Summary of financial condition
Table 2: Comparison of financial condition
October 31, 2020 October 31, 2019
Working capital deficit $ (501,033) $ (608,524)
Current assets $ 20,937 $ 48,553
Total liabilities $ 521,970 $ 721,336
Common stock and additional paid in capital $ 7,190,431 $ 5,591,386
Deficit
$ (7,750,080) $ (7,264,164)
Accumulated other comprehensive income $ 58,829 $ 46,339
Results of operations
YEARS ENDED OCTOBER 31, 2020 AND 2019
Our operating results for the years ended October 31, 2020 and 2019 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 /
2020 2019 (decrease)
Revenue $ 17,401 $ - n/a
Operating expenses (472,142) (716,438) (34)%
Foreign exchange 4,513 1,856 143%
Interest expense (12,887) (11,674) 10%
Impairment of deposits (22,801) - n/a
Loss on conversion of debt - (115,000) (100)%
Net loss (485,916) (841,256) (42)%
Translation to reporting currency 12,490 (4,089) 405%
Comprehensive loss
$ (473,426) $ (845,345) (44)%
Revenue
During the year ended October 31, 2020, we started generating revenue from our
SMART Systems software licensing and maintenance of the applications required to
run SMART Systems. Our first customer is Duesey Coffee and Chocolates Sdn Bhd
("Duesey Coffee"), of which Mr. Lim Hun Beng, our CEO and President, is a 50%
shareholder. In addition, we started generating revenue from WeChat Online
product, which was developed specifically for Duesey Coffee in P.R. China, and
is being managed by Shanghai Duesenberg Marketing Planning Co Ltd. Due to
current market uncertainty associated with COVID-19 we agreed to bill our
customers set monthly fees for these services without entering into any termed
contracts, which will allow us or our customers to cancel the services any time.
Duesey Coffee agreed to a monthly fee of 10,000 Malaysian Ringgit (approximately
USD$2,350), Shanghai Duesenberg Marketing Planning Co Ltd. agreed to a monthly
fee of USD$1,000.
During the year ended October 31, 2020, we generated $17,401 in revenue from our
SMART Systems and WeChat Online product (2019 - $Nil).
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Operating Expenses
Our operating expenses for the years ended October 31, 2020 and 2019 consisted
of the following:
Table 4: Changes in operating expenses
Year ended Percentage
October 31, increase /
2020 2019 (decrease)
Operating expenses:
Accounting $ 16,078 $ 18,541 (13)%
Amortization 4,353 4,901 (11)%
General and administrative expenses 59,997 56,437 6%
Management fees 24,000 29,333 (18)%
Professional fees 14,242 12,143 17%
Regulatory and filing 32,827 28,899 14%
Salaries and wages 295,579 338,119 (13)%
Software development costs 14,629 200,333 (93)%
Travel and entertainment 10,437 27,732 (62)%
Total operating expenses $ 472,142 $ 716,438 (34)%
Our operating expenses decreased by $244,296, or 34%, from $716,438 for the year
ended October 31, 2019, to $472,142 for the year ended October 31, 2020. The
most significant expense item that contributed to our operating expenses was
associated with salaries and wages we incurred through our subsidiaries in
Malaysia and Hong Kong, which totaled $295,579 and were mainly associated with
salaries and reimbursable expenses we accrued to our CEO and CFO (2019 -
$338,119). The second largest expense was associated with general and
administrative costs of $59,997 (2019 - $56,437), of which administrative fees
accounted for $44,580 (2019 - $45,160). Regulatory and filing fees totaled
$32,827, an increase of $3,928, as compared to $28,899 we incurred in
comparative period.
In addition to the above expenses, we incurred $24,000 in management fees, a
decrease of $5,333, as compared to $29,333 we incurred during the year ended
October 31, 2019. Our travel and entertainment expenses decreased by $17,295 to
$10,437 we incurred during the year ended October 31, 2020, as compared to
$27,732 we incurred in our Fiscal 2019; these decreases were associated with
reduced travel requirements associated with COVID-19 travel bans imposed by
various federal governments. Our professional fees increase by $2,099 from
$12,143 to $14,242. During the year ended October 31, 2020, we recorded $4,353
in amortization on equipment that we purchased for Vgrab Malaysia's operations
(2019 - $4,901). Our accounting fees decreased by $2,463, from $18,541 we
incurred during the year ended October 31, 2019, to $16,078 we incurred during
the year ended October 31, 2020.
