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Name and principal position | Year Ended | Salary ($)(1) | Share awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | All other compensation ($) | Total compensation ($) | |
Annual incentive plans | Long-term incentive plans | |||||||
Daniyal Baizak(2) Former Chief Executive Officer and Director | 2020 | 20,000 | N/A | 1,016 | N/A | N/A | N/A | 21,016 |
2019 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
2018 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
James Lanthier(2) Former Chief Executive Officer and Director | 2020 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
2019 | 30,000 | N/A | N/A | N/A | N/A | N/A | 30,000 | |
2018 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
Vikram Pathak (2) Former President, CEO and Director | 2020 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
2019 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |
2018 | 140,699 | N/A | Nil | N/A | N/A | Nil | 140,699 | |
Fred Leigh (2) Former President, CEO and Director | 2020 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
2019 | 90,000 | N/A | Nil | N/A | N/A | Nil | 90,000 | |
2018 | 30,000 | N/A | Nil | N/A | N/A | Nil | 30,000 | |
Ryan Ptolemy Chief Financial Officer | 2020 | 17,500 | N/A | 2,031 | N/A | N/A | Nil | 19,531 |
2019 | 30,000 | N/A | Nil | N/A | N/A | Nil | 30,000 | |
2018 | 30,000 | N/A | Nil | N/A | N/A | Nil | 30,000 |
(1) | Compensation has been paid as consulting fees under the independent contractor agreement with the Named Executive Officer as described under the heading “Executive Compensation – Termination of Employment, Change in Responsibilities and Employment Contracts” of this Circular. |
(2) | On March 14, 2018, Mr. Leigh resigned as President, CEO and Director and was replaced by Mr. Pathak. Mr. Pathak was appointed to the Board on December 11, 2017. Mr. Pathak resigned as President, CEO and director on December 21, 2018 and was replaced by Mr. Leigh. On October 9, 2019, Mr. Lanthier was appointed as Chief Executive Officer and a director following the resignation of Mr. Leigh. On March 10, 2020, Mr. Leigh was appointed as Chief Executive Officer and a director following the resignation of Mr. Lanthier. On September 11, 2020, Mr. Baizak was appointed as Chief Executive Officer and a director following the resignation of Mr. Leigh. |
(3) | The value ascribed to option grants represents non-cash consideration and has been estimated using the Black-Sholes Model as at the date of grant, as follows: expected dividend yield — 0%; expected volatility — 138.7%; risk-free interest rate — 0.46%; and expected life —5 years. This is consistent with the accounting values used in the Corporation’s financial statements. The Corporation selected the Black- Scholes model given its prevalence of use in North America. |
Option-Based Awards | Share-Based Awards | ||||||
Name | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date | Value of unexercis ed in-the- money options ($)(1) (2) | Number of shares or units of shares that have not vested (#) | Market or payout value of share awards that have not vested ($) | Market or payout value of vested share-based awards not paid out or distributed ($) |
Daniyal Baizak Former CEO and Director | 50,000 | 50,000 options at $0.09 | November 16, 2025 | $28,500 | N/A | N/A | N/A |
Fred Leigh Former CEO and Director | 250,000 | 250,000 options at $0.11 | September 29, 2021 | $137,500 | N/A | N/A | N/A |
James Lanthier Former President and CEO | Nil | N/A | N/A | N/A | N/A | N/A | N/A |
Ryan Ptolemy Chief Financial Officer | 300,000 | 200,000 options at $0.11 100,000 options at $0.09 | September 29, 2021 November 16, 2025 | $167,000 | N/A | N/A | N/A |
• | Notes: |
• | (1) Based on the closing market price of $0.66 of the Common Shares on December 31, 2020 and subtracting the exercise price of the options. |
• | (2) These options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the value of the Common Shares on the date of exercise. |
Name | Termination Notice Period | Monthly Fees | Severance on Termination | Severance on Change of Control(1) |
Wouter Witvoet Chief Executive Officer and Director | 30 days | US$25,000 | 12 months’ fees | 36 months base fees plus aggregate cash bonuses paid in the 36 months prior to the Change of Control. |
Ryan Ptolemy, Chief Financial Officer | 30 days | $5,000 | 6 months’ fees | 24 months base fees plus aggregate cash bonuses paid in the 24 months prior to the Change of Control. |
Named Executive Officer | Termination not for Cause ($) | Value of Unvested Options ($) upon termination not for cause | Termination on a Change of Control ($) | Value of Unvested Options Vested ($) upon Change in Control |
Wouter Witvoet | ||||
Salary and Quantified Benefits | US$300,000 | Nil | US$900,000 | Nil |
Bonus | Nil | Nil | $75,000 | Nil |
Total | US$300,000 | Nil | 1,205,850 | Nil |
Ryan Ptolemy | ||||
Salary and Quantified Benefits | $30,000 | Nil | $120,000 | $377,000 |
Bonus | Nil | Nil | $20,000 | Nil |
Total | $30,000 | Nil | $140,000 | $377,000 |
(1) | Severance upon a change of control becomes payable In the event of a Change of Control of the Corporation and within one year following the date of the Change of Control the Corporation or the officer elects to terminate the agreement. |
(2) | Based on the closing market price of $1.51 of the Common Shares on August 9, 2021 and subtracting the exercise price of the options. |
(3) | On August 9, 2021, the Bank of Canada exchange rate was USDCAD was 1.2565 |
Name | Fees earned ($) | Share awards ($) | Option awards ($) | Non-equity incentive plan compensation ($)(1) | All other compensation ($)(2) | Total ($) |
Fred Leigh(1) | Nil | Nil | Nil | Nil | Nil | Nil |
Tito Gandhi | Nil | Nil | Nil | Nil | Nil | Nil |
William C. Steers | Nil | Nil | Nil | Nil | Nil | Nil |
TOTALS | Nil | Nil | Nil | Nil | Nil | Nil |
(1) | On October 9, 2019, Mr. Lanthier was appointed as Chief Executive Officer and a director following the resignation of Mr. Leigh. On March 10, 2020, Mr. Leigh was appointed as Chief Executive Officer and a director following the resignation of Mr. Lanthier. |
Option-Based Awards | Share-Based Awards | ||||||
Name | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date | Value of unexercised in-the-money options ($)(1) (2) | Number of shares or units of shares that have not vested (#) | Market or payout value of share awards that have not vested ($) | Market or payout value of vested share-based awards not paid out or distributed |
Fred Leigh(1) | 250,000 | 250,000 options at $0.11 | September 29, 2021 | $137,500 | 0 | 0 | 0 |
Tito Gandhi | 200,000 | 200,000 options at $0.11 | September 29, 2021 | $110,000 | 0 | 0 | 0 |
William C. Steers | Nil | N/A | N/A | N/A | N/A | N/A | N/A |
(1) | Based on the closing market price of $0.66 of the Common Shares on December 31, 2020 and subtracting the exercise price of the options. |
(2) | These options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the value of the Common Shares on the date of exercise. |
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights(1) | Number of securities remaining available under equity compensation plans (excluding securities reflected in column (a)) | |
Plan Category | (a) | (b) | (c) |
Equity compensation plans approved by security holders | 19,881,100 | $1.24 | 1,136,547 |
Equity compensation plans not approved by security holders | NIL | NIL | NIL |
TOTAL | 19,881,100 | $1.24 | 1,136,547 |
Director | Reporting Issuer |
Daniyal Baizak | Medivolve Inc. |
Tito Ganhdi | Q-Gold Resources Ltd. |
William C. Steers | Lara Exploration Ltd Jade Power Trust ARHT Media Inc. Sulliden Mining Capital |
Bernard Wilson | Aberdeen International Inc. Flora Growth Corp. |
Krisztián Tóth | Trillium Gold Mines Inc. Leviathan Gold Ltd. BetterLife Pharma Inc. Voyager Digital Ltd. Pasofino Gold Limited |
Russell Starr | Trillium Gold Mines Inc. Leviathan Gold Ltd. Canada Nickel Company Inc. Cayden Resources Inc. |
• | the strategic planning process of the Corporation; |
• | identifying the principal risks of the Corporation’s business and ensuring the implementation of appropriate systems to manage these risks; |
• | succession planning, including appointing, training and monitoring senior management; |
• | a communications policy for the Corporation to facilitate communications with investors and other interested parties; and |
• | the integrity of the Corporation’s internal control and management information systems. |
Year | Audit Fees ($) | Audit Related Fees | Tax Fees ($) | All Other Fees |
2020 | 35,000 | Nil | 3,300 | Nil |
2019 | 40,000 | Nil | 3,000 | Nil |
MATTERS TO BE CONSIDERED
Name and Municipality of Residence | Principal Occupation | Director Since | Number of Common Shares Beneficially Owned or Over which Control is Exercised(1) |
Tito Gandhi(2) Caledon East, Ontario Age:66 | President and Chief Executive Officer of Genesis Casinos Ltd. | August 11, 2016 | Nil |
William Steers(2) Toronto, Ontario Age:68 | International Business Consultant | March 14, 2018 | Nil |
Bernard Wilson(2) Toronto, Ontario Age:78 | Financial Professional | January 19, 2021 | Nil |
Russell Starr Toronto, Ontario Age: 53 | Chief Executive Officer of Trillium Gold Mines Inc. | July 20, 2021 | 3,000,000 |
Krisztian Tóth Toronto, Ontario Age: 43 | Partner at Fasken Martineau DuMoulin LLP | May 14, 2021 | Nil |
(1) | The Corporation has relied exclusively on the respective Nominee for this information. |
(2) | Member of the Audit Committee and the Compensation, Nomination and Governance Committee.. |
1. | the Stock Option Plan of the Corporation, as described in the management information circular of the Corporation dated August 15, 2021 is hereby approved and the Corporation be and is hereby authorized to reserve for issuance pursuant to the Stock Option Plan such number of stock options up to 10% of the total issued and outstanding Common Shares at the time of grant; and |
2. | any director or officer of the Corporation is hereby authorized to execute (whether under the corporate seal of the Corporation or otherwise) and deliver all such documents and to do all such other acts and things as such director or officer may determine to be necessary or advisable to give effect to the true intent of these resolutions.” |
• | Eligible participants of the DSU Plan include any director, officer, employee or consultant of the Corporation; |
• | The Board fixes the vesting terms it deems appropriate when granting DSUs; |
• | The number of DSUs that may be granted under the DSU Plan may not exceed 5% of the total issued and outstanding Common Shares at the time of grant; |
• | As of the date of this Circular, no DSUs have been issued; |
• | No DSUs shall be granted under the DSU Plan if such grant could result, at any time, in (i) the number of Common Shares issuable to insiders of the Corporation under all share compensation arrangements exceeding 10% of the issued and outstanding Common Shares, (ii) the issuance to insiders of the Corporation of a number of Common Shares exceeding 10% of the issued and outstanding Common Shares, (iii) the number of Common Shares reserved for issuance under all share compensation arrangements with any one participant, together with such participants permitted assigns, exceeding 5% of the issued and outstanding Common Shares and (iv) a grant of more than 2% of the issued and outstanding Common Shares to any one contractor in any |
• | Under the DSU Plan, the DSUs are to be redeemed and paid out by the Corporation within 60 days of when a participant ceases to be a directors, officer, employee or consultant of the Corporation without further action or payment on the part of the holder of the DSU. For each DSU, the Corporation will deliver a payment of one Common Shares. |
• | DSUs granted under the DSU Plan may not be assigned or transferred except to certain permitted assigns; and |
• | Subject to any regulatory or NEO Exchange approval, the Board may from time to time amend or revise the terms and conditions of the DSU Plan. |
1. | the DSU Plan of the Corporation, as described in the management information circular of the Corporation dated August 15, 2021 is hereby approved and the Corporation be and is hereby authorized to reserve for issuance pursuant to the DSU Plan such number of DSUs up to 5% of the total issued and outstanding Common Shares at the time of grant; and |
2. | any director or officer of the Corporation is hereby authorized to execute (whether under the corporate seal of the Corporation or otherwise) and deliver all such documents and to do all such other acts and things as such director or officer may determine to be necessary or advisable to give effect to the true intent of these resolutions.” |
Option Grant Date | Number of Options | Original Exercise Price | New Exercise Price |
February 19, 2021 | 500,000 | $2.90 | $1.58 |
February 24, 2021 | 500,000 | $2.55 | $1.58 |
March 31, 2021 | 1,000,000 | $2.12 | $1.58 |
April 9, 2021 | 4,070,00 | $1.78 | $1.58 |
Total | 6,070,000 |
1. | subject to the final acceptance of the NEO Exchange, the exercise price of stock options exercisable for an aggregate of up to 6,070,000 Common Shares, as more particularly described in the information circular of the Corporation dated August 15, 2021, is hereby amended to an exercise price of $1.58; |
2. | the board of directors of the Corporation is hereby authorized in its absolute discretion to determine whether or not to proceed with the above resolution without further ratification or approval by the shareholders; and |
3. | any director or officer of the Corporation is hereby authorized to execute (whether under the corporate seal of the Corporation or otherwise) and deliver all such documents and to do all such other acts and things as such director or officer may determine to be necessary or advisable to give effect to the true intent of these resolutions.” |
(a) | Review and update this Charter annually. |
(b) | Review the Company’s financial statements, management discussion and analysis (“MD&A”) and any annual and interim earnings, press releases before the Company publicly discloses this information and any reports or other financial information (including quarterly financial statements), which are submitted to any governmental body, or to the public, including any certification, report, opinion or review rendered by the external auditors. |
(a) | Review annually the performance of the external auditors who shall be ultimately accountable to the board of directors and the Committee as representatives of the shareholders of the Company. |
(b) | Obtain annually a formal written statement of the external auditors setting forth all relationships between the external auditors and the Company, consistent with Independence Standards Board Standard 1. |
(c) | Review and discuss with the external auditors any disclosed relationships or services that may impact the objectivity and independence of the external auditors. |
(d) | Take or recommend that the full board of directors take appropriate action to oversee the independence of the external auditors. |
(e) | Recommend to the board of directors the selection and, where applicable, the replacement of the external auditors nominated annually for shareholder approval. |
(f) | At each meeting, consult with the external auditors, without the presence of management, about the quality of the Company’s accounting principles, internal controls and the completeness and accuracy of the Company’s financial statements. |
(g) | Review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company. |
(h) | Review with management and the external auditors the audit plan for the year-end financial statements and intended template for such statements. |
(i) | Review and pre-approve all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by the Company’s external auditors. The pre-approval requirement is waived with respect to the provision of non-audit services if: |
(i) | the aggregate amount of all such non-audit services provided to the Company constitutes not more than 5% of the total amount of revenues paid by the Company to its external auditors during the fiscal year in which the non-audit services are provided; |
(ii) | such services were not recognized by the Company at the time of the engagement to be non-audit services; and |
(iii) | such services are promptly brought to the attention of the Committee by the Company and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Committee. |
(a) | In consultation with the external auditors, review with management the integrity of the Company’s financial reporting process, both internal and external. |
(b) | Consider the external auditor’s judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting. |
(c) | Consider and approve, if appropriate, changes to the Company’s auditing and accounting principles and practices as suggested by the external auditors and management. |
(d) | Review significant judgments made by management in the preparation of the financial statements and the view of the external auditors as to appropriateness of such judgments. |
(e) | Following completion of the annual audit, review separately with management and the external auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. |
(f) | Review any significant disagreement among management and the external auditors in connection with the preparation of the financial statements. |
(g) | Review with the external auditors and management the extent to which changes and improvements in financial or accounting practices have been implemented. |
(h) | Review any complaints or concerns about any questionable accounting, internal accounting controls or auditing matters. |
(a) | Review certification process. |
(b) | Establish a procedure for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. |
1. | STATEMENT OF PURPOSE |
1.1 | Principal Purpose s – The principal purposes of the Plan are to provide the Corporation with the advantages of the incentive inherent in share ownership on the part of employees, officers, directors and consultants responsible for the continued success of the Corporation; to create in such individuals a proprietary interest in, and a greater concern for, the welfare and success of the Corporation; to encourage such individuals to remain with the Corporation; and to attract new employees, officers, directors and consultants to the Corporation. |
1.2 | Benefit to Shareholders – The Plan is expected to benefit shareholders by enabling the Corporation to attract and retain skilled and motivated personnel by offering such personnel an opportunity to share in any increase in value of the Shares resulting from their efforts. |
2. | INTERPRETATION |
2.1 | Defined Terms – For the purposes of this Plan, the following terms shall have the following meanings: |
(a) | “Act” means the Securities Act (Ontario), as amended from time to time; |
(b) | “Associate” shall have the meaning ascribed to such term in the Act; |
(c) | “Board” means the Board of Directors of the Corporation; |
(d) | “Change in Control” means: |
(i) | a takeover bid (as defined in the Act), which is successful in acquiring Shares, |
(ii) | the change of control of the Board resulting from the election by the members of the Corporation of less than a majority of the persons nominated for election by management of the Corporation, |
(iii) | the sale of all or substantially all the assets of the Corporation, |
(iv) | the sale, exchange or other disposition of a majority of the outstanding Shares in a single transaction or series of related transactions, |
(v) | the dissolution of the Corporation’s business or the liquidation of its assets, |
(vi) | a merger, amalgamation or arrangement of the Corporation in a transaction or series of transactions in which the Corporation’s shareholders receive less than 51% of the outstanding shares of the new or continuing corporation, or |
(vii) | the acquisition, directly or indirectly, through one transaction or a series of transactions, by any Person, of an aggregate of more than 50% of the outstanding Shares; |
(e) | “Committee” means a committee of the Board appointed in accordance with this Plan, or if no such committee is appointed, the Board itself; |
(f) | “Corporation” means DeFi Technologies Inc. a company incorporated under the |
(g) | “Consultant” means an individual, other than an Employee, senior officer or director of the Corporation or a Subsidiary Corporation, or a Consultant Corporation, who; |
(i) | provides ongoing consulting, technical, management or other services to the Corporation or a Subsidiary Corporation, other than services provided in relation to a distribution of the Corporation’s securities, |
(ii) | provides the services under a written contract between the Corporation or a Subsidiary Corporation and the individual or Consultant Corporation, |
(iii) | in the reasonable opinion of the Corporation spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or a Subsidiary Corporation, and |
(iv) | has a relationship with the Corporation or a Subsidiary Corporation that enables the individual or Consultant Corporation to be knowledgeable about the business and affairs of the Corporation; |
(h) | “Consultant Corporation” means, for an individual Consultant, a company of which the individual is an employee or shareholder, or a partnership of which the individual is an employee or partner; |
(i) | “Date of Grant” means the date specified in the Option Agreement as the date on which the Option is effectively granted; |
(j) | “Disability” means any disability with respect to an Optionee which the Board, in its sole and unfettered discretion, considers likely to prevent permanently the Optionee from: |
(i) | being employed or engaged by the Corporation, a Subsidiary Corporation or another employer, in a position the same as or similar to that in which he was last employed or engaged by the Corporation or a Subsidiary Corporation; or |
(ii) | acting as a director or officer of the Corporation or a Subsidiary Corporation; |
(k) | “Disinterested Shareholder Approval” means an ordinary resolution approved by a majority of the votes cast by members of the Corporation at a shareholders’ meeting, excluding votes attaching to Shares beneficially owned by Insiders to whom Options may be granted and Associates of those persons; |
(l) | “Effective Date” means the effective date of this Plan, which is the later of the day of its approval by the shareholders of the Corporation and the day of its acceptance for filing by the Exchange if such acceptance for filing is required under the rules or policies of the Exchange; |
(m) | “Eligible Person” means: |
(i) | an Employee, senior officer or director of the Corporation or any Subsidiary Corporation, |
(ii) | a Consultant, |
(iii) | an individual providing Investor Relations Activities for the Corporation; and |
(iv) | a company, all of the voting securities of which are beneficially owned by one or more of the persons referred to in (i), (ii) or (iii) above; |
(n) | “Employee” means: |
(i) | an individual who is considered an employee under the Income Tax Act (Canada) (i.e. for whom income tax, employment insurance and CPP deductions must be made at source), |
(ii) | an individual who works full-time for the Corporation or a Subsidiary Corporation providing services normally provided by an employee and who is subject to the same control and direction by the Corporation or a Subsidiary Corporation over the details and methods of work as an employee of the Corporation or a Subsidiary Corporation, but for whom income tax deductions are not made at source, and |
(iii) | an individual who works for the Corporation or a Subsidiary Corporation, on a continuing and regular basis for a minimum amount of time per week, providing services normally provided by an employee and who is subject to the same control and direction by the Corporation or a Subsidiary Corporation over the details and methods of work as an employee of the Corporation or a Subsidiary Corporation, but for whom income tax deductions are not made at source; |
(o) | “Exchange” means the stock exchange or over the counter market on which the Shares are listed; |
(p) | “Exchange Act” means the United States Securities Exchange Act of 1934, as amended; |
(q) | “Fair Market Value” means, where the Shares are listed for trading on an Exchange, the last closing price of the Shares before the Date of Grant on the Exchange which is the principal trading market for the Shares, as may be determined for such purpose by the Committee, provided that, so long as the Shares are listed only on the NEO, the “Fair Market Value” shall not be lower than the last closing price of the Shares before the Date of Grant; |
(r) | “Guardian” means the guardian, if any, appointed for an Optionee; |
(s) | “Insider” shall have the meaning ascribed to such term in the Act; |
(t) | “Investor Relations Activities” means any activities or oral or written communications, by or on behalf of the Corporation or a shareholder of the Corporation that promote or reasonably could be expected to promote the purchase or sale of securities of the Corporation, but does not include: |
(i) | the dissemination of information provided, or records prepared, in the ordinary course of business of the Corporation |
(A) | to promote the sale of products or services of the Corporation, or |
(B) | to raise public awareness of the Corporation, |
(ii) | activities or communications necessary to comply with the requirements of |
(A) | applicable securities laws, |
(B) | the rules and policies of the NEO, if the Shares are listed only on the NEO, or the by-laws, rules or other regulatory instruments of any other self-regulatory body or exchange having jurisdiction over the Corporation, |
(iii) | communications by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to purchasers of it, if |
(A) | the communication is only through the newspaper, magazine or publication, and |
(B) | the publisher or writer receives no commission or other consideration other than for acting in the capacity of publisher or writer, or |
(iv) | activities or communications that may be otherwise specified by the NEO, if the Shares are listed only on the NEO; |
(u) | “NEO” means the Neo Exchange Inc. |
(v) | “Option” means an option to purchase unissued Shares granted pursuant to the terms of this Plan; |
(w) | “Option Agreement” means a written agreement between the Corporation and an Optionee specifying the terms of the Option being granted to the Optionee under the Plan; |
(x) | “Option Price” means the exercise price per Share specified in an Option Agreement, adjusted from time to time in accordance with the provisions of Sections 6.3 and 10; |
(y) | “Optionee” means an Eligible Person to whom an Option has been granted; |
(z) | “Person” means a natural person, company, government or political subdivision or agency of a government; and where two or more Persons act as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of an issuer, such syndicate or group shall be deemed to be a Person; |
3. | ADMINISTRATION |
3.1 | Board or Committee – The Plan shall be administered by the Board or by a Committee appointed in accordance with Section 3.2. |
3.2 | Appointment of Committee – The Board may at any time appoint a Committee, consisting of not less than three of its members, to administer the Plan on behalf of the Board in accordance with such terms and conditions as the Board may prescribe, consistent with this Plan. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint new members in their place, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. In the absence of the appointment of a Committee by the Board, the Board shall administer the Plan. |
3.3 | Quorum and Voting – A majority of the members of the Committee shall constitute a quorum, and, subject to the limitations in this Section 3, all actions of the Committee shall require the affirmative vote of members who constitute a majority of such quorum. No member of the Committee who is a director to whom an Option may be granted may participate in the decision to grant such Option (but any such member may be counted in determining the existence of a quorum at any meeting of the Committee in which action is to be taken with respect to the granting of an Option to him). |
3.4 | Powers of Board and Committee – The Board shall from time to time authorize and approve the grant by the Corporation of Options under this Plan, and any Committee appointed under Section 3.2 shall have the authority to review the following matters in relation to the Plan and to make recommendations thereon to the Board; |
(a) | administration of the Plan in accordance with its terms, |
(b) | determination of all questions arising in connection with the administration, interpretation and application of the Plan, including all questions relating to the value of the Shares, |
(c) | correction of any defect, supply of any information or reconciliation of any inconsistency in the Plan in such manner and to such extent as shall be deemed necessary or advisable to carry out the purposes of the Plan, |
(d) | prescription, amendment and rescission of the rules and regulations relating to the administration of the Plan; |
(e) | determination of the duration and purpose of leaves of absence from employment which may be granted to Optionees without constituting a termination of employment for purposes of the Plan, |
(f) | with respect to the granting of Options: |
(i) | determination of the Employees, officers, directors or Consultants to whom Options will be granted, based on the eligibility criteria set out in this Plan, |
(ii) | determination of the terms and provisions of the Option Agreement which shall be entered into with each Optionee (which need not be identical with the terms of any other Option Agreement) and which shall not be inconsistent with the terms of this Plan, |
(iii) | amendment of the terms and provisions of an Option Agreement, provided the Board obtains: |
(A) | the consent of the Optionee, and |
(B) | if required, the approval of any stock exchange on which the Shares are listed, |
(iv) | determination of when Options will be granted, |
(v) | determination of the number of Shares subject to each Option, Option, and |
(vi) | determination of the vesting schedule, if any, for the exercise of each |
(g) | other determinations necessary or advisable for administration of the Plan. |
3.5 | Obtain A pprovals – The Board will seek to obtain any regulatory, Exchange or shareholder approvals which may be required pursuant to applicable securities laws or Exchange rules. |
3.6 | Administration by Committee – The Committee shall have all powers necessary or appropriate to accomplish its duties under this Plan. In addition, the Committee’s administration of the Plan shall in all respects be consistent with the Exchange policies and rules. |
4. | ELIGIBILITY |
4.1 | Eligibility for Option – Options may be granted to any Eligible Person. |
4.2 | Insider Eligibility for Option s– Notwithstanding Section 4.1, if the Shares are listed only on the NEO, grants of Options to Insiders shall be subject to the policies of the NEO. |
4.3 | No Violation of Securities Laws – No Option shall be granted to any Optionee unless the Committee has determined that the grant of such Option and the exercise thereof by the Optionee will not violate the securities law of the jurisdiction in which the Optionee resides. |
5. | SHARES SUBJECT TO THE PLAN |
5.1 | Number of Shares – The maximum number of Shares issuable from time to time under the Plan is that number of Shares as is equal to 10% of the number of issued Shares at the Date of Grant of an Option. The maximum number of Shares issuable under the Plan shall be adjusted, where necessary, to take account of the events referred to in Section 10. |
5.2 | Expiry of Option – If an Option expires or terminates for any reason without having been exercised in full, the unpurchased Shares subject thereto shall again be available for the purposes of the Plan |
5.3 | Reservation of Shares – The Corporation will at all times reserve for issuance and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. |
6. | OPTION TERMS |
6.1 | Option Agreement – Each Option granted to an Optionee shall be confirmed by the execution and delivery of an Option Agreement and the Board shall specify the following terms in each such Option Agreement: |
(a) | the number of Shares subject to option pursuant to such Option, subject to the following limitations if the Shares are listed only on the NEO: |
(i) | the number of Shares reserved for issuance pursuant to Options to any one Optionee shall not exceed 5% of the issued Shares in any 12-month period, |
(ii) | the number of Shares reserved for issuance pursuant to Options to any one Consultant shall not exceed 2% of the issued Shares in any 12- month period, and |
(iii) | the aggregate number of Shares reserved for issuance pursuant to Options to Employees and those individuals conducting Investor Relations Activities shall not exceed 2% of the issued Shares in any 12- month period; |
(b) | the Date of Grant; |
(c) | the Term, provided that, if the Shares are listed only on the NEO, the length of the Term shall in no event be greater than five years following the Date of Grant for all Optionees; |
(d) | the Option Price, provided that the Option Price shall not be less than the Fair Market Value of the Shares on the Date of Grant; |
(e) | subject to Section 6.2 below, any vesting schedule upon which the exercise of an Option is contingent; |
(f) | if the Optionee is an Employee, Consultant or an individual providing Investor Relations Activities for the Corporation, a representation by the Corporation and the Optionee that the Optionee is a bona fide Employee, Consultant or an individual providing Investor Relations Activities for the Corporation, as the case may be, of the Corporation or a Subsidiary Corporation; and |
(g) | such other terms and conditions as the Board deems advisable and are consistent with the purposes of this Plan. |
6.2 | Vesting Schedue – The Board, as applicable, shall have complete discretion to set the terms of any vesting schedule of each Option granted, including, without limitation, discretion to: |
(a) | permit partial vesting in stated percentage amounts based on the Term of such Option; and |
(b) | permit full vesting after a stated period of time has passed from the Date of |
7. | EXERCISE OF OPTION |
7.1 | Method of Exerfcise – Subject to any limitations or conditions imposed upon an Optionee pursuant to the Option Agreement or Section 6 hereof, an Optionee may exercise an Option by giving written notice thereof, specifying the number of Shares in respect of which the Option is exercised, to the Corporation at its principal place of business at any time after the Date of Grant until 4:00 p.m. (Toronto time) on the last day of the Term, such notice to be accompanied by full payment of the aggregate Option Price to the extent the Option is so exercised and an indication as to suitable arrangements made with the Corporation, in accordance with Section 15.7, for the receipt by the Corporation of an amount sufficient to satisfy any withholding tax requirements under applicable tax legislation in respect of the exercise of an Option (the "Withholding Obligations"). Such amounts shall be in lawful money (Canadian funds) by cash, cheque, bank draft or wire transfer. Payment by cheque made payable to the Corporation in the amount of the aggregate Option Price shall constitute payment of such Option Price unless the cheque is not honoured upon presentation, in which case the Option shall not have been validly exercised. |
