suppliers to manufacture all of the Company’s products. For the business to be successful, the suppliers must provide the Company with quality products in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis. The Company’s ability to obtain a sufficient selection or volume of merchandise on a timely basis at competitive prices could suffer as a result of any deterioration or change in supplier relationships or events that adversely affect the suppliers.
There can be no assurance the Company will be able to detect, prevent or fix all defects that may affect the products manufactured by their suppliers. Failure to detect, prevent or fix defects, or the occurrence of real or perceived quality or safety problems or material defects in current and future products, could result in a variety of consequences, including a greater number of product returns than expected from customers and wholesale partners, litigation, product recalls and credit, warranty or other claims, among others, which could harm the brand, results of operations and financial condition. Such problems could hurt the Company’s brand image, which is critical to maintaining and expanding the business. Any negative publicity or lawsuits filed against the Company related to the perceived quality and safety of the products could harm the brand and decrease demand for the Company’s products.
If one or more of our significant suppliers were to sever their relationship with us or significantly alter the terms of our relationship, including due to changes in applicable trade policies, we may not be able to obtain replacement products in a timely manner, which could have a material adverse effect on our business, results of operations and financial condition. In addition, if any primary suppliers fail to make timely shipments, do not meet quality standards or otherwise fail to deliver the product in accordance with Company’s plans, there could be a material adverse effect on the results of operations.
20
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
Risks associated with sourcing and manufacturing (CONT’D)
The contractors and suppliers buy raw materials and are subject to wage rates that are oftentimes regulated by the governments of the countries in which these products are manufactured. The raw materials used to manufacture these products are subject to availability constraints and price volatility. There could be a significant disruption in the supply of raw materials from current sources or, in the event of a disruption, the suppliers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at all. The Company’s business is dependent upon the ability of unaffiliated suppliers to locate, train, employ and retain adequate personnel. These unaffiliated suppliers have experienced, and may continue to experience in the future, unexpected increases in work wages, whether government-mandated or otherwise. Suppliers may increase their pricing if their raw materials became more expensive. These suppliers may pass the increase in sourcing costs to the Company through price increases, thereby impacting margins. Material changes in the pricing practices of the suppliers could negatively impact profitability.
In addition, the Company cannot be certain that unaffiliated suppliers will be able to fill orders in a timely manner. If the Company experiences significant increases in demand, or reductions in the availability of materials, or need to replace an existing supplier, there can be no assurance additional supplies of raw materials or additional manufacturing capacity will be available when required on terms acceptable to the Company, or at all, or that any supplier would allocate sufficient capacity in order to meet the Company’s requirements. In addition, even if the Company is able to expand existing or find new manufacturing or sources of materials, it may encounter delays in production and added costs as a result of the time it takes to train suppliers in our methods, products, quality control standards and labor, health and safety standards. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products, could have an adverse effect on the Company’s ability to meet wholesale partner and customer and consumer demand for the Company’s products and result in lower revenue and net income both in the short and long term.
Events that adversely impact the suppliers could impair the Company’s ability to obtain adequate and timely supplies. Such events include, among others, difficulties or problems associated with suppliers’ business, the financial instability and labor problems of suppliers, merchandise quality and safety issues, natural or man-made disasters, inclement weather conditions, war, acts of terrorism and other political instability, economic conditions, transportation delays and shipment issues. These suppliers may be forced to reduce their production, shut down their operations or file for bankruptcy. These suppliers may consolidate, increasing their market power. The occurrence of one or more of these events could impact the Company’s ability to get products to its customers and/or wholesale partners, result in disruptions to operations, increased costs and decreased profitability.
21
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
Risks associated with sourcing and manufacturing (CONT’D)
The Company’s sourcing operations may also be hurt by health concerns regarding the outbreak of viruses, widespread illness, infectious diseases, contagions and the occurrence of unforeseen epidemics (including the outbreak of the coronavirus and its potential impact on our financial results) in countries in which our merchandise is produced. Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the Company’s products. Furthermore, changes in U.S. trade policies, including new restrictions, tariffs or other changes could lead to additional costs, delays in shipments, embargos and other uncertainties that could negatively impact the Company’s relationships with international suppliers and materially adversely affect the business. These and other issues affecting international suppliers or internationally manufactured merchandise could have a material adverse effect on the business, results of operations and financial condition.
In addition, some of our suppliers may not have the capacity to supply us with sufficient merchandise to keep pace with our growth plans, especially if we need significantly greater amounts of inventory. In such cases, the Company’s ability to pursue its growth strategy will depend in part upon its ability to develop new supplier relationships.
