mCLOUD TECHNOLOGIES CORP.
(formerly Universal mCloud Corp.)
Consolidated Financial Statements
(Expressed in Canadian Dollars, unless otherwise noted)
For the Year Ended December 31, 2019 and 2018
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of mCloud Technologies Corp.
Opinion
We have audited the consolidated financial statements of mCloud Technologies Corp. (formerly Universal mCloud Corp.) (the
Entity), which comprise:
•
•
•
•
•
the consolidated statement of financial position as at December 31, 2019;
the consolidated statement of loss and comprehensive loss for the year then ended;
the consolidated statement of changes in equity (deficiency) for the year then ended;
the consolidated statement of cash flows for the year then ended; and
and notes to the consolidated financial statements, including a summary of significant accounting policies.
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of
the Entity as at December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board.
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 “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’
report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada and 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.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the financial statements, which indicates that for the year ended December 31, 2019 the entity has
generated a net loss and negative cash flows from operating activities and as at December 31, 2019 had an accumulated deficit and
a working capital deficiency .
As stated in Note 1 in the financial statements, these events or conditions, along with other matters as set forth in Note 1 in the
financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Entity's ability to continue as a
going concern.
Our opinion is not modified in respect of this matter.
Emphasis of Matter –Change in Accounting Policy
We draw attention to Note 2 to the financial statements which indicates that the Entity has changed its accounting policy for IFRS
16 - Leases and has applied that change using the modified retrospective method.
Our opinion is not modified in respect of this matter.
Other Matter – Comparative Information
The financial statements for the year ended December 31, 2018 were audited by another auditor who expressed an unmodified
opinion on those financial statements on May 25, 2019.
Other Information
Management is responsible for the other information. Other information comprises:
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we
conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled
“Annual Information Form” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of this other information, we are required to
report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International
Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’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 Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ 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 the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the 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 risk 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 Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• 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
Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditors’ report to the related disclosures in the 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 auditors’ report. However,
future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• 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.
• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
/s/ KPMG LLP
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditors’ report is Philip Dowad
Vancouver, Canada
May 25, 2020
mCloud Technologies Corp.
Consolidated Statements of Financial Position
As at December 31, 2019 and 2018
(Expressed in Canadian Dollars)
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Prepaid expenses and deposits
Current portion of long-term receivables
Due from related party
Total current assets
Non-current assets
Long term portion of prepaid expenses and deposits
Long-term receivables
Right-of-use assets
Property and equipment
Intangible assets
Goodwill
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness
Trade payables and accrued liabilities
13,16,20
Deferred revenue
Due to related party
Loans and borrowings
Warrant liabilities
Current portion of lease liabilities
Business acquisition payable
Total current liabilities
Non-current liabilities
Convertible debentures
Lease liabilities
Loans and borrowings
Lease inducement
Deferred income tax liability
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Accumulative other comprehensive income (loss)
Deficit
Total shareholders’ equity
Non-controlling interest
Total liabilities and shareholders’ equity
Nature of operations and going concern (note 1)
Related party transactions (note 20)
Commitments and contingencies (note 23)
Events after reporting period (note 28)
8
20
15
5
2,11
14
16
2,11
15
2
22
17
18
5,25
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Notes
December 31, 2019 December 31, 2018
$
529,190 $
1,325,794
6,562,069
98,606
740,406
2,907,806
—
601,422
427,943
217,252
62,715
54,570
$
10,838,077 $
2,689,696
7,8
9
7
20
9
7
2,11
10
12
6,12,26
4
$
$
$
2,19,27
$
1,471,805 $
86,913
1,586,429
4,206,808
710,552
23,671,089
18,758,975 $
49,020,766 $
59,858,843 $
8,837,367
1,138,281
799,038
3,004,717
725,086
720,457
1,043,314
17,740,065 $
17,535,946 $
3,641,627
10,968,338
—
3,854,614
—
100,985
—
275,477
3,167,873
—
3,544,335
6,234,031
—
2,225,940
133,678
36,870
28,500
—
—
1,088,791
3,513,779
—
—
49,785
117,297
—
53,740,590 $
3,680,861
45,368,745 $
19,815,174
8,093,119
363,250
1,759,217
(44,464)
(49,631,099)
(18,976,757)
4,194,015 $
2,553,170
1,924,238
—
59,858,843 $
6,234,031
Consolidated Statements of Loss and Comprehensive Loss
For the Year Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
Revenue
Cost of sales
Gross profit
Expenses
Salaries, wages and benefits
Sales and marketing
Research and development
General and administration
Professional and consulting fees
Share based compensation
Depreciation and amortization
Total expenses
Operating Loss
Other expenses (income)
Finance costs
Finance income
Foreign exchange loss
Impairment
Business acquisition costs and other expenses
Loss before tax for the year
Current tax expense
Deferred tax recovery
Net loss for the year
Other comprehensive income (loss)
Foreign subsidiary translation difference
Comprehensive loss for the year
Net (loss) income for the period attributable to:
Parent company
Non-controlling interest
Comprehensive (loss) income for the year attributable to:
Parent company
Non-controlling interest
Loss per share – basic and diluted
Weighted Average Number of Common Shares Outstanding
December 31, 2019 December 31, 2018
$
$
$
4,8
20
20
20
17,18
10,11,12
$
$
$
21
10,11,12
6,26
18,340,249 $
1,794,472
7,583,127
547,340
10,757,122 $
1,247,132
10,313,803 $
3,166,788
498,099
3,294,550
4,351,812
1,468,361
4,044,143
4,951,058
3,336,016
117,699
1,093,137
1,081,114
1,419,399
518,396
27,137,556 $
12,516,819
16,380,434 $
11,269,687
3,217,500 $
(167,913)
494,404
600,657
9,880,170
183,717
(90,565)
(47,619)
675,479
197,169
$
(30,405,252) $
(12,187,868)
22
22
(181,895)
1,877,313
—
—
$
(28,709,834) $
(12,187,868)
607,302
(195,206)
$
(28,102,532) $
(12,383,074)
$
(30,654,342) $
(12,187,868)
1,944,508
—
(28,709,834)
(12,187,868)
$
$
$
(30,246,628) $
(12,383,074)
2,144,096
—
(28,102,532) $
(12,383,074)
(2.50) $
(1.77)
12,255,967
6,869,087
The accompanying notes are an integral part of these consolidated financial statements.
mCloud Technologies Corp.
Consolidated Statements of Changes in Equity (Deficiency)
For the Year Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
Balance, December 31, 2017
Shares issued for cash, net of issuance costs
Shares issued on business combination
Shares issued on acquisition of intangible assets
Warrants exercised
RSU’s exercised
Share-based payments
Net loss for the year
Other comprehensive loss for the year
Balance, December 31, 2018
Notes
17
17
17
17
17,18
17,18
Contributed
Surplus
Accumulated
Other
Comprehensive
Income (loss)
$
$
Non-
controlling
Interest
(notes 5 and
25)
$
Share
Capital
$
Total
Shareholders’
Equity (Deficiency)
$
Deficit
$
$ 4,607,282 $
121,922 $
150,742 $
— $ (6,788,889) $
(1,908,943)
12,878,521
647,781
1,547,750
131,656
228,965
—
—
(8,885)
238,500
(238,500)
182,500
1,236,899
—
—
—
—
—
—
—
—
(195,206)
—
—
—
—
—
—
—
—
—
—
—
—
—
13,526,302
1,547,750
131,656
220,080
—
1,419,399
(12,187,868)
(12,187,868)
(195,206)
$ 19,815,174 $ 1,759,217 $
(44,464) $
— $ (18,976,757) $
2,553,170
Balance, December 31, 2018
$ 19,815,174 $ 1,759,217 $
(44,464) $
— $ (18,976,757) $
Share-based payments
RSU's exercised
Stock options exercised
Warrants exercised
Shares issued on business combination
Transaction costs on business combination
Shares issued to extinguish the loan from Flow Capital
Shares issued to settle liabilities
Share issuance costs
Warrants issued
Equity component of convertible debentures
Contingent shares issuable to Flow Capital
Non-controlling interest recognized in business combination
Net loss for the year
Other comprehensive income for the year
18
17,18
17,18
17
6,17
6,17
17,5
17
16
16
5
5
—
1,468,361
142,277
(142,277)
658,074
(114,825)
1,865,773
(138,571)
13,320,000
8,880,000
606,495
84,252
(3,300)
—
—
—
—
—
—
—
—
—
—
—
61,000
4,488,214
712,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(219,858)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,553,170
1,468,361
—
543,249
1,727,202
13,320,000
8,880,000
606,495
84,252
(3,300)
61,000
4,488,214
712,000
(219,858)
1,944,508
(30,654,342)
(28,709,834)
407,714
199,588
—
607,302
Balance, December 31, 2019
$ 45,368,745 $ 8,093,119 $
363,250 $
1,924,238 $ (49,631,099) $
6,118,253
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
Cash flows related to the following activities:
Operating activities
Net loss for the period
Items not affecting cash:
Provision for bad debts
Write-off of related party balance
Gain on settlement of lease liability
Depreciation and amortization
Share-based payments
Finance costs
Finance income
Impairment
Business acquisition costs and other expenses
Foreign currency exchange
Current tax expense
Deferred tax recovery
Net change in non-cash working capital items:
Bank indebtedness
Trade and other receivables
Long-term receivables
Prepaid expenses and deposits
Inventory
Trade payables and accrued liabilities
Deferred revenue
(Repayment of) advances from related party
Lease inducement
Interest paid
Taxes paid
Notes
December 31, 2019 December 31, 2018
(28,709,834)
(12,187,868)
19
20
11
10,11,12
18
11,15,16
12
6
377,503
54,570
(99,979)
4,044,143
1,468,361
3,217,500
(167,913)
600,657
8,880,000
542,016
181,895
(1,877,313)
1,471,805
(169,896)
(3,662,207)
(175,335)
326,326
1,401,479
447,511
(299,118)
—
(1,992,496)
(376,093)
—
—
—
—
518,396
1,419,399
210,735
—
675,479
—
(258,619)
—
—
—
—
(71,336)
(163,700)
210,418
(427,943)
(1,111,394)
133,678
(79,168)
117,297
—
—
Cash flows used in operating activities
(14,516,418)
(11,014,626)
Financing activities
Repayment of lease liabilities
Repayment of loans
Proceeds from loans, net of transaction costs
Proceeds from issuance of convertible debentures
Proceeds from exercise of stock options, net of issuance costs
Proceeds from exercise of warrants, net of issuance costs
Payment of business acquisition payable
Payment of business acquisition payable
Cash flow from financing activities
11
15
16
18
18
18
14
(422,783)
—
(6,787,528)
(636,000)
16,539,700
22,865,049
543,249
1,727,202
—
—
—
—
—
—
13,746,382
(771,204)
34,464,889
12,339,178
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
Investing activities
Acquisition of property and equipment
Acquisition of royalty agreement
Acquisition and expenditure of intangible assets
Acquisition of business, net of cash acquired
Cash flows (used in) provided by investing activities
Increase in cash and cash equivalents
Foreign exchange effect on cash held in United States dollars
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow information (Note 24)
Notes
December 31, 2019 December 31, 2018
10
5
5,6
(138,123)
(204,604)
—
(20,389,426)
(20,732,153)
(267,831)
—
(227,001)
362,043
(132,789)
(783,682)
1,191,763
(12,922)
1,325,794
529,190
28,272
105,759
1,325,794
The accompanying notes are an integral part of these consolidated financial statements.
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
NOTE 1 – INCORPORATION AND OPERATIONS
mCloud Technologies Corp. (the “Company”), formerly Universal mCloud Corp., is a company domiciled in Canada.
The Company initially was incorporated in the name of Universal Ventures Inc. (“Universal”) pursuant to the British
Columbia Business Corporations Act on December 21, 2010. On October 13, 2017, Universal completed a merger
agreement with mCloud Corp. (“mCloud”) whereby Universal issued 35,844,296 common shares to the shareholders
of mCloud, resulting in mCloud’s shareholders controlling Universal and therefore constituting a reverse takeover
(“RTO”) of Universal (the “Transaction”). mCloud was incorporated under the laws of the State of Delaware on
December 17, 2016. In conjunction with the Transaction, Universal changed its name to Universal mCloud Corp. On
October 23, 2019, Universal mCloud Corp. changed its name to mCloud Technologies Corp.
On April 22, 2019, the Company consolidated Agnity Global Inc., (“Agnity”) (note 5). Agnity is a provider of intelligent
business communication application solutions and infrastructure for telecommunications and healthcare verticals.
On July 10, 2019, the Company acquired Autopro Automations Consultants Ltd. (“Autopro”) located in Alberta,
Canada (note 6). Autopro, founded in 1990, is a professional engineering and integration firm that specializes in the
design and implementation of industrial automation solutions. Autopro’s technology offering follows data from field
sensing and control devices to the corporate boardroom. The acquisition of Autopro allows the Company to
accelerate the development of AI-powered asset management solutions for oil and gas applications.
The Company is headquartered in Vancouver, British Columbia, with technology and operations centers in San
Francisco, California, Bristol, Pennsylvania, and various cities in Alberta. The Company is an asset care cloud solution
company utilizing connected IoT devices, leading deep energy analytics, securing mobile and 3D technologies that
rally all asset stakeholders around an Asset-Circle-of-Care™, and providing complete real-time and historical data
coupled with guidance and advice.
The Company’s shares trade on the TSX Venture Exchange (“TSX.V”) under the symbol MCLD and commenced
trading on the OTCQB in the United States under the symbol MCLDF on May 18, 2018.
The Company’s head and registered office is located at 550-510 Burrard St., Vancouver, British Columbia, V6C 3A8.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates that the
Company will continue in operation and be able to realize its assets and discharge its liabilities and commitments in
the normal course of business for the foreseeable future. In assessing whether the going concern assumption is
appropriate and whether there are material uncertainties that may cast significant doubt about the Company’s ability
to continue as a going concern, management considers all available information about the future which is at least, but
not limited to, twelve months from the end of the reporting period.
During the year ended December 31, 2019, the Company generated a net loss of $28,709,834 and negative cash flows
from operating activities of $14,516,418. As at December 31, 2019, the Company has an accumulated deficit of
$49,631,099 and a working capital deficiency of $6,901,988. Based on current projections, the Company may not have
sufficient capital to fund its current planned operations during the twelve-month period subsequent to December 31,
2019. In addition, the outbreak of COVID-19 since December 31, 2019 resulted in a challenging global economic
climate that may lead to further adverse changes in cash flows, working capital levels and/or debt balances, which
may also have a direct impact on the Company’s operating results and financial position, and ability to raise
financing. The magnitude of the impact of the COVID-19 outbreak on the Company’s business is not known at this
time. The continuation of the Company as a going concern is dependent on its ability to achieve positive cash flow
from operations, to obtain the necessary equity or debt financing to continue with expansion in the asset care market,
and to ultimately attain and maintain profitable operations. These conditions indicate a material uncertainty that may
cast significant doubt on the Company’s ability to continue as a going concern.
