Forward-Looking Statements
The following discussion of our financial condition and results of operations for the three and nine months endedSeptember 30, 2020 and 2019 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as filed onMarch 30, 2020 with theSEC . We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms "Helix",
the "Company", "we", "us", and "our" refer to
Overview
Helix Technologies, Inc. provides critical infrastructure solutions to the legal cannabis industry. Our mission is to provide clients with the best-in-class critical infrastructure services through a single integrated platform which enables them to run their businesses more safely, efficiently, and profitably. As we increase our platform's scale and scope, clients will be able to realize greater cost savings and operating advantages.
Our team is composed of former military, financial services, and technology professionals with deep experience in technology design and development, strategic partnerships, data aggregation, venture capital, private equity, risk-management, security and law enforcement, intelligence, banking, and finance.
Technology is a cornerstone of Helix's service offering. Our technology platform allows clients to manage their business in a compliant manner with BioTrackTHC's seed-to-sale software, as well as managing inventory and supply costs through Cannabase. We focus on utilizing technology as an operations multiplier, bringing in and managing unique partnerships across the technology and operations spectrum to tailor and create desired outcomes for our clients. Within the cannabis industry, no other activity carries as much potential for unforeseen negative impact as a lapse in compliance operations. Helix brings a broad range of compliance services to firms in the cannabis industry, safeguarding their ability to operate while increasing their access to services that offer them a competitive edge. We have largely completed the financial and operational integrations of the previous 24 months, namely the acquisitions of BioTrackTHC, Engeni, Tan Security and Amercanex. BioTrackTHC specializes in providing cannabis software services, ranging from monitoring of plant inventory to point-of-sale solutions. BioTrackTHC's software is used by 9 government entities and more than 2,000 commercial client locations across 34 U.S. states and 6 countries. Engeni provides a turnkey and comprehensive digital presence solution for small businesses. The Engeni Growth solution includes an optimized web page, a fully paid$800,000 of Adjusted EBITDA in 2018 (while still better than competitors) into an operation that generated nearly$800,000 in Adjusted EBITDA in Q1 2020 and Q2 2020, over$1 million of Adjusted EBITDA in Q3 2020, and is a transformational success.
Today, the leadership team is focused on keeping our employees and clients as safe as possible as we continue to execute our strategy in the face of the emergence of the Covid-19 pandemic. As a former military officer with training in Nuclear, Biological, and Chemical operations, Helix's CEO is focused on not only the Company's strategic and operational results, but on the evolution of the pandemic threat to the business and our lives. 42 OnMarch 11, 2020 , theWorld Health Organization ("WHO") recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 has significantly curtailed global economic activity, including in the industries in which the Company operates.
The COVID-19 pandemic has created significant disruption and volatility in the capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. If we need to raise additional capital to support operations in the future, we may be unable to access the capital markets. In response to the health and safety risks and challenges presented by the COVID-19 pandemic, the Company has been proactively and regularly implementing measures to protect its employees. These measures include, but are not limited to, the following:
? Abiding by national, state, and local recommendations to require the wearing of
protective face masks and practicing of social distancing.
? Adopting remote working protocols, systems, and processes.
While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by theU.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted at this time. We believe that the economic impacts of the pandemic are not well understood in terms of scope, scale and duration, and so we continue to focus on accelerating our execution timeline while using our technology and data resources to deliver greater reliability and profitability to our customers.