Global sourcing and foreign trade involve numerous factors and uncertainties beyond the Company’s control, including:
| ● | increased shipping costs; |
| ● | the imposition of additional import or trade restrictions; |
| ● | legal or economic restrictions on overseas suppliers’ ability to produce and deliver products; |
| ● | increased custom duties and tariffs; |
| ● | unforeseen delays in customs clearance of goods; |
| ● | more restrictive quotas; |
| ● | loss of a most favored nation trading status; |
| ● | currency exchange rates; |
| ● | transportation delays; |
| ● | port of entry issues; and |
| ● | foreign government regulations, political instability and economic uncertainties in the countries from which we or our suppliers source our products. |
22
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
Potential Political Instability in Israel
The Company has business operations in Israel. Accordingly, political, economic and military conditions in and surrounding Israel may directly affect its business. There are significant ongoing hostilities in the Middle East, particularly in Syria and Iraq, which may impact Israel in the future. Any hostilities involving Israel, a significant increase in terrorism or the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel, could materially adversely affect the Company’s operations. Ongoing and revived hostilities or other Israeli political or economic factors could materially adversely affect the Company’s business, operating results and financial condition.
Employees Military Reserve Duty
Many of the Company’s employees in Israel are obligated to perform annual military reserve duty in the Israel Defense Forces and, in the event of a military conflict, could be called to active duty. The Company’s operations could be disrupted by the absence of a significant number of its employees related to military service or the absence for extended periods of military service of one or more of its key employees. Military service requirements for the Company’s employees could materially adversely affect the Company’s business, operating results and financial condition.
Litigation
All industries are subject to legal claims, with and without merit. Defence and settlement costs can be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that the resolution of any particular legal proceeding will not have a material effect on the Company’s operations and financial position.
Changes in Laws
Changes to any of the laws, rules, regulations or policies to which the Company is subject could have a significant impact on the Company’s business. There can be no assurance that the Company will be able to comply with any future laws, rules, regulations and policies. Failure by the Company to comply with applicable laws, rules, regulations and policies may subject it to civil or regulatory proceedings, including fines or injunctions, which may have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations. In addition, compliance with any future laws, rules, regulations and policies could negatively impact the Company’s profitability and have a material adverse effect on its business, financial condition, liquidity and results of operations.
Trade dispute between USA and China
Our products are manufactured in a facility in China. As a result of the unresolved trade dispute between the USA and China, it is not possible to estimate any significant additional costs that may be incurred when shipping our products to various USA customers. This trade dispute could adversely impact our business, results of operations and financial condition.
23
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Risks and Uncertainties (CONT’D…)
Coronavirus (COVID-19)
The Company may be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments may cause disruption to operations, research and development, and sales activities. The Company’s third-party manufacturers, third-party distributors, and customers may have been and may in the future be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our activities or the operations of our third-party manufacturers and third-party distributors, the supply of our products may be delayed, which could adversely affect our business, operations and customer relationships.
Coronavirus (COVID-19)
In addition, the Novel Coronavirus (COVID-19) or other disease outbreak may in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may affect demand for our products and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions may adversely impact our business, financial condition, operating results and cash flows. In addition, we may experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products in a timely manner or meet required milestones or customer commitments.
Liquidity AND capITal resouRces
The Company defines capital as consisting of shareholder’s equity (comprised of issued share capital, reserves, accumulated translation differences and deficit). The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital, but rather relies on the expertise of the Company’s management to sustain the future development of the business. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. As at September 30, 2020, the Company is only subject to externally imposed capital requirements arising from the quarterly payments of interest on the debenture as described in Note 11, and the monthly principal and interest payments from the BDC loan described in Note 10. The Company is also subject to a debt covenant in relation to the factoring agreement described in Note 4 and the TD bank line of credit described in Note 9.
24
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Liquidity AND capITal resouRces (Cont’d…)
Siyata Mobile Israel has a factoring facility with Israeli banks whereby the Bank advances funds to Siyata Mobile Israel and charges a fluctuating interest rate on the advanced funds until it is repaid by the borrowers’ customers. The Bank has a lien on these receivables. The factored receivables are all required to be insured in case of customer default with a financial institution.
The Company’s objective in managing liquidity risk is to maintain sufficient liquidity in order to meet operational and investing requirements at any point in time. The Company has historically financed its operations primarily through a combination of demand loans and the sale of share capital by way of private placements.
As at September 30, 2020 the Company had a cash balance of $14,631,921 (December 31, 2019: $3,465,371). As at September 30, 2020, the Company had an accumulated deficit of $37,725,131 (December 31, 2019: ($32,779,519) and working capital of $17,723,283 (December 31, 2019: $6,704,651).
