Exhibit 99.35
NexTech AR Solutions Corp.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2019
(EXPRESSED IN CANADIAN DOLLARS)
NOTICE TO READER
The accompanying condensed consolidated interim financial statements of NexTech AR Solutions Corp. for the nine months ended February 28, 2019 have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company. These condensed consolidated interim financial statements have not been reviewed by the Company’s external auditors.
NexTech AR Solutions Corp.
Condensed Consolidated Interim Statements of Financial Position
(Expressed in Canadian dollars)
| | | February 28,
2019 | | | May 31,
2018 | |
| ASSETS | | | | | | | | |
| Current assets | | | | | | | | |
| Cash | | $ | 2,355,385 | | | $ | 2,523,717 | |
| Receivables | | | 180,848 | | | | 14,325 | |
| Prepaid | | | 91,440 | | | | 62,444 | |
| Inventory | | | 445,079 | | | | - | |
| Total current assets | | | 3,072,752 | | | | 2,600,486 | |
| Non-current assets | | | | | | | | |
| Equipment (Note 4) | | | 146,622 | | | | 41,364 | |
| Intangible assets (Note 5) | | | 3,729,776 | | | | 2,329,861 | |
| Goodwill (Note 3) | | | 634,985 | | | | - | |
| Total non-current assets | | | 4,511,383 | | | | 2,371,225 | |
| TOTAL ASSETS | | $ | 7,584,135 | | | $ | 4,971,711 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable and accrued liabilities (Note 6) | | $ | 503,605 | | | $ | 160,031 | |
| Convertible debenture (Note 7) | | | - | | | | 218,024 | |
| TOTAL LIABILITIES | | | 503,605 | | | | 378,055 | |
| Deferred income tax liability | | | 309,767 | | | | - | |
| EQUITY | | | | | | | | |
| Share capital (Note 8) | | | 9,804,917 | | | | 5,375,398 | |
| Equity portion of convertible debenture (Note 7) | | | - | | | | 44,324 | |
| Reserves | | | 434,045 | | | | - | |
| Deficit | | | (3,468,199 | ) | | | (826,066 | ) |
| TOTAL SHAREHOLDERS’ EQUITY | | | 6,770,763 | | | | 4,593,656 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 7,584,135 | | | $ | 4,971,711 | |
Nature of operations and going concern (Note 1)
Events after the reporting date (Note 13)
These financial statements were authorized for issuance by the Board of Directors on April 29, 2019
Approved by the Board of Directors
| “Evan Gappelberg” , Director | | “Paul Duffy” , Director |
The accompanying notes are an integral part of these interim financial statements.
NexTech AR Solutions Corp.
Condensed Consolidated Interim Statements of Comprehensive Loss
(Expressed in Canadian dollars)
| | | Three | | | Period from | | | | | | Period from | |
| | | Months | | | January 12, | | | Nine Months | | | January 12, | |
| | | Ended | | | 2018 to | | | Ended | | | 2018 to | |
| | | February 28, | | | February 28, | | | February 28, | | | February 28, | |
| | | 2019 | | | 2018 | | | 2019 | | | 2018 | |
| REVENUES | | $ | 531,185 | | | $ | - | | | $ | 596,862 | | | $ | - | |
| COST OF GOODS SOLD | | | (322,435 | ) | | | - | | | | (335,174 | ) | | | - | |
| Gross Profit | | | 208,750 | | | | - | | | | 261,688 | | | | - | |
| GENERAL AND ADMINISTRATIVE EXPENSES | | | | | | | | | | | | | | | | |
| Accretion expense | | | - | | | | 1,803 | | | | 18,646 | | | | 1,803 | |
| Administrative fees and office costs | | | 144,283 | | | | 5,266 | | | | 344,354 | | | | 5,266 | |
| Amortization | | | 23,069 | | | | - | | | | 75,828 | | | | - | |
| Business development | | | - | | | | - | | | | 23,518 | | | | - | |
| Consulting fees | | | 293,669 | | | | 38,999 | | | | 806,282 | | | | 38,999 | |
| Investor relations | | | 306,971 | | | | 8,398 | | | | 383,208 | | | | 8,398 | |
| Management fees | | | 103,322 | | | | 12,563 | | | | 296,177 | | | | 12,563 | |
