You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and the related
notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K
for the year ended December 31, 2019. Some of the information contained in this
discussion and analysis, particularly with respect to our plans and strategy for
our business and related financing, includes forward-looking statements within
the meanings of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, including statements regarding expectations, beliefs, intentions or
strategies for the future. When used in this report, the terms "anticipate,"
"believe," "estimate," "expect," "can," "continue," "could," "intend," "may,"
"plan," "potential," "predict," "project," "should," "will," "would" and words
or phrases of similar import, as they relate to our company or our management,
are intended to identify forward-looking statements. We intend that all
forward-looking statements be subject to the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are only predictions and reflect our views as of the date they are
made with respect to future events and financial performance, and we undertake
no obligation to update or revise, nor do we have a policy of updating or
revising, any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events, except as may be required under applicable law.
Forward-looking statements are subject to many risks and uncertainties that
could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements as a result of several
factors including those set forth under "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2019, and in this Quarterly Report on
Form 10-Q for the quarter ended September 30, 2020.
The Company notes that in addition to the description of historical facts
contained herein, this report contains certain forward-looking statements that
involve risks and uncertainties as detailed herein and from time to time in the
Company's other filings with the Securities and Exchange Commission and
elsewhere. Such statements are based on management's current expectations and
are subject to a number of factors and uncertainties, which could cause actual
results to differ materially from those, described in the forward-looking
statements. These factors include, among others: (a) the Company's fluctuations
in sales and operating results; (b) risks associated with international
operations; (c) regulatory, competitive and contractual risks; (d) development
risks; (e) the ability to achieve strategic initiatives, including but not
limited to the ability to achieve sales growth across the business segments
through a combination of enhanced sales force, new products, and customer
service; and (f) pending litigation.
Overview and Outlook
The Company was incorporated on May 7, 2007 under the name, "Darkstar Ventures,
Inc." under the laws of the State of Nevada. On November 12, 2019, the Company
completed its merger with the Delaware corporation that was previously known as
"Samsara Luggage, Inc." ("Samsara Delaware") in accordance with the terms of the
Merger Agreement and Plan of Merger, dated as of May 10, 2019, (the "Merger
Agreement") by and among the Company, Samsara Delaware, and Avraham Bengio,
pursuant to which Samsara Delaware merged with and into the Company, with the
Company being the surviving corporation (the "Merger"). Following the completion
of the Merger, the business of the Company going forward became the business of
Samsara Delaware prior to the Merger, namely, the development and sale of smart
luggage products.
Recent Developments
Increase in Authorized Share Capital
On October 5, 2020, the Board of Directors of the Company approved, and the
holders of a majority of the outstanding shares of our common stock, par value
$0.0001 per share, (the "Common Stock"), executed a written consent in lieu of a
meeting that approved, amending the Company's Articles of Incorporation to
increase the number of authorized shares of common stock from 5,000,000,000 to
7,500,000,000 (the "Authorized Capital Increase").
On November 3, 2020, the Company effected the Authorized Capital Increase by
filing with the Secretary of State of the State of Nevada a Certificate of
Amendment amending the Company's Articles of Incorporation to increase the
number of authorized shares of common stock from 5,000,000,000 to 7,500,000,000.
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YAII PN Ltd. Convertible Debentures
On September 3, 2020, Samsara Luggage, Inc. (the "Company") entered into a
Securities Purchase Agreement ("SPA") with YAII PN, Ltd. (the "Investor"),
pursuant to which the Investor invested an aggregate amount of $220,000 in two
tranches, and the Company issued convertible debentures and warrants to the
Investor. The first tranche of the investment in the amount of $150,000 was
provided upon signature of the SPA. The second tranche in the amount of $70,000
was provided on October 7, 2020. The funds are expected to be used to finance
the Company's working capital and other general corporate needs.
Each tranche of the investment will bear interest at an annual rate of ten
percent (10%) and will be repayable after two years. Each tranche of the
investment will be convertible at any time into shares of the Company's Common
Stock at a conversion price equal to the lower of (a) $0.003 per share, or (b)
80% of the lowest the daily dollar volume-weighted average price for the
Company's Common Stock during the 10 trading days immediately preceding the
conversion date.
