Peak Fintech Group Inc.
(Formerly Peak Positioning Technologies Inc.)
Interim Condensed Consolidated
Financial Statements
For the three and nine-month periods ended
September 30, 2020 and 2019
Notice to Reader
The Company is hereby re-filing amended condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2020, and 2019. Which includes restatements for the three and nine month periods ended September 30, 2020, related to an increase of $672,863 in consulting fees and a gain on change in fair value of contingent compensation payable of $218,325 and restatements for the three and nine month periods ended September 30, 2019, related to a gain on bargain purchase of $941,000 a change in the loss due to change in fair value of contingent compensation payable of $129,500 and a reduction in amortization of intangible assets of $100,649. The condensed interim consolidated financial statements have been restated as follows:
i. The consulting fees were understated by $672,863 for the three and nine month periods ended September, 30, 2020, while the Gain due to change in fair value of contingent compensation payable was understated by $ 217,325 for the three and nine month periods ended September 30, 2020. The impact of those two adjustments have increased the net loss and comprehensive loss by $455,543 for the three and nine month periods ended September 30, 2020. The net loss per share basic and diluted have increased to $(0.02) and $(0.04) for the three and nine month periods ended September 30, 2020, respectively. Those two adjustments resulted in an understatement of account payables, advances and accrued liabilities by $204,750, an overstatement of contingent compensation payable by $254,586 an understatement of capital stock by $727,998, an understatement of share to be issued by $176,642 and an overstatement of the contributed surplus by $399,266.
ii. The gain on bargain purchase was understated by $941,000 for the nine month period ended September 30, 2019, the loss due to change in fair value of contingent compensation payable was understated by $64,750 and $129,000, respectively for the three and nine month periods ended September 30, 2019, and the amortization of intangible assets were overstated by $100,649 for the nine month periods ended September 30, 2019. The impact of those three adjustments have increased the net loss and comprehensive loss by $64,750 and decrease the net loss and comprehensive loss by $912,149, respectively for the three and nine month periods ended September 30, 2019. The net loss per share basic and diluted have increase to $ (0.02) and decrease to $ (0.02) for the three and nine month periods ended September 30, 2019, respectively.
iii. The Interim Consolidated Statements of Cash Flows were also modified to reflect the changes described in i. and ii. Moreover, other reclassifications were made to appropriately reflect cash and non-cash transactions
2
PEAK FINTECH GROUP INC.
(Formerly Peak Positioning Technologies Inc.)
Interim Consolidated Statements of Comprehensive Loss
For the three and nine-month periods ended September 30, 2020 and 2019
(In Canadian dollars, except weighted average number of outstanding shares)(Unaudited)
Three-month period ended | Nine-month period ended | ||||||||||||
Note | September 30 | September 30 | |||||||||||
Restated | Restated | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
$ | $ | $ | $ | ||||||||||
Revenues | |||||||||||||
Sales | 15,116,369 | 4,499,953 | 26,329,268 | 7,351,186 | |||||||||
Expenses | |||||||||||||
Outsourcing services | 13,385,347 | 2,619,916 | 20,912,490 | 2,619,916 | |||||||||
Salaries and fringe benefits | 386,676 | 401,598 | 1,099,606 | 1,233,238 | |||||||||
Service fees | 208,741 | 32,132 | 479,205 | 443,967 | |||||||||
Royalty on software | 47,469 | 30,427 | 104,370 | 30,427 | |||||||||
Board remuneration | 29,062 | 19,179 | 51,405 | 53,562 | |||||||||
Consulting fees | 1,181,765 | 33,427 | 2,034,766 | 287,296 | |||||||||
Management fees | 15,729 | 29,878 | 55,261 | 105,266 | |||||||||
Professional fees | 154,345 | 132,386 | 340,879 | 217,492 | |||||||||
Administrative and indirect cost | (16,246 | ) | 47,269 | 221,582 | 195,210 | ||||||||
Public relations and press releases | 88,207 | 44,689 | 140,112 | 111,601 | |||||||||
Office supplies, software and utilities | 26,777 | 52,035 | 129,088 | 150,054 | |||||||||
Lease expenses | 11,570 | 8,447 | 34,673 | 33,390 | |||||||||
Depreciation of right-of-use assets | 137,209 | 115,522 | 350,819 | 289,027 | |||||||||
Insurance | 10,112 | 6,279 | 31,890 | 21,557 | |||||||||
Finance costs | 17 | 280,584 | 267,283 | 800,934 | 755,251 | ||||||||
Expected credit loss | 6 | 451 | 176,103 | 588,748 | 213,146 | ||||||||
Travel and entertainment | 55,943 | 70,717 | 138,200 | 274,778 | |||||||||
Stock exchange and transfer agent costs | 65,857 | 12,138 | 101,973 | 38,384 | |||||||||
Translation cost and others | 6,676 | 3,734 | 20,618 | 30,744 | |||||||||
Provision for loss on deposit | - | 43,583 | 43,583 | ||||||||||
Depreciation of property and equipment | 8 | 21,495 | 10,382 | 64,649 | 29,918 | ||||||||
Impairment of intangible asset | - | 584,189 | 584,189 | ||||||||||
Amortization of intangible assets | 9 | 67,616 | 230,675 | 231,896 | 520,947 | ||||||||
Expiration of deferred finance cost | - | - | 353,377 | - | |||||||||
Amortization of financing initial costs | 10,441 | 9,090 | 11,137 | 27,299 | |||||||||
Gain on bargain purchase | 5 | - | - | (941,000 | ) | ||||||||
(Gain)/loss due to change in fair value of contingent | |||||||||||||
compensation payable | 5 | (217,325 | ) | 64,750 | (217,325 | ) | 129,500 | ||||||
Loss (gain) on foreign exchange | 2,776 | 17,289 | 60,526 | 37,333 | |||||||||
15,961,277 | 5,063,117 | 28,140,879 | 7,536,075 | ||||||||||
Loss before income taxes | (844,908 | ) | (563,164 | ) | (1,811,611 | ) | (184,889 | ) | |||||
Income tax (recoverable) | 123,504 | 278,902 | 501,404 | 545,044 | |||||||||
Net loss | (968,412 | ) | (842,066 | ) | (2,313,015 | ) | (729,933 | ) | |||||
Net (loss) profit attributable to: | |||||||||||||
Non-controlling interest | 350,015 | 165,756 | 615,079 | 488,772 | |||||||||
Owners of the parent | (1,318,427 | ) | (1,007,822 | ) | (2,928,094 | ) | (1,218,705 | ) | |||||
(968,412 | ) | (842,066 | ) | (2,313,015 | ) | (729,933 | ) | ||||||
Item that will be reclassified subsequently to profit or loss | |||||||||||||
Currency translation adjustment | (472,282 | ) | 1,027,084 | (926,733 | ) | 1,471,694 | |||||||
Total comprehensive loss | (496,130 | ) | (1,869,150 | ) | (1,386,282 | ) | (2,201,627 | ) | |||||
Net loss and total comprehensive loss attributable to: | |||||||||||||
Non-controlling interest | 446,671 | (315,578 | ) | 880,821 | (414,461 | ) | |||||||
Owners of the parent | (942,801 | ) | (1,553,572 | ) | (2,267,103 | ) | (1,787,166 | ) | |||||
(496,130 | ) | (1,869,150 | ) | (1,386,282 | ) | (2,201,627 | ) | ||||||
Weighted average number of outstanding shares | 86,648,682 | 68,996,496 | 78,634,088 | 68,094,616 | |||||||||
Basic and diluted loss per share | (0.02 | ) | (0.02 | ) | (0.04 | ) | (0.02 | ) | |||||
The accompanying notes are an integral part of these interim consolidated financial statements.
3
PEAK FINTECH GROUP INC.
(Formerly Peak Positioning Technologies Inc.)
