Summary of financial condition
Table 2: Comparison of financial condition
October 31, 2019 October 31, 2018
Working capital deficit $ (608,524) $ (894,941)
Current assets $ 48,553 $ 23,745
Total liabilities $ 721,336 $ 918,686
Common stock and additional paid in capital $ 5,591,386 $ 5,481,470
Deficit
$ (7,264,164) $ (6,422,908)
Accumulated other comprehensive income $ 46,339 $ 50,428
Results of operations
YEARS ENDED OCTOBER 31, 2019 AND 2018
Our operating results for the years ended October 31, 2019 and 2018 and the
changes in our operating results between them are summarized in the Table 3
below.
Table 3: Summary
Year ended Percentage
October 31, increase /
2019 2018 (decrease)
Operating expenses $ (716,438) $ (561,569) 28%
Foreign exchange 1,856 7,376 (75)%
Interest expense (11,674) (2,976) 292%
Loss on conversion of debt (115,000) - n/a
Net loss (841,256) (557,169) 51%
Translation to reporting currency (4,089) (855) 378%
Comprehensive loss
$ (845,345) $ (558,024) 51%
Revenue
During the years ended October 31, 2019 and 2018 we did not have any revenue
generating operations. We are presently in the early development stage of our
operations, with our main business goal being software application development,
marketing, and distribution. Our Cooperation agreement with HMGC has yet to
start generating revenue, therefore we can provide no assurances that we will be
able to generate enough cash flow from our operations to support our ongoing
operations.
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Operating Expenses
Our operating expenses for the years ended October 31, 2019 and 2018 consisted
of the following:
Table 4: Changes in operating expenses
Year ended Percentage
October 31, increase /
2019 2018 (decrease)
Operating expenses:
Accounting $ 18,541 $ 19,206 (3)%
Amortization 4,901 - n/a
General and administrative expenses 56,437 50,139 13%
Management fees 29,333 62,038 (53)%
Professional fees 12,143 7,058 72%
Regulatory and filing 28,899 21,426 35%
Salaries and wages 338,119 206,825 63%
Software development costs 200,333 183,427 9%
Travel and entertainment 27,732 11,450 142%
Total operating expenses $ 716,438 $ 561,569 28%
Our operating expenses increased by $154,869, or 28%, from $561,569 for the year
ended October 31, 2018, to $716,438 for the year ended October 31, 2019. The
most significant expense item that contributed to increase in our operating
expenses was associated with salaries and wages we incurred through our
subsidiaries in Malaysia, which totaled $338,119 and were mainly associated with
salaries and reimbursable expenses we accrued to our CEO and CFO (2018-
$206,825). The second largest expense was associated with software development
costs of $200,333, which were required to develop the VGrab WeChat Application
for use by Vgrab Asia; in comparative Fiscal 2018 we spent $183,427 developing
SMART Systems for use by Vgrab Malaysia.
In addition to the above expenses, we incurred $29,333 in management fees we
recorded on issuance of 133,333 common shares to Mr. Ong, our director, to
recognize his past services; the management fees decreased by $32,705, or 53%,
in comparison to $62,038 we recognized for the year ended October 31, 2018,
which were associated with 500,000 common shares we issued to our former CEO and
CFO, Mr. Skurtys, as consideration for his past services. During our Fiscal
2019, we recorded $56,437 in general and administrative expenses, which
increased by $6,298, as compared to $50,139 we incurred during the year ended
October 31, 2018. Our travel and entertainment expenses increased by $16,282 to
$27,732 we incurred during the year ended October 31, 2019, as compared to
$11,450 we incurred in our Fiscal 2018; these increases were associated with
increased operating activity in VGrab Malaysia, and Vgrab Asia. In addition to
the above expenses, our regulatory and filing fees as well as professional fees
increase by $7,473 and $5,085, respectively, from $21,426 to $28,899 in
regulatory and filing fees, and from $7,058 to $12,143 in professional fees.
During the year ended October 31, 2019, we recorded $4,901 in amortization on
equipment that we purchased for Vgrab Malaysia's operations (expense that did
not exist during the year ended October 31, 2018). Our accounting fees remained
relatively steady decreasing by $665, from $19,206 we incurred during the year
ended October 31, 2018, to $18,541 we incurred during the year ended October 31,
2019.