Subsequent to December 31, 2019, the Company successfully closed its private placement offering of 3,332,875
special warrants for aggregate gross proceeds of $13,331,500 on January 27, 2020. The Company also received
funding reliefs totaling $1,107,317 from the US and Canadian government subsequent to December 31, 2019 to help
alleviate the negative impact of the COVID-19 outbreak to its business. (note 28)
While the Company has been successful in raising capital in the past, there is no assurance that it will be successful
in closing further financings in the future. These consolidated financial statements do not give effect to any
adjustments to the carrying value of recorded assets and liabilities, revenue and expenses, the statement of financial
position classifications used and disclosures that might be necessary should the Company be unable to continue as
a going concern. Such adjustments could be material.
1
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company as at and for the year ended December 31, 2019, including
comparatives, have been 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”).
These consolidated financial statements have been prepared on the historical cost basis, except for certain financial
instruments that have been measured at fair value. Certain comparative balances were reclassified to conform with
current financial statements presentation.
These consolidated financial statements were authorized for issue by the Audit Committee, on behalf of the Board of
Directors, on May 25, 2020.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at
December 31, 2019. A consolidated subsidiary is an entity controlled by the Company. Control is achieved when the
Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if,
the Company has:
• power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the
investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company
obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
financial statements from the date the Company gains control until the date the Company ceases to control the
subsidiary.
All intercompany balances and transactions are eliminated in full upon consolidation. Profit or loss and each
component of other comprehensive income are attributed to the equity holders of the parent company and to the non-
controlling interests.
The entities contained in the consolidated financial statements are as follows:
Entity
Principal
activity
Place of
business
and operations
Functional
currency
Equity
percentage
Non-
controlling
interest
(”NCI”)
mCloud Technologies Corp. (formerly
Universal mCloud Corp.)
Parent
company
Canada
CDN $
mCloud Technologies (USA) Inc.
(formerly Universal mCloud (USA) Corp.)
Operating
company
United States
USD $
100 %
mCloud Technologies (Canada) Inc.
Field Diagnostic Services, Inc. (“FDSI”)
NGRAIN (Canada) Corporation
(“NGRAIN”)
NGRAIN (US) Corporation
mCloud Corp. (HK) Corp
Operating
company
Operating
company
Operating
company
Operating
company
Inactive
company
Canada
CDN $
United States
USD $
Canada
CDN $
United States
USD $
Hong Kong
USD $
100 %
100 %
100 %
100 %
100 %
0 %
0 %
0 %
0 %
0 %
0 %
2
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
mCloud (Beijing) Corp
mCloud (Hubei) Corp
Autopro Automation Ltd.
Autopro Automation Consultants Ltd.
Inactive
company
Inactive
company
Inactive
company
Operating
company
China
China
Canada
Canada
RMB $
RMB $
CDN $
CDN $
100 %
100 %
100 %
100 %
Autopro Technologies and Engineering
Company Private Limited
Inactive
company
India
INR $
100 %
Agnity Global, Inc. (“Agnity”)
Agnity Communications, Inc. (“ACI”)
Agnity Healthcare, Inc. (“AHI”)
Operating
company
Operating
company
Operating
company
United States
USD $
United Stated
USD $
United States
USD $
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
100 %
100 %
100 %
Summary of significant accounting policies
These accounting policies were consistently applied to all periods presented in these consolidated financial
statements, except for those adopted by the Company effective January 1, 2019 as disclosed below.
a) Cash and bank indebtedness
Cash consists of cash held at financial institutions.
Bank indebtedness consists of bank overdrafts repayable on demand for cash management purposes.
b) Foreign currencies
The Company’s consolidated financial statements are presented in Canadian dollars, which is also the parent
company’s functional currency. For each subsidiary, functional currency is determined and items included in the
financial statements of each entity are measured using respective functional currency.
Transactions in currencies other than the Company's or subsidiaries’ functional currency 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 translated at the rates prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the
initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. Exchange differences are recognized in profit or loss in
the period in which they arise.
On consolidation, the assets and liabilities of subsidiaries that have a functional currency different from the Canadian
dollar presentation currency of the Company are translated at the rate of exchange prevailing at the reporting date
and revenue and expense items are translated at the average rate of the exchange for the year. The exchange
differences arising on translation for consolidation are recognized in other comprehensive income (loss) (“OCI”).
c) Property and equipment
Property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if
any. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
Asset
Computer equipment
Office furniture and equipment
Leasehold improvements
Life
2 -5 years
7 years
lesser of useful lives or lease term
3
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
When a property and equipment has significant components with different useful lives, each significant component is
depreciated separately. The estimated useful lives and depreciation methods are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of
property and equipment is determined as the difference between the sales proceeds and the carrying amount of the
asset and is recognized in profit or loss.
Repairs and maintenance costs that do not improve or extend productive life are recognized in profit or loss in the
period in which the costs are incurred.
d) Business combination
Acquisitions of subsidiaries and assets that meet the definition of a business under IFRS are accounted for using the
acquisition method. The consideration transferred in the acquisitions is measured at acquisition date fair value. The
identifiable assets acquired and liabilities assumed that meet the conditions for recognition under IFRS 3 Business
Combinations are recognized at their fair values at the acquisition date. Any excess consideration over the fair value
of the identifiable net assets is recognized as goodwill. Acquisition-related costs, other than those associated with
the issuance of debt or equity, are recognized in profit or loss as incurred.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted retrospectively during the measurement period, or additional assets or
liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the
acquisition date that, if known, would have affected the amounts recognized as of that date. The measurement period
is the period from the date of acquisition to the date the Company obtains complete information about facts and
circumstances that existed as of the acquisition date up to a maximum of one year.
Any contingent consideration is measured at fair value at the acquisition date. If contingent consideration that meets
the definition of a financial instrument is classified as equity, it is not remeasured and its subsequent settlement is
accounted for within equity. Other contingent consideration is re-measured at fair value at each reporting date with
changes in fair value recognized in profit or loss.
Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the
date of acquisition. Changes to the Company’s interest in a subsidiary that do not result in a loss of control are
accounted for as equity transactions.
e) Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the
amount recognized for non-controlling interests and any previous interest held over the net identifiable assets
acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated
impairment losses and is tested annually for impairment. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units
(“CGU”) or group of CGUs that are expected to benefit from the synergies of the business combination, irrespective
of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill
associated with the disposed operation is included in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the
disposed operation and the portion of the cash-generating unit retained.
f)
Inventory
Inventory consist of hardware and is stated at the lower of cost and net realizable value. The cost of inventory is
based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventory, production or
conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable
value represents the estimated selling price for inventory less all estimated costs of completion and costs necessary
to make the sale.
4
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
g)
Intangible assets
Intangible assets acquired separately
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible
assets are carried at cost less any accumulated amortization and accumulated impairment losses.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are
amortized over the useful economic life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortization expense on intangible assets with finite lives is recognized in
profit or loss. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually
or more frequently when circumstances indicate that the carrying value may not be recoverable.
Intangible assets are amortized over their estimated useful lives, on a straight line basis, as follows:
Asset
Technology
Customer relationships
Patents and trademarks
Life
5 years
5-20 years
5-15 years
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of
any changes in estimate being accounted for on a prospective basis.
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the
net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is
derecognized.
Internally-generated intangible assets
Expenditures on research activities is recognized as expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal
project) is recognized if, and only if, all of the following have been demonstrated:
•
•
•
•
•
•
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
The intention to complete the intangible asset and use or sell it;
The ability to use or sell the intangible asset;
How the intangible asset will generate probable future economic benefits;
The availability of adequate technical, financial and other resources to complete the development and to use
or sell the intangible asset; and,
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from
the date when the intangible asset first meets the recognition criteria listed above.
Where no internally-generated intangible asset can be recognized, development expenditures are recognized in profit
or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired
separately.
h)
Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s
recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount.
The recoverable amount of an asset or CGU is the higher of an asset’s or CGU’s fair value less costs of disposal and
its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account.
5
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated
by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on most recent budgets and/or forecast calculations, which are
prepared for the Company’s CGUs or group of CGUs to which the individual assets are allocated. These budgets and
forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to
project future cash flows after the fifth year.
An impairment loss is recognized in the statement of profit or loss if the carrying amount of an asset or CGU exceeds
its recoverable amount.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an
indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists,
the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is
reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since
the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in
the statement of profit or loss.
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying
value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or
group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU or group of CGU is less than
its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in
future periods.
Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at the CGU level,
as appropriate, and when circumstances indicate that the carrying value may be impaired.
i)
Leases
Prior year leases policy
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
Operating lease payments are recognized as an expense as incurred.
In the event that lease incentives, such as deferral of cash payments, are received to enter into operating leases, such
incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Current leases policy
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company applies
a single recognition and measurement approach for all leases, except for short-term leases (with term of less than 12
months) and leases of low-value assets. The Company recognizes right-of-use assets representing the right to use
the underlying asset and lease liabilities representing its obligation to make lease payments.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or before commencement date, plus any initial direct costs incurred less any lease
incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from
commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The estimated useful lives of right-of-use assets are determined on the same basis as those of property and
equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for
certain remeasurement of the lease liability.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the
Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount
rate. The lease liability is subsequently increased to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of the lease
liabilities is remeasured if there is a modification such as, a change in lease payments or a change in the assessment
of an option to purchase the underlying asset.
6
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have
a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be
low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a
straight-line basis over the lease term.
j)
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received, and the
amount of the receivable can be measured reliably.
k) Revenue recognition
The Company’s revenues are derived from the sales of hardware, perpetual software licenses, subscriptions to
AssetCare, the Company’s cloud-hosted asset efficiency analysis platform, installation and engineering, as well as
post contract support and maintenance (“PCS”). A subscription to AssetCare platform allows the Company’s
customers to use the hosted software over the contract term without taking possession of the software.
Revenue from sale of hardware and perpetual software licenses is recognized at a point in time when control of the
hardware and software is transferred to the customers, generally upon delivery at the customer’s location.
Installation services are primarily for the installation of energy efficient hardware and IoT connections which feed
information to the AssetCare platform. Engineering services are primarily consulting, implementation and integration
services entered into either on a time & materials or fixed fee basis. Revenue from installation and engineering
services is recognized overtime, using input method to measure progress towards complete satisfaction of the
service.
Revenue from PCS and subscription to AssetCare platform is recognized ratably over the term of the PCS or
subscription. Any unrecognized revenue is recorded in deferred revenue.
The Company’s contracts often include a number of promised goods or services. The Company’s goods and services
are generally distinct from other performance obligations and accounted for as separate performance obligations. A
good or service is distinct if the customer can benefit from it on its own or together with other readily available
resources, and the Company’s promise to transfer the good or service is separately identifiable from other promises
in the contractual arrangement with the customer.
In determining the transaction price of contract with a customer, the Company considers the effects of variable
consideration, existence of a significant financing component, non-cash consideration, and consideration payable to
the customer (if any). The total transaction price is allocated to each performance obligation on a relative stand-alone
selling price (“SSP”) basis.
The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar
circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data.
Where possible we establish a narrow SSP range for our products and services and assess this range on a periodic
basis or when material changes in facts and circumstances warrant a review. If the SSP is not directly observable,
then we estimate the amount using either the expected cost plus a margin or residual approach. Estimating SSP
requires judgment that could impact the amount and timing of revenue recognized. SSP is a formal process whereby
management considers multiple factors including, but not limited to, geographic or regional specific factors,
competitive positioning, internal costs, profit objectives, and pricing practices. The SSP for perpetual software
licenses and AssetCare subscriptions is highly variable and therefore the Company applies the residual approach,
which determines the SSP by subtracting the SSP of hardware, installation and other services in the contract from the
total transaction price.
For certain contracts, the Company offers payment terms that are longer than 12 months. Financing component
exists when goods and services are delivered upfront while the payment term is extended longer than 12 months.
7
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Where significant, the transaction price for these contracts is discounted, using the interest rate implicit in the
contract (i.e., the interest rate that discounts the cash selling price of the equipment to the amount paid in advance).
This rate is commensurate with the rate that would be reflected in a separate financing transaction between the
Company and the customer at contract inception.
Cost to obtain a contract
Incremental costs to obtain a contract with a customer are capitalized as a contract asset if the Company expects to
recover those costs, and are amortized into operating expenses over the life of the contract on a rational, systematic
basis consistent with the pattern of the transfer of goods or services to which the costs relate. The Company pays
sales commission to its employees for each contract that they obtain. The Company applies the optional practical
expedient to immediately expense costs to obtain a contract if the amortization period of the asset that would have
been recognized is one year or less. Since the commission paid by the Company relates to contracts with term of 12
months or less, sales commissions are immediately recognized as an expense. Such costs are included as part of
employee benefits.
l)
Share-based payments
The Company grants stock options to directors, officers, employees, and consultants. The Company measures stock
options granted to employees at the fair value at the grant date and recognizes compensation expense over the
vesting period. For stock options granted to non-employees, the compensation expense is measured at the fair value
of the goods or services received except where the fair value cannot be estimated in which case it is measures at the
fair value of the equity instrument granted. The fair value of the share based compensation to non-employees is
periodically re-measured until counterparty performance is complete, and any change therein is recognized over the
period and in the same manner as if the Company had paid cash instead of paying with stock options.
The fair value of options is determined using the Black-Scholes option pricing model which incorporates all the
market vesting conditions. The number of options expected to vest is reviewed and adjusted at the end of each
reporting period such that the amount recognized for services received as consideration for the equity instruments
granted shall be based on the number of equity instruments that eventually vest.
Expected forfeitures are estimated at the date of grant and subsequently adjusted if further information indicates
actual forfeitures may vary from the original estimate. The impact of the revision of the original estimate is
recognized in net loss such that the cumulative expense reflects the revised estimate.
Upon exercise of stock options, consideration received on exercise of these equity instruments is recorded as share
capital and the related share-based payment reserve is transferred to share capital.
m) Taxation
Income tax expense of the Company comprises current and deferred taxes.
Current tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or
substantively enacted at the year end, adjusted for amendments to tax payable with regard to previous years.