7.2 | Issuance of Certificates – Not later than the third business day after exercise of an Option in accordance with Section 7.1, the Corporation shall issue and deliver to the Optionee a certificate or certificates evidencing the Shares with respect to which the Option has been exercised. Until the issuance of such certificate or certificates, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to such Shares, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the certificate is issued, except as provided by Section 10 hereof. |
7.3 | Compliance with U.S. Securities Laws – As a condition to the exercise of an Option, the Board may require the Optionee to represent and warrant in writing at the time of such exercise that the Shares are being purchased only for investment and without any then-present intention to sell or distribute such Shares. At the option of the Board, a stop-transfer order against such Shares may be placed on the stock books and records of the Corporation and a legend, indicating that the stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided stating that such transfer is not in violation of any applicable law or regulation, may be stamped on the certificates representing such Shares in order to assure an exemption from registration. The Board may also require such other documentation as may from time to time be necessary to comply with United States’ federal and state securities laws. The Corporation has no obligation to undertake registration of Options or the Shares issuable upon the exercise of the Options. |
8. | TRANSFERABILITY OF OPTIONS |
8.1 | Non-Transferable – Except as permitted by applicable securities laws and the policies of the Exchange, and as provided otherwise in this Section 8, Options are non-assignable and non- transferable. |
8.2 | Death of Optionee – Subject to Section 8.3, if the employment of an Optionee as an Employee of, or the services of a Consultant providing services to, the Corporation or any Subsidiary Corporation, or the employment of an Optionee as an individual providing Investor Relations Activities, or the position of the Optionee as a director or senior officer of the Corporation or any Subsidiary Corporation, terminates as a result of such Optionee’s death, any Options held by such Optionee shall pass to the Qualified Successor of the Optionee and shall be exercisable by such Qualified Successor until the earlier of a period of not more than one year following the date of such death and the expiry of the Term of the Option. |
8.3 | Disability of Optionee – If the employment of an Optionee as an Employee of, or the services of a Consultant providing services to, the Corporation or any Subsidiary Corporation, or the employment of an Optionee as an individual providing Investor Relations Activities for the Corporation, or the position of the Optionee as a director or senior officer of the Corporation or any Subsidiary Corporation, is terminated by reason of such Optionee’s Disability, any Options held by such Optionee that could have been exercised immediately prior to such termination of employment or service shall be exercisable by such Optionee, or by his Guardian, for a period of not more than one year following the date of such following the termination of employment or service of such Optionee. If such Optionee dies within that period of not more than one year, any Option held by such Optionee that could have been exercised immediately prior to his or her death shall pass to the Qualified Successor of such Optionee, and shall be exercisable by the Qualified Successor until the earlier of a period of not more than one year following the death of such Optionee and the expiry of the Term of the Option. |
8.4 | Vesting – Options held by a Qualified Successor or exercisable by a Guardian shall, during the period prior to their termination, continue to vest in accordance with any vesting schedule to which such Options are subject. |
8.5 | Deemed Non-Interruption of Employment– Employment shall be deemed to continue intact during any military or sick leave or other bona fide leave of absence if the period of such leave does not exceed 90 days or, if longer, for so long as the Optionee’s right to reemployment with the Corporation or any Subsidiary Corporation is guaranteed either by statute or by contract. If the period of such leave exceeds 90 days and the Optionee’s reemployment is not so guaranteed, then the Optionee’s employment shall be deemed to have terminated on the ninety- first day of such leave. |
9. | TERMINATION OF OPTIONS |
9.1 | Termination of Options – To the extent not earlier exercised or terminated in accordance with Section 8, an Option shall terminate at the earliest of the following dates: |
(a) | the termination date specified for such Option in the Option Agreement; |
(b) | where the Optionee’s position as an Employee, a Consultant, a director or a senior officer of the Corporation or any Subsidiary Corporation, or an individual providing Investor Relations Activities for the Corporation, is terminated for cause, the date of such termination for cause; |
(c) | where the Optionee’s position as an Employee, a Consultant, a director or a senior officer of the Corporation or any Subsidiary Corporation or an individual providing Investor Relations Activities for the Corporation terminates for a reason other than the Optionee’s Disability or death or for cause, not more than 90 days after such date of termination or, if the Shares are listed only on the NEO, not more than 30 days after such person ceases to be employed to provide Investor Relations Activities; PROVIDED that if an Optionee’s position changes from one of the said categories to another category, such change shall not constitute termination or cessation for the purpose of this Subsection 9.1(c); and |
(d) | the date of any sale, transfer, assignment or hypothecation, or any attempted sale, transfer, assignment or hypothecation, of such Option in violation of Section 8.1. |
9.2 | Lapsed Options – If Options are surrendered, terminate or expire without being exercised in whole or in part, new Options may be granted covering the Shares not purchased under such lapsed Options. If an Option has been surrendered in connection with the regranting of a new Option to the same Optionee on different terms than the original Option granted to such Optionee, then, if required, the new Option is subject to approval of the Exchange. |
9.3 | Exclusion from Severance Allowance, Retirement Allowance or Termination Settlement – If the Optionee retires, resigns or is terminated from employment or engagement with the Corporation or any Subsidiary Corporation, the loss or limitation, if any, pursuant to the Option Agreement with respect to the right to purchase Option Shares which were not vested at that time or which, if vested, were cancelled, shall not give rise to any right to damages and shall not be included in the calculation of nor form any part of any severance allowance, retiring allowance or termination settlement of any kind whatsoever in respect of such Optionee. |
10. | ADJUSTMENTS TO OPTIONS |
10.1 | Alteration in Capital Structure – If there is any change in the Shares through or by means of a declaration of stock dividends of the Shares or consolidations, subdivisions or reclassifications of the Shares, or otherwise, the number of Shares available under the Plan, the Shares subject to any Option and the Option Price therefor shall be adjusted proportionately by the Board and, if required, approved by the Exchange, and such adjustment shall be effective and binding for all purposes of the Plan. |
10.2 | Effect of Amalgamation, Merger or Arrangement – If the Corporation amalgamates, merges or enters into a plan of arrangement with or into another corporation, any Shares receivable on the exercise of an Option shall be converted into the securities, property or cash which the Optionee would have received upon such amalgamation, merger or arrangement if the Optionee had exercised the Option immediately prior to the record date applicable to such amalgamation, merger or arrangement, and the exercise price shall be adjusted proportionately by the Board and such adjustment shall be binding for all purposes of the Plan. |
10.3 | Acceleration on Change of Control – Upon a Change in Control, all Options shall become immediately exercisable, notwithstanding any contingent vesting provisions to which such Options may have otherwise been subject. |
10.4 | Acceleraltion of Date of Exercise – Subject to the approval of the Exchange, if required, the Board shall have the right to accelerate the date of vesting of any portion of any Option which remains unvested. |
10.5 | Determinations to be Binding– If any questions arise at any time with respect to the Option Price or exercise price or number of Option Shares or other property deliverable upon exercise of an Option following an event referred to in this Section 10, such questions shall be conclusively determined by the Board, whose decisions shall be final and binding. |
10.6 | Effect of a takeover – If a bona fide offer (the “Offer”) for Shares is made to an Optionee or to shareholders generally or to a class of shareholders which includes the Optionee, which Offer constitutes a take-over bid within the meaning of the Act, the Corporation shall, immediately upon receipt of notice of the Offer, notify each Optionee of full particulars of the Offer, whereupon any Option held by an Optionee may be exercised in whole or in part, notwithstanding any contingent vesting provisions to which such Options may have otherwise been subject, by the Optionee so as to permit the Optionee to tender the Shares received upon such exercise (the “Optioned Shares”) to the Offer. If: |
(a) | the Offer is not completed within the time specified therein; or |
(b) | all of the Optioned Shares tendered by the Optionee pursuant to the Offer are not taken up and paid for by the offeror pursuant thereto; |
11. | APPROVAL, TERMINATION AND AMENDMENT OF PLAN |
11.1 | Shareholder Approval – This Plan, if the Shares are listed only on the NEO, is subject to Shareholder Approval every three years. |
11.2 | Power of Board to Terminate or Suspend Plan – Subject to the approval of the Exchange, if required, the Board may terminate, suspend or discontinue the Plan at any time or amend or revise the terms of the Plan; provided, however, that, except as provided in Section 10, the Board may not do any of the following without obtaining, within 12 months either before or after the Board’s adoption of a resolution authorizing such action, approval by the Corporation’s shareholders at a meeting duly held in accordance with the applicable corporate laws: |
(a) | increase the maximum number of Shares which may be issued under the Plan; |
(b) | materially modify the requirements as to eligibility for participation in the Plan; or |
(c) | materially increase the benefits accruing to participants under the Plan; |
11.3 | No Grant during Suspension of Plan – No Option may be granted during any suspension, or after termination, of the Plan. Amendment, suspension or termination of the Plan shall not, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted. |
12. | CONDITIONS PRECEDENT TO ISSUANCE OF SHARES |
12.1 | Compliance with Laws – Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, any applicable United States’ state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder and the requirements of any Exchange or automated interdealer quotation system of a registered national securities association upon which such Shares may then be listed or quoted, and such issuance shall be further subject to the approval of counsel for the Corporation with respect to such compliance, including the availability of an exemption from registration for the issuance and sale of such Shares. The inability of the Corporation to obtain from any regulatory body the authority deemed by the Corporation to be necessary for the lawful issuance and sale of any Shares under this Plan, or the unavailability of an exemption from registration for the issuance and sale of any Shares under this Plan, shall relieve the Corporation of any liability with respect to the non-issuance or sale of such Shares other than with respect to a refund of any Option Price paid. |
13. | USE OF PROCEEDS |
13.1 | Use of Proceeds– Proceeds from the sale of Shares pursuant to the Options granted and exercised under the Plan shall constitute general funds of the Corporation and shall be used for general corporate purposes, or as the Board otherwise determines. |
14. | NOTICES |
14.1 | Notices – All notices, requests, demands and other communications required or permitted to be given under this Plan and the Options granted under this Plan shall be in writing and shall be either delivered personally to the party to whom notice is to be given, in which case notice shall be deemed to have been duly given on the date of such personal delivery; telecopied, in which case notice shall be deemed to have been duly given on the date the telecopy is sent; or mailed to the party to whom notice is to be given, by first class mail, registered or certified, return receipt requested, postage prepaid, and addressed to the party at his or its most recent known address, in which case such notice shall be deemed to have been duly given on the tenth postal delivery day following the date of such mailing. |
15. | MISCELLANEOUS PROVISIONS |
15.1 | No Obligations to Exercise – Optionees shall be under no obligation to exercise Options granted under this Plan. |
15.2 | No Obligation to Retain Optionee – Nothing contained in this Plan shall obligate the Corporation or any Subsidiary Corporation to retain an Optionee as an Employee, officer, director or Consultant for any period, nor shall this Plan interfere in any way with the right of the Corporation or any Subsidiary Corporation to reduce such Optionee’s compensation. |
15.3 | Binding Agreement – The provisions of this Plan and of each Option Agreement with an Optionee shall be binding upon such Optionee and the Qualified Successor or Guardian of such Optionee. |
15.4 | Use of Terms – Where the context so requires, references herein to the singular shall include the plural, and vice versa, and references to a particular gender shall include either or both genders. |
15.5 | Headings – The headings used in this Plan are for convenience of reference only and shall not in any way affect or be used in interpreting any of the provisions of this Plan. |
15.6 | No Representation or Warranty – The Corporation makes no representation or warranty as to the future value of any Shares issued in accordance with the provisions of this Plan. |
15.7 | Income Taxes – Upon the exercise of an Option by an Optionee, the Corporation shall have the right to require the Optionee to remit to the Corporation an amount sufficient to satisfy any Withholding Obligations relating thereto under applicable tax legislation. Unless otherwise prohibited by the Board or by applicable law, satisfaction of the amount of the Withholding Obligations (the "Withholding Amount") may be accomplished by any of the following methods or by a combination of such methods as determined by the Corporation in its sole discretion: |
(a) | the tendering by the Optionee of cash payment to the Corporation in an amount less than or equal to the Withholding Amount; or |
(b) | the withholding by the Corporation from the Shares otherwise due to the Optionee such number of Shares as it determines are required to be sold by the Corporation, as trustee, to satisfy the Withholding Amount (net of selling costs). By executing and delivering the Option Agreement, the Optionee shall be |
(c) | the withholding by the Corporation from any cash payment otherwise due by the Corporation to the Optionee, including salaries, directors fees, consulting fees and any other forms of remuneration, such amount of cash as is required to pay and satisfy the Withholding Amount; |
• | provided, however, in all cases, that the sum of any cash so paid or withheld and the fair market value of any Shares so withheld is sufficient to satisfy the Withholding Amount. |
• | The provisions of the Option Agreement shall provide that the Optionee (or their beneficiaries) shall be responsible for all taxes with respect to any Options granted under the Option Plan and an acknowledgement that neither the Board nor the Corporation shall make any representations or warranties of any nature or kind whatsoever to any person regarding the tax treatment of Options or payments on account of the Withholding Amount made under the Option Plan and none of the Board, the Corporation, nor any of its employees or representatives shall have any liability to an Optionee (or its beneficiaries) with respect thereto. |
15.8 | Compliance with Applicable Law – If any provision of the Plan or any Option Agreement contravenes any law or any order, policy, by-law or regulation of any regulatory body or stock exchange or over the counter market having authority over the Corporation or the Plan, then such provision shall be deemed to be amended to the extent required to bring such provision into compliance therewith. |
15.9 | Conflict – In the event of any conflict between the provisions of this Plan and an Option Agreement, the provisions of this Plan shall govern. |
15.10 | Governing Law – This Plan and each Option Agreement issued pursuant to this Plan shall be governed by the laws of the Province of Ontario. |
15.11 | Time of Essence – Time is of the essence of this Plan and of each Option Agreement. No extension of time will be deemed to be, or to operate as, a waiver of the essentiality of time. |
15.12 | Entire Agreement – This Plan and the Option Agreement sets out the entire agreement between the Corporation and the Optionees relative to the subject matter hereof and supersedes all prior agreements, undertakings and understandings, whether oral or written. |
16. | EFFECTIVE DATE OF PLAN |
16.1 | Ef fective date of Plan – This Plan shall be effective on the later of the day of its approval by the shareholders of the Corporation given by way of ordinary resolution and the day of its acceptance for filing by the Exchange. |
1.1 | For purposes of this Deferred Share Unit Plan, unless such word or term is otherwise defined herein or the context in which such word or term is used herein otherwise requires, the following words and terms with the initial letter or letters thereof capitalized shall have the following meanings: |
(a) | “Act” means the Business Corporations Act (Ontario) or its successor, as amended from time to time; |
(b) | “Board” means the board of directors of the Corporation; |
(c) | “Change of Control” means the occurrence of any one or more of the following events: |
(i) | a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving the Corporation or any of its affiliates and another corporation or other entity, as a result of which the holders of Common Shares immediately prior to the completion of the transaction hold less than 25% of the outstanding shares of the successor corporation after completion of the transaction; |
(ii) | the sale, lease, exchange or other disposition, in a single transaction or a series of related transactions, of assets, rights or properties of the Corporation and/or any of its Subsidiaries which have an aggregate book value greater than 25% of the book value of the assets, rights and properties of the Corporation and its Subsidiaries on a consolidated basis to any other person or entity, other than a disposition to a wholly-owned Subsidiary of the Corporation in the course of a reorganization of the assets of the Corporation and its Subsidiaries; |
(iii) | a resolution is adopted to wind-up, dissolve or liquidate the Corporation; |
(iv) | any person, entity or group of persons or entities acting jointly or in concert (an “Acquiror”) acquires or acquires control (including, without limitation, the right to vote or direct the voting) of Voting Securities of the Corporation which, when added to the Voting Securities owned of record or beneficially by the Acquiror or which the Acquiror has the right to vote or in respect of which the Acquiror has the right to direct the voting, would entitle the Acquiror and/or associates and/or affiliates of the Acquiror (as such terms are defined in the Act) to cast or to direct the casting of 20% or more of the votes attached to all of the Corporation’s outstanding Voting Securities which may be cast to elect directors of the Corporation or the successor corporation (regardless of whether a meeting has been called to elect directors); |
(v) | as a result of or in connection with: (A) a contested election of directors, or; (B) a consolidation, merger, amalgamation, arrangement or other reorganization or acquisitions involving the Corporation or any of its affiliates and another corporation or other entity, the nominees named in the most recent management information circular of the Corporation for election to the Board (or replacements designated by such nominees) shall not constitute a majority of the Board; or |
(vi) | the Board adopts a resolution to the effect that a Change of Control as defined herein has occurred or is imminent. |
(d) | “Committee” means the Board or if the Board so determines in accordance with Section 2.03 of the Plan, the committee of the Directors authorized to administer the Plan, which may include any compensation committee of the Board; |
(e) | “Common Shares” means the common shares of the Corporation; |
(f) | “Consultant” means, with respect to a corporation, a person, other than an Employee, Executive Officer, or Director of such corporation or of a Related Entity of such corporation, that: |
(i) | is engaged to provide services to such corporation or a Related Entity of such corporation, other than services provided in relation to a distribution; |
(ii) | provides the services under a written contract with such corporation or a Related Entity of such corporation, and |
(iii) | spends or will spend a significant amount of time and attention on the affairs and business of such corporation or a Related Entity of such corporation; |
(iv) | for an individual Consultant, a corporation of which the individual Consultant is an employee or shareholder, and a partnership of which the individual Consultant is an employee or partner, and |
(v) | for a Consultant that is not an individual, an Employee, Executive Officer, or Director of the Consultant, provided that the individual Employee, Executive Officer, or Director spends or will spend a significant amount of time and attention on the affairs and business of the issuing corporation or a Related Entity of such corporation; |
(g) | “Corporation” means DeFi Technologies Inc., a corporation existing under the Act; |
(h) | “Deferred Share Unit” or “DSU” means a unit credited by way of a bookkeeping entry in the books of the Corporation and administered pursuant to the Plan, representing the right to receive one Common Share; |
(i) | “Designated Affiliate” means an affiliate of the Corporation designated by the Committee for purposes of the Plan from time to time; |
(j) | “Director” means a member of the Board from time to time; |
(k) | “Disinterested Shareholder Approval” means approval by a majority of the votes cast by all the Corporation’s shareholders at a duly constituted shareholders’ meeting, excluding votes attached to shares of the Corporation beneficially owned by Insiders to whom DSUs may be granted under the Plan and their associates and affiliates; |
(l) | “DSU Grant Letter” has the meaning ascribed in Section 3.04; |
(m) | “DSU Issue Date” means the date on which the Committee determines to grant Deferred Share Units to an Eligible Person; |
(n) | “DSU Payment” means |
(i) | if the DSU Issue Date of a DSU is prior to June 14, 2021, a cash payment by the Corporation to a Participant equal to the Market Value of a Common Share on the Separation Date multiplied by the number of |
(ii) | if the DSU Issue Date of a DSU is on or after June 14, 2021, the issuance of Common Shares by the Corporation to a Participant equal to the number of Deferred Share Units held by the Participant on the Separation Date; |
(o) | “DSU Trust” has the meaning ascribed thereto in Section 8.01; |
(p) | “Eligible Person” means a person who, at the relevant time: |
(i) | is a Director of the Corporation or of a Related Entity |
(ii) | is an Executive Officer of the Corporation or of a Related Entity |
(iii) | is an Employee of the of the Corporation or of a Related Entity; or |
(iv) | is a Consultant of the Corporation or of a Related Entity; |
(q) | “Employee” means, with respect to a corporation: |
(i) | an individual who is considered an employee of the corporation or a Related Entity of the corporation under the Income Tax Act; |
(ii) | an individual who works full-time for the corporation or a Related Entity of the corporation providing services normally provided by an employee and who is subject to the same control and direction by the corporation or the Related Entity of the corporation over the details and methods of work as an employee of the corporation or the Related Entity of the corporation, but for whom income tax deductions are not made at source, or |
(iii) | an individual who works for the corporation or a Related Entity of the corporation on a continuing and regular basis for a minimum amount of time per week providing services normally provided by an employee and who is subject to the same control and direction by the corporation or the Related Entity of the corporation over the details and methods of work as an employee of the corporation or the Related Entity of the corporation, but for whom income tax deductions are not made at source. |
(r) | “Event of Termination” means the termination of the employment of a Participant as an employee or the cessation of a Participant as a Director, Executive Officer, Employee or Consultant, in any of the foregoing circumstances for any reason whatsoever, but provided that the Participant does not |
(s) | “Exchange” means the NEO Exchange or, if the Common Shares are no longer listed for trading on the NEO Exchange, such other exchange or quotation system on which the Common Shares are listed or quoted for trading; |
(t) | “Executive Officer” means, in respect of a corporation, an individual who is: |
(i) | a chair, vice-chair or president; |
(ii) | a vice-president in charge of a principal business unit, division or function including sales, finance or production; or |
(iii) | performing a policy-making function in respect of the corporation; |
(u) | “Insider” has the meaning as set out in the Toronto Stock Exchange Company Manual; |
(v) | “Investor Relations Activities” has the meaning ascribed to such term in the Securities Act; |
(w) | “Market Value” means the weighted average trading price of the Common Shares on the Exchange for the five consecutive trading days immediately prior to the date as of which Market Value is determined. If the Common Shares are not trading on the Exchange, then the Market Value shall be determined based on the trading price on such stock exchange or over-the-counter market on which the Common Shares are listed and posted for trading. If the Common Shares are not listed and posted for trading on any stock exchange or over-the-counter market, then Market Value shall be the fair market value of such Common Shares as determined by the Committee in its sole discretion; |
(x) | “NEO Manual” means the corporate finance manual published by the Exchange, as amended from time to time, or if the Common Shares are no longer listed for trading on the Exchange, the policies of such other exchange or quotation system on which the Common Shares are listed or quoted for trading; |
(y) | “Participant” for the Plan means each Eligible Person to whom Deferred Share Units are issued; |
(z) | “Person” means any individual, firm, partnership, limited partnership, limited liability company or partnership, unlimited liability company, joint stock company, association, trust, trustee, executor, administrator, legal or personal representative, government, governmental body, entity or authority, group, body corporate, corporation, unincorporated organization or association, syndicate, joint venture or any other entity, whether or not having legal personality, and any of the foregoing in any derivative, representative or fiduciary capacity and pronouns have a similar meaning; |
(i) | stock option plans for the benefit of employees, Insiders, service providers, or any one of such groups; |
(ii) | stock purchase plans where the Corporation provides financial assistance or where the Corporation matches the whole or a portion of the securities being purchased; |
(iii) | stock appreciation rights involving issuances of securities from treasury; |
(iv) | any other compensation or incentive mechanism involving the issuance or potential issuances of securities of the Corporation; |
(v) | security purchases from treasury by an employee, Insider, or service provider which is financially assisted by the Corporation by any means whatsoever; |
(vi) | and for the avoidance of doubt, “Security-Based Compensation Arrangements” shall expressly exclude securities issued pursuant to employment inducements. |
1.2 | Securities Definitions |
1.3 | Headings |
1.4 | Context, Construction |
1.5 | References to this Plan |
1.6 | Canadian Funds |
2.1 | Purpose of the Plan |
2.2 | Administration of the Plan |
2.3 | Delegation to the Committee |
2.4 | Record Keeping |
(a) | the name and address of each Participant in the Plan; |
(b) | the number of Deferred Share Units granted to each Participant under the Plan; and |
(c) | the date and price at which Deferred Share Units were granted. |
3.1 | Establishment of Plan |
3.2 | Grants of DSUs |
3.3 | Redemption |
3.4 | Deferred Share Unit Letter |
3.5 | Dividends |
3.6 | Term of the Plan |
4.1 | Common Shares Subject to the Plan. |
4.2 | Common Shares Available for Future Grants. |
4.3 | Participation Limits. |
(a) | to any one Person in any 12 month period which could, when exercised, result in the issuance of Common Shares exceeding 5% of the issued and outstanding Common Shares of the Corporation, calculated at the DSU Issue Date, unless the Corporation has obtained the requisite Disinterested Shareholder Approval to the grant; |
(b) | to any one Consultant in any 12 month period which could, when exercised, result in the issuance of Common Shares exceeding 2% of the issued and outstanding Common Shares of the Corporation, calculated at the DSU Issue Date; |
(c) | in any 12 month period, to Persons employed or engaged by the Corporation to perform Investor Relations Activities which could, when exercised, result in the issuance of Common Shares exceeding, in aggregate, 2% of the issued and outstanding Common Shares of the Corporation, calculated at the DSU Issue Date; |
(d) | a number of Common Shares issuable to Insiders at any time exceeding 10% of the issued and outstanding Common Shares; |
(e) | to Insiders, within a 12 month period, of a number of Common Shares issued exceeding 10% of the issued shares of the Corporation; |
(f) | a number of Common Shares (i) issuable to all non-executive directors exceeding 1% of the issued and outstanding Common Shares, or (ii) issuable to any one non- executive director within a one-year period exceeding an DSU grant value of $150,000 per such non-executive director, based on a valuation method acceptable to the Board. |
4.4 | Fractional Shares. |
6.1 | Amendments to the Plan |
6.2 | Amendments to the Plan Requiring Shareholder Approval |
(a) | extend the date on which a DSU will be forfeited or terminated in accordance with its terms; |
(b) | increase the maximum number of Common Shares reserved for issuance under the Plan; |
(c) | revise the participation limits set out in Section 4.03; |
(d) | revise Section 6.03 to permit DSUs granted under the Plan to be transferable or assignable other than for estate settlement purposes; |
(e) | any amendment required to be approved by shareholders under applicable law (including without limitation, pursuant to the NEO Company Manual); or |
(f) | revise the amending provisions set forth in Section 6.01 or 0; shall be made without obtaining approval of the shareholders of the Corporation or Disinterested Shareholder Approval, as applicable, in accordance with the requirements of the Exchange. |
6.3 | Non-Assignable |
6.4 | Rights as a Shareholder and Director |
6.5 | No Contract of Employment |
6.6 | Adjustment in Number of Payments Subject to the Plan |
6.7 | No Representation or Warranty |
6.8 | Compliance with Applicable Law |
6.9 | Interpretation |
6.10 | Unfunded Benefit |
7.1 | The number and kind of Common Shares to which a DSU grant pertains shall be adjusted in the event of a reorganization, recapitalization, stock split or redivision, reduction, combination or consolidation, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Corporation, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. Failure of the Board to provide for an adjustment shall be conclusive evidence that the Board has determined that it is equitable to make no adjustment in the circumstances. If an adjustment results in a fractional share, the fraction shall be disregarded. |
7.2 | If at any time the Corporation grants to its shareholders the right to subscribe for and purchase pro rata additional securities of any other corporation or entity, there shall be no adjustments made to the Common Shares or other securities subject to a DSU grant in consequence thereof and the DSU grant shall remain unaffected. |
7.3 | The adjustments provided for in this Article 7 shall be cumulative. |
7.4 | On the happening of each and every of the foregoing events, the applicable provisions of the Plan shall be deemed to be amended accordingly and the Board shall take all necessary action so as to make all necessary adjustments in the number and kind of securities subject to any outstanding DSU grants (and the Plan). |
9.1 | Governing Law |
9.2 | Regulatory and Shareholder Approval |
9.3 | Effective Date of the Plan |
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To: | British Columbia Securities Commission Alberta Securities Commission Ontario Securities Commission Nova Scotia Securities Commission |
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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars)
DeFi Technologies Inc.
NOTICE OF NO AUDITOR REVIEW OF
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.
The Company’s independent auditor has not performed a review of these condensed consolidated interim financial statements in accordance with standards established by the Chartered Professional Accountants of Canada (CPA Canada) for a review of interim financial statements by an entity’s auditor.
DeFi Technologies Inc.
