Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

 

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FORM 10-Q  

 

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☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended May 31, 2016

 

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From                             to                           

Commission File Number: 000-29990

 

SENSE TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

British Columbia		90010141
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2535 N. Carleton Avenue Grand Island, Nebraska		68803
(Address of principal executive offices)		(Zip Code)

  

[phone]

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒      No   ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   ☐      No  ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨		Accelerated filer   ☐
Non-accelerated filer        ☐		Smaller reporting company   x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐      No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at August 24, 2016
Common Stock		14,418,621 shares

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TABLE OF CONTENTS

Sense Technologies Inc. Form 10-Q

 

PART I-FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS	1
	BALANCE SHEETS AS OF MAY 31, 2016 (UNAUDITED) AND FEBRUARY 29, 2016	2
	STATEMENTS OF LOSSES FOR THE THREE  MONTHS  ENDED MAY 31, 2016 AND 2015 (UNAUDITED)	3
	STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MAY 31, 2016 AND 2015 (UNAUDITED)	4
	STATEMENT OF STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED MAY 31, 2016 (UNAUDITED) AND THE YEAR ENDED FEBRUARY 29, 2016	5
	NOTES TO UNAUDITED FINANCIAL STATEMENTS	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4T.	CONTROLS AND PROCEDURES	17
PART II-OTHER INFORMATION		18
ITEM 1.	LEGAL PROCEEDINGS	18
ITEM 1A.	RISK FACTORS	18
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	18
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	18
ITEM 4.	MINE SAFETY DISCLOSURES	18
ITEM 5.	OTHER INFORMATION	18
ITEM 6.	EXHIBITS	18
SIGNATURES		19

 

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PART I-FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

SENSE TECHNOLOGIES INC.

INTERIM FINANCIAL STATEMENTS

May 31, 2016

(Stated in US Dollars)

( Unaudited )

 

 

 

 

 

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SENSE TECHNOLOGIES, INC.

BALANCE SHEETS

As of   May 31, 2016 and February 29, 2016

(Stated in US Dollars)

		May 31				February 29
		2016				2016
		(Unaudited)
ASSETS
Current
Cash in bank		$	-			$	1,298
Accounts receivable			15,750				36,675
Prepaids			17,295				12,970
Total Current Assets			33,045				50,943
Deposit			800				800
Total Assets		$	33,845			$	51,743
LIABILITIES
Current
Bank overdraft		$	16,294			$	-
Accounts payable			526,561				524,516
Accounts payable-related party			35,884				35,884
Accrued expenses			1,238,076				1,186,047
Accrued expenses-related party			70,811				70,811
Royalty payable – related party			480,000				480,000
Notes payable, current portion			1,191,842				1,190,006
Notes payable, current portion – default			168,184				168,184
Notes payable – related party			439,590				439,590
Advances payable			46,000				-
Advances payable – related party			38,658				60,158
Dividends payable			432,179				424,281
Convertible promissory notes payable - default			584,447				584,447
Total Current Liabilities			5,268,526				5,163,924
Long-Term Liabilities
Notes payable – related party			56,678				62,719
Total Long-Term Liabilities			56,678				62,719
Total Liabilities			5,325,204				5,226,643
STOCKHOLDERS’ DEFICIT
Class A preferred shares, without par value, redeemable at $1 per  share 20,000,000 shares authorized, 315,914 shares  issued at May 31, 2016 (February 29, 2016: 315,914)			315,914				315,914
Common stock, without par value 500,000,000 shares authorized, 14,418,621 shares issued at May 31, 2016 (February 29, 2016: 13,687,678)			16,111,402				15,914,794
Common stock payable			140,849				244,849
Accumulated Deficit			(21,859,524	)			(21,650,457	)
Total Stockholders’ Deficit			(5,291,359	)			(5,174,900	)
Total Liabilities and Stockholders’ Deficit		$	33,845			$	51,743

 

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

 

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SENSE TECHNOLOGIES INC.

