Cautionary Statement Regarding Forward-Looking Statements
The information in this Quarterly Report contains forward-looking statements.
These forward-looking statements involve risks and uncertainties, including
statements regarding Triton's capital needs, business strategy and expectations.
Any statements contained herein that are not statements of historical facts may
be deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "intend", "anticipate", "believe", "estimate", "predict",
"potential" or "continue", the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined
from time to time, in other reports Triton files with the Securities and
Exchange Commission.
The forward-looking statements in this Quarterly Report on Form 10-Q for the
interim period ended March 31, 2020, are subject to risks and uncertainties
that could cause actual results to differ materially from the results expressed
in or implied by the statements contained in this report. As a result, the
identification and interpretation of data and other information and their use in
developing and selecting assumptions from and among reasonable alternatives
requires the exercise of judgment. To the extent that the assumed events do not
occur, the outcome may vary substantially from anticipated or projected results,
and accordingly, no opinion is expressed on the achievability of those
forward-looking statements. No assurance can be given that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate.
All forward-looking statements are made as of the date of the filing of this
Quarterly Report on Form 10-Q and Triton disclaims any obligation to publicly
update these statements or disclose any difference between its actual results
and those reflected in these statements. Triton may, from time to time, make
oral forward-looking statements. Triton strongly advises that the above
paragraphs and the risk factors described in this Quarterly Report and in
Triton's other documents filed with the United States Securities and Exchange
Commission should be read for a description of certain factors that could cause
the actual results of Triton to materially differ from those in the oral
forward-looking statements. Triton disclaims any intention or obligation to
update or revise any oral or written forward-looking statements whether as a
result of new information, future events or otherwise.
Cautionary Statement of No Auditor Review
The unaudited interim condensed consolidated financial statements included in
this quarterly report on Form 10-Q have not been reviewed by an independent
auditor. They have been prepared by management of the Company in accordance with
the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore,
do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
The discussion provided in this Quarterly Report should be read in conjunction
with our Annual Report on Form 10-K along with unaudited, management prepared,
consolidated financial statements for the year ended December 31, 2019, filed
with the United States Securities and Exchange Commission (the "SEC") on March
30, 2020.
OVERVIEW
We were incorporated under the laws of the State of Delaware on March 2, 2000.
We are in the business of developing and marketing emission abatement
technologies for the marine industry worldwide.
Our main products are represented by the Njord Exhaust Gas Scrubber System (the
"Njord System") and the DSOX Fuel Purification System (the "DSOX-20" or "DSOX
System"). The main purpose of the Njord System is to clean the exhaust gases
from excess sulfur following the internal combustion process within a ships'
engine, whereas the DSOX-20 is a pre-combustion de-sulfurization technology
designed to remove alkali metals, such as sulfur and sodium, from heavy marine
fuel.
--------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------
Both systems can work as stand-alone units and can be used in conjunction with
one another to get the ultimate results. The fairly small size of Njord System
and capability of it working in both open and closed loop modes makes the system
versatile for installation on new builds as well as for retrofitting existing
vessels. Its unique design does not require the addition of any chemicals and
results in minimal back pressure, allowing for an extended longevity of a ships'
engine.
On April 6, 2020, we received a notice from Dale Matheson Carr-Hilton Labonte
LLP ("DMCL"), our independent auditor, regarding their resignation, which was
made effective April 6, 2020. Based on the confirmation from DMCL, no reportable
event has arisen during the term of their engagement.
RESULTS OF OPERATIONS
Three Months Summary
Three Months Ended
Percentage
March 31, March 31, Increase /
2020 2019 (Decrease)
Operating expenses $ (7,122) $ (18,100) (60.7)%
Change in fair value of derivative liabilities (699,764) (437,258) 60.0%
Foreign exchange gain (loss) 16,813 (3,769) (546.1)%
Interest (459,318) (393,108) 16.8%
Net loss $ (1,149,391) $ (852,235) 34.9%
Revenues
We did not generate any revenue during the three months ended March 31, 2020 and
2019. Due to significant shortage of financial resources, we do not expect to
have operating revenue in the foreseeable future.