| Professional fees | | | 65,512 | | | | - | | | | 184,047 | | | | - | |
| Share-based payments (Note 7) | | | 370,549 | | | | 370,125 | | | | 466,939 | | | | 370,125 | |
| Transfer agent and regulatory fees | | | 17,798 | | | | - | | | | 36,001 | | | | - | |
| Travel | | | 61,895 | | | | 2,397 | | | | 154,690 | | | | 2,397 | |
| Write off intangible assets | | | 194,444 | | | | - | | | | 194,444 | | | | - | |
| Foreign exchange (gain) loss | | | (44,436 | ) | | | (10,900 | ) | | | (80,313 | ) | | | (10,900 | ) |
| Total general and administrative costs | | | 1,537,076 | | | | 428,651 | | | | (2,903,821 | ) | | | 428,651 | |
| LOSS FOR THE PERIOD | | | (1,328,326 | ) | | | (428,651 | ) | | | (2,642,133 | ) | | | (428,651 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | (33,467 | ) | | | - | | | | (32,894 | ) | | | - | |
| COMPREHENSIVE LOSS FOR THE PERIOD | | $ | (1,361,973 | ) | | $ | (428,651 | ) | | $ | (2,675,117 | ) | | $ | (428,651 | ) |
| Basic and diluted loss per common share | | $ | (0.03 | ) | | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | (0.06 | ) |
| Weighted average number of common shares outstanding | | | 47,336,099 | | | | 7,710,938 | | | | 39,727,281 | | | | 7,710,938 | |
The accompanying notes are an integral part of these interim financial statements.
NexTech AR Solutions Corp.
Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity
(Expressed in Canadian dollars)
| | | | | | | | | Equity portion | | | | | | | | | | |
| | | Number of | | | Share | | | of convertible | | | | | | | | | | |
| | | shares | | | capital | | | debenture | | | Reserves | | | Deficit | | | Total | |
| Balance as at May 31, 2018 | | | 37,537,872 | | | $ | 5,375,398 | | | $ | 44,324 | | | $ | - | | | $ | (826,066 | ) | | $ | 4,593,656 | |
| Shares released from escrow for services (Note 7) | | | - | | | | 180,000 | | | | - | | | | - | | | | - | | | | 180,000 | |
| Capital contribution | | | - | | | | 318,375 | | | | - | | | | - | | | | - | | | | 318,375 | |
| Conversion of convertible debentures | | | 5,000,000 | | | | 280,994 | | | | (44,324 | ) | | | - | | | | - | | | | 236,670 | |
| Shares issued for exercise of warrants | | | 6,982,300 | | | | 1,916,150 | | | | - | | | | - | | | | - | | | | 1,916,150 | |
| Investment in AR Ecommerce LLC | | | 2,000,000 | | | | 1,620,000 | | | | - | | | | - | | | | - | | | | 1,620,000 | |
| Investment in intangible assets | | | 300,000 | | | | 114,000 | | | | - | | | | - | | | | - | | | | 114,000 | |
| Stock-based compensation | | | - | | | | - | | | | - | | | | 466,939 | | | | - | | | | 466,939 | |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | (32,894 | ) | | | - | | | | (32,894 | ) |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (2,642,133 | ) | | | (2,642,133 | ) |
| Balance as at February 28, 2019 | | | 51,820,172 | | | $ | 9,804,917 | | | $ | - | | | $ | 434,045 | | | $ | (3,468,199 | ) | | $ | 6,770,763 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as at January 12, 2018 (incorporation) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Founders financing | | | 8,225,000 | | | | 411,250 | | | | - | | | | - | | | | - | | | | 411,250 | |
| Equity portion of convertible debenture | | | - | | | | - | | | | 44,234 | | | | - | | | | - | | | | 44,234 | |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (428,651 | ) | | | (428,651 | ) |
| Balance as at February 28, 2018 | | | 8,225,000 | | | $ | 411,250 | | | $ | 44,234 | | | $ | - | | | $ | (428,651 | ) | | $ | 26,833 | |
The accompanying notes are an integral part of these interim financial statements.
NexTech AR Solutions Corp.