Net cash flows used in operating activities for the period ended September 30, 2020 were ($3,295,869) compared with cash used of ($6,684,126) in the same period of the prior year. The decrease in cash used of $3,388,257 in operating activities was primarily due to the decrease in the net loss by $901,755, the increase in amortization of $598,035 (related to the UV350 and the right of use lease amortization), the increase in finance fee amortization of $554,369, the decrease in the accretion of future purchase price by $30,000, the increase in lease liability financing imputed interest of $9,927, and the increase in amortization of share based payments in the period decrease of $1,030,522 and the increase in the non-cash working capital items by $2,399,823. The non-cash working capital variances consisting of an increase in accounts payable and accrued liabilities of $3,2792,500, inventory of $46,965 and due to related party of $39,832 offset by a decrease in trade and other receivables, prepaids, and advances to suppliers of $966,474.
Net cash flows used in investing activities for the period ended September 30, 2020 was $1,748,556 compared with $2,773,556 in the prior year, a positive variance of $1,025,000. This variance relates primarily to reduction in multiple carrier device approval certification costs incurred in YTD Q3 2019 that did not recur in this period.
Net cash provided by financing activities for the period ended September 30, 2020 was $16,809,081 compared to $8,652,235. This positive variance of $8,155,846 relates mainly to the initial IPO on NASDAQ and the private placement that had proceeds net of share issuance costs of $15,454,454 for the year to date 2020 versus $2,745,732 in 2019 for a net positive variance of $12,708,722, a positive variance on the bank loan by $798,112, the positive variance due to the prior years’ loan to director of $262,000, the issuance of agent’s options of $228,468, net proceed from the debenture financing in 2020 of $135,000 and the increase due to lease liability of $233,047, and offset by the exercise of 80,865 share purchase warrants for proceeds of $5,862,745 in the prior year plus the exercise of 5,668 agents’ options for proceeds of $328,758 in the prior year, and the BDC principal payment increase of $18,000 over the prior year.
The future success of the Company is now dependent on the continued success of its vehicle mounted communications products, its mobile rugged phones and its Booster systems in the market together with the ability to finance the necessary working capital, at agreeable terms, to support the growth of the business.
The Company’s consolidated interim financial statements have been prepared in accordance with IFRS under the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than a process of forced liquidation. The consolidated interim financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
25
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Liquidity AND capITal resouRces (Cont’d…)
| Share Capital | |
| Authorized: | Unlimited common shares without par value |
| Unlimited preferred shares without par value |
Issued and outstanding:
As at September 30, 2020, the Company had 3,205,672 common shares issued and outstanding.
Subsequent to the quarter end, the underwriter exercised in two tranches a portion of the over-allotment by purchasing 170,000 common shares at $5.99 USD per common share for gross proceeds of $1,018,300USD.
2020 Capital Transactions:
Siyata consolidated the common shares of the Company (each, a “Share”) on the basis of 145 pre-consolidation Shares for one (1) post-consolidation Share (the “Consolidation”). The Consolidation became effective at the close of market on September 24, 2020 and the post-consolidated Shares commenced trading at the open of the market on Friday September 25th. The new CUSIP number is 83013Q509;
On September 29, 2020 Siyata completed an initial public offering of 2,100,000 Units at $6.00 USD per unit for gross proceeds of $12,600,00 USD. Each Unit consisting of one Common Share and one warrant to purchase one Common Share. Each warrant will have an exercise price of $6.85 USD per share, is exercisable immediately and will expire five (5) years from the date of issuance. The Common Shares and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering.
On September 29, 2020 Siyata reserved 92,500 common shares for certain consultants and professionals as part of the NASDAQ capital raise.
Siyata began trading on the NASDAQ stock exchange as of September 25, 2020 under the symbol SYTA;
Siyata’s warrants began trading on the NASDAQ stock exchange as at September 29, 2020 under the symbol SYTAW.
Siyata delisted from the OTCQX market as of the end of trading on September 24, 2020;
Siyata, at its own request, delisted from the TSX.V market as of the end of trading on October 19, 2020;
On August 4, 2020, Siyata completed a two part non-brokered private placement raising aggregate gross proceeds of $2,150,000 CAD through the issuance of 148,276 units at a price of $14.50 CAD per unit. Each Unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole Warrant is exercisable at a price of $26.10 CAD for a period of two years. The Company paid a cash commission of $24,681.60 CAD and issued 1,702 broker warrants on the same terms as the Warrants.
On June 22, 2020 Issued 1,149 shares as a result of a conversion of convertible debt at $65.25 per share for proceeds of $75,000;
26
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Share Capital (CONT’D...)
2019 Capital Transactions:
On August 29, 2019 the Company completed a non-brokered private placement of 51,724 units at a price of $58.00 per unit for gross proceeds of $3,000,000. Each unit consisted of one common share and one half share purchase warrant. Each warrant is exercisable at a price of $87.00 for a period of two years. In conjunction with the placement, the Company incurred share issuance costs of $243,379.