Results of Operations for the three months ended
The following table shows our results of operations for the three months endedSeptember 30, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. For the Three Months Ended September 30, Change 2020 2019 Dollars Percentage Revenue$ 2,893,058 $ 2,737,568 $ 155,490 6 % Cost of revenue 918,150 1,318,825 (400,675 ) -30 % Gross margin 1,974,908 1,418,743 556,165 39 % Operating expenses 43,611,028 4,141,254 39,469,774 953 % Loss from operations (41,636,120 ) (2,722,511 ) (38,913,609 ) 1,429 % Other (expense) income, net (482,422 ) 1,608,218 (2,090,640 ) -130 % Loss from discontinued operations$ (70,259 ) $ (141,276 ) $ 71,017 -50 % Net loss$ (42,188,801 ) $ (1,255,569 ) $ (40,933,232 ) 3,260 % Changes in foreign currency translation adjustment$ 62,069 $ (118,003 ) $ 180,072 -153 % Net loss attributable to common shareholders$ (42,126,732 ) $ (1,373,572 ) $ (40,753,160 ) 2,967 % 43 Revenue Total revenue for the three-month period endedSeptember 30, 2020 was$2,893,058 , which represented an increase of$155,490 compared to total revenue of$2,737,568 for the three months endedSeptember 30, 2019 . The increase primarily resulted from additional revenue resulting from continued growth in our software client base and additional services accessed by them. Cost of Revenues Cost of revenues for the three months endedSeptember 30, 2020 and 2019 primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software. Cost of revenues decreased by$400,675 for the three months endedSeptember 30, 2020 , to$918,150 as compared to$1,318,825 for the three months endedSeptember 30, 2019 . The decrease resulted from cost containment measures we implemented and a reduction in purchases of installed security equipment. Operating Expenses Our operating expenses encompass selling, general and administrative expenses, salaries and wages, professional and legal fees and depreciation. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Our operating expenses during the three months endedSeptember 30, 2020 and 2019 were$43,611,028 and$4,141,254 , respectively. The overall$39,469,774 increase in operating expenses was attributable to intense cost management efforts, illustrated by the following increases/(decreases) in operating expenses of: ? Selling, general and administrative -$(471,049) ? Salaries and wages -$307,668 ? Professional and legal fees -$(199,590) ? Depreciation and amortization -$(130,362) ? Loss on impairment of intangibles -$39,963,107
The$(471,049) decrease in selling, general and administrative expenses is a result of decreases in rent expense, advertising and travel expenses resulting from cost containment measures. The$307,668 increase in salaries and wages resulted from an increase in stock compensation expense. The$(199,590) decrease in professional and legal fees primarily resulted from a decrease in legal fees and costs associated with fundraising and acquisitions. The$(130,362) decrease in depreciation and amortization was due to reduced amortization of intangible assets acquired in the Security Grade acquisition as we fully impaired certain intangible assets in the first quarter of 2020. The$39,963,107 increase in loss on impairment of intangibles resulted from an impairment of goodwill required by the equity value of the Company pursuant to the merger agreement withMOR Analytics LLC . See the Note 21 Subsequent Events for additional information. Other (Expense) Income, net Other (expense) income, net consisted of a change in the fair value of convertible notes, change in the fair value of convertible notes - related party, change in fair value of warrant liability, gain on asset disposal, loss on the conversion of convertible notes and interest expense. Other (expense) income, net during the three months endedSeptember 30, 2020 and 2019 was$(482,422) and$1,608,218 , respectively. The$(2,090,640) decrease in other (expense) income, net was primarily attributable to a loss on the change in fair value of convertible notes of$(321,915) , gain on the change in fair value of warrant liability of$67,039 , gain on asset disposal of$239,825 , loss on the conversion of convertible notes of$(111,902) and interest expense of$(355,469) .
Loss from Continuing Operations
For the foregoing reasons, we had a loss from continuing operations of$(42,118,542) for the three months endedSeptember 30, 2020 , compared to a loss from continuing operations of$(1,114,293) for the three months endedSeptember 30, 2019 . 44
Loss from Discontinued Operations
Loss from discontinued operations was$(70,259) and$(141,276) for the three months endedSeptember 30, 2020 and 2019, respectively. These losses related to the guarding business of the Company, which was sold onJuly 31, 2020 . Net Loss
For the foregoing reasons, we had a net loss of$(42,188,801) for the three months endedSeptember 30, 2020 , or$(0.36) per basic share, compared to net loss of$(1,255,569) for the three months endedSeptember 30, 2019 , or$(0.02) per basic share.
Net Loss Attributable to Common Shareholders
For the foregoing reasons, we had a net loss attributable to common shareholders of$(42,126,732) for the three months endedSeptember 30, 2020 , or$(0.36) per basic share attributable to common shareholders, compared to net loss attributable to common shareholders of$(1,373,572) for the three months endedSeptember 30, 2019 , or$(0.02) net income per basic share attributable to common shareholders.