Operating Expenses
During the three-month period ended March 31, 2020, our operating expenses
decreased by $10,978 or 60.7% to $7,122 as compared to $18,100 we incurred
during the three-month period ended March 31, 2019. The largest expense items
during the current period included professional fees of $3,123 (2019 - $14,314),
which were mainly associated with maintenance of our patents and patent
applications, and filing and regulatory fees of $3,238 (2019 - $2,308).
Other Items
During the three months ended March 31, 2020, we recorded $699,764 loss (2019 -
$437,258) on cumulative change in the fair value of the derivative liabilities
associated with the warrants we issued to KFBV pursuant to the KF Loans and the
conversion feature available under the Third KF Loan. The cumulative change in
fair value of the derivative liabilities consisted of $2,531 gain (2019 -
$18,854 loss) we recorded on the fair values of the derivative liabilities
associated with the KF Warrants and $702,295 loss (2019 - $418,404) we recorded
on fair values of the derivative liability associated with the conversion
feature available under the Third KF Loan Agreement.
During the three months ended March 31, 2020, we recorded a total of $459,318 in
interest expenses (2019 - $393,108), of which $426,318 was associated with
interest accrued on KF Loans (2019 - $363,189) and $33,000 was associated with
interest accrued on the notes payable we issued to Mr. Norling, KFBV, and other
third-party lenders (2019 - $29,919).
During the three months ended March 31, 2020 we recorded an unrealized gain on
foreign exchange, which amounted to $16,813 (2019 - loss of $3,769).
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
Liquidity and Capital Resources
Our financial position at March 31, 2020 and December 31, 2019 was as follows:
March 31, 2020 December 31, 2019
Current assets $ 10,010 $ 13,605
Current liabilities 19,257,812 18,112,016
Working capital deficit $ (19,247,802) $ (18,098,411)
As of March 31, 2020, we had a cash balance of $2,389, a working capital deficit
of $19,247,802, and cash flows used in operations of $61 for the three months
then ended. Of our working capital deficit at March 31, 2020, $29,387 was
attributed to the fair value of the derivative liabilities associated with the
KF Warrants and $2,532,045 was attributed to the Third KF Loan Conversion
Feature. During the three-month period ended March 31, 2020, we funded our
operations with $612 we received from KFBV under the advances for working
capital which accumulate interest at 10% per annum compounded monthly.
As of March 31, 2020, we owed a total of $12,047,322 (2019 - $11,621,004) to
KFBV under the terms of the First KF Loan, the Second KF Loan and the Third KF
Loan, consisting of (i) $5,900,000 (2019 - $5,900,000) in principal amount of
all KF Loans, (ii) $1,343,113 (2019 - $1,343,113) in accrued interest thereon
calculated using the stated interest rate of 10% per annum compounded monthly
until January 15, 2017, when all KF Loans became due and payable, (iii)
$4,442,053 (2019 - $4,015,735) in accrued interest at a default rate of
interest, which was calculated on $7,243,113 owed and payable on January 15,
2017, and (iv) $362,156 (2019 - $362,156) associated with penalty we accrued on
an unpaid balance due on January 15, 2017.
During the three-month period ended March 31, 2020, our operating activities
were not generating any cash flows. Our only source of financing during the
three-month period ended March 31, 2020, came from KFBV advances for working
capital. The amount of cash that we have generated from our operations to date
is significantly less than our current debt obligations, including our debt
obligations under the KF Loans, which became due and payable on January 15,
2017, and as of the date of the filing of this Form 10-Q are in default.
There is no assurance that we will be able to generate sufficient cash from our
operations to repay the amounts owing under the KF Loans should KFBV furnish us
with a demand to pay, or to service our other debt obligations. If we are
unable to generate sufficient cash flow from our operations to repay the amounts
owing when due, we may be required to raise additional financing, or
re-negotiate the terms of our debt obligations. Our ability to raise financing
from other sources is restricted under the terms of the KF Loan Agreements.