On December 23, 2019, the Company issued 3,324 common shares as compensation to the agents’ for their assistance to the Company to issue $7,866,000 12% convertible debentures.
Stock Options:
The Company has a shareholder approved “rolling” stock option plan (the “Plan”) in compliance with TSX-V policies. Under the Plan the maximum number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding common shares at the time of granting. The exercise price of each stock option shall not be less than the market price of the Company’s stock at the date of grant, less a discount of up to 25%. Options can have a maximum term of ten years and typically terminate 90 days following the termination of the optionee’s employment or engagement, except in the case of retirement or death. Vesting of options is at the discretion of the Board of Directors at the time the options are granted.
A summary of the Company’s stock option activity is as follows:
| Number of Stock Options | Weighted Exercise | |||||||
| Outstanding options, December 31, 2018 | 65,448 | $ | 63.80 | |||||
| Granted | 17,655 | 78.30 | ||||||
| Expired | (517 | ) | 87.00 | |||||
| Outstanding options, December 31, 2019 | 82,586 | $ | 68.15 | |||||
| Granted | 2,690 | 72.50 | ||||||
| Expired | (27,069 | ) | 45.16 | |||||
| Outstanding options, September 30, 2020 | 58,207 | $ | 78.45 | |||||
| Granted | 276,500 | $ | 8.03 | ** | ||||
| Expired | (2,069 | ) | $ | 72.50 | ||||
| Outstanding options, Date of this MD&A | 332,638 | $ | 15.45 | |||||
| ** | On November 15, 2020 the Company issued 276,500 stock options at an exercise price of $6.00USD per common share estimated at $8.03 CAD. |
In Q1 2020, 2,690 stock options were granted to key employees at a price of $72.50 per common shares that expire on December 31, 2023.
During Q3 2020, 27,069 stock options expired at an average exercise price of $44.95 per common share.
In Q1 2019, 2,207 stock options were granted at an exercise price of $72.50 and 12,345 stock options were granted at an exercise price of $79.75.
In Q2 2019 517 stock options with an exercise price of $92.80 expired. In Q4 2019, the Company issued 3,103 options to a Director with an exercise price of $72.50 per option.
27
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Share Capital (cont’d…)
Stock options outstanding at September 30, 2020 are as follows:
| Grant Date | Number of options outstanding | Number of options exercisable | Weighted Average Exercise Price | Expiry date | Remaining contractual life (years) | |||||||||||||
| 01-Jan-17 | 2,207 | 2,207 | 52.20 | 01-Jan-22 | 1.25 | |||||||||||||
| 11-Jan-17 | 2,483 | 2,483 | 52.20 | 11-Jan-22 | 1.28 | |||||||||||||
| 04-Apr-17 | 6,897 | 6,897 | 65.25 | 04-Apr-22 | 1.52 | |||||||||||||
| 24-Jul-17 | 11,034 | 11,034 | 100.05 | 24-Jul-22 | 1.81 | |||||||||||||
| 24-Dec-18 | 15,241 | 11,046 | 72.50 | 24-Dec-23 | 3.23 | |||||||||||||
| 15-Jan-19 | 2,207 | 1,103 | 72.50 | 15-Jan-24 | 3.29 | |||||||||||||
| 21-Mar-19 | 12,345 | 10,241 | 79.75 | 21-Mar-24 | 3.47 | |||||||||||||
| 01-Dec-19 | 3,103 | 776 | 72.50 | 01-Dec-23 | 3.17 | |||||||||||||
| 01-Jan-20 | 2,690 | 448 | 72.50 | 01-Jan-24 | 3.25 | |||||||||||||
| Total | 58,207 | 46,235 | 78.38 | 2.57 | ||||||||||||||
Stock options outstanding as of the date of this MD&A are as follows:
| Grant Date | Number of options outstanding | Number of options exercisable | Weighted Average Exercise Price | Expiry date | Remaining contractual life (years) | |||||||||||||
| 01-Jan-17 | 2,207 | 2,207 | 52.20 | 01-Jan-22 | 1.25 | |||||||||||||
| 11-Jan-17 | 2,483 | 2,483 | 52.20 | 11-Jan-22 | 1.28 | |||||||||||||
| 04-Apr-17 | 6,897 | 6,897 | 65.25 | 04-Apr-22 | 1.52 | |||||||||||||
| 24-Jul-17 | 11,034 | 11,034 | 100.05 | 24-Jul-22 | 1.81 | |||||||||||||
| 24-Dec-18 | 15,241 | 11,046 | 72.50 | 24-Dec-23 | 3.23 | |||||||||||||
| 15-Jan-19 | 2,207 | 1,103 | 72.50 | 15-Jan-24 | 3.29 | |||||||||||||
| 21-Mar-19 | 12,345 | 10,241 | 79.75 | 21-Mar-24 | 3.47 | |||||||||||||
| 01-Dec-19 | 1,034 | 1,034 | 72.50 | 01-Dec-23 | 3.17 | |||||||||||||
| 01-Jan-20 | 2,690 | 448 | 72.50 | 01-Jan-24 | 3.25 | |||||||||||||
| 15-Nov-20 | 181,500 | 22,688 | $ | 8.03 | 15-Nov-25 | 4.96 | ||||||||||||