Deferred tax is recorded using the asset-liability method, providing for temporary differences, between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Temporary differences are not provided for the initial recognition of assets and liabilities that affect neither
accounting nor taxable loss, and differences relating to investments in subsidiary to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred tax is based on the expected manner of realization or
settlement of carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the end of
the reporting period.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be
utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent
that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
The Company offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to
set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to
income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities
which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the
8
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
n) Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing the profit or loss attributable to equity holders of the
Company by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is calculated by dividing the profit attributable to equity holders of the Company by
the weighted average number of common shares outstanding, adjusted for the effects of all dilutive potential
common shares. The weighted average number of common shares outstanding is increased by the total number of
additional common shares that would have been issued by the Company assuming exercise of all share options,
warrants and restricted stock units (RSUs) with exercise prices below the average market price for the year. The
weighted-average number of shares is retroactively adjusted for a 10 for 1 share consolidation which took effect on
December 13, 2019.
o) Share capital
The number of shares and per share amounts in these consolidated financial statements, including comparative
figures, have been adjusted to reflect the changes resulting from a 10 for 1 share consolidation which took effect on
December 13, 2019. This reduced the number of issued and outstanding common shares as at December 31, 2019,
from approximately 158,487,880 to 15,848,788 and the number of issued and outstanding common share as at
December 31, 2018, from approximately 90,901,480 to 9,090,148
p) Financial instruments
Financial Assets
The Company uses a single approach to determine whether a financial asset is classified and measured at amortized
cost or at fair value. The classification and measurement of financial assets is based on the Company's business
models for managing its financial assets and whether the contractual cash flows represent solely payments of
principal and interest ("SPPI"). Financial assets are initially measured at fair value and are subsequently measured at
either (i) amortized cost; (ii) fair value through other comprehensive income, or (iii) at fair value through profit and
loss.
(i) Amortized Cost:
Financial assets classified and measured at amortized cost are those assets that are held within a business
model whose objective is to hold financial assets in order to collect contractual cash flows, and the contractual
terms of the financial asset give rise to cash flows that are SPPI. Financial assets classified at amortized cost
are subsequently measured using the effective interest method and are subject to impairment. Interest income,
foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on
derecognition is recognized in profit or loss.
(ii) Fair value through other comprehensive income ("FVTOCI"):
Financial assets classified and subsequently measured at FVTOCI are those assets that are held within a
business model whose objective is achieved by both collecting contractual cash flows and selling financial
assets, and the contractual terms of the financial asset give rise to cash flows that are SPPI.
The classification includes certain equity instruments where an irrevocable election was made to classify the
equity instruments as FVTOCI. Equity investments require a designation, on an instrument-by-instrument basis,
between recording both unrealized and realized gains and losses either through (i) other comprehensive income
("OCI") with no recycling to profit and loss or (ii) profit and loss. Dividends from these instruments are recognized
as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.
(iii) Fair value through profit or loss ("FVTPL"):
Financial assets classified and subsequently measured at FVTPL are those assets that do not meet the criteria
to be classified at amortized cost or at FVTOCI. This category includes debt instruments whose cash flow
characteristics are not SPPI or are not held within a business model whose objective is either to collect
contractual cash flows and sell the financial asset, and equity instruments not classified at FVTOCI. Net gains
and losses, including any interest or dividend income, are recognized in profit or loss.
9
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
primarily derecognized when:
•
•
The rights to receive cash flows from the asset have expired; or
The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in full without material delay to a third party under a ‘pass-through’
arrangement and either (a) the Company has transferred substantially all the risks and rewards of the asset,
or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the
asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that
case, the Company also recognizes an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of Financial Assets
The Company uses an expected credit loss impairment model on financial assets measured at amortized cost,
contract assets, and debt instruments at FVTOCI, where expected future credit losses are provided for, irrespective of
whether a loss event has occurred at the reporting date. For accounts receivable excluding taxes receivable, the
Company utilized a provision matrix, as permitted under the simplified approach, and has measured the expected
credit losses based on lifetime expected credit losses taking into consideration historical credit loss experience and
financial factors specific to the debtors and other factors. The carrying amount of trade receivables is reduced for
any expected credit losses through an allowance account. Changes in the carrying amount of the allowance account
are recognized in the Consolidated Statements of Loss and Comprehensive Loss. At the point where the Company
are satisfied that no recovery of the amount owing is possible, the amount is considered not recoverable and the
financial asset is written off. The Company also record specific credit loss allowance based on facts and
circumstances on specific customers when indicator of loss is identified.
Financial Liabilities
Financial liabilities are generally classified at measured at amortized cost or FVTPL. A financial liability is classified
as at FVTPL if its classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense are
recognized in profit or loss. Other financial liabilities are measured at fair value at initial recognition and subsequently
measured at amortized cost using the effective interest method.
Financial Liabilities may also includes derivative financial instruments that are entered into by the Company that are
not designated as hedging instruments as defined by IFRS 9 Financial Instruments. Embedded derivatives are
classified as held for trading and any gains and losses are recognized through the Consolidated Statement of Loss
and Comprehensive Loss.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability at its fair value based on the modified term. Upon
derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration
paid is recognized in the statement of profit or loss.
q) Convertible debentures
Convertible debentures are separated into liability and equity components based on the terms of the contract. On
issuance of the convertible debentures, the fair value of the liability component is determined using a market rate for
an equivalent non-convertible instrument. The proceeds is allocated to the liability component first and the remainder
of the proceeds is allocated to the conversion option that is recognized and included in equity. The liability
component (net of transaction costs) is subsequently measured at amortized cost using effective interest rate
method until it is extinguished on conversion or redemption. The carrying amount of the conversion option is not
remeasured in subsequent years.
10
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Transaction costs are apportioned between the liability and equity components of the convertible debentures, based
on the allocation of proceeds to the liability and equity components when the instruments are initially recognized.
r)
Related party balances
Parties are considered to be related if one party has the ability, directly, or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control. Related parties may be individuals or corporate
entities. A transaction is considered to be a related party transaction when there is a transfer of resources or
obligations between related parties.
Changes in significant accounting policies
The Company has adopted IFRS 16 Leases (“IFRS 16”) effective January 1, 2019. Several other standards are
effective from January 1, 2019 but they do not have a material effect on the Company’s consolidated financial
statements.
Adoption of IFRS 16 Leases
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard
provides a single lessee accounting model which requires a lessee to recognize a right-of-use asset representing its
right to use the underlying asset and a lease liability representing its obligation to make lease payments for all leases
with a term of more than 12 months, unless the underlying asset is of low value. Lessor accounting remains similar to
previous accounting policies. The Company elected to use the modified retrospective approach which does not
require restatement of prior period financial information as it recognizes the cumulative effect as an adjustment to
opening accumulated deficit as at January 1, 2019 and applies the standard prospectively.
In applying IFRS 16 for the first time, the Company elected to apply the following practical expedients permitted by
the standard:
•
•
•
•
Applying IFRS 16 only to contracts that were previously identified as leases and not reassessing
arrangements entered into prior to January 1, 2019, and the allocation of contract consideration between
lease and non-lease components;
Accounting for leases with a remaining term of less than 12 months as at January 1, 2019 as short-term
leases;
Accounting for lease payments as an expense on a straight-line basis over the lease term and not
recognizing a right-of-use asset and lease liability if the underlying asset is of low dollar value; and
Using hindsight in determining the lease term where the contract contains terms to extend or terminate the
lease.
On transition to IFRS 16, the Company recognized additional right-of-use assets related to contracts previously
classified as operating leases. When measuring the lease liabilities, the Company discounted the remaining
minimum lease payments, excluding short-term and low-value leases, using its incremental borrowing rate at January
1, 2019. The right-of-use assets recognized at January 1, 2019 were measured at amounts equal to the present value
of the lease liabilities, adjusted by the amount of lease inducements of $117,297 recognized in the Company’s
consolidated statement of financial position at December 31, 2018. The weighted average incremental borrowing rate
(“IBR”) used to determine the lease liabilities at adoption was approximately 8.14%. The right-of-use assets and lease
liabilities recognized relate to office premises in Canada and the United States.
The cumulative effect of initially applying IFRS 16 is summarized below:
Recognition of lease liabilities
Derecognition of lease inducement liability
Recognition of right-of-use assets
January 1, 2019
$
402,383
117,297
285,086
11
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
The aggregate lease liabilities recognized in the consolidated statements of financial position at January 1, 2019
and the Company’s operating lease commitment at December 31, 2018 can be reconciled as follows:
Operating lease commitment as at December 31, 2018
Effect of discounting the lease commitments at weighted average IBR of 8.14%
Lease liabilities recognized at January 1, 2019
January 1, 2019
$
$
460,108
(57,725)
402,383
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases at
December 31, 2018 under IAS 17 Leases (“IAS 17”), the Company recognized $285,086 right-of-use assets and
$402,383 lease liabilities as at January 1, 2019. In relation to these leases under IFRS 16, the Company recognized
$105,642 of depreciation and $22,839 of finance expense during the year ended December 31, 2019. Additionally, the
Company exercised its right to terminate one of its leases resulting in a derecognition of right of use assets of
$78,764 and corresponding derecognition of lease liability of $99,979 during the year ended December 31, 2019. This
is in contrast to total operating lease expenses of $116,770 recognized during the year ended December 31, 2018
(note 11).
Future changes in accounting policies
The following standards are not yet effective for the year ending December 31, 2019, and have not been applied in
the preparation of the consolidated financial statements:
In March 2018, the IASB issued the revised Conceptual Framework for Financial Reporting which assists entities in
developing accounting policies when no IFRS Standard applies to a particular transaction and helps stakeholders to
more fully understand the standards. The revised conceptual framework includes the following clarifications and
updates: (a) a new chapter on measurement; (b) guidance on reporting financial performance; (c) improved
definitions and guidance, particularly for the definition of a liability; and, (d) clarifications on important items such
as the role of stewardship, prudence and measurement uncertainty in financial reporting. The revised conceptual
framework is effective for annual reporting periods beginning on or after January 1, 2020 and is applicable to the
Company starting January 1, 2020. Earlier application is permitted. The adoption of this new standard is not
expected to have any impact on the amounts recognized in the Company's consolidated financial statements.
In October 2018, the IASB issued Definition of Material (Amendments to IAS 1 and 8) to clarify the definition of
‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The
amendments are effective for annual reporting periods beginning on or after January 1, 2020 and are applicable to
the Company starting January 1, 2020. The adoption of this new standard is not expected to have any impact on
the amounts recognized in the Company's consolidated financial statements.
In October 2018, the IASB issued Definition of a Business (Amendments to IFRS 3) which: (a) clarifies that to be
considered a business, an acquired set of activities and assets must include, at a minimum, an input and a
substantive process that together significantly contribute to the ability to create outputs; (b) narrows the definition
of a business and of outputs by focusing on goods and services provided to customers; and (c) removes certain
assessments and adds guidance and illustrative examples. The amendment is effective for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period. While early application
is permitted, the Company will adopt the standard commencing January 1, 2020. The adoption of this standard is
not expected to have an impact on the Company's consolidated financial statements.
NOTE 3 – ACCOUNTING JUDGMENTS, ESTIMATE AND ASSUMPTIONS
In the application of the Company's accounting policies, management is required to make judgments, estimates and
assumptions that affect the carrying amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the periods
presented. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant, the results of which form the basis of the valuation of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates.
12
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the
revision and future years if the revision affects both current and future years.
Judgments
Judgment is used in situations when there is a choice and/or assessment required by management. The following
are critical judgments apart from those involving estimations, that management has made in the process of applying
the Company’s accounting policies and that have a significant effect on the amounts recognized in the consolidated
financial statements.
Going concern
Determining if the Company has the ability to continue as a going concern is dependent on its ability to secure debt
and equity financing, and to achieve profitable operations. Certain judgements were made when determining if and
when the Company will secure dent and equity financing and achieve profitable operations.
Determination of CGUs
For the purposes of assessing impairment of goodwill and non-financial assets, the Corporation must determine
CGUs. Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows.
Determination of what constitutes a CGU is subject to management judgment. The composition of a CGU can directly
impact the recoverability of non-financial assets included within the CGU. Management has determined that the
Company has two CGUs.
Contingencies
Management uses judgment to assess the existence of contingencies. By their nature, contingencies will only be
resolved when one or more future events occur or fail to occur. Management also uses judgment to assess the
likelihood of the occurrence of one or more future events.
Lease term
The Company has applied judgement to determine the lease term for some lease contracts in which it is a lessee that
include renewal options. The assessment of whether the Company is reasonably certain to exercise such options
impacts the lease term, which significantly affects the amount of the lease liabilities and right-of-use assets
recognized.
Taxation
The calculations for current and deferred taxes require management’s interpretation of tax regulations and legislation
in the various tax jurisdictions in which the Company operates, which are subject to change. The measurement of
deferred tax assets and liabilities requires estimates of the timing of the reversal of temporary differences identified
and management’s assessment of the Company’s ability to utilize the underlying future tax deductions against future
taxable income before they expire, which involves estimating future taxable income.
The Company is subject to assessments by various taxation authorities in the tax jurisdictions in which it operates
and these taxation authorities may interpret the tax legislation and regulations differently. In addition, the calculation
of income taxes involves many complex factors. As such, income taxes are subject to measurement uncertainty and
actual amounts of taxes may vary from the estimates made by management.
Acquisition of Agnity
The Company determined that it controls Agnity even though it owns nil voting rights. This is because the Company
has the right to nominate a majority of the members of Agnity’s Operations Committee. This gives the Company the
right and ability to direct the relevant activities of Agnity and to significantly affect its returns through the use of its
rights. Refer to note 5(b) for further details.
Estimates
Critical accounting estimates are those that require management to make assumptions about matters that are highly
uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could
potentially have a material impact on the Company’s financial results where a different estimate or assumption is
used. The significant areas of estimation uncertainty are:
13
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Expected credit losses
The Company's trade receivables and unbilled revenue and amounts due from related parties are primarily short-term
in nature and the Company recognizes an amount equal to the lifetime ECL on receivables for which there has been a
significant increase in credit risk since initial recognition. The Company measures loss allowances based on
historical experience and including forecasted economic conditions. The amount of ECL is sensitive to changes in
circumstances of forecast economic conditions.
Net realizable value of inventory
The net realizable value of inventory is estimated on a product-by-product basis. The determination of this value uses
a combination of historical analysis of each product’s usage, age of inventory and management’s judgment as to the
probability of future use of the product. Based on this assessment, management then estimates the net realizable
value for those products not expected to be used in the foreseeable future. Net realizable value is the estimated
selling price of that product in the ordinary course of business less any estimated costs of completion and estimated
selling costs.
Useful lives of property and equipment and intangible assets
Depreciation of property and equipment and amortization of intangible assets is dependent upon estimates of useful
lives and residual value which are determined through the use of assumptions. Estimates of residual value and useful
lives are based on data and information from various sources including industry practice and historic experience.
Although management believes the estimated useful lives of the Company’s property and equipment and intangible
assets are reasonable, it is possible that changes in estimates could occur, which may affect the expected useful
lives and salvage values of the property and equipment and intangible assets.
Revenue recognition - significant financing component
There is a significant financing component on certain contracts with payment terms exceeding 12 months
considering the length of time between the customers’ payment and the delivery of performance obligations, as well
as the prevailing interest rate in the market. Management estimated this rate based on the credit rating and historical
experience with the customers.
Revenue recognition - variable consideration
Certain contracts entered into by the Company include variable considerations which require management to
estimate the amount it will be entitled in exchange for transferring the goods and/or providing services to the
customer. Management estimated the consideration using historical data and forward looking information available
to the Company at the inception of the contract.