Other Items
During the year ended October 31, 2020, we recorded a $22,801 impairment on
deposit paid by our subsidiary, VGrab Asia, to a vendor, as underlying agreement
to supply certain commodities the Company acquired for trading fell through
(2019 - $Nil); $4,513 (2019 - $1,856) in realized foreign exchange gains
associated with the fluctuation in foreign exchange rates between the US,
Canadian, Malaysian and Hong Kong currencies; and $12,887 (2019 - $11,674) 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
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.
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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, 2020, we had a working capital deficit of $501,033 and
accumulated losses of $7,750,080 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, 2020 At October 31, 2019
Current assets $ 20,937 $ 48,553
Current liabilities (521,970) (657,077)
Working capital deficit $ (501,033) $ (608,524)
During the year ended October 31, 20120, our working capital deficit decreased
by $107,491, from $608,524 at October 31, 2019, to $501,033 at October 31, 2020.
The decrease in working capital deficit was primarily related to the conversion
of $640,830 we owed to our management team for wages and management fees into
1,780,084 shares of our common stock. These changes were in part offset by
reclassification of $67,429 we owed under a note payable and accrued interest
thereon due on August 31, 2021 from long-term liabilities to current
liabilities.
Table 6: Cash Flows
At October 31, 2020 At October 31, 2019Net cash used in operating activities $ (159,889) $ (236,594)
Net cash used in investing activities
- (5,515)
Net cash provided by financing
activities 151,773 243,948
Effect of exchange rate changes on cash 25 3
Net increase/(decrease) in cash $ (8,091) $ 1,842
Net cash used in operating activities. During the year ended October 31, 2020,
we used $159,889 to support our operating activities. This cash was used to
cover our cash operating expenses of $447,005, to increase our receivables by
$3,016, and to pay $334 towards our future expenses. These uses of cash were
offset by $53,290 increase in amounts due to related parties for reimbursable
expenses, by $216,592 increase to accrued salaries payable to our CEO and CFO,
and a $20,584 increase to our accounts payable and accrued liabilities.
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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.
Non-cash operating activities. During the year ended October 31, 2020, we
recorded $22,801 in impairment of our deposits, and $1,130 in foreign exchange
fluctuation between the US, Canadian, Malaysian, and Hong Kong currencies. We
recorded $8,966 in interest on our notes payable to Hampshire Avenue and $3,921
in interest on CAD$83,309 note payable due on August 31, 2021. In addition, we
recorded $4,353 in amortization of our office equipment.
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.
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. We did not have any investing activities in our Fiscal 2020 year.
Net cash provided by financing activities. During the year ended October 31,
2020, we received $151,773 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, 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.
Non-cash financing activities. During the year ended October 31, 2020, we agreed
to convert $640,830 we owed to our management team as at July 31, 2020, for
salaries and reimbursable expenses as well as for management fees into 1,780,084
shares of our common stock at a deemed price of $0.36 per share. At the time of
conversion our shares traded at $0.48, therefore we recognized $213,610 as
decrease to our paid-in capital.
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, 2020, which
we subsequently extended to August 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, 2020, the full balance owed under this
note payable, being $67,429 was reclassified to current liability.
Capital Resources
Our ability to continue the development and marketing of the VGrab Applications,
SMART Systems, and VGrab WeChat Application, as well as commencement of
Duesenberg EV development, 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, 2020, we had cash on hand of $11,715 and working capital
deficit of $501,033, 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
products. 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, 2020.
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, 2020. 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 and Duesenberg NV functional and reporting
currencies are 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, 2020, we had $2,924 in cash on deposit with a large chartered
Canadian bank, $8,478 in cash on deposits with a bank in Malaysia, and $313 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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