As part of the transaction, the Company issued to the Investor warrants to
purchase an aggregate of 18,333,333 shares of Common Stock, at an exercise price
equal to $0.003. The term of each warrant is five years from the issue date.
Each warrant may be exercised by cash payment or through cashless exercise by
the surrender of warrant shares having a value equal to the exercise price of
the portion of the warrant being exercised.
The Company undertook to increase its authorized shares of Common Stock to at
least 7,000,000,000 within 90 days of the closing.
The SPA and the convertible debentures contain events of default, including,
among other things, failure to repay the convertible debentures by the maturity
date, and bankruptcy and insolvency events, that could result in the
acceleration of the Investor's right to convert the convertible debentures into
shares of common stock.
The foregoing descriptions of the terms and conditions of the SPA and the
convertible debentures are qualified in their entirety by reference to the full
text of the SPA and the convertible debentures.
The Company issued the convertible debentures and the warrants under the
exemptions from registration provided by Section 4(a)(2) of the Securities Act
of 1933. The Company expect that any issuance of shares of common stock pursuant
to the terms of the convertible debentures and the warrants will be exempt from
registration under Section 4(a)(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and regulations promulgated thereunder. None of these
transactions involved any underwriters, underwriting discounts or commissions,
or any public offering, and the Investor had adequate access, through their
relationships with the Company, to information about the Company.
The shares of common stock to be issued in the event of conversion of the
convertible debentures and upon exercise of the warrants will not be registered
under the Securities Act, or any state securities laws, and may not be offered
or sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act.
Results of Operations
Nine months ended September 30, 2020 compared to the nine months ended September
30, 2019
Revenue
The Company generates revenues through the sale and distribution of smart
luggage products. Revenues during the nine months ended September 30, 2020
totaled $402,000 compared to $617,000 for the nine months ended September 30,
2019. The decrease in the total revenue is mainly due to the fact that 2019
revenues included proceeds from the Company's crowdfunding campaign.
16
Costs of Revenue
Costs of revenue consists of the purchase of raw materials and the cost of
production. Cost of revenues during the nine months ended September 30, 2020
totaled $234,000 compared to $322,000 for the nine months ended September 30,
2020. The decrease in the costs of revenue is mainly due to a decrease in sales.
Gross Profit
During the nine months ended September 30, 2020, Gross Profit totaled $168,000,
representing a Gross Profit margin of 42%. During the nine months ended
September 30, 2019, Gross Profit totaled $295,000, representing a Gross Profit
margin of 48%.
Operating Expenses
Operating expenses totaled $1,240,000 during the nine months ended September 30,
compared to $1,179,000 during the nine months ended September 30, 2019,
representing a net increase of $61,000.
Financing Income (Expense)
Financing income totaled $192,000 during the nine months ended September 30,
2020, compared to financing expense of $274,000 during the three months ended
September 30, 2019, representing a net increase of $466,000. The increase in the
financing income is mainly due to a net income in respect of warrants issued and
the convertible component in a convertible loan of $732,000 during the nine
months ended September 30, 2020, as opposed to a net expense in respect of
warrants issued and the convertible component in a convertible loan of $175,000
during the nine months ended September 30, 2019, the difference being mainly due
to a decrease in the Company's share price.
Net Loss
We realized a net loss of $880,000 for the nine months ended September 30, 2020,
as compared to a net loss of $1,158,000 for the nine months ended September 30,
2019, for the reasons described above.
Three months ended September 30, 2020 compared to the three months ended
September 30, 2019
Revenue
The Company generates revenues through the sale and distribution of smart
luggage products. Revenues during the three months ended September 30, 2020
totaled $51,000 compared to $12,000 for the three months ended September 30,
2019. The increase in the total revenue is mainly due to the Company having
developed inhouse online marketing capabilities in 2020 which resulted in an
increase in sales.
Costs of Revenue
Costs of revenue consists of the purchase of raw materials and the cost of
production. Cost of revenues during the three months ended September 30, 2020
totaled $48,000 compared to $8,000 for the three months ended September 30,
2019.