Condensed Consolidated Interim Statement of Cash Flows
(Expressed in Canadian dollars)
| | | Period from
January 12,
2018 to | | | Nine months
ended | |
| | | February 28, | | | February 28, | |
| | | 2018 | | | 2019 | |
| OPERATING ACTIVITIES | | | | | | | | |
| Loss for the period | | $ | (428,651 | ) | | $ | (2,642,133 | ) |
| Adjustments | | | | | | | | |
| Amortization | | | - | | | | 75,828 | |
| Accretion expense | | | 1,803 | | | | 18,646 | |
| Consulting fees | | | - | | | | 180,000 | |
| Share-based payments | | | 370,125 | | | | 466,939 | |
| Write-off of intangible asset | | | - | | | | 194,444 | |
| Currency translation adjustment | | | - | | | | (26,118 | ) |
| Changes in non-cash working capital items | | | | | | | | |
| Receivables | | | - | | | | (100,682 | ) |
| Prepaid expenses and deposits | | | - | | | | (22,166 | ) |
| Inventory | | | - | | | | (45,456 | ) |
| Accounts payable, accrued liabilities and deposits | | | 27,733 | | | | (13,639 | ) |
| Net cash used in operating activities | | | (28,990 | ) | | | (1,914,337 | ) |
| INVESTING ACTIVITIES | | | | | | | | |
| Cash acquired on a business combination | | | - | | | | 125,532 | |
| Purchase of equipment | | | - | | | | (114,980 | ) |
| Intangible assets | | | - | | | | (499,072 | ) |
| Net cash from investing activities | | | - | | | | (488,520 | ) |
| FINANCING ACTIVITIES | | | | | | | | |
| Convertible debenture | | | 250,000 | | | | - | |
| Share subscriptions received | | | 1,041,675 | | | | - | |
| Shareholder contributions | | | - | | | | 318,375 | |
| Proceeds from the issue of shares | | | 41,125 | | | | 1,916,150 | |
| Net cash from financing activities | | | 1,332,800 | | | | 2,234,525 | |
| Net change in cash during the period | | | 1,303,810 | | | | (168,332 | ) |
| Cash, beginning of the period | | | - | | | | 2,523,717 | |
| Cash, end of the period | | $ | 1,303,810 | | | $ | 2,355,385 | |
Supplemental disclosure with respect to cash flows (Note 11)
The accompanying notes are an integral part of these financial statements.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 1. | NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN |
NexTech AR Solutions Corp. (the “Company” or “NexTech”) was incorporated in the province of British Columbia on January 12, 2018. The Company’s principal business activities are the acquisition and development of augmented reality technology for purpose of generating advertising revenue and sale of its Applications (“Apps”). The Company’s registered office is located at 501 – 543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8.
These condensed consolidated interim financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to generate advertising revenue to establish profitable operations and to obtain the necessary equity or debt financing to fund operations as required. These factors indicate the existence of uncertainty on the ability of the Company to continue as a going concern. These condensed consolidated interim financial statements do not reflect any adjustments that may be necessary if the Company is unable to continue as a going concern.
Basis of Measurement and Presentation
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements have been prepared using the accrual basis of accounting except for cash flow information.
These condensed consolidated interim financial statements have been prepared in accordance with the same accounting policies and methods of application as the most recent audited financial statements for the period ended May 31, 2018, except that they do not include all the information required for the annual audited financial statements. These financial statements should be read in conjunction with the financial statements of the Company for the period ended May 31, 2018.
These condensed consolidated interim financial statements have been prepared on a historical cost basis. The preparation of these condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of the policies and reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates.
On October 3, 2018, the Company incorporated NexTech AR Solutions USA LLC in the state of Delaware, USA (“NexTech USA”). NexTech USA is a wholly-owned subsidiary of NexTech. Management has determined that the functional currency of NexTech USA is the US dollar. On January 7, 2019, the Company acquired 100% of AR Ecommerce, LLC (“AR Ecomm”). Management has determined that the functional currency of AR Ecomm is the US dollar.
Accounting pronouncements not yet effective
The following standard has been issued by the IASB and has not yet been adopted by the Company. The Company is currently evaluating the impact that this new standard will have on its consolidated financial statements.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 2. | BASIS OF PREPARATION (continued) |
IFRS 16 Leases was issued in January 2016 (effective for NexTech on June 1, 2019) and provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Company expects that it will have to report capitalized leased assets and lease liabilities on its statement of financial position under this new IFRS standard.
