LUX AMBER, CORP. Forward-Looking Statements
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help you understand the Company's historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with the Company's financial statements and the accompanying notes, and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management's expectations. See the sections entitled "Forward-Looking Statements" and "Risk Factors" above. The Company changed its fiscal year end fromDecember 31 to April 30 . The transition report was for the four-month period ofJanuary 1, 2020 throughApril 30, 2020 . The information for the year endedApril 30, 2020 is presented for comparative purposes only and is unaudited. Comparative Consolidated Statement of Operations (Unaudited) For the Year For the Year Ended Ended April 30, April 30, 2021 2020 REVENUE$ 998,947 $ 966,023 COST OF GOODS SOLD 683,951 1,162,673 Gross profit (loss) 314,996 (196,650 ) OPERATING EXPENSES Product Delivery 594,098 252,230
General and administrative 1,506,792
1,829,709
Selling 84,936
121,492
Depreciation and amortization 155,171
200,073
Total operating expenses 2,340,997 2,403,504
OTHER (INCOME) EXPENSE
Interest income - -
Interest expense 66,951 61,077
Other (income) expense (108,755 ) 133,919Total other (income) expense (41,804 )
194,996
Net loss (1,984,197 ) (2,795,150 )
Less: net loss attributable to non-controlling interest -
10,468
NET LOSS attributable to
(2,805,618 )
Basic and diluted loss per share$ (0.06 )
Weighted average shares - basic and diluted 30,578,463
28,046,859 7 OVERVIEW
Results of operations for the years ended
Revenues
For the years ended
The increase in revenue is due to an increase in sales to existing customers and an increase in the selling price of products.
Cost of Goods Sold For the years endedApril 30, 2021 and 2020, cost of goods sold was$683,951 and$1,162,673 . These primarily consisted of cost of goods sold expense of$507,099 and$658,075 , raw materials of$3,885 and$130,029 , truck operating expenses of$2,773 and$62,289 , direct labor and payroll of$37,668 and$92,106 , packaging materials of$2,358 and$1,841 , blending costs of$130,168 and$6,526 , freight costs of$0 and$146,839 , disposal of waste of$0 and$55,716 , warehouse supplies of$0 and$7,998 , and equipment repairs of$0 and$1,254 . The decrease in cost of goods sold is a result of a combination of a change in the raw material ingredients of a major product and price increases on each
of the Company's products. Operating Expenses For the years endedApril 30, 2021 and 2020, operating expenses were$2,340,997 and$2,403,504 . These primarily consisted of general and administrative costs of$1,506,792 and$1,829,709 , product delivery costs of$594,098 and$252,230 , selling expenses of$84,936 and$121,492 , and depreciation/amortization expenses of$155,171 and$200,073 . For the years endedApril 30, 2021 and 2020, the general and administrative expenses of$1,506,792 and$1,829,709 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total$1,127,154 and$1,755,822 . These fees are comprised of audit fees of$89,743 and$72,582 , accounting fees of$38,523 and$44,987 , legal fees of$42,410 and$47,147 , consulting fees of$468,933 and$383,521 , and officers' compensation of$309,333 (unpaid) and$480,211 (paid). General and administrative expenses also included non-cash expenses, specifically$178,212 and$727,374 of stock compensation expense. Business development expenses were$48,535 and$44,044 , wages were$22,149 and$23,755 , and other/miscellaneous expenses were$308,954 and$6,088 .