Under the terms of those agreements, we may not incur additional debt financing
(other than trade payables incurred in the ordinary course of business), sell
any material assets, sell any of our equity securities as part of any
transaction that would result in a change in control, or engage in any corporate
reorganization while any amounts remain outstanding under KF Loan agreements
without KFBV's prior written consent.
Although Robert C. Kopple, the Chairman of our Board of Directors, is the
principal of KFBV, there is no assurance that we will be able to obtain
additional financing from KFBV, re-negotiate the terms of the KF Loans, or
obtain KFBV's consent to other financing alternatives, if needed.
Cash Flows
Three Months Ended
March 31,
2020 2019
Cash flows used in operating activities $ (61) $ (9,354)
Cash flows provided by financing activities 612 9,392
Net increase in cash during the period $ 551 $ 38
Net Cash Used in Operating Activities
Net cash used in operating activities during the three-month period ended March
31, 2020, was $61. This cash was primarily used to cover our cash operating
expenses of $7,112 and was offset by a $4,146 decrease in our prepaid expenses,
and a $2,905 increase in our accounts payable and accrued liabilities.
--------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
Net cash used in operating activities during the three-month period ended March
31, 2019, was $9,354. This cash was primarily used to cover our cash operating
expenses of $18,068 and was offset by a $5,761 decrease in our prepaid expenses,
and a $2,953 increase in our accounts payable.
Non-cash Items
During the three months ended March 31, 2020 and 2019, our net loss was further
increased by the following expenses that did not have any impact on cash used in
operations:
·$459,318 (2019 - $393,108) in interest we accrued on our notes and advances
payable, of which $426,318 (2019 - $363,189) was associated with interest we
accrued on the balances payable on the KF Loans;
·$699,764 loss (2019 - $437,258) we recorded on revaluation of the derivative
liabilities associated with the KF Warrants and the Third KF Loan Conversion
Feature as, pursuant to the guidance provided by ASC 815, we must revalue
derivative liability at each reporting period based on the fair market value of
our common shares on the reporting date.
·$16,803 gain (2019 - $3,801 loss) we recorded on changes associated with
foreign exchange fluctuations.
Net Cash Provided by Financing Activities
During the three-month period ended March 31, 2020, KFBV advanced to us $612
(2019 - $9,392) for working capital. These advances accumulate interest at 10%
per annum and are payable on demand.
As of March 31, 2020, we owed a total of $12,047,322 under the KF Loans,
consisting of (i) $5,900,000 in principal amount of all KF Loans, (ii)
$1,343,113 in accrued interest thereon calculated using the stated interest rate
of 10% per annum, (iii) $4,442,053 in accrued interest at a default rate of
interest, and (iv) $362,156 associated with late payment fee we accrued on an
unpaid balance due on January 15, 2017. At March 31, 2020, the KF Loans were in
default; however, we have not been served with a default notice by KFBV.
Going Concern
The notes to our condensed consolidated financial statements at March 31, 2020,
disclose our uncertain ability to continue as a going concern. As of the date of
this Quarterly report on Form 10-Q we have accumulated a deficit of $82,729,496
and additional financing will be required to fund and support our operations.
In February of 2017, majority of our top management resigned from their
positions with the Company. Resignations of Mr. Aasen and Mr. Norling have left
the Company without technical expertise required for the Company to continue
development and marketing of our emission technologies, creating an uncertainty
as to our ability to finalize our current projects to install our DSOX Fuel
Purification Systems. In April 2017 we commissioned Norling Inc. to perform the
testing of our DSOX Fuel Purification Systems, which were completed in late June
2017, however, did not yield satisfactory results required to secure potential
contracts on installation.
The results of the tests confirmed that more research and further improvements
to our emission abatement systems will be required in order to achieve
industry-specific requirements. Should we decide to continue our operations and
further development of our DSOX and NJORD Systems, we will be required to retain
several engineers with relevant experience in the emission abatement
technologies to work on the above projects. In order to be able to retain new
staff or consultants we will be required to raise additional debt or equity
financing, which may become challenging based on the current debt covenants
under our existing KFBV Loan Agreements, and our share structure.