Interim Consolidated Statements of Changes in Equity
For the nine-month periods ended September 30, 2020 and 2019
(In Canadian dollars)(Unaudited)
Note | Capital stock | ||||||||||||||||||||||||||||||
Number of | |||||||||||||||||||||||||||||||
common shares | Equity | Accumulated | Total | ||||||||||||||||||||||||||||
(number of | component of | other | attributable | Non | Shareholders' | ||||||||||||||||||||||||||
shares- see | Equity to | Contributed | convertible | comprehensive | to owners of | Controlling | equity | ||||||||||||||||||||||||
note 15) | Amount | issue | surplus | debentures | income | Deficit | parent | interest | (deficiency) | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Balance as of January 1, 2020 | 72,059,214 | 24,234,623 | 493,414 | 9,580,333 | 47,891 | (1,054,211 | ) | (23,623,950 | ) | 9,678,100 | 10,441,584 | 20,119,684 | |||||||||||||||||||
Issuance of shares | 15 | 23,495,812 | 3,775,336 | 1,527,750 | 5,303,086 | 5,303,086 | |||||||||||||||||||||||||
Shares to be issued for business acquisition | - | - | 37,261 | - | - | - | - | 37,261 | - | 37,261 | |||||||||||||||||||||
Share to be issued to consultant | 139,381 | 139,381 | 139,381 | ||||||||||||||||||||||||||||
Exercise of warrants true surrendering of debenture | 15 | 1,340,000 | 730,963 | - | (132,865 | ) | - | - | - | 598,098 | - | 598,098 | |||||||||||||||||||
Issuance of convertible debenture | 12 | - | - | - | 11,273 | 9,408 | - | - | 20,681 | - | 20,681 | ||||||||||||||||||||
Conversion of convertible debenture | 100,000 | 50,678 | - | (2,940 | ) | - | - | 47,738 | - | 47,738 | |||||||||||||||||||||
Issuance of warrants for service | 233,482 | 233,482 | 233,482 | ||||||||||||||||||||||||||||
Issuance costs | - | (226,554 | ) | - | 78,140 | - | - | - | (148,414 | ) | - | (148,414 | ) | ||||||||||||||||||
Issuance of bond | - | - | - | 64,896 | - | - | - | 64,896 | - | 64,896 | |||||||||||||||||||||
Share-based compensation | 16 | - | - | - | 260,412 | - | - | - | 260,412 | - | 260,412 | ||||||||||||||||||||
Transactions with owners | 96,995,026 | 28,565,046 | 670,056 | 11,623,421 | 54,359 | (1,054,211 | ) | (23,623,950 | ) | 16,234,721 | 10,441,584 | 26,676,305 | |||||||||||||||||||
Net loss | (2,928,094 | ) | (2,928,094 | ) | 615,079 | (2,313,015 | ) | ||||||||||||||||||||||||
Other comprehensive loss | 926,733 | 926,733 | 265,742 | 1,192,475 | |||||||||||||||||||||||||||
Total comprehensive loss for the year | - | - | - | - | - | 926,733 | (2,928,094 | ) | (2,001,361 | ) | 880,821 | (1,120,540 | ) | ||||||||||||||||||
Balance as of September 30, 2020 | 96,995,026 | 28,565,046 | 670,056 | 11,623,421 | 54,359 | (127,478 | ) | (26,552,044 | ) | 14,233,360 | 11,322,405 | 25,555,765 | |||||||||||||||||||
Balance as of January 1, 2019 | 675,142,135 | 22,759,673 | - | 7,747,316 | 93,940 | (189,449 | ) | (20,914,779 | ) | 9,496,701 | 9,989,774 | 19,486,475 | |||||||||||||||||||
Issuance of shares | 28,400,000 | 758,033 | - | 25,424 | - | - | - | 783,457 | - | 783,457 | |||||||||||||||||||||
Equity components of convertible debenture | - | - | - | - | 31,707 | - | - | 31,707 | - | - 31,707 | |||||||||||||||||||||
Conversion of convertible debenture | 10,000,000 | 355,579 | - | - | (57,939 | ) | - | - | 297,640 | - | 297,640 | ||||||||||||||||||||
Share-based compensation | - | - | - | 163,120 | - | - | - | 163,120 | - | 163,120 | |||||||||||||||||||||
Transactions with owners | 713,542,135 | 23,873,285 | - | 7,935,860 | 67,708 | (189,449 | ) | (20,914,779 | ) | 10,772,625 | 9,989,774 | 20,762,399 | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,218,705 | ) | (1,218,705 | ) | 488,772 | (729,933 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | (568,461 | ) | (568,461 | ) | (903,233 | ) | (1,471,694 | ) | ||||||||||||||||||
Total comprehensive loss for the year | - | - | - | - | - | (568,461 | ) | (1,218,705 | ) | (1,787,166 | ) | (414,461 | ) | (2,201,627 | ) | ||||||||||||||||
Balance as of September 30, 2019 | 713,542,135 | 23,873,285 | - | 7,935,860 | 67,708 | (757,910 | ) | (22,133,484 | ) | 8,985,459 | 9,575,313 | 18,560,772 | |||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
4
PEAK FINTECH GROUP INC.
(Formerly Peak Positioning Technologies Inc.)
Interim Consolidated Statements of Cash Flows
For the three and nine-month periods ended September 30, 2020 and 2019
(In Canadian dollars)(Unaudited)
Three-month period ended | Nine-month period ended | ||||||||||||
Note | September 30 | September 30 | |||||||||||
Restated | Restated | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
OPERATING ACTIVITIES | $ | $ | $ | $ | |||||||||
Net loss | (968,412 | ) | (842,066 | ) | (2,313,015 | ) | (729,933 | ) | |||||
Non-cash items | |||||||||||||
Depreciation of property and equip | 8 | 21,495 | 10,382 | 64,649 | 28,621 | ||||||||
Issuance of shares for settlement of debt | 563,375 | 85,000 | 1,198,373 | 210,000 | |||||||||
Issuance of warrants for settlement of debt | 233,482 | 233,482 | |||||||||||
Expected credit loss | 451 | 176,103 | 588,748 | 213,146 | |||||||||
Amortization of intangible assets | 67,616 | 230,675 | 231,896 | 520,947 | |||||||||
Depreciation of right-of-use assets | 8 | 137,209 | 115,522 | 350,819 | 283,079 | ||||||||
Share-based compensation | 16 | 78,290 | 105,343 | 260,412 | 268,463 | ||||||||
Accretion of convertible debentures | 12 | 147,475 | 145,746 | 426,153 | 406,029 | ||||||||
Accretion of bond | 7,715 | - | 7,715 | - | |||||||||
Provision for loss on deposit | 43,583 | - | 43,583 | ||||||||||
Expiration of deferred financing cost | - | - | 353,377 | - | |||||||||
Gain on bargain purchase | - | - | - | (941,000 | ) | ||||||||
(Gain)/loss on fair value of contingent | |||||||||||||
compensation payable | (217,325 | ) | 64,750 | (217,325 | ) | 129,500 | |||||||
Impairment of intangible asset | - | 584,189 | - | 584,189 | |||||||||
Loans receivable maturing in more than 12 months | 925,704 | 851,460 | 5,477,969 | 944,047 | |||||||||
Net changes in working capital items | |||||||||||||
Debtors | - | (93,140 | ) | - | 51,106 | ||||||||
Income tax payable | 133,117 | 282,009 | 389,279 | 442,393 | |||||||||
Account receivable | (12,226,908 | ) | (1,187,284 | ) | (15,986,658 | ) | (3,376,401 | ) | |||||
Loans receivable maturing in less than 12 months | (771,742 | ) | (96,224 | ) | (4,214,993 | ) | (2,284,819 | ) | |||||
Prepaid expenses | 96,000 | (212,450 | ) | 331,106 | (105,944 | ) | |||||||
Other current financial liabilities | 11,503,421 | 317,999 | 11,850,144 | 2,122,063 | |||||||||
Cash flows from operating activities | (269,037 | ) | 581,597 | (967,869 | ) | (1,190,931 | ) | ||||||
INVESTING ACTIVITIES | |||||||||||||
Intangible asset | 9 | (345,740 | ) | (201,187 | ) | (820,723 | ) | (388,979 | ) | ||||
Property and equipment | 8 | - | (9,276 | ) | (3,862 | ) | (32,749 | ) | |||||
Debtors | 7 | 56,651 | 82,736 | 493,985 | (11,247 | ) | |||||||
Cash flows from investing activities | (289,089 | ) | (127,727 | ) | (330,600 | ) | (432,975 | ) | |||||
FINANCING ACTIVITIES | |||||||||||||
Subscription received | - | - | - | 250,000 | |||||||||
Issuance of debenture | 12 | - | - | 50,000 | 280,000 | ||||||||
Issuance of Bond, net of issuance cost | 13 | - | - | 298,248 | - | ||||||||
CEBA Loan | 14 | - | - | 40,000 | - | ||||||||
Advance from third parties | (268,910 | ) | 790,789 | 1,889,054 | 1,601,488 | ||||||||
Advance from a director | 5,600 | - | 15,680 | - | |||||||||
Repayment of lease liabilities | (107,968 | ) | (129,216 | ) | (359,815 | ) | (358,195 | ) | |||||
Issuance of shares, net of issuance cost | 2,882,400 | 640,000 | 3,804,400 | 640,000 | |||||||||
Cash flows from financing activities | 2,511,122 | 1,301,573 | 5,737,567 | 2,413,293 | |||||||||
IMPACT OF FOREIGN EXCHANGE | 641,534 | (596,094 | ) | 1,235,962 | (1,370,205 | ) | |||||||
Net increase(decrease) in cash | 2,594,530 | 1,159,349 | 5,675,060 | (580,818 | ) | ||||||||
Cash, beginning of period | 4,798,039 | 276,243 | 1,717,509 | 2,016,410 | |||||||||
Cash and restricted cash, end of period | 7,392,569 | 1,435,592 | 7,392,569 | 1,435,592 | |||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
5
PEAK FINTECH GROUP INC.
(Formerly Peak Positioning Technologies Inc.)
Consolidated Statements of Financial PositionSeptember 30, 2020 and December 31, 2019
(In Canadian dollars)
2020-09-30 | 2019-12-31 | ||||||
Note | (Unaudited) | (Audited) | |||||
$ | $ | ||||||
ASSETS | |||||||
Current | |||||||
Cash | 7,312,519 | 1,717,509 | |||||
Restricted cash | 80,050 | - | |||||
Loans receivable | 6 | 14,819,332 | 11,193,087 | ||||
Debtors | 7 | 19,617,346 | 3,931,981 | ||||
Prepaid expenses | 499,556 | 830,662 | |||||
Deferred financing cost | - | 353,377 | |||||
42,328,803 | 18,026,616 | ||||||
Loans receivable | 6 | 2,718,580 | 8,196,549 | ||||
Property and equipment | 8 | 609,711 | 734,443 | ||||
Intangible assets | 9 | 3,030,443 | 2,399,410 | ||||
48,687,537 | 29,357,018 | ||||||
LIABILITIES | |||||||
Current | |||||||
Accounts payable, advances and accrued liabilities | 11 | 18,248,999 | 4,629,122 | ||||
Lease liabilities | 10 | 239,307 | 402,954 | ||||
Current tax liabilities | 907,035 | 517,756 | |||||
Debentures | 12 | 3,271,889 | 3,221,281 | ||||
Conversion option | 24,423 | 24,423 | |||||
Contingent compensation payable | 5 | - | 254,586 | ||||
22,691,653 | 9,050,122 | ||||||
Debentures | 12 | - | 137,638 | ||||
Bonds | 13 | 241,068 | - | ||||
CEBA Loan | 14 | 40,000 | - | ||||
Lease liabilities | 10 | 159,052 | 49,574 | ||||
23,131,772 | 9,237,334 | ||||||
SHAREHOLDERS' DEFICIENCY | |||||||
Capital stock | 28,565,046 | 24,234,623 | |||||
Shares to be issued | 5 | 670,056 | 493,414 | ||||
Contributed surplus | 11,623,421 | 9,580,333 | |||||
Equity component of convertible debentures | 54,359 | 47,891 | |||||
Accumulated other comprehensive income | (127,478 | ) | (1,054,211 | ) | |||
Deficit | (26,552,044 | ) | (23,623,950 | ) | |||
Shareholders' equity attributable to owners of the parent | 14,233,360 | 9,678,100 | |||||
Non-controlling interest | 11,322,405 | 10,441,584 | |||||
Total shareholders' equity | 25,555,765 | 20,119,684 | |||||
48,687,537 | 29,357,018 | ||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
On behalf of the Board, |
|
|
/S/ Johnson Joseph |
| /S/ Charles-André Tessier |
Director |
| Director |
6 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
1 - GOVERNING STATUTES, NATURE OF OPERATIONS AND GENERAL INFORMATION
Peak Fintech Group Inc. (hereinafter the "Company") was incorporated pursuant to the provisions of the Business Corporations Act (Alberta) on May 13, 2008, and continued under the Canada Business Corporations Act on April 4, 2011. Peak Fintech Group Inc.'s
executive offices are located at 550 Sherbrooke Street West, Suite 265, Montréal, Quebec, Canada. Its shares are traded on the Canadian Stock Exchange (CSE) under the symbol "PKK". Its shares are quoted in the U.S. on the OTC Market's Groups (OTCQX) under the symbol ''PKKFF''.