Share-based payments
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. In estimating
the fair value, management is required to make certain assumptions and estimates such as the expected life of
options, volatility of the Company's future share price, risk-free rate, future dividend yields and estimated forfeitures
at the initial grant date. Changes in assumptions used to estimate fair value could result in different outcomes.
Convertible debentures
The allocation of the proceeds from the issuance of convertible debentures between the liability and equity
component requires management to use estimates. In determining the fair value of the liability component, the
Company estimates the market interest rate for an equivalent non-convertible instrument.
Purchase price allocations
The consideration transferred and acquired assets and assumed liabilities are recognized at fair value on the date the
Company effectively obtains control. The measurement of each business combination is based on the information
available on the acquisition date. The estimate of fair value of the consideration transferred and acquired intangible
assets (including goodwill), property and equipment, other assets and the liabilities assumed are based on estimates
and assumptions. The measurement is largely based on projected cash flows, discount rates and market conditions
at the date of acquisition.
Impairment of goodwill and other non-financial assets
Determining whether an impairment has occurred requires the valuation of the respective assets or CGU's, which the
Company estimate the recoverable amount using a discounted cash flow method. The key estimates and
assumptions used are revenue growth, gross margin, discount rate and the level of working capital required to
14
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
support the business. These estimates are based on past experience and management’s expectations of future
changes in the market and forecasted growth initiatives.
Deferred tax assets and liabilities
Deferred tax assets, including those arising from tax loss carryforwards, require management to assess the likelihood
that the Company will generate sufficient taxable earnings in future periods in order to utilize any deferred tax assets.
Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows.
In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future
periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the
Company to realize or recognize net deferred tax assets, if any, at the reporting date could be impacted.
Lease - incremental borrowing rate
The Company cannot readily determine the interest rate implicit in some of its leases, therefore, it uses its IBR to
measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in
a similar economic environment. The IBR therefore reflects what the Company ‘would have to pay’, which requires
estimation when no observable rates are available or when they need to be adjusted to reflect the terms and
conditions of the lease. The Company estimates the IBR using observable inputs (such as market interest rates)
when available and is required to make certain entity-specific estimates (such as interest rate spreads for credit and
other risks).
NOTE 4 – SEGMENT REPORTING
The Company operates in one operating segment. For the purpose of segment reporting, the Company’s Chief
Executive Officer (CEO) is the Chief Operating Decision Maker. The determination of the Company’s operating
segment is based on its organization structure and how the information is reported to CEO on a regular basis. The
Company’s revenue is generated from its customers in North America. All the Company’s assets also reside in North
America.
The table below presents significant customers who accounted for greater than 10% of total revenues for the year
ended December 31, 2019 and 2018:
Customer A
Customer B
Customer C
Customer D
2019
20 %
11 %
Less than 10%
Less than 10%
The Company’s revenue by country for the year ended December 31, 2019 and 2018 are as follows:
Canada
United States
Total
$
$
2019
10,889,542 $
7,450,707
18,340,249 $
2018
N/A
N/A
21 %
18 %
2018
180,183
1,614,289
1,794,472
The Company’s non-current assets by country are as follows:
Canada
United States
Total
$
$
December 31, 2019
39,572,503 $
9,448,263
49,020,766 $
December 31, 2018
1,937,064
1,607,271
3,544,335
15
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 5 – AGNITY ACQUISITION
a) Acquisition of Royalty interests
On January 22, 2019, the Company executed a Purchase Agreement with Flow Capital Corp. (“Flow”) pursuant to
which the Company acquired Flow’s interest in a Royalty Purchase Agreement (“Royalty Agreement”) with Agnity
Global, Inc. (“Agnity”). According to the Purchase Agreement, the Company assumed the Royalty agreement and
acquired an interest in a financial asset with the following characteristics:
i. a receivable owing by Agnity to Flow of USD $2,834,750;
ii. a monthly royalty payment stream until October 31, 2020 equal to the greater of:
•
•
A monthly amount of USD $41,667; or
4.25% of Agnity’s revenue for each calendar month; and
iii. commencing November 1, 2020, a monthly royalty payment stream equal to 4.25% of Agnity’s revenue for
each calendar month in perpetuity.
The Royalty Agreement includes a formula by which the royalty percentage is proportionately adjusted for any
subsequent further advances to or repayments from Agnity.
As consideration for acquiring the interest in the Royalty Agreement, the Company paid $204,604 (USD $153,227) in
cash at the closing date and entered into the following agreements with Flow:
i. The Company entered into a secured loan agreement with Flow for USD $2,000,000. The loan bears interest at
25% per annum and is due on demand. The Company has the option to repay 100% of the loan, at any time, by
paying an amount equal to the principal of the loan and any unpaid interest. Upon prepayment of the loan, the
Company, at the option of Flow (the “Flow’s option”), shall also pay either:
•
•
Cash of $525,000; or
Issue 150,000 common shares of the Company (“repayment shares”)
The fair value of the loan was initially determined to be $2,670,600 (US$2,000,000) which is equivalent to its
face value as it is due on demand. It is classified as other financial liabilities and subsequently measured at
amortized cost. The fair value of the Flow’s option to receive either $525,000 in cash or repayment shares
upon prepayment of the loan by the Company was determined to be $606,495 on initial recognition. The
Flow option was accounted for as a compound instrument which includes a liability component of $525,000
and an equity conversion option of $81,495. The liability component was classified as other financial
liabilities and subsequently measured at the amortized cost while the equity component was accounted for
as an equity instrument in contribute surplus. The Company used Black-Scholes option model to determine
the fair value of the Flow option using the following inputs at January 22, 2019:
Share price
Risk free rate
Expected life
Expected volatility
Expected dividends
$3.50
1.90%
0.5 years
60.00%
Nil
On July 26, 2019, the Company settled the US$2,000,000 loan and the Flow’s option in cash of $2,703,148
and issuance of 150,000 common shares. The value attributable to the Flow’s option of $606,495 was
reclassified from liabilities and contributed surplus to share capital (note 17 a)).
ii. The Company also agreed to issue a quantity of its common shares based on the trading price of the Company.
Specifically, for the period after January 22, 2019 and prior to January 22, 2025, if the five-day volume weighted
average trading price of the Company’s common shares equals or exceeds:
16
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
▪
▪
▪
$10.00, then 150,000 common shares will be issued;
$20.00, then 100,000 common shares will be issued;
$30.00, then 100,000 common shares will be issued.
The fair value of these shares issuable to Flow was determined to be $712,000 on initial recognition. They
are accounted for as equity instruments and recorded in contributed surplus. The Company used Black-
Scholes option model to determine the fair value of these shares using the following inputs at January 22,
2019:
Barrier share price
Risk free rate
Expected life
Expected volatility
Expected dividends
$10 - $30
1.90%
6 years
80.00%
Nil
As of December 31, 2019, none of the share trading price threshold noted above had been met.
b) Acquisition of Agnity
On April 22, 2019, the Company executed an amending agreement with Agnity to modify the terms of the Royalty
Agreement acquired. Pursuant to the amending agreement, both parties agree to establish an Operations
Committee for which at all time the Company has the right to nominate a majority of the members of the
Operations Committee. As consideration for the amendment, the Company has agreed to fix the royalty payment at
US$10,000 per month commencing in March 2019 and to assume $43,050 of Agnity’s liabilities payable to a 3rd
party.
Pursuant to the amending agreement the Company determined that it had obtained control over Agnity and its
subsidiaries pursuant to IFRS 10 Consolidated Financial Statements. The Company considered several factors in
determining if and when it gained control over Agnity including, if it had the right and ability to direct the relevant
activities of the entity, the ability to significantly affect its returns through the use of its rights, and whether it had
exposure to variable returns.
Factors evaluated include, but are not limited to, delegation of power by Agnity’s Board for the Company to direct
Agnity’s relevant activities through an Operations Committee controlled by the Company. Determination of whether
the Company has obtained control over Agnity involves judgement based on interpretation of the amending
agreement with Agnity and identification and analysis of the relevant facts. In addition, judgement was required to
determine if the acquisition represented a business combination or an asset purchase. The Company determined
that Agnity and its related subsidiaries represented a business as the assets were an integrated set of activities
with inputs, processes and outputs.
Accordingly, the acquisition of Agnity is accounted as a business combination effective on April 22, 2019 using the
acquisition method in accordance with IFRS 3 Business Combinations. Given the Company owns nil voting interests
in Agnity, the non-controlling interest is measured at the 100% of the net identifiable assets of Agnity acquired.
Agnity develops and sells software applications and technology services that enable telecommunication service
providers, network equipment manufacturers and enterprises to design, develop, and deploy communication-
centric application solutions on a world-wide basis. Taking control of Agnity will enable the Company to have
access to Agnity’s patented technology and gain access to its customer base. In addition, Agnity’s communication
platform ensures that AssetCare deployments around the globe are assured of connectivity, supported by Agnity
telecommunication solutions.
The following table summarizes the acquisition-date fair value of each major class of consideration transferred, the
preliminary recognized amounts of the identifiable assets acquired, and liabilities assumed, and the resulting
measurement of 100% NCI recorded by the Company at the date of acquisition (the Company anticipates finalizing
the final calculations of the deferred income tax calculation within one year from the acquisition date):
17
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Consideration transferred:
Change in fair-value of interest in Royalty
Agreement (ii)
Assumption of Agnity’s liabilities
Total consideration transferred
$
$
Preliminary
Measurement period
adjustment
Acquisition date
167,488 $
43,050
210,538 $
— $
—
— $
167,488
43,050
210,538
Fair value of assets and liabilities
recognized:
Preliminary (i) Measurement period
adjustments
Adjusted allocation
Cash and cash equivalents
$
34,343 $
(819) $
Trade and other receivables
Prepaid expenses and deposits
Long term receivable
Property and equipment
Intangible Asset – Technology
Intangible Asset – Customer
Relationship
Accounts payable and accrued liabilities
Deferred revenue
Loans and borrowings (ii)
Warrant liability (iii)
Due to related party
Deferred income tax liability
Net identifiable assets acquired (liabilities
assumed)
Allocation to non-controlling interest
$
$
1,218,429
52,650
115,725
1,400
7,744,740
2,937,660
(3,129,963)
(457,259)
(5,491,594)
(737,419)
(941,961)
(893,316)
453,435 $
242,897 $
169,294
(6,167)
(115,725)
(119)
667,650
(1,468,830)
(102,947)
—
(64,993)
—
11,353
448,548
(462,755) $
33,524
1,387,723
46,483
—
1,281
8,412,390
1,468,830
(3,232,910)
(457,259)
(5,556,587)
(737,419)
(930,608)
(444,768)
(9,320)
(462,755) $
(219,858)
(i) The preliminary balances are as previously reported in the unaudited condensed consolidated financial statements as at and
for the three and nine months ended September 30, 2019.
(ii) The fair value of interest in the Royalty Agreement at April 22, 2019 was estimated using the discounted cash flow model.
The major inputs employed in the model include forecasted royalty payments and the discount rate of 16%.
(iii) A warrant was issued by Agnity in 2015 which entitles the warrant holder to acquire 6,324,660 common shares of Agnity at
the exercise price of $0.000036 per share at any time until April 15, 2022. The exercise price of the warrant is subject to
certain anti-dilution adjustment provisions in the event of certain capital or business transactions. The warrant holder has
the option to demand a cash settlement of the warrant for US$552,250 at any time prior to its expiry date if the warrant is
not exercised. It is classified as other financial liabilities and measured at its redemption amount of US$552,250 or
$737,419 in Canadian dollars on acquisition date, which is equivalent to its assessed fair value at December 31, 2019. The
fair value in Canadian dollar equivalent as at December 31, 2019 was $725,086.
The fair values assigned to the future tax liability is measured on a provisional basis and may be revised by the
Company as additional information is received. The Company is evaluating certain tax positions which, when
determined, may result in the recognition of additional assets and liabilities as of the acquisition date. Adjustments
made to preliminary figures previously disclosed during the measurement period were due to the additional
information obtained by management during the period.
Revenue of $6,010,753 and net income of $1,944,508 from Agnity are included in the consolidated statement of
loss and comprehensive loss from the date of acquisition. Had the acquisition of Agnity occurred on January 1,
2019, the consolidated revenue would have been $19,898,276 and the consolidated net loss would have been
$29,230,362 for the year ended December 31, 2019. In determining these amounts, management has assumed that
the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the
same if the acquisition had occurred on January 1, 2019. There are no acquisition costs associated with this
transaction as the business combination with Agnity was effected by way of assessed control in accordance with
IFRS 3 and 10.
18
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 6 – AUTOPRO AUTOMATION CONSULTANTS LTD.
On July 10, 2019, the Company closed a series of merger and acquisition transactions resulting in the acquisition of
100% control of Autopro Automation Consultants Ltd. (“Autopro”). The acquisition was completed by way of an
amalgamation between 2199027 Alberta Ltd., a subsidiary of the Company, and Fulcrum Automated Technologies
Ltd. (“Fulcrum”), an entity established to facilitate the acquisition, with the amalgamated entity being a wholly owned
subsidiary of the Company, named Autopro Automation Ltd. Immediately prior to the amalgamation, Fulcrum
acquired Autopro. The consideration transferred to the original shareholders of Autopro include cash, issue of
promissory notes and 3,600,000 common shares of the Company.
Autopro is a professional engineering and integration firm that specializes in design and implementation of
industrial automation solutions, focusing on Canadian oil and gas companies. The acquisition is expected to
provide the Company with an increased share of the market through access to Autopro’s customer base in the
Canadian oil and gas industry.
The following table summarizes the acquisition-date fair value of each major class of consideration transferred, the
preliminary recognized amounts of the identifiable assets acquired, and liabilities assumed, and the resulting value
of goodwill (the Company anticipates finalizing the final calculations of the deferred income tax calculation within
one year from the acquisition date):
Consideration transferred:
Cash consideration
Fair value of demand promissory notes issued*
Fair value of common shares transferred**
Total consideration transferred
$
$
Preliminary
4,650,689
18,000,000
13,320,000
35,970,689
*Comprised of two promissory notes with fair-value of $6,000,000 and $12,000,000 which were fully repaid and
settled on July 10 and August 8, 2019 respectively; there was no gain or loss on settlement.
**The fair value of shares transferred as consideration is based on the quoted share price on the date of acquisition
Fair value of assets and liabilities recognized:
Cash and cash equivalents
Trade and other receivables (includes Unbilled revenue of $2,347,207)
Prepaid expenses and deposits
Right-of-use assets
Property and equipment
Intangible asset - Customer relationships
Intangible asset - Technology
Accounts payable and accrued liabilities
Deferred revenue
Lease liabilities
Deferred income tax liability
Fair value of net assets acquired
Goodwill
$
$
$
Preliminary
2,227,739
5,120,830
611,104
4,303,215
548,317
12,700,000
1,800,000
(2,030,470)
(133,556)
(4,303,215)
(3,632,250)
17,211,714
18,758,975
35,970,689
Goodwill arising from the acquisition is attributable mainly to the skills and technical talent of Autopro’s work force
and the synergies expected to be achieved from integrating Autopro into the Company’s existing business. The
talent and domain expertise of Autopro’s workforce will enable the Company to establish credibility in the oil and
gas, petrochemical, and process manufacturing markets, and accelerate the development of artificial intelligence
19
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
applications geared toward process industries. None of the goodwill recognized is expected to be deductible for
tax purposes.