Table of Contents
Condensed consolidated interim statements of financial position | 3 | |
Condensed consolidated interim statements of operations and comprehensive income (loss) | 4 | |
Condensed consolidated interim statements of cash flows | 5 | |
Condensed consolidated interim statements of changes in equity (deficiency) | 6 | |
Notes to the condensed consolidated interim financial statements | 7-30 |
2
DeFi Technologies Inc. |
Condensed Consolidated Interim Statements of Financial Position |
(Expressed in Canadian dollars) |
Note | June 30, | December 31, | |||||||||
2021 | 2020 | ||||||||||
$ | $ | ||||||||||
Assets | |||||||||||
Current | |||||||||||
Cash | 17 | 9,214,585 | 332,075 | ||||||||
Amounts receivable | 4,17 | 412,619 | - | ||||||||
Public investments, at fair value through profit and loss | 3,17 | 19,459,981 | 665,740 | ||||||||
Prepaid expenses and deposits | 5,17 | 1,547,619 | 141,386 | ||||||||
Digital assets, at fair value through profit and loss | 6 | 124,291,358 | 636,600 | ||||||||
Total current assets | 154,926,162 | 1,775,801 | |||||||||
Convertible promissory note | 7 | 123,940 | - | ||||||||
Private investments, at fair value through profit and loss | 3,17 | 10,525,248 | 2,920,243 | ||||||||
Digital assets, at fair value through profit and loss | 6 | 1,280,294 | - | ||||||||
Property plant and equipment | 8 | 23,032 | - | ||||||||
Right of use assets | 9 | 38,240 | - | ||||||||
Intangible assets | 10,11,12 | 56,267,817 | - | ||||||||
Goodwill | 11,12 | 38,588,004 | - | ||||||||
Investment in associate | 10 | - | 2,600,000 | ||||||||
Total assets | 261,772,737 | 7,296,044 | |||||||||
Liabilities and shareholders’ equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable and accrued liabilities | 13,17,19 | 124,714,496 | 992,248 | ||||||||
Total current liabilities | 124,714,496 | 992,248 | |||||||||
Non-current liabilities | |||||||||||
Lease liabilities | 9 | 38,240 | - | ||||||||
Total liabilities | 124,752,736 | 992,248 | |||||||||
Shareholders’ equity | |||||||||||
Common shares | 15(b)(c) | 165,641,062 | 23,357,691 | ||||||||
Preferred shares | 4,321,350 | 4,321,350 | |||||||||
Share-based payments reserves | 16 | 9,091,660 | 1,190,995 | ||||||||
Accumulated other comprehensive (loss) | (130,780 | ) | - | ||||||||
(Deficit) | (41,903,291 | ) | (22,566,240 | ) | |||||||
Total equity | 137,020,001 | 6,303,796 | |||||||||
Total liabilities and equity | 261,772,737 | 7,296,044 | |||||||||
Nature of operations and going concern | 1 | ||||||||||
Commitments and contingencies | 20 | ||||||||||
Subsequent events | 21 |
Approved on behalf of the Directors: | ||
“Tito Gandhi” | “Bernard Wilson” | |
Director | Director |
See accompanying notes to these condensed consolidated interim financial statements
3
DeFi Technologies Inc. |
Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss) Income |
(Expressed in Canadian dollars) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | |||||||||||||||
$ | $ | $ | $ | ||||||||||||||||
Revenues | |||||||||||||||||||
ETP trading | 2,504,214 | - | 2,504,214 | - | |||||||||||||||
Other trading income | 16,572 | - | 16,572 | - | |||||||||||||||
Lending income | 65,956 | - | 65,956 | - | |||||||||||||||
Realized (loss) on digital assets | (3,950,265 | ) | - | (3,950,265 | ) | - | |||||||||||||
Unrealized (loss) on digital assets | (48,119,403 | ) | - | (45,527,366 | ) | - | |||||||||||||
Unrealized gain on ETP holders | 49,823,748 | - | 49,823,748 | - | |||||||||||||||
Realized gain (loss) on investments, net | 10,073 | 4,240 | (1,915,040 | ) | (197,863 | ) | |||||||||||||
Unrealized (loss) gain on investments, net | (2,274,452 | ) | 279,670 | 319,747 | 286,165 | ||||||||||||||
Interest income | 3,130 | - | 3,364 | - | |||||||||||||||
Total revenue | (1,920,427 | ) | 283,910 | 1,340,930 | 88,302 | ||||||||||||||
Expenses | |||||||||||||||||||
Operating, general and administration | 14,19 | 8,474,141 | 74,553 | 12,343,106 | 201,161 | ||||||||||||||
Depreciation - property, plant and equipment | 8 | 1,144 | - | 1,144 | - | ||||||||||||||
Depreciation - right of use assets | 16,089 | - | 16,089 | - | |||||||||||||||
Depreciation - intangibles | 10,11,12 | 993,350 | - | 1,195,183 | - | ||||||||||||||
Finance costs | 464,772 | - | 464,772 | - | |||||||||||||||
Transaction costs | 354,291 | 141 | 361,677 | 1,592 | |||||||||||||||
Foreign exchange (gain) loss | (31,420 | ) | (5,924 | ) | (42,617 | ) | 1,361 | ||||||||||||
Total expenses | 10,272,367 | 68,770 | 14,339,354 | 204,114 | |||||||||||||||
(Loss) income before other items | (12,192,794 | ) | 215,140 | (12,998,424 | ) | (115,812 | ) | ||||||||||||
Other items | |||||||||||||||||||
Excess purchase price over fair value of assets assumed (expensed) | 10 | - | - | (6,044,968 | ) | - | |||||||||||||
Net (loss) income for the period | (12,192,794 | ) | 215,140 | (19,043,392 | ) | (115,812 | ) | ||||||||||||
Other comprehensive loss | |||||||||||||||||||
Foreign currency translation loss | (129,082 | ) | - | (130,780 | ) | - | |||||||||||||
Net (loss) income and comprehensive (loss) income for the period | (12,321,876 | ) | 215,140 | (19,174,172 | ) | (115,812 | ) | ||||||||||||
(Loss) income per share | |||||||||||||||||||
Basic and diluted | (0.06 | ) | 0.01 | (0.11 | ) | (0.00 | ) | ||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||
Basic and diluted | 203,488,168 | 42,612,532 | 178,429,695 | 42,063,082 |
See accompanying notes to these condensed consolidated interim financial statements
4
DeFi Technologies Inc. | |
Condensed Consolidated Interim Statements of Cash Flows | |
(Expressed in Canadian dollars) |
Note | Six months ended June 30, | ||||||||||
2021 | 2020 | ||||||||||
$ | $ | ||||||||||
Cash (used in) provided by operations: | |||||||||||
Net (loss) for the period | (19,043,392 | ) | (115,812 | ) | |||||||
Adjustments to reconcile net (loss) to cash (used in) operating activities: | |||||||||||
Share-based payments | 16 | 8,248,672 | - | ||||||||
Interest income | (3,364 | ) | |||||||||
Interest expense | 464,772 | ||||||||||
Depreciation | 8 | 1,212,416 | - | ||||||||
Realized loss on investments, net | 1,915,040 | 197,863 | |||||||||
Unrealized (gain) on investments, net | (319,747 | ) | (286,165 | ) | |||||||
Realized loss on digital assets, net | 3,950,265 | ||||||||||
Unrealized (gain) on digital assets, net | 45,527,366 | - | |||||||||
ETP trading | (2,504,214 | ) | |||||||||
Unrealized gain on ETP holders | (49,823,748 | ) | |||||||||
Transaction costs | 10 | 6,044,968 | - | ||||||||
Unrealized loss (gain) on foreign exchange | (45,513 | ) | 1,360 | ||||||||
(4,376,479 | ) | (202,754 | ) | ||||||||
Adjustment for: | |||||||||||
Purchase of digital assets | 6 | (190,404,477 | ) | - | |||||||
Disposal of digital assets | 6 | 83,385,099 | - | ||||||||
Purchase of investments | (75,787 | ) | (65,000 | ) | |||||||
Disposal of investments | 1,081,741 | 79,130 | |||||||||
Loan provided | (121,560 | ) | - | ||||||||
Change in prepaid expenses and deposits | (1,132,602 | ) | 5,319 | ||||||||
Change in accounts payable and accrued liabilities | (1,160,812 | ) | (373,901 | ) | |||||||
Net cash (used in) from operating activities | (112,804,877 | ) | (557,206 | ) | |||||||
Investing activities | |||||||||||
Equipment purchased | (13,733 | ) | - | ||||||||
Lease payment | (14,883 | ) | - | ||||||||
Cash received from acquisiton of subsidiary | 12 | 3,859,430 | - | ||||||||
Net cash (used in) investing of activities | 3,830,814 | - | |||||||||
Financing activities | |||||||||||
Proceeds from ETP holders | 200,751,972 | - | |||||||||
Payments to ETP holders | (93,491,529 | ) | - | ||||||||
Proceeds from issuance of shares | 15 | 9,614,450 | 600,000 | ||||||||
Share issuance costs | 15 | (309,902 | ) | (7,388 | ) | ||||||
Proceeds from exercise of warrants | 15,16 | 1,865,961 | - | ||||||||
Proceeds from exercise of options | 15,16 | 128,790 | - | ||||||||
Shares repuchased pursuant to NCIB | (663,090 | ) | - | ||||||||
Net cash provided by financing activities | 117,896,653 | 592,612 | |||||||||
Effect of exchange rate changes on cash | (40,080 | ) | 6 | ||||||||
Change in cash | 8,882,510 | 35,412 | |||||||||
Cash, beginning of period | 332,075 | 4,762 | |||||||||
Cash, end of period | 9,214,585 | 40,174 | |||||||||
Supplemental information: | |||||||||||
Shares issued for DeFi Holdings Inc. | 19,800,000 | - | |||||||||
Shares issued for Valour Structured Products, Inc. | 90,769,946 | - | |||||||||
Shares issued for Hive Blockchain Technologies Ltd | 16,000,000 | - | |||||||||
Shares issued for SDK:meda, LLC | 4,050,000 | - |
See accompanying notes to these condensed consolidated interim financial statements
5
DeFi Technologies Inc.
Condensed Consolidated Intermin Statements of Changes in Equity (Deficiency)
(Expressed in Canadian dollars)
Number of Common | Common | Number of Preferred | Preferred | Share-based payments | Share-based Payments | Accumulated other comprehensive | ||||||||||||||||||||||||||||||||||
Shares | Shares | Shares | Shares | Options | Warrants | Reserve | (loss) | (Deficit) | Total | |||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 103,405,361 | $ | 23,357,691 | 4,500,000 | $ | 4,321,350 | $ | 276,407 | $ | 914,588 | $ | 1,190,995 | $ | - | $ | (22,566,240 | ) | $ | 6,303,796 | |||||||||||||||||||||
Private Placement | 5,000,000 | 10,000,000 | - | - | - | - | - | - | - | 10,000,000 | ||||||||||||||||||||||||||||||
Share issue costs | - | (309,902 | ) | - | - | - | - | - | - | - | (309,902 | ) | ||||||||||||||||||||||||||||
Shares issued for acquisitions | 77,934,316 | 110,569,946 | - | - | - | - | - | - | - | 110,569,946 | ||||||||||||||||||||||||||||||
Shares issued for investments | 13,000,000 | 20,050,000 | - | - | - | - | - | - | - | 20,050,000 | ||||||||||||||||||||||||||||||
NCIB | (458,100 | ) | (362,806 | ) | - | - | - | - | - | - | (300,284 | ) | (663,090 | ) | ||||||||||||||||||||||||||
Warrants exercised | 9,450,228 | 1,865,961 | - | - | - | - | - | - | - | 1,865,961 | ||||||||||||||||||||||||||||||
Value of warrants exercised | - | 259,787 | - | - | - | (259,787 | ) | (259,787 | ) | - | - | - | ||||||||||||||||||||||||||||
Option exercised | 816,400 | 128,790 | - | - | - | - | - | - | - | 128,790 | ||||||||||||||||||||||||||||||
Value of options exercised | - | 81,595 | - | - | (81,595 | ) | - | (81,595 | ) | - | - | - | ||||||||||||||||||||||||||||
Options cancelled | - | - | - | - | (6,625 | ) | - | (6,625 | ) | - | 6,625 | - | ||||||||||||||||||||||||||||
Share-based payments | - | - | - | - | 8,248,672 | - | 8,248,672 | - | - | 8,248,672 | ||||||||||||||||||||||||||||||
Net (loss) and comprehensive (loss) for the period | - | - | - | - | - | - | (130,780 | ) | (19,043,392 | ) | (19,174,172 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2021 | 209,148,205 | $ | 165,641,062 | 4,500,000 | $ | 4,321,350 | 8,436,859 | $ | 654,801 | $ | 9,091,660 | $ | (130,780 | ) | $ | (41,903,291 | ) | $ | 137,020,001 | |||||||||||||||||||||
Balance, December 31, 2019 | 41,513,631 | $ | 18,820,850 | 4,500,000 | $ | 4,321,350 | $ | 198,969 | $ | 160,439 | $ | 359,408 | $ | - | $ | (24,667,173 | ) | $ | (1,165,565 | ) | ||||||||||||||||||||
Private Placement | 20,000,000 | 600,000 | - | - | - | - | - | - | - | 600,000 | ||||||||||||||||||||||||||||||
Warrants issued | - | (109,953 | ) | - | - | - | 109,953 | 109,953 | - | - | - | |||||||||||||||||||||||||||||
Broker warrants issued | - | - | - | - | - | 1,548 | 1,548 | - | - | 1,548 | ||||||||||||||||||||||||||||||
Share and warrant issue costs | - | (7,299 | ) | - | - | - | (1,637 | ) | (1,637 | ) | - | - | (8,936 | ) | ||||||||||||||||||||||||||
Net (loss) and comprehensive (loss) for the period | - | - | - | - | - | - | - | - | (115,812 | ) | (115,812 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2020 | 61,513,631 | $ | 19,303,598 | 4,500,000 | $ | 4,321,350 | $ | 198,969 | $ | 270,303 | $ | 469,272 | $ | - | $ | (24,782,985 | ) | $ | (688,765 | ) |
See accompanying notes to these condensed consolidated interim financial statements
6
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
1. | Nature of operations and going concern |
DeFi Technologies Inc. (the “Company” or “DeFi”), is a publicly listed company incorporated in the Province of British Columbia and continued under the laws of the Province of Ontario. The Company shares trade on the NEO Exchange (“NEO”) under the symbol of “DEFI”. DeFi is a Canadian company that carries on business with the objective of enhancing shareholder value through building and managing assets in the decentralized finance sector. The Company’s head office is located at 198 Davenport Road, Toronto, Ontario, Canada, M5R 1J2.
These condensed consolidated interim financial statements were prepared on a going concern basis of presentation, which contemplates the realization of assets and settlement of liabilities as they become due in the normal course of operations for the next fiscal year. As at June 30, 2021, the Company has working capital of $30,211,666 (December 31, 2020 - $785,553), including cash of $9,214,585 (December 31, 2020 - $332,075) and an accumulated deficit of $41,903,291 (December 31, 2020 - $22,566,240). The Company’s current source of operating cash flow is dependent on the success of its business model and operations and there can be no assurances that sufficient funding, including adequate financing, will be available to cover the general and administrative expenses necessary for the maintenance of a public company. The Company’s status as a going concern is contingent upon raising the necessary funds through the selling of investments and issuance of equity or debt. Management believes its working capital will be sufficient to support activities for the next twelve months and expects to raise additional funds when required and available. There can be no assurance that funds will be available to the Company with acceptable terms or at all. These matters constitute material uncertainties that cast significant doubt about the ability of the Company to continue as a going concern.
Novel Coronavirus (“COVID-19”)
The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
2. | Significant accounting policies |
(a) | Statement of compliance |
These condensed consolidated interim financial statements of the Company were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB) applicable to the preparation of interim financial statements, including IAS 34 – Interim Financial Reporting. These condensed interim financial statements should be read in conjunction with the annual audited financial statements for the years ended December 31, 2020 and 2019, which was prepared in accordance with IFRS as issued by the IASB. These condensed consolidated interim financial statements of the Company were approved for issue by the Board of Directors on August 13, 2021.
7
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(b) | Basis of preparation |
These condensed consolidated interim financial statements were prepared on a going concern basis, under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.
The Company’s condensed consolidated interim financial statements are presented in Canadian dollars. The functional currency for the Company and its subsidiaries Electrum Streaming Inc. and DeFi Capital Inc. (formerly DeFi Holdings Inc.) is the Canadian dollar. The functional currency of DeFi Holdings (Bermuda) Ltd, Valour Inc. (formerly Valour Structured Products, Inc.), Catenafin AG and C de Geer 2 AB is the United States dollar.
Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Gains and losses are included in operations.
Financial statements of subsidiaries for which the functional currency is not the Canadian dollar are translated into Canadian dollars as follows: all asset and liability accounts are translated at the period end exchange rate and all earnings and expense accounts and cash flow statement items are translated at average exchange rates for the period. The resulting translation gains and losses are recorded as exchange differences on translating foreign operations in Accumulated Other Comprehensive Income (“AOCI”).
(c) | Basis of consolidation |
Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect these returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are decondensed consolidated from the date control ceases. The condensed consolidated interim financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.
These condensed consolidated interim financial statements comprise the financial statements of the Company and its wholly owned subsidiary Electrum Streaming Inc., DeFi Capital Inc., DeFi Holdings (Bermuda) Ltd., Valour Inc., Catenafin AG and C de Geer 2 AB. All material intercompany transactions and balances between the Company and its subsidiaries have been eliminated on consolidation. Intercompany balances and any unrealized gains and losses or income and expenses arising from intercompany transactions are eliminated in preparing the condensed consolidated interim financial statements.
(d) | Significant accounting judgements, estimates and assumptions |
The preparation of these condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates. The impacts of such estimates are pervasive throughout the condensed consolidated interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.
Information about critical judgments and estimates in applying accounting policies that have the most significant effect on the amounts recognized in the condensed consolidated interim financial statements are as follows:
8
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(d) | Significant accounting judgments, estimates and assumptions (continued) |
(i) | Accounting for Digital Assets |
The IFRS Interpretations Committee (the “Committee”) published its agenda decision on Holdings of Cryptocurrencies in June 2019. The Committee concluded that IAS 2 – Inventories applies to cryptocurrencies when they are held for sale in the ordinary course of business, otherwise an entity should apply IAS 38 - Intangible Assets to holdings of cryptocurrencies. The Company has assessed that it acts in a capacity as a commodity broker trader as defined in IAS 2 - Inventories, in characterizing certain of its holdings as inventory, or more specifically, digital assets. If assets held by commodity broker-traders are principally acquired for the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin, such assets are accounted for as inventory, and changes in fair value less costs to sell are recognized in profit or loss.
Digital currencies consist of cryptocurrency denominated assets (see Note 6) and are included in current and long-term assets. Digital currencies are carried at their fair value determined by the spot rate less costs to sell. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s earnings and financial position. Fair Value for Bitcoin, Cardano, Ethereum and Polkadot is determined by taking the price at 17:30 CET from Kraken and Coinbase exchanges. Fair value for the other digital assets is determined by taking the last closing price in the range (UTC time) from www.coinmarketcap.com.
(ii) | Fair value of financial derivatives |
Investments in options and warrants which are not traded on a recognized securities exchange do not have a readily available market value. When there are sufficient and reliable observable market inputs, a valuation technique is used; if no such market inputs are available, the warrants and options are valued at intrinsic value. Refer to Notes 3 and 17 for further details.
(iii) | Fair value of investment in securities not quoted in an active market or private company investments |
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. Refer to Notes 3 and 17 for further details.
(iv) | Share-based payments |
The Company uses the Black-Scholes option pricing model to fair value options in order to calculate share-based compensation expense. The Black-Scholes model involves six key inputs to determine the fair value of an option: risk- free interest rate, exercise price, market price of the Company’s shares at date of issue, expected dividend yield, expected life, and expected volatility. Certain of the inputs are estimates which involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control. The Company is also required to estimate the future forfeiture rate of options based on historical information in its calculation of share-based compensation expense.
(v) | Business combination |
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition. In a business combination, all identifiable assets and liabilities acquired are recorded at their fair values. In determining the allocation of the purchase price in a business combination, including any acquisition related contingent consideration, estimates including market based and appraisal values are used. The contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity.
9
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(vi) | Estimated useful lives and impairment considerations |
Amortization of intangible assets is dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.
(vii) | Contingencies (See Note 20 for details) |
(e) | New and future accounting changes |
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for accounting periods beginning on January 1, 2021 or later. Updates that are not applicable or are not consequential to the Company have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the financial statements.
IFRS 10 – Condensed consolidated interim Financial Statements (“IFRS 10”) and IAS 28 – Investments in Associates and Joint Ventures (“IAS 28”) were amended in September 2014 to address a conflict between the requirements of IAS 28 and IFRS 10 and clarify that in a transaction involving an associate or joint venture, the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The effective date of these amendments is yet to be determined; however, early adoption is permitted.
IAS 1 – Presentation of Financial Statements (“IAS 1”) was amended in January 2020 to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023.
IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets (“IAS 37”) was amended. The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes all costs that relate directly to the contract – i.e. a full-cost approach. Such costs include both the incremental costs of the contract (i.e., costs a company would avoid if it did not have the contract) and an allocation of other direct costs incurred on activities required to fulfill the contract – e.g., contract management and supervision, or depreciation of equipment used in fulfilling the contract. The amendments are effective for annual periods beginning on January 1, 2022.
IFRS 3 – Business Combinations (“IFRS 3”) was amended. The amendments introduce new exceptions to the recognition and measurement principles in IFRS 3 to ensure that the update in references to the revised conceptual framework does not change which assets and liabilities qualify for recognition in a business combination. An acquirer should apply the definition of a liability in IAS 37 – rather than the definition in the Conceptual Framework – to determine whether a present obligation exists at the acquisition date as a result of past events. For a levy in the scope of IFRIC 21, the acquirer should apply the criteria in IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. In addition, the amendments clarify that the acquirer should not recognize a contingent asset at the acquisition date. The amendments are effective for annual periods beginning on January 1, 2022.
10
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
3. | Investments, at fair value through profit and loss |
At June 30, 2021, the Company’s investment portfolio consisted of six publicly traded investments and seven private investments for a total estimated fair value of $29,985,229 (December 31, 2020 – three publicly traded investments and three private investments at a total estimated fair value of $3,585,983).
Public Investments
At June 30, 2021, the Company’s six publicly traded investments had a total fair value of $19,459,981.
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV | ||||||||||||
Abaxx Technologies Inc.* | 19,900 common shares | 67,268 | 69,451 | 0.4 | % | ||||||||||||
DeFi Technologies Inc.* | (i) | 4,000,000 common shares | 400,000 | 3,600,000 | 18.5 | % | |||||||||||
Flora Growth Corp.** | (i) | 336,833 common shares | 999,334 | 1,552,992 | 8.0 | % | |||||||||||
Hive Blockchain Technologies Ltd | 4,000,000 common shares | 16,000,000 | 14,160,000 | 72.7 | % | ||||||||||||
Medivolve Inc. | (i) | 55,000 common shares | 6,600 | 3,850 | 0.0 | % | |||||||||||
Silo Wellness Inc. | (i) | 491,250 common shares | 49,125 | 73,688 | 0.4 | % | |||||||||||
Total public investments | $ | 17,522,327 | $ | 19,459,981 | 100.0 | % |
(i) | Investments in related party entities |
* | Held by Valour Inc. |
** | Became publicly traded investment in May 2021 |
At December 31, 2020, the Company’s three publicly traded investments had a total fair value of $665,740.
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV | ||||||||||||
Medivolve Inc.* | (i) | 55,000 common shares | $ | 6,600 | $ | 22,000 | 3.3 | % | |||||||||
Sulliden Mining Capital Inc. | (i,ii) | 9,091,500 common shares | 2,662,252 | 545,490 | 81.9 | % | |||||||||||
Silo Wellness Inc.** | (i) | 982,500 common shares | 49,125 | 98,250 | 14.8 | % | |||||||||||
Total public investments | $ | 2,717,977 | $ | 665,740 | 100.0 | % |
* | formerly QuestCap Inc. |
* | formerly Yukoterre Resources Inc. |
(i) | Investments in related party entities - see Note 19 |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
11
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
3. | Investments, at fair value through profit and loss (continued) |
Private Investments
At June 30, 2021, the Company’s seven private investments had a total fair value of $10,525,248.
Private Issuer | Note | Security description | Cost | Estimated % Fair Value of FV | ||||||||||
3iQ Corp.* | 187,007 common shares | $ | 1,122,042 | $ | 3,740,140 | 35.5 | % | |||||||
Brazil Potash Corp. | (i) | 404,200 common shares | 1,998,668 | 2,003,862 | 19.0 | % | ||||||||
Clover Inc. | Rights to certain equity | 50,076 | 49,576 | 0.5 | % | |||||||||
Luxor Technology Corporation | Rights to certain preferred shares | 203,847 | 619,700 | 5.9 | % | |||||||||
SDK:meta, LLC | 1,000,000 membership units | 4,050,000 | 4,050,000 | 38.5 | % | |||||||||
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 24,788 | 0.2 | % | |||||||||
VolMEX Labs Corporation | Rights to certain preferred shares and warrants | 37,809 | 37,182 | 0.4 | % | |||||||||
Total private investments | $ | 7,488,054 | $ | 10,525,248 | 100.0 | % |
(i) | Investments in related party entities |
* Held by Valour Inc.
At December 31, 2020, the Company’s three private investments had a total fair value of $2,920,243.
Private Issuer | Note | Security description | Cost | Fair Value | % of FV | |||||||||
Brazil Potash Corp. | (i) | 404,200 common shares | $ | 1,998,668 | $ | 1,929,853 | 66.1 | % | ||||||
Flora Growth Corp. | (i) | 1,010,500 common shares | 999,334 | 964,926 | 33.0 | % | ||||||||
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 25,464 | 0.9 | % | |||||||||
Total private investments | $ | 3,023,614 | $ | 2,920,243 | 100.0 | % |
(i) | Investments in related party entities - see Note 19 |
4. | Amounts receivable |
30-Jun-21 | 31-Dec-20 | ||
Share subscription receivable (Note 15) | $ 385,550 | $ - | |
Other receivable | 27,069 | - | |
$ 412,619 | $ - |
5. | Prepaid expenses and deposits |
30-Jun-21 | 31-Dec-20 | |||||||
Prepaid insurance | $ | 6,373 | $ | 13,326 | ||||
Prepaid investment | - | 128,060 | ||||||
Prepaid expenses | 1,541,246 | - | ||||||
$ | 1,547,619 | $ | 141,386 |
12
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
6. | Digital Assets |
As at June 30, 2021, the Company’s digital assets consisted of the below digital currencies, with a fair value of $125,571,652. Digital currencies are recorded at their fair value on the date they are acquired and are revalued to their current market value at each reporting date. Fair value for Bitcoin, Cardano, Ethereum and Polkadot is determined by taking the price at 17:30 CET from Kraken and Coinbase exchanges. Fair value for the other digital assets is determined by taking the fair value is determined by taking last closing price in the range (UTC time) from www.coinmarketcap.com.
The Company’s holdings of digital assets consist of the following:
June 30, 2021 | December 31, 2020 | |||||||||||||||
Quantity | $ | Quantity | $ | |||||||||||||
Binance Coin | 0.3000 | 113 | - | - | ||||||||||||
Bitcoin | 1,524.2158 | 65,145,270 | - | - | ||||||||||||
Cardano | 14,548,134.6031 | 23,620,555 | - | - | ||||||||||||
Ethereum | 11,949.2453 | 31,422,005 | - | - | ||||||||||||
Mobilecoin | 2,854.9570 | 36,340 | - | - | ||||||||||||
Polkadot | 201,960.2757 | 3,804,705 | - | - | ||||||||||||
Uniswap | 6.0000 | 143 | - | - | ||||||||||||
USDC | 261,158 | - | 636,600 | |||||||||||||
USDT | 1,069 | - | - | |||||||||||||
Current | 124,291,358 | $ | 636,600 | |||||||||||||
Blocto | 250,000.0000 | 30,985 | - | - | ||||||||||||
Maps | 285,713.0000 | 186,476 | - | - | ||||||||||||
Oxygen | 400,000.0000 | 728,767 | - | - | ||||||||||||
Saffron.finance | 86.2100 | 37,567 | - | - | ||||||||||||
Sovryn | 13,916.6700 | 296,499 | - | - | ||||||||||||
Long-Term | 1,280,294 | $ | - | |||||||||||||
Total Digital Assets | 125,571,652 | $ | 636,600 |
The continuity of digital assets for the six months ended June 30, 2021:
June 30, 2021 | December 31, 2020 | |||||||
Opening balance | $ | 636,600 | $ | - | ||||
Digital assets acquried | 190,416,447 | 636,600 | ||||||
Digital assets disposed | (83,385,099 | ) | - | |||||
Revaluation adjustment | 17,903,704 | - | ||||||
$ | 125,571,652 | $ | 636,600 |
In the normal course of business, the Company enters into open-ended lending arrangements with certain financial institutions, whereby the Company loans certain digital assets in exchange for interest income. The Company can demand the repayment of the loans and accrued interest at any time. The digital assets on loan are included in digital assets balances above.
As of June 30, 2021, the Company has on loan select cryptocurrencies to borrowers at annual rates ranging from approximately 3.05% to 4.25% and accrue interest on a monthly basis. The digital assets on loan are measured at fair value through profit and loss.
13
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
6. | Digital Assets (continued) |
As of June 30, 2021, digital assets on loan consisted of the following:
Number of coins on loan | Value | |||||||
Digital currencies on loan: | ||||||||
Bitcoin | 450.0000 | $ | 19,233,085 | |||||
Ethereum | 5,001.1958 | 13,151,257 | ||||||
Polkadot | 20,094.2305 | 378,553 | ||||||
25,545.4263 | $ | 32,762,895 |
As of June 30, 2021, the digital assets on loan by significant borrowing counterparty is as follows
Interest rates | Number of coins on loan | Value | ||||||||
Counterparties: | ||||||||||
Counterparty A | 3.05%-4.25% | 3,451.1958 | $ | 27,122,467 | ||||||
Counterparty B | 3.02%-4.25% | 2,000.0000 | 5,259,245 | |||||||
Counterparty C | 20,094.2305 | 378,553 | ||||||||
25,545.4263 | $ | 32,760,265 |
The Company’s digital assets on loan are exposed to credit risk. The Company limits its credit risk by placing its digital assets on loan with high credit quality financial institutions that are believed to have sufficient capital to meet their obligations as they come due and on which the Company has performed internal due diligence procedures. The Company’s due diligence procedures may include, but are not limited to, review of the financial position of the borrower, review of the internal control practices and procedures of the borrower, review of market information, and monitoring the Company’s risk exposure thresholds. As of June 30, 2021, the Company does not expect a material loss on any of its digital assets on loan. While the Company intends to only transact with counterparties that it believes to be creditworthy, there can be no assurance that a counterparty will not default and that the Company will not sustain a material loss on a transaction as a result
7. | Convertible promissory note |
On May 7, 2021, the Company subscribed for a convertible promissory note in Earnity Inc., a Delaware Corporation, for US$100,000 ($121,560). The convertible promissory note has a term of 36 months and earns 5% interest. Earnity Inc. is offering a discount rate upon conversion into a qualified equity financing of 15%. A qualified equity financing triggering conversion of the note is an equity financing with a minimum aggregate sales price of not less than $4,000,000.
As at June 31, 2021, the principal of the convertible promissory note plus accrued interest of US$100,740 ($124,587) remained outstanding.
14
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
8. | Plant, property and equipment |
Costs | IT and Tele- communication | |||
Balance December 31, 2020 | $ | - | ||
Additions | 24,177 | |||
Balance as at June 30, 2021 | $ | 24,177 | ||
Accumulated depreciation: | ||||
Balance December 31, 2020 | $ | - | ||
Changes for the period | 1,145 | |||
Balance as at June 30, 2021 | $ | 1,145 | ||
Net book value as at December 31, 2020 | $ | - | ||
Net book value as at June 30, 2021 | $ | 23,032 |
9. | Leases |
30-Jun-21 | 31-Dec-20 | |||||||
Right of use assets | ||||||||
Property | 38,240 | - | ||||||
Total Right of use assets | 38,240 | - | ||||||
Lease liabilities | ||||||||
Non-Current | 38,240 | - | ||||||
Total Lease liabilities | 38,240 | - |
10. | Acquisition of DeFi Capital Inc. |
On December 10, 2020, the Company acquired 49% of DeFi Capital Inc. (“DeFi Capital”) by issuing a total of 20,000,000 common shares of the Company to the shareholders of in proportion to their pro rata shareholdings of DeFi Capital, in exchange for a 49% interest in DeFi Capital and on January 28, 2021, the Company acquired the remaining 51% of Defi Capital by issuing an additional 20,000,000 common shares of the Company. As a result of the control obtained through the acquisition of 100% of the outstanding shares of DeFi Capital, the asset and liabilities were consolidated into the Company’s financial statements. The assets consisted primarily of intangible assets. The Company paid total consideration of $22,400,000 in consideration of 100% ownership of DeFi Capital.
The acquisition of DeFi Capital is being treated as an asset acquisition for accounting purposes as DeFi Capital does not meet the definition of a business, as defined in IFRS 3, Business Combinations. The assets acquired and liabilities assumed were recorded at their estimated fair market values, which are based on management estimates.
Purchase price consider paid: | ||||
Fair value of shares issued | $ | 22,400,000 | ||
Fair value of assets and liabilities assumed: | ||||
Blockchain Technology | $ | 12,110,000 | ||
Brand Name | 4,252,000 | |||
Accounts payable | (6,968 | ) | ||
Excess purchase price over fair value of assets assumed (expensed) | 6,044,968 | |||
Total net assets aquired | $ | 22,400,000 |
15
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
11. | Acquisition of Valour Inc. |
On February 12, 2021, the Company initially acquired 20% interest in Valour Inc. (“Valour”) by issuing 21,000,000 and on March 31, 2021, the Company acquired the remaining 80% interest in Valour by issuing 36,934,316 common shares of the Company. Valour is a private company incorporated in the Cayman Islands that operates as an issuer of exchange- traded certificates linked to various digital currencies and hedging thereof. As a result of the control obtained through the acquisition of 100% of the outstanding shares of Valour, the assets and liabilities were consolidated into the Company’s financial statements. The assets consisted primarily of cash, amounts receivable, investments, digital assets, prepaid expenses and accrued revenues, property, plant and equipment, right-to-use assets and intangibles (blockchain technology and brand name). The liabilities assumed consisted of accounts payable and accrued liabilities, due to ETP holders and lease liabilities. As consideration of the acquisition, the Company issued a total of 57,934,316 common shares with an estimated fair value of $90,769,946 based on the value of the common shares on the dates the definitive agreements were signed: January 19, 2021 and March 23, 2021.