Results of Operations for the nine months endedSeptember 30, 2020 and 2019 The following table shows our results of operations for the nine months endedSeptember 30, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. For the Nine Months Ended September 30, Change 2020 2019 Dollars Percentage
Revenue$ 8,800,352 $ 7,757,066 $ 1,043,286 13 % Cost of revenue 2,848,674 3,594,491 (745,817 ) -21 % Gross margin 5,951,678 4,162,575 1,789,103 43 % Operating expenses 52,055,830 11,929,552 40,126,277 336 % Loss from operations (46,104,152 ) (7,766,977 ) (38,337,174 ) 493 %
Other (expense) income, net (2,210,877 ) 642,813
(2,938,043 ) -457 %
Loss from discontinued operations
$ 169,200 -105 % Net loss$ (48,380,170 ) $ (7,284,962 ) $ (41,106,017 ) 564 % Changes in foreign currency translation adjustment$ 110,264 $ (114,346 ) $ 224,610 -196 % Net loss attributable to common shareholders$ (48,269,906 ) $ (7,399,308 ) $ (40,881,407 ) 552 % Revenue Total revenue for the nine-month period endedSeptember 30, 2020 was$8,800,352 , which represented an increase of$1,043,286 compared to total revenue of$7,757,066 for the nine months endedSeptember 30, 2019 . The increase primarily resulted from additional revenue resulting from continued growth in our software client based, and additional services accessed by them. 45 Cost of Revenues Cost of revenues for the nine months endedSeptember 30, 2020 and 2019 primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software. Cost of revenues decreased by$(745,817) for the nine months endedSeptember 30, 2020 , to$2,848,674 as compared to$3,594,491 for the nine months endedSeptember 30, 2019 . The decrease resulted from cost containment measures we implemented and a reduction in purchases of installed security equipment. Operating Expenses Our operating expenses encompass selling, general and administrative expenses, salaries and wages, professional and legal fees and depreciation. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Our operating expenses during the nine months endedSeptember 30, 2020 and 2019 were$52,055,830 and$11,929,552 , respectively. The overall$40,126,278 increase in operating expenses was attributable to the following increases/(decreases) in operating expenses of: ? Selling, general and administrative -$(1,066,569) ? Salaries and wages -$900,038 ? Professional and legal fees -$(844,499) ? Depreciation and amortization -$(195,777) ? Loss on impairment of intangible assets -$41,333,085 The$(1,066,569) decrease in selling, general and administrative expenses is a result of decreases in rent expense, advertising and travel expenses. The$900,038 increase in salaries and wages resulted from share-based compensation and separation payments to terminated employees. The$(844,499) decrease in professional and legal fees primarily resulted from a decrease in legal fees and costs associated with fundraising and acquisitions. The$(195,777) decrease in depreciation and amortization was due to the full impairment of the Security Grade customer list in the first quarter of 2020, which reduced subsequent amortization expense in 2020. The$41,333,085 increase in loss on impairment of intangibles resulted from an impairment of goodwill required by the equity value of the Company pursuant to the merger agreement withMOR Analytics LLC . See the Note 21 Subsequent Events for additional information.
Other (Expense) Income, net
Other (expense) income, net consisted of a change in the fair value of convertible notes, change in the fair value of convertible notes - related party, change in fair value of warrant liability, change in fair value of contingent consideration, gain on asset disposal, loss on conversion of convertible notes, loss on issuance of warrants, gain on reduction of obligation pursuant to acquisition, other income and interest expense. Other (expense) income, net during the nine months endedSeptember 30, 2020 and 2019 was$(2,210,877) and$642,813 , respectively. The$(2,853,690) decrease in other (expense) income, net was primarily attributable to a loss on the change in fair value of convertible notes of$(1,104,856) , loss on conversion of convertible notes of$(1,536,324) , and interest expense of$(1,029,979) , partially offset by gain on the change in fair value of convertible notes - related party of$498,233 , gain on the change in fair value of warrant liability of$682,717 , other income of$37,507 , gain on asset disposal of$239,825 and gain on reduction of obligation pursuant to acquisition of$2,000 , during the nine months endedSeptember 30, 2020 .
Loss from Continuing Operations
For the foregoing reasons, we had a loss from continuing operations of$(48,315,029) for the nine months endedSeptember 30, 2020 , compared to a loss from continuing operations of$(7,124,164) for the nine months endedSeptember 30, 2019 . 46
Loss from Discontinued Operations
Loss from discontinued operations was
Net Loss
For the foregoing reasons, we had a net loss of$(48,380,170) for the nine months endedSeptember 30, 2020 , or$(0.46) net loss per common share - basic and diluted, compared to a net loss of$(7,284,962) for the nine months endedSeptember 30, 2019 , or$(0.10) net loss per common share - basic and diluted.
Net Loss Attributable to Common Shareholders
For the foregoing reasons, we had a net loss attributable to common shareholders of$(48,269,906) for the nine months endedSeptember 30, 2020 , or$(0.46) net loss per share attributable to common shareholders - basic and diluted, compared to net loss attributable to common shareholders of$(7,399,308) for the nine months endedSeptember 30, 2019 , or$(0.10) net loss per share attributable to common shareholders - basic and diluted.
Liquidity, Capital Resources and Cash Flows
Going Concern
Management believes that we will continue to incur losses for the immediate future. Therefore, we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the nine months endedSeptember 30, 2020 , we have generated revenue and are trying to achieve positive cash flows from operations.
As of
The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results. The condensed consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. Capital Resources
The following table summarizes total current assets, liabilities and working capital for the periods indicated:
September 30, December 31, 2020 2019 Change Current assets$ 4,573,684 $ 3,518,224 $ 1,055,460 Current liabilities 5,914,154 6,934,725 (1,020,571 ) Working capital$ (1,340,470 ) $ (3,416,501 ) $ 2,076,031
As of
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