Other Items
During the year ended October 31, 2019, we recorded $1,856 in realized foreign
exchange gains associated with the fluctuation in foreign exchange rates between
the US, Canadian, Malaysian and Hong Kong currencies. During the year ended
October 31, 2018, we recorded $7,376 in realized foreign exchange gains
associated with the fluctuation in foreign exchange rates between the US,
Canadian, and Malaysian currencies.
During the year ended October 31, 2019, we recorded $11,674 (2018 - $2,976) in
interest associated with our liabilities under the notes payable we issued to
our debt holders.
During the year ended October 31, 2019, we concluded negotiations with certain
debt holders to convert a total of $923,798 we owed on account of services and
cash advances provided to us into 6,465,546 shares of our common stock. A total
of $623,798 was converted at a deemed value of $0.18 per share with remaining
$300,000 converted at a deemed valued of $0.10 per share. We recorded $115,000
as loss on conversion of $660,000 debt with third-party service providers and a
lender. Remaining $263,798 in converted debt was owed to Hampshire Avenue, our
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major shareholder. Hampshire Avenue agreed to convert the debt at a deemed price
of $0.18 per share. At the time the agreement was executed, our shares were
trading at $0.105 per share, resulting in $109,916 gain associated with
conversion of this debt, which we recorded as an increase to an additional
paid-in capital. We did not have similar transactions during the year ended
October 31, 2018.
Translation to Reporting Currency
Changes in translation to reporting currency result from differences between our
functional currencies, being the Canadian dollar for the parent Company,
Malaysian Ringgit for VGrab Malaysia, and Hong Kong Dollar for Vgrab Asia, and
our reporting currency, being the United States dollar. These differences are
caused by fluctuation in foreign exchange rates between the four currencies as
well as different accounting treatments between various financial instruments.
Liquidity
GOING CONCERN
The audited consolidated financial statements included in this Annual Report on
Form 10-K have been prepared on a going concern basis, which implies that we
will continue to realize our assets and discharge our liabilities in the normal
course of business. We have not generated any revenues from operations since
inception, have never paid any dividends and are unlikely to pay dividends or
generate significant earnings in the immediate or foreseeable future. Our
continuation as a going concern depends upon the continued financial support of
our shareholders and management, our ability to obtain necessary debt or equity
financing to continue operations, and the attainment of profitable operations.
Based upon our current plans, we expect to incur operating losses in future
periods. At October 31, 2019, we had a working capital deficit of $608,524 and
accumulated losses of $7,264,164 since inception. These factors raise
substantial doubt about our ability to continue as a going concern. We cannot
assure you that we will be able to generate significant revenues in the future.
The consolidated financial statements included with this Annual Report on Form
10-K do not give effect to any adjustments that would be necessary should we be
unable to continue as a going concern. Therefore, we may be required to realize
our assets and discharge our liabilities in other than the normal course of
business and at amounts different from those reflected in our financial
statements.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
Table 5: Working Capital
At October 31, 2019 At October 31, 2018
Current assets $ 48,553 $ 23,745
Current liabilities (657,077) (918,686)
Working capital deficit $ (608,524) $ (894,941)
During the year ended October 31, 2019, our working capital deficit decreased by
$286,417, from $894,941 at October 31, 2018, to $608,524 at October 31, 2019.
The decrease in working capital deficit was primarily related to the conversion
of $560,000 we owed to our vendors, $100,000 we owed pursuant to a
non-interest-bearing loan agreement, and $263,798 we owed to Hampshire Avenue
under 4% notes payable into 6,465,546 shares of our common stock; in addition,
increase in prepaid expenses of $23,121 further contributed to decrease in
working capital deficit. These changes were in part offset by increased amounts
due to our CEO and CFO on account of their salaries, which increased by
$212,941.