| 15-Nov-20 | 95,000 | 11,875 | $ | 8.03 | 15-Nov-30 | 9.96 | ||||||||||||
| Total | 332,638 | 81,056 | 15.45 | 5.90 | ||||||||||||||
28
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Share Capital (cont’d…)
A summary of the Company’s agents’ options activity is as follows:
| ● | The Company issued on July 28, 2020 1,702 agents’ options exercisable at $26.10 that expire on July 27, 2022. |
| ● | The Company issued on September 29, 2020 105,000 agents’ options exercisable at $6.60 USD ($8.84CAD) that expire on September 28, 2025. |
| Number of options | Weighted average exercise price | |||||||
| Outstanding agent options, December 31, 2018 | 8,050 | $ | 65.25 | |||||
| Granted | 5,025 | 60.90 | ||||||
| Exercised | (5,668 | ) | 58.00 | |||||
| Expired | (810 | ) | 69.60 | |||||
| Outstanding agent options, December 31, 2019 | 6,597 | $ | 67.12 | |||||
| Granted | 106,702 | $ | 9.11 | |||||
| Exercised | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding agent options, Sept 30, 2020 and of the date of MD&A | 113,299 | $ | 12.46 | |||||
At September 30, 2020 and the date of this MD&A agents’ options outstanding are as follows:
| Grant Date | Number of options outstanding | Number of options exercisable | Weighted Average Exercise Price | Expiry date | Remaining contractual life (years) | |||||||||||||
| December 24, 2018 | 1,572 | 1,572 | 87.00 | December 24, 2021 | 1.23 | |||||||||||||
| December 23, 2019 | 5,025 | 5,025 | 60.90 | December 23, 2021 | 1.23 | |||||||||||||
| July 28, 2020 | 1,702 | 1,702 | $ | 26.10 | July 27, 2022 | 1.82 | ||||||||||||
| September 29, 2020 | 105,000 | 105,000 | $ | 8.84 | September 28, 2025 | 5.00 | ||||||||||||
| Total | 113,299 | 113,200 | $ | 12.46 | 4.73 | |||||||||||||
29
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Share Capital (cont’d…)
Share Purchase Warrants:
On June 26, 2020, the Company issued 10,897 share purchase warrants at an exercise price of $43.50 expiring on June 26, 2021. These warrants were issued as part of the issuance of the 10.0% convertible debenture due June 26, 2021 as more fully explained above in Significant Highlights financing initiatives.
From the two tier financing on July 28, 2020 and closed August 4, 2020 the Company issued 74,138 share purchase warrants to acquire Siyata common shares at $26.10 for a period of two years expiring on July 27, 2022.
On September 29, 2020 the Company issued 2,100,000 share purchase warrants to acquire common shares of the Company at $6.85USD (estimated at $9.17CAD) as part of the NASDAQ Initial public offering.
A summary of the Company’s share purchase warrant activity is as follows:
| Number of warrants | Weighted average exercise price | |||||||
| Outstanding, December 31, 2018 | 149,674 | 81.00 | ||||||
| Granted | 80,110 | 73.00 | ||||||
| Exercised | (80,865 | ) | 73.00 | |||||
| Expired | (36,920 | ) | 97.00 | |||||
| Outstanding, December 31, 2019 | 111,999 | 75.78 | ||||||
| Granted | 2,185,035 | 9.92 | ||||||
| Exercised | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding, September 30, 2020 | 2,297,034 | $ | 13.17 | |||||
At September 30, 2020, share purchase warrants outstanding and exercisable are as follows:
| Grant Date | Number of Warrants outstanding and exercisable | Exercise Price | Expiry date | |||||||
| 24-Dec-18 | 31,888 | $ | 87.00 | 24-Dec-21 | ||||||
| 29-Aug-19 | 25,863 | $ | 87.00 | 29-Aug-21 | ||||||
| 23-Dec-19 | 54,248 | $ | 65.00 | 23-Dec-22 | ||||||
| 23-Jun-20 | 10,897 | 43.50 | 23-Jun-21 | |||||||
| 28-Jul-20 | 74,138 | $ | 26.10 | 28-Jul-22 | ||||||
| 29-Sep-20 | 2,100,000 | $ | 9.17 | 29-Sep-25 | ||||||
30
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Share Capital (cont’d…)
Share Purchase Warrants (CONT’D)
The Underwriter exercised on October 31, 2020 their right to acquire 266,000 over-allotment (included as part of the IPO that took place on September 30, 2020) warrants to purchase 266,000 warrants at a price of $0.01 USD per warrant for total gross proceeds of $2,660 USD. These warrants have a five year term, expire on October 21, 2025 and have an exercise price of $6.85 USD (estimated at $9.17CAD) per common share.