Purchase price consideration
Consideration for acquisition: | ||||
Fair value of shares issued | $ | 90,769,946 | ||
Accounting estimates of the acquisition with a purchase price of $90,769,946: | ||||
Cash and cash equivalents | 3,859,430 | |||
Amounts receivable | 21,677 | |||
Investments at fair value through profit or loss | 8,897,800 | |||
Digital assets | 67,831,424 | |||
Prepaid expenses and accrued revenues | 403,701 | |||
Property, plant and equipment | 10,443 | |||
Right-of-use assets | 53,899 | |||
Goodwill | 12,896 | |||
Accounts payable and accrued expenses | (1,094,855 | ) | ||
ETP holders payable | (68,848,678 | ) | ||
Lease liabilities | (53,899 | ) | ||
Blockchain Technology | 20,718,000 | |||
Brand Name | 20,383,000 | |||
52,194,838 | ||||
Goodwill | 38,575,108 | |||
Preliminary accounting estimate of net assets acquired | $ | 90,769,946 |
The purchase price allocation for acquisitions reflects various fair value estimates which are subject to change within the measurement period. The primary areas of purchase price allocation that are subject to change relate to the fair values of certain tangible assets, the valuation of intangible assets acquired, and residual goodwill. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
16
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
12. | Intangibles and goodwill |
Intangibles
The components of intangible assets as of June 30, 2021 are as follows:
Blockchain Technology | Brand Name | Total | ||||||||||
Balance, December 31, 2020 | $ | - | $ | - | $ | - | ||||||
Acquisition of DeFi Holdings Inc. | 12,110,000 | 4,252,000 | 16,362,000 | |||||||||
Acquisition of Valour Structured Products, Inc. | 20,718,000 | 20,383,000 | 41,101,000 | |||||||||
Amortization | (1,195,183 | ) | - | (1,195,183 | ) | |||||||
Balance, June 30, 2021 | $ | 31,632,817 | $ | 24,635,000 | $ | 56,267,817 |
For the six months ended June 30, 2021, $1,195,183 of amortization has been recorded by management using an estimated 10 years of useful life for the intangible assets.
On December 10, 2020 and January 28, 2021, the Company acquired all the outstanding shares of DeFi Capital Inc. and on February 12, 2021 and March 31, 2021, the Company acquired all the outstanding shares of Valour Inc. (see Note 10 and 11). The intangible assets acquired consisted of blockchain technology and brand names.
Goodwill
Changes in the carrying value of goodwill were as follows:
Balance, Dececember 31, 2020 | $ | - | ||
Acquisition of Valour Structure Products, Inc. | 38,575,108 | |||
Acquisition of C de Geer 2 AB, Sweden | 12,896 | |||
Balance, June 30, 2021 | $ | 38,588,004 |
13. | Accounts payable and accrued liabilities |
30-Jun-21 | 31-Dec-20 | |||||||
Corporate payables | $ | 1,336,027 | $ | 886,923 | ||||
Related party payable (Note 17) | 65,804 | 105,325 | ||||||
Due to ETP holders | 123,312,665 | - | ||||||
$ | 124,714,496 | $ | 992,248 |
14. | Expense by nature |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2021 | 2020 | |||||||||||||
Management and consulting fees | $ | 1,028,600 | $ | 38,593 | $ | 2,285,317 | $ | 112,463 | ||||||||
Share-based payments | 6,285,741 | - | 8,248,672 | - | ||||||||||||
Travel and promotion | 405,352 | 5,174 | 566,246 | 9,735 | ||||||||||||
Office and rent | 581,398 | 20,289 | 611,213 | 40,630 | ||||||||||||
Accounting and legal | 143,199 | 11,229 | 288,243 | 31,675 | ||||||||||||
Regulatory and transfer agent | 29,851 | (732 | ) | 343,415 | 6,658 | |||||||||||
$ | 8,474,141 | $ | 74,553 | $ | 12,343,106 | $ | 201,161 |
17
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
15. | Share Capital |
a) | As at June 30, 2021, the Company is authorized to issue: |
I. | Unlimited number of common shares with no par value; |
II. | 20,000,000 preferred shares, 9% cumulative dividends, non-voting, non-participating, non-redeemable, non- retractable, and non-convertible by the holder. The preferred shares are redeemable by the Company in certain circumstances. |
b) | Issued and outstanding shares |
Number of Common Shares | Amount | |
Balance, December 31, 2019 | 41,513,693 | $ 18,820,850 |
Private placement financings | 40,000,000 | 2,600,000 |
Warrants issued | - | (777,320) |
Share issuance costs allocated to shares | - | (20,828) |
Broker warrants issued | - | (1,548) |
Acquisition of DeFi Holdings Inc. | 20,000,000 | 2,600,000 |
Warrant exercised | 1,691,668 | 84,583 |
Grant date fair value of warrants exercised | - | 18,994 |
Options exercised | 200,000 | 22,000 |
Grant date fair value of options exercised | - | 10,960 |
Balance, December 31, 2020 | 103,405,361 | 23,357,691 |
Private placement financing | 5,000,000 | 10,000,000 |
Share issuance costs allocated to shares | - | (309,902) |
Acqusition of Defi Holdings (Note 10) | 20,000,000 | 19,800,000 |
Acqusition of Valour (Note 11) | 57,934,316 | 90,769,946 |
Share exchange with Hive Blockchain Technologies Ltd | 10,000,000 | 16,000,000 |
Share exchange with SDK:meta 10% equity acquisition | 3,000,000 | 4,050,000 |
Warrants exercised | 9,450,228 | 1,865,961 |
Grant date fair value on warrants exercised | - | 259,787 |
Options exercised | 816,400 | 128,790 |
Grant date fair value on options exercised | - | 81,595 |
NCIB | (458,100) | (362,806) |
Balance, June 30, 2021 | 209,148,205 | $ 165,641,062 |
On March 9, 2021, the Company closed a non-brokered private placement financing and issued 5,000,000 shares for gross proceeds of $10,000,000 at a price of $2 per common share. The Company paid $309,902 in finders fees and other share issue costs. Of the total subscriptions, proceeds of $386,050 remained outstanding as at June 30, 2021 and was included in amount receivables (Note 4). An officer of the Company subscribed 12,500 shares for $25,000.
Subscriptions for 189,900 Common Shares under the Offering constitute “related party transactions” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions (“MI 61-101”). For these transactions, the Company has relied on the exemption from the formal valuation requirement contained in Section 5.5(a) of MI 61-101 and has relied on the exemption from the minority shareholder requirements contained in Section 5.7(1)(a) of MI 61-101.
18
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
15. | Share Capital (continued) |
c) | Normal Course Issuer Bid (“NCIB”) |
On April 13, 2021, the Company commenced a NCIB to buy back common shares of the Company through the facilities of Neo Exchange Inc. and/or other Canadian alternative trading platforms. Under the terms of the NCIB, the Company may, if considered advisable, purchase its Common Shares in open market transactions through the facilities of the Exchange and/or other Canadian alternative trading platforms not to exceed up to 9.7% of the public float for the Common Shares as of April 9, 2021, or 18,162,177 Common Shares, purchased in aggregate. The price that the Company will pay for the Common Shares shall be the prevailing market price at the time of purchase and all purchased Common Shares will be cancelled by the Company. In accordance with Exchange rules, daily purchases (other than pursuant to a block purchase exception) on the Exchange under the NCIB cannot exceed 25% of the average daily trading volume on the Exchange as measured from November 9, 2020 to April 8, 2021.
During the six months ended June 30, 2021, the Company purchased and cancelled 458,100 shares at an average price of $1.45 per share (2020 - $nil).
Subsequent to June 30, 2021, the Company purchased and cancelled 639,000 shares at an average price of $0.75.
16. | Share-based payments reserves |
Options | Warrants | |||||||||||||||||||||||||||
Number of | Weighted average exercise | Value of | Number of | Weighted average exercise | Value of | |||||||||||||||||||||||
Options | prices | options | warrants | prices | warrants | Total Value | ||||||||||||||||||||||
December 31, 2020 | 5,465,000 | $ | 0.21 | $ | 276,407 | 32,259,485 | $ | 0.19 | $ | 914,588 | $ | 1,190,995 | ||||||||||||||||
Granted and vested | 18,170,000 | 1.53 | 10,284,186 | - | - | - | 10,284,186 | |||||||||||||||||||||
Exercised | (816,400 | ) | 0.16 | (81,595 | ) | (9,450,228 | ) | 0.13 | (259,787 | ) | (341,382 | ) | ||||||||||||||||
Expired / cancelled | (2,156,250 | ) | 1.65 | (2,042,139 | ) | - | - | - | (2,042,139 | ) | ||||||||||||||||||
June 30, 2021 | 20,662,350 | $ | 1.22 | $ | 8,436,859 | 22,809,257 | $ | 0.19 | $ | 654,801 | $ | 9,091,660 |
Stock option plan
The Company has an ownership-based compensation scheme for executives and employees. In accordance with the terms of the plan, as approved by shareholders at a previous annual general meeting, officers, directors and consultants of the Company may be granted options to purchase common shares with the exercise prices determined at the time of grant. The Company has adopted a Floating Stock Option Plan (the “Plan”), whereby the number of common shares reserved for issuance under the Plan is equivalent of up to 10% of the issued and outstanding shares of the Company from time to time.
Each employee share option converts into one common share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.
The Company recorded $8,248,672 (2020 - $nil) of share-based payments during the six months ended June 30, 2021.
19
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
16. | Share-based payments reserves (continued) |
Stock option plan (continued)
The following share-based payment arrangements were in existence at June 30, 2021:
Number outstanding | Number exercisable | Grant date | Expiry date | Exercise price | Fair value at grant date | Grant date share price | Expected volatility | Expected life (yrs) | Expected dividend yield | Risk-free interest rate | ||||||||||||||||||||||||||||
200,000 | 200,000 | 29-Sep-16 | 29-Sep-21 | $ | 0.11 | $ | 10,960 | $ | 0.11 | 59 | % | 5 | 0 | % | 0.57 | % | ||||||||||||||||||||||
428,600 | 428,600 | 18-Dec-17 | 18-Dec-22 | $ | 0.35 | $ | 92,878 | $ | 0.35 | 76 | % | 5 | 0 | % | 1.70 | % | ||||||||||||||||||||||
1,582,500 | 782,500 | 16-Nov-20 | 16-Nov-25 | $ | 0.09 | $ | 126,324 | $ | 0.09 | 139 | % | 5 | 0 | % | 0.46 | % | ||||||||||||||||||||||
750,000 | 750,000 | 18-Nov-20 | 18-Nov-25 | $ | 0.18 | $ | 115,950 | $ | 0.18 | 141 | % | 5 | 0 | % | 0.44 | % | ||||||||||||||||||||||
1,031,250 | 343,750 | 21-Dec-20 | 21-Dec-25 | $ | 0.35 | $ | 410,156 | $ | 0.35 | 145 | % | 5 | 0 | % | 0.44 | % | ||||||||||||||||||||||
500,000 | 500,000 | 19-Jan-21 | 19-Jan-26 | $ | 0.82 | $ | 367,450 | $ | 0.82 | 145 | % | 5 | 0 | % | 0.41 | % | ||||||||||||||||||||||
500,000 | 166,667 | 19-Feb-21 | 19-Feb-26 | $ | 2.90 | $ | 1,308,500 | $ | 2.90 | 148 | % | 5 | 0 | % | 0.64 | % | ||||||||||||||||||||||
500,000 | 125,000 | 24-Feb-21 | 24-Feb-26 | $ | 2.55 | $ | 1,149,500 | $ | 2.55 | 147 | % | 5 | 0 | % | 0.73 | % | ||||||||||||||||||||||
1,000,000 | 250,000 | 22-Mar-21 | 22-Mar-26 | $ | 2.12 | $ | 1,906,500 | $ | 2.12 | 146 | % | 5 | 0 | % | 0.99 | % | ||||||||||||||||||||||
4,070,000 | - | 9-Apr-21 | 9-Apr-26 | $ | 1.78 | $ | 6,506,302 | $ | 1.78 | 145 | % | 5 | 0 | % | 0.95 | % | ||||||||||||||||||||||
6,950,000 | - | 18-May-21 | 18-May-26 | $ | 1.22 | $ | 7,820,140 | $ | 1.25 | 146 | % | 5 | 0 | % | 0.95 | % | ||||||||||||||||||||||
3,150,000 | - | 25-May-21 | 25-May-26 | $ | 1.11 | $ | 3,141,180 | $ | 1.11 | 146 | % | 5 | 0 | % | 0.86 | % | ||||||||||||||||||||||
20,662,350 | 3,546,517 | $ | 22,955,840 |
The weighted average remaining contractual life of the options exercisable at June 30, 2021 was 3.88 years (December 31, 2020 – 4.0 years).
On January 19, 2021, the Company granted 500,000 stock options to a consultant of the Company pursuant to the Company’s stock option plan. The options vest immediately and may be exercised at a price of $0.82 per option for a period of five years from the date of grant. The options have an estimated grant date fair value of $367,450 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 145.1%; risk-free interest rate of 0.41%; and an expected average life of 5 years.
On February 16, 2021, the Company granted a total of 1,000,000 stock options to a consultant of the Company to purchase shares of the company for the price of $2.05 per option for a period of five years from the date of grant. The options shall vest in four equal instalments every three months such that all options shall fully vest on the date that is twelve months from the date of grant. The options have an estimated grant date fair value of $1,844,400 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 146.4%; risk- free interest rate of 0.57%; and an expected average life of 5 years. These options were forfeited and cancelled on May 25, 2021.
On February 19, 2021, the Company granted a total of 500,000 stock options to a consultant of the Company to purchase shares of the company for the price of $2.90 per option for a period of five years from the date of grant. The options shall vest in equal monthly instalments such that all options shall fully vest on the date that is twelve months from the date of grant. The options have an estimated grant date fair value of $1,308,500 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 147.5%; risk-free interest rate of 0.64%; and an expected average life of 5 years.
On February 24, 2021, the Company granted a total of 1,000,000 stock options to certain directors and advisor of the Company to purchase shares of the company for the price of $2.55 per option for a period of five years from the date of grant. The options shall vest in four equal instalments every three months such that all options shall fully vest on the date that is twelve months from the date of grant. The options have an estimated grant date fair value of $2,299,000 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 147.0%; risk-free interest rate of 0.73%; and an expected average life of 5 years. Of the total grant, two directors of the Company were granted a total of 500,000 options. 500,000 of these options were forfeited and cancelled on May 25, 2021.
20
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
16. | Share-based payments reserves (continued) |
Stock Option (continued)
On March 22, 2021, the Company granted a total of 1,000,000 stock options to certain consultants of the Company to purchase commons shares of the Company for the price of $2.12 for a period of five years from the date of grant. The options shall vest in four equal instalments every three months such that all options shall fully vests on the date that is 12 months from the date of grant. These options have an estimated grant date fair value of $1,906,500 using the Black- Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 145.7.%; risk-free interest rate of 0.99%; and an expected average life of 5 years.
On April 9, 2021, the Company granted a total of 4,070,000 stock options to certain director, officers, and consultants of to purchase commons shares of the Company for the price of $1.78 for a period of five years from the date of grant. The options shall vest in four equal instalments every three months such that all options shall fully vests on the date that is 12 months from the date of grant. These options have an estimated grant date fair value of $6,506,302 using the Black- Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 145.2.%; risk-free interest rate of 0.95%; and an expected average life of 5 years. Of the total options, 1,000,000 were granted to directors and officers of the Company.
On May 18, 2021, the Company granted a total of 6,950,000 stock options to certain director, officers, and consultants of the Company pursuant to purchase commons shares of the Company for a price of $1.22 for the period of five years from the date of grant. 5,950,000 of these options shall vest in four equal instalments every three months such that all options shall fully vests on the date that is 12 months from the date of grant and 1,000,000 options shall vest in four equal instalments, with (a) the first instalment vesting on the date that is 12 months from the date of grant, (b) the second instalment vesting on the date that is 16 months from the date of grant, (c) the third instalment vesting on the date that is 20 months from the date of grant and (d) the fourth instalment vesting on the date that is 24 months from the date of grant. These options have an estimated grant date fair value of $7,820,140 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 145.6%; risk-free interest rate of 0.95%; and an expected average life of 5 years. Of the total grant, 2,7000,000 were granted to directors and officers of the Company.
On May 25, 2021, the Company granted a total of 3,150,000 stock options to certain director and consultant of the Company pursuant to purchase commons shares of the Company for the price of $1.11 for a period of five years from the date of grant. 1,500,000 of these options shall vest in four equal instalments every three months such that all options shall fully vests on the date that is 12 months from the date of grant whereas 1,200,000 options shall vest in (a) vest four equal instalments every three months such that all options fully vest by the date that falls 12 months from the date of grant and (b) vest upon the closing price of the common shares of DeFi Technologies Inc., on the NEO Exchange (or similar Canadian stock exchange on which such common shares are listed) being greater than C$4.80 per common share for five consecutive trading days. These options have an estimated grant date fair value of $3,141,180 using the Black- Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 145.5%; risk-free interest rate of 0.86%; and an expected average life of 5 years. Of the total grant, 450,000 were granted to a director of the Company.
Warrants
As at June 30, 2021, the Company had share purchase warrants outstanding as follows:
Number outstanding & exercisable | Grant date | Expiry date | Exercise price | Fair value at grant date | Grant date share price | Expected volatility | Expected life (yrs) | Expected dividend yield | Risk-free interest rate | |||||||||||||||||||||||||||
Warrants | 3,846,153 | 12-Jun-17 | 12-Jun-22 | $ | 0.20 | 161,789 | $ | 0.12 | 79.9 | % | 5 | 0 | % | 1.04 | % | |||||||||||||||||||||
Warrants | 5,930,357 | 26-Jun-20 | 26-Jun-22 | $ | 0.05 | 65,206 | $ | 0.03 | 118.1 | % | 2 | 0 | % | 0.29 | % | |||||||||||||||||||||
Warrants | 13,032,747 | 16-Nov-20 | 16-Nov-22 | $ | 0.25 | 434,881 | $ | 0.09 | 151.0 | % | 2 | 0 | % | 0.27 | % | |||||||||||||||||||||
Warrant issue costs | (7,075 | ) | ||||||||||||||||||||||||||||||||||
22,809,257 | 654,801 |
21
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments |
Financial assets and financial liabilities as at June 30, 2021 are as follows:
Loans, receivables and (other financial liabilities) | Assets /(liabilities) at fair value through profit/(loss) | Total | ||||||||||
June 30, 2021 | ||||||||||||
Cash | $ | 9,214,585 | $ | - | $ | 9,214,585 | ||||||
Amounts receivable | 27,069 | 385,550 | 412,619 | |||||||||
Public investments | - | 19,459,981 | 19,459,981 | |||||||||
Private investments | - | 10,525,248 | 10,525,248 | |||||||||
Convertible promissory note | 123,940 | - | 123,940 | |||||||||
Accounts payable and accrued liabilities | (1,401,831 | ) | (123,312,665 | ) | (124,714,496 | ) |
The Company’s financial instruments are exposed to several risks, including market, liquidity, credit and currency risks. There have been no significant changes in the risks, objectives, policies and procedures from the previous year. A discussion of the Company’s use of financial instruments and their associated risks is provided below:
Credit risk
Credit risk arises from the non-performance by counterparties of contractual financial obligations. The Company’s primary counterparty related to its cash carries an investment grade rating as assessed by external rating agencies. The Company maintains all or substantially all of its cash with a major financial institution domiciled in Canada. Deposits held with this institution may exceed the amount of insurance provided on such deposits.
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 liquidity and operating results may be adversely affected if the Company’s access to the capital markets is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company, or if the value of the Company’s investments declines, resulting in losses upon disposition. In addition, some of the investments the Company holds are lightly traded public corporations or not publicly traded and may not be easily liquidated. The Company generates cash flow from proceeds from the disposition of its investments. There can be no assurances that sufficient funding, including adequate financing, will be available to cover the general and administrative expenses necessary for the maintenance of a public company. All of the Company’s assets, liabilities and obligations are due within one to three years.
The Company manages liquidity risk by maintaining adequate cash balances. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities. As a June 30, 2021, the Company had current assets of $154,926,162 (December 31, 2020 - $1,775,801) to settle current liabilities of $124,714,496 (December 31, 2020 - $992,248).
The following table shows the Company’s source of liquidity by assets as at June 30, 2021.
22
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments (Continued) |
June 30, 2021 | ||||||||||||
Total | Less than 1 year | 1-3 years | ||||||||||
Cash | $ | 9,214,585 | $ | 9,214,585 | $ | - | ||||||
Amounts receivable | 412,619 | 412,619 | - | |||||||||
Convertible promissory note | 123,940 | - | 123,940 | |||||||||
Public investments | 19,459,981 | 19,459,981 | - | |||||||||
Prepaid expenses | 1,547,619 | 1,547,619 | - | |||||||||
Digital assets | 125,571,652 | 124,291,358 | 1,280,294 | |||||||||
Private investments | 10,525,248 | - | 10,525,248 | |||||||||
Total assets - June 30, 2021 | $ | 166,855,644 | $ | 154,926,162 | $ | 11,929,482 |
Market risk
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate because of changes in market prices.
(a) | Price and concentration risk |
The Company is exposed to market risk in trading its investments and unfavourable market conditions could result in dispositions of investments at less than favorable prices. In addition, most of the Company’s investments are in the resource sector. As at June 30, 2021, one investment made up approximately 5.4% (December 31, 2020 – one investment of 26%) of the total assets of the Company.
For the six months ended June 30, 2021, a 10% decrease in the closing price of this concentrated position would result in an estimated increase in net loss of $1.4 million, or $0.01 per share.
For the six months ended June 30, 2021, a 10% decrease (increase) in the closing prices of its portfolio investments would result in an estimated increase (decrease) in net loss of $3.0 million, or $0.02 per share.
For the six months ended June 30, 2021, a 10% decrease (increase) in the closing prices of its digital assets would result in an estimated increase (decrease) in net loss of $12.6 million, or $0.07 per share.
(b) | Interest rate risk |
The Company’s cash is subject to interest rate cash flow risk as it carries variable rates of interest. The Company’s interest rate risk management policy is to purchase highly liquid investments with a term to maturity of one year or less on the date of purchase. Based on cash balances on hand at June 30, 2021, a 1% change in interest rates could result in $92,100 (December 31, 2020 - $3,320) change in net loss.
(c) | Currency risk |
Currency risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. The Company’s operations are exposed to foreign exchange fluctuations, which could have a significant adverse effect on its results of operations from time to time. The Company’s foreign currency risk arises primarily with respect to United States dollar, Euro and British Pound. Fluctuations in the exchange rates between these currencies and the Canadian dollar could have a material effect on the Company’s business, financial condition and results of operations. The Company does not engage in any hedging activity to mitigate this risk. The Company reduces its currency risk by maintaining minimal cash balances held in foreign currency.
23
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments (continued) |
Market risk (continued)
(c) | Currency risk (continued) |
As at June 30, 2021, the Company had the following financial assets and liabilities, (amounts posted in Canadian dollars) denominated in foreign currencies:
June 30, 2021 | |||
United States Dollars | British Pound | European Euro | |
Cash | $ 8,548,076 | $ - | $ - |
Receivables | 23,224 | - | - |
Loan receivable | 123,940 | - | - |
Public investments | 1,552,992 | - | - |
Private investments | 6,785,108 | - | - |
Prepaid investment | 146,875 | - | 1,074,191 |
Digital assets | 124,618,842 | - | - |
Accounts payable and accrued liabilities | (123,792,851) | (75,745) | - |
Net assets (liabilities) | $ 18,006,205 | $ (75,745) | $ 1,074,191 |
A 10% increase (decrease) in the value of the Canadian dollar against all foreign currencies in which the Company held financial instruments as of June 30, 2021 would result in an estimated increase (decrease) of approximately $1,900,500 (December 31, 2020- $(367,200)).
(d) | Digital currencies risk |
Digital asset prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Company is directly related to the current and future market price of digital assets. In addition, the Company may not be able liquidate its inventory of digital assets at its desired price if required. A decline in the market prices for digital assets could negatively impact the Company’s future operations. Digital currencies have a limited history and the fair value historically has been very volatile. Historical performance of digital currencies are not indicative of their future price performance.
For the three months ended June 30, 2021, a 25% decrease in the closing price of the Company’s digital assets would result in an estimated increase in net loss of $31.4 million, or $0.15 per share.
Fair value of financial instruments
The Company has determined the carrying values of its financial instruments as follows:
i. | The carrying values of cash, amounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments. |
ii. | Public and private investments are carried at amounts in accordance with the Company’s accounting policies as set out in Note 2 of the Company’s Consolidated Financial Statements as of December 31, 2020 and 2019. |
iii. | Digital assets are carried at the amount of US dollars they can be converted into. |
The following table illustrates the classification and hierarchy of the Company’s financial instruments, measured at fair value in the statements of financial position as at June 30, 2021.
24
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments (continued) |
Fair value of financial instruments (continued)
Level 1 | Level 2 | Level 3 | ||||||||||||||
Investments, fair value | (Quoted Market price) | (Valuation technique -observable market Inputs) | (Valuation technique - non-observable market inputs) | Total | ||||||||||||
Publicly traded investments | $ | 3,746,989 | $ | 15,712,992 | $ | - | $ | 19,459,981 | ||||||||
Privately traded invesments | - | 10,525,248 | 10,525,248 | |||||||||||||
Digital assets | - | 125,571,652 | - | 125,571,652 | ||||||||||||
June 30, 2021 | $ | 3,746,989 | $ | 141,284,644 | $ | 10,525,248 | $ | 155,556,881 | ||||||||
Publicly traded investments | $ | 567,490 | $ | - | $ | 98,250 | $ | 665,740 | ||||||||
Privately traded invesments | - | - | 2,920,243 | 2,920,243 | ||||||||||||
Digital assets | - | 636,600 | - | 636,600 | ||||||||||||
December 31, 2020 | $ | 567,490 | $ | 636,600 | $ | 3,018,493 | $ | 4,222,583 |
Level 2 Hierarchy
The following table presents the changes in fair value measurements of financial instruments classified as Level 2 during the periods ended June 30, 2020 and December 31, 2020. These financial instruments are measured at fair value utilizing non-observable market inputs. The net realized losses and net unrealized gains are recognized in the statements of loss.
Investments, fair value for the period ended | June 30, 2021 | December 31, 2020 |
Balance, beginning of period | $ 636,600 | $ - |
Purchases | 206,404,477 | 636,600 |
Disposal | (83,385,099) | - |
Transferred from Level 3 | 1,051,233 | - |
Realized and unrealized gain/(loss) net | 16,577,433 | - |
Balance, end of period | $ 141,284,644 | $ 636,600 |
Level 3 Hierarchy
The following table presents the changes in fair value measurements of financial instruments classified as Level 3 during the periods ended June 30, 2021 and December 31, 2020. These financial instruments are measured at fair value utilizing non-observable market inputs. The net realized losses and net unrealized gains are recognized in the statements of loss.
Investments, fair value for the period ended | June 30, 2021 | December 31, 2020 | ||||||
Balance, beginning of period | $ | 3,018,493 | $ | - | ||||
Purchases | 5,463,774 | 3,121,864 | ||||||
Transferred to Level 2 | (1,051,233 | ) | - | |||||
Realized and unrealized gain/(loss) net | 3,094,214 | (103,371 | ) | |||||
Balance, end of period | $ | 10,525,248 | $ | 3,018,493 |
Within Level 3, the Company includes private company investments that are not quoted on an exchange. The key assumptions used in the valuation of these instruments include (but are not limited to) the value at which a recent financing was done by the investee, company-specific information, trends in general market conditions and the share performance of comparable publicly traded companies.
25
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments (continued) |
Fair value of financial instruments (continued) Level 3 Hierarchy (continued)
As valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Given the size of the private investment portfolio, such changes may have a significant impact on the Company’s financial condition or operating results.
The following table presents the fair value, categorized by key valuation techniques and the unobservable inputs used within Level 3 as at June 30, 2021.
Description | Fair vaue | Valuation technique | Significant unobservable input(s) | Range of significant unobservable input(s) | ||||||
3iQ Corp.* | $ | 3,740,140 | Recent financing | Marketability of shares | 0% discount | |||||
Brazil Potash Corp. | 2,003,862 | Recent financing | Marketability of shares | 0% discount | ||||||
Clover Inc. | 49,576 | Recent financing | Marketability of shares | 0% discount | ||||||
Luxor Technology Corporation | 619,700 | Recent financing | Marketability of shares | 0% discount | ||||||
SDK:meta, LLC | 4,050,000 | Transaction price | Marketability of shares | 0% discount | ||||||
Skolem Technologies Ltd. | 24,788 | Recent financing | Marketability of shares | 0% discount | ||||||
VolMEX Labs Corporation | 37,182 | Recent financing | Marketability of shares | 0% discount | ||||||
$ | 10,525,248 |
3iQ Corp. (“3iQ”)
On March 31, 2020, the Company acquired 187,007 common shares of 3iQ as part of the Company’s acquisition of Valour (see Note 3 and 11). As at June 30, 2021, the valuation of 3iQ was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021, a +/- 10% change in the fair value of 3iQ will result in a corresponding +/- $374,014 change in the carrying amount.
Brazil Potash Corp. (“BPC”)
On September 11, 2020, the Company received 404,200 common shares of BPC as consideration of selling the Company’s royalties to an arm’s length party of the Company (see Note 3). As at June 30, 2021, the valuation of BPC was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021., a +/- 10% change in the fair value of BPC will result in a corresponding +/- $200,386 change in the carrying amount.
Clover Inc. (“Clover”)
On April 13, 2021, the Company subscribed US$40,000 ($50,076) to acquire certain rights to certain future equity of Clover (see Note 3). As at June 30, 2021, the valuation of Clover was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021, a +/- 10% change in the fair value of Clove will result in a corresponding +/- $4,958 change in the carrying amount.
Luxor Technology Corporation (“LTC”)
On December 29, 2020, the Company subscribed US$100,000 ($128,060) to acquire certain rights to the preferred shares of LTC. The transaction was closed on February 15, 2021. On May 11, 2021, the Company subscribed additional rights of US$62,500 ($75,787). As at June 30, 2021, the valuation of LTC was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021. a +/- 10% change in the fair value of LTC will result in a corresponding +/- $61,970 change in the carrying amount.
26
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
17. | Financial instruments (continued) |
Fair value of financial instruments (continued)
Level 3 Hierarchy (continued)
SDK:meta, LLC (“SDK”)
On June 3, 2021, the Company entered into a share exchange agreement with SDK exchanging 1,000,000 membership units of SDK with 3,000,000 shares of the Company. As at June 30, 2021, the valuation of SDK was based on the price of the Company’s shares on the closing date of issue of the share exchange agreement. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021, a +/- 10% change in the fair value of SDK will result in a corresponding +/- $405,000 change in the carrying amount.
Skolem Technologies Ltd. (“STL”)
On December 29, 2020, the Company invested US$20,000 ($25,612) to acquire certain rights to the preferred shares of STL. As at June 30, 2021, the valuation of STL was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021. a +/- 10% change in the fair value of STL will result in a corresponding +/- $2,479 change in the carrying amount.
VolMEX Labs Corporation (“VLC”)
On February 23, 2021, the Company invested US$30,000 ($37,809) to acquire certain rights to the preferred shares of VLC. As at June 30, 2021, the valuation of VLC was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at June 30, 2021. As at June 30, 2021. a +/- 10% change in the fair value of VLC will result in a corresponding +/- $3,718 change in the carrying amount.