STATEMENTS OF OPERATIONS

For the three months ended May 31, 2016 and 2015

(Stated in US Dollars)

(Unaudited)

		For the three months ended
		May 31,				May 31,
		2016				2015
Sales		$	49,500			$	56,988
Direct Costs			30,436				39,650
Gross Profit			19,064				17,338
Operating Expenses
Consulting fees			109,409				26,200
Contract labor			3,000				3,000
Engineering cost			3,374				874
Filing fees			675				550
Insurance			12,190				10,094
Bank charges			1,334				375
Legal and accounting			8,250				20,188
Office and miscellaneous			1,016				1,885
Rent			3,520				3,810
Tax penalties			2,996				2,997
Telephone and utilities			192				216
Transfer agent fees			13,750				2,000
Travel and automotive			141				688
			159,847				72,877
Net operating loss			(140,783	)			(55,539	)
Other Income and (Expenses)
Interest Expense			(60,386	)			(56,717	)
Net loss			(201,169	)			(112,256	)
Preferred dividends, paid or accrued			7,898				7,898
Net loss attributable to common stockholders		$	(209,067	)		$	(120,154	)
Basic and diluted loss per share		$	(0.01	)		$	(0.00	)
Weighted average number of shares outstanding			14,303,950				12,798,910

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

 

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SENSE TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

For the three months ended May 31, 2016 and 2015

(Stated in US Dollars)

(Unaudited)

		2016				2015
Operating Activities
Net loss for the period		$	(201,169	)		$	(112,256	)
Adjustments to reconcile net loss to net cash used in Operating activities:
Amortization of debt discount			-				960
Common shares issued for services			52,608
Changes in non-cash working capital balances related to operations:
Accounts receivable			20,925				-
Prepaids			(4,325	)			10,095
Accounts payable			18,339				1,500
Accrued expenses			98,029				44,798
Advances payable			(21,500	)			(3,350	)
Net cash used in operating activities			(37,093	)			(58,253	)
Financing Activities
Borrowing on notes payable			10,950				35,000
Repayment on notes payable			(15,155	)			(36,747	)
Proceeds from common stock issued and payable for cash			40,000				60,000
Net cash provided (used) by financing activities			35,795				58,253
Increase (decrease) in cash during the period			(1,298	)			-
Cash, beginning of period			1,298				-
Cash, end of period		$	-			$	-
Supplemental Disclosures of Cash Flow Information:
Cash Paid for Interest		$	6,405			$	6,641
Non-cash Investing and Financing Activities:
Accrual of Preferred Stock Dividend		$	7,898			$	7,898
Stock Issued from Common Stock Payable		$	119,000			$	120,000
Stock Issued for Inducement		$	-			$	960

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

 

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SENSE TECHNOLOGIES, INC.

STATEMENT OF STOCKHOLDERS’ DEFICIT

For the three months ended May 31, 2016

(Stated in US Dollars)

		Common Stock								Preferred Stock								Common
		Issued								Issued								Stock				Accumulated
		Shares				Amount				Shares				Amount				Payable				Deficit				Total
Balance, February 28, 2015			12,704,345			$	15,619,794				315,914			$	315,914			$	244,889			$	(21,047,354	)		$	(4,866,757	)
Common stock issued for cash			150,000				45,000				-				-				-				-				45,000
Common stock issued for subscription			733,333				220,000				-				-				(220,000	)			-				-
Common stock issued for services			100,000				30,000				-				-				-				-				30,000
Common shares subscribed			-				-				-				-				219,000				-				219,000
Common shares payable for debt discount			-				-				-				-				960				-				960
Dividends accrued			-				-				-				-				-				(31,591	)			(31,591	)
Net loss			-				-				-				-				-				(571,512	)			(571,512	)
Balance, February 29, 2016			13,687,678				15,914,794				315,914				315,914				244,849				(21,650,457	)			(5,174,900	)
Common stock issued for cash			83,333				25,000				-				-				-				-				25,000
Common stock issued for subscription			396,667				119,000				-				-				(119,000	)			-				-
Common shares issued for services			251,000				52,608				-				-				-				-				52,608
Common shares subscribed			-				-				-				-				15,000				-				15,000
Rounding shares issued			(57	)			-				-				-				-				-				-
Dividends accrued			-				-				-				-				-				(7,898	)			(7,898	)
Net loss			-				-				-				-				-				(201,169	)			(201,169	)
Balance, May 31, 2016 (unaudited)			14,418,621			$	16,111,402				315,914			$	315,914			$	140,849			$	(21,859,524	)		$	(5,291,359	)

 

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

 

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SENSE TECHNOLOGIES, INC.

  NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

While the information presented in the accompanying three months to May 31, 2016 financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim period presented in accordance with accounting principles generally accepted in the United States of America. 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. It is suggested that these interim unaudited financial statements be read in conjunction with the Company’s audited financial statements for the year ended February 29, 2016.

Reclassification

 

Certain amounts reported in the prior period financial statements have been reclassified to the current period presentation.

Recently Adopted and Recently Enacted Accounting Pronouncements

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.

In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.

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On November 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-16—Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. That is, an entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The effects of initially adopting the amendments in this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods.

On November 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-17—Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force).  The amendments in this Update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle.

On August 2014, The Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements – Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

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In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

NOTE 2 – GOING CONCERN

 

At May 31, 2016, the Company had not yet achieved profitable operations, had an accumulated deficit of $21,859,524 (February 29, 2016 - $21,650,457) since its inception and incurred a net loss of $201,169 (2015 - $ 112,256) for the three months ended May 31, 2016 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers obtaining additional funds by equity financing and/or from related party. Management expects the Company’s cash requirement over the twelve-month period ended February 28, 2017 to be $300,000. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.

NOTE 3 – PREPAID EXPENSES

 

As of May 31, 2016, included in prepaid expenses is $17,295 (February 29, 2016: $12,970) for an insurance premium for the directors of the Company financed through Flatiron Capital.  Insurance policy is from August 23, 2015 to August 23, 2016.

 

NOTE 4 – ACCRUED EXPENSES/ACCRUED EXPENSES – RELATED PARTY

 

Other liabilities and accrued expenses consisted of the following:

 

		May 31,				February 29,
		2016				2016
Bank overdraft		$	16,294			$	-
Accounts payable			526,561				524,516
Accounts payable – related party			35,884				35,884
Accrued royalties payable – Guardian Alert			480,000				480,000
Detail of Accrued Expenses:
Accrued interest payable		$	1,002,988			$	952,872
Accrued non-resident withholding taxes, including accrued interest			196,077				193,556
Accrued taxes payable			39,011				39,619
Total accrued expenses		$	1,238,076			$	1,186,047
Detail of Accrued Expense – Related party:
Accrued payroll – related party		$	53,694			$	53,694
Other accrued liabilities – related party			17,117				17,117
Total accrued expenses – related party		$	70,811			$	70,811

 

As of May 31, 2016, included in the trade payables is $33,495 (February 29, 2016: $33,495) and $2,389 (February 29, 2016: $2,389) owing to directors of the Company, an accounting firm in which a director of the Company is a partner and a company controlled by the Company’s President and a director with respect to unpaid fees, purchases and expenses, $480,000 (February 29, 2016: $480,000) owing to stockholders of the Company in respect of royalties payable, $53,694 (February 29, 2016: $53,694) owing to the former president of the Company in respect of unpaid wages and $17,117 (February 29, 2016: $17,117) accrued expenses related to a director of the Company.

 

At May 31, 2016, advances payable of $38,658 (February 29, 2016: $60,158) are due to a company controlled by a director of the Company.  

 

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At May 31, 2016, promissory notes payable of $439,590 (February 29, 2016:  $439,590) is due to a profit sharing and retirement plan which is administered by a director of the Company.

The accounts payable and advances payable are unsecured, non-interest bearing and have no specific terms of repayment. Sense Technologies, Inc. plans to use the funds from sales, and if we are able to raise funds through equity issuances, to fund the payment of delinquent liabilities.

NOTE 5 – ROYALTIES PAYABLE

Pursuant to the licenses with ScopeOut® license called for $150,000 to be paid over two years (paid) along with a royalty of 10% of wholesale price for each ScopeOut® unit sold, but not less than $2.00 per unit. In order to maintain the exclusive license for the ScopeOut® products, in accordance with the license agreement with Palowmar Industries, LLC, we are required to pay royalties to the licensor based on the following minimum quantities of units sold:

a)

30,000 units per year beginning in years 1-2

b)

60,000 units per year beginning in years 3-4

c)

100,000 units per year beginning in years 5 and above.

During 2010, the Company re-negotiated the exclusive license agreement with the Scope Out® inventor. All prior minimum royalties were eliminated, and accordingly, the Company recorded $602,907 additional capital for a related party write-off.