On April 6, 2020, our independent auditor resigned. Based on the confirmation
from DMCL, no reportable event has arisen during the term of their engagement,
however, we do not have sufficient funds to continue to retain their services.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
Uncertainty due to Global Outbreak of COVID-19
In March of 2020, the World Health Organization declared an outbreak of COVID-19
Global pandemic. The COVID-19 has impacted vast array of businesses through the
restrictions put in place by most governments internationally, including the USA
federal government as well as provincial and municipal governments, regarding
travel, business operations and isolation/quarantine orders. At this time, it is
unknown to what extent the impact of the COVID-19 outbreak may have on the
Company as this will depend on future developments that are highly uncertain and
that cannot be predicted with confidence. These uncertainties arise from the
inability to predict the ultimate geographic spread of the disease, and the
duration of the outbreak, including the duration of travel restrictions,
business closures or disruptions, and quarantine/isolation measures that are
currently, or may be put, in place world-wide to fight the virus. While the
extent of the impact is unknown, the COVID-19 outbreak may hinder the Company's
ability to raise financing for operating costs due to uncertain capital markets,
supply chain disruptions, increased government regulations and other
unanticipated factors, all of which may also negatively impact the Company's
business and financial condition.
Off-Balance Sheet Arrangements
None
CRITICAL ACCOUNTING POLICIES
An appreciation of our critical accounting policies is necessary to understand
our financial results. These policies may require management to make difficult
and subjective judgments regarding uncertainties, and as a result, such
estimates may significantly impact our financial results. The precision of these
estimates and the likelihood of future changes depend on a number of underlying
variables and a range of possible outcomes. Our critical accounting policies do
not involve the choice between alternative methods of accounting. We have
applied our critical accounting policies and estimation methods consistently.
Principles of Consolidation
The unaudited interim consolidated financial statements include the accounts of
Triton Emission Solutions Inc. and our wholly-owned subsidiary, Ecolutions, Inc.
On consolidation, we eliminate all significant intercompany balances and
transactions.
Foreign Exchange Risk
We are subject to foreign exchange risk on some purchases which are denominated
in Canadian dollars. Foreign currency risk arises from the fluctuation of
foreign exchange rates and the degree of volatility of these rates relative to
the U.S. dollar. Foreign exchange rate fluctuations may adversely impact our
results of operations as exchange rate fluctuations on transactions denominated
in currencies other than our functional currency result in gains and losses that
are reflected in our Statement of Operations. To the extent the U.S. dollar
weakens against foreign currencies, the translation of these foreign
currency-denominated transactions will result in increased net revenue.
Conversely, our net revenue will decrease when the U.S. dollar strengthens
against foreign currencies. We do not believe that we have any material risk due
to foreign currency exchange.
Stock Options and other Stock-based Compensation
For equity awards, such as stock options, total compensation cost is based on
the grant date fair value and for liability awards, such as stock appreciation
rights, total compensation cost is based on the settlement value. We recognize
the stock-based compensation expense for all awards over the service period
required to earn the award, which is the shorter of the vesting period or the
time period an employee becomes eligible to retain the award at retirement.
Fair Value of Financial Instruments
Our financial instruments include cash, accounts receivable, accounts payable,
notes and advances payable, amounts due to related parties, loans payable and
derivative liabilities. The fair values of these financial instruments
approximate their carrying values due to their short maturities.
--------------------------------------------------------------------------------
6
--------------------------------------------------------------------------------
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations
of credit risk consist principally of cash.
At March 31, 2020, we had $2,389 in cash on deposit with a large chartered
Canadian bank. 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.
Reclassifications
Certain prior period amounts in the accompanying unaudited interim condensed
consolidated financial statements have been reclassified to conform to the
current period's presentation. These reclassifications had no effect on the
consolidated results of operations or financial position for any period
presented.
Recent Accounting Standards and Pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards
Board or other authoritative standards groups with future effective dates are
either not applicable or are not expected to be significant to our financial
statements.
© Edgar Online, source Glimpses