18. | Capital management |
The Company considers its capital to consist of share capital, share based payments reserves and deficit. The Company’s objectives when managing capital are:
a) | to allow the Company to respond to changes in economic and/or marketplace conditions by maintaining the Company’s ability to purchase new investments; |
b) | to give shareholders sustained growth in value by increasing shareholders’ equity; while |
c) | taking a conservative approach towards financial leverage and management of financial risks. |
The Company’s management reviews its capital structure on an on-going basis and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its underlying investments. The Company’s current capital is composed of its shareholders’ equity and, to-date, has adjusted or maintained its level of capital by:
a) | raising capital through equity financings; and |
b) | realizing proceeds from the disposition of its investments |
The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than the NEO Exchange which requires one of the following to be met: (i) shareholders equity of at least $2.5 million, (ii) net income from continuing operations of at least $375,000, (iii) market value of listed securities of at least $25 million, or (iv) assets and revenues of at least $25 million. There were no changes to the Company’s capital management during the six months ended June 30, 2021.
27
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
19. | Related party disclosures |
a) | The condensed consolidated interim financial statements include the financial statements of the Company and its subsidiaries and its respective ownership listed below: |
Country of incorporation | % equity interest | |
DeFi Capital Inc. | Canada | 100 |
DeFi Holdings (Bermuda) Ltd. | Bermuda | 100 |
Electrum Streaming Inc. | Canada | 100 |
Valour Inc. | Cayman Island | 100 |
Catenafin AG | Switzerland | 100 |
C de Geer AG | Sweden | 100 |
b) | Compensation of key management personnel of the Company: |
The remuneration of directors and other members of key management personnel during the three and six months ended June 30, 2021 and 2020 were as follows:
Three months ended June 30, | Six months ended June 30, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Short-term benefits | $ 119,630 | $ 16,500 | $ 398,785 | $ 33,000 | |||
Shared-based payments | 1,974,032 | - | 2,207,014 | - | |||
$ 2,093,662 | $ 16,500 | $ 2,605,799 | $ 33,000 |
At June 30, 2021, the Company had $30,985 (December 31, 2020 - $2,543) owing to its current key management, and $655,296 (December 31, 2020 - $655,296) owing to its former key management. Such amounts are unsecured, non- interest bearing, with no fixed terms of payment or “due on demand”.
In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non- executive) of the Company. The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.
c) | During the three and six months ended June 30, 2021 and 2020, the Company entered into the following transactions in the ordinary course of business with related parties that are not subsidiaries of the Company. |
Purchases of goods/services Three months ended June 30, | Purchases of goods/services Six months ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
2227929 Ontario Inc. | $ | 30,000 | $ | 30,000 | $ | 60,000 | $ | 60,000 | ||||||||
Forbes & Manhattan Inc. | 30,000 | 30,000 | 60,000 | 60,000 | ||||||||||||
$ | 60,000 | $ | 60,000 | $ | 120,000 | $ | 120,000 |
The Company shares office space with other companies who may have common officers and directors. The costs associated with the use of this space, including the provision of office equipment and supplies, are administered by 2227929 Ontario Inc. to whom the Company pays a fee. As at June 30, 2021, the Company had a payable balance of $nil (December 31, 2020 - $80,183) with 2227929 Ontario Inc. to cover shared expenses. The amounts outstanding are unsecured with no fixed terms of repayment. Fred Leigh, a former director and former officer of the Company, is also a director of 2227929 Ontario Inc.
28
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
19. | Related party disclosures (continued) |
In August 2017, Forbes & Manhattan, Inc. (“Forbes”) became an insider of the Company owning approximately 34.9% (approximately 16.3% at December 31, 2020) outstanding shares of the Company. The Company is also part of the Forbes Group of Companies and continue to receive the benefits of such membership, including access to mining professionals, advice from Stan Bharti, the Executive Chairman of Forbes and strategic advice from the Forbes Board of Advisors. An administration fee of $10,000 per month is charged by Forbes pursuant to a consulting agreement. During the six months ended June 30, 2021, Forbes received $75,000 bonus from the Company. As at June 30, 2021, the Company had a payable balance of $34,819 (December 31, 2020 - $22,600). Such amounts are unsecured, with no fixed terms of repayment. Forbes participated in the Company’s March 2021 private placement financing and subscribed for 189,900 common shares for gross proceeds of $379,800. As at June 30, 2021, Forbes ceased to be an insider of the Company.
Included in accounts payable and accrued liabilities were expenses of GBP 44,228 ($75,745) (December 31, 2020 - $76,872) expenses owed to Vik Pathak, a former director and officer of the Company.
See Notes 15, 16 and 20.
d) | The Company’s directors and officers may have investments in and hold management and/or director and officer positions in some of the investments that the Company holds. The following is a list of total investments and the nature of the relationship of the Company’s directors or officers with the investment as of June 30, 2021 and December 31, 2020. |
Investment | Nature of relationship | Estimated Fair value | % of FV | |||||||
Brazil Potash Corp.* | Director (Stan Bharti), officer (Ryan Ptolemy) and common | $ | 2,003,862 | 55.2 | % | |||||
shareholders | ||||||||||
Flora Growth Corp. | Directors (Stan Bharti, Bernie Wilson), and common shareholders | 1,552,992 | 42.7 | % | ||||||
Medivolve Inc. | Former director (Stan Bharti), director (Daniyal Baizak), and | 3,850 | 0.1 | % | ||||||
common shareholders | ||||||||||
Silo Wellness Inc. | Former Director and Officer (Fred Leigh), Officers | 73,688 | 2.0 | % | ||||||
(Kenny Choi, Ryan Ptolemy) and common shareholders | ||||||||||
Total investment - June 30, 2021 | $ | 3,634,392 | 100.0 | % |
* | Private companies |
Investment | Nature of relationship | Estimated Fair value | % of FV | |||||||
Brazil Potash Corp.* | Director (Stan Bharti), officer (Ryan Ptolemy) and common | $ | 1,929,853 | 54.2 | % | |||||
shareholders | ||||||||||
Flora Growth Corp.* | Directors (Stan Bharti, William Steers), and common shareholders | 964,926 | 27.1 | % | ||||||
Medivolve Inc.** | Former director (Stan Bharti), director (Daniyal Baizak), and | 22,000 | 0.6 | % | ||||||
common shareholders | ||||||||||
Sulliden Mining Capital Inc. | Director (Stan Bharti, William Steers) and officer (Ryan Ptolemy) | 545,490 | 15.3 | % | ||||||
Silo Wellness Inc. | Former Director and Officer (Fred Leigh), Officer | 98,250 | 2.8 | % | ||||||
(Kenny Choi, Ryan Ptolemy) and common shareholders | ||||||||||
Total investment - December 31, 2020 | $ | 3,560,519 | 100.0 | % |
* | Private companies |
** | Formerly QuestCap Inc. |
*** | Formerly Yukoterre Resources Inc. |
The Company has a diversified base of investors. To the Company’s knowledge, no related party holds more than 10% of the Company’s shares on a basic share and partially diluted share basis as of June 30, 2021 (December 31, 2020 – Forbes).
29
DeFi Technologies Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Three and six months ended June 30, 2021 and 2020
(Expressed in Canadian dollars unless otherwise noted)
20. | Commitments and contingencies |
The Company is party to certain management contracts. These contracts require that additional payments of up to approximately $2,409,000 be made upon the occurrence of certain events such as a change of control. As a triggering event has not taken place, the contingent payments have not been reflected in these condensed consolidated interim financial statements. Minimum commitments remaining under these contracts were approximately $701,000, all due within one year.
The Company is, from time to time, involved in various claims and legal proceedings. The Company cannot reasonably predict the likelihood or outcome of these activities. The Company does not believe that adverse decisions in any ending or threatened proceedings related to any matter, or any amount which may be required to be paid by reasons thereof, will have a material effect on the financial condition or future results of operations.
A former officer of the Company has initiated a legal action seeking approximately $450,000 for fees owed plus interest. The Company intends to defend the matter and is currently reviewing its options with regards to this action. The full amount of the claim has been included in accounts payable and accrued liabilities on the statement of financial position.
21. | Subsequent events |
Subsequent to June 30, 2021, 1,028,260 shares were issued from warrants exercised for gross proceeds of $166,798.
See Note 15(c).
![](https://capedge.com/proxy/40FR12B/0001594062-21-000130/image00060.jpg)
MANAGEMENT’S DISCUSSION AND ANALYSIS |
Three and six months ended June 30, 2021 |
◾ | On January 21, 2021, the Company’s common shares started trading on the NEO Exchange. The Company began to trade under the symbol DEFI upon listing on NEO Exchange. In conjunction with this uplisting, the Company arranged for the delisting of the Company from the TSX Venture Exchange effective the close of trading on January 20, 2021. |
◾ | On February 3, 2021, the Company announced that Thibaut Ceyrolle, EMEA (Europe, Middle East and Asia) founder and vice-president of Snowflake Inc., joined the board of advisors of Company. Mr. Ceyrolle has a wealth of experience in growing and scaling software and cloud industries companies for more than 20 years. |
◾ | On February 16, 2021, the Company appointed Wouter Witvoet as Chief Executive Officer of the Company. Mr. Witvoet previously was founder and CEO at Secfi Inc., the first platform offering financing secured by private company stock. |
◾ | On February 18, 2021, the Company appointed Teeka Tiwari as executive chairman of advisory board of the Company. Mr. Tiwari, as an investment analyst, is credited as being one of the first experts to explore cryptocurrencies. |
◾ | On February 26, 2021, the Company changes its name to DeFi Technologies Inc. |
◾ | On March 3, 2021, the Company has appointed Anthony Pompliano as an adviser to the Company. Mr. Pompliano manages an investment portfolio valued at approximately $500 million. He is the managing partner at Pomp Investments and previously co-founded asset management firm Morgan Creek Digital. Mr. Pompliano hosts the popular Pomp Podcast and writes a daily letter to more than 135,000 investors about bitcoin and digital assets. |
◾ | On March 9, 2021, the Company closed a non-brokered private placement financing of an aggregate of five million common shares of the Company at a price of $2 per common share for gross proceeds of $10 million. |
◾ | On March 12, 2021, the Company launched a new security product, DeFi Governance. DeFi Governance seeks to work with decentralized networks, running nodes to provide governance to networks and validate transactions globally. DeFi Technologies' initial partnership with Shyft Network contributors will be for Defi Technologies to openly implement node servers for its KYC decentralized network with the intention of becoming one of the initial globally distributed set of governance parties. The Shyft Network is building the first of its kind identity layer for decentralized finance so that participants and transacting institutions can provide additional transparency by identifying both sides of a transaction instantaneously and securely. In connection with running one of the consensus nodes, Defi Technologies can receive rewards from securing transactions on the Shyft Network as well as for providing governance services such as voting on code changes and other upgrades to the globally decentralized network. |
◾ | On April 1, 2021, the Company acquired the remaining interest of Valour Structured Products, Inc and owns 100% of Valour. |
◾ | On April 7, 2021, the Company wholly owned subsidiary, Valour Structured Products, has launched Ethereum Zero, an exchange-traded product that comes with zero management fees. The Company believes Bitcoin Zero and ETH Zero will give every investor the ability to access both the bitcoin and ethereum markets. |
◾ | On April 21, 2021, the Company completed a share exchange transaction with Hive Blockchain Technologies Ltd. Pursuant to the transaction, DeFi Technologies issued 10 million common shares of Defi Technologies to Hive in exchange for four million common shares of Hive. In addition to the transaction, Hive and Defi Technologies created a partnership surrounding the decentralized finance (Defi) ecosystem with specific applications around Ethereum and miner extractable value (MEV). The new partnership, which follows three months of discussions, will enable Hive with a strategic stake in Defi Technologies and a broader partnership surrounding the Defi ecosystem with a specific focus on the Ethereum-based MEV space and developments surrounding it. |
◾ | On April 22, 2021, the Company completed its implementation of the Shyft network node and has become one of the main validators of the Shyft network. By becoming a validator on the network, the Company joined the Shyft Federation. |
◾ | On May 14,2021, the Company added Krisztian Toth to the board of directors and Russell Starr to the management team as head of capital markets. Mr. Toth is an experienced mergers and acquisitions lawyer and partner at the law firm of Fasken Martineau DuMoulin LLP, which is a leading international business law and litigation firm. Mr. Toth is also a director of a number of public companies, including Voyager Digital, a publicly listed crypto-asset broker that provides retail and institutional investors with a turnkey solution to trade crypto assets. Mr. Starr is an established chief executive officer, entrepreneur and financier with deep capital markets and industry expertise. A trusted leader and adviser focused on forging meaningful, high-stakes, high-return business development connections. |
◾ | On May 18, 2021, Valour Structured Products Inc., a subsidiary of Defi Technologies Inc., launched its Cardano exchange-traded product on the Nordic Growth Market (“NGM”) stock exchange. |
◾ | On June 1, 2021, Valour Structured Products Inc., a subsidiary of Defi Technologies Inc., launched its Polkadot ETP on the NGM stock exchange. The Valour Polkadot ETP enables investors to gain exposure to DOT, the native token of the Polkadot protocol, simply and securely, through their bank or broker. |
◾ | On June 14, 2021, the Company completed the acquisition of a 10-per-cent equity interest in SDK:meta, LLC, a privately held web3 blockchain technology company driving mass adoption of user-centric platforms and mobile consumption of decentralized finance and related offerings. |
◾ | On June 16, 2021, the Company’s wholly owned subsidiary, Valour Structured Products, has signed a letter of intent with Arcane Crypto's wholly owned subsidiary, Arcane Assets AS, with the intention to explore the issuance and listing of an exchange-traded product (“ETP”) based on Arcane's cryptocurrency fund. The ETP would be the first to have a cryptocurrency fund as an underlying asset and the market provides exciting expansion possibilities for both the Arcane fund and Valour. Valour and Arcane Assets are working on a definitive partnership agreement and a plan for issuance and expect these to be completed later this year. |
◾ | On July 20, 2021, the Company appointed Russell Starr as executive chairman of the Company. |
June 30, 2021 | December 31, 2020 | |||
Quantity | $ | Quantity | $ | |
Binance Coin | 0.3000 | 113 | - | - |
Bitcoin | 1,524.2158 | 65,145,270 | - | - |
Cardano | 14,548,134.6031 | 23,620,555 | - | - |
Ethereum | 11,949.2453 | 31,422,005 | - | - |
Mobilecoin | 2,854.9570 | 36,340 | - | - |
Polkadot | 201,960.2757 | 3,804,705 | - | - |
Uniswap | 6.0000 | 143 | - | - |
USDC | 261,158 | - | 636,600 | |
USDT | 1,069 | - | - | |
Current | | 124,291,358 | $636,600 | |
Blocto | 250,000.0000 | 30,985 | - | - |
Maps | 285,713.0000 | 186,476 | - | - |
Oxygen | 400,000.0000 | 728,767 | - | - |
Saffron.finance | 86.2100 | 37,567 | - | - |
Sovryn | 13,916.6700 | 296,499 | - | - |
Long-Term | 1,280,294 | $- | ||
Total Digital Assets | 125,571,652 | $636,600 |
June 30, 2021 | December 31, 2020 | ||
Opening balance | $ 636,600 | ||
Digital assets acquried | 190,416,447 | $636,600 | |
Digital assets disposed | (83,385,099) | - | |
Revaluation adjustment | 17,903,704 | - | |
$ 125,571,652 | $636,600 |
Number of coins on loan | Value | |
Digital currencies on loan: Bitcoin | 450.0000 | $ 19,233,085 |
Ethereum | 5,001.1958 | 13,151,257 |
Polkadot | 20,094.2305 | 378,553 |
25,545.4263 | $ 32,762,895 |
Interest rates | Number of coins on loan | Value $ | |
Counterparties: Counterparty A | 3.05%-4.25% | 3,451.1958 | 27,122,467 |
Counterparty B | 3.02%-4.25% | 2,000.0000 | 5,259,245 |
Counterparty C | 20,094.2305 | 378,553 | |
25,545.4263 | $ 32,760,265 |
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV | ||||||||||||
Abaxx Technologies Inc.* | 19,900 common shares | 67,268 | 69,451 | 0.4 | % | ||||||||||||
DeFi Technologies Inc.* | (i) | 4,000,000 common shares | 400,000 | 3,600,000 | 18.5 | % | |||||||||||
Flora Growth Corp.** | (i) | 336,833 common shares | 999,334 | 1,552,992 | 8.0 | % | |||||||||||
Hive Blockchain Technologies Ltd | 4,000,000 common shares | 16,000,000 | 14,160,000 | 72.7 | % | ||||||||||||
Medivolve Inc. | (i) | 55,000 common shares | 6,600 | 3,850 | 0.0 | % | |||||||||||
Silo Wellness Inc. | (i) | 491,250 common shares | 49,125 | 73,688 | 0.4 | % | |||||||||||
Total public investments | $ | 17,522,327 | $ | 19,459,981 | 100.0 | % |
(i) | Investments in related party entities |
* | Held by Valour Inc. |
** | Became publicly traded investment in May 2021 |
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV | ||||||||||||
Medivolve Inc.* | (i) | 55,000 common shares | $ | 6,600 | $ | 22,000 | 3.3 | % | |||||||||
Sulliden Mining Capital Inc. | (i,ii) | 9,091,500 common shares | 2,662,252 | 545,490 | 81.9 | % | |||||||||||
Silo Wellness Inc.** | (i) | 982,500 common shares | 49,125 | 98,250 | 14.8 | % | |||||||||||
Total public investments | $ | 2,717,977 | $ | 665,740 | 100.0 | % |
* | formerly QuestCap Inc. |
* | formerly Yukoterre Resources Inc. |
(i) | Investments in related party entities |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
Private Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV |
3iQ Corp.* | 187,007 common shares | $ 1,122,042 | $ 3,740,140 | 35.5% | |
Brazil Potash Corp. | (i) | 404,200 common shares | 1,998,668 | 2,003,862 | 19.0% |
Clover Inc. | Rights to certain equity | 50,076 | 49,576 | 0.5% | |
Luxor Technology Corporation | Rights to certain preferred shares | 203,847 | 619,700 | 5.9% | |
SDK:meta, LLC | 1,000,000 membership units | 4,050,000 | 4,050,000 | 38.5% | |
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 24,788 | 0.2% | |
VolMEX Labs Corporation | Rights to certain preferred shares and warrants | 37,809 | 37,182 | 0.4% | |
Total private investments | $ 7,488,054 | $ 10,525,248 | 100.0% |
Private Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV |
Brazil Potash Corp. | (i) | 404,200 common shares | $ 1,998,668 | $1,929,853 | 66.1% |
Flora Growth Corp. | (i) | 1,010,500 common shares | 999,334 | 964,926 | 33.0% |
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 25,464 | 0.9% | |
Total private investments | $ 3,023,614 | $2,920,243 | 100.0% |
Purchase price consider paid: | |
Fair value of shares issued | $ 22,400,000 |
Fair value of assets and liabilities assumed: Blockchain Technology | $ 12,110,000 |
Brand Name | 4,252,000 |
Accounts payable | (6,968) |
Excess purchase price over fair value of assets assumed (expensed) | 6,044,968 |
Total net assets aquired | $ 22,400,000 |
Consideration for acquisition: | ||||
Fair value of shares issued | $ | 90,769,946 | ||
Accounting estimates of the acquisition with a purchase price of $90,769,946: | ||||
Cash and cash equivalents | 3,859,430 | |||
Amounts receivable | 21,677 | |||
Investments at fair value through profit or loss | 8,897,800 | |||
Digital assets | 67,831,424 | |||
Prepaid expenses and accrued revenues | 403,701 | |||
Property, plant and equipment | 10,443 | |||
Right-of-use assets | 53,899 | |||
Goodwill | 12,896 | |||
Accounts payable and accrued expenses | (1,094,855 | ) | ||
ETP holders payable | (68,848,678 | ) | ||
Lease liabilities | (53,899 | ) | ||
Blockchain Technology | 20,718,000 | |||
Brand Name | 20,383,000 | |||
52,194,838 | ||||
Goodwill | 38,575,108 | |||
Preliminary accounting estimate of net assets acquired | $ | 90,769,946 |
Three months ended June 30, | Six months ended June 30, | |||
2021 | 2020 | 2021 | 2020 | |
Revenues ETP trading | 2,504,214 | - | 2,504,214 | - |
Other trading income | 16,572 | - | 16,572 | - |
Lending income | 65,956 | - | 65,956 | - |
Realized (loss) on digital assets | (3,950,265) | - | (3,950,265) | - |
Unrealized (loss) on digital assets | (48,119,403) | - | (45,527,366) | - |
Unrealized gain on ETP | 49,823,748 | - | 49,823,748 | - |
Realized gain (loss) on investments, net | 10,073 | 4,240 | (1,915,040) | (197,863) |
Unrealized (loss) gain on investments, net | (2,274,452) | 279,670 | 319,747 | 286,165 |
Interest income | 3,130 | - | 3,364 | - |
Total revenues | (1,920,427) | 283,910 | 1,340,930 | 88,302 |
Expenses | ||||
Management and consulting fees | 1,028,600 | 38,593 | 2,285,317 | 112,463 |
Share based payments | 6,285,741 | - | 8,248,672 | - |
Travel and promotion | 405,352 | 5,174 | 566,246 | 9,735 |
Office and rent | 581,398 | 20,289 | 611,213 | 40,630 |
Accounting and legal | 143,199 | 11,229 | 288,243 | 31,675 |
Regulatory and transfer agent | 29,851 | (732) | 343,415 | 6,658 |
Depreciation - property, plant and equipment | 1,144 | - | 1,144 | - |
Depreciation - right of use assets | 16,089 | - | 16,089 | - |
Depreciation - intangibles | 993,350 | - | 1,195,183 | - |
Finance costs | 464,772 | - | 464,772 | - |
Transaction costs | 354,291 | 141 | 361,677 | 1,592 |
Foreign exchange gain (loss) | (31,420) | (5,924) | (42,617) | 1,361 |
Total expenses | 10,272,367 | 68,770 | 14,339,354 | 204,114 |
Loss before other items | (12,192,794) | 215,140 | (12,998,424) | (115,812) |
Excess purchase price over fair value of assets assumed (expensed) | - | - | (6,044,968) | - |
Net (loss) income for the period | $(12,192,794) | $215,140 | $ (19,043,392) | $(115,812) |
Other comprehensive loss | ||||
Foreign currency translation loss | (129,082) | - | (130,780) | - |
Net (loss) income and comprehensive (loss) income for the period | (12,321,876) | 215,140 | (19,174,172) | (115,812) |
June 30, 2021 | |||
United States Dollars | British Pound | European Euro | |
Cash | $ 8,548,076 | $ - | $ - |
Receivables | 23,224 | - | - |
Loan receivable | 123,940 | - | - |
Public investments | 1,552,992 | - | - |
Private investments | 6,785,108 | - | - |
Prepaid investment | 146,875 | - | 1,074,191 |
Digital assets | 124,618,842 | - | - |
Accounts payable and accrued liabilities | (123,792,851) | (75,745) | - |
Net assets (liabilities) | $ 18,006,205 | $ (75,745) | $ 1,074,191 |
a) | to allow the Company to respond to changes in economic and/or marketplace conditions by maintaining the Company’s ability to purchase new investments; |
b) | to give shareholders sustained growth in value by increasing shareholders’ equity; while |
c) | taking a conservative approach towards financial leverage and management of financial risks. |
a) | raising capital through equity financings; and |
b) | realizing proceeds from the disposition of its investments |
30-Jun | 31-Mar | 31-Dec | 30-Sep | 30-Jun | 31-Mar | 31-Dec | 30-Sep | |
2021 | 2021 | 2020 | 2020 | 2020 | 2020 | 2019 | 2019 | |
Revenue | ($1,920,427) | $3,261,357 | ($216,972) | $3,079,896 | $283,910 | ($195,608) | ($190,735) | $107,411 |
Net (loss) income and comprehensive (loss) income | ($12,321,876) | ($6,852,296) | ($770,324) | $2,959,668 | $215,140 | ($330,952) | ($269,147) | ($92,534) |
(Loss) income per Share - basic | ($0.06) | ($0.04) | ($0.01) | $0.05 | $0.01 | ($0.01) | ($0.01) | ($0.00) |
(Loss) income per Share - diluted | ($0.06) | ($0.04) | ($0.01) | $0.05 | $0.01 | ($0.01) | ($0.01) | ($0.00) |
Total Assets | $261,772,737 | $194,017,574 | $7,296,044 | $3,785,693 | $740,725 | $432,597 | $636,459 | $898,625 |
Total Long Term Liabilities | $38,240 | $Nil | $Nil | $Nil | $Nil | $Nil | $Nil | $Nil |
31-Dec-20 | 31-Dec-19 | 31-Dec-18 | |
(a) Net Sales | - | - | - |
(b) Net Income (Loss) and Comprehensive Income (Loss) | |||
(i) Total income (loss) | $2,073,533 | ($1,507,338) | ($9,794,067) |
(ii) Income (loss) per share – basic | $0.04 | ($0.04) | ($0.24) |
(iii) Income (loss) per share – diluted | $0.04 | ($0.04) | ($0.24) |
(c) Total Assets | $7,296,044 | $636,459 | $1,946,695 |
(d) Total Liabilities | $992,248 | $1,802,024 | $1,604,922 |
Investment | Nature of relationship | Estimated Fair value | % of FV |
Brazil Potash Corp.* | Director (Stan Bharti), officer (Ryan Ptolemy) and common | $ 2,003,862 | 55.2% |
shareholders | |||
Flora Growth Corp. | Directors (Stan Bharti, Bernie Wilson), and common shareholders | 1,552,992 | 42.7% |
Medivolve Inc. | Former director (Stan Bharti), director (Daniyal Baizak), and | 3,850 | 0.1% |
common shareholders | |||
Silo Wellness Inc. | Former Director and Officer (Fred Leigh), Officers | 73,688 | 2.0% |
(Kenny Choi, Ryan Ptolemy) and common shareholders | |||
Total investment - June 30, 2021 | $ 3,634,392 | 100.0% |
* | Private companies |
Investment | Nature of relationship | Estimated Fair value | % of FV | |||||||
Brazil Potash Corp.* | Director (Stan Bharti), officer (Ryan Ptolemy) and common | $ | 1,929,853 | 54.2 | % | |||||
shareholders | ||||||||||
Flora Growth Corp.* | Directors (Stan Bharti, William Steers), and common shareholders | 964,926 | 27.1 | % | ||||||
Medivolve Inc.** | Former director (Stan Bharti), director (Daniyal Baizak), and | 22,000 | 0.6 | % | ||||||
common shareholders | ||||||||||
Sulliden Mining Capital Inc. | Director (Stan Bharti, William Steers) and officer (Ryan Ptolemy) | 545,490 | 15.3 | % | ||||||
Silo Wellness Inc. | Former Director and Officer (Fred Leigh), Officer | 98,250 | 2.8 | % | ||||||
(Kenny Choi, Ryan Ptolemy) and common shareholders | ||||||||||
Total investment - December 31, 2020 | $ | 3,560,519 | 100.0 | % |
* | Private companies |
** | Formerly QuestCap Inc. |
*** | Formerly Yukoterre Resources Inc. |
• | The Company incurred $60,000 (2020 - $60,000) of expenses for its proportionate share of shared office costs with other corporations that may have common directors and officers. The costs associated with this space are administered by 2227929 Ontario Inc. As at June 30, 2021, the Company had a payable balance of $nil (December 31, 2020 - $$80,183) with 2227929 Ontario Inc. to cover shared expenses. Such amounts are unsecured, non-interest bearing, with no fixed terms of payment and due on demand. Fred Leigh, a former officer and former director of the Company, is also a director of 2227929 Ontario Inc. |
• | The Company incurred $60,000 (2020 - $60,000) for administration costs with Forbes & Manhattan, Inc. (“Forbes”). In August 2017, Forbes became an insider of the Company owning approximately 34.9%, at the time, (approximately 16.3% at December 31, 2020) outstanding shares of the Company through an acquisition of Quebec Gold royalty interests. The Company is also part of the Forbes Group of Companies and continue to receive the benefits of such membership, including access to mining professionals, advice from Stan Bharti, the Executive Chairman of Forbes and strategic advice from the Forbes Board of Advisors. An administration fee of $10,000 per month is charged by Forbes pursuant to a consulting agreement. During the six months ended June 30, 2021, Forbes received $75,000 bonus. As at June 30, 2021, the Company had a payable balance of $34,819 (December 31, 2020 - $22,600) with Forbes. Such amounts are unsecured, non-interest bearing, with no fixed terms of payment and due on demand. Forbes participated in the Company’s January 2021 private placement financing and subscribed an aggregate 189,900 shares for gross proceeds of $379,800. As at June 30, 2021, Forbes ceased to be an insider of the Company. |
• | Included in accounts payable and accrued liabilities were expenses of GBP 44,228 ($75,745) (December 31, 2020 - $76,872 expenses owed to Vik Pathak, a former director and officer of DeFi. |
• | In connection with the March 2021 private placement financing, an inside of the Company also subscribed 189,900 shares. A director and officer also subscribed 12,500 shares for gross proceeds of $25,000. |
• | In connection with the February 24, 2021 stock option grant, 500,000 options were granted to directors of the Company. |
• | In connection with the April 9, 2021 stock option grant, 1,000,000 options were granted to directors and officers of the Company. |
• | In connection with the May 18, 2021 stock option grant, 2,700,000 options were granted to directors and officers of the Company. |
• | In connection with the May 25, 2021 stock option grant, 450,000 options were granted to a director of the Company. |
i. | The carrying values of cash, amounts receivable, accounts payable and accrual liabilities approximate their fair values due to the short-term nature of these instruments. |
ii. | Public and private investments are carried at amounts in accordance with the Company’s accounting policies as set out in Note 2 of the Company’s audited consolidated financial statements for the years ended December 31, 2020 and 2019. |
iii. | Digital assets are carried at the amount of US dollars they can be converted into. |
Level 1 | Level 2 | Level 3 | ||||||||||||||
Investments, fair value | (Quoted Market price) | (Valuation technique -observable market Inputs) | (Valuation technique - non-observable market inputs) | Total | ||||||||||||
Publicly traded investments | $ | 3,746,989 | $ | 15,712,992 | $ | - | $ | 19,459,981 | ||||||||
Privately traded invesments | - | 10,525,248 | 10,525,248 | |||||||||||||
Digital assets | - | 125,571,652 | - | 125,571,652 | ||||||||||||
June 30, 2021 | $ | 3,746,989 | $ | 141,284,644 | $ | 10,525,248 | $ | 155,556,881 | ||||||||
Publicly traded investments | $ | 567,490 | $ | - | $ | 98,250 | $ | 665,740 | ||||||||
Privately traded invesments | - | - | 2,920,243 | 2,920,243 | ||||||||||||
Digital assets | - | 636,600 | - | 636,600 | ||||||||||||
December 31, 2020 | $ | 567,490 | $ | 636,600 | $ | 3,018,493 | $ | 4,222,583 |
![](https://capedge.com/proxy/40FR12B/0001594062-21-000130/image00062.jpg)
Investments, fair value for the period ended | June 30, 2021 | December 31, 2020 |
Balance, beginning of period | $ 636,600 | $ - |
Purchases | 206,404,477 | 636,600 |
Disposal | (83,385,099) | - |
Transferred from Level 3 | 1,051,233 | - |
Realized and unrealized gain/(loss) net | 16,577,433 | - |
Balance, end of period | $ 141,284,644 | $ 636,600 |
Level 3 Hierarchy
The following table presents the changes in fair value measurements of financial instruments classified as Level 3 during the periods ended June 30, 2021 and December 31, 2020. These financial instruments are measured at fair value utilizing non-observable market inputs. The net realized losses and net unrealized gains are recognized in the statements of loss.