As of the date of this MD&A share purchase warrants outstanding and exercisable are as follows:
| Grant Date | Number of Warrants outstanding and exercisable | Exercise Price | Expiry date | |||||||
| 24-Dec-18 | 31,888 | $ | 87.00 | 24-Dec-21 | ||||||
| 29-Aug-19 | 25,863 | $ | 87.00 | 29-Aug-21 | ||||||
| 23-Dec-19 | 54,248 | $ | 65.00 | 23-Dec-22 | ||||||
| 23-Jun-20 | 10,897 | 43.50 | 23-Jun-21 | |||||||
| 28-Jul-20 | 74,138 | $ | 26.10 | 28-Jul-22 | ||||||
| 29-Sep-20 | 2,100,000 | $ | 6.85USD | 29-Sep-25 | ||||||
| 21-Oct-25 | 266,000 | $ | 6.85USD | 21-Oct-25 | ||||||
FINANCIAL INSTRUMENTS
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values.
Financial instruments measured at fair value are classified into three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly;
Level 3 – Inputs that are not based on observable market data.
The fair values of the Company’s cash, trade and other receivables, due from related party, and accounts payable and accrued liabilities approximate carrying value, which is the amount recorded on the consolidated statement of financial position.
The Company is exposed to varying degrees to a variety of financial instrument related risks:
31
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
FINANCIAL INSTRUMENTS (CONT’D…)
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company places its cash with institutions of high credit worthiness. Management has assessed there to be a low level of credit risk associated with its cash balances.
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company's customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Approximately 31% of the Company's revenues for the three months’ ended September 30, 2020 (2019- 29%) are attributable to sales transactions with a single customer.
The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company's standard payment and delivery terms and conditions are offered. The Company's review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Company's benchmark creditworthiness may transact with the Company only on a prepayment basis.
More than 80% of the Company's customers have been active with the Company for over four years, and no impairment loss has been recognized against these customers. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Trade and other receivables relate mainly to the Company's wholesale customers. Customers that are graded as “high risk” are placed on a restricted customer list and monitored by the Company, and future sales are made on a prepayment basis.
The carrying amount of financial assets represents the maximum credit exposure, notwithstanding the carrying amount of security or any other credit enhancements.
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was as follows:
| (in thousands) | September 30, 2020 | December 31, 2019 | ||||||
| EMEA | $ | 1,692 | $ | 793 | ||||
| North America | 3,669 | 1,151 | ||||||
| Total | $ | 5,361 | $ | 1,944 | ||||
32
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
FINANCIAL INSTRUMENTS (CONT’D…)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.
The Company examines current forecasts of its liquidity requirements so as to make certain that there is sufficient cash for its operating needs, and it is careful at all times to have enough unused credit facilities so that the Company does not exceed its credit limits and is in compliance with its financial covenants (if any). These forecasts take into consideration matters such as the Company's plan to use debt for financing its activity, compliance with required financial covenants, compliance with certain liquidity ratios, and compliance with external requirements such as laws or regulation.
The Company uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
The Company has a factoring agreement with external funding (Note 4).
With the exception of employee benefits, the Company’s accounts payable and accrued liabilities have contractual terms of 90 days. The employment benefits included in accrued liabilities have variable maturities within the coming year.
33
SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
FINANCIAL INSTRUMENTS (CONT’d…)
Market risk
| a) | Currency Risk |
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The functional currency of Siyata Israel is the US dollar (“USD”). Revenues are predominantly incurred in the US dollar with expenses in the Israeli New Sheqel (“NIS”). As at September 30, 2020, the Company’s exposure to foreign currency risk with respect to financial instruments is as follows:
| (in CAD thousands) | USD | NIS | CAD | Total | ||||||||||||
| Financial assets and financial liabilities: | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash | 14,159 | 42 | 431 | 14,632 | ||||||||||||
| Trade and other receivables | 2,667 | 1,362 | 1,332 | 5,361 | ||||||||||||
| Due from director | 286 | - | - | 286 | ||||||||||||
| Current liabilities | ||||||||||||||||
| Bank loan | (840 | ) | - | - | (840 | ) | ||||||||||
| Accounts payable and accrued liabilities | (3,179 | ) | (97 | ) | (1,249 | ) | (4,525 | ) | ||||||||
| Due to related party | (77 | ) | - | - | (77 | ) | ||||||||||
| Convertible debentures | (7,504 | ) | (7,504 | ) | ||||||||||||
| Long term debt | - | - | (156 | ) | (156 | ) | ||||||||||
| Total | 13,016 | 1,307 | (7,146 | ) | 7,177 | |||||||||||
| b) | Interest Rate Risk |
Interest rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in interest rates. The Company’s sensitively to interest rates is currently immaterial as the Company’s debt bears interest at fixed rates.