On December 3, 2018, the Company acquired a license for an on-line learning technology, edCetra, from its Chief Operating Officer (“COO”), by issuing 300,000 common shares for a total value of $114,000. edCetra is a part of the Company’s augmented reality platform. The transaction was an asset acquisition and the license has been recorded as an intangible asset (Note 5).
On January 7, 2019, the Company acquired a 100% interest in AR Ecomm from its Chief Executive Officer (“CEO”) and COO who each held a 50% interest. NexTech issued 1,000,000 common shares to each officer for a total value of $1,620,000. The preliminary purchase price and the identifiable assets are shown in the following tables.
| Purchase Price | | | | |
| Closing price of NexTech on January 7, 2019 | | $ | 0.81 | |
| Common shares issued to acquire AR Ecomm | | | 2,000,000 | |
| Preliminary Purchase Price | | $ | 1,620,000 | |
| Preliminary Purchase Price Allocation | | | | |
| Cash | | $ | 125,532 | |
| Accounts receivable | | | 65,841 | |
| Inventory | | | 399,623 | |
| Furniture and equipment | | | 9,335 | |
| Intangible assets | | | 1,051,671 | |
| Goodwill | | | 634,985 | |
| Accounts payable | | | (252,225 | ) |
| Other payables | | | (98,158 | ) |
| Long-term deferred income tax liability | | | (316,604 | ) |
| Total identifiable net assets | | $ | 1,620,000 | |
On February 6, 2019, the Company purchased a web site called Hoot for US$65,000 ($85,664). The transaction was a business acquisition. Hoot provides 3D and 360-degree product photography, in conjunction with spin and zoom technology to online retailers. The web site was recorded as an intangible asset.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| | | Trade show | | | Office | | | | |
| | | equipment | | | equipment | | | Total | |
| Costs | | | | | | | | | | | | |
| May 31, 2018 | | $ | 16,440 | | | $ | 25,472 | | | $ | 41,912 | |
| Additions | | | - | | | | 126,803 | | | | 126,803 | |
| Acquired through a business combination | | | - | | | | 9,335 | | | | 9,335 | |
| Cost reduction | | | - | | | | (11,823 | ) | | | (11,823 | ) |
| Translation reserve | | | - | | | | (120 | ) | | | (120 | ) |
| February 28, 2019 | | | 16,440 | | | | 149,667 | | | | 166,107 | |
| Accumulated depreciation | | | | | | | | | | | | |
| May 31, 2018 | | | 548 | | | | - | | | | 548 | |
| Additions | | | 2,466 | | | | 16,471 | | | | 18,937 | |
| Disposals | | | - | | | | - | | | | - | |
| February 28, 2019 | | | 3,014 | | | | 16,471 | | | | 19,485 | |
| Net book value | | | | | | | | | | | | |
| May 31, 2018 | | $ | 15,892 | | | $ | 25,472 | | | $ | 41,364 | |
| February 28, 2019 | | $ | 13,426 | | | $ | 133,196 | | | $ | 146,622 | |
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
The following table summarizes the continuity of the Company’s intangible assets:
| | | May 31, | | | | | | | | | Translation | | | February 28, | |
| | | 2018 | | | Additions | | | Reductions | | | Adjustment | | | 2019 | |
| Costs | | | | | | | | | | | | | | | | | | | | |
| Licenses | | $ | 2,093,750 | | | $ | 114,000 | | | $ | - | | | $ | - | | | $ | 2,207,750 | |
| App portfolio | | | 250,000 | | | | - | | | | (250,000 | ) | | | - | | | | - | |
| Websites | | | - | | | | 1,061,272 | | | | - | | | | (12,596 | ) | | | 1,048,676 | |
| Customer list | | | - | | | | 76,063 | | | | - | | | | (982 | ) | | | 75,081 | |
| Development cost | | | - | | | | 413,408 | | | | - | | | | - | | | | 413,408 | |
| Total Costs | | | 2,343,750 | | | | 1,664,743 | | | | (250,000 | ) | | | (13,578 | ) | | | 3,744,915 | |
| Accumulated amortization | | | | | | | | | | | | | | | | | | | | |
| Licenses | | $ | - | | | $ | - | | | $ | - | | | | - | | | $ | - | |
| App portfolio | | | 13,889 | | | | 41,667 | | | | (55,556 | ) | | | - | | | | - | |
| Website | | | - | | | | 15,139 | | | | - | | | | - | | | | 15,139 | |
| Customer list | | | - | | | | - | | | | - | | | | - | | | | - | |
| Development cost | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total Accumulated amortization | | | 13,889 | | | | 56,806 | | | | (55,556 | ) | | | - | | | | 15,139 | |