Peak is the parent company of a group of innovative financial technology (Fintech) subsidiaries operating in China's commercial lending industry. Peak's subsidiaries use technology, analytics and artificial intelligence to create an ecosystem of lenders, borrowers and other participants in China's commercial lending space where lending operations are conducted rapidly, safely, efficiently and with the utmost transparency.
The unaudited interim consolidated financial statements include the accounts of Peak Fintech Group Inc. and all of its subsidiaries. The Company attributes total comprehensive income or loss of the subsidiary between the owners of the parent company and the non-controlling interests based on their respective ownership interests.
The following entities have been consolidated within these consolidated financial statements:
|
|
|
| % of ownership |
| Principal | Functional |
Entities |
| Registered |
| and voting right |
| activity | Currency |
Peak Fintech Group Inc. |
| Canada |
| - |
| Holding and | Canadian dollar |
Asia Synergy Limited |
| Hong Kong | 100% |
| Holding | Renminbi | |
Asia Synergy Holdings |
| China | 100% |
| Holding | Renminbi | |
Asia Synergy Technologies Ltd. |
| China | 100% |
| Technology | Renminbi | |
Asia Synergy Data Solutions Ltd. |
| China | 100% |
| Fintech | Renminbi | |
Asia Synergy Credit Solutions Ltd |
| China | 100% |
| Credit | Renminbi |
7 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
1 - GOVERNING STATUTES, NATURE OF OPERATIONS AND GENERAL INFORMATION (cont'd)
|
|
|
| % of ownership |
| Principal | Functional |
Entities |
| Registered |
| and voting right |
| activity | Currency |
Asia Synergy Supply Chain Ltd (1) |
| China |
| 51% |
| Supply Chain services | Renminbi |
Wuxi Aorong Ltd. |
| China |
| 100% |
| Holding | Renminbi |
Asia Synergy Financial Capital Ltd |
| China |
| 51% |
| Financial | Renminbi |
(1): Creation of a new subsidiary
In June 2019, the Company created a new subsidiary called Asia Synergy Supply Chain ("ASSC") whereby the wholly owned subsidiary of the Company, Asia Synergy Data Solutions (" ASDS"), contributed a royalty-free licence of the Cubeler Lending Hub platform to ASSC in exchange for a 51% equity interest and where Jiangsu Zhongpu Jinrong Outsourcing Services Co. Ltd ("Zhongpu ") contributed its supply chain network for a 49% equity interest. As a result, Zhongpu owns a 49% non-controlling interest in ASSC.
The unaudited interim condensed consolidated financial statements (the ''consolidated interim financial statements'') are in compliance with the International Accounting Standard 34, Interim Financial Reporting (''IAS 34''). Since they are condensed financial statements, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (''IFRS'') as issued by the International Accounting Standards Board (''IASB''), have been voluntarily omitted or summarized.
The preparation of financial statements in accordance with IAS 34 requires the use of certain accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements have been set out in note 5 of the Company's consolidated financial statements for the year ended December 31, 2019. There has not been any significant change in judgments, estimates or assumptions since then. These consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2019
The consolidated interim financial statements were prepared using the same accounting policies and methods as those used in the Company's consolidated financial statements for the year ended December 31, 2019.
The interim consolidated financial statements for the three and nine-month periods ended September 30, 2020 (including comparative figures) were approved by the Board of Directors on April 23, 2021.
8 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
2 - GOING CONCERN ASSESSMENT AND COVID-19
These interim consolidated financial statements have been prepared on the basis of the going concern assumption meaning the Company will be able to realize its assets and discharge its liabilities in the normal course of operations.
The level of revenue currently being generated is not presently sufficient to meet the working capital requirements. The Company's ability to continue as a going concern is dependent upon its ability to raise additional financing. Even if the Company has been successful in the past in doing so, there is no assurance that it will manage to obtain additional financing in the future. Also, the Company incurred a net loss of $2,313,014 for the nine-month period ended September 30, 2020 ($729,933 for 2019), it has an accumulated deficit of $26,552,043 as at September 30, 2020 ($23,623,950 as at December 31, 2019) and it has not yet generated positive cash flows from operations on a regular basis. Until that happens, the company will continue to assess its working capital needs and undertake whatever initiative it deems necessary to ensure that it continues to be in a position to meet its financial obligations. These material uncertainties cast significant doubt regarding the Company's ability to continue as a going concern.
The World Health Organization declared the COVID-19 outbreak as a global pandemic in March 2020. Since that time, businesses all over the world from a wide swath of industries have seen their operations negatively impacted by the health and safety measures, including limitations on the movement of goods and individuals, put into place by local governments to help control the spread of the outbreak. Although those measures have been relaxed in recent months thanks to a global decline in the proliferation of the virus, which has allowed many businesses, including the Company, to slowly resume their operations, there still remains a great deal of uncertainty as to the extent and duration of the future impact of COVID-19 on global commerce and the Company's business.
The interim consolidated financial statements do not include any adjustments or disclosures that may be necessary should the Company not be able to continue as a going concern. If this were the case, these adjustments could be material.
3. CHANGES IN ACCOUNTING POLICIES
3.1 New Standards adopted as at January 1, 2020
Some accounting pronouncements which have become effective from January 1, 2020, and have therefore been adopted do not have a significant impact on the Company financial results or position.
9 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim consolidated statements have been prepared in accordance with the accounting policies adopted by the Company most recent audited statements for the year ended December 31, 2019. With the exception of revenue reconignition for which the Company would like to offer the following clarifications:
4.1 Revenue recognition
Revenue arises mainly from the rendering of different services. To determine whether to recognize revenue, the Company follows a 5-step process:
─ identifying the contract with a customer;
─ identifying the performance obligations;
─ determining the transaction price;
─ allocating the transaction price to the performance obligations;
─ recognizing revenue when performance of obligation is satisfied.
Revenue is recognized either at a point in time or over time when the Company satisfies performance obligations by rendering the services to its customers.
Financial services
Financial services revenues include interest revenue earned from commercial loans to small and and medium-sized businesses and entrepreneurs and fees earned for services rendered to financial institutions to manage loans made to their customers.
Interest revenue earned from commercial loans is recorded using the effective interest rate method.
Service fees
Service fee revenues include fees earned for services rendered to financial institutions to help them find loan candidates, determine what potential or existing customers to lend to, manage their credit risk exposure, and help facilitate their credit transactions through the Company's technology platforms.
Service fees earned for services rendered to financial institutions over time is calculated based on a percentage of the value of the transactions associated with the services or in some cases, represent the price to obtain risk analysis or similar types of reports, charged either per report or on a subscription basis.
10 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
4.1 Revenue recognition (cont'd)
Supply chain services
Supply chain services revenue relate to services provided to supply chain participants to allow them to acquire the materials they need on credit.
The services include a bundle of three services:
- assistance to get financing from financial institutions,
- assistance to find materials suppliers,
- assistance for the transportation and warehousing of the acquired materials
The supply chain service revenue is earned when the Company satisfies performance obligation for all of the three elements by transferring the service to its customers. At this point, the customer
is invoiced as follows:
Financing: A percentage of the value of the purchase order financed.
Material suppliers: A percentage of the value of the purchase order.
Transportation and warehousing: Price established on a case by case basis according to the characteristics of the purchase order; location, quantity, storage time and others.
5 - BUSINESS COMBINATION
On January 1, 2019, the Company through its subsidiary called Asia Synergy Credit Solutions ("ASCS") transferred certain assets and personnel from Wuxi Wenyi Financial Services Co.. Wenyi offers turn-key credit outsourcing services to banks and other lending institutions in China. The asset transfer was made to enhance the Company position in the commercial lending market in China. The assets acquired are intangible assets consisting of loan-servicing agreements. The assets acquired were determined to constitute a business combination and, accordingly, the acquisition will be accounted for using the acquisition method of accounting.
The maximum purchase price for this acquisition was estimated at $2,000,000, and the fair value of the consideration transferred at $489,000. The purchase price will be settled with the issuance of a maximum of 2,000,000 shares of the Company if certain financial performance of ASCS is achieved during the first 18 months of operations. In the event that 2,000,000 shares are issued after the 18-month period and the listed common shared price of the Company is less than $0.10 at that time, the Company will issue additional shares to obtain an aggregate consideration value of $2,000,000.
The fair value of the consideration transferred was estimated at $489,000, based on management financial projection of ASCS over the first 21 months of operations. The Company used a probability-weighted estimate to determined the number of shares to be issued based on certain financial performance targets. The number of shares estimated to be issued represents management estimate of an 80% probability that the financial performance will be achieved.
11 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
5 - BUSINESS COMBINATION (cont'd)
The market price ($0.03) at which the share will be issued used in the model was estimated using the average historical price from the 6 months prior to the acquisition and the historical volatility over the payment term. The payment where then discounted using the Chinese risk-free rate (4.8%). The Company consider that the risk of the projection being realized was already taken into account through the probability-weighted estimated result.
$ | |||
Fair value of consideration transferred | |||
Issuance between 14,000,000 and 17,000,000 shares of the Company at a market price ranging from $0.03 to $0.06 | 489,000 | ||
Total consideration transferred (conditional compensation) | 489,000 | ||
Gain on bargain purchase to profit and loss | 941,000 | ||
1,430,000 | |||
Identifiable net assets acquired | |||
Loan servicing agreements | 1,430,000 | ||
Liabilities assumed | - | ||
Identifiable total net assets | 1,430,000 | ||
Goodwill on acquisition | - | ||
1,430,000 |
At acquisition, the Company recognized a gain on bargain purchase of $941,000 for the difference between the value of the identified assets acquired and the fair value of the consideration transferred.