The fair values assigned to the future tax liability is measured on a provisional basis and may be revised by the
Company as additional information is received. The Company is evaluating certain tax positions which, when
determined, may result in the recognition of additional assets and liabilities as of the acquisition date.
Revenues of $10,386,313 and net income of $84,473 from the acquired operations are included in the consolidated
statement of loss and comprehensive loss from the date of acquisition. Had the acquisition of Autopro occurred on
January 1, 2019, the consolidated revenue would have been $34,330,413 and the consolidated net loss would have
been $34,989,539 for the year ended December 31, 2019. In determining these amounts, management has
assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have
been the same as if the acquisition had occurred on January 1, 2019.
Transaction costs of $9,869,589 were incurred in connection with the acquisition including consulting fees of
$750,000, legal and professional fees of $239,589 and fair value of $8,880,000 for 2,400,000 common shares
issued to the original shareholders of Fulcrum for brokering and due diligence services and were recognized in the
consolidated statement of loss and comprehensive loss.
NOTE 7 - TRADE AND OTHER RECEIVABLES AND LONG-TERM RECEIVABLES
December 31, 2019
December 31, 2018
Trade receivables from contracts with customers
$
5,255,149 $
GST/HST tax receivable
Income taxes receivable
Other receivables
Business acquisition receivable
Unbilled revenue (note 8)
Loss allowance
Trade and other receivables
415,966
141,845
49,695
214,983
658,931
(174,500)
$
6,562,069 $
430,674
27,568
—
188,604
—
—
(45,424)
601,422
Unbilled revenue relates to the Company’s right to consideration for work completed but not billed at the reporting
date. Unbilled revenue is transferred to trade and other receivables when services are billed to customers.
As at
Long-term receivables
Less: loss allowance
Less: current portion of long-term receivables
Non-current portion of long-term receivables
December 31, 2019
December 31, 2018
$
$
$
4,702,636 $
(208,401) $
(2,907,806)
1,586,429 $
163,700
—
(62,715)
100,985
The Company has entered into revenue contracts allowing certain customers making fixed monthly installment
payment over an extended period of time, ranging from three to six years, for performance obligations delivered
upfront. Interest income is recognized using the effective interest rate method over the relevant contractual term in
relation to the financing component of the revenue arrangement. The interest rate is determined based on the market
interest rate factoring in the customers’ credit rating at the inception of the revenue contract.
20
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 8 - REVENUE
In the following table, revenue is disaggregated by major service line and timing of revenue recognition.
For the year ended December 31
2019
AssetCare solutions recognized upon completion
$
1,544,197 $
AssetCare solutions and support recognized over time
Perpetual license recognized on delivery
Engineering services recognized over time
Other support and maintenance service recognized over time
Financing revenue recognized over time
1,119,735
4,420,466
9,436,004
1,796,417
23,430
2018
1,265,568
525,193
—
—
—
3,711
$
18,340,249 $
1,794,472
Significant changes in unbilled revenue and deferred revenue balances during the year are as follows:
Unbilled revenue
(note 7)
Deferred Revenue
Balance at January 1, 2018
Additions
Less: Recognized in revenue
Currency translation adjustment
Balance at December 31, 2018
Acquired in business combination (note 6)
Acquired in business combination (note 5)
Additions
Less: Transferred to trade and other receivables
Less: Recognized in revenue
Less: Loss allowance
Currency translation adjustment
$
$
$
— $
—
—
—
— $
2,347,207 $
—
9,595,535
(11,278,312)
—
(5,499)
—
Balance at December 31, 2019
$
658,931 $
—
205,843
(76,528)
4,363
133,678
133,556
457,259
5,309,436
—
(4,878,419)
—
(17,229)
1,138,281
NOTE 9 – PREPAID EXPENSES AND DEPOSITS
Prepaid insurances
Prepaid commissions
Deposits
Deferred finance costs
Other prepaid costs
Prepaid expenses and deposits
Less: current portion of prepaid expenses and deposits
Long term portion of prepaid expenses and deposits
December 31, 2019
December 31, 2018
$
102,888 $
—
149,716
154,834
419,881
827,319 $
740,406 $
86,913
$
$
5,356
13,028
102,320
—
96,548
217,252
217,252
—
21
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 10 – PROPERTY AND EQUIPMENT
Costs:
Balance at December 31, 2017
Additions
Effect of foreign exchange translation
Balance at December 31, 2018
Additions
Acquisitions (notes 5 and 6)
Derecognition
Office Furniture
and Equipment
Leasehold
Improvement
Computer
Equipment
Total
$
$
877 $
23,234 $
7,124 $ 31,235
9,143
97
213,763
2,558
44,925
917
267,831
3,572
10,117 $
239,555 $
52,966 $ 302,638
30,529
253,057
—
74,641
64,366
32,952
138,122
232,175
549,598
—
(14,460) (14,460)
Effect of foreign exchange translation
(1,339)
(1,973)
(6,990) (10,302)
Balance at December 31, 2019
$
292,364 $
376,589 $
296,643 $ 965,596
Accumulated Depreciation:
Balance at December 31, 2017
Depreciation
Effect of foreign exchange translation
Balance at December 31, 2018
Depreciation
Effect of foreign exchange translation
Balance at December 31, 2019
Carrying amounts:
Balance at December 31, 2018
Balance at December 31, 2019
NOTE 11 – LEASES
Office Furniture
and Equipment
Leasehold
Improvement
Computer
Equipment
Total
129 $
4,587 $
1,354 $ 6,070
250
31
7,803
1,043
11,167
19,220
797
1,871
410 $
13,433 $
13,318 $ 27,161
44,729
71,143
123,272
239,144
(1,321)
(1,577)
(8,363) (11,261)
43,818 $
82,999 $
128,227 $ 255,044
9,707 $
226,122 $
39,648 $ 275,477
248,546 $
293,590 $
168,416 $ 710,552
$
$
$
$
$
The Company leases buildings for its office space. The leases of office space run for a period ranging from 3 to 5
years. Some leases include an option to renew the lease for an additional period of the same duration after the end of
the contract term. The Company also leases equipment with lease terms of 3 years. In some cases, the Company
has options to purchase the assets at the end of the contract term.
22
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Right-of-use assets:
Office
Vehicles
Equipment
Total
Balance at January 1, 2019 (note 2)
$
285,086 $
— $
— $
285,086
Acquired right-of-use assets - Autopro
acquisition (note 6)
Additions during the period
4,207,837
24,451
70,927
4,303,215
—
37,982
145,635
183,617
Depreciation charge for the period
(433,617)
(8,405)
(39,955)
(481,977)
Impairment charge for the period
Effect of foreign exchange translation
(78,764)
(4,369)
—
—
—
—
(78,764)
(4,369)
Balance at December 31, 2019
$
3,976,173 $
54,028 $
176,607 $
4,206,808
Lease liabilities:
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities
Lease liabilities
Current
Non-current
Amounts recognized in consolidated statements of loss and comprehensive loss:
2019 – Leases under IFRS 16
Interest on lease liabilities recorded in finance costs (note 21)
Expense relating to short-term leases recorded in general and administration
December 31, 2019
$
$
$
$
$
1,053,962
3,244,150
1,342,920
5,641,032
4,362,084
720,457
3,641,627
$
168,571
29,566
2018
2018 – Operating leases under IAS 17
Lease expense recorded in general and administration (note 2)
$
116,770
Amount recognized in consolidated statement of cash flows:
Total cash outflow for leases included in operating activities
Total cash outflow for leases included in financing activities
$
2019
168,571
422,783
During the year ended December 31, 2019, the Company exercised its right to terminate one of its office leases
prior to the end of its lease term. This resulted in the derecognition of the right of use asset in the amount of
$78,764. In addition there was a gain on the extinguishment of lease liability in the amount of $99,979 as recorded
to other expenses.
23
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 12 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets:
Costs:
Patents and
Trademarks
Customer
Relationships
Technology
Total
Balance at December 31, 2017
$
176,590 $
859,573 $
883,353 $ 1,919,516
Additions
Acquisitions (note 26)
—
—
—
358,657
358,657
1,184,000
270,000
1,454,000
Effect of foreign exchange translation
15,442
75,166
78,948
169,556
Balance at December 31, 2018
$
192,032 $
2,118,739 $ 1,590,958 $ 3,901,729
Additions
Acquisitions (notes 5 and 6)
—
—
—
—
—
14,168,830
10,212,390
24,381,220
Effect of foreign exchange translation
(9,374)
(46,579)
(47,366)
(103,319)
Balance at December 31, 2019
$
182,658 $ 16,240,990 $ 11,755,982 $ 28,179,630
Patents and
Trademarks
Customer
Relationships
Technology
Total
Accumulated Amortization and impairments:
Balance at December 31, 2017
$
11,850 $
91,305 $
93,618 $
196,773
Amortization
Effect of foreign exchange translation
36,427
2,961
224,735
17,390
238,014
499,176
17,556
37,907
Balance at December 31, 2018
$
51,238 $
333,430 $
349,188 $ 733,856
Amortization
Impairment
36,564
1,668,090
1,618,368
3,323,022
—
—
507,433
507,433
Effect of foreign exchange translation
(3,219)
(23,895)
(28,656)
(55,770)
Balance at December 31, 2019
$
84,583 $
1,977,625 $ 2,446,333 $ 4,508,541
Carrying amounts:
Balance at December 31, 2018
Balance at December 31, 2019
$
$
140,794 $
1,785,309 $ 1,241,770 $ 3,167,873
98,075 $ 14,263,365 $ 9,309,649 $ 23,671,089
During the year ended December 31, 2019, the Company recorded an impairment charge of $507,433 to write off the
technology acquired in 2017 as the amount was determined to be not recoverable at December 31, 2019.
Goodwill:
Balance at January 1
Acquisition (notes 6 and 26)
Impairment
Effect of foreign exchange differences
Balance at December 31
$
2019
— $
18,758,975
—
—
$
18,758,975 $
2018
262,152
388,652
(675,479)
24,675
—
The Company performs a goodwill impairment test annually at December 31 and whenever there is an indication of
impairment. The Company considers the relationship between its market capitalization and its book value, among other
factors, when reviewing for indicators of impairment. As at December 31, 2019, the Company had two CGUs (2018 - one
CGU) and the market capitalization of the Company was higher than the book value of its equity. Consequently,
24
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
management did not identify an impairment for its CGUs (2018 – $675,479). For the purpose of goodwill impairment
test, goodwill is allocated to both of its CGUs as a one combined CGU (or group of CGUs).
The recoverable amount of the CGU was determined based on a value in use calculation using the following key
assumptions set out below. The values assigned to the key assumptions represent management’s assessment of
future trends in the relevant industries and have been based on historical data from both external and internal sources.
•
•
•
•
•
5 year pre-tax cash flow projections expected to be generated based on financial budgets with a terminal
growth rate of 2% (2018 – 2.5%).
Revenue growth is based on average growth achieved in previous year and most recent prospects for growth
through execution of the Company’s strategic plan. The projected revenue growth is 20% (2018 - 13%) during
the forecast period.
Gross margins are based on average values achieved in the previous years. The projected gross margin ranges
between 54% - 57% for the forecast period (2018 - 36%).
Budgeted EBITDA was estimated taking into account past experience, and revenue growth projections based
on industry data and Company’s strategic plan. The budgeted EBITDA as a percentage of revenue ranges
between 8% - 15% for the forecast period (2018 - 11%) and is 14% in the terminal year.
Discount rate represents the current market assessment of the risks specific the Company’s CGU, taking into
consideration the time value of money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate is derived from the Company’s weighted average
cost of capital (“WACC”) at 10.4% (2018 - 20%)
The most sensitive inputs to the value in use model are the gross margin percentage and budgeted EBITDA. All else
being equal with respect to the 2019 impairment evaluation:
•
•
A 5% decrease in revenue growth percentage would have resulted in a reduction to the recoverable amount of
$3,070,000; and
A 5% decrease in EBITDA rate would have resulted in a reduction to the recoverable amount of $6,330,000.
Changing the above assumptions did not create any impairment charge in 2019.
NOTE 13 - TRADE PAYABLES AND ACCRUED LIABILITIES
Trade payables
Accrued salaries
Accrued liabilities
Interest payable (note 16)
Other
NOTE 14 - BUSINESS ACQUISITION PAYABLE
Balance, December 31, 2017
Payments
Accretion
Effect of foreign exchange differences
Balance, December 31, 2018
Effect of foreign exchange differences
Balance, December 31, 2019
25
December 31,
2019
December 31,
2018
$
4,513,404 $
1,296,551
1,438,723
2,218,433
390,662
276,145
502,800
383,292
—
43,297
$
8,837,367 $
2,225,940
$ 1,563,044
(771,204)
197,169
99,782
$ 1,088,791
(45,477)
$ 1,043,314
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
The amount relates to acquisition consideration payable associated with FDSI acquisition completed in 2017.
Management has ascertained certain contractual obligations contained in the original purchase agreement with the
sellers of FDSI may not have been fully met which may result in a reduction of the business acquisition payable in future
periods.
NOTE 15 - LOANS AND BORROWINGS
Debenture payable to Industry Canada (a)
Oracle financing (b)
Prosperity facility (c)
Term loan (d)
Promissory note (e)
Carrying value of debt at amortized cost
Less: unamortized debt issuance costs
Less: current portion of loans and borrowings
Long term portion of loans and borrowings
December 31,
2019
December 31,
2018
$
63,968 $
78,285
205,887
780,118
12,572,479
500,000
$
14,122,452 $
(149,397)
(3,004,717)
$
10,968,338 $
—
—
—
—
78,285
—
(28,500)
49,785
a)
b)
c)
d)
The debenture payable, due to Industry Canada is repayable in annual installments of $28,500 on June 30 of
each year until June 30, 2022, is unsecured and bears no interest. As this amount is to be settled in less than
three years, the balance was initially recorded at the present value discounted at 21.0% which was determined
to be the market rate of interest at its inception.
The balance relates to amounts due under a payment arrangement with Oracle Credit Corporation. It is
unsecured, bears interest at 5.5%, and was paid in full in the first quarter of 2020.
On December 19, 2018, ACI and Prosperity Funding, Inc. (“Prosperity”), an unrelated party, entered into a
factoring and security agreement with full recourse. Pursuant to the agreement, Prosperity advances funds to
ACI for the right to collect cash flows from factored accounts receivable and charges fees for its services.
Prosperity advances funds to ACI at 85% of accounts receivable factored. The outstanding balance bears an
interest that equals a prime rate, as published by the Wall Street Journal, plus 3.99% (with prime rate floor
being 5.25%). This factoring arrangement does not meet the criteria for derecognition of accounts receivables
as AC retains substantially all risks and rewards associated with the accounts receivables.