Table 6: Cash Flows
At October 31, 2019 At October 31, 2018Net cash used in operating activities $ (236,594) $ (101,046)
Net cash used in investing activities
(5,515) (3,931)
Net cash provided by financing
activities 243,948 107,205
Effect of exchange rate changes on
cash 3 (151)
Net increase in cash $ 1,842 $ 2,077
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Net cash used in operating activities. During the year ended October 31, 2019 we
used $236,594 to support our operating activities. This cash was used to cover
our cash operating expenses of $683,147, and to pay $23,128 towards our future
expenses. These uses of cash were offset by $34,044 increase in amounts due to
related parties for reimbursable expenses, and by $212,941 increase to accrued
salaries payable to our CEO and CFO. In addition, a $222,541 increase to our
accounts payable and accrued liabilities and $154 decrease in GST recoverable
further decreased cash used in operations.
During the year ended October 31, 2018, we used $101,046 to support our
operating activities. This cash was used to cover our cash operating expenses of
$497,898, to increase our GST recoverable and prepaid expenses by $203 and
$1,577, respectively. These uses of cash were offset by increases in accounts
payable and accrued liabilities of $190,186, amounts due to related parties of
$27,481 and accrued salaries to our CEO and CFO of $180,965.
Non-cash operating activities. During the year ended October 31, 2019, we
recorded $115,000 loss on conversion of third-party debt (the shares were issued
on January 8, 2020). We recorded $29,333 in management fee associated with the
fair value of 133,333 shares we issued to our director, and $4,901 in
amortization expense associated with the computers and other office equipment we
acquired for the operations of Vgrab Malaysia. In addition, we accrued $10,720
in interest on our notes payable to Hampshire Avenue, and $954 in interest on
$64,259 we reclassified from current debt to long-term debt. These non-cash
transactions were in part offset by $2,799 in foreign exchange fluctuations
between the US, Canadian, Malaysian, and Hong Kong currencies.
During the year ended October 31, 2018, we recorded $3,705 in foreign exchange
fluctuations between the US, Canadian, and Malaysian currencies, and $2,976 in
interest we accrued on the notes payable we issued to Hampshire Avenue. In
addition, we recorded $60,000 as a one-time management fee associated with the
fair value of 500,000 shares we issued to our former CEO, CFO and director on
his resignation.
Net cash used in investing activities. During the year ended October 31, 2019,
we used $5,515 to acquire computer and office equipment for our operations in
Malaysia (2018 - $3,931).
Net cash provided by financing activities. During the year ended October 31,
2019, we received $243,948 under loan agreements with Hampshire Avenue. The
loans bear interest at 4% per annum, are unsecured and payable on demand.
During the year ended October 31, 2018, we received $107,205 in proceeds from
the loan agreements with Hampshire Avenue. The loans bear interest at 4% per
annum, are unsecured and payable on demand.
Non-cash financing activities. On October 3, 2019, we agreed to convert $100,000
we owed to a third-party lender under a non-interest-bearing loan agreement into
1,000,000 shares of our common stock at a deemed price of $0.10 per share. At
the time of conversion our shares traded at $0.205, therefore we recognized
$105,000 in loss on conversion. In addition, we converted $263,798 we owed to
Hampshire Avenue under 4% notes payable into 1,465,546 shares of our common
stock at a deemed price of $0.18 per share. Since at the time of conversion our
shares traded at $0.105, we recognized $109,916 as increase to our paid-in
capital. Furthermore, during our fourth quarter ended October 31, 2019 we agreed
to convert $560,000 we owed to third-party vendors for services they provided to
us into 4,000,000 shares of our common stock. The conversion resulted in $10,000
loss, which we expensed as part of loss on conversion of debt.
On July 31, 2019, we reached an agreement with one of our service providers to
extend repayment of $64,259 we owed to the vendor until December 31, 2021. The
vendor agreed to extend the repayment in exchange for 6% annual interest accrued
on the principal and compounded monthly. As at October 31, 2019, the principal
converted to long-term advance accrued $954 in interest.
Capital Resources
Our ability to continue the development and marketing of the VGrab Applications,
SMART Systems, and VGrab WeChat Application is subject to our ability to obtain
the necessary funding. We expect to raise funds through sales of our debt or
equity securities. We have no committed sources of capital. If we are unable to
raise funds as and when we need them, we may be required to curtail, or even to
cease, our operations.