As at December 31, 2019, the Company revised its estimation of the fair value of the contingent compensation. The re-evaluation process performed after the first year of operations of ASCS indicates that the financial performance criteria were achieved at 77.1% of the agreed target. As per the asset transfer agreement, the Company should have issued a total of 1,232,861 shares as a purchase price in 2019. Following administrative delay, it was agreed by both parties to postpone the issuance of the shares to 2020. Management initial financial projections for 2020 were maintained, based on the results obtained in 2019. The market share price used for the estimation of the fair value as at December 31, 2019 was established at $0.50 based on the current market price and the historical volatility of the Company.
The initial conditional compensation liability of $489,000 was re-evaluated on December 31, 2019, at a fair value of $748,000 considering the past performance, forecasted results and projected market share price at issuance. The difference of $259,000 between the re-evaluated fair value of the remaining conditional compensation and the previously accounted amount was recognized as a change in fair value of the contingent compensation payable in the consolidated statements of comprehensive loss of the period.
12 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
5 - BUSINESS COMBINATION (cont'd)
The contingent liability relating to the 2019 shares that should have been issued, was classified as shares to be issued in the consolidated statements of changes in equity. The value of those shares was determined by using the market price as at December 31, 2019. The difference of $254,586 between the value of shares to be issued ($493,414) and the fair value of the contingent liability ($748,000) is presented as a short-term liability in the consolidated statements of financial position.
As at June 30, 2020 the first 18 months arrived at their end. Base on actual result the performance criteria were achieved at 46.6% of the agreed target during the first two quarters of 2020. As per the asset transfer agreement, the Company should have issued a total of 186,303 shares
as a purchase price for the performance over the first two quarter of 2020. Base on market price as at June 30, 2020 and actual result an amount of $37,261 was recorded as shares to be issued. The difference of $217,325 between the contingent compensation prior valuation and the actual amount payable was recorded as a gain in the statement of comprehensive loss in the third quarter.
The Company's valuation of intangible assets has identified loan servicing agreements which are amortized on a straight-line basis with a useful life of 10 years. Significant assumptions used in the determination of intangible assets, as defined by management, include month over month loan renewals, discount rate and operating income before depreciation and amortization margin.
There were acquisition-related costs which amounted approximately to $10,000 with respect to consulting and professional fees. These costs were not included as part of the consideration transferred and have been recognized as an expense in the consolidated statements of comprehensive loss for the year ended December 31, 2019.
6 - LOANS RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
In May 2018, the Company established a licensed financial services' subsidiary in China named Asia Synergy Financial Capital ("ASFC") to provide various financial services to small and medium size enterprise and entrepreneurs. Those services include loans, who for the most part, are guaranteed by a third party and/or collateral assets. Interest revenue from the loans is accounted for as earned.
13 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
6 - LOANS RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (cont'd)
For the majority of loans granted, principal and interest are payable by the borrower on a monthly basis.
Loans receivables are described as follows : | ||||||
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Principal balance loans receivables | 18,526,607 | 19,789,583 | ||||
Less expected credit loss (ECL) | (988,695 | ) | (399,947 | ) | ||
Loan receivables net | 17,537,912 | 19,389,636 | ||||
Loans receivables maturing in less than 12 months | 14,819,332 | 11,193,087 | ||||
Loans receivables maturing in more than 12 months | 2,718,580 | 8,196,549 | ||||
Total loans | 17,537,912 | 19,389,636 |
Impaired loans and allowances for credit loss
The Company performed a three-stage forward looking impairment approach to its loan portfolio to measure the expected credit loss as described in detail in note 4.10 of the Company Consolidated Financial Statement as of December 31, 2019.
Credit quality of loans
The following table presents the gross carrying amount of loans receivables at September 30, 2020 , according to credit quality and ECL impairment stages
ECL is calculated on loan value at the period end that are not insured by a third party with an assumption of a credit loss allocation provision applied as follows :
Provision % | Credit loss | Credit loss | ||||||||||
Stage 1 : 1% | 1.0% | 1.0% | 1.0% | |||||||||
Stage 2: 30% | 30.0% | 1.0% | 1.0% | |||||||||
Stage 3 :100% | 100.0% | 26.0% | 1.0% | |||||||||
% | Gross | Allowance | Net Carrying | |||||||||
$ | $ | $ | ||||||||||
September 30, 2020 | ||||||||||||
Stage 1 Not overdue <= 30 Days | 68.1% | 12,615,806 | (484 | ) | 12,615,322 | |||||||
Stage 2 Overdue 30-90 days | 10.9% | 2,010,182 | (6,031 | ) | 2,004,151 | |||||||
Stage 3 Overdue> 90 days | 21.1% | 3,900,619 | (982,180 | ) | 2,918,439 | |||||||
Total | 100.0% | 18,526,607 | (988,695 | ) | 17,537,912 |
14 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
6 - LOANS RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (cont'd)
% | Gross | Allowance | Net Carrying | |||||||||
$ | $ | $ | ||||||||||
December 31, 2019 | ||||||||||||
Stage 1 Not overdue <= 30 Days | 88.5% | 17,509,277 | (11,615 | ) | 17,497,662 | |||||||
Stage 2 Overdue 30-90 days | 6.4% | 1,266,596 | (25,382 | ) | 1,241,214 | |||||||
Stage 3 Overdue> 90 days | 5.1% | 1,013,710 | (362,950 | ) | 650,760 | |||||||
Total | 100.0% | 19,789,583 | (399,947 | ) | 19,389,636 |
The loss allowance for loans to customers as at September 30, 2019 and 30 September 2020 reconciles to the opening loss allowance for that provision as follows:
Stage 1 | Stage 2 | Stage 3 | Total ECL | |||||||||
$ | $ | $ | $ | |||||||||
Loss allowance as at December 31, 2019 | 11,615 | 25,382 | 362,950 | 399,947 | ||||||||
Individual financial assets transferred to stage 2 (lifetime expected credit losses)* | (1,892 | ) | 10,772 | - | 8,880 | |||||||
Individual financial assets transferred to stage 3 | ||||||||||||
Credit-impaired financial assets | - | (7,033 | ) | 657,056 | 650,023 | |||||||
New financial assets originated Write-offs | 893 | 893 | ||||||||||
Recoveries | (10,132 | ) | (12,314 | ) | (37,826 | ) | (60,272 | ) | ||||
Change in Credit loss allocation + ECL % assumption | - | (10,776 | ) | - | (10,776 | ) | ||||||
Loss allowance as at September 30, 2020 | 484 | 6,031 | 982,180 | 988,695 |
15 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
6 - LOANS RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (cont'd)
Stage 1 | Stage 2 | Stage 3 | Total ECL | |||||||||
$ | $ | $ | $ | |||||||||
Loss allowance as at December 31, 2018 | 22,469 | 93,543 | 33,054 | 149,066 | ||||||||
Individual financial assets transferred to stage 2 (lifetime expected credit losses)* | (1,660 | ) | 18,991 | - | 17,331 | |||||||
Individual financial assets transferred to stage 3 | ||||||||||||
Credit-impaired financial assets | (7,145 | ) | 284,946 | 277,801 | ||||||||
New financial assets originated | 19,164 | - | - | 19,164 | ||||||||
Write-offs Recoveries | (14,590 | ) | (351 | ) | (16,760 | ) | (31,701 | ) | ||||
Change in Credit loss allocation + ECL % assumption | (1,973 | ) | (91,200 | ) | 6,369 | (86,804 | ) | |||||
Loss allowance as at September 30, 2019 | 23,410 | 13,838 | 307,609 | 344,857 |
7 - DEBTORS
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Sales tax receivable | 26,353 | 27,663 | ||||
Advances to companies, 1.55% to 1.7% per month (1,55% to 1.7% in 2019), payable on demand. | 414,193 | 392,210 | ||||
Advance to a company | - | 466,622 | ||||
Accounts receivable | 18,563,025 | 2,657,029 | ||||
Safety deposits with guarantor (1) | 398,055 | 370,699 | ||||
Subscription receivable | 220,000 | - | ||||
Advance to an affiliated company (note 20) | (4,280 | ) | 17,758 | |||
19,617,346 | 3,931,981 |
16 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
7 - DEBTORS (cont'd)
Considering the low number of individual items, evaluation of expected credit loss for debtors are performed at each period end based on past experience, credit default evidence and payment habit. At September 30, 2020 an amount of $88,335 ($83,925 at December 31, 2019) was registered for expected credit loss for debtors.
(1) As per an agreement with certain loan insurance provider, ASCS, a subsidiary of the Company must maintain a deposit with a loan insurance provider representing 10% of the value of loans serviced by ASCS on behalf of the certain Commercial Bank guaranteed by loan insurer providers. ASCS third party financial partners and the Company's ASFC subsidiary have a three-way agreement in place with ASCS under which third party financial partner and ASFC are jointly responsible for providing and maintaining the 10% safety deposit with a loan insurance provider on behalf of ASCS in exchange for a service fee representing a percentage of the amount of the safety deposit provided. The agreement indicates that in case of default by the borrowers, ASCS will retrieve all the rights to realize the collateral.