| Net book value | | $ | 2,329,861 | | | $ | 1,607,937 | | | $ | (194,444 | ) | | $ | (13,578 | ) | | $ | 3,729,776 | |
During the nine months ended February 28, 2019, the Company acquired a website and a customer list through the acquisition of AR Ecomm (Note 3). In separate transactions, the Company acquired a second web site for US$65,000 ($85,664) and a web-based inter-active learning platform by issuing shares with a value of $114,000 (Note 3). The Company reviewed its intangible assets for impairment as at February 28, 2019 and determined that the App portfolio was impaired and wrote off the remaining unamortized value of $194,444.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 6. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
| | | February 28,
2019 | | | May 31,
2018 | |
| Accounts payable | | $ | 381,146 | | | $ | 110,551 | |
| Accrued liabilities | | | 115,629 | | | | 49,480 | |
| Deposits | | | 6,830 | | | | - | |
| | | $ | 503,605 | | | $ | 160,031 | |
On February 12, 2018, the Company issued convertible debentures (the “Debentures”) for proceeds of $250,000. The debentures are unsecured, non-interest bearing and mature twelve months from the date of issue. The debenture holders are entitled at their sole discretion to convert the unpaid principal balance into common shares at a conversion rate of $0.05 per share and will convert automatically and without further action of the holders immediately prior to the Company completing a going public transaction or the listing of its shares on the Canadian Securities Exchange. The debenture holders were also issued a total of 5,000,000 warrants, which have an exercise price of $0.05 per share and which expire on February 11, 2019. These convertible debentures are accounted for according to the substance of the transaction and include both a liability component and an equity component. The initial liability component of $205,676 was calculated at the present value of interest payments and expected return of capital at a rate of 20% representing the interest rate that would have been charged for a nonconvertible debenture. The equity component of $44,324 was measured based on the residual value of the instrument taken as a whole after deducting the amount determined separately for the liability component. On October 31, 2018, NexTech began trading on the Canadian Securities Exchange. This event triggered the automatic conversion of the convertible debentures into 5,000,000 shares.
The following table summarizes the continuity of the liability components of the Company’s convertible debentures:
| As at May 31, 2018 | | $ | 218,024 | |
| Accretion expense | | | 18,646 | |
| Conversion of debentures to share capital | | | (236,670 | ) |
| Balance as at February 28, 2019 | | $ | - | |
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
Authorized
As at February 28, 2019 the authorized share capital of the Company was an unlimited number of common shares.
Share Capital
Share Purchase Warrants
The following table summarizes the share purchase warrants outstanding and exercisable at February 28, 2019:
| | | | | | | Exercise | | | Number | |
| Date Issued | | Expiry Date | | | | Price | | | Outstanding | |
| March 29, 2018 | | March 7, 2019 | | Private placement warrants | | $ | 0.50 | | | | 6,371,300 | |
On February 5, 2019, the Company announced the acceleration of the expiry date for the private placement warrants, which was set as March 7, 2019, and all remaining share purchase warrants were either exercised or expired by that date.
On June 22, 2018, the Company and Future Farm Technologies Inc. (“Future Farm”) entered into a plan of arrangement in order to proceed with a corporate restructuring by the way of a statutory plan of arrangement (the “Arrangement”), whereby a series of share exchanges will take place with the result that the shareholders of the Future Farm will also become shareholders of the Company. The Arrangement was completed on August 30, 2018. As a result of the Arrangement, Future Farm effectively spun-out 11,000,000 of its common shares of the Company to the Future Farm shareholders on a pro rata basis.