Investments, fair value for the period ended | June 30, 2021 | December 31, 2020 | ||||||
Balance, beginning of period | $ | 3,018,493 | $ | - | ||||
Purchases | 5,463,774 | 3,121,864 | ||||||
Transferred to Level 2 | (1,051,233 | ) | - | |||||
Realized and unrealized gain/(loss) net | 3,094,214 | (103,371 | ) | |||||
Balance, end of period | $ | 10,525,248 | $ | 3,018,493 |
Within Level 3, the Company includes private company investments that are not quoted on an exchange. The key assumptions used in the valuation of these instruments include (but are not limited to) the value at which a recent financing was done by the investee, company-specific information, trends in general market conditions and the share performance of comparable publicly traded companies.
As valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Given the size of the private investment portfolio, such changes may have a significant impact on the Company’s financial condition or operating results.
The following table presents the fair value, categorized by key valuation techniques and the unobservable inputs used within Level 3 as at June 30, 2021.
Description | Fair vaue | Valuation technique | Significant unobservable input(s) | Range of significant unobservable input(s) | ||||||
3iQ Corp.* | $ | 3,740,140 | Recent financing | Marketability of shares | 0% discount | |||||
Brazil Potash Corp. | 2,003,862 | Recent financing | Marketability of shares | 0% discount | ||||||
Clover Inc. | 49,576 | Recent financing | Marketability of shares | 0% discount | ||||||
Luxor Technology Corporation | 619,700 | Recent financing | Marketability of shares | 0% discount | ||||||
SDK:meta, LLC | 4,050,000 | Transaction price | Marketability of shares | 0% discount | ||||||
Skolem Technologies Ltd. | 24,788 | Recent financing | Marketability of shares | 0% discount | ||||||
VolMEX Labs Corporation | 37,182 | Recent financing | Marketability of shares | 0% discount | ||||||
$ | 10,525,248 |
Stock Options:
• | continued worldwide growth in the adoption and use of cryptocurrencies; |
• | governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar cryptocurrency systems; |
• | changes in consumer demographics and public tastes and preferences; |
• | the maintenance and development of the open-source software protocol of the network; |
• | the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; |
• | general economic conditions and the regulatory environment relating to digital assets; and |
• | negative consumer sentiment and perception of cryptocurrencies. |
• | continued worldwide growth in the adoption and use of Bitcoins and other digital currencies; |
• | government and quasi-government regulation of Bitcoins and other digital assets and their use, or restrictions on, or regulation of, access to and operation of the Bitcoin Network or similar digital asset systems; |
• | changes in consumer demographics and public tastes and preferences; |
• | the maintenance and development of the open-source software protocol of the Bitcoin Network or similar digital asset systems; |
• | the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; |
• | general economic conditions and the regulatory environment relating to digital assets; and |
• | negative consumer perception of Bitcoins specifically and cryptocurrencies generally. |
(Formerly Routemaster Capital Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
(expressed in Canadian dollars)
Independent Auditor’s Report
To the Shareholders of DeFi Technologies Inc. (formerly Routemaster Capital Inc.)
Opinion
We have audited the consolidated financial statements of DeFi Technologies Inc. (formerly Routemaster Capital Inc.) and its subsidiary (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of operations and comprehensive income (loss), consolidated statements of cash flows and consolidated statements of changes in equity (deficiency) for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and 2019 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Page 1
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:
● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
Page 2
● | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
● | Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner of the audit resulting in this independent auditor’s report is Chris Milios.
McGovern Hurley LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
March 31, 2021
Page 3
DeFi Technologies Inc.
(Formerly Routemaster Capital Inc.)
Table of Contents
Consolidated statements of financial position | 6 | |
Consolidated statements of operations and comprehensive income (loss) | 7 | |
Consolidated statements of cash flows | 8 | |
Consolidated statements of changes in equity (deficiency) | 9 | |
Notes to the consolidated financial statements | 10-35 |
5
DeFi Technologies Inc.
(Formerly Routemaster Capital Inc.)
Consolidated Statements of Financial Position | |||
(Expressed in Canadian dollars) |
Note | December 31, | December 31, | |||||||||
2020 $ | 2019 $ | ||||||||||
Assets | |||||||||||
Current | |||||||||||
Cash | 12 | 332,075 | 4,762 | ||||||||
Public investments, at fair value through profit and loss | 3,12 | 665,740 | 623,275 | ||||||||
Prepaid expenses and deposits | 4,12 | 141,386 | 8,422 | ||||||||
Digital assets, at fair value through profit and loss | 5 | 636,600 | - | ||||||||
Total current assets | 1,775,801 | 636,459 | |||||||||
Private investments, at fair value through profit and loss | 3,12 | 2,920,243 | - | ||||||||
Investment in associate | 6 | 2,600,000 | - | ||||||||
Total assets | 7,296,044 | 636,459 | |||||||||
Liabilities | |||||||||||
Accounts payable and accrued liabilities | 7,12,14,15 | 992,248 | 1,802,024 | ||||||||
Total liabilities | 992,248 | 1,802,024 | |||||||||
Equity (Deficiency) | - | ||||||||||
Common shares | 10(b) | 23,357,691 | 18,820,850 | ||||||||
Preferred shares | 10(c) | 4,321,350 | 4,321,350 | ||||||||
Share-based payments reserves | 11 | 1,190,995 | 359,408 | ||||||||
(Deficit) | (22,566,240 | ) | (24,667,173 | ) | |||||||
Total equity (deficiency) | 6,303,796 | (1,165,565 | ) | ||||||||
Total liabilities and equity (deficiency) | 7,296,044 | 636,459 | |||||||||
Nature of operations and going concern | 1 | ||||||||||
Commitments and contingencies | 15 | ||||||||||
Subsequent events | 18 |
Approved on behalf of the Directors: | ||
“Tito Gandhi” | “Daniyal Baizak” | |
Director | Director |
See accompanying notes to these consolidated financial statements
6
DEFI Technologies Inc.
(Formerly Routemaster Capital Inc.)
Statements of Operations and Comprehensive Income (Loss)
(Expressed in Canadian dollars) |
Years ended December 31, | |||||||||||
Note | 2020 $ | 2019 $ | |||||||||
Revenues | |||||||||||
Realized (loss) on investments, net | (197,863 | ) | (708,793 | ) | |||||||
Unrealized gain (loss) on investments, net | 151,087 | (124,807 | ) | ||||||||
Interest income | - | 2,040 | |||||||||
Total revenue | (46,776 | ) | (831,560 | ) | |||||||
Expenses | |||||||||||
Operating, general and administration | 9,14 | 716,210 | 794,647 | ||||||||
Transaction costs | 1,592 | 3,739 | |||||||||
Foreign exchange loss (gain) | 17,816 | (4,125 | ) | ||||||||
Total expenses | 735,618 | 794,261 | |||||||||
(Loss) before other items | (782,394 | ) | (1,625,821 | ) | |||||||
Other items | |||||||||||
Gain on settlement of payable | - | 118,483 | |||||||||
Gain on sale of royalties | 8 | 2,998,002 | - | ||||||||
Excess purchase price over fair value of assets assumed (expensed) | 17 | (142,075 | ) | - | |||||||
Total other items | 2,855,927 | 118,483 | |||||||||
Net income (loss) and comprehensive income (loss) for the year | 2,073,533 | (1,507,338 | ) | ||||||||
Income (loss) per share | |||||||||||
Basic | 0.04 | (0.04 | ) | ||||||||
Diluted | 0.04 | (0.04 | ) | ||||||||
Weighted average number of shares outstanding: | |||||||||||
Basic | 55,836,068 | 41,513,631 | |||||||||
Diluted | 57,756,780 | 41,513,631 |
See accompanying notes to these consolidated financial statements
7
DEFI Technologies Inc. |
(Formerly Routemaster Capital Inc.) |
Statements of Cash Flows |
(Expressed in Canadian dollars) |
Note | Years ended December 31, | ||||||||||
2020 | 2019 | ||||||||||
$ | $ | ||||||||||
Cash (used in) provided by operations: | |||||||||||
Net income (loss) for the year | 2,073,533 | (1,507,338 | ) | ||||||||
Adjustments to reconcile net income to cash (used in) operating activities: | |||||||||||
Share-based payments | 11 | 115,798 | - | ||||||||
Gain on sale of royalties | 8 | (2,998,002 | ) | - | |||||||
Realized loss on investments, net | 197,863 | 708,793 | |||||||||
Unrealized (gain) loss on investments, net | (151,087 | ) | 124,807 | ||||||||
Unrealized loss (gain) on foreign exchange | 19,119 | (4,146 | ) | ||||||||
Transaction cost | 17 | 142,075 | - | ||||||||
Gain on settlement of payables | - | (118,483 | ) | ||||||||
(600,701 | ) | (796,367 | ) | ||||||||
Adjustment for: | |||||||||||
Purchase of investments | (90,612 | ) | - | ||||||||
Disposal of investments | 79,130 | 458,383 | |||||||||
Change in receivables | - | 7,534 | |||||||||
Change in prepaid expenses and deposits | (132,964 | ) | 4,403 | ||||||||
Change in accounts payable and accrued liabilities | (809,499 | ) | 320,336 | ||||||||
Net cash (used in) provided from operating activities | (1,554,646 | ) | (5,711 | ) | |||||||
Investing activities | |||||||||||
Purchase of digital assets | 5 | (640,300 | ) | - | |||||||
Acquisition of subsidiary | 17 | (208,912 | ) | - | |||||||
Cash received from acquisiton of subsidiary | 17 | 66,837 | - | ||||||||
Net cash (used in) investing of activities | (782,375 | ) | - | ||||||||
Financing activities | |||||||||||
Proceeds from issuance of units | 10 | 2,600,000 | - | ||||||||
Share and warrant issuance costs | 10 | (26,553 | ) | - | |||||||
Proceeds from exercise of warrants | 10,11 | 84,583 | - | ||||||||
Proceeds from exercise of options | 10,11 | 22,000 | - | ||||||||
Net cash provided by financing activities | 2,680,030 | - | |||||||||
Effect of exchange rate changes on cash | (15,696 | ) | (630 | ) | |||||||
Change in cash | 327,313 | (6,341 | ) | ||||||||
Cash, beginning of year | 4,762 | 11,103 | |||||||||
Cash, end of year | 332,075 | 4,762 | |||||||||
Supplemental information: | |||||||||||
Investments received through sale of royalties | $ | 2,998,002 | $ | - | |||||||
Shares issued for investment in associate | 2,600,000 | - | |||||||||
Proceeds payable for acquisiton of subsidiary | 174,093 | - |
See accompanying notes to these consolidated financial statements
8
DeFi Technologies Inc.
(Formerly Routemaster Capital Inc.)
Consolidated Statements of Changes in Equity (Deficiency)
(Expressed in Canadian dollars) |
Number of Common | Common | Number of Preferred | Preferred | Share-based payments | Share-based Payments | |||||||||||||||||||||||||||||||
Shares | Shares | Shares | Shares | Options | Warrants | Reserve | (Deficit) | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2019 | 41,513,693 | $ | 18,820,850 | 4,500,000 | $ | 4,321,350 | $ | 198,969 | $ | 160,439 | $ | 359,408 | $ | (24,667,173 | ) | $ | (1,165,565 | ) | ||||||||||||||||||
Private Placements | 40,000,000 | 2,600,000 | - | - | - | - | - | - | 2,600,000 | |||||||||||||||||||||||||||
Warrants issued | - | (777,320 | ) | - | - | - | 777,320 | 777,320 | - | - | ||||||||||||||||||||||||||
Broker warrants issued | - | (1,548 | ) | - | - | - | 1,548 | 1,548 | - | - | ||||||||||||||||||||||||||
Share and warrant issue costs | - | (20,828) | - | - | - | (5,725) | (5,725) | - | (26,553 | ) | ||||||||||||||||||||||||||
Shares issued for investment in associate | 20,000,000 | 2,600,000 | - | - | - | - | - | - | 2,600,000 | |||||||||||||||||||||||||||
Warrants exercised | 1,691,668 | 84,583 | - | - | - | - | - | - | 84,583 | |||||||||||||||||||||||||||
Value of warrants exercised | - | 18,994 | - | - | - | (18,994 | ) | (18,994 | ) | - | - | |||||||||||||||||||||||||
Option exercised | 200,000 | 22,000 | - | - | - | - | - | - | 22,000 | |||||||||||||||||||||||||||
Value of options exercised | - | 10,960 | - | - | (10,960 | ) | - | (10,960 | ) | - | - | |||||||||||||||||||||||||
Share-based payments | - | - | - | - | 115,798 | - | 115,798 | - | 115,798 | |||||||||||||||||||||||||||
Options expired | - | - | - | - | (27,400 | ) | - | (27,400 | ) | 27,400 | - | |||||||||||||||||||||||||
Net income for the year | - | - | - | - | - | - | - | 2,073,533 | 2,073,533 | |||||||||||||||||||||||||||
Balance, December 31, 2020 | 103,405,361 | $ | 23,357,691 | 4,500,000 | $ | 4,321,350 | $ | 276,407 | $ | 914,588 | $ | 1,190,995 | $ | (22,566,240 | ) | $ | 6,303,796 | |||||||||||||||||||
Balance, December 31, 2018 | 41,513,693 | $ | 18,820,850 | 4,500,000 | $ | 4,321,350 | $ | 233,641 | $ | 240,539 | $ | 474,180 | $ | (23,274,607 | ) | $ | 341,773 | |||||||||||||||||||
Expiration of options | - | - | - | - | (34,672 | ) | - | (34,672 | ) | 34,672 | - | |||||||||||||||||||||||||
Expiration of warrants | - | - | - | - | - | (80,100 | ) | (80,100 | ) | 80,100 | - | |||||||||||||||||||||||||
Net (loss) for the year | - | - | - | - | - | - | - | (1,507,338 | ) | (1,507,338 | ) | |||||||||||||||||||||||||
Balance, December 31, 2019 | 41,513,693 | $ | 18,820,850 | $ | 4,500,000 | $ | 4,321,350 | $ | 198,969 | $ | 160,439 | $ | 359,408 | $ | (24,667,173 | ) | $ | (1,165,565 | ) |
See accompanying notes to these consolidated financial statements
9
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
1. | Nature of operations and going concern |
DeFi Technologies Inc. (formerly Routemaster Capital Inc.) (the “Company” or “DeFi”), is a publicly listed company incorporated in the Province of British Columbia and continued under the laws of the Province of Ontario. On January 21, 2021, the Company uplisted its shares to NEO Exchange (“NEO”) under the symbol of “DEFI”. DeFi is a Canadian company that carries on business with the objective of enhancing shareholder value through building and managing assets in the decentralized finance sector. The Company’s head office is located at 65 Queen Street West, 9th Floor, Toronto, Ontario, Canada, M5H 2M5.
These consolidated financial statements were prepared on a going concern basis of presentation, which contemplates the realization of assets and settlement of liabilities as they become due in the normal course of operations for the next fiscal year. In December 2020, the Company completed its transition to a decentralized finance company, resulting in the Company determining that it no longer meets the criteria for being an investment entity under IFRS 10, Consolidated Financial Statements (“IFRS 10”). As at December 31, 2020, the Company has working capital of $785,553 (December 31, 2019 - $(1,165,565)), including cash of $332,075 (December 31, 2019 - $4,762) and an accumulated deficit of $22,566,240 (December 31, 2019 - $24,667,173). The Company’s current source of operating cash flow is dependent on the success of its business model and operations and there can be no assurances that sufficient funding, including adequate financing, will be available to cover the general and administrative expenses necessary for the maintenance of a public company. The Company’s status as a going concern is contingent upon raising the necessary funds through the selling of investments and issuance of equity or debt. Management believes its working capital will be sufficient to support activities for the next twelve months and expects to raise additional funds when required and available. There can be no assurance that funds will be available to the Company with acceptable terms or at all. These matters constitute material uncertainties that cast significant doubt about the ability of the Company to continue as a going concern. See Note 18.
Novel Coronavirus (“COVID-19”)
The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
2. | Significant accounting policies |
(a) | Statement of compliance |
These consolidated financial statements of the Company were prepared in accordance 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”). The policies as set out below were consistently applied to all the periods presented unless otherwise noted. These consolidated financial statements of the Company were approved for issue by the Board of Directors on March 31, 2021.
(b) | Basis of preparation |
The Company’s functional and presentation currency is the Canadian dollar (“$”). Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Gains and losses are included in operations.
10
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(c) | Basis of consolidation |
Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect these returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.
These consolidated financial statements of fiscal 2020 comprise the financial statements of the Company and its wholly owned subsidiary Electrum Streaming Inc. All material intercompany transactions and balances between the Company and its subsidiary have been eliminated on consolidation. Intercompany balances and any unrealized gains and losses or income and expenses arising from intercompany transactions are eliminated in preparing the consolidated financial statements.
(d) | Significant accounting judgements, estimates and assumptions |
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.
Information about critical judgments and estimates in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:
(i) | Fair value of financial derivatives |
Investments in options and warrants which are not traded on a recognized securities exchange do not have a readily available market value. When there are sufficient and reliable observable market inputs, a valuation technique is used; if no such market inputs are available, the warrants and options are valued at intrinsic value. Refer to Notes 3 and 12 for further details.
(ii) | Fair value of investment in securities not quoted in an active market or private company investments |
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. Refer to Notes 3 and 12 for further details.
(iii) | Share-based payments |
The Company uses the Black-Scholes option pricing model to fair value options in order to calculate share-based compensation expense. The Black-Scholes model involves six key inputs to determine the fair value of an option: risk- free interest rate, exercise price, market price of the Company’s shares at date of issue, expected dividend yield, expected life, and expected volatility. Certain of the inputs are estimates which involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control. The Company is also required to estimate the future forfeiture rate of options based on historical information in its calculation of share-based compensation expense.
11
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(d) | Significant accounting judgements, estimates and assumptions |
(iv) | Transition to a decentralized finance company |
In December 2020, the Company completed its transition to a decentralized finance company, resulting in the Company determining that it no longer meets the criteria for being an investment entity (“Investment Entity accounting”) under IFRS 10, Consolidated Financial Statements (“IFRS 10”). The exact timing of the transition from an investment entity to a decentralized finance company is highly judgemental and the Company concluded that this transition occurred in December 2020. As a result, effective December 10, 2020 (the “Transition Date”), the Company was required to apply acquisition method of accounting as per IFRS 3, Business Combinations (“IFRS 3”), to all subsidiaries that were previously measured at fair value through the profit and loss (“FVTPL”).
As at Transition Date, the Company did not have any controlled subsidiaries that required consolidation.
As at Transition Date, the Company’s investment in DeFi Holdings Inc. was subject to significant influence and accounted for using equity accounting for associates under IAS 28, Investments in Associates and Joint Ventures (“IAS 28”) (see Note 6).
The Company’s remaining investments continue to be accounted for as portfolio investments measured at FVTPL in accordance with IFRS 9, Financial Instruments (“IFRS 9”).
These financial reporting changes are material to the Company and have been applied on a prospective basis in accordance with the relevant guidance of IFRS 10 and, as such, the activity prior to the Transition Date reflects Investment Entity Accounting.
(v) | Contingencies (See Note 15 for details) |
(vi) | Digital Assets |
The Company’s holdings of digital assets are comprised entirely of USD Coin (“USDC”) stablecoins. 1 USDC can be exchanged for one United States Dollar at any time and as a result management has looked to the value of a United States Dollar in order to determine the value of these stablecoins as at the reporting date. See Note 5.
(vii) | Determination of significant influence of investment in associates |
As at December 31, 2020, the Company has classified its investment in DeFi Holdings Inc. as an investment in associate based on management’s judgement that consider its ownership of 49% of the outstanding shares of DeFi Holdings Inc. as an investment where the Company has significant influence.
(e) | Financial instruments |
Financial assets and financial liabilities are recognized on the Company’s statement of financial position when the Company has become a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. The Company’s financial instruments consist of cash, public investments, private investments, accounts payable and accrued liabilities.
12
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(e) | Financial instruments (continued) |
(i) | Investments |
Purchases and sales of investments where the Company cannot exert control or significant influence are recognized on a trade date basis. Public and private investments at fair value through profit or loss are initially recognized at fair value, with changes in fair value reported in profit (loss).
At each financial reporting period, the Company’s management estimates the fair value of its investments based on the criteria below and reflects such valuations in the financial statements.
Transaction costs are expensed as incurred in the statements of loss. The determination of fair value requires judgment and is based on market information where available and appropriate. At the end of each financial reporting period, the Company’s management estimates the fair value of investments based on the criteria below and reflects such changes in valuations in the statements of loss. The Company is also required to present its investments (and other financial assets and liabilities reported at fair value) into three hierarchy levels (Level 1, 2, or 3) based on the transparency of inputs used in measuring the fair value, and to provide additional disclosure in connection therewith (see Note 12, “Financial instruments”). The three levels are defined as follows:
Level 1 – investment with quoted market price;
Level 2 – investment which valuation technique is based on observable market inputs; and
Level 3 – investment which valuation technique is based on non-observable market inputs.
Publicly traded investments:
1. Securities, including shares, options, and warrants which are traded on a recognized securities exchange and for which no sales restrictions apply are recorded at fair values based on quoted closing prices at the statement of financial position date or the closing price on the last day the security traded if there were no trades at the statement of financial position date. These are included in Level 1 as disclosed in Note 12.
2. Securities which are traded on a recognized securities exchange but which are escrowed or otherwise restricted as to sale or transfer are recorded at amounts discounted from market value. Shares that are received as part of a private placement that are subject to a standard four-month hold period are not discounted. In determining the discount for such investments, the Company considers the nature and length of the restriction, business risk of the investee corporation, relative trading volume and price volatility and any other factors that may be relevant to the ongoing and realizable value of the investments. These are included in Level 2 in Note 12.
3. Warrants or options of publicly traded securities which do not have a quoted price are carried at an estimated fair value calculated using the Black-Scholes option pricing model if sufficient and reliable observable market inputs are available. If no such market inputs are available or reliable, the warrants and options are valued at intrinsic value. These are included in Level 2 as disclosed in Note 12.
4. Securities which are traded on a recognized securities exchange but which do not have an active market are recorded at the most recent transaction price. These are included in Level 3 in Note 12.
The amounts at which the Company’s publicly traded investments could be disposed of may differ from carrying values based on market quotes, as the value at which significant ownership positions are sold is often different than the quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity. Such differences could be material.
13
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(e) | Financial instruments (continued) |
(i) | Investments (continued) |
Privately held investments:
1. Securities in privately held companies (other than options and warrants) are initially recorded at cost, being the fair value at the time of acquisition. At the end of each financial reporting period, the Company’s management estimates the fair value of investments based on the criteria below and reflects such valuations in the financial statements. These are included in Level 3 as disclosed in Note 12. Options and warrants of private companies are carried at their intrinsic value.
With respect to valuation, the financial information of private companies in which the Company has investments may not always be available, or such information may be limited and/or unreliable. Use of the valuation approach described below may involve uncertainties and determinations based on the Company’s judgment and any value estimated from these may not be realized or realizable. In addition to the events described below, which may affect a specific investment, the Company will take into account general market conditions when valuing the privately held investments in its portfolio. In the absence of occurrence of any of these events or any significant change in general market conditions indicates generally that the fair value of the investment has not materially changed.
2. An upward adjustment is considered appropriate and supported by pervasive and objective evidence such as a significant subsequent equity financing by an unrelated investor at a transaction price higher than the Company’s carrying value; or if there have been significant corporate, political or operating events affecting the investee company that, in management’s opinion, have a positive impact on the investee company’s prospects and therefore its fair value. In these circumstances, the adjustment to the fair value of the investment will be based on management’s judgment and any value estimated may not be realized or realizable. Such events include, without limitation:
● | political changes in a country in which the investee company operates which, for example, reduce the corporate tax burden, permit mining where, or to an extent that, it was not previously allowed, or reduce or eliminate the need for permitting or approvals; |
● | receipt by the investee company of environmental, mining, aboriginal or similar approvals, which allow the investee company to proceed with its project(s); |
● | filing by the investee company of a National Instrument 43-101 technical report in respect of a previously non- compliant resource; |
14
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(e) | Financial instruments (continued) |
(i) | Investments (continued) |
Privately held investments: (continued)
● | release by the investee company of positive exploration results, which either proves or expands their resource prospects; and |
● | important positive management changes by the investee company that the Company’s management believes will have a very positive impact on the investee company’s ability to achieve its objectives and build value for shareholders. |
3. Downward adjustments to carrying values are made when there is evidence of a decline in value as indicated by the assessment of the financial condition of the investment based on third party financing, operational results, forecasts, and other developments since acquisition, or if there have been significant corporate, political or operating events affecting the investee company that, in management’s opinion, have a negative impact on the investee company’s prospects and therefore its fair value. The amount of the change to the fair value of the investment is based on management’s judgment and any value estimated may not be realized or realizable. Such events include, without limitation:
● | political changes in a country in which the investee company operates which increases the tax burden on companies, which prohibit mining where it was previously allowed, which increases the need for permitting or approvals, etc.; |
● | denial of the investee company’s application for environmental, mining, aboriginal or similar approvals which prohibit the investee company from proceeding with its projects; |
● | the investee company releases negative exploration results; |
● | changes to the management of the investee company take place which the Company believes will have a negative impact on the investee company’s ability to achieve its objectives and build value for shareholders; |
● | the investee company is placed into receivership or bankruptcy; and |
● | based on financial information received from the investee company, it is apparent to the Company that the investee company is unlikely to be able to continue as a going concern. |
The resulting values may differ from values that would be realized had a ready market existed. The amounts at which the Company’s privately held investments could be disposed of may differ from the carrying value assigned. Such differences could be material.
(ii) | Financial assets other than investments at fair value and liabilities |
Financial assets
Initial recognition and measurement
Non-derivative financial assets within the scope of IFRS 9 are classified and measured as “financial assets at fair value”, as either fair value through profit or loss (“FVPL”) or fair value through other comprehensive income (“FVOCI”), and “financial assets at amortized costs”, as appropriate. The Company determines the classification of financial assets at the time of initial recognition based on the Company’s business model and the contractual terms of the cash flows.
All financial assets are recognized initially at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
Financial assets with embedded derivatives are considered in their entirety when determining their classification at FVPL or at amortized cost. Other accounts receivable held for collection of contractual cash flows are measured at amortized cost.
15
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(e) | Financial instruments (continued) |
(ii) | Financial assets other than investments at fair value and liabilities (continued) |
Financial assets (continued)
Subsequent measurement – financial assets at amortized cost
After initial recognition, financial assets measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the Effective Interest Rate (“EIR”) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR.
Subsequent measurement – financial assets at FVPL
Financial assets measured at FVPL include financial assets management intends to sell in the short term and any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial assets measured at FVPL are carried at fair value in the statements of financial position with changes in fair value recognized in other income or expense in the statements of earnings (loss). The Company’s investments are classified as financial assets at FVPL.
Subsequent measurement – financial assets at FVOCI
Financial assets measured at FVOCI are non-derivative financial assets that are not held for trading and the Company has made an irrevocable election at the time of initial recognition to measure the assets at FVOCI. The Company does not measure any financial assets at FVOCI.
After initial measurement, investments measured at FVOCI are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income or loss in the statements of comprehensive income (loss). When the investment is sold, the cumulative gain or loss remains in accumulated other comprehensive income or loss and is not reclassified to profit or loss.
Dividends from such investments are recognized in other income in the statements of earnings (loss) when the right to receive payments is established.
Derecognition
A financial asset is derecognized when the contractual rights to the cash flows from the asset expire, or the Company no longer retains substantially all the risks and rewards of ownership.
Impairment of financial assets
The Company has elected to apply the simplified approach to impairment as permitted by IFRS 9, which requires the expected lifetime loss to be recognized at the time of initial recognition of the receivable. To measure estimated credit losses, accounts receivable have been grouped based on shared credit risk characteristics, including the number of days past due. An impairment loss is reversed in subsequent periods if the amount of the expected loss decreases and the decrease can be objectively related to an event occurring after the initial impairment was recognized.
Financial liabilities
Initial recognition and measurement
Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL as is the case for held for trading or derivative instruments, or the Company has opted to measure the financial liability at FVPL. The Company’s financial liabilities include accounts payable and accrued liabilities, which are measured at amortized cost. All financial liabilities are recognized initially at fair value and in the case of long-term debt, net of directly attributable transaction costs.
Subsequent measurement – financial liabilities at amortized cost
After initial recognition, financial liabilities measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR.
16
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(e) | Financial instruments (continued) |
(ii) | Financial assets and liabilities (continued) |
Financial liabilities (continued)
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires with any associated gain or loss recognized in other income or expense in the statements of earnings (loss).
(f) | Cash |
Cash is comprised of cash on hand and deposits that generally mature within 90 days from the date of acquisition. Deposits are held in Canadian chartered banks or in a financial institution controlled by a Canadian chartered bank.
(g) | Revenue recognition |
Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.
Realized gains and losses on the disposal of investments and unrealized gains and losses in the value of investments are reflected in the statement of loss on a trade date basis. Upon disposal of an investment, previously recognized unrealized gains or losses are reversed, so as to recognize the full realized gain or loss in the period of disposition. All transaction costs are expensed as incurred.
(h) | Income (loss) per share |
Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of the Company’s common shares outstanding during the period. Diluted income (loss) per share is calculated by dividing the applicable net income (loss) by the sum of the weighted-average number of common shares outstanding if dilutive common shares had been issued during the period. The calculation of diluted income (loss) per share assumes that outstanding stock options and warrants with an average exercise price below market price of the underlying shares are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average market price for the period. Diluted income per share for the year ended December 31, 2020 does not include the effect of 5,465,000 stock options and 23,846,153 warrants as they are anti-diluted. For the year ended December 31, 2019, all stock options and warrants were anti-dilutive and excluded from the calculation of dilutive loss per share.
(i) | Income taxes |
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
17
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(i) | Income taxes (continued) |
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(j) | Share-based payments |
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured at grant date and each tranche is recognized on a graded-vesting basis over the period in which options vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity reserve.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. For options that expire unexercised, the recorded value is transferred to deficit.