8 - PROPERTY AND EQUIPMENT
Right-of-use | Office | |||||||||||
assets | equipment | Vehicles | Total | |||||||||
$ | $ | $ | $ | |||||||||
Gross carrying amount | ||||||||||||
Balance as at January 1,2020 | 897,453 | 106,196 | 205,358 | 1,209,007 | ||||||||
Acquisition | 249,219 | 3,862 | - | 253,081 | ||||||||
Balance as at September 30, 2020 | 1,146,672 | 110,058 | 205,358 | 1,462,088 | ||||||||
Accumulated amortization | ||||||||||||
Balance as at January 1, 2020 | 415,644 | 36,546 | 22,374 | 474,564 | ||||||||
Amortization | 350,819 | 27,614 | 37,035 | 415,468 | ||||||||
Exchange differences | (25,318 | ) | (3,659 | ) | (8,678 | ) | (37,655 | ) | ||||
Balance as at June 30, 2020 | 741,145 | 60,501 | 50,731 | 852,377 | ||||||||
Net carrying amount as at | ||||||||||||
September 30, 2020 | 405,527 | 49,557 | 154,627 | 609,711 | ||||||||
Gross carrying amount | ||||||||||||
Balance as at January 1, 2019 | - | 71,224 | 47,592 | 118,816 | ||||||||
Adjustment on transition to IFRS 16 | 313,283 | - | - | 313,283 | ||||||||
Acquisition | 584,170 | 34,972 | 157,766 | 776,908 | ||||||||
Balance as at December 31, 2019 | 897,453 | 106,196 | 205,358 | 1,209,007 |
17 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
8 - PROPERTY AND EQUIPMENT (cont'd)
Accumulated amortization | ||||||||||||
Balance as at January 1, 2019 | - | 3,194 | 2,826 | 6,020 | ||||||||
Amortization | 407,611 | 30,673 | 16,875 | 455,159 | ||||||||
Exchange differences | 8,033 | 2,679 | 2,673 | 13,385 | ||||||||
Balance as at December 31, 2019 | 415,644 | 36,546 | 22,374 | 474,564 | ||||||||
Net carrying amount as at | ||||||||||||
December 31, 2019 | 481,809 | 69,650 | 182,984 | 734,443 |
9 - INTANGIBLE ASSETS
Loan servicing | Gold | Cubeler | ||||||||||
agreement | River | Interface | Total | |||||||||
$ | $ | $ | $ | |||||||||
Gross carrying amount | ||||||||||||
Balance as at January 1, 2020 | 1,430,000 | 2,461,348 | 1,354,774 | 5,246,122 | ||||||||
Acquisition (a) | - | - | 820,723 | 820,723 | ||||||||
Balance as at September 30, 2020 | 1,430,000 | 2,461,348 | 2,175,497 | 6,066,845 | ||||||||
Accumulated amortization | ||||||||||||
Balance as at January 1, 2020 | 143,000 | 2,461,348 | 242,364 | 2,846,712 | ||||||||
Amortization | 107,250 | - | 124,646 | 231,896 | ||||||||
Exchange differences | - | - | (42,206 | ) | (42,206 | ) | ||||||
Balance as at September 30, 2020 | 250,250 | 2,461,348 | 324,804 | 3,036,402 | ||||||||
Net carrying amount as at September 30, 2020 | 1,179,750 | - | 1,850,693 | 3,030,443 | ||||||||
Gross carrying amount | ||||||||||||
Balance as at January 1, 2019 | - | 2,461,348 | 747,940 | 3,209,288 | ||||||||
Acquisition | - | - | 606,834 | 606,834 | ||||||||
Business acquisition (a) | 1,430,000 | - | - | 1,430,000 | ||||||||
Balance as at December 31, 2019 | 1,430,000 | 2,461,348 | 1,354,774 | 5,246,122 | ||||||||
Accumulated amortization | ||||||||||||
Balance as at January 1, 2019 | - | 1,578,607 | 51,812 | 1,630,419 | ||||||||
Amortization | 143,000 | 298,552 | 153,527 | 595,079 | ||||||||
Impairment loss (b) | - | 584,189 | - | 584,189 | ||||||||
Exchange differences | - | - | 37,025 | 37,025 | ||||||||
Balance as at December 31, 2019 | 143,000 | 2,461,348 | 242,364 | 2,846,712 | ||||||||
Net carrying amount as at December 31, 2019 | 1,287,000 | - | 1,112,410 | 2,399,410 |
18 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
9 - INTANGIBLE ASSETS (cont'd)
(a) Business acquisition, as describe in note 5, was unpaid as at September 30, 2020. This acquisition was a non-cash transaction and thus are excluded from the consolidated statement of cash-flows.
(b) An impairment loss of $ Nil at September 30, 2020 ($584,189 at December 31, 2019) was recognized for the Gold River platform. The recoverable amount of the asset is $Nil at September 30, 2020, and December 31, 2019, determined using management expectation of the actual value of the future cash-flows generated by the platform. There is no evidence of predictable cash-flow from the platform at September 30, 2020.
10 - LEASE LIABILITIES
On January 1st, 2019 new lease liabilities have been recognized. The Company lease office space. The Company measured lease liabilities at the present value of the lease payments that are not paid at that date. The present value recognized for the lease liabilities was $313,283. The present value is increased to reflect the interest on the lease liabilities and reduced to reflect the lease payments made.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance - beginning of year | 452,528 | 313,283 | ||||
Additions | 249,219 | 584,170 | ||||
Accretion interest | 25,781 | 44,868 | ||||
Lease payments | (385,596 | ) | (460,361 | ) | ||
Effect of exchange rate change on obligation | 56,427 | (29,432 | ) | |||
Balance - end of period | 398,359 | 452,528 | ||||
Current Portion | 239,307 | 402,954 | ||||
159,052 | 49,574 |
Following is a summary of the Company's obligations regarding lease payments:
Payment due by period | ||||||||||
1 year | 2-5 years | Beyond 5 years | Total | |||||||
$ | $ | $ | $ | |||||||
As at September 30, 2020 | ||||||||||
Lease payments | 245,036 | 162,860 | - | 407,896 | ||||||
As at December 31, 2019 | ||||||||||
Lease payments | 417,620 | 50,579 | - | 468,199 |
19 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
11 - ACCOUNTS PAYABLE, ADVANCES AND ACCRUED LIABILITIES
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Trade accounts payable and accruals | 14,796,462 | 2,158,064 | ||||
Advance from third party, annual interest 10% | 1,532,931 | 1,880,146 | ||||
Advance from a director, no interest (note 16) | 314,080 | 298,400 | ||||
Advance from third party, no interest | 105,419 | 182,512 | ||||
Security deposit | 1,500,107 | - | ||||
New debentures to be issued | - | 110,000 | ||||
18,248,999 | 4,629,122 |
12 - DEBENTURES
12 a) i) Debenture issuance of December 15, 2017
On December 15, 2017, the Company has placed a total of 1,200 units of debentures at $10,000 par unit for gross proceeds of $12,000,000. Each unit sold is comprised of $10,000 face value debentures plus 20,000 common share purchase warrants.
Debentures are secured by a pledge on the aggregate assets of the Company, maturing on December 15, 2019, bearing interest at a nominal rate of 8% payable monthly. The Company used the residual value method to allocate the principal amount of the debenture between the liability and the contributed surplus. Under this method, an amount of $2,721,260 (net of transaction costs) related to the warrants issued was applied to the contributed surplus. The fair value of the liability component was $9,005,148 computed as the present value of future principal and interest payments discounted at a rate of 25%. The debentures allow their subscribers to surrender part or all of the amount invested in the debentures to exercise their warrants and purchase common shares of the Company any time prior to maturity, subject to certain terms and conditions, at a price of $0.50 per common share. The units contain a ''forced warrant conversion'' feature under which 50% of the face value of the debenture will automatically be surrendered to exercise 50% of the warrants if the Company common shares trade at $1.50 or more for 3 consecutive trading days, and 100% if the Company's common shares trade at $2.00 or more for 3 consecutive days.
2019-12-15 | 2018-12-31 | |||||
$ | $ | |||||
Balance, beginning of year | 3,343,820 | 4,263,913 | ||||
Accretion of debentures | 475,159 | 453,471 | ||||
Surrendering of debentures for exercise of warrants (1) | (264,200 | ) | - | |||
Surrendering of debentures paid in cash | (40,000 | ) | (1,410,356 | ) | ||
Issuance cost (2) | 25,221 | 36,792 | ||||
Balance, end of year | 3,540,000 | 3,343,820 |
20 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
12 - DEBENTURES (cont'd)
12 a) i) Debenture issuance of December 15, 2017 (cont'd)
(1) At the issuance date, a total of 24,000,000 warrants were included as part of the unit's debenture. 19,100,000 warrants were transferred from existing warrant holders to the debentures' subscribers, for which the original warrants holders received 250,000 stock options as compensation, and 4,900,000 additional warrants were newly issued. On the same date the debentures were issued, some debenture subscribers surrendered their debentures for a total face value of $6,350,000 to exercise 12,700,000 warrants at a price of $0.50.
During the year 2018, 3,600,000 warrants were exercised at a price of $0.50 following surrendering of debentures for a total face value of $1,800,000.
During the year 2019, 540,000 warrants were exercised at a price of $0.50 following surrendering of debentures for a total face value of $ 270,000.
(2) Issuance costs are related to legal expenses, broker commissions and stock options value to directors and officers
12 a) ii) Debenture issuance of December 15, 2017, extended to December 2020
On or before the maturity date of December 15, 2019, the company reached an agreement with holders of the debenture to extend the maturity of the debenture on December 15, 2020, at the same terms and conditions.
At that time, the remaining face value of debentures was $3,540,000.
The remaining 7,800,000 remaining warrants at maturity accompanying the debenture were replaced by new warrants with the same attributes, except that they will expire on December 15, 2020, to coincide with the new maturity date of the debenture. For each warrant that is tied to the debenture, debenture holders will also receive an additional warrant that will allow them to acquire common shares of the Company at a price of $0.80 per share at any time for a period of 24 months from their date of issuance.
An exchange between an existing borrower and lender of debt instruments with substantially different terms shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
21 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
12 - DEBENTURES (cont'd)
12 a) ii) Debenture issuance of December 15, 2017, extended to December 2020 (cont'd)
The renegotiation created a debt extinction for accounting purposes. The initial debt was derecognized and a new debt recognized at fair value, creating a loss on extinction of debt of $816,793.