 

Prepaid royalties payable under the new license are $5,000 per month for twelve months commencing September 1, 2010. The new agreement also calls for a 5% royalty with a $.75 per unit maximum “minimum royalty” to retain exclusivity with the following volumes:

 

End of calendar year containing the second anniversary:	30,000 units
End of calendar year containing the third anniversary:	60,000 units
End of calendar year containing the fourth anniversary:	110,000 units
End of calendar year containing the fifth anniversary and thereafter:	125,000 units

 

No royalties are currently accrued as we have not yet reached the end of the calendar year containing the second anniversary.

Such “calendar year” commencing the minimum royalties to retain exclusivity is the first year within which an Original Equipment Manufacturer (OEM) and/or Tier 1 manufacturer sub-licenses the Scope Out® product.

For any sub-licenses of the product, royalties are shared as follows:

OEM/Tier 1 Supplier Sub Licensor:	65% Sense Technologies
	35% Inventor
Any other Sub-Licensor:	50% Sense Technologies
	50% Inventor

 

The current royalties accrued for Scope Out royalties are $nil as of May 31, 2016 and February 29, 2016.

 

Pursuant to the Guardian Alert licenses, we are required to make royalty payments to the licensors and meet sales targets as follows:

 

a)

$6.00(US) per unit on the first one million units sold;

b)

thereafter, the greater of $4.00(US) per unit sold or 6% of the wholesale selling price on units sold; and

c)

50% of any fees paid to Sense in consideration for tooling, redesign, technical or aesthetic development or, should the licensors receive a similar fee, the licensors will pay 50% to Sense.

In order to retain the exclusive right to this license we incurred minimum royalty fees. Because we were unable to pay these fees, we accrued the royalties as a payable. Royalties accruals were ceased in 2004 and rights of exclusivity were forfeited. Royalties payable to Guardian Alert are $480,000 and $480,000 as of May 31, 2016 and February 29, 2016, respectively.

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NOTE 6 – NOTES PAYABLE, CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE – RELATED PARTY

 

		May 31,				February 29,
		2016				2016
Promissory notes payable, unsecured, bearing interest at the rate of 12% per annum with repayment due February 23, 2017.		$	282,029			$	282,029
Promissory notes payable to related party, unsecured, bearing interest at the rate of 12% per annum with repayment between December, 2016 and August, 2017.			439,590				439,590
Promissory notes payable, unsecured, bearing interest at the rate of 12% per annum with repayment due February 23, 2017.			20,057				20,057
Promissory notes payable, unsecured, bearing interest at the rate of 12% per annum with repayment due March 30, 2012.  In default.			10,000				10,000
Finance agreement on directors and officers liability policy, secured by the unearned insurance premium, bearing interest at 7.75%, maturing June 23, 2016.  This agreement is repayable in monthly principal and interest payments of $2,174.			-				6,574
Finance agreement on directors and officers liability policy, bearing interest at 7.75% per annum, due December, 2016.			8,410				-
Promissory note payable, unsecured, bearing interest at the rate of 5.25% per annum, due in December 2007. In default.			100,000				100,000
Promissory note payable, unsecured, bearing interest at the rate of 6% per annum, maturing January, 2017.			59,500				59,500
Promissory note payable, unsecured, bearing interest at the rate of 6% per annum, maturing June 1, 2014.  In default.			54,734				54,734
Promissory note payable, unsecured, bearing interest at the rate of 7% per annum, maturing July 27, 2017.			50,000				50,000
Promissory note payable, unsecured, bearing interest at the rate of 5.5% per annum, maturing between August, 2016 and October, 2016.			65,000				65,000
Promissory note payable, personally guaranteed by a director of the Company, bearing interest at 4.0% per annum and maturing August 27, 2018.			56,678				62,719
Promissory note payable, unsecured, bearing interest at the rate of 7% per annum, maturing June 4, 2016 and July 17, 2017.			30,000				30,000
Promissory note payable, unsecured, bearing interest at the rate of 5.5% per annum, maturing December 23, 2016.			25,000				25,000
Promissory note payable, unsecured, bearing interest at the rate of 5.5% per annum, maturing between October, 2016 and November, 2016.			165,000				165,000
Promissory note payable, unsecured, bearing interest at the rate of 6% per annum, maturing August 8, 2017.			35,000				35,000
Promissory note payable, unsecured, bearing interest at the rate of 12% per annum, maturing December , 2015 and December, 2016.  $3,450 in default.			133,450				133,450
Promissory notes payable, unsecured, bearing interest at the rate of 12% per annum with repayment due February 23, 2017.			313,846				313,846
Promissory note payable, no stated interest or maturity date			8,000				8,000
			1,856,294				1,860,499
Less: current portion			(1,799,616	)			(1,797,780	)
Long-term portion		$	56,678			$	62,719

 

The Company is in arrears with respect to four of the above notes payable totaling $168,184.