(k) | Royalty interests on mineral properties |
The Company held royalty interests in exploration stage mineral properties. Royalty interests are recorded at cost and capitalized as tangible assets with finite lives. The carrying value of royalty interests are depleted using the unit-of- production method over the life of the property to which the royalty interest relates, which is estimated using available estimates of proven and probable reserves specifically associated with the mineral properties. Royalty interest on exploration stage mineral properties, where there are no estimated reserves, are not amortized.
The Company evaluates its royalty interests on mineral properties for impairment whenever events or changes in circumstances, which may include significant changes in commodity prices and publicly available information from operators of the assets, indicate that the related carrying value of the royalty interests may not be recoverable. The recoverability of royalty interests is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value of each property exceeds its recoverable amount, which is the higher of fair value less costs to sell or value in use, which is generally calculated using estimated discounted future cash flows.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the statement of income (loss) to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Estimates of gold prices, operator’s estimates of proven and probable reserves related to the royalty properties, and the operator’s production profile are subject to certain risks and uncertainties which may affect the recoverability of the Company’s investment in these royalty interests in mineral properties. Although the Company has made its best assessment of these factors based on current conditions, it is possible that changes could occur, which could adversely affect the net cash flows expected to be generated from these royalty interests.
18
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(l) | Investment in Associate |
Associates are entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments over which the Company has the ability to significantly influence are initially recorded at cost. When the initial recognition of the investment in the associate occurs as a result of a loss of control of a former subsidiary, the fair value of the retained interest in the former subsidiary on the date of the loss of control is deemed to be the cost on initial recognition. Investment income (loss) is calculated using the equity method. The Company’s share of the associate’s profit or loss is recognised in the consolidated statements of operations and its share of movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated statements of operations. Profits and losses resulting from upstream and downstream transactions between the Company and its associate are recognised in the Company’s financial statements only to the extent of unrelated investors’ interests in the associate. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Company. Dilution gains and losses arising in investments in associates are recognised in the consolidated statements of operations. The investment account of the investor reflects: i) the cost of the investment in the investee; ii) the investment income or loss (including the investor’s proportionate share of discontinued operations) relating to the investee subsequent to the date when the use of the equity method first became appropriate; and iii) the investor’s proportion of dividends paid by the investee subsequent to the date when the use of the equity method first became appropriate.
(m) | Digital assets |
At present, there is limited guidance in IFRS on the recognition and measurement of digital assets. The Company’s digital assets consist entirely of USD Coins (“USDC”). 1 USDC is exchangeable into 1 United States Dollar at any time. Digital assets are measured at FVPL with fair value estimated based on the value of United States Dollars. Management considers this fair value to be level 2 under the fair value hierarchy. There are inherent and higher risks to digital assets including the risk associated with traditional securities, which include significant price volatility, the loss of the digital assets, fraud and high transaction fees.
(n) | New and future accounting changes |
During the year ended December 31, 2020, the Company adopted amendments to IAS 1 – Presentation of Financial Statements and IAS 8 – Accounting Policies, Changes in Accounting Estimated and Errors. The adoption of these new amendments did not have any material impact on the Company’s consolidated financial statements.
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for accounting periods beginning on January 1, 2021 or later. Updates that are not applicable or are not consequential to the Company have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the financial statements.
IFRS 10 – Consolidated Financial Statements (“IFRS 10”) and IAS 28 – Investments in Associates and Joint Ventures (“IAS 28”) were amended in September 2014 to address a conflict between the requirements of IAS 28 and IFRS 10 and clarify that in a transaction involving an associate or joint venture, the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The effective date of these amendments is yet to be determined; however, early adoption is permitted.
19
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
2. | Significant accounting policies (continued) |
(n) | New and future accounting changes (continued) |
IAS 1 – Presentation of Financial Statements (“IAS 1”) was amended in January 2020 to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023.
IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets (“IAS 37”) was amended. The amendments clarify that when assessing if a contract is onerous, the cost of fulfilling the contract includes all costs that relate directly to the contract – i.e. a full-cost approach. Such costs include both the incremental costs of the contract (i.e. costs a company would avoid if it did not have the contract) and an allocation of other direct costs incurred on activities required to fulfill the contract – e.g. contract management and supervision, or depreciation of equipment used in fulfilling the contract. The amendments are effective for annual periods beginning on January 1, 2022.
IFRS 3 – Business Combinations (“IFRS 3”) was amended. The amendments introduce new exceptions to the recognition and measurement principles in IFRS 3 to ensure that the update in references to the revised conceptual framework does not change which assets and liabilities qualify for recognition in a business combination. An acquirer should apply the definition of a liability in IAS 37 – rather than the definition in the Conceptual Framework – to determine whether a present obligation exists at the acquisition date as a result of past events. For a levy in the scope of IFRIC 21, the acquirer should apply the criteria in IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. In addition, the amendments clarify that the acquirer should not recognize a contingent asset at the acquisition date. The amendments are effective for annual periods beginning on January 1, 2022.
3. | Investments, at fair value through profit and loss |
At December 31, 2020, the Company’s investment portfolio consisted of three publicly traded investments and three private investments for a total estimated fair value of $3,585,983 (December 31, 2019 – four publicly traded investment and zero private investments at a total estimated fair value of $623,275)
Public Investments
At December 31, 2020, the Company’s three publicly traded investments had a total fair value of $665,740.
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % | |||||||||
Medivolve Inc.* | (i) | 55,000 common shares | $ | 6,600 | $ | 22,000 | 3.3 | % | ||||||
Sulliden Mining Capital Inc. | (i,ii) | 9,091,500 common shares | 2,662,252 | 545,490 | 81.9 | % | ||||||||
Silo Wellness Inc.** | (i) | 982,500 common shares | 49,125 | 98,250 | 14.8 | % | ||||||||
Total public investments | $ | 2,717,977 | $ | 665,740 | 100.0 | % |
* | formerly QuestCap Inc. |
* | formerly Yukoterre Resources Inc. |
(i) | Investments in related party entities - see Note 14 |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
20
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
3. | Investments, at fair value through profit and loss (continued) |
At December 31, 2019, the Company’s four publicly traded investments had a total fair value of $623,275.
Public Issuer | Note | Security description | Cost | Estimated Fair | % | |||||||||
ARHT Media Inc. | (i) | 125,000 warrants expire Feb 1, 2020 | $ | 14,318 | $ | - | 0.0 | % | ||||||
Fura Gems Inc. | (i) | 780,000 common shares | 253,400 | 128,700 | 20.6 | % | ||||||||
Sulliden Mining Capital Inc. | (i,ii) | 8,091,500 common shares | 2,612,252 | 404,575 | 65.0 | % | ||||||||
Yukoterre Resources Inc. | (i) | 1,000,000 common shares | 50,000 | 90,000 | 14.4 | % | ||||||||
Total public investments | $ | 2,929,970 | $ | 623,275 | 100.0 | % |
(i) | Investments in related party entities - see Note 14 |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
Private Investments
At December 31, 2020, the Company’s three private investments had a total fair value of $2,920,243.
Private Issuer | Note | Security description | Cost | Estimated Fair | % | |||||||||
Brazil Potash Corp. | (i) | 404,200 common shares | $ | 1,998,668 | $ | 1,929,853 | 66.1 | % | ||||||
Flora Growth Corp. | (i) | 1,010,500 common shares | 999,334 | 964,926 | 33.0 | % | ||||||||
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 25,464 | 0.9 | % | |||||||||
Total private investments | $ | 3,023,614 | $ | 2,920,243 | 100.0 | % |
(i) | Investments in related party entities - see Note 14 |
At December 31, 2019, the Company had no private investments.
4. | Prepaid expenses and deposits |
31-Dec-20 | 31-Dec-19 | |||||||
Prepaid insurance | $ | 13,326 | $ | 8,422 | ||||
Prepaid investment | 128,060 | - | ||||||
$ | 141,386 | $ | 8,422 |
5. | Digital Assets |
Digital assets consist of USDC stablecoins. USDC stablecoin is issued by regulated financial institutions, backed by fully reserved assets, redeemable on a 1:1 basis for US dollars. The Company held $636,600 (US$499,980) USDC as at December 31, 2020.
21
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
6. | Investment in associate |
On December 10, 2020, the Company closed the acquisition of 49% of DeFi Holdings Inc. (“DeFi Holdings”). Pursuant to the transaction, the Company issued a total of 20,000,000 common shares of the Company to the shareholders of DeFi Holding in proportion to their pro rata shareholdings of DeFi Holdings, in exchange for a 49% interest in DeFi Holdings. The 20,000,000 common shares are fair valued at a price of $0.13 per share, based on the trading price of the common shares issued, for a total value of $2,600,000. The Company assessed that it holds significant influence over DeFi Holdings and as such has accounted for this investment using equity accounting. Subsequent to December 31, 2020, the Company acquired the remaining 51% of Defi Holdings.
During the year ended December 31, 2020, the Company did not record any equity loss during the period. No dividends or cash distributions were received by the Company from the associate during the period.
7. | Accounts payable and accrued liabilities |
31-Dec-20 | 31-Dec-19 | |||||||
Corporate payables | $ | 886,923 | $ | 1,131,098 | ||||
Related party payable (Note 14) | 105,325 | 670,926 | ||||||
$ | 992,248 | $ | 1,802,024 |
8. | Royalties |
On September 11, 2020, the Company entered into a royalty purchase agreement with 2776234 Ontario Inc. to sell the 1.0% net smelter returns royalty granted by Potasio Y Litio de Argentina S.A. with respect to the Sal de los Angeles lithium project (the “Lithium NSR Royalty”) and the 2.0% net smelter returns royalty granted by QMX Gold Corporation with respect to its Quebec mineral properties (the “QC NSR Royalty” and, together with the Lithium NSR Royalty, the “Royalties”). As consideration for the Royalties, the Company received 404,200 common shares of Brazil Potash Corp. at a price per share of US$3.75 and 1,010,500 common shares of Flora Growth Corp. at a price per share of US$0.75 per share. Both Brazil Potash Corp. and Flora Growth Corp. are private companies and so the fair value of the share consideration received was estimated based on the most recently completed share transaction for each company. See Note 12 for additional information. The Company recognized a gain on the sale of royalties of $2,998,002.
9. | Expense by nature |
Years ended December 31, | ||||||||
2020 | 2019 | |||||||
Management and consulting fees | $ | 442,490 | $ | 578,017 | ||||
Share-based payments | 115,798 | - | ||||||
Trade show recoveries | (57,294 | ) | - | |||||
Travel and promotion | 19,972 | 69,319 | ||||||
Office and rent | 92,371 | 77,891 | ||||||
Accounting and legal | 84,600 | 51,272 | ||||||
Regulatory and transfer agent | 18,273 | 18,148 | ||||||
$ | 716,210 | $ | 794,647 |
22
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
10. | Share Capital |
a) | As at December 31, 2020, the Company is authorized to issue: |
I. | Unlimited number of common shares with no par value; |
II. | 20,000,000 preferred shares, 9% cumulative dividends, non-voting, non-participating, non-redeemable, non- retractable, and non-convertible by the holder. The preferred shares are redeemable by the Company in certain circumstances. |
b) | Issued and outstanding shares |
Number of Common Shares | Amount | |||||||
Balance, December 31, 2018 to 2019 | 41,513,693 | $ | 18,820,850 | |||||
Private placement financings | 40,000,000 | 2,600,000 | ||||||
Warrants issued | - | (777,320 | ) | |||||
Share issuance costs allocated to shares | - | (20,828 | ) | |||||
Broker warrants issued | - | (1,548 | ) | |||||
Acqusition of Defi Holdings (Note 6) | 20,000,000 | 2,600,000 | ||||||
Warrants exercised | 1,691,668 | 84,583 | ||||||
Grant date fair value on warrants exercised | - | 18,994 | ||||||
Options exercised | 200,000 | 22,000 | ||||||
Grant date fair value on options exercised | - | 10,960 | ||||||
Balance, December 31, 2020 | 103,405,361 | $ | 23,357,691 |
(b) | Issued and outstanding shares (continued) |
On June 26, 2020, the Company closed a non-brokered private placement financing and issued 20,000,000 units for gross proceeds of $600,000. Each unit consists of one common share of the Company and one- half common share purchase warrant. Each warrant entitles the holder to acquire one additional common share of the Company at an exercise price of $0.05 for a period of 24 months from issuance. In connection with the closing of the offering, the Company has paid finder’s fees of $3,150 in cash and 105,000 finder’s warrants to certain finders. Each finder warrant will entitle the holder thereof to purchase one common share at a price of $0.05 for a period of 24 months from the date of the closing of the offering. The issue date fair value of the warrants and broker warrants was estimated at $109,953 and $1,548 using the Black Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility based on the Company’s historical volatility of 118.1%; risk-free interest rate of 0.29% and an expected life of 2 years. The Company also paid additional share and warrant issue costs of $4,238.
Of the total subscriptions, 7,771,940 units were acquired by officers and directors or companies controlled by them.
On November 16, 2020, the Company closed a non-brokered private placement financing of units for gross proceeds of $2,000,000. Pursuant to the closing of the offering, the Company issued 20,000,000 units. Each unit consists of one common share of the Company and one common share purchase warrant, entitles the holder to acquire one additional common share of the Company at an exercise price of $0.25 for a period of 24 months from issuance. If at any time after four months and one day from the closing date the common shares of the Company trade at $0.20 per common share or higher (on a volume weighted adjusted basis) for a period of 10 consecutive days, the Company will have the right to accelerate the expiry date of the warrants to a date that is 30 days after the Company issues a news release announcing that it has elected to exercise this acceleration right. The issue date fair value of the warrants was estimated at $667,367 using the Black Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility based on the Company’s historical volatility of 151%; risk-free interest rate of 0.27% and an expected life of 2 years. The Company also paid share and warrant issue costs of $12,451. Of the total subscriptions, 4,000,000 units were acquired by 2227929 Ontario Inc.
On December 10, 2020, the Company issued 20,000,000 shares at an estimated fair value of $0.13 per share for acquiring 49% of Defi Holdings Inc. The Company paid issuance costs of $6,715. See Note 5 for details.
23
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
10. | Share Capital (continued) |
c) | Issued and outstanding preferred shares |
Number of Preferred Shares | Amount | ||||||||
Balance, December 31, 2018 to 2020 | 4,500,000 | $ | 4,321,350 |
Subject to the discretion of the board of directors, holders of preferred shares are entitled to receive a 9% cumulative, preferential cash dividend, payable annually on the last day of January following the relevant completed fiscal year, ending December 31. The Company has not declared any dividends to December 31, 2020.
11. | Share-based payments reserves |
Options | Warrants | |||||||||||||||||||||||||||
Number of Options | Weighted average exercise prices | Value of options | Number of warrants | Weighted average exercise prices | Value of warrants | Total Value | ||||||||||||||||||||||
December 31, 2018 | 2,225,000 | $ | 0.18 | $ | 233,641 | 4,446,153 | $ | 0.19 | $ | 240,539 | $ | 474,180 | ||||||||||||||||
Expired | (160,000 | ) | 0.35 | (34,672 | ) | (600,000 | ) | 0.10 | (80,100 | ) | (114,772 | ) | ||||||||||||||||
December 31, 2019 | 2,065,000 | $ | 0.21 | $ | 198,969 | 3,846,153 | $ | 0.20 | $ | 160,439 | $ | 359,408 | ||||||||||||||||
Granted and vested | 4,100,000 | 0.22 | 115,798 | 30,105,000 | 0.18 | 778,868 | 894,666 | |||||||||||||||||||||
Exercised | (200,000 | ) | 0.11 | (10,960 | ) | (1,691,668 | ) | 0.05 | (18,994 | ) | (29,954 | ) | ||||||||||||||||
Expired | (500,000 | ) | 0.11 | (27,400 | ) | - | - | - | (27,400 | ) | ||||||||||||||||||
Warrant issued costs | - | - | - | - | - | (5,725 | ) | (5,725 | ) | |||||||||||||||||||
December 31, 2020 | 5,465,000 | $ | 0.21 | $ | 276,407 | 32,259,485 | $ | 0.19 | $ | 914,588 | $ | 1,190,995 |
Stock option plan
The Company has an ownership-based compensation scheme for executives and employees. In accordance with the terms of the plan, as approved by shareholders at a previous annual general meeting, officers, directors and consultants of the Company may be granted options to purchase common shares with the exercise prices determined at the time of grant. The Company has adopted a Floating Stock Option Plan (the “Plan”), whereby the number of common shares reserved for issuance under the Plan is equivalent of up to 10% of the issued and outstanding shares of the Company from time to time.
Each employee share option converts into one common share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.
The Company recorded $115,798 (2019 - $nil) of share-based payments during the year ended December 31, 2020.
The following share-based payment arrangements were in existence at December 31, 2020:
24
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
11. | Share-based payments reserves (continued) |
Stock Option (continued)
Number outstanding | Number exercisable | Grant date | Expiry date | Exercise price | Fair value at grant date | Grant date share price | Expected volatility | Expected life (yrs) | Expected dividend yield | Risk-free interest rate | ||||||||||||||||||||||||||
835,000 | 835,000 | 29-Sep-16 | 29-Sep-21 | $ | 0.11 | $ | 45,758 | $ | 0.11 | 59 | % | 5 | 0 | % | 0.57 | % | ||||||||||||||||||||
530,000 | 530,000 | 18-Dec-17 | 18-Dec-22 | $ | 0.35 | $ | 114,851 | $ | 0.35 | 76 | % | 5 | 0 | % | 1.70 | % | ||||||||||||||||||||
1,600,000 | - | 16-Nov-20 | 16-Nov-25 | $ | 0.09 | $ | 126,720 | $ | 0.09 | 139 | % | 5 | 0 | % | 0.46 | % | ||||||||||||||||||||
750,000 | - | 18-Nov-20 | 18-Nov-25 | $ | 0.18 | $ | 115,950 | $ | 0.18 | 141 | % | 5 | 0 | % | 0.44 | % | ||||||||||||||||||||
1,750,000 | - | 21-Dec-20 | 21-Dec-25 | $ | 0.35 | $ | 656,250 | $ | 0.35 | 145 | % | 5 | 0 | % | 0.44 | % | ||||||||||||||||||||
5,465,000 | 1,365,000 | $ | 1,059,529 |
The weighted average remaining contractual life of the options exercisable at December 31, 2020 was 4.0 years December 31, 2019 – 2.06 years).
On November 16, 2020, the Company granted 1,600,000 stock options to certain officers and consultants of the Company pursuant to the Company’s stock option plan. The options vest in four equal installments every three months such that all options shall fully vets on the date that is 12 months from the date of grant at a price of $0.09 per option for a period of five years from the date of grant. The options have an estimated grant date fair value of $126,720 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 138.7%; risk- free interest rate of 0.46%; and an expected average life of 5 years. Of the total options grant, 300,000 was granted to officers of the Company.
On November 18, 2020, the Company granted a total of 750,000 stock options to a consultant of the Company pursuant to the Company’s stock option plan. The options shall vest in four equal instalments every one and a half month such that all options shall fully vest on the date that is six months from the date of grant and may be exercised at a price of $0.18 per option for a period of five years from the date of grant. The options have an estimated grant date fair value of $115,950 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 140.5%; risk-free interest rate of 0.44%; and an expected average life of 5 years.
On December 21, 2020, the Company granted a total of 1,750,000 stock options to certain consultants of the Company pursuant to the Company’s stock option plan. Of the total grant, 250,000 options vest in four equal installments every three months such that all options shall fully vests on the date that is 12 months from the date of grant at a price of $0.35 per option for a period of five years from the date of grant. 1,500,000 options vest in eight equal installments every three months such that all options shall fully vests on the date that is 24 months from the date of grant at a price of $0.35 per option for a period of five years from the date of grant These options have an estimated grant date fair value of $656,250 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 144.5%; risk-free interest rate of 0.44%; and an expected average life of 5 years.
Warrants
As at December 31, 2020, the Company had share purchase warrants outstanding as follows:
Number outstanding & exercisable | Grant date | Expiry date | Exercise price | Fair value at grant date | Grant date share price | Expected volatility | Expected life (yrs) | Expected dividend yield | Risk-free interest rate | |||||||||||||||||||||||||||
Warrants | 3,846,153 | 12-Jun-17 | 12-Jun-22 | $ | 0.20 | $ | 161,789 | $ | 0.12 | 79.9 | % | 5 | 0 | % | 1.04 | % | ||||||||||||||||||||
Warrants | 8,413,332 | 26-Jun-20 | 26-Jun-22 | $ | 0.05 | $ | 92,507 | $ | 0.03 | 118.1 | % | 2 | 0 | % | 0.29 | % | ||||||||||||||||||||
Warrants | 20,000,000 | 16-Nov-20 | 26-Nov-22 | $ | 0.25 | 667,367 | $ | 0.09 | 151.0 | % | 2 | 0 | % | 0.27 | % | |||||||||||||||||||||
Warrant issue costs | $ | (7,075 | ) | |||||||||||||||||||||||||||||||||
32,259,485 | $ | 0.19 | $ | 914,588 |
25
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
12. | Financial instruments |
Financial assets and financial liabilities as at December 31, 2020 and 2019 are as follows:
Loans, receivables and (other financial liabilities) | Assets /(liabilities) at fair value through profit/(loss) | Total | ||||||||||
December 31, 2020 | ||||||||||||
Cash | $ | 332,075 | $ | - | $ | 332,075 | ||||||
Public investments | - | 665,740 | 665,740 | |||||||||
Private investments | - | 2,920,243 | 2,920,243 | |||||||||
Digital assets | 636,600 | 636,600 | ||||||||||
Accounts payable and accrued liabilities | (992,248 | ) | - | (992,248 | ) | |||||||
December 31, 2019 | ||||||||||||
Cash | $ | 4,762 | $ | - | $ | 4,762 | ||||||
Public investments | - | 623,275 | 623,275 | |||||||||
Accounts payable and accrued liabilities | (1,802,024 | ) | - | (1,802,024 | ) |
The Company’s financial instruments are exposed to several risks, including market, liquidity, credit and currency risks. There have been no significant changes in the risks, objectives, policies and procedures from the previous year. A discussion of the Company’s use of financial instruments and their associated risks is provided below:
Credit risk
Credit risk arises from the non-performance by counterparties of contractual financial obligations. The Company’s primary counterparty related to its cash carries an investment grade rating as assessed by external rating agencies. The Company maintains all or substantially all of its cash with a major financial institution domiciled in Canada. Deposits held with this institution may exceed the amount of insurance provided on such deposits.
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 liquidity and operating results may be adversely affected if the Company’s access to the capital markets is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company, or if the value of the Company’s investments declines, resulting in losses upon disposition. In addition, some of the investments the Company holds are lightly traded public corporations or not publicly traded and may not be easily liquidated. The Company generates cash flow from proceeds from the disposition of its investments. There can be no assurances that sufficient funding, including adequate financing, will be available to cover the general and administrative expenses necessary for the maintenance of a public company. All of the Company’s assets, liabilities and obligations are due within one to three years.
The Company manages liquidity risk by maintaining adequate cash balances. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities. As at December 31, 2020, the Company had current assets of $1,775,801 (December 31, 2019 - $636,459) to settle current liabilities of $992,248 (December 31, 2019 - $1,802,024).
The following table shows the Company’s source of liquidity by assets as at December 31, 2020 and 2019.
26
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
12. | Financial instruments (continued) |
Liquidity risk (continued)
December 31, 2020
Total | Less than 1 year | 1-3 years | ||||||||||
Cash | $ | 332,075 | $ | 332,075 | $ | - | ||||||
Public investments | 665,740 | 665,740 | - | |||||||||
Prepaid expenses | 141,386 | 141,386 | - | |||||||||
Digital assets | 636,600 | 636,600 | - | |||||||||
Private investments | 2,920,243 | - | 2,920,243 | |||||||||
Total assets - December 31, 2020 | $ | 4,696,044 | $ | 1,775,801 | $ | 2,920,243 |
December 31, 2019
Total | Less than 1 year | |||||||||||
Cash | $ | 4,762 | $ | 4,762 | ||||||||
Public investments | 623,275 | 623,275 | ||||||||||
Prepaid expenses | 8,422 | 8,422 | ||||||||||
Total assets - December 31, 2019 | $ | 636,459 | $ | 636,459 |
Market risk
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate because of changes in market prices.
(a) | Price and concentration risk |
The Company is exposed to market risk in trading its investments and unfavourable market conditions could result in dispositions of investments at less than favorable prices. In addition, most of the Company’s investments are in the resource sector. At December 31, 2020, one investment made up approximately 26% (December 31, 2019 – one investment of 64%) of the total assets of the Company.
For the year ended December 31, 2020, a 10% decrease in the closing price of this concentrated position would result in an estimated increase in net loss of $0.19 million, or $0.003 per share.
For the year ended December 31, 2020, a 10% decrease (increase) in the closing prices of its portfolio investments would result in an estimated increase (decrease) in net loss of $0.36 million, or $0.006 per share.
(b) | Interest rate risk |
The Company’s cash is subject to interest rate cash flow risk as it carries variable rates of interest. The Company’s interest rate risk management policy is to purchase highly liquid investments with a term to maturity of one year or less on the date of purchase. Based on cash balances on hand at December 31, 2020, a 1% change in interest rates could result in $3,320 change in net loss.
27
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
12. | Financial instruments (Continued) |
Market risk (continued)
(c) | Currency risk |
Currency risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. The Company’s operations are exposed to foreign exchange fluctuations, which could have a significant adverse effect on its results of operations from time to time. The Company’s foreign currency risk arises primarily with respect to United States dollar and British Pound. Fluctuations in the exchange rates between these currencies and the Canadian dollar could have a material effect on the Company’s business, financial condition and results of operations. The Company does not engage in any hedging activity to mitigate this risk. The Company reduces its currency risk by maintaining minimal cash balances held in foreign currency.
As at December 31, 2020 and 2019, the Company had the following financial assets and liabilities, (amounts posted in Canadian dollars) denominated in foreign currencies:
December 31, 2020
United States Dollars | British Pound | |||||||
Cash | $ | 67,475 | $ | - | ||||
Private investments | 2,920,243 | |||||||
Prepaid investment | 128,060 | |||||||
Digital assets | 636,600 | |||||||
Accounts payable and accrued liabilities | (3,437 | ) | (76,872 | ) | ||||
Net assets (liabilities) | $ | 3,748,941 | $ | (76,872 | ) |
December 31, 2019
United States Dollars | British Pound | |||||||
Cash | $ | 129 | $ | - | ||||
Accounts payable and accrued liabilities | (58,446 | ) | (75,957 | ) | ||||
Net assets (liabilities) | $ | (58,317 | ) | $ | (75,957 | ) |
A 10% increase (decrease) in the value of the Canadian dollar against all foreign currencies in which the Company held financial instruments as of December 31, 2020 would result in an estimated increase (decrease) of approximately ($367,200) (December 31, 2019 - $(13,400)).
28
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
12. | Financial instruments (continued) |
Fair value of financial instruments
The Company has determined the carrying values of its financial instruments as follows:
i. | The carrying values of cash, amounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments. |
ii. | Public and private investments are carried at amounts in accordance with the Company’s accounting policies as set out in Note 2. |
iii. | Digital assets are carried at the amount of US dollars they can be converted into. |
The following table illustrates the classification and hierarchy of the Company’s financial instruments, measured at fair value in the statements of financial position as at December 31, 2020 and 2019.
Level 1 | Level 2 | Level 3 | ||||||||||||||
Investments, fair value | (Quoted Market price) | (Valuation technique - observable market Inputs) | (Valuation technique - non-observable market inputs) | Total | ||||||||||||
Publicly traded investments | $ | 567,490 | $ | - | $ | 98,250 | $ | 665,740 | ||||||||
Privately traded invesments | - | - | 2,920,243 | 2,920,243 | ||||||||||||
Digital asset | - | 636,600 | - | 636,600 | ||||||||||||
December 31, 2020 | $ | 567,490 | $ | 636,600 | $ | 3,018,493 | $ | 4,222,583 | ||||||||
Publicly traded investments | $ | 623,275 | $ | - | $ | - | $ | 623,275 | ||||||||
December 31, 2019 | $ | 623,275 | $ | - | $ | - | $ | 623,275 |
Level 2 Hierarchy
During the year ended December 31, 2020, the Company purchased US$499,860 ($636,600) of USDC. See Note 5.
Level 3 Hierarchy
The following table presents the changes in fair value measurements of financial instruments classified as Level 3 during the year ended December 31, 2020 and year ended December 31, 2019. These financial instruments are measured at fair value utilizing non-observable market inputs. The net realized losses and net unrealized gains are recognized in the statements of loss.
December 31, | December 31, | |||||||
Investments, fair value for the period ended | 2020 | 2019 | ||||||
Balance, beginning of year | $ | - | $ | 50,000 | ||||
Purchases | 3,121,864 | - | ||||||
Transferred to Level 1 | - | (50,000 | ) | |||||
Realized and unrealized gain/(loss) net | (103,371 | ) | - | |||||
Balance, end of year | $ | 3,018,493 | $ | - |
Within Level 3, the Company includes private company investments that are not quoted on an exchange. The key assumptions used in the valuation of these instruments include (but are not limited to) the value at which a recent financing was done by the investee, company-specific information, trends in general market conditions and the share performance of comparable publicly-traded companies.
29
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
12. | Financial instruments (continued) |
Fair value of financial instruments (continued)
As valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Given the size of the private investment portfolio, such changes may have a significant impact on the Company’s financial condition or operating results.
The following table presents the fair value, categorized by key valuation techniques and the unobservable inputs used within Level 3 as at December 31, 2020.
Description | Fair vaue | Valuation technique | Significant unobservable input(s) | Range of significant unobservable input(s) | ||||||
Brazil Potash Corp. | $ | 1,929,853 | Recent financing | Marketability of shares | 0% discount | |||||
Flora Growth Corp. | $ | 964,926 | Recent financing | Marketability of shares | 0% discount | |||||
Skolem Technologies Ltd. | $ | 25,464 | Recent financing | Marketability of shares | 0% discount | |||||
Silo Wellness Inc, | $ | 98,250 | Recent transaction price | Marketability of shares | 0% discount | |||||
$ | 2,920,243 |
Brazil Potash Corp. (“BPC”)
On September 11, 2020, the Company received 404,200 common shares of BPC as consideration of selling the Company’s Royalties to a non arms length party of the Company (see Note 8 for details). As at December 31, 2020, the valuation of BPC was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at December 31, 2020. As at December 31, 2020, a +/- 10% change in the fair value of BPC will result in a corresponding +/- $192,985 change in the carrying amount.
Flora Growth Corp. (“FGC”)
On September 11, 2020, the Company received 1,010,500 common shares of FGC as consideration of selling the Company’s Royalties to a non arms length party of the Company (see Note 8 for details). As at December 31, 2020, the valuation of FGC was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at December 31, 2020. As at December 31, 2020, a +/- 10% change in the fair value of FGC will result in a corresponding +/- $96,493 change in the carrying amount.