The Company used the residual value method to allocate the principal amount of the debenture between the liability and the equity component. Under this method, an amount of $1,388,688 related to the conversion features and the warrants issued were applied to contributed surplus only as the debenture is non-convertible. The fair value of the liability component was $2,968,124 computed as the present value of future principal and interest discounted at a rate of 30%.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance, beginning of year | 2,990,043 | 3,540,000 | ||||
Derecognition of original debt | - | (3,540,000 | ) | |||
Fair market value of renegotiate debentures at fair market value | - | 2,968,124 | ||||
Surrendering of debentures for exercise of warrants (1) | (598,098 | ) | - | |||
Accretion of debentures | 365,428 | 21,919 | ||||
Balance at the end | 2,757,373 | 2,990,043 |
The value attributed to the warrants is $702,010. The fair value of the warrants was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share prices at the date of grant | $0.40 |
Expected life | 1 year |
Risk-free interest rate | 1.71% |
Expected volatility | 82% |
Dividend | 0% |
Exercise prices at the date of grant | $0.50 |
The value attributed to the warrants is $686,659. The fair value of the warrants was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share prices at the date of grant | $0.40 |
Expected life | 2 years |
Risk-free interest rate | 1.71% |
Expected volatility | 79% |
Dividend | 0% |
Exercise prices at the date of grant | $0.80 |
(1) During the first nine months of 2020, 1,340,000 warrants were exercised at a price of $0.50 following surrendering of debentures for a total face value of $ 670,000.
22 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
12 - DEBENTURES (cont'd)
12 b) Debenture issuance of December 19, 2018
On December 19, 2018, the Company has placed 51 units of unsecured convertible debentures at $10,000 per unit for a gross proceeds of $510,000. Each unit sold is comprised of $10,000 face value debentures, maturing on December 19, 2020, bearing interest at a nominal rate of 8% payable monthly, plus 1,000 purchase warrants exercisable into Company common share at $1.00 per share for a period of 24 months from the date of issuance.
The debentures allow their subscribers to convert them into common shares of the Company at any time prior to maturity, subject to certain terms and conditions, at a price of $0.50 per common share.
The units contain a "forced warrant conversion" feature under which the debenture will automatically be surrendered and converted into common shares of the Company should the shares of the Company trade at $2.00 or more for 3 consecutive trading days.
The Company used the residual value method to allocate the principal amount of the debentures between the liability, equity component of debentures and the contributed surplus. Under this method, an amount of $93,940 and $3,578 (net of transaction costs) related to the conversion features and the warrants issued was applied to the equity component of debenture and contributed surplus (respectively). The fair value of the liability component was $396,672 computed as the present value of future principal and interest discounted at a rate of 22%.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance at the beginning | 231,238 | 398,015 | ||||
Addition | - | - | ||||
Conversion of debentures | - | (216,819 | ) | |||
Accretion of debentures | 20,744 | 38,744 | ||||
Equity component of debentures | - | - | ||||
Contributed surplus for warrants | - | - | ||||
Issuance costs (1) | 1,048 | 11,298 | ||||
Balance at the end | 253,030 | 231,238 |
(1) Issuance costs are related to legal expenses and broker commissions.
23 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
12 - DEBENTURES (cont'd)
12 c) Debenture issuance of April 24, 2019
On April 24, 2019, the Company placed 28 units of unsecured convertible debentures at $10,000 per unit for gross proceeds of $280,000. Each unit sold is comprised of $10,000 face value debentures, maturing on April 24, 2021, bearing interest at a nominal rate of 8% payable monthly, plus 20,000 purchase warrants exercisable into Company common shares at $1.00 per share for a period of 24 months from the date of issuance.
The debentures allow their subscribers to convert them into common shares of the Company at any time prior to maturity, subject to certain terms and conditions, at the lower of $0.50 per common share or at the market price per common share prevailing at the time of conversion.
The units contain a "forced warrant conversion" feature under which the debenture will automatically be surrendered and converted into common shares of the Company should the shares of the Company trade at $2.00 or more for 3 consecutive trading days.
The fair value of the instrument corresponds to the individual fair value of each different instruments as such each component was recorded at its original fair value. an amount of $39,077 and $43,107 related to the conversion features and the warrants issued were applied to the conversion option and contributed surplus (respectively). The fair value of the liability component was $197,817 computed as the present value of future principal and interest discounted at a rate of 30%.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance at the beginning | 137,638 | - | ||||
Addition | - | 280,000 | ||||
Conversion of debentures | - | (92,852 | ) | |||
Accretion of debentures | 18,473 | 18,020 | ||||
Conversion option | - | (24,423 | ) | |||
Contributed surplus | - | (43,107 | ) | |||
Balance at the end | 156,111 | 137,638 |
In September 2019, $105,000 face value of debentures was converted to 500,000 common shares of the Company at a price of $0.40 and $0.20 per share.
24 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
12 - DEBENTURES (cont'd)
12 d) Debenture issuance of January 15, 2020
On January 15, 2020, the Company has placed 16 units of unsecured convertible debentures at $10,000 per unit for a gross proceeds of $160,000. Each unit sold is comprised of $10,000 face value debentures, maturing on January 15, 2021, bearing interest at a nominal rate of 8% payable monthly, plus 1,000 purchase warrants exercisable into Company common share at $0.80 per share for a period of 24 months from the date of issuance.
The debentures allow their subscribers to convert them into common shares of the Company at any time prior to maturity, subject to certain terms and conditions, at a price of $0.50 per common share.
The units contain a "forced warrant conversion" feature under which the debenture will automatically be surrendered and converted into common shares of the Company should the shares of the Company trade at $1.50 or more for 5 consecutive trading days.
The Company used the residual value method to allocate the principal amount of the debentures between the liability, equity component of debentures and the contributed surplus. Under this method, an amount of $9,408 and $11,272 (net of transaction costs) related to the conversion features and the warrants issued was applied to the equity component of debenture and contributed surplus (respectively). The fair value of the liability component was $139,320 computed as the present value of future principal and interest discounted at a rate of 25%.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance at the beginning | ||||||
Addition | 160,000 | - | ||||
Conversion of debentures (1) | (47,738 | ) | - | |||
Accretion of debentures | 13,794 | - | ||||
Equity component of debentures | (9,408 | ) | - | |||
Contributed surplus for warrants | (11,273 | ) | - | |||
Balance at the end | 105,375 | - |
(1) In September 2020, $50,000 face value of debentures was converted to 10,000 common shares of the Company at a price of $0.50 per share.
25 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
13 - BONDS
On May 29, 2020, the Company has placed 400 units of secured corporate bonds at $1,000 per unit. Each unit sold is comprised of $1,000 face value bonds, redeemable on June 10, 2023, bearing interest at a nominal rate of 10% payable monthly, plus 20 purchase warrants exercisable into Company common share at $1.00 per share for a period of 36 months from the date of issuance.
The Bonds will be redeemable after 36 months from the date of issuance (the "Initial Maturity Date"). Each holder has a right (the "Initial Extension Right") at the end of the Initial Maturity Date to extend the Bond for another 12 months (the "Initial Extension Period") by giving written notice to that effect to the Company no later than sixty (60) days prior to the Initial Maturity Date. Any holder that has elected to exercise its Initial Extension Right will also have a further right at the end of the Initial Extension Period to extend its Bond for another 12 months (the "Second Extension Period") under the same notice conditions as stated in the Initial Extension.
If a holder elects to extend its Bonds, the Company may redeem such holder's Bonds at any time on payment of a 5% premium to redeem the Bonds ("Penalty").
The Company has set aside an amount equal to two years of interest in a separate bank account, which will be used to pay interest payable on the Bonds. Any interest accrued on such sum will be in favour of the Company. The set aside amount at September 30, 2020, is $80,051 and is presented under Cash in the Consolidated statements Financial Position.
Bonds are secured by a pledge on the aggregate assets of the Company, maturing on May 29, 2023. The Company used the residual value method to allocate the principal amount of the bond between the liability and the contributed surplus. Under this method, an amount of $64,896 (net of transaction costs) related to the warrants issued was applied to the contributed surplus. The fair value of the liability component was $ 309,916 computed as the present value of future principal and interest payments discounted at a rate of 22%.
2020-09-30 | 2019-12-31 | |||||
$ | $ | |||||
Balance at the beginning | ||||||
Addition | 400,000 | - | ||||
Accretion of bonds | 7,716 | - | ||||
Contributed surplus for warrants | (64,896 | ) | - | |||
Issuance costs | (101,752 | ) | - | |||
Balance at the end | 241,068 | - |
26 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
14 - CEBA LOAN (Canada Emergency Business Account)
The Company applied and received on April 15, 2020, $40,000 under the Canada Emergency Business Account ( CEBA) Under this program providing interest-free loans, repaying the balance of the loan on or before December 31, 2022, will result in loan forgiveness of 25% ($10,000), which is the intention of the company.
15 - SHAREHOLDERS' EQUITY
15.1 Authorized share capital
The share capital of the Company consists of an unlimited number of common shares without par value.
Share Consolidation
Effective July 28, 2020, the Company consolidated its issued and outstanding common shares on the basis of one post-consolidation share for 10 pre-consolidation shares. Unless otherwise stated, all share amounts have been restated retrospectively to reflect this share consolidation.
15.2 Descriptions of the shareholders' equity operations
a) As part of the private placement consisting of unsecured convertible debentures closed on January 15, 2020 for a consideration of $160,000, the Company issued 320,000 share purchase warrants with an exercise price of $0.80 per share for a twenty-four (24) month period following the closing date.
The fair value of the 320,000 warrants was $65,015 with an attributed value of $11,272 to contributed surplus. The fair value of the warrants was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share price at the date of grant | $0.40 |
Expected life | 2 years |
Risk-free interest rate | 1.63% |
Expected volatility (1) | 89,7% |
Dividend | 0% |
Exercise price at the date of grant | $0.80 |
27 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
15 - SHAREHOLDERS' EQUITY (cont'd)
15.2 Descriptions of the shareholders' equity operations (cont'd)
b) On February 3, 2020, the Company closed a private placement consisting of the sale of 1,440,000 units (a ''Unit'') at a price of $0.40 per Unit for proceed s of $576,000. Each unit consists of one (1) common share and half (1/2) common share purchase warrant. Each warrant entitles the holder to purchase one (1) share of the Company at the price of $1.00 each for a period of twenty-four (24) months from the date of issuance.