| c) | Price Risk |
The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
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SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates:
| i) | Critical accounting estimates |
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are, but not limited to the following:
| ● | Income taxes - Tax provisions are based on enacted or substantively enacted laws. Changes in those laws could affect amounts recognized in profit or loss both in the period of change, which would include any impact on cumulative provisions, and future periods. Deferred tax assets, if any, are recognized to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse. |
| ● | Fair value of stock options and warrants - Determining the fair value of warrants and stock options requires judgments related to the choice of a pricing model, the estimation of stock price volatility, the expected forfeiture rate and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could have a significant impact on the Company’s future operating results or on other components of shareholders’ equity. |
| ● | Capitalization of development costs and their amortization rate – Development costs are capitalized in accordance with the accounting policy. To determine the amounts earmarked for capitalization, management estimates the cash flows which are expected to be derived from the asset for which the development is carried out and the expected benefit period. |
| ● | Inventory - Inventory is valued at the lower of cost and net realizable value. Cost of inventory includes cost of purchase (purchase price, import duties, transport, handling, and other costs directly attributable to the acquisition of inventories), cost of conversion, and other costs incurred in bringing the inventories to their present location and condition. Net realizable value for inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions are made in profit or loss of the current period on any difference between book value and net realizable value. |
| ● | Estimated product returns - Revenue from product sales is recognized net of estimated sales discounts, credits, returns, rebates and allowances. The return allowance is determined based on an analysis of the historical rate of returns, industry return data, and current market conditions, which is applied directly against sales. |
| ● | Impairment of non-financial assets - The Company assesses impairment at each reporting date by evaluating conditions specific to the Company that may lead to asset impairment. The recoverable amount of an asset or a cash-generating unit (“CGU”) is determined using the greater of fair value less costs to sell and value in use which requires the use of various judgments, estimates, and assumptions |
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SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D…)
| ● | Useful life of intangible assets – The Company estimates the useful life used to amortize intangible assets which relates to the expected future performance of the assets acquired based on management estimate of the sales forecast. |
| ● | Future purchase consideration - In a business combination, the Company recognizes a contingent consideration at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in profit or loss, or as a change to other comprehensive income (“OCI”). If the contingent consideration is not within the scope of IAS 39, it is measured at fair value in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity. |
| ● | Contingent consideration from an asset acquisition is recognized when: the conditions associated with the contingency are met; the Company has a present legal or constructive obligation that can be estimated reliably; and it is probably that an outflow of economic benefits will be required to settle the obligation. |
| ii) | Critical accounting judgments |
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are, but are not limited to, the following:
| ● | Deferred income taxes – judgments are made by management to determine the likelihood of whether deferred income tax assets at the end of the reporting period will be realized from future taxable earnings. To the extent that assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognized in respect of deferred tax assets as well as the amounts recognized in profit or loss in the period in which the change occurs. |
| ● | Functional currency - The functional currency for the Company and each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates. The Company has determined the functional currency of each entity to be the Canadian dollar with the exception of Siyata Israel which has the functional currency of the US dollar. Such determination involves certain judgments to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment. |
| ● | Going concern – As disclosed in Note 1 to the consolidated interim financial statements. |
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SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RECENT ACCOUNTING PRONOUNCEMENTS
| (a) | New accounting pronouncements |
The following new accounting policies were adopted by the Company during the year ended December 31, 2019:
As of January 1, 2019, the Company adopted the following new accounting standards and interpretations on a modified retrospective approach:
IFRS 16, Leases
IFRS 16, Leases (“IFRS 16”), specifies how to recognize, measure, present, and disclose leases. The standard provides a single-lessee accounting model, requiring lessees to recognize a right-of-use asset representing its right to use the underlying asset and a liability representing its obligation to make lease payments (“lease obligation”), for all leases unless the Company elects to exclude leases when the lease term is twelve months or less, or the underlying asset has a low monetary value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17, Leases (“IAS 17”). The Company's accounting policy under IFRS 16 is as follows:
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company adopted IFRS 16 using the modified retrospective approach and therefore, the comparative information has not been restated and continues to be reported under IAS 17 Leases and IFRIC 4 to determine whether an arrangement contains a lease.