The decrease in operating expenses is due to a reduction of the number of
employees, plus changes in the utilization of the Company's former lease of
property at
General and Administrative Expenses
Year Ended April 30, 2021
LAC ICS WSCI SPE Total
Audit Fees $ 88,995 $ 748 $ - $ - $ 89,743
Accounting Fees 26,943 11,580 - - 38,523
Legal Fees 39,020 3,390 - - 42,410
Consulting Fees 391,425 77,508 - - 468,933
Stock Compensation 178,212 - - - 178,212
Officer's Compensation 309,333 - - - 309,333
Business Development 48,535 - - - 48,535
Wages 16,109 - 6,040 - 22,149
Other/Misc. 121,800 166,200 20,954 - 308,954
$ 1,220,372 $ 259,426 $ 26,994 $ - $ 1,506,792
8
Liquidity and Capital Resources
During the year endedApril 30, 2021 , the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the receipt of PPP loans. The Company had total assets of$3,353,460 as ofApril 30, 2021 . Its current assets onApril 30, 2021 , consisted of$112,982 in accounts receivable,$137,211 in inventory and$7,960 in prepaid expenses and other current assets, and its long-term assets were$3,095,307 . As ofApril 30, 2021 , the Company had total liabilities of$2,468,547 , including$554,588 in accounts payable,$1,201,568 of accrued expenses and$127,624 in notes payable,$479,975 in related party payables and lease liabilities, and$104,752 in PPP loans.
On
The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtains additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer, or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition, and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company's stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company's cash requirements and to finance specific business initiatives.
Results of operations for the four-month transition period
Revenues
For the period ended
Cost of Goods Sold
For the period endedApril 30, 2020 , cost of goods sold was$329,666 . These primarily consisted of cost of goods sold expenses of$41,940 , raw materials of$127,044 , freight of$29,205 , truck operating expenses of$31,004 , direct labor and payroll of$92,106 , packaging materials of$1,841 , and blending costs of$6,526 . 9 Operating Expenses For the period endedApril 30, 2020 , operating expenses were$1,010,694 . These primarily consisted of product delivery costs of$252,230 , general and administrative costs of$838,966 , selling expenses of$72,148 , and$99,580 of depreciation and amortization expenses. For the period endedApril 30, 2020 , the general and administrative expenses of$838,966 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total$630,336 . These fees are comprised of audit fees of$43,247 , accounting fees of$8,426 , filing, legal fees of$63,332 , consulting fees of$223,163 , and officers' compensation paid of$206,292 . Non-cash expenses recorded also included are$79,001 of stock compensation expense and$6,875 of accrued officers' compensation. Business development expenses were$66,538 , wages were$77,074 , and other/miscellaneous expenses were$65,018 . General and Administrative Expenses Four-Month Transitioning Period Ended April 30, 2020 LAC Formerly "WSC" ICS SPE PCNM Total Audit Fees$ 35,785 $ 7,462 $ 0 $ 0 $ 43,247 Accounting Fees 8,426 - - - 8,426 Legal Fees 63,008 324 - - 63,332 Consulting Fees 212,262 10,241 660 - 223,163 Stock Compensation 79,001 - - - 79,001 Officer's Compensation Paid 206,292 - - - 206,292
Officer's Compensation Accrued 6,875 - -
- 6,875
Business Development 66,538 - - - 66,538
Wages 48,883 590 27,601 - 77,074
Other/Misc. 11,934 47,761 5,111 212 65,018
$ 739,004 $ 66,378 $ 33,372 $ 212 $ 838,966 Liquidity and Capital Resources
During the period endedApril 30, 2020 , the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable.
The Company had total assets of
As ofApril 30, 2020 , the Company had total liabilities of$2,397,838 , including$288,864 in accounts payable,$805,853 of accrued expenses and$790,474 in notes payable, and$512,647 in related party payable and lease liabilities.
On
10 The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer, or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition, and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company's stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company's cash requirements and to finance specific business initiatives.