Skolem Technologies Ltd. (“STL”)
On December 29, 2020, the Company invested US$20,000 ($25,612) to acquire certain rights to the preferred shares of STL. As at December 31, 2020, the valuation of STL was based on the most recent financing which is indicative of being the fair market value. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at December 31, 2020. As at December 31, 2020, a +/- 10% change in the fair value of STL will result in a corresponding +/- $2,546 change in the carrying amount.
Silo Wellness Inc. (“SILO”)
In 2019, the Company invested $49,125 and acquired 982,500 common shares. As at December 31, 2020, the valuation of SILO was based on the closing shares price on the CSE. Management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at December 31, 2020. As at December 31, 2020, a +/- 10% change in the fair value of STL will result in a corresponding +/- $9,825 change in the carrying amount.
30
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
13. | Capital management |
The Company considers its capital to consist of share capital, share based payments reserves and deficit. The Company’s objectives when managing capital are:
a) | to allow the Company to respond to changes in economic and/or marketplace conditions by maintaining the Company’s ability to purchase new investments; |
b) | to give shareholders sustained growth in value by increasing shareholders’ equity; while |
c) | taking a conservative approach towards financial leverage and management of financial risks. |
The Company’s management reviews its capital structure on an on-going basis and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its underlying investments. The Company’s current capital is composed of its shareholders’ equity and, to-date, has adjusted or maintained its level of capital by:
a) | raising capital through equity financings; and |
b) | realizing proceeds from the disposition of its investments |
The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than the NEO Exchange which requires one of the following to be met: (i) shareholders equity of at least $2.5 million, (ii) net income from continuing operations of at least $375,000, (iii) market value of listed securities of at least $25 million, or (iv) assets and revenues of at least $25 million. There were no changes to the Company’s capital management during the year ended December 31, 2020.
31
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
14. | Related party disclosures |
a) | The Company’s directors and officers may have investments in and hold management and/or director and officer positions in some of the investments that the Company holds. The following is a list of total investments and the nature of the relationship of the Company’s directors or officers with the investment as of December 31, 2020 and December 31, 2019. |
Investment | Nature of relationship | Estimated Fair value | % of FV | |||||||
Brazil Potash Corp.* | Director (Stan Bharti), officer (Ryan Ptolemy) and common shareholders | $ | 1,929,853 | 54.2 | % | |||||
Flora Growth Corp.* | Directors (Stan Bharti, William Steers), and common shareholders | 964,926 | 27.1 | % | ||||||
Medivolve Inc.** | Former director (Stan Bharti), director (Daniyal Baizak), and common shareholders | 22,000 | 0.6 | % | ||||||
Sulliden Mining Capital Inc. | Director (Stan Bharti, William Steers) and officer (Ryan Ptolemy) | 545,490 | 15.3 | % | ||||||
Silo Wellness Inc. | Former Director and Officer (Fred Leigh), Officer (Kenny Choi, Ryan Ptolemy) and common shareholders | 98,250 | 2.8 | % | ||||||
Total investment - December 31, 2020 | $ | 3,560,519 | 100.0 | % |
* | Private companies |
** | Formerly QuestCap Inc. |
*** | Formerly Yukoterre Resources Inc. |
Investment | Nature of relationship | Estimated Fair value | % of FV | |||||||
ARHT Media Inc. | Director (William Steers), and common shareholders / warrant holders | $ | - | 0.0 | % | |||||
Fura Gems Inc. | Officer (Ryan Ptolemy), and common shareholders / warrant holders | 128,700 | 20.6 | % | ||||||
Sulliden Mining Capital Inc. | Director (Stan Bharti), and common shareholders / warrant holders | 404,575 | 65.0 | % | ||||||
Yukoterre Resources Inc. | Former Director and Officer (Fred Leigh), Officer (Kenny Choi) and common shareholders | 90,000 | 14.4 | % | ||||||
Total investment - December 31, 2019 | $ | 623,275 | 100.0 | % |
The Company has a diversified base of investors. To the Company’s knowledge, Forbes & Manhattan, Inc. (“Forbes”) holds more than 10% of the Company’s shares on a basic share and partially diluted share basis as at December 31, 2020,
b) | During the years ended December 31, 2020 and 2019, the Company entered into the following transactions in the ordinary course of business with related parties that are not subsidiaries of the Company. |
Purchases of goods/services Years ended December 31 | ||||||||
2020 | 2019 | |||||||
2227929 Ontario Inc. | $ | 250,295 | $ | 120,000 | ||||
Forbes & Manhattan Inc. | 120,000 | 120,071 | ||||||
$ | 370,295 | $ | 240,071 |
The Company shares office space with other companies who may have common officers and directors. The costs associated with the use of this space, including the provision of office equipment and supplies, are administered by 2227929 Ontario Inc. to whom the Company pays a fee. As at December 31, 2020, the Company had a payable balance of $80,183 (December 31, 2019 - $439,007) with 2227929 Ontario Inc. to cover shared expenses. The amounts outstanding are unsecured with no fixed terms of repayment. 2227929 Ontario Inc. participated in the Company’s June and November 2020 private placement financing and subscribed a total of 4,822,617 units for gross proceeds of $424,679. Fred Leigh, a former director and officer of the Company, is also a director of 2227929 Ontario Inc.
32
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
14. | Related party disclosures (continued) |
In August 2017, Forbes became an insider of the Company owning approximately 34.9% (approximately 27.9% at December 31, 2019) outstanding shares of the Company through acquisition of the Royalties. The Company is also part of the Forbes Group of Companies and continue to receive the benefits of such membership, including access to mining professionals, advice from Stan Bharti, the Executive Chairman of Forbes and strategic advice from the Forbes Board of Advisors. An administration fee of $10,000 per month is charged by Forbes pursuant to a consulting agreement. As at December 31, 2020 the Company had a payable balance of $22,600 (December 31, 2019 - $135,680). Such amounts are unsecured, with no fixed terms of repayment. Forbes participated in the Company’s June 2020 private placement financing and subscribed an aggregate 5,275,989 units for gross proceeds of $158,280. Forbes owns approximately 16.3% of the Company as at December 31, 2020.
Included in accounts payable and accrued liabilities were expenses of GBP44,228 ($76,872) (December 31, 2019 - $75,957) expenses owed to Vik Pathak, a former director and officer of the Company.
c) | Compensation of key management personnel of the Company: |
The remuneration of directors and other members of key management personnel during the year ended December 31, 2020 and 2019 were as follows:
2020 | 2019 | |||||||
Short-term benefits | $ | 70,750 | $ | 190,248 | ||||
Shared-based payments | 6,094 | - | ||||||
$ | 76,844 | $ | 190,248 |
At December 31, 2020, the Company had $2,543 (December 31, 2019 - $96,239) owing to its current key management, and $655,296 (December 31, 2019 - $655,296) owing to its former key management. Such amounts are unsecured, non- interest bearing, with no fixed terms of payment or “due on demand”.
In connection with the June 2020 private placement financing, a former director and officer subscribed 1,506,667 units through a Company under his control for gross proceeds of $45,200. In addition, an officer subscribed 166,667 units for gross proceeds of $5,000. See also Note 10.
In connection with the November 2020 private placement, 4,000,000 units were acquired by 2227929 Ontario Inc.
In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non- executive) of the Company.
The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.
See Notes 8, 15, 17 and 18.
33
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
15. | Commitments and contingencies |
The Company is party to certain management contracts. These contracts require that additional payments of up to approximately $1,040,000 be made upon the occurrence of certain events such as a change of control. As a triggering event has not taken place, the contingent payments have not been reflected in these consolidated financial statements. Minimum commitments remaining under these contracts were approximately $408,000, all due within one year.
The Company is, from time to time, involved in various claims and legal proceedings. The Company cannot reasonably predict the likelihood or outcome of these activities. The Company does not believe that adverse decisions in any ending or threatened proceedings related to any matter, or any amount which may be required to be paid by reasons thereof, will have a material effect on the financial condition or future results of operations.
A former officer of the Company has initiated a legal action seeking approximately $450,000 for fees owed plus interest. The Company intends to defend the matter and is currently reviewing its options with regards to this action. The full amount of the claim has been included in accounts payable and accrued liabilities on the statement of financial position.
16. | Income taxes |
a) | Provision for Income Taxes |
Major items causing the Company’s income tax rate to differ from the Canadian federal and provincial statutory rate of 26.5% (2019 – 26.5%) were as follows:
2020 $ | 2019 $ | |||||||
Income (loss) before income taxes | 2,073,533 | (1,507,338 | ) | |||||
Expected income tax recovery based on statutory rate | 549,000 | (399,000 | ) | |||||
Adjustment to expected income tax benefit: | ||||||||
Change in foreign exchange rates | (5,000 | ) | (1,000 | ) | ||||
Provision to return adjustment | 247,000 | 7,000 | ||||||
Share based compensation | 31,000 | - | ||||||
Other | (1,000 | ) | (580,000 | ) | ||||
Change in unrecorded tax benefits | (821,000 | ) | 973,000 | |||||
Deferred income tax provision (recovery) | - | - |
b) | Deferred income tax |
Deferred income tax assets have not been recognized in respect of the following deductible temporary differences in Canada:
2020 $ | 2019 $ | |||||||
Non-capital loss carry-forwards | 17,312,000 | 19,461,000 | ||||||
Share issue costs | 35,000 | 28,000 | ||||||
Exploration and evaluation assets | 7,002,000 | 5,957,000 | ||||||
Investments | 5,742,000 | 2,307,000 | ||||||
Capital losses carried forward | 23,073,000 | 23,073,000 | ||||||
Total | 53,164,000 | 50,826,000 |
The Company has approximately $17,312,000 of non-capital loss carry-forwards in Canada which may be used to reduce the taxable income of future years. These losses expire from 2026 to 2039.
34
DeFi Technologies Inc.
(formerly Routemaster Capital Inc.)
Notes to the Consolidated financial statements
Years ended December 31, 2020 and 2019
(Expressed in Canadian dollars unless otherwise noted)
17. | Acquisition of Electrum Streaming Inc. |
On December 16, 2020, the Company acquired all the outstanding shares of Electrum Streaming Inc. (“ESI”), a private company incorporated in Ontario. As a result of the control obtained through the acquisition of 100% of the outstanding shares of ESI, the assets and liabilities were consolidated into the Company’s financial statements. The assets consisted primarily of cash. As consideration of the acquisition, the Company paid cash of $208,912.
The acquisition of Electrum is being treated as an asset acquisition for accounting purposes as ESI does not meet the definition of a business, as defined in IFRS 3, Business Combinations. The assets acquired and liabilities assumed were recorded at their estimated fair market values, which are based on management estimates.
Purchase price consideration
Purchase price consideration paid: | ||||
Cash | $ | 208,912 | ||
Fair value of assets and liabilities assumed: | ||||
Cash | $ | 66,837 | ||
Excess purchase price over fair value of assets assumed (expensed) | 142,075 | |||
Total net assets acquired | $ | 208,912 |
Stan Bharti, a shareholder of ESI, is also a major shareholder of the Company.
18. | Subsequent events |
Subsequent to December 31, 2020, 741,100 stock options were exercised for gross proceeds of $105,790 and 3,732,975 warrants were exercised for gross proceeds of $436,649.
On January 28, 2021, the Company acquired the remaining 51% of DeFi Holdings Inc. through the issuance of 20,000,000 common shares of the Company.
On February 12, 2021, the Company acquired 20% of Valour Structured Products, Inc. through the issuance of 21,000,000 common shares of the Company.
On March 9, 2021 closed a non-brokered financing of 5,000,000 common shares of the company at a price of $2 per common share for gross proceeds of up to $10,000,000.
![](https://capedge.com/proxy/40FR12B/0001594062-21-000130/image00041.jpg)
(Formerly Routemaster Capital Inc.)
MANAGEMENT’S DISCUSSION AND ANALYSIS |
Year ended December 31, 2020 |
➢ | inherent value of its assets; |
➢ | proven management, clearly-defined management objectives and strong technical and professional support; |
➢ | future capital requirements to develop the full potential of its business and the expected ability to raise the necessary capital; |
➢ | anticipated rate of return and the level of risk; and |
➢ | financial performance, including consistency of positive cash flow. |
➢ | The Company may invest in securities of both public and private companies or other entities that the Company believes have the potential for superior investment returns. |
➢ | The Company will maintain a flexible position with respect to the form of investment taken and may employ a wide range of investment instruments, including equity, bridge loans, secured loans, unsecured loans, convertible debentures, warrants, options, royalties, net profit interests and other hybrid instruments. |
➢ | The Company will not invest in physical commodities, derivatives, “short” sales or other similar transactions (except that the Company may sell call options to purchase securities owned by the Company as a means of locking in gains or avoiding future losses). |
➢ | The Company will not be precluded from investing in any particular industry. The Company’s management and the Board have experience and expertise in a wide range of industry sectors and will pursue opportunities in those sectors that the Company believes from time to time offer the best opportunities for the creation of enhanced value for the Company’s shareholders. Similarly, there are no restrictions on the size or market capitalization of companies or other entities in which the Company may invest, subject to the provisions hereof. |
➢ | The Company has no specific policy with respect to investment diversification. Each investment will be assessed on its own merits and based upon its potential to generate above market gains for the Company. |
➢ | Immediate liquidity shall not be a requirement. |
➢ | The Company may, from time to time and in appropriate circumstances, seek a more active role in regards to investment situations and investee companies where the involvement of the Company is expected to make a significant difference to the success of the Company’s investment. In appropriate circumstances, this may involve the Company, either alone or jointly with other shareholders, seeking to influence the governance of public or private issuers by seeking board seats, launching proxy contests or taking other actions to enhance shareholder value, or becoming actively involved in the management or board oversight of investee companies. |
➢ | The Company may also make investments in special situations, including event-driven situations such as corporate restructurings, mergers, spin-offs, friendly or hostile takeovers, bankruptcies or leveraged buyouts. Such special situations may include, without limitation, investments in one or more public companies, by takeover bid or otherwise, where there is an opportunity to invest to gain control over the strategic direction of such public companies, whether using the shares of the Company as currency or otherwise. Such situations may also involve the Company lending money, directly or indirectly. |
➢ | Depending upon market conditions and applicable laws, the Company may seek to sell any or all of its investments when it concludes that those investments no longer offer the potential to generate appropriate gains for the Company, or when other investment opportunities reasonably available to the Company are expected to offer superior returns. This may include the disposition of any or all of the Company’s investments in a particular sector or of a particular nature, or any or all of the Company’s investments more generally, without prior notice to the Company’s shareholders. |
➢ | Subject to applicable laws and regulatory requirements, the Company may also from time to time seek to utilize its capital to repurchase shares of the Company. |
➢ | The Company may, from time to time, use borrowed funds to purchase or make investments, or to fund working capital requirements, or may make investments jointly with third parties. |
➢ | Depending upon the Company’s assessment of market conditions and investment opportunities, the Company may, from time to time, be fully invested, partially invested or entirely uninvested such that the Company is holding only cash or cash-equivalent balances while the Company actively seeks to redeploy such cash or cash-equivalent balances in suitable investment opportunities. Funds that are not invested or expected to be invested in the near-term, while the Company actively seeks to redeploy such funds in one or more suitable investment opportunities, may, from time to time as appropriate, be placed into high quality money market investments. |
➢ | All investments shall be made in compliance with applicable laws in relevant jurisdictions, and shall be made in accordance with the rules and policies of any applicable regulatory authorities. From time to time, the board of directors of the Company may authorize such additional or other investments outside of the guidelines described herein as it sees fit for the benefit of the Company and its shareholders. |
Three months ended December 31, | Twelve months ended December 31, | |||||||||||||||
Operating Results | 2020 | 2019 | 2020 | 2019 | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Realized (loss) on investments, net | - | (162,982 | ) | (197,863 | ) | (708,793 | ) | |||||||||
Unrealized (loss) gain on investments, net | (216,972 | ) | (27,756 | ) | 151,087 | (124,807 | ) | |||||||||
Gain on sale of royalties | - | - | 2,998,002 | - | ||||||||||||
Interest income | - | 3 | - | 2,040 | ||||||||||||
Net (loss) income and comprehensive (loss) | (770,324 | ) | (269,147 | ) | 2,073,533 | (1,507,338 | ) | |||||||||
Basic (loss) income per share | (0.01 | ) | (0.01 | ) | 0.04 | (0.04 | ) | |||||||||
Dilute (loss) income per share | (0.01 | ) | (0.01 | ) | 0.04 | (0.04 | ) |
December 31, 2020 | December 31, 2019 | |||||||
Investments | $ | $ | ||||||
Total equities, at fair value | 3,585,983 | 623,275 | ||||||
Digital assets | 636,600 | - | ||||||
Total investments | 4,222,583 | 623,275 | ||||||
Shareholders' equity (deficiency) | 6,303,796 | (1,165,565 | ) |
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV |
Medivolve Inc.* | (i) | 55,000 common shares | $ 6,600 | $22,000 | 3.3% |
Sulliden Mining Capital Inc. | (i,ii) | 9,091,500 common shares | 2,662,252 | 545,490 | 81.9% |
Silo Wellness Inc.** | (i) | 982,500 common shares | 49,125 | 98,250 | 14.8% |
Total public investments | $ 2,717,977 | $665,740 | 100.0% |
(i) | Investments in related party entities |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
Public Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV |
ARHT Media Inc. | (i) | 125,000 warrants expire Feb 1, 2020 | $ 14,318 | $ - | 0.0% |
Fura Gems Inc. | (i) | 780,000 common shares | 253,400 | 128,700 | 20.6% |
Sulliden Mining Capital Inc. | (i,ii) | 8,091,500 common shares | 2,612,252 | 404,575 | 65.0% |
Yukoterre Resources Inc. | (i) | 1,000,000 common shares | 50,000 | 90,000 | 14.4% |
Total public investments | $ 2,929,970 | $623,275 | 100.0% |
(i) | Investments in related party entities |
(ii) | The Company has filed a Section 62-103 report pursuant to the Securities Act (Ontario) for this investment and has filed an early warning report on SEDAR. |
Private Issuer | Note | Security description | Cost | Estimated Fair Value | % of FV |
Brazil Potash Corp. | (i) | 404,200 common shares | $ 1,998,668 | $1,929,853 | 66.1% |
Flora Growth Corp. | (i) | 1,010,500 common shares | 999,334 | 964,926 | 33.0% |
Skolem Technologies Ltd. | Rights to certain preferred shares | 25,612 | 25,464 | 0.9% | |
Total private investments | $ 3,023,614 | $2,920,243 | 100.0% |
Three months ended December 31, | ||||||||
2020 | 2019 | |||||||
Net (loss) | $ | (770,324 | ) | $ | (269,147 | ) | ||
Realized (loss) on investments, net | - | (162,982 | ) | |||||
Unrealized (loss) on investments, net | (216,972 | ) | (27,756 | ) | ||||
Interest income | - | 3 | ||||||
Gain on sale of royalties | - | - | ||||||
Management and consulting fees | 246,455 | 140,978 | ||||||
Share based payments | 115,798 | - | ||||||
Trade show recoveries | (57,294 | ) | - | |||||
Travel and promotion | 3,491 | 21,938 | ||||||
Office and rent | 31,324 | 18,456 | ||||||
Accounting and legal | 45,225 | 9,678 | ||||||
Regulatory and transfer agent | 10,148 | 2,572 | ||||||
Transaction costs | - | 525 | ||||||
Foreign exchange (loss) | (16,129 | ) | (2,748 | ) | ||||
Acquisition transaction costs | (142,075 | ) | - | |||||
Gain on settlement of payable | - | 118,483 |
Twelve months ended December 31, | ||||||||
2020 | 2019 | |||||||
Net income (loss) | $ | 2,073,533 | $ | (1,507,338 | ) | |||
Realized (loss) on investments, net | (197,863 | ) | (708,793 | ) | ||||
Unrealized gain (loss) on investments, net | 151,087 | (124,807 | ) | |||||
Gain on sale of royalties | 2,998,002 | - | ||||||
Interest income | - | 2,040 | ||||||
Management and consulting fees | 442,490 | 578,017 | ||||||
Share based payments | 115,798 | - | ||||||
Trade show | (57,294 | ) | - | |||||
Travel and promotion | 19,972 | 69,319 | ||||||
Office and rent | 92,371 | 77,891 | ||||||
Accounting and legal | 84,600 | 51,272 | ||||||
Regulatory and transfer agent | 18,273 | 18,148 | ||||||
Transaction costs | 1,592 | 3,739 | ||||||
Foreign exchange (loss) gain | (17,816 | ) | 4,125 | |||||
Acquisition transaction costs | (142,075 | ) | - | |||||
Gain on settlement of payable | - | 118,483 |
December 31, 2020 | ||||||||
United States Dollars | British Pound | |||||||
Cash | $ | 67,475 | $ | - | ||||
Private investments | 2,920,243 | |||||||
Prepaid investment | 128,060 | |||||||
Digital assets | 636,600 | |||||||
Accounts payable and accrued liabilities | (3,437 | ) | (76,872 | ) | ||||
Net assets (liabilities) | $ | 3,748,941 | $ | (76,872 | ) | |||
December 31, 2019 | ||||||||
United States Dollars | British Pound | |||||||
Cash | $ | 129 | $ | - | ||||
Accounts payable and accrued liabilities | (58,446 | ) | (75,957 | ) | ||||
Net assets (liabilities) | $ | (58,317 | ) | $ | (75,957 | ) |
a) | to allow the Company to respond to changes in economic and/or marketplace conditions by maintaining the Company’s ability to purchase new investments; |
b) | to give shareholders sustained growth in value by increasing shareholders’ equity; while |
c) | taking a conservative approach towards financial leverage and management of financial risks. |
a) | raising capital through equity financings; and |
b) | realizing proceeds from the disposition of its investments |
31-Dec | 30-Sep | 30-Jun | 31-Mar | 31-Dec | 30-Sep | 30-Jun | 30-Mar | 31-Dec | ||||||||||||||||||||||||||||
2020 | 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | 2019 | 2018 | ||||||||||||||||||||||||||||
Revenue | $ | (216,972 | ) | 3,079,896 | 283,910 | (195,608 | ) | (190,735 | ) | 107,411 | (450,120 | ) | (298,116 | ) | (773,158 | ) | ||||||||||||||||||||
Net (loss) income | (770,324 | ) | 2,959,668 | 215,140 | (330,952 | ) | $ | 269,147 | ) | (92,534 | ) | 643,996 | ) | (501,661 | ) | $ | (3,223,787 | ) | ||||||||||||||||||
(Loss) income per share - basic | -0.01 | 0.05 | 0.01 | -0.01 | -0.01 | -0.00 | -0.02 | -0.01 | -0.08 | |||||||||||||||||||||||||||
(Loss) income per Share - diluted | -0.01 | 0.05 | 0.01 | -0.01 | -0.01 | -0.00 | -0.02 | -0.01 | -0.08 | |||||||||||||||||||||||||||
Total Assets | $ | 7,296,044 | $ | 3,785,693 | $ | 740,725 | $ | 432,597 | $ | 636,459 | $ | 898,625 | $ | 901,094 | $ | 1,453,913 | $ | 1,946,695 | ||||||||||||||||||
Total Long term liabilities | $nil | $nil | $nil | $nil | $nil | $nil | $nil | $nil | $nil |
31-Dec-20 | 31-Dec-19 | 31-Dec-18 | ||||||||||
(a) Net Sales | - | - | - | |||||||||
(b) Net Income (Loss) and Comprehensive Income (Loss) | ||||||||||||
(i) Total income (loss) | $ | 2,073,533 | $ | (1,507,338 | ) | $ | (9,794,067 | ) | ||||
(ii) Income (loss) per share – basic | $ | 0.04 | $ | (0.04 | ) | $ | (0.24 | ) | ||||
(iii) Income (loss) per share – diluted | $ | 0.04 | $ | (0.04 | ) | $ | (0.24 | ) | ||||
(c) Total Assets | $ | 7,296,044 | $ | 636,459 | $ | 1,946,695 | ||||||
(d) Total Liabilities | $ | 992,248 | $ | 1,802,024 | $ | 1,604,922 |
OFF BALANCE SHEET ARRANGEMENTS
Investment | Nature of relationship | Estimated Fair Value | % of FV | ||||||
| |||||||||
Brazil Potash Corp. * | Director (Stan Bharti), officer (Ryan Ptolemy) and common shareholders | $ | 1,929,853 | 54.2 | % | ||||
Flora Growth Corp. * | Directors (Stan Bharti, William Steers), and common shareholders | 964,926 | 27.1 | % | |||||
Medivole Inc.** | Former director (Stan Bharti), director (Daniyal Baizak), and common shareholders | 22,000 | 0.6 | % | |||||
Sulliden Mining Capital Inc. | Director (Stan Bharti), officer (Ryan Ptolemy) and common shareholders | 545,490 | 15.3 | % | |||||
Silo Wellness Inc.*** | Former Director and Officer (Fred Leigh), Officer (Kenny Choi) and common shareholders | 98,250 | 2.8 | % | |||||
Total investment - December 31, 2020 | $ | 3,560,519 | 100.0 | % |
* Private companies ** Formerly QuestCap Inc. *** Formerly Yukoterre Resources Inc. |
Investment | Nature of relationship | Estimated Fair Value | % of FV | ||||||
ARTH Media Inc. | Director (William Steers), and common shareholders /warrant holders | $ | - | 0.0 | % | ||||
Fura Gems Inc. | Officer (Ryan Ptolemy), and common shareholders /warrant holders | 128,700 | 20.6 | % | |||||
Sulliden Mining Capital Inc. | Director (Stan Bharti), and common shareholders / warrant holders | 404,575 | 65 | % | |||||
Yukoterre Resources Inc. | Former Director and Officer (Fred Leigh), Officer (Kenny Choi) and common shareholders | 90,000 | 14.4 | % | |||||
Total investment - December 31, 2019 | $ | 623,275 | 100.0 | % |
• | The Company incurred $250,295 (2019 - $120,000) of expenses for its proportionate share of shared office costs with other corporations that may have common directors and officers. The costs associated with this space are administered by 2227929 Ontario Inc. As at December 31, 2020, the Company had a payable balance of $80,183 (December 31, 2019 - $439,007) with 2227929 Ontario Inc. to cover shared expenses. Such amounts are unsecured, non-interest bearing, with no fixed terms of payment and due on demand. 2227929 Ontario Inc. participated in the Company’s June and November 2020 private placement financing and subscribed a total of 4,822,617 units for gross proceeds of $424,679. Fred Leigh, a former officer and director of the Company, is also a director of 2227929 Ontario Inc. |
• | The Company incurred $120,000 (2019 - $120,071) for administration costs with Forbes. In August 2017, Forbes became an insider of the Company owning approximately 34.9%, at the time, (approximately 27.9% at December 31, 2019) outstanding shares of the Company through an acquisition of Quebec Gold royalty interests. The Company is also part of the Forbes Group of Companies and continue to receive the benefits of such membership, including access to mining professionals, advice from Stan Bharti, the Executive Chairman of Forbes and strategic advice from the Forbes Board of Advisors. An administration fee of $10,000 per month is charged by Forbes pursuant to a consulting agreement. As at December 31, 2020, the Company had a payable balance of $22,600 (December 31, 2019 - $135,680) with Forbes. Such amounts are unsecured, non-interest bearing, with no fixed terms of payment and due on demand. Forbes participated in the Company’s June 2020 private placement financing and subscribed an aggregate 5,275,989 units for gross proceeds of $158,280. Forbes owns approximately 16.3% of the Company as at December 31, 2020. |
• | Included in accounts payable and accrued liabilities were expenses of GBP 44,228 ($76,872) (December 31, 2019 - $75,957) expenses owed to Vik Pathak, a former director and officer of DeFi. |
• | In connection with the June 2020 private placement financing, a former director and officer subscribed 1,506,667 units through a Company under his control for gross proceeds of $45,200. In addition, an officer subscribed 166,667 units for gross proceeds of $5,000. |
• | In connection with the November 2020 private placement, 4,000,000 units were acquired by 2227929 Ontario Inc. |
i. | The carrying values of cash, amounts receivable, accounts payable and accrual liabilities approximate their fair values due to the short-term nature of these instruments. |
ii. | Public and private investments are carried at amounts in accordance with the Company’s accounting policies as set out in Note 2 of the Company’s audited consolidated financial statements for the years ended December 31, 2020 and 2019. |
iii. | Digital assets are carried at the amount of US dollars they can be converted into. |
Investments, fair value | Level 1 (Quoted Market price) | Level 2 (Valuation technique - observable market Inputs) | Level 3 (Valuation technique - non-observable market inputs) | Total |
$ | $ | $ | $ | |
Publicly traded investments | 567,490 | - | 98,250 | 665,740 |
Privately traded investments | - | - | 2,920,243 | 2,920,243 |
Digital Asset | - | 636,600 | - | 636,600 |
December 31, 2020 | 567,490 | 636,600 | 3,018,493 | 4,222,583 |
Publicly traded investments | 623,275 | - | - | 623,275 |
December 31, 2019 | 623,275 | - | - | 623,275 |
Investments, fair value for the period ended | December 31, 2020 | December 31, 2019 | ||||||
Balance, beginning of year | $ | - | $ | 50,000 | ||||
Purchases | 3,121,864 | - | ||||||
Transferred to Level 1 | - | (50,000 | ) | |||||
Realized and unrealized gain/(loss) net | (103,371 | ) | - | |||||
Balance, end of year | $ | 3,018,493 | $ | - |
Description | Fair value | Valuation technique | Significant unobservable input(s) | Range of significant unobservable input(s) |
Brazil Potash Corp. | $ 1,929,853 | Recent financing | Marketability of shares | 0% discount |
Flora Growth Corp. | $ 964,926 | Recent financing | Marketability of shares | 0% discount |
Skolem Technologies Ltd. | $ 25,464 | Recent financing | Marketability of shares | 0% discount |
Silo Wellness Inc, | $ 98,250 | Recent financing | Marketability of shares | 0% discount |
$ 2,920,243 |
• | continued worldwide growth in the adoption and use of cryptocurrencies; |
• | governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the network or similar cryptocurrency systems; |
• | changes in consumer demographics and public tastes and preferences; |
• | the maintenance and development of the open-source software protocol of the network; |
• | the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; |
• | general economic conditions and the regulatory environment relating to digital assets; and |
• | negative consumer sentiment and perception of cryptocurrencies. |
• | continued worldwide growth in the adoption and use of Bitcoins and other digital currencies; |
• | government and quasi-government regulation of Bitcoins and other digital assets and their use, or restrictions on, or regulation of, access to and operation of the Bitcoin Network or similar digital asset systems; |
• | changes in consumer demographics and public tastes and preferences; |
• | the maintenance and development of the open-source software protocol of the Bitcoin Network or similar digital asset systems; |
• | the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; |
• | general economic conditions and the regulatory environment relating to digital assets; and |
• | negative consumer perception of Bitcoins specifically and cryptocurrencies generally. |