The Company as a lessee
The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The ROU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the ROU asset or the lease term. The lease term includes consideration of an option to renew or to terminate if the Company is reasonably certain to exercise that option. Current office and car lease terms range from 6 months to 22 months. In addition, the ROU asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments mainly include fixed, or in substance fixed, payments and variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in profit or loss if the carrying amount of the ROU asset has been reduced to zero.
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SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
RECENT ACCOUNTING PRONOUNCEMENTS (CONT’D)
Effective January 1, 2019 (date of initial application), the Company adopted IFRS 16 using the modified retrospective transition approach. Accordingly, comparative figures as at and for the year ended December 31, 2018 have not been restated and continue to be reported under IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease (“IFRIC 4”).
The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts entered into or modified on or after January 1, 2019.
At transition, the Company used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: applied a single discount rate to a portfolio of leases with similar characteristics; recognition exemption of short-term leases; recognition exemption of low-value leases; and used hindsight when determining the lease term if the contract contained options to extend or terminate the lease.
When applying the modified retrospective transition approach, for leases previously classified as operating leases under IAS 17 and IFRIC 4, on initial application, a lessee is permitted to measure the ROU asset, on a lease-by-lease basis, using one of two methods: (1) as if IFRS 16 had always been applied, using the incremental borrowing rate at the date of initial application; or (2) at an amount equal to the lease liability (subject to certain adjustments). For all leases, the Company applied the second method and recognized the ROU assets based on the corresponding lease liability. As at January 1, 2019, the Company recorded lease obligations of $407,776 and ROU assets of $407,776. When measuring lease liabilities, the Company discounted future lease payments using its incremental borrowing rate as at January 1, 2019. The weighted-average rate applied was 7.5%. During the three months ended March 31, 2020, the Company recorded $22,789 of depreciation of ROU assets, and $909 of interest accretion on discounted lease obligations as a result of the adoption of IFRS 16.
The following table reconciles the Company’s operating lease commitments as at December 31, 2018, as previously disclosed in the Company’s annual audited consolidated financial statements, to the lease obligations recognized on initial application of IFRS 16 on January 1, 2019:
As at January 1, 2019 | Previously Reported under IAS 17 | IFRS 16 Transition Adjustments | As report under IFRS 16 | |||||||||
| Right of use Assets | $ | Nil | $ | 407,776 | $ | 407,776 | ||||||
| Lease Obligation | $ | Nil | $ | 407,776 | $ | 407,776 | ||||||
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SIYATA MOBILE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Related Party transactionS
Key Personnel Compensation
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of executive and non-executive members of the Company’s Board of Directors and corporate officers. The remuneration of directors and key management personnel for the nine months ended September 30, 2020 with comparative to the nine months ended September 30, 2020 is as follows:
| 2020 | 2019 | |||||||
| Payments to key management personnel: | ||||||||
| Salaries, consulting and directors’ fees | $ | 745,679 | $ | 902,207 | ||||
| Share-based payments | 124,020 | 815,334 | ||||||
| Total | $ | 869,699 | $ | 1,717,541 | ||||
Other related party transactions are as follows:
| (in thousands) | ||||||||||
| Type of Service | Nature of Relationship | 2020 | 2019 | |||||||
| Selling and marketing expenses | VP Technology | 90 | 124 | |||||||
| General and administrative expense | Companies controlled by the CEO, CFO and Directors | 655 | 778 | |||||||
Loan to Director
On April 1, 2019 the Company made a loan to a Director in the amount of $200,000 USD. This loan is for a term of 5 years with interest charged at rate of 7% per annum payable quarterly. As of January 1, 2020 the interest rate charged on the loan has been increased to 12% per annum. There are no capital repayment requirements until the end of the term when a balloon payment of the principal balance is required.
Balances and transactions with Accel Telecom Ltd.
The Company had a management agreement with a related company, Accel Telecom Ltd. (“Accel”). As part of the agreement, the Company paid Accel $US 11,000 per month for management services (including services related to finance, general operations, insurance, administration, and other). For the nine months ended September 30, 2020, the management fee was $131,670 CDN (year ended December 31, 2019 totalled $170,000 CDN).
Included in due to related party as at September 30, 2020 is a balance payable to Accel of $77,483 (December 31, 2019 $100,079). The balance is non-interest bearing.
Accel Telecom Ltd. acquired $1,330,000 of face value of 9,172 convertible debentures on June 23, 2020 bearing interest at the rate of 10% per annum payable quarterly, that mature on June 23, 2021. Included with these debentures were 9,172 share purchase warrants with a strike price of $43.50 per common share that expire on June 23, 2021.
OFF-BALANCE SHEET ARRANGEMENTS
The Company currently has no off-balance sheet arrangements.
Additional Information
Additional information relating to the Company can be found on SEDAR at www.sedar.com.
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