On August 7, 2019, a subsidiary of the Company, Autopro, entered into a term loan facility with Integrated
Private Debt Fund VI LP in the amount of $13,000,000 (the “Loan”). Proceeds of the Loan of $12,833,500, net of
transaction costs of $166,500, were used to fund the repayment of certain outstanding notes of the Company
related to its acquisition of Autopro (note 6) and for working capital purposes. The Loan bears an interest of
6.85% per annum and requires blended monthly payments of principal and interest based on a seven-year
amortization schedule. The Loan matures on August 7, 2026. The Loan is secured against the assets of
Autopro and the Company. Autopro is also required to maintain the following financial covenants tested on a
rolling four quarter consolidated basis:
•
•
A ratio of total funded debt to EBITDA equal or less the specified thresholds;
A ratio of debt service coverage equal to or greater than the specified thresholds.
Autopro was approved by Integrated Private Debt Fund VI LP to test its first quarterly financial covenant as of
October 31, 2019 based on its rolling four quarter results from November 1, 2018 to October 31, 2019, and
thereafter to test its covenant compliance based on calendar quarters starting from the quarter ended
December 31, 2019. Subsequently, Integrated Private Debt Fund VI LP waived the requirement to test
covenants for the quarters ended December 31, 2019 and March 31, 2020.
e)
On December 27, 2019, the Company issued a promissory note to a shareholder of a Company for $500,000
and a lump sum interest of $10,000. The promissory note was paid on January 16, 2020.
26
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 16 – CONVERTIBLE DEBENTURES
Proceeds from issuance of convertible debentures
Transaction costs
Equity component, net of transaction cost of $192,657
Interest paid
Accreted interest at effective interest rate of 24%
Carrying amount of liability component at December 31, 2019
Less: accrued interest recorded in trade payables and accrued liabilities (note 13)
Long term portion of convertible debentures
December 31,
2019
23,507,500
$
(703,451)
$
22,804,049
(6,153,867)
(1,027,413)
2,130,247
17,753,016
(217,070)
17,535,946
$
$
On July 11, 2019, the Company completed a private placement offering of convertible unsecured subordinated
debentures (the “Debentures”) at a price of $100 per Debenture (the “Offering”) for total aggregate gross proceeds of
$23,507,500 and net cash proceeds of $22,865,049. The private placement was completed in three separate tranches
including the first tranche of the Debentures for gross proceeds of $16,659,000 closed at June 24, 2019, the second
tranche for gross proceeds of $1,740,000 closed at June 28, 2019, and the final tranche for gross proceeds of
$5,108,500 closed at July 11, 2019.
The Debentures bear interest from each applicable issuance date at a rate of 10% per annum, calculated and paid
quarterly on the last day of August, November, February and May of each year. The first interest payment was due on
August 31, 2019 and consisted of interest accrued from and including the closing of each tranche of the Offering
(each, a “Closing Date”) to August 31, 2019. The Debentures mature on May 31, 2022 (the “Maturity Date”), and the
principal amount is repayable in cash upon maturity if the Debentures have not been converted.
The principal amount of the Debentures is convertible into units of the Company (the “Units”) at the option of the
holder at any time prior to the close of business on the last business day immediately preceding the Maturity Date, at
a conversion price of $5.00 per Unit (the “Conversion Price”). Holders converting their Debentures will receive
accrued and unpaid interest thereon in cash for the period from and including the date of the last interest payment
date to, but excluding, the date of conversion. Each Unit is comprised of one common share of the Company (each, a
"Common Share") and one Common Share purchase warrant (each, a "Warrant"). Each Warrant is exercisable to
acquire one Common Share at an exercise price of $7.50 per Common Share until the date that is the earlier of 60
months following the initial Closing Date and the date specified in any acceleration notice. In the event of a change of
control, the holders of the Debentures have the right to require the Company to either purchase the Debentures at
100% of the principal amount plus unpaid interest to the Maturity Date, or if the change of control results in a new
issuer, convert the Debentures into a replacement debenture of the new issuer in the aggregate principal amount of
101% of the aggregate principal amount of the Debenture.
The Company incurred cash transaction costs of $642,451 and non-cash transaction costs of 59,871 broker warrants
valued at $61,000 (note 17 (b))). The transaction costs were allocated between the debt host liability component and
the equity component on a prorated basis.
Each Debenture contains a non-derivative debt host liability, an embedded derivative relating to the holders’ put
option in the event of change of control and a holders’ conversion option:
•
•
The debt host liability component is classified as a financial liability and on initial recognition was recorded at
fair value of $16,650,182, net of transaction costs of $510,794. The fair value of the debt host liability
component is calculated using a market interest rate of 25% for an equivalent, non-convertible loan at the date
of issue. Judgement was required in determining interest rate that the Company would have had to pay had the
Debentures been issued without a conversion feature. Subsequent to initial recognition, the debt host liability
is measured at amortized cost and accreted to its face value over the term of the Debentures using an
effective interest rate of 24%.
The embedded derivative relating to the contingent holders’ put option in the event of change of control was
recorded separately from the host liability as its characteristics and risks are not closely related to those of the
host contract. The embedded derivative component is initially measured at fair value and subsequent changes
in fair value are recorded through profit and loss. The fair value of the embedded derivative at the inception of
27
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
the debentures and at the period end was nominal as the likelihood of a change of control was determined by
management to be remote.
•
The holders’ conversion option is classified as an equity instrument and on initial recognition recorded at the
residual value of $6,346,524. The amount of $4,488,214 after netting of transaction costs of $192,657 and
deferred tax effect of $1,665,653 is recorded in contributed surplus at December 31, 2019.
NOTE 17 - SHARE CAPITAL
Refer to note 2(o) for information regarding the Company’s 2019 share consolidation.
a) Common shares
Authorized: Unlimited number of voting common shares:
Issued and outstanding:
Balance, December 31, 2017
Shares issued for cash, net of issuance costs (i,ii,iii,iv,v)
Agent common shares (iv)
Consideration for the NGRAIN Acquisition (note 26)
Consideration for the acquisition of technology assets (note 26)
Shares issued to employees (vi)
Warrants exercised (b)
RSU’s issued (note 18(b))
Balance, December 31, 2018
RSU’s exercised (note 18(b))
Stock options exercised (note 18(a))
Warrants exercised (b)
Consideration for the Autopro Acquisition (note 6)
Number of Shares
Amount ($)
4,306,638 $
4,607,282
4,143,554 $ 12,828,763
14,245
475,000
26,321
50,000
50,223
24,167
49,758
1,547,750
131,656
182,500
228,965
238,500
9,090,148 $ 19,815,174
35,716 $
152,500
399,528
142,277
658,074
1,865,773
3,600,000
13,320,000
Shares issued for transaction services relating to Autopro Acquisition (note 6)
2,400,000
8,880,000
Shares issued on repayment of loan from Flow Capital (note 5(a))
Shares issued for settlement of debt (vii)
Common share issuance costs
Balance, December 31, 2019
150,000
20,896
—
606,495
84,252
(3,300)
15,848,788 $ 45,368,745
i.
ii.
On February 15, 2018, the Company closed a non-brokered private placement and issued 611,064 Units (“Unit”) at
a price of $3.50 per Unit for aggregate gross proceeds of approximately $2.1 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $4.50 per share for a period of 36 months following closing, subject to
accelerated expiration if the 10-day weighted average trading price of the Company’s common shares is at any
time greater than $8.00.
The Agents received a cash commission of $59,894 and were issued 27,024 agent warrants having a value of
$69,452 exercisable for 24 months for one common share at a price of $3.50 per common share. In addition, the
agents were issued 3,182 standard warrants having a value of $9,799. These warrants are exercisable at a price
of $4.50 per share for a period of 36 months following closing, subject to accelerated expiration if the 10-day
weighted average trading price of the Company’s common shares is at any time greater than $8.00.
On March 19, 2018, the Company closed a brokered private placement and issued 602,728 Units (“Unit”) at a
price of $3.50 per Unit for aggregate gross proceeds of approximately $2.1 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $4.50 per share for a period of 36 months following closing, subject to
28
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
accelerated expiration if the 10-day weighted average trading price of the Company’s common shares is at any
time greater than $8.00.
The Agent received a cash commission of $153,842 and was issued 42,191 agent warrants having a value of
$79,319 exercisable for 24 months for one common share at a price of $4.50 per common share.
On June 4, 2018, the Company closed a non-brokered private placement and issued 1,634,129 Units (‘Unit”) at a
price of $3.50 per Unit for aggregate gross proceeds of approximately $5.7 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $4.50 per share for a period of 36 months following closing, subject to
accelerated expiration if the 10-day weighted average trading price of the Company’s common shares is at any
time greater than $8.00.
The Agents received a cash commission of $351,027 and were issued 101,774 agent warrants having a value of
$307,500 exercisable for 24 months for one common share at a price of $3.50 per common share.
On October 18, 2018, the Company closed a non-brokered private placement and issued 1,295,634 units (“Units”)
at a price of $3.50 per unit for aggregate proceeds of approximately $4.5 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $5.00 per share for a period of 36 months following closing, subject to
accelerated expiration if the 10-day weighted average trading price of the Company’s common shares is at any
time greater than $8.00.
The Agent commission and other issuance costs totaled $203,461. In addition, the Agent was issued 71,318
agent warrants having a value of $181,711 exercisable for 24 months for one common share at a price of $3.50
per common share.
In addition, the Company issued 14,245 common shares as compensation to the agents at $3.50 per share for a
total value of $49,758.
Total other share issue costs associated with the fiscal 2018 private placements totaled $207,916.
In connection with the acquisition of NGRAIN (note 26), the Company issued 50,000 common shares to NGRAIN
employees at a fair value of $182,500 based on the market price of the Company’s shares on the date of issue.
During February and September 2019, the Company issued 5,896 and 15,000 common shares respectively for
settlement of outstanding debt to vendors for services provided. The Company valued these common shares
based on the trading price of the Company’s shares on the date of issuance.
iii.
iv.
v.
vi.
vii.
Common shares in escrow
Upon completion of the RTO disclosed in note 1, the Company had a total of 2,475,722 common shares that were
subject to escrow conditions with an additional 100,000 common shares subject to escrow conditions in connection
with the NGRAIN acquisition (Note 26). These common shares were subject to escrow conditions whereby 10% of the
shares were released on the date of the final Exchange Bulletin. An additional 15% of these escrow common shares
will be released on each six month anniversary date thereafter unless otherwise permitted by the TSX Venture
Exchange
During the current period ended December 31, 2019, 6,000,000 additional common shares were subject to escrow
conditions as part of the Autopro acquisition (Note 6). The Autopro shares became free trading based on the
following escrow restrictions using the effective date of the amalgamation between 2199027 Alberta Ltd and
Fulcrum:
(i)
(ii)
(iii)
34% becomes free trading - 6 months from effective date
33% becomes free trading - 12 months from effective date
33% becomes free trading - 18 months from effective date
As at December 31, 2019, the Company has 7,145,477 (2018 – 1,585,435) common shares subject to escrow
conditions.
29
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
b)Warrants
The Company’s warrants outstanding as at December 31, 2019 and December 31, 2018 and the changes for the year
ended December 31, 2019 is are as follows:
Balance, December 31, 2017
Issued
Exercised
Balance, December 31, 2018
Issued (note 16)
Exercised
Expired
Balance, December 31, 2019
Number of Warrants
1,046,097 $
2,317,259
(50,223)
3,313,133
59,871 $
(399,528)
(629,698)
2,343,778 $
Weighted Average
Exercise Price
$
4.50
4.60
(4.40)
4.50
4.82
(4.32)
(4.50)
4.54
During the year ended December 31, 2019, the Company issued 59,871 (December 31, 2018 – 2,317,258) warrants, all
of which were to brokers, in connection with the July 11, 2019 private placement offering of $23,507,500 convertible
unsecured subordinated debentures (note 16). The warrants granted in 2018 were issued to both investors and
brokers in connection with the private placements occurring in the 2018. The Black-Scholes option model was used in
calculating the fair value of the broker warrants in 2019 and which were valued at $61,000 (2018 - $647,781)
The following summarizes the underlying input assumptions used to value the warrants:
Grant date share price
Exercise price
Risk free rate
Expected life
Expected volatility
Expected dividends
2019
$3.60 - $3.70
$5.00
1.40% - 1.54%
1.50
75% - 79%
—
2018
$3.70 - $5.40
$3.50 - $4.50
1.77% - 2.30%
2 - 3
108% - 141%
—
Warrants outstanding as at December 31, 2018 were as follows:
Expiry Date
Exercise Price $
Outstanding Warrants
$3.50 - $4.50
4.00
$3.50 - $4.50
3.50
$3.50 - $4.50
$3.50 - $5.00
3.50
4.50
4.50
4.50
4.50
4.53
861,436
16,940
30,206
42,190
97,399
122,875
71,318
305,532
300,357
785,814
31,250
3,313,133
September 2019
December 2019
February 2020
February 2021
February 2021
March 2021
March 2020
June 2020
June 2021
December 2020
October 2020
$
30
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Warrants outstanding as at December 31, 2019 were as follows:
Expiry Date
February 2020
March 2020
May 2020
June 2020
July 2020
October 2020
February 2021
March 2021
May 2021
June 2021
$
Exercise Price
$
$3.50 - $4.50
3.50
$3.50 - $4.50
$3.50 - $5.00
5.00
3.50
4.50
4.50
4.50
4.50
4.58
Outstanding Warrants
22,611
42,190
90,399
121,625
826
66,314
247,675
228,211
785,814
31,250
2,343,778
Weighted average remaining contractual life of outstanding warrants is 1.37 years (2018 - 1.91 years).
NOTE 18 – SHARE BASED COMPENSATION
On December 17, 2016, the Company established an equity incentive plan (the “Plan”) which provides for the
granting of incentive stock options, non-statutory stock options, share appreciation rights, restricted share awards,
restricted share unit awards, and other share awards (collectively “Share Awards”) to selected directors, employees
and consultants for a period of 10 years from the establishment of the Plan. The Plan is intended to help the
Company secure and retain the services and provide incentives for increased efforts for the success of the
Company. The Board of Directors grants Share Awards from time to time based on its assessment of the
appropriateness of doing so in light of the long-term strategic objectives of the Company, its current stage of
development, the need to retain or attract particular key personnel, the number of Share Awards already
outstanding and overall market conditions.
The number of common shares reserved for issuance under the Plan will not exceed 10% of the Company’s issued
and outstanding common shares at the time of any grant (the “Share Reserve”). Repurchase or return of previously
issued shares to the Plan increase the number of shares available for issue.