The fair value of the 720,000 warrants was $69,484. The value attributed to these warrants was $55,782. The fair value was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share price at the date of grant | $0.45 |
Expected life | 2 years |
Risk-free interest rate | 1.42% |
Expected volatility (1) | 78,2% |
Dividend | 0% |
Exercise price at the date of grant | $1.00 |
c) In the first nine months of 2020, the Company issued 4,160,813 common shares to settle $1,058,992 of debt related to consulting services received by the Company.
d) Between January 1, 2020, and September 30, 2020, $670,000 of secured debentures were surrendered to exercise share purchase warrants at a price of $0.50 per share pursuant to the private placement closed in December 2017. The Company therefore issued 1,340,000 common shares at a price of $0.50 per share to the debenture holders. A corresponding residual value of $132,866 attributed to warrants was transferred to capital stock.
28 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
15 - SHAREHOLDERS' EQUITY (cont'd)
15.2 Descriptions of the shareholders' equity operations (cont'd)
e) On July 22, 2020 and August 24, 2020, the Company closed a private placement consisting in the sale of 3,850,000 and 13,745,000 units respectively at a price of $0.20 per shares for gross proceeds of $3,519,000. Each unit is composed of one common share at a price of $0.25 for a period of 24 months following the closing date of the offering.
The fair value of the 3,850,000 warrants was $462,452. The fair value attributed to contributed surplus was $288,926. The fair value was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share price at the date of grant | $0.25 |
Expected life | 2 years |
Risk-free interest rate | 0.27% |
Expected volatility (1) | 90.8% |
Dividend | 0% |
Exercise price at the date of grant | $0.25 |
The fair value of the 13,745,000 warrants was $3,852,877. The fair value attributed to contributed surplus was $1,077,259. The fair value was calculated using the Black & Scholes option pricing model and the following weighted average assumptions:
Share price at the date of grant | $0.395 |
Expected life | 2 years |
Risk-free interest rate | 0.29% |
Expected volatility (1) | 100% |
Dividend | 0% |
Exercise price at the date of grant | $0,25 |
Peak also granted 248,000 finder's compensation warrants to eligible persons who helped place the private placements entitling them to purchase a number of Peak common shares at a price of $0.25 per common share for a twenty-four-month period the issuance.
The fair value of the 248,000 warrants was $69,517 that was attributed to contributed surplus. The fair value of the warrants was calculated using the Black & Scholes option pricing models and the following weighted average assumptions:
Share prices at the date of grant | $0.395 |
Expected life | 2 years |
Risk-free interest rate | 0.29% |
Expected volatility (1) | 100% |
Dividend | 0% |
Exercise price at the date of grant | $0,25 |
29 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
15 - SHAREHOLDERS' EQUITY (cont'd)
15.2 Descriptions of the shareholders' equity operations (cont'd)
In connection with the private placement, the Company paid a cash finder's fees representing 8% of the value of the private placement for a total of $119,500.
15.3 Warrants
Outstanding warrants entitle their holders to subscribe to an equivalent number of common shares as follows:
2020-09-30 | 2019-12-31 | |||||||||||
Weighted | Weighted | |||||||||||
Number of | average | Number of | average | |||||||||
warrants | exercise price | warrants | exercise price | |||||||||
$ | $ | |||||||||||
Outstanding, beginning of period | 19,069,497 | 0.610 | 11,626,036 | 0.630 | ||||||||
Granted | 19,708,000 | 0.282 | 8,927,500 | 0.743 | ||||||||
Expired | (1,430,000 | ) | 0.500 | (7,944,039 | ) | 0.531 | ||||||
Extended | 1,140,000 | 0.500 | 7,080,000 | 0.500 | ||||||||
Exercised | (1,340,000 | ) | 0.500 | (620,000 | ) | 0.500 | ||||||
Outstanding and exercisable, end of period | 37,147,497 | 0.479 | 19,069,497 | 0.610 |
30 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
15 - SHAREHOLDERS' EQUITY (cont'd)
15.3 Warrants (continued)
As of September 30, 2020 and December 31, 2019, the number of outstanding warrants which could be exercised for an equivalent number of common shares is as follows:
2020-09-30 | 2019-12-31 | |||||||||||
Number | Exercise price | Number | Exercise price | |||||||||
$ | $ | |||||||||||
Expiration date | ||||||||||||
May 2020 | - | - | 290,000 | 0.500 | ||||||||
August 2020 | - | - | 1,140,000 | 0.500 | ||||||||
December 2020 | 5,761,000 | 0.500 | 7,101,000 | 0.500 | ||||||||
December 2020 | 51,000 | 1.000 | 51,000 | 1.000 | ||||||||
February 2021 | 1,140,000 | 0.500 | - | - | ||||||||
April 2021 | 7,500 | 0.500 | 7,500 | 0.500 | ||||||||
April 2021 | 560,000 | 0.500 | 560,000 | 0.500 | ||||||||
July 2021 | 140,000 | 0.800 | 140,000 | 0.800 | ||||||||
September 2021 | 610,000 | 0.400 | - | - | ||||||||
December 2021 | 7,080,000 | 0.800 | 7,080,000 | 0.800 | ||||||||
January 2022 | 320,000 | 0.800 | - | - | ||||||||
February 2022 | 720,000 | 1.000 | - | - | ||||||||
February 2022 | 150,000 | 0.500 | - | - | ||||||||
June 2022 | 386,667 | 0.500 | 386,667 | 0.500 | ||||||||
June 2022 | 580,000 | 0.570 | 580,000 | 0.570 | ||||||||
June 2022 | 333,333 | 0.610 | 333,333 | 0.610 | ||||||||
June 2022 | 1,400,000 | 1.200 | 1,400,000 | 1.200 | ||||||||
July 2022 | 3,850,000 | 0.250 | - | - | ||||||||
August 2022 (note 1) | 13,993,000 | 0.250 | - | - | ||||||||
May 2023 | 57,000 | 0.500 | - | - | ||||||||
May 2023 | 8,000 | 1.000 | - | - | ||||||||
37,147,500 | 19,069,500 |
Note 1: Holders of these warrants must not trade the unit before December 22, 2020
31 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
16 - SHARE-BASED PAYMENTS
The Company has adopted an incentive stock option plan which provides that the Board of Directors of the Company may, from time to time, at its discretion and in accordance with the Exchange requirements, grant to directors, officers, employees and others providing similar services to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares exercisable for a period of up to 5 years from the date of grant. The options reserved for issuance to any individual director, officer or employee will not exceed 5% of the issued and outstanding common shares and the number of common shares reserved for issuance to others providing services will not exceed 2% of the issued and outstanding common shares. Options may be exercised as of the grant date for a period determined by the Board, but shall not be greater than 5 years from the date of the grant and 90 days following cessation of the optionee's position with the Company. Provided that the cessation of office, directorships or employment or other similar service arrangement was by reason of death (in the case of an individual), the option may be exercised within a maximum period of one year after such death, subject to the expiry date of such option.
Share options and weighted average exercise prices are as follows for the reporting periods presented :
2020-09-30 | 2019-12-31 | |||||||||||
Weighted | Weighted | |||||||||||
Number of | average | Number of | average | |||||||||
options | exercise price | options | exercise price | |||||||||
$ | $ | |||||||||||
Outstanding, beginning of period | 5,102,500 | 0.680 | 4,190,000 | 0.740 | ||||||||
Granted | 2,011,000 | 0.430 | 1,580,000 | 0.520 | ||||||||
Expired | (380,000 | ) | 0.500 | - | - | |||||||
Forfeited | - | - | (667,500 | ) | 0.660 | |||||||
Exercised | - | - | - | - | ||||||||
Outstanding end of period | 6,733,500 | 0.614 | 5,102,500 | 0.680 | ||||||||
Exercisable end of period | 4,249,500 | 0.713 | 3,626,250 | 0.750 |
32 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
16 - SHARE-BASED PAYMENTS (cont'd)
The table below summarizes the information related to outstanding share options as at September 30, 2020
Range of | Number of | Weighted average remaining | |||||||
exercise price | options | contractual life (years) | |||||||
$ | |||||||||
0.500 | 260,000 | 2 months | |||||||
0.500 | 250,000 | 3 months | |||||||
0.500 | 15,000 | 8 months | |||||||
0.850 | 1,050,000 | 10 months | |||||||
1.050 | 780,000 | 1 years and 9 months | |||||||
0.550 | 37,500 | 2 years and 2 months | |||||||
0.800 | 342,500 | 2 years and 3 months | |||||||
0.500 | 10,000 | 2 years and 7 months | |||||||
0.500 | 727,500 | 2 years and 9 months | |||||||
0.500 | 75,000 | 3 years and 2 months | |||||||
0.500 | 995,000 | 3 years and 8 months | |||||||
0.500 | 20,000 | 4 years | |||||||
0.500 | 60,000 | 4 years and 2 months | |||||||
0.550 | 100,000 | 4 years and 2 months | |||||||
0.500 | 1,511,000 | 4 years and 9 months | |||||||
0.225 | 500,000 | 4 years and 11 months | |||||||
6,733,500 |
The Company has recorded an expense of $260,412 in the first three quarters of 2020 ($268,465 in 2020) as stock-based compensation. The offset was credited to contributed surplus.
16.1 Share-based payments granted to directors and employees
a) On June 11, 2020 the Company granted options to acquire 1,511,000 common shares at a price of $0.50 to certain directors and employees.
The shares vest over a two-year period and are exercisable over a period of five years expiring in June 2025.
33 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
16 - SHARE-BASED PAYMENTS (cont'd)
16.1 Share-based payments granted to directors and employees (cont'd)
The fair value of the options granted to certain directors and employees amounted to $236,415 and was calculated using the Black & Scholes option pricing model and the following assumptions on a weighted average basis:
Share price at the date of grant | $0.25 |
Expected life | 5 years |
Risk-free interest rate | 0.38% |
Volatility (1) | 97.8% |
Dividend | 0% |
Exercise price at the date of grant | $0.50 |
The volatility was determined by using the Company's own historical volatility over a period corresponding to expected life of the share options.
b) On August 7, 2020 the Company granted options to acquire 500,000 common shares at a price of $0.225 to a director.
The shares vest over a two-year period and are exercisable over a period of five years expiring in August 2025.
The fair value of the options granted to certain directors and employees amounted to $71,511 and was calculated using the Black & Scholes option pricing model and the following assumptions on a weighted average basis:
Share price at the date of grant | $0.20 |
Expected life | 5 years |
Risk-free interest rate | 0.41% |
Volatility (1) | 100.3% |
Dividend | 0% |
Exercise price at the date of grant | $0.225 |
The volatility was determined by using the Company's own historical volatility over a period corresponding to expected life of the share options.
