Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Financial Statements and Notes thereto appearing elsewhere in this Report on Form 10-Q as well as our other SEC filings.
Overview
The Company was incorporated on February 23, 2005 under the laws of the state of Nevada. Effective July 15, 2015, Mr. Terence Robinson was appointed as the Chairman of the Board of directors and is also the Chief Executive Officer and Chief Financial officer of the Company.
On March 31, 2017, the Company changed its name from ZD Ventures Corporation to Plyzer Technologies Inc. (“PLYZER”, the “Company”).
The Company has three subsidiaries, Plyzer Corporation, incorporated in the State of Delaware on December 9, 2016, Plyzer Technologies (Canada) Inc., incorporated in the Province of Ontario, Canada on April 11, 2017 and Plyzer BlockChain Technologies Inc., incorporated in Ontario, Canada on November 3, 2017.
Our principal office is located at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada M5R 2G3. Our telephone number is (416) 860-0211. Our fiscal year end is March 31. Our Canadian subsidiaries signed an assignment of lease on January 1, 2018 for premises at 67 Portland St., Toronto, Ontario M5V 2M9, Canada which will expire on December 30, 2019.
PLYZER’s business strategy until March 2015 involved developing a social website, B’ Wished, acquired in July 2012 aimed at driving traffic for various sellers of products and services which can generate revenue through commissions from the associated sellers and advertisements, as well as other related sources for the Company. However, at the end of March 31, 2015, the Management concluded that this was not a commercially viable business and decided to expense all the costs related to this project. During the fiscal year 2016, the Company also wrote off small investments it had in a couple of emerging technology companies in Spain due to unavailability of adequate information from these entities to support any valuation of these investments.
On November 21, 2016, The Company signed a consulting agreement with an independent Spanish Corporation, Lupama Producciones, S.L. (“Lupama”). Lupama’s key owner, Luis Pallares became the CEO of Plyzer Technologies (Canada) Inc.
Lupama is creating an artificial intelligence driven engine for price comparison for the Company, known as “Plyzer”. Further details on Plyzer can be found under “Business Plan and Strategy” section of this report.
The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes of the Company for the three and nine months ended December 31, 2018 and the audited financial statements and notes for the year ended March 31, 2018.
Business Plan and Strategy
Lupama is creating an artificial intelligence driven engine for price comparison for the Company, known as “Plyzer”. The focus is on the development of the backend and front end for “customer use”. While the Company has so far produced a fairly stable beta site, it needs more testing work. In addition to the testing, we also need to finish the composition of some back and front-end details and the configuration of some events. After this soft launch, we will review and update any issues that may arise at this stage and build new features to integrate during the public launch expected to be early next year. We are currently using development environments and testing production environments.
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Beta testing carried out to date achieved the following:
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Spain
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332 Pharmacies reached in Spain
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24,729 products reached in Spain
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1,793,580 prices crawled daily
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Canada
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79 Stores reached in Canada
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44,980 products reached in Canada
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446,531 prices crawled Dailey
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Cannabis Industry
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4,633 products reached
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78,578 prices crawled Dailey
During the three months ended December 31, 2018, the Company began extending its testing of PLYZER application in Cannabis industry.
The following were specific technical development during the three months ended December 31, 2018:
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Product matching: Created and included a new textual prediction based on url match.
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Product matching: Created and included a new textual prediction based on OCR text (text extraction from images).
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Product matching: Improved execution time of the product matching. Now the product matching can be weekly executed for all the domains (Spain, Canada, cannabis).
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Product matching: New control panel to select and introduce faster big chunks of prices.
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Product matching: Visualisation of anomalies and missing brands. For instance, in Canada it was already used to introduce a total of more than 20K products.
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Product matching: Improved accuracy of textual model (more than 5%).
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Product matching: Textual model includes gender and volume identification - litre, kilogram...
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Product matching: Includes a retraining method in order to update the textual models with the new data ingested.
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Data ingestion (images): Created a new game application with user authentication that is use to match images and builds datasets.
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Data ingestion (images): Extraction of images in order to feed our image datasets from other sources (google images, bing).
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Data ingestion (images): Preprocessing of images to discard wrong ones using ASIFT method.
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Several core developments in the contents and display and data capture rpograms.
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Adapt and optimize PLYZER’s blog on social media including content development and monitoring results and impact on a monthly basis.