The Company’s recorded share based compensation comprised the following:
For the year ended December 31,
Stock options (a)
Restricted share units (b)
Balance, December 31,
$
$
2019
820,613 $
647,748
2018
591,632
645,267
1,468,361 $
1,236,899
Refer to note 2(o) for information regarding the Company’s 2019 share consolidation.
a) Stock Options
Under the Company’s Plan, the maximum number of shares reserved for exercise of all options granted by the
Company may not exceed 10% of the Company’s shares issued and outstanding at the time the options are
granted. The exercise price of each option granted under the Plan is determined at the discretion of the Board but
shall not be less than the Discounted Market Price (as defined in the policies of the Exchange), or such other price
as permitted pursuant to a waiver obtained from the Exchange, of Common Shares on the effective date of grant of
the option. The vesting provisions for issued options are determined at the discretion of the Board.
Each vesting tranche in an award is considered a separate award with its own vesting period. The stock options
granted have various vesting terms ranging from immediate vesting to 4 years. Compensation expense is
recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards
31
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact being
recognized immediately.
Movements in the number of stock options outstanding and their related weighted average exercise prices are as
follows:
Balance, December 31, 2017
Granted
Cancelled
Balance, December 31, 2018
Granted
Exercised
Forfeited
Balance, December 31, 2019
Number of
Options
0 $
337,500
(52,500)
285,000 $
969,833 $
(152,500)
(53,350)
1,048,983 $
Weighted
Average
Exercise
Price
$
Weighted
Average
Remaining
Contractual
Life (years)
—
3.90
3.50
3.90
3.74
3.54
3.45
3.83
0
4.20
4.45
4.18
6.36
4.98
6.37
5.97
The Company fair valued the options using the Black-Scholes option pricing model with the following inputs:
Grant date share price
Exercise price
Risk free rate
Expected life, years
Expected volatility
Expected dividends
Forfeiture rate
2019
$2.90 - $4.15
$2.90 - $4.30
1.27% - 1.91%
0.16 - 6.50
55% - 79%
— %
— %
2018
$3.40 - $6.20
$3.50 - $6.20
2.03% - 2.45%
5
140% - 147%
— %
— %
Total fair value of stock options granted during the year ended December 31, 2019 was $1,597,043 (December 31,
2018 – $1,162,670). As at December 31, 2019, unrecognized share-based compensation expense related to non-
vested stock options granted is $1,061,013 (December 31, 2018 - $481,364).
Stock options outstanding and exercisable at December 31, 2018 are as follows:
Number of Options
Exercise Price $
Expiry Date
5,000 $
7,500
16,875
7,500
12,500
1,667
51,041 $
4.15
3.30
3.50
4.90
5.40
6.20
4.29
May 1, 2019
April 1, 2023
April 12, 2023
May 29, 2023
June 1, 2023
July 1, 2023
32
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Stock options outstanding and exercisable at December 31, 2019 are as follows:
Number of Options
33,541 $
Exercise Price
$
3.50
40,000
1,667
8,333
79,166
29,200
67,500
50,000
309,407 $
6.01
2.90
3.20
3.35
3.40
4.10
3.50
3.90
Expiry Date
April 12, 2023
December 13, 2023
January 2, 2024
January 9, 2024
February 19, 2024
February 25, 2024
April 2, 2024
June 27, 2022
b) Restricted Share Units
RSUs have various terms ranging from immediate vesting up to three years. However, vesting may be accelerated,
or different vesting schedules may be implemented, at the discretion of the compensation committee. Vested RSUs
are satisfied by the Company through issuance of common shares to the holder equal to the number of vested
RSUs. The issuance of shares to satisfy vested RSUs is initiated by the holder of the RSUs. RSUs earn additional
RSUs for the dividends that would otherwise have been paid on the RSUs as if they had been issued as of the date
of the grant. The number of additional RSUs is calculated using the average market price of the Company’s shares
in the five days immediately preceding each distribution.
The Company’s obligation to issue shares on the vesting of RSU’s is an unfunded and unsecured obligation of the
Company.
A continuity of RSUs is as follows:
Number of RSUs
Balance, December 31, 2017
Granted
Exercised
Balance, December 31, 2018
Granted
Exercised
Forfeited
Balance, December 31, 2019
—
329,500
(24,167)
305,333
214,919
(35,716)
(29,167)
455,369
During the year ended December 31, 2019, the Company awarded 214,919 RSU’s to directors, officers, employees,
and consultants of the Company with a total fair value of $829,976. The fair value of each RSU is based on the
market price of the Company’s common shares on the date of grant. As at December 31, 2019, unrecognized share-
based compensation expense related to non-vested RSUs granted is $702,373.
NOTE 19 - FINANCIAL INSTRUMENTS
Fair values
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as
possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs in the
valuation techniques as follows:
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
33
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
•
•
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
The carrying values of cash and cash equivalents, trades and other receivables, bank indebtedness, trade payables
and accrued liabilities, business acquisition payable, and due to and from related parties approximate their fair
values due to the immediate or short-term nature of these instruments. The fair values of long-term receivables,
loans and borrowings and convertible debentures approximate their carrying values as they were either recently
issued by the Company or fair valued as part of the acquisition purchase price allocations. There has been no
significant change in credit and market interest rates since the date of their issuance.
Fair value estimates are made at a specific point in time, based on relevant market information and information
about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
The following table summarizes the classification of the Company’s financial instruments under IFRS 9:
Financial assets
Cash and cash equivalents
Trade and other receivables
Long-term receivables
Due from related party
Financial liabilities
Bank indebtedness
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Trade payables and accrued liabilities
Amortized cost
Loans and borrowings
Convertible debentures
Due to related party
Warrant liabilities
Amortized cost
Amortized cost
Amortized cost
FVTPL
Business acquisition payable
Amortized cost
Capital and Risk Management
The Company’s objective and polices for managing capital are to safeguard its ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. The Company manages its capital structure and makes changes
based on economic conditions, risks that impact the consolidated operations and future significant capital
investment opportunities. In order to maintain or adjust its capital structure, the Company may issue new equity
instruments or raise additional debt financing.
The Company is exposed to a variety of financial risks by virtue of its activities: market risk credit risk, interest rate
risk, liquidity risk and foreign currency risk. The Board of Directors has overall responsibility for the determination of
the Company’s capital and risk management objectives and policies while retaining ultimate responsibility for them.
The Company’s overall capital and risk management program has not changed throughout the year. It focuses on
the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance.
Risk management is carried out by the finance department under policies approved by the Board of Directors. The
finance department identifies and evaluates financial risks in close cooperation with management.
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails
to meet its contractual obligation. The Company is mainly exposed to credit risk from credit sales. Management of
the Company monitors the credit worthiness of its customers by performing background checks on all new
34
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
customers focusing on publicity, reputation in the market and relationships with customers and other vendors.
Further, management monitors the frequency of payments from ongoing customers and performs frequent reviews
of outstanding balances. The Company considers that there has been a significant increase in credit risk when
contractual payments are more than 90 days past due.
Provisions for outstanding balances are set based on forward looking information and revised when there is a
change in the circumstances of a customer that would result in financial difficulties as indicated through a change
in credit quality or industry factors and create doubt over the receipt of funds. Such reviews of a customer’s
circumstances are done on a continued basis through the monitoring of outstanding balances as well as the
frequency of payments received. An accounts receivable is completely written off once management determines
the probability of collection to be not present.
The Company applies IFRS 9 simplified approach to measuring expected credit losses which uses the lifetime
expected credit loss allowance for all trade and other receivables, unbilled revenue and long-term receivables. To
measure the expected credit losses, trade receivables and other receivables, unbilled revenue and long-term
receivables have been grouped based on similar credit risk profiles and the days past due. Unbilled revenue has
lower risk profile as the trade receivables for the same type of contracts and therefore expected credit losses is
estimated based on specific facts and circumstances at each reporting date. The Company has therefore
concluded that the expected loss rates for the trade receivables are a reasonable approximation of the loss rates
for unbilled revenue. The expected loss rates are based on payment profiles over period of time and the
corresponding historical credit losses experienced over this same period. The Company also record specific credit
loss allowance based on facts and circumstances on specific customers when indicator of loss is identified.The
historical loss rates are adjusted to reflect relevant factors affecting the ability of the customer to settle the
receivables.
As at December 31, 2019, the loss allowance was $382,901 (December 31, 2018 - $45,424) with a loss provision of
$337,477 recognized for the year ended December 31, 2019 (December 31, 2018 - $43,909). The entirety of the loss
allowance relates to provision for bad debt on trade and other receivables and long-term receivables.
The movement in the impairment provision in respect of trade and other receivables during the year is as follows:
January 1:
Allowance for doubtful accounts
Bad debt expense
Effect of foreign exchange translation
December 31:
Interest rate risk
2019
$
45,424 $
337,477
—
—
2018
—
28,664
15,245
1,515
$
382,901 $
45,424
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company is subject to interest rate risk with respect to its cash and cash
equivalent; however, the risk is minimal because of their short-term maturity. All of the Company’s interest-bearing
debt instruments have fixed interest rates and are not subject to interest rate cash flow risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company generally relies on funds generated from operations, external financing or key management to provide
sufficient liquidity to meet budgeted operating requirements. The following table sets forth details of the payment
profile of financial liabilities based on their undiscounted cash flows:
35
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
As at December 31, 2019
Undiscounted Contractual Cash Flows
Bank indebtedness
$
1,471,805 $ 1,471,805 $
— $
— $ 1,471,805
Carrying Amount
< 1 year 1 – 2 years
> 2 years
Total
Trade payables and accrued
liabilities
Business acquisition payable
Loans and borrowings
Convertible debentures
Due to related party
Warrant liabilities
Lease liabilities
8,837,367
8,837,367
1,043,314
1,043,314
—
—
—
—
8,837,367
1,043,314
13,973,055
3,867,541
2,371,536
10,962,666
17,201,743
17,535,946
2,357,190
2,350,750
24,679,655
29,387,595
799,038
799,038
725,086
725,086
—
—
—
—
799,038
725,086
4,362,084
1,053,983
958,094
3,628,975
5,641,032
$
48,747,695 $ 20,155,324 $ 5,680,380 $ 39,271,296 $ 65,106,980
As at December 31, 2018
Undiscounted Contractual Cash Flows
Carrying Amount
< 1 year 1 – 2 years
> 2 years
Total
Trade payables and accrued
liabilities
$
2,225,940 $ 2,225,940 $
Business acquisition payable
1,088,791
1,088,791
— $
—
Loans and borrowings
Due to related party
78,285
36,870
28,500
36,870
49,785
—
— $ 2,225,940
—
—
—
1,088,791
78,285
36,870
$
3,429,886 $ 3,380,101 $ 49,785 $
— $ 3,429,886
Taking into consideration the Company’s current cash position, volatile equity markets, global uncertainty in the
capital markets and increasing cost pressures, the Company is continuing to review its needs to seek financing
opportunities in accordance to its capital risk management strategy. The Company had cash and cash equivalents
of $529,190 and $1,325,794 as at December 31, 2019 and December 31, 2018, respectively.
Foreign currency risk
Foreign currency risk is defined as the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Company maintains financial instruments and enters
into transactions denominated in foreign currencies, principally in USD, which exposes the Company to fluctuating
balances and cash flows due to various in foreign exchange rates. The CAD equivalent carrying amounts of the
Company’s USD denominated monetary assets and monetary liabilities is as follows:
36
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
As at December 31,
Cash and cash equivalents
Trade and other receivables
Due from related party
Long-term receivables
Monetary assets
Trade payables and accrued liabilities
Loans and borrowings
Due to related party
Warrant Liabilities
Business acquisition payables
Monetary Liabilities
Net monetary liabilities
$
$
$
$
2019
178,360 $
1,298,674
—
3,097,749
4,574,783 $
4,819,358
986,005
799,038
725,086
1,043,314
8,372,801 $
3,798,018 $
2018
351,585
339,316
54,570
163,700
909,171
1,180,525
—
—
—
1,088,791
2,269,316
1,360,145
Assuming all other variables remain constant, a fluctuation of +/- 5.0% in the exchange rate between CAD and USD
would impact the net loss for the period by approximately $189,900 (2018 – 186,500).
NOTE 20 - RELATED PARTY TRANSACTIONS
The related party transactions are in the normal course of operations and have been valued in these consolidated
financial statements at the exchange amount, which is the amount of consideration established and agreed to by the
related parties.
Key management personnel compensation
Key management personnel include those persons having authority and responsibility for planning, directing and
controlling the activities of the Company as a whole. The Company defines key management personnel as being the
directors and key officers.
For the year ended December 31, 2019 and 2018, the compensation awarded to key management personnel is as
follows:
Salaries, fees and short-term benefits
Share-based compensation
Due from related party
$
$
2019
1,460,296 $
388,398
1,848,694 $
2018
1,391,760
233,750
1,625,510
At December 31, 2019, the Company had a nil (December 31, 2018 – $54,570) unsecured demand note receivable
with a former shareholder of FDSI bearing interest at 2% per annum. The balance existing as at December 31, 2018
was written off during the year ended December 31, 2019 as management believes the amount is not collectible.
Due to related party
At December 31, 2019, the Company had nil (December 31, 2018 – $36,870) due to a director of the Company. The
amount was unsecured, non-interest bearing, due on demand, and related to advances and expenses incurred by the
Directors on behalf of the Company.
At December 31, 2019, the Company had $799,038 (December 31, 2018 - nil) due to an entity controlled by the
principal owner of Agnity for purchase of assets. The amount is unsecured, non-interest bearing and due on demand.
This amount was included in the net identifiable assets (liabilities) of Agnity.
37
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Related party transactions
On May 15, 2019, the Company, through its wholly owned subsidiary, mCloud Technologies (Canada) Inc., executed a
Master Services and Development Agreement (“MSDA”) with a related party entity sharing a common key
management personnel. The related party entity was engaged to assist in the development of temperature and
occupancy sensors specific to the Company’s needs. During the year ended December 31, 2019, the Company
recognized $267,305 (December 31, 2018 - nil) in research and development expenses relating to the MDSA. There
were no outstanding payable balances in connection with the MDSA as at December 31, 2019.
The Company engaged an entity partially owned by the principal owner of Agnity to perform consulting services in the
amount of $1,630,119 (December 31, 2018 - nil). At December 31, 2019, the Company had $1,533,117 (December 31,
2018 - nil) due to the entity, the balance is included in trade payables and accrued liabilities balance.