Results of operations for the year ended
Revenues
For the year ended
Cost of Goods Sold For the year endedDecember 31, 2019 , cost of goods sold was$932,032 . There primarily consisted of cost of goods sold expenses of$606,596 , raw materials of$74,004 , freight of$177,023 , and direct labor and payroll of$74,409 . Operating Expenses For the year endedDecember 31, 2019 , its operating expenses totaled$3,681,479 . These primarily consisted of general and administrative costs of$3,358,631 , selling expenses of$150,602 and$172,246 of depreciation and amortization expense. For the year endedDecember 31, 2019 , the general and administrative costs of$3,358,631 can be broken down into four major categories: 1) fees related to being a reporting entity, 2) business development, 3) wages, and 4) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total$2,371,816 . These fees comprise audit fees of$45,532 , accounting fees of$95,334 , filing and legal fees of$36,887 , consulting fees of$174,374 , and officers' compensation paid of$177,500 . Non-cash expenses recorded also include$1,650,145 of stock compensation expense and accrued officers' compensation of$192,044 . Business development expenses were$294,875 , wages were$395,733 , and other/miscellaneous expenses were$296,207 . 11 General and Administrative Expenses Year Ended December 31, 2019 WSC ICS SPE PCNM Total Audit Fees$ 45,532 $ - $ - $ - 45,532 Accounting Fees 95,334 - - - 95,334 Filing Fees 4,197 - - - 4,197 Legal Fees 32,690 - - - 32,690 Consulting Fees 120,180 54,194 - - 174,374 Stock Compensation 1,650,145 - - - 1,650,145 Officer's Compensation Paid 177,500 - - - 177,500
Officer's Compensation Accrued 192,044 - -
- 192,044
Business Development 216,935 45,991 31,159 790 294,875
Wages 116,838 204,688 74,207 - 395,733
Other/Misc. 98,824 195,487 (6 ) 1,902 296,207
$ 2,750,219 $ 500,360 $ 105,360 $ 2,692 3,358,631
Liquidity and Capital Resources
During the year endedDecember 31, 2019 , the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the sale of common stock. As ofDecember 31, 2019 , the Company had total assets of$4,044,935 , including$408,338 in cash,$85,359 in receivables,$145,747 in inventory and$92,068 in prepaid expenses and other current assets, and its long-term assets were$3,313,423 . OnDecember 31, 2019 , the Company had total liabilities of$1,899,935 , including$167,539 in accounts payable,$646,410 of accrued expenses,$548,549 in notes payable,$108,058 in related party payables, and$429,379 in lease liabilities.
On
The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company's stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company's cash requirements and to finance specific business initiatives. 12 Critical Accounting Policies
Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements. These policies are contained in Note 1 to the consolidated financial statements.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts 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.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management onApril 30, 2020 , and 2021, andDecember 31, 2019 . The carrying value of the financial instruments included in the Company's consolidated financial statements approximated their fair values. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest.
Revenue Recognition
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. Our sales policies do not provide for general rights of return, and payment is due net of 15 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts. Sales Taxes
Sales (and similar) taxes that are imposed on the Company's sales and collected from customers are excluded from revenues.
Shipping and Handling Costs
Shipping and Handling Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. The Company accrues costs for shipping and handling activities that occur after control of the promised good has transferred to the customer. 13
Accounts Receivable and Allowance for Doubtful Accounts
Account's receivables are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company's portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company's customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. OnApril 30, 2021 and 2020, andDecember 31, 2019 , the allowance for doubtful accounts was$0 . Stock-Based Compensation The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free interest rate from 1.60-2.56% in 2019, dividend yield of 0%, expected life of 3.25 - 5 years and volatility of 71.70%. For the year endedApril 30, 2021 and the transition period endedApril 30, 2020 , no stock-based awards
have been issued.Goodwill Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on the reporting unit. As a result of the certain business developments and changes in the Company's long-term projections, during the fourth quarter of fiscal 2021, the Company concluded a triggering event had occurred that required an impairment assessment to be performed. The qualitative assessment thresholds were not met. The Company calculated the quantitative impairment test of using the implied fair market value using market data and concluded there was no goodwill impairment loss. Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2021, 2020 or 2019. The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below. The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss. 14
Off Balance Sheet Transactions and Related Matters
There are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
Disclosure of Contractual Obligations
Effective
As discussed in Note 3 of the consolidated financial statements, the Company is party to certain debt instruments related to its vehicles and equipment.
Material Events
OnMarch 26, 2020 , WSC merged withLux Amber, Corp. and WSC is now a wholly owned subsidiary ofLux Amber, Corp. The Company's principal executive offices are located at6136 Frisco Square Blvd. , Suite 400, #237,Frisco, TX 75034. The corporate telephone number is 972-214-9764. LAC does have a stock symbol, which is LXAM.
Effective
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