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Promotional efforts through press and web communication
On October 17, 2018, the Company announced that Adamed Laboratorios, a Madrid-based pharmaceutical company is presently subscribed to Plyzer 's Intelligence platform. Adamed is monitoring the online performance of their over the counter product catalogue on more than 360 online sales channels in Spain. Adamed manufactures over 250 products and has a global presence in 60 countries.
This is an important milestone in the commercialization of Plyzer’s B2B platform, as the company transitions from the pre-revenue development phase and begins to execute its go-to-market growth strategy. Plyzer’s proprietary technologies - especially our advances in the automation of product matching - are major steps forward for business analytics.
The Company has however, not yet generated or realized any revenues from business operations.
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Results of operations
The Company did not have any operating income since its inception on February 23, 2005 through December 31, 2018. For the three and nine months ended December 31, 2018, the Company recognized a net loss of approximately $1.5 million and $23 million, respectively, compared to net loss of $0.5 million and $0.8 million, respectively, for the three and nine months ended December 31, 2017.
Major costs during the three and nine months ended December 31, 2018 related to the 34 million fully vested warrants issued to Lupama on August 1, 2018 (30 million) and October 1, 2018 (4 million). These warrants were valued at $20.5 million. The entire amount was expensed as stock compensation during the nine months ended December 31, 2018. There was no stock compensation during the nine months ended December 31, 2017.
Operating costs net of the value of warrants for the three months ended December 31, 2018 was $0.5 million of which $0.3 million related to development costs.
Overall operating expenses less stock compensation remained more or less same during the 2018 fiscal quarter compared to 2017 fiscal quarter.
Revenues
There was no revenue for the three and nine months ended December 31, 2018 and 2017.
Professional Fees
Professional fees for the three and nine months ended December 31, 2018 were $57,300 and $145,700 respectively compared to $4,200 and $29,620, respectively for the three and nine months ended December 31, 2017.
Professional fees for the three and nine months ended December 31, 2018 included legal fees of $55,550 and $136,500, respectively, and the remaining balance of the fees related to audit fees relating to reviews of the interim financials and 10-Q reports.
The increase in legal fees was mainly due to increasing the number of convertible loan notes issued, converted and paid, each of which involved due diligence and legal paperwork. There were approximately 33 loans related transactions during the nine months ended December 31, 2018 compared to 8 transactions during the nine months ended December 31, 2017.
Professional fees for the three and nine months ended December 31, 2017 were $4,200 and $29,620, respectively. Approximately $25,000 of the fees for the nine months to December 31, 2017 related to legal and due diligence fees paid to the lawyers involved in raising convertible debt financing and the balance of the fees consisted of audit and review fees charged by the independent accountants.
Consulting fees
Consulting fees for three and nine months ended December 31, 2018 were $48,319 and $90,675, respectively, compared to $17,500 and $37,000, respectively, for three and nine months ended December 31, 2017.
The fees for the three and nine months ended December 31, 2018 included fees of $9,000 and $18,000 charged by the CEO, respectively, and the remaining balance of the fees were charged by third parties for accounting, administrative and financial services. A new consultant was appointed in the Toronto office in September 2018 at a cost of CDN$4,000 per month. Further, in December 2018, this consultant was paid extra fee of $27,000 for additional work - which increased the overall consulting fees.
Consulting fees for the three and nine months ended December 31, 2017 included fees of $14,500 charged by the CEO and the remaining balance of $3,000 represented fees charged for accounting services. During the three months ended December 31, 2017, CEO’s annual fee was revised for the fiscal year 2018 from $25,000 to $36,000. As a result, apart from the fee of $9,000 based on the new fee for the quarter, additional fees of $5,500 for the first six months to September 30, 2017 was also charged during the nine months ended December 31, 2017.
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General and administrative expenses
Significant items included in the general and administrative costs for the three and nine months ended December 31, 2018 were rent and utilities of respectively $8,085 and $24,463 for the Toronto office, filing fee for upgrades to the OTCQB listing of, respectively, $3,250 and $5,750 and transfer agent fees of respectively $3,420 and $9,930. The transfer agent fees increased significantly mainly due to increase in issuance and conversion of convertible notes. Exchange gain for the three and nine months ended December 31, 2018 was $5,081 and $5,699, respectively.