During the nine months ended February 28, 2019, the Company released 720,000 common shares from escrow pursuant to a consulting agreement with a third party. These shares were valued at $180,000 and share capital was increased by this amount.
During the nine months ended February 28, 2019, NexTech issued 2,000,000 shares to acquire AR Ecomm and issued 300,000 shares to acquire edCetra, a web-based learning platform (Note 3).
Share-based Compensation
During the nine months ended February 28, 2019, the Company granted 4,450,000 stock options to certain directors, officers and consultants. The details of the option grants are as follows:
| ● | 3,700,000 options on November 1, 2018 with an exercise price of $0.29; a risk-free interest rate of 2.33%; an expected life of 3 years and an expected volatility of 150%. These options vest as follows: 40% in 6 months, a further 30% after 12 months and the final 30% after 18 months; |
| ● | 500,000 options on November 2, 2018, with an exercise price of $0.25; a risk-free interest rate of 2.36%; an expected life of 3 years and an expected volatility of 150%. These options vest as follows: 40% in one year, a further 30% after 18 months and the final 30% after 2 years; |
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 8. | SHARE CAPITAL (continued) |
| ● | 83,787 options on December 3, 2018, with an exercise price of $0.38 per option; a risk-free interest rate of 2.17%; an expected life of 3 years; and an expected volatility of 150%. These options vest one-third in 5 months, one-third in 11 months and the final third in 17 months; |
| ● | 100,000 options on January 4, 2019 with an exercise price of $0.71; a risk-free interest rate of 1.84%; an expected life of 3 years and an expected volatility of 150%. The options vest 50% on the grant date, 25% in 2 months and 25% in 4 months; |
| ● | 16,213 options on January 7, 2019, with an exercise price of $0.81; a risk-free interest rate of 1.88%; an expected life of 3 years and an expected volatility of 150%. The options vest one-third in 4 months, one-third in 10 months and the final third in 16 months; |
| ● | 50,000 options on February 15, 2019, with an exercise price of $0.56; a risk-free interest rate of 1.79%; an expected life of 3 years and an expected volatility of 150%. The options vest 50% on the grant date, 25% in 2 months and 25% in 4 months. |
The Company recorded $466,939 of share-based payments expense for the above option grants for the nine months ended February 28, 2019. The table below summarizes the options outstanding and exercisable:
| | | | | Exercise | | | Number | | | Number | |
| Date Granted | | Expiry Date | | Price | | | Outstanding | | | Exercisable | |
| November 1, 2018 | | November 1, 2021 | | $ | 0.29 | | | | 3,700,000 | | | | - | |
| November 2, 2018 | | November 2, 2021 | | $ | 0.25 | | | | 500,000 | | | | - | |
| December 3, 2018 | | December 3, 2021 | | $ | 0.38 | | | | 83,787 | | | | - | |
| January 4, 2019 | | January 4, 2022 | | $ | 0.71 | | | | 100,000 | | | | 50,000 | |
| January 7, 2019 | | January 7, 2022 | | $ | 0.81 | | | | 16,213 | | | | - | |
| February 15, 2019 | | February 15, 2022 | | $ | 0.56 | | | | 50,000 | | | | 25,000 | |
| Total | | | | | | | | | 4,450,000 | | | | 75,000 | |
| 9. | RELATED PARTY TRANSACTIONS AND BALANCES |
The Company entered into a number of transactions with key management personnel. The Company considers the executive officers and directors as the key management of the Company. The remuneration of key management personnel includes those persons having the authority and responsibility for the planning, directing and controlling of the activities of the Company are as follows:
| | | Nine months ended | |
| | | February 28,
2019 | |
| Management fees | | $ | 285,704 | |
| Consulting fees | | | 175,416 | |
| Administrative fees | | | 72,735 | |
| Share-based compensation | | | 320,149 | |
| | | $ | 854,004 | |
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 9. | RELATED PARTY TRANSACTIONS AND BALANCES (continued) |
Amounts due to related parties are as follows:
| | | February 28, | |
| Related party liabilities | | 2019 | |
| CEO - fees and expenses | | $ | 33,661 | |
| President – fees | | | 22,500 | |
| Directors | | | 5,490 | |
| Seabord Services Corp. – CFO and accounting services | | | 7,350 | |
| Corporate Secretary – Consulting fees | | | 1,325 | |
| | | $ | 70,326 | |
The Company has issued a convertible debenture of $125,000 to the wife of the Chief Executive Officer. The debenture was converted into 2,500,000 shares. There were also 5,000,000 warrants with an exercise price of $0.05 issued with respect to the debenture (Note 6). In the nine months ended February 28, 2019, the Company acquired AR Ecomm from its CEO and COO by issuing 2,000,000 shares and acquired edCetra, a web-based learning platform by issuing 300,000 shares to its COO (Note 3).