 

Convertible notes payable:		May 31, 2016				February 29, 2016
Series B secured promissory notes payable, secured by a charge over the Company’s inventory, bearing interest at 10% per annum and are payable on demand, along with accrued interest thereon, on or after August 30, 2005. These notes plus accrued interest may be redeemed at any time after August 30, 2005. These notes may be converted into common shares of the Company at any time prior to demand for payment at the rate of one common share for each $0.29 of principal and interest owed. As of May 31, 2016 and 2015, these notes were in default.		$	534,447			$	534,447
Unsecured promissory notes bearing interest at 10% per annum. These notes plus accrued interest are convertible into common shares of the Company at the rate of one common share for each $5.40 of principal and interest owed. These notes have matured and the holders thereof have received default judgments against the Company.			50,000				50,000
		$	584,447			$	584,447

 

The Company is in arrears with respect to nine convertible notes payable totaling $584,447.  

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Future minimum note payments as of May 31, 2016 are as follows:

 

Years Ending February 28,
2017		$	2,260,299
2018			180,442
Thereafter			-
Total		$	2,440,741

 

NOTE 7 – PREFERRED STOCK

The Class A preferred shares entitle the holders thereof to cumulative dividends of $0.10 per share annually and the right to convert the preferred shares into common shares at the rate of $0.29 per share. The shares were redeemable at the option of the Company at any time after August 30, 2005 at the redemption price of $1.00 per share plus payment of unpaid dividends.

Dividends on preferred shares are payable annually on July 31 of each year. During the quarter ended May 31, 2016, the Company accrued dividends payable of $7,898 (February 29, 2016: $31,591). Dividends are currently accruing and total $432,179.

NOTE 8 – COMMON STOCK

a)            Common stock issued for cash

During the quarter ended May 31, 2016, the Company received $15,000 of common stock subscribed in common stock payable for 50,000 shares.  During the quarter ended May 31, 2016, the Company issued 83,333 shares of common stock for cash proceeds of $25,000.

During the year ended February 29, 2016, the Company issued 150,000 shares of common stock for cash proceeds of $45,000.

The Company issued promissory notes with stock granted as an incentive.  The stock was valued with relative fair value of common stock compared to fair market value of debt, common stock valued with closing price on date of agreement at $0.02. $960 recorded as a debt discount.  As the debt was due on demand, the discount was fully expensed in the first quarter ended May 31, 2015.   

During the quarter ended May 31, 2016, the Company issued 396,667 shares of common stock for cash proceeds of $119,000 which was received in prior years and was initially record in stock issued from stock payable as of February 29, 2016.

b)            Common stock for services

 

During the year ended February 29, 2008, the Company granted an officer and a director of the Company to the right to receive 2,500,000 common shares for past services provided. The fair value of each common share was $0.08 on the grant date. The shares, fully vested and non-forfeitable on the grant date, were issued in 2009. This balance is presented as Common Stock as of February 28, 2010. Further, in connection with a consulting services agreement, the Company also committed to issue 1,111,110 common shares with fair value of $88,889, being $0.08 per share based on the quoted market price of the Company’s common shares. This balance is presented as Common Stock Payable as of May 31, 2016 and February 29, 2016.

During the quarter ended May 31, 2016, the Company issued 225,000 common shares for consulting services and 26,000 common shares for interest expense. The fair value of each common share was $0.30 based on the closing trading price on the issue date and was recorded as consulting expense of $52,608.

During the year ended February 29, 2016, the Company issued 100,000 common shares for consulting services. The fair value of each common share was $0.30 based on the closing trading price on the issue date and was recorded as consulting expense of $30,000.

c)    Common stock rounding shares

On April 21, 2016, the Company completed a 10-for-one reverse split of its issued and outstanding shares of common stock.  Shares were rounded down 57 shares because of this split.

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Options

 

Stock-based Compensation Plan

 

The Company has adopted a Stock Option Plan (‘the plan”) in which the Compensation Committee of the Board of Directors makes a determination to whom options should be granted and at what price and their terms of vesting.

The Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is amortized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.

 

The expected volatility of options granted has been determined using the historical stock price. The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. For non-employees, the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. Based on the best estimate, management applied the estimated forfeiture rate of Nil in determining the expense recorded in the accompanying Statement of Loss.

 

The Company has granted directors common share purchase options. These options were granted with an exercise price equal to the market price of the Company’s stock on the date of the grant.

 

	May 31, 2016
	Options				Weighted Average Exercise Price
Outstanding and exercisable at beginning of the year			300,000			$	0.40
Issued during the year			-				-
Outstanding and exercisable, May 31, 2016			300,000			$	0.40

 

	February 29, 2016
	Options				Weighted Average Exercise Price
Outstanding and exercisable at beginning of the year			300,000			$	0.40
Issued during the year			-				-
Outstanding and exercisable, February 29, 2016			300,000			$	0.40

At May 31, 2016, the following director common share purchase options were outstanding entitling the holders thereof the right to purchase one common share for each share purchase option held:

 

			Exercise
Number			Price				Expiry Date
	300,000			$	0.30		December 31, 2016

 

Warrants

As of May 31, 2016 and February 29, 2016, the Company had no outstanding warrants .

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NOTE 9 – RELATED PARTY TRANSACTIONS

The Company incurred the following items with directors and companies with common directors and shareholders:

	May 31,
	2016				2015
Interest expense		$	21,218			$	13,188

As of May 31, 2016, included in accounts payable is $33,495 (February 29, 2016: $33,495) owing to an accounting firm in which a director of the Company is a partner and $2,389 (February 29, 2016: $2,389) to a shareholder with respect to unpaid fees and interest on promissory notes, $480,000 (February 29, 2016: $480,000) owing to shareholders of the Company in respect of royalties payable with no interest accruing, $53,694 (February 29, 2016: $53,694) owing to the former president of the Company in respect of unpaid wages and $17,117 (February 29, 2016: $17,117) accrued expenses related to a director of the Company.

As of May 31, 2016, included in advances payable is $38,658 (February 29, 2016: $60,158) owed to a company controlled by a director.

 

As of May 31, 2016, promissory notes payable of $439,590 (February 29, 2016: $439,590 is due to a profit-sharing and retirement plan administered by a director of the Company.  Terms are:

Date Due:		Amount
August, 2016		$	12,500
April, 2016			15,000
November, 2016			27,500
December, 2016			384,590
Total		$	439,590

All bear interest at 12% per annum.

As of May 31, 2016, promissory note payable of $56,678 (February 29, 2016: $62,719) is personally guaranteed by a related party of the director of the company.

 

NOTE 10 – CONCENTRATIONS AND CONTINGENCIES

Concentrations

Approximately 99% of the Company’s revenues are obtained from two (2) customers. The Company is exposed to significant sales and accounts receivable concentration. Sales to these customers are not made pursuant to a long term agreement. Customers are under no obligation to continue to purchase from the Company.

For the three months ended May 31, 2016, one (1) customer accounted for approximately 99% of revenue. For the three months ended May 31, 2015, there was one (1) customer that accounted for 99% of sales revenue.

 

Contingencies

During the normal course of business we may from time to time be involved in litigation or other possible loss contingencies. As of May 31, 2016 and February 29, 2016 management is not aware of any possible contingencies that would warrant disclosure pursuant to SFAS 5.

Commitments

Our future minimum royalty payments on the ScopeOut® agreement consist of the following:

A 5% royalty with a $.75 per unit maximum “minimum royalty” to retain exclusivity with the following volumes:

 

End of calendar year containing the second anniversary:	30,000 units
End of calendar year containing the third anniversary:	60,000 units

 

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NOTE 11 – SOY MEAL ACQUISITION

On May 24, 2016, the Company entered into a nonbinding letter of intent with R and D USA, LLC for the acquisition of business assets comprising R and D, USA, LLC’s means of production of soy meal and soy oil products and non-GMO products, certified organic products, refined oils, agricultural oils, and other related specialty fertilizer crop products, including all intellectual and intangible property related thereto.