General and administrative costs for the three and nine months ended December 31, 2017 included rent and utilities of Toronto office for $5,620 and $16,411 and transfer agent fee and regulatory fees of $1,925 and $6,765 respectively. The increased fee was mainly due to Toronto office, CUSIP change following a name change and processing fees related to convertible loans charged by the transfer agent.
Travel, meals and promotion
These costs were incurred by the CEO and mainly involved travelling in Europe and North America in connection with the fund raising, promotion and monitoring the progress of the development work. Costs were less by approximately $8,000 during the 2018 period compared to 2017 period reflecting lesser travels.
Interest Expense
Interest expense during the three and nine months ended December 31, 2018 related to nine and twenty-one convertible unsecured loans issued, respectively, and four and seven loans prepaid respectively during the period. Interest ranged from 5% to 12% per annum. Interest included amortization of debt discount of $11,563 and $612,849, respectively for the three and nine months ended December 31, 2018.
Interest expense during the three and nine months to December 31, 2017 related to six convertible unsecured loans issued during the period, including two loans which were fully converted and one loan which was partially converted during the period, and consisted of debt discount of $90,837 and $160,417 and interest of $4,589 and $11,896, respectively for the three and nine months ended December 31, 2017. Interest rates ranged from 8% to 12% per annum.
Stock compensation
On August 1, 2018, the Company revised the terms of the consulting agreement with Lupama. As a result, 5 million shares issued to Lupama and 25 million shares issuable to Lupama on completion of certain milestones were cancelled and replaced by 30 million warrants, which vested immediately on issuance, valid for three years and convertible into equal number of common shares at an exercise price of $0.0025 per share.
On October 1, 2018, Lupama was awarded additional 4 million fully vested warrants which were exercised for equal number of common shares on October 2, 2018 at an exercise price of $0.0025 per share.
The warrants were valued at $20.5 million using Black-Sholes valuation method as explained in Note 8 of the financial statements of the Company for the three and nine months ended December 31, 2018. Since all warrants were vested, the entire value was expensed.
Financial Condition, Liquidity and Capital Resources
For the nine months ended December 31, 2018, the Company generated a negative cash flow from operations of approximately $1.2 million (nine months to December 31, 2017: negative cash flow of approximately $0.5 million), which was primarily met from existing cash, proceeds from the convertible loans and from subscriptions received and advances from the director and shareholder. As of December 31, 2018, the Company had cash of $218,067 (as at March 31, 2018: $261,575).
In absence of any potential revenue in the near future, the Company will continue to be dependent upon financing raised through equity and debts and advances from its director and shareholders.
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Our present material commitments continue to be the development and commercial launch costs of Plyzer and professional and administrative fees and expenses associated with the preparation of our filings and other regulatory requirements.
The Company is seeking to raise capital to implement the Company's business strategy. In the event additional capital is not raised or alternatively debt financing is not available from our shareholders, the Company may seek a merger or outright sale.
Investing activities
There was no new investment during the nine months ended December 31, 2018.
During the nine months ended December 31, 2017, the Company spent $5,507 on furniture and equipment for the Toronto office of Plyzer Technologies (Canada) Inc.
Financing activities
The Company raised net $1.2 million of which approximately $0.9 million from debt financing net of debts settled in cash and $250,000 in subscription received under a private equity financing during the nine months ended December 31, 2018. ($624,807 for the nine months ended December 31, 2017). Details of the financing are provided in notes 5 and 7(ii) of the unaudited consolidated financials for the period.
The Company raised total of $624,807 through equity financing, shareholder advances and debt financing during the nine months ended December 31, 2017.
Going Concern
The accompanying financial statements have been prepared assuming that we will continue as a going concern. We have an accumulated deficit of approximately $28 million. The Company realized a net loss from operations of approximately $23 million and $0.8 million, respectively, for the nine months ended December 31, 2018 and 2017. These conditions raise substantial doubt about our ability to continue as a going concern. The Company believes that most of the development work has been completed and the project is at a stage where it will attract further equity financing which currently the Company continues to seek and its ability to settle or convert loans on a timely basis is likely to encourage lenders to continue to provide debt financing when required on a competitive terms . However, there is no guarantee that efforts to raise further financing will success or result in the availability of the required funding. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Off-balance sheet arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.