| 10. | FINANCIAL AND CAPITAL RISK MANAGEMENT |
Financial Risk Management
The Company’s financial instruments are exposed to certain financial risks, which include credit risk, liquidity risk, currency risk, and interest rate risk.
Credit Risk
Credit risk arises from cash as well as credit exposures to counterparties of outstanding receivables and committed transactions. There is no significant concentration of credit risk other than cash deposits and receivables. The Company’s cash deposits are primarily held with a Canadian chartered bank and receivables are due from the distributor of the Company’s Apps.
Liquidity Risk
Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s main source of cash resources is through equity financings and from convertible debentures. The Company’s financial obligations are limited to its current liabilities which have contractual maturities of less than one year. The Company manages liquidity risk as part of its overall
“Management of Capital” as described below.
Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company operates in Canada and a portion of the Company’s expenses are incurred in U.S. dollars (“USD”). A significant change in the currency exchange rates between the Canadian dollar relative to the USD could affect the Company’s results of operations, financial position or cash flows. The Company has not hedged its exposure to currency fluctuations. As at February 28, 2019, the Company is exposed to currency risk through cash, accounts receivable and accounts payable denominated in USD with a net asset amount of US$156,000.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 10. | FINANCIAL AND CAPITAL RISK MANAGEMENT (continued) |
Interest Rate Risk
As at February 28, 2019, the Company did not have any interest-bearing loans or interest-bearing investments. Accordingly, the Company does not have significant interest rate risk.
Management of Capital
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern to pursue the development of its technologies. The Company relies mainly on equity issuances to raise new capital. In the management of capital, the Company includes the components of equity. The Company’s investment policy is to invest its cash in savings accounts or highly liquid short-term deposits with terms of one year or less and which can be liquidated after thirty days without penalty. The Company is not subject to any externally imposed capital requirements. Management believes that the Company may have to raise additional capital to sustain its operations for the next twelve months.
| 11. | FINANCIAL INSTRUMENTS BY CATEGORY Fair Values |
The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities. Financial instruments are initially recognized at fair value with subsequent measurement depending on classification as described below. Classification of financial instruments depends on the purpose for which the financial instruments were acquired or issued, their characteristics, and the Company’s designation of such instruments. As at February 28, 2019, the Company’s financial instruments were classified as at amortized at cost. The carrying values of cash, receivables, and accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments.
| 12. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS |
For the nine months ended February 28, 2019, the Company recorded $180,000 of consulting fees related to the release of 720,000 common shares from escrow, with the offsetting amount credited to share capital (Note 7). On October 31, 2018 the Company issued 5,000,000 common shares upon the conversion of the convertible debentures. The Company issued 2,000,000 shares valued at $1,600,000 for the acquisition of AR Ecomm and issued 300,000 shares valued at $114,000 for the acquisition of edCetra, a web-based learning platform.
During the nine months ended February 28, 2019, no cash was paid for income taxes or interest.
NexTech AR Solutions Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the Nine Months Ended February 28, 2019
(Expressed in Canadian dollars)
| 13. | EVENTS AFTER THE REPORTING DATE |
The following events occurred after the reporting date:
| ● | 2,329,200 share purchase warrants were exercised at $0.50 per warrant for total proceeds of $1,164,600 |
| ● | 735,000 stock options were granted to consultants at a price of $0.60 per option and 150,000 options were granted at a price of $0.78 per option. |
| ● | On April 10, 2019, NexTech acquired a 100% interest in Infinite Pet Life for US$1,850,000. NexTech will also make an additional payment of approximately US$100,000 for inventory. NexTech made total payments of US$1,200,000 on the closing of the transaction and will make six monthly payments of US$125,000 to complete the purchase of the business and to acquire the inventory. |
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