NOTE 21 - FINANCE COSTS
For the year ended December 31,
Interest on loans and borrowings
Interest on convertible debentures (note 16)
Interest on lease liabilities
$
$
NOTE 22 - INCOME TAXES
Income tax expense (recovery) consist of the following components:
2019
918,682 $
2,130,247
168,571
2018
183,717
—
—
3,217,500 $
183,717
2019
2018
Current income tax expense (recovery)
Current year
$
181,895 $
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Movement in unrecognized deferred income tax
assets
(5,007,352)
3,130,039
Income tax expense (recovery)
$
(1,695,418) $
—
—
—
—
The total income tax expense (recovery) recorded in the consolidated financial statements differs from the amount
computed by applying the combined federal and provincial tax rates of 27% (2018 - 27%) to income (loss) before tax
as follows:
38
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Loss before taxes
Statutory income tax rate
Expected recovery at statutory rate
Increase (decrease) in taxes resulting from:
Non-deductible transaction costs
Other non-deductible items
Foreign tax rate and other foreign tax differences
Share issue costs and other
Change in enacted rates
Change in deferred income tax assets not
recognized
$
(30,405,252)
$
(12,187,868)
2019
2018
27 %
(8,209,418)
27 %
(3,290,724)
2,664,789
431,176
238,786
49,210
—
3,130,039
—
502,706
731,549
(557,857)
—
2,614,326
Income tax expense (recovery)
$
(1,695,418)
$
—
The significant components of the Company’s deferred income tax asset (liabilities) comprise the following:
As of
December 31,
2018
Acquired in
business
combinations
Recovery/
(expense)
through
earnings
Recovery/
(expense)
through
equity
Recovery/
(expense)
through other
comprehensive
income
As of
December
31, 2019
Property and equipment
Intangible assets
$
$
0 $
112,609 $
(111,341) $
(93,426) $
(6,397,413) $
1,116,075 $
0 $
0 $
(1,268) $
0
53,756 $ (5,321,008)
Loans and accrued liabilities
—
(261,627)
228,123
(1,667,445)
4,514
(1,696,435)
Foreign exchange
(62,937)
—
22,434
Non-capital losses/net operating losses
156,363
2,469,370
622,022
—
—
971
(39,532)
(45,394)
3,202,361
Total
$
— $
(4,077,061) $ 1,877,313 $ (1,667,445) $
12,579 $ (3,854,614)
Deferred income tax assets are recorded to the extent that the realization of the related tax benefit is probable based
on estimated future earnings. Deferred income tax assets have not been recognized with respect to the following
deductible temporary differences:
Property and equipment
Intangible assets
Share issuance costs
Net operating losses - United States
Non-capital losses - Canada
Investment tax credits and research and
development expenditures
Other
Total unrecognized deductible temporary
differences
$
2019
1,215,102 $
—
2,298,879
21,008,481
14,271,122
6,018,504
432,359
2018
629,753
222,771
1,791,028
15,343,295
24,340,210
6,021,356
473,845
$
45,244,447 $
48,822,258
The Company has net operating losses of approximately USD$21.7 million and non-capital losses of approximately
$33.5 million (2018: USD$11.4 million and $26.1 million) which are available to reduce future year's taxable income in
the United States and Canada, respectively. The net operating losses will commence to expire in 2028 while the non-
capital losses will commence to expire in 2031 if not utilized. Management estimates future income using forecasts
based on the best available current information.
39
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
No deferred tax liability has been recognized at December 31, 2019 on temporary differences associated with
earnings retained in the Company's investments in foreign subsidiaries in which it has an equity percentage. The
Company is able to control the timing of the reversal of these differences and currently has no plans in the
foreseeable future to repatriate any funds in excess of its foreign investment.
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Below is a summary of the Company’s commitments as of December 31, 2019.
Payment due by period
Contractual Obligations
Lease obligations(1)
Less than 1
year
1-3 years
3-5 years
More than 5
years
Total
$ 1,848,438 $ 3,342,054 $ 3,015,047 $ 2,673,709 $ 10,879,248
Convertible Debentures - Principal
—
23,507,500
Convertible Debentures - Interest
2,357,190
3,522,905
—
—
—
23,507,500
—
5,880,095
Loans and borrowings - Principal
4,515,879
3,453,195
3,892,266
3,716,810
15,578,150
Loans and borrowings - Interest
823,466
1,289,877
793,806
188,249
3,095,398
Total
$ 9,544,973 $ 35,115,531 $ 7,701,119 $ 6,578,768 $ 58,940,391
(1) Lease obligations include estimated operating costs that are to be incurred pursuant to the terms of contracts.
The Company may be subject to a variety of claims and suits that arise from time to time in the ordinary course of
business. Although management currently believes that resolving claims against the Company, individually or in
aggregate, will not have a material adverse impact on the Company’s financial position, results of operations, or cash
flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in
the future. To date, there are no claims or suits outstanding against the Company.
NOTE 24 – SUPPLEMENTAL CASH FLOW INFORMATION
The following are non-cash investing and financing activities that occurred during year ended December 31, 2019:
2019
2018
Addition to right of use assets as a result of transition to IFRS 16 at
January 1, 2019
$
285,086 $
Lease liabilities as a result of transition to IFRS 16 at January 1, 2019
Settlement of liabilities through issuance of shares
Shares issued in business combination (note 6)
Transaction costs settled through shares in business combination
(note 6)
Non-cash accretion of interest included in finance cost
Acquisition of intangible assets settled through issuance of shares
Share issued to extinguish the loan from Flow Capital
Addition to right of use assets during the year subsequent to transition
to IFRS 16
Lease liabilities assumed during the year subsequent to transition to
IFRS 16
402,383
84,252
13,320,000
8,880,000
909,158
—
606,495
183,617
183,617
—
—
—
1,547,750
—
13,566
131,654
—
—
—
40
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
NOTE 25 – NON-CONTROLLING INTEREST
The following table summarizes the information relating to the Company's subsidiary, Agnity, that has material non-
controlling interest, before any intercompany eliminations.
December 31, 2019
$
NCI percentage
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Net assets attributable to NCI
Revenue
Profit
OCI
Total comprehensive loss
Profit allocated to NCI
OCI allocated to NCI
Cash flows from operating activities
Cash flows from investment activities
Cash flows from financing activities (dividends to NCI: nil)
Foreign exchange effect on cash held in US dollars
Net increase (decrease) in cash and cash equivalents
$
100 %
3,754,754
10,452,035
(6,555,280)
(661,954)
6,989,554
6,989,554
6,010,753
1,944,508
199,588
2,144,096
1,944,508
199,588
483,245
(3,731)
(417,068)
5,976
68,422
NOTE 26 – NGRAIN ACQUISITION
On March 8, 2018, the Company acquired all the issued and outstanding shares of NGRAIN from arm’s length
parties (the “NGRAIN Acquisition”).
Consideration given consists of:
i.
ii.
iii.
iv.
v.
The issuance of a promissory note in the principal amount of $307,500, maturing on May 15, 2018;
The issuance of 475,000 common shares;
The assumption of a $300,000 vendor note payable;
Assumption of $93,219 debenture; and
Payment or receipt of the difference between actual working capital and a target working capital of nil.
The NGRAIN Acquisition was accounted for as a business combination using the acquisition method whereby the
net assets acquired, and the liabilities assumed were recorded at fair value.
The allocation of the purchase consideration to the estimated fair value of the net assets acquired is presented
below:
41
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
Fair value of net assets acquired
Net working capital, including cash of $362,043(1)
Intangible assets - customer relationships
Intangible assets - technology
Goodwill
Assumption of vendor note payable
Assumption of debenture
Total net assets acquired
Consideration given:
Deferred revenue
Lease liabilities
Deferred income tax liability
Fair value of net assets acquired
$
404,065
1,184,000
270,000
388,652
(300,000)
(93,219)
1,853,498
307,500
1,547,750
(1,752)
$
$
$
1,853,498
(1) At the date of the NGRAIN Acquisition, NGRAIN had a carrying value of deferred revenue of $405,817. Management determined the fair value of
deferred revenue to be nil on the bottom-up approach as it assessed the incremental costs to fulfill the legal performance obligation to be nil.
Goodwill arising from the NGRAIN Acquisition is attributable to the assembled workforce and the synergies that the
Company will obtain. Those assets do not meet the recognition criteria prescribed by IFRS 3 Business
Combinations, and therefore have not been recognized as separate intangible assets.
From the date of the NGRAIN Acquisition to December 31, 2018, NGRAIN contributed revenue of $401,414 and and
a net loss of $405,509. Had NGRAIN been acquired on January 1, 2018, it would have contributed additional
revenue of approximately $137,495 and reduction of net loss of $134,705.
NOTE 27 – BANK INDEBTEDNESS
In August 2019, Autopro amended its credit facilities (collectively referred to as the “Credit Facility”). Under the
Credit Facility, Autopro has access to the following funds:
i.
ii.
a demand operating revolving loan facility (the “Operating Loan Facility”) available by way of loan
advances not exceeding in aggregate of $1,750,000 (the “Maximum Limit”); and
a $750,000 credit card facility (the “MasterCard Facility”).
Under the terms of the agreement, Autopro is subject to certain customary financial and non-financial covenants
and restrictions. In addition, the Credit Facility is secured by Autopro’s current and acquired property, subject only in
priority to the security interest of Integrated Private Debt Fund VI LP (note 15d). As at December 31, 2019, Autopro
was in compliance with all covenants relating to the Credit Facility. Subsequent to December 31, 2019, the lender
waived the covenants from needing to be calculated at March 31, 2020.
Operating Loan Facility
Loan advances and other credit under the Operating Loan Facility, collectively, cannot exceed the Maximum Limit and
are available as follows:
a. CAD account bank overdraft up to an aggregate principal amount not exceeding $1,750,000. Interest
payments are based on the Bank’s Prime Rate plus 1.00% per annum, calculated monthly in arrears on the
daily balance on the last day of each month. As at December 31, 2019, Autopro had a CAD bank overdraft
of $1,471,805;
b. USD account bank overdraft up to an aggregate principal amount not exceeding USD $1,315,789. Interest
payments are based on the Bank’s US Prime Rate 1.00% per annum on the basis, calculated monthly in
arrears on the daily balance on the last day of each month. As at December 31, 2019, Autopro' had a USD
cash balance of $5,173; and
c.
Letters of Guarantee up to an aggregate amount of $1,000,000, in each case for a maximum term of one
year to finance the day to day operations of Autopro. Each issuance is an advance of credit and is required
to be immediately reimbursed. Interest on any amount drawn and not immediately reimbursed shall
accrue monthly in arrears at a rate of 21% per annum or such other rate as advised by the Bank from time
to time. As at December 31, 2019, the advance remains undrawn.
42
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
MasterCard Facility
The Mastercard Facility provides security to MasterCard for expenses outstanding on the company issued credit
cards. As at December 31, 2019, the facility remains undrawn.
NOTE 28 – EVENTS AFTER REPORTING PERIOD
a. On January 24, 2020, the Company completed its acquisition of CSA, Inc. (“CSA”). CSA is a leading provider of
3D laser scanning solutions for energy facility management. The CSA acquisition creates opportunities to bring
new customer value through the creation of 3D Digital Twins, or digital replicas of energy assets and process
facilities accessed through AssetCare, which enables process facilities to substantially improve the health and
efficiency of maintaining process assets. The consideration paid for this acquisition comprises the following:
•
•
US$500,000 in cash
380,210 common shares of the Company
Additional cash payments of up to US$1,250,000 and up to US$500,000 worth of common shares of the
Company, would also be payable upon certain earn out conditions being met (collectively, “Contingent Shares”).
This transaction will be accounted for as a business combination in accordance with IFRS 3. Given that this
acquisition has only recently closed, as of the date of the filing of these consolidated financial statements, we
are still evaluating the impact of this acquisition on our consolidated financial statements. The results of this
evaluation along with this acquisitions’s financial results will be consolidated in our financial statements for
upcoming quarter.
b. On January 27, 2020, the Company issued 3,332,875 special warrants (each, a “Special Warrant”) for gross
proceeds of $13,331,500. Each Special Warrant is automatically exercisable into units of the Company (each, a
“Unit”), for no additional consideration, on the earlier of: (i) the third business day following the date on which a
final prospectus qualifying the distribution of the Units issuable upon exercise of the Special Warrants (the
“Qualifying Prospectus”) is filed and deemed effective; and (ii) May 15, 2020, being 4 months and 1 day after the
Closing Date (the “Automatic Exercise Date”). Each Special Warrant may be exercised voluntarily by the holder at
any time on or after the Closing Date, but before the Automatic Exercise Date. Upon voluntary exercise or
automatic exercise, each Special Warrant entitles the holder to one Unit, consisting of one common share of the
Company (“Common Share”) and one-half of one common share purchase warrant (each whole common share
purchase warrant, a “Warrant”). Each Warrant entitles the holder (“Warrant holder”) to acquire one Common
Share at an exercise price of $5.40 per Common Share (the “Exercise Price”) for a term of five years until January
14, 2025. The Company agreed that in the event that the Qualification Event was not completed on or before 5:00
pm (EST) on March 14, 2020 (the "Qualification Deadline"), each unexercised Special Warrant will thereafter
entitle the holder to receive, upon the exercise thereof, at no additional cost, 1.1 Units per Special Warrant
(instead of one Unit) (the "Penalty Provision"). As the Qualification Event was not completed prior to the
Qualification Deadline, each holder of a Special Warrant is entitled to receive, without payment of additional
consideration, 1.1 Units per Special Warrant (in lieu of 1 Unit per Special Warrant) upon exercise or automatic
exercise of the Special Warrants. A receipt for the Qualifying Prospectus was obtained on April 29, 2020.
Accordingly, on May 4, 2020, the unexercised Special Warrants were exercised and converted into 3,666,162
Units of the Company, consisting of 3,666,162 Common Shares and 1,833,081 Warrants.
c. On February 7, 2020, the Company signed an agreement to acquire technologies from AirFusion, Inc.
(“AirFusion”), an artificial intelligence visual inspection and monitoring technology provider based in Boston. The
purchase consideration for the acquisition of AirFusion's assets is not material to the Company. AirFusion’s AI-
derived results from wind turbine blade images are the best the Company has seen, reducing processing times
by over 90% without compromising high accuracy. The acquisition of the AirFusion technology gives mCloud a
serious competitive edge over other wind blade inspection providers. The acquisition was closed on May 15,
2020. This transaction is accounted for as an asset acquisition.
d. On February 10, 2020, the Company signed an Expression of Interest to acquire Australia-founded Building IQ
(“BiQ”). On March 22, 2020, the Company announced its decision to evaluate alternatives with BiQ resulting from
material misrepresentations found during due diligence. The Company has filed a claim under Delaware law to
recover a secured AUD$0.5 million loan already provided to BiQ as well as a Break Fee of AUD $0.5 million.
43
mCloud Technologies Corp.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2019 and 2018
(Unaudited - expressed in Canadian Dollars)
e. On April 17, 2020 the Company filed its final short form base shelf prospectus (the “Prospectus”), allowing the
Company to offer, from time to time, over a 25-month period, common share, preferred shares, debt securities,
subscription receipts, warrants and units with an aggregate value up to $200 million. The Company
subsequently filed a prospectus supplement (the “Supplement”) on April 30, 2020. Upon filing of the Supplement,
each Special Warrant, was automatically exercised to convert into 1.1 units of the Company (“Units”), with each
Unit consisting of one common share of the Company and one-half of one common share purchase warrant, with
each whole common share purchase warrant exercisable to acquire one common share of the company at a
price of $5.40 per common share until January 14, 2025.
f.
Subsequent to December 31, 2019, the Company also received funding reliefs totaling $1,107,317 from the US
and Canadian government to help alleviate the negative impact of the COVID-19 outbreak to its business.
44