34 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
17 - FINANCE COSTS
2020-09-30 | 2019-09-30 | 2020-09-30 | 2019-09-30 | |||||||||
( 3 months) | ( 3 months) | ( 9 months) | ( 9 months) | |||||||||
$ | $ | $ | $ | |||||||||
Interest on debentures | 71,630 | 91,419 | 213,005 | 266,667 | ||||||||
Interest on lease liabilities (note 10) | 8,507 | 12,513 | 25,413 | 34,343 | ||||||||
Interest on security deposit and advance | 51,325 | 18,899 | 142,778 | 49,010 | ||||||||
Interest on bonds | 10,417 | - | 13,924 | - | ||||||||
Interest income | (10,317 | ) | (3,029 | ) | (24,564 | ) | (4,735 | ) | ||||
Accretion on debentures | 147,475 | 145,746 | 426,153 | 406,029 | ||||||||
Total interest expense | 279,037 | 265,548 | 796,709 | 751,314 | ||||||||
Miscellaneous | 1,547 | 1,735 | 4,225 | 3,937 | ||||||||
280,584 | 267,283 | 800,934 | 755,251 |
18 - RELATED PARTY TRANSACTIONS
The Company's related party transactions do not include, unless otherwise stated, special terms and conditions. No guarantees were given or received. Outstanding balances are usually settled in cash.
Transactions with key management personnel, officers and directors
The Company's key management personnel, the Chief Executive Officer and the Chief Executive Officer of the Chinese subsidiaries are members of the Board, and their remuneration includes the following expenses:
2020-09-30 | 2019-09-30 | 2020-09-30 | 2019-09-30 | |||||||||
(3 months) | (3 months) | (9 months) | (9 months) | |||||||||
$ | $ | $ | $ | |||||||||
Salaries and fringe benefits | 93,556 | 91,076 | 286,759 | 282,743 | ||||||||
Share-based payments | 94,311 | 92,873 | 203,866 | 244,994 | ||||||||
Technical, marketing and website services paid to an affiliated company | - | - | - | 21,000 | ||||||||
Royalty | 47,469 | 30,427 | 104,370 | 30,427 | ||||||||
Management fees paid to a company held by a director | - | 3,925 | 2,675 | 24,825 | ||||||||
Interests on debentures | 200 | 333 | 600 | 881 | ||||||||
Total | 235,536 | 218,634 | 598,270 | 604,870 |
These transactions occurred in the normal course of operations and have been measured at fair value.
35 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
18 - RELATED PARTY TRANSACTIONS (cont'd)
Transactions with key management personnel, officers and directors (cont'd)
As at September 30, 2020 and December 31, 2019 the consolidated statement of financial position includes the following amounts with related parties:
2020-06-30 | 2019-12-31 | |||||
$ | $ | |||||
Advance from a director to a subsidiary, no interest | 314,080 | 298,400 | ||||
Advances(payable) to an affiliated company (a) | (4,280 | ) | 17,758 | |||
309,800 | 316,158 |
a) The advance (payable) to Cubeler, a related entity to the Company, is documented by an on-demand promissory note, yielding 8.5% interest annually. In the case that the advance is not fully paid on December 16, 2019, Cubeler shall execute and deliver a hypothec on the universality of the present and future movable assets to the Company. The Company decided not to execute its rights on the assets considering the low value of the advances
19 - SEGMENT REPORTING
The Company has determined that there were two operating segments, which are defined below. For presentation purposes, other activities are grouped in the other heading. Each operating segment is distinguished by the type of products and services it offers and is managed separately has each requires different business processes, marketing approaches and resources. All inter-segment transfers are carried out at arm's length prices based on prices charged to unrelated customers in stand-alone sales of identical goods and services.
The operating segments are detailed as follows:
Fintech Platform
The Fintech Platform segment comprises the procurement and distribution of products within supply chain or facilitating transactions in the commercial lending industry through technology platforms.
Financial Services
The Financial Services segment encompasses providing commercial loans to entrepreneurs and SMEs and the activity of providing turn-key credit outsourcing services to banks and other lending institutions.
Both operating segments are geographically located in China.
36 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
19 - SEGMENT REPORTING (cont'd)
Other
The "other" category include the activity and unallocated portion of the Canadian parent company's services and all non-operating holdings registered in Hong Kong and China
The segment information for the nine-month reporting period is as follows:
2020-09-30 | |||||||||||||||
Fintech | Financial | Other | Elimination | Total | |||||||||||
Platform | Services | ||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenues (1) | |||||||||||||||
Financial service | - | 2,452,592 | - | - | 2,452,592 | ||||||||||
Fees/sales from external customers | 2,130,883 | 717,082 | - | - | 2,847,965 | ||||||||||
Supply chain services | 21,028,711 | - | - | - | 21,028,711 | ||||||||||
Inter-segment | 414,382 | - | 247,705 | (662,087 | ) | - | |||||||||
Total revenues | 23,573,976 | 3,169,674 | 247,705 | (662,087 | ) | 26,329,268 | |||||||||
Expenses | |||||||||||||||
Depreciation and amortization | 144,815 | 395,340 | 107,209 | - | 647,364 | ||||||||||
Interest expenses | 111,660 | 34,502 | 640,849 | - | 787,011 | ||||||||||
Outsourcing services | 20,912,490 | - | - | - | 20,912,490 | ||||||||||
All other expenses | 618,901 | 2,267,307 | 3,569,893 | (662,087 | ) | 5,794,014 | |||||||||
Total expenses | 21,787,866 | 2,697,149 | 4,317,951 | (662,087 | ) | 28,140,879 | |||||||||
Profit (loss) before tax | 1,786,110 | 472,525 | (4,070,246 | ) | - | (1,811,611 | ) | ||||||||
Income tax expense | 392,510 | 108,894 | - | - | 501,404 | ||||||||||
Net profit (loss) | 1,393,600 | 363,631 | (4,070,246 | ) | - | (2,313,015 | ) | ||||||||
Non-controlling interest | 490,609 | 124,470 | - | - | 615,079 | ||||||||||
Net profit (loss) attributable to owners of the parent | 902,991 | 239,161 | (4,070,246 | ) | - | (2,928,094 | ) | ||||||||
Segmented assets | 23,365,186 | 24,273,744 | 21,777,735 | (20,729,128 | ) | 48,687,537 |
37 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
19 - SEGMENT REPORTING (cont'd)
Other (cont'd)
2019-09-30 | |||||||||||||||
Fintech | Financial | Other | Elimination | Total | |||||||||||
Platform | Services | ||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenues (1) | |||||||||||||||
Financial services | 26,820 | 2,519,152 | - | - | 2,545,972 | ||||||||||
Fees/sales from external customers | 1,211,539 | 939,809 | - | - | 2,151,348 | ||||||||||
Supply chain services | 2,653,866 | - | - | - | 2,653,866 | ||||||||||
Inter-segment | 384,696 | - | 103,530 | (488,226 | ) | - | |||||||||
Total revenues | 4,276,921 | 3,458,961 | 103,530 | (488,226 | ) | 7,351,186 | |||||||||
Expenses | |||||||||||||||
Depreciation and amortization | 113,579 | 300,594 | 425,719 | - | 839,892 | ||||||||||
Interest expenses | 6,268 | 74,742 | 674,240 | - | 755,250 | ||||||||||
Impairment of intangible asset | - | - | 584,189 | - | 584,189 | ||||||||||
Outsourcing services | 2,619,916 | - | - | - | 2,619,916 | ||||||||||
Gain on bargain purchase | - | - | (941,000 | ) | - | (941,000 | ) | ||||||||
All other expenses | 852,638 | 2,297,383 | 1,016,033 | (488,226 | ) | 3,677,828 | |||||||||
Total expenses | 3,592,401 | 2,672,719 | 1,759,181 | (488,226 | ) | 7,536,075 | |||||||||
Profit (loss) before tax | 684,520 | 786,242 | (1,655,651 | ) | - | (184,889 | ) | ||||||||
Income tax | 260,506 | 284,538 | - | - | 545,044 | ||||||||||
Net Profit (loss) | 424,014 | 501,704 | (1,655,651 | ) | - | (729,933 | ) | ||||||||
Non-controlling interest | 298,677 | 190,095 | - | - | 488,772 | ||||||||||
Net profit (loss) attributable to owners of the parent | 125,337 | 311,609 | (1,655,651 | ) | - | (1,218,705 | ) | ||||||||
Segmented assets | 7,030,648 | 22,902,481 | 17,393,945 | (17,802,505 | ) | 29,524,569 |
Note (1): Revenues from external customers have been identified on the basis of the customer's geographical location, which is China.
38 | |
PEAK FINTECH GROUP INC. (Formerly Peak Positioning Technologies Inc.) Notes to Interim Condensed Consolidated Financial Statements For the three and nine-month periods ended September 30, 2020 and 2019 (In Canadian dollars) | |
19 - SEGMENT REPORTING (cont'd)
Other (cont'd)
The Company's non-current assets (other than financial instruments) are located into the following geographic regions at :
2020-09-30 | 2019-12-31 | |||||
Non-current | Non-current | |||||
Assets | Assets | |||||
$ | $ | |||||
China | 2,460,407 | 1,846,853 | ||||
Canada | 1,179,750 | 1,287,000 | ||||
Total | 3,640,157 | 3,133,853 |
20 - COMPARATIVE FIGURES
Certain comparative figures have been reclassified in order to comply with the basis of presentation adopted in the current year.
21 - SUBSEQUENT EVENTS
a) On October 5, 2020 , the Company closed a private placement consisting in the sale of 1,250,000 units at a price of $0.40 per shares for gross proceeds of $500,000. Each unit is composed of one common share and one common share purchase warrant, with each warrant entitling the holder to acquire one common share at a price of $0.40 for a period of 24 months following the closing date of the offering.
b) On October 28, 2020, the Company granted incentive options to acquire 2,450,000 common shares to certain directors, officers and key employees. The stock options expire in October 2025, vest over two years and have an exercise price of $0.75.