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As of October 31, 2019, we had cash on hand of $19,806 and working capital
deficit of $608,524, which raises substantial doubt about our continuation as a
going concern. We plan to mitigate our losses in future years by controlling our
operating expenses and actively seeking new distribution channels for our VGrab
Applications. We cannot provide assurance that we will be successful in
generating additional capital to support our development. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Contingencies and Commitments
We had no contingencies at October 31, 2019.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements and no non-consolidated,
special-purpose entities.
Critical Accounting Policies
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.
The JOBS Act contains provisions that, among other things, reduce certain
reporting requirements for qualifying public companies. As an "emerging growth
company," we may, under Section 7(a)(2)(B) of the Securities Act, delay adoption
of new or revised accounting standards applicable to public companies until such
standards would otherwise apply to private companies. We may take advantage of
this extended transition period until the first to occur of the date that we (i)
are no longer an "emerging growth company" or (ii) affirmatively and irrevocably
opt out of this extended transition period. We have elected to take advantage of
the benefits of this extended transition period. Our consolidated financial
statements may therefore not be comparable to those of companies that comply
with such new or revised accounting standards. Until the date that we are no
longer an "emerging growth company," affirmatively and irrevocably opt out of
the exemption provided by Securities Act Section 7(a)(2)(B), or upon issuance of
a new or revised accounting standard that applies to our financial statements
and that has a different effective date for public and private companies, we
will disclose the date on which adoption is required for non-emerging growth
companies and the date on which we will adopt the recently issued accounting
standard.
Our significant accounting policies are disclosed in the notes to the audited
consolidated financial statements for the year ended October 31, 2019. The
following accounting policies have been determined by our management to be the
most important to the portrayal of our financial condition and results of
operation:
Principles of Consolidation
The Company's audited consolidated financial statements include the accounts of
the Company and its subsidiaries. On consolidation, the Company eliminates all
intercompany balances and transactions.
Internal-Use Software
The Company incurs costs related to the development of its VGrab Applications,
SMART Systems, VGrab WeChat Application, and VGrab.com website. Costs incurred
in the planning and evaluation stage of internally-developed software and
website, as well as development costs where economic benefit cannot be readily
determined, are expensed as incurred. Costs incurred and accumulated during the
development stage, where economic benefit of the software can be readily
determined, are capitalized and included as part of Intangible assets on the
balance sheets. Additional improvements to the web site and applications
following the initial development stage are expensed as incurred. Capitalized
internally-developed software and website development costs will be amortized
over their expected economic life using the straight-line method.
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Foreign Currency Translation and Transaction
The Parent Company's functional currency is the Canadian dollar, VGrab
Malaysia's functional currency is Malaysian Ringgit, and Vgrab Asia's functional
currency is Hong Kong dollar, the Company's reporting currency is the United
States dollar. VGrab International's functional and reporting currency is the
United States dollar. The Company translates assets and liabilities to US
dollars using year-end exchange rates, and translates revenues and expenses
using average exchange rates during the period. Gains and losses arising on
translation to the reporting currency are included in the other comprehensive
income.
Foreign exchange gains and losses on the settlement of foreign currency
transactions are included in foreign exchange expense. Except for translations
of intercompany balances, all translations of monetary balances to the
functional currency at the yearend exchange rate are included in foreign
exchange expense. The translations of intercompany balances to the functional
currency at the yearend exchange rate are included in accumulated other
comprehensive income or loss.
Fair Value of Financial Instruments
Our financial instruments include cash, accounts payable and accruals as well as
amounts due to related parties. We believe the fair value of these financial
instruments approximate their carrying values due to their short-term nature.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations
of credit risk consist principally of cash and accounts receivable.
At October 31, 2019, we had $5,841 in cash on deposit with a large chartered
Canadian bank, $12,745 in cash on deposits with a bank in Malaysia, and $1,220
in cash on deposits with a bank in Hong Kong. As part of our cash management
process, we perform periodic evaluations of the relative credit standing of
these financial institutions. We have not experienced any losses in cash
balances and do not believe we are exposed to any significant credit risk on our
cash.
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