The Company intends to structure the transaction as a purchase of the Business Interests by a wholly-owned subsidiary of the Company, in consideration for which the Company shall initially raise $350,000 for the purpose of working capital for the soybean processing mill, and issue to R and D, USA, LLC common shares in the Company.  The shares will be issued in two tiers of a number of common shares of the Company to be determined before entering a definitive agreement.

NOTE 12 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through August 23, 2016, the date of which the financial statements were available to be issued.

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Management’s Discussion And Analysis

Sense Technologies Inc. Form 10-Q

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our Financial Statements and Notes thereto for the period ended May 31, 2016 and our Financial Statements and notes thereto for the period ended May 31, 2015.

1.           Overview of Operations

 

Sense holds a non-exclusive license to manufacture, distribute, market and sublicense world-wide, a patented technology which is used to produce the Guardian Alert® backing awareness system for motor vehicles utilizing microwave radar technology.  The company also holds a non-exclusive license to manufacture, distribute and market world-wide, the ScopeOut® product, a patented system of specially-designed mirrors which are placed at specific points on vehicles to offer drivers a more complete view of the blind spots toward the rear of the vehicle.  The Company plans to create sales through development of new marketing relationships.

2.           Results of Operations

For the three month period ended May 31, 2016 as compared to the three month period ended May 31, 2015.

	For the Three Months Ended
	May 31, 2016				May 31, 2015
Sales:
Sales Guardian Alert		$	49,500			$	56,988
Sales Scope Out			-				-
		$	49,500			$	56,988

Sales for the quarter ended May 31, 2016 decreased by 13% from $56,988 to $49,500 due to decreased demand for Guardian Alert. Revenue is recognized by management only upon receipt of an actual purchase order from a customer, and the related invoicing to the company or, in the absence of a purchase order (i.e., verbal order), the actual invoicing to the customer, when the products are shipped and collection is reasonably assured.

We continued to market both products.  While it is the company objective to grow sales, no assurance can be given that we will be successful in this manner and sustain comparable sales in future periods.

		For the Three Months Ended May 31,
		2016				2015
Direct Costs:
Scope Out Direct Costs:
Royalties - related party		$	15,000			$	15,000
Total Scope Out Direct Costs			15,000				15,000
Guardian Alert Direct Costs:
Research and development			9,200				19,550
Commissions			6,236				5,100
Total Guardian Alert Direct Costs			15,436				24,650
Total Direct Costs		$	30,436			$	39,650

Direct costs typically include the cost of raw materials necessary to make our products.  It also includes the cost of shipping the products from manufacturing location to our warehouse.  Direct costs also include costs in respect of obsolete inventory.

Direct costs related to Scope Out® were $15,000 and $15,000 for the three month periods ended May 31, 2016 and 2015, respectively.

 

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Direct costs related to Guardian Alert were $15,436 and $24,650 for the three month periods ending May 31, 2016 and 2015, respectively. This change represents a decrease of 37%. Commission expenses were $6,236 and $5,100 for the three month periods ended May 31, 2016 and 2015, respectively.   This decrease is attributed to the strategic relationship created with our commercial marketing partner, where Sense no longer directly incurs production and/or inventory costs for commercial fleet application product sales. Manufacturing expenses in Direct Costs for the Guardian Alert® for the three months ended in 2015 represents assembly costs for the sales achieved for the same period.  Research and development expenses were $9,200 and $19,550 for the three month periods ended May 31, 2016 and 2015, respectively.

Operating and Other Expense
		For the Three Months Ended
		May 31, 2016				May 31, 2015
Consulting fees		$	109,409			$	26,200
Contract labor			3,000				3,000
Engineering Costs			3,374				874
Filing fees			675				550
Insurance			12,190				10,094
Bank charges			1,334				375
Legal and accounting			8,250				20,188
Office and miscellaneous			1,016				1,885
Rent			3,520				3,810
Tax penalties			2,996				2,997
Telephone and utilities			192				216
Transfer agent fees			13,750				2,000
Travel and automotive			141				688
Interest expense			60,386				56,717
Total		$	220,233			$	129,594

Sense Technologies, Inc. had operating and other expenses of $220,233 for the three month period ended May 31, 2016 compared to operating and other expenses of $129,594 for the three month period ended May 31, 2015, an increase in operating and other expenses of 70% from the prior period. 

Consulting fees increased from $26,200 for the three month period ended May 31, 2015 to $109,409 for the three month period ended May 31, 2016. The increase was a result of consulting related to Guardian Alert product sales.