Gross Profit
During the three months ended September 30, 2020, Gross Profit totaled $3,000,
representing a Gross Profit margin of 6%. During the three months ended
September 30, 2019, Gross Profit totaled $4,000, representing a Gross Profit
margin of 33%.
17
Operating Expenses
Operating expenses totaled $389,000 during the three months ended September 30,
2020, compared to $509,000 during the three months ended September 30, 2019,
representing a net decrease of $120,000. The decrease in the operating expenses
is mainly due to decrease in the shares-based compensation, research and
development, and marketing and sales expenses.
Financing Income (Expense)
Financing expense totaled $269,000 during the three months ended September 30,
2020, compared to financing income of $503,000 during the three months ended
September 30, 2019, representing a net increase in financing expense of
$772,000. The increase in the financing expense is mainly due to an increase in
the interest and amortization of issuance cost on a note and a short-term loan
during the three months ended September 30, 2019.
Net Loss
We realized a net loss of $655,000 for the three months ended September 30,
2020, as compared to a net loss of $2,000 for the three months ended
September 30, 2019.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.
As of September 30, 2020, the Company had $135,000 of cash, total current assets
of $300,000, and total current liabilities of $1,457,000, creating a working
capital deficit of $1,157,000. As of December 31, 2019, the Company had $477,000
of cash, total current assets of $616,000 and total current liabilities of
$1,810,000 creating a working capital deficit of $1,194,000.
The decrease in our working capital deficit was mainly attributable to the
decrease of $442,000 in Fair Value of the convertible component in a convertible
loan and a decrease of $283,000 in Fair Value of the Warrants issued in
convertible loan, which was mitigated by a decrease of $342,000 in cash and cash
equivalents.
Net cash used in operating activities was $533,000 for the nine months ended
September, 2020, as compared to cash used in operating activities of $767,000
for the nine months ended September 30, 2019. The Company's primary uses of cash
have been for research and development expenses, sales and marketing expenses,
and working capital purposes.
Net cash used in investing activities was $0 for the nine months ended
September 30, 2020, as compared to cash used in operating activities of $5,000
for the nine months ended September 30, 2019.
Net cash provided by financing activities was approximately $191,000 for the
nine months ended September 30, 2020, as compared to approximately $750,000 for
the nine months ended September 30, 2019. We have principally financed our
operations through the sale of our common stock and the issuance of debt. Due to
our operational losses, we relied to a large extent on financing our cash flow
requirements through issuance of common stock and debt. There can be no
assurance we will be successful in raising the necessary funds to execute our
business plan.
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Necessity of Additional Financing
Securing additional financing is critical to implementation of our business
plan. If and when we obtain the required additional financing, we should be able
to fully implement our business plan. In the event we are unable to raise any
additional funds we will not be able to pursue our business plan, and we may
fail entirely. We currently have no committed sources of financing.
Going Concern Consideration
The above conditions raise substantial doubt about our ability to continue as a
going concern. Our independent auditors included an explanatory paragraph in
their report on the accompanying financial statements regarding concerns about
our ability to continue as a going concern. Our financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors. Although we anticipate that our current
operations will provide us with cash resources, we believe existing cash will
not be sufficient to fund planned operations and projects through the next 12
months. Therefore, we believe we will need to increase our sales, attain
profitability, and raise additional funds to finance our future operations. Any
meaningful equity or debt financing will likely result in significant dilution
to our existing stockholders. There is no assurance that additional funds will
be available on terms acceptable to us, or at all.
To address these risks, we must, among other things, implement and successfully
execute our business and marketing strategy surrounding our products,
continually develop and upgrade our website, respond to competitive
developments, lower our financing costs, and attract, retain and motivate
qualified personnel. There can be no assurance that we will be successful in
addressing such risks, and the failure to do so can have a material adverse
effect on our business prospects, financial condition and results of operations.
Seasonality
We do not expect our sales to be impacted by seasonal demands for our products.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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SAMSARA LUGGAGE, INC. 