The Company determined that prior expenses for marketing and advertising costs related to the sales plan for ScopeOut® were not producing results. Management believed it was in the best interest of the company to discontinue these costs. The Company is concentrating on Guardian Alert® sales based on market interest, and in doing so as cost-efficiently as possible, the Company has replaced those costs with a “little-to-no cost” effort of asking existing fleet-customers to refer the Guardian Alert® products to other fleets.  Additionally, the company is paying more in commissions, as previously stated, because of the efforts to incentivize the sales of the Guardian Alert® to fleets.

Legal and accounting fees decreased from $20,188 in the three month period ended May 31, 2015 to $8,250 for the three month period ended May 31, 2016.

 

Following summarizes the overall operations results for the three month period ended May 31:

 

										Increase				% Increase
		2016				2015				( Decrease)				(decrease)
Sales			49,500				56,988				(7,488	)			(13.14	)
Direct Costs			30,436				39,650				(9,214	)			(23.24	)
Operating and Other Expenses			220,233				129,594				90,639				69.94
Net Loss			(201,169	)			(112,256	)			(88,913	)			(59.84	)
Basic and Diluted Loss per share			(0.01	)			(0.00	)

We had a net loss from operations of $201,169 for three month period ended May 31, 2016, compared to a net loss of $112,256 for the three month period ended May 31, 2015, an increase in net loss of $88,913 from the prior year.

 

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Liquidity and Capital Resources

Our cash position at May 31, 2016 was $nil as compared to $1,298 at February 29, 2016. This was due to our use of cash in operating activities and cash provided by financing activities as described below.

We have a working capital deficit of $5,235,481 and $5,174,900 as of May 31, 2016 and February 29, 2016, respectively. If we are unable to raise adequate working capital for fiscal 2017, we will be restricted in the implementation of our business plan.  If this were to happen, the value of our securities would diminish and we may be forced to change our business plan for fiscal 2017, which would result in the value of our securities declining in value and/or becoming worthless.  If we raise an adequate amount of working capital to implement our business plan, we anticipate incurring significant expenses relating to paying down our notes payable and royalties that are in arrears. Additionally we will incur net losses until a sufficient client base can be established, of which there can be no assurance.

Net cash used in operating activities

 

Net cash used in operating activities was $37,093 in 2016, compared to $58,253 in 2015. The decrease in cash used in 2016 was largely due to the decrease in accrued expenses.

 

Net cash provided by financing activities

Net cash provided by financing activities was $35,795 in 2016 compared to $58,253 in 2015.

During the three months ended May 31, 2016, we received $40,000 through subscriptions to our common shares compared to $60,000 during the three months ended May 31, 2015.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer (who is also acting in the capacity as the principal accounting officer), of the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company’s principal executive officer and principal financial officer has concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

The Company, including its principal executive officer and principal financial officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, the Company performed additional analysis and other post-closing procedures in an effort to ensure its consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, the Company believes that the financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

The Company’s internal conclusion related to its disclosure and procedural controls is due to the number and magnitude or changes to its draft 10-Q recommended by the Company’s independent auditor.

The Company plans to continue working with competent outside professionals to help it with quarterly reporting and if its business plan is successful additional improvements in the Company’s accounting department will be made.

Changes in Internal Control over Financial Reporting

In addition, the Company with the participation of its chief executive officers have determined that no change in our internal control over financial reporting occurred during or subsequent to the quarter ended May 31, 2016 that has materially affected, or is (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

 

None.

Item 1A. Risk Factors.

 

There were no material changes in our risk factors from our Form 10-K for the year ended February 29, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of equity securities during the quarter ended May 31, 2016.

Item 3. Defaults Upon Senior Securities.

 

None.

Item 4. Mine Safety Disclosures.

 

Not applicable.

Item 5. Other Information.

 

Sense Technologies has entered an agreement with a global company to market the Guardian Alert® under a registered trade name.

 

Item 6. Exhibits.

 

31.1	Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange act of 1934
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) or Rule 15d-14(b) of the U.S. Securities Exchange Act of 1934
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SENSE TECHNOLOGIES INC.
August 25, 2016	/s/ BRUCE E. SCHREINER
	Bruce E. Schreiner
	Chief Executive Officer, President, Director, Chief Financial Officer and Principal Accounting Officer

 

 

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