EX-99.208 209 ex99208.htm UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

Exhibit 99.208

 

mCloud Technologies Corp.

Condensed Consolidated Interim Statements of Financial Position

Unaudited - Expressed in Canadian Dollars

 

   Notes  June 30, 2021  December 31, 2020
ASSETS               
Current assets               
Cash and cash equivalents       $6,529,708   $1,110,889 
Trade and other receivables   6    6,106,703    6,900,641 
Prepaid expenses and deposits        2,390,237    1,326,319 
Current portion of long-term receivables   6    8,070,847    5,857,386 
Total current assets       $23,097,495   $15,195,235 
Non-current assets               
Prepaid expenses and deposits       $553,901   $718,731 
Long-term receivables   6    1,111,052    2,091,059 
Right-of-use assets        3,211,611    3,660,717 
Property and equipment        695,038    506,387 
Other assets        85,127    293,116 
Intangible assets        24,810,825    27,766,839 
Goodwill        27,021,349    27,086,727 
Total non-current assets       $57,488,903   $62,123,576 
Total assets       $80,586,398   $77,318,811 
LIABILITIES               
Current liabilities               
Bank indebtedness   10   $2,555,195   $976,779 
Trade payables and accrued liabilities   7    11,348,556    12,924,256 
Deferred revenue   5    2,282,216    1,771,120 
Loans and borrowings   9    2,183,906    3,431,251 
Convertible debentures   11(a)   20,779,691    —   
Warrant liabilities        696,481    710,924 
Lease liabilities        764,026    835,472 
Other liabilities   12    1,200,697    6,003,838 
Business acquisition payable   8    1,252,767    1,594,297 
Total current liabilities       $43,063,535   $28,247,937 
Non-current liabilities               
Convertible debentures   11(b)  $11,110,688   $19,534,988 
Lease liabilities        2,725,952    3,109,604 
Loans and borrowings   9    9,441,420    9,721,049 
Deferred income tax liabilities        3,619,932    4,168,905 
Other liabilities   12    728,432    232,577 
Business acquisition payable   8    558,900    845,232 
Total liabilities       $71,248,859   $65,860,292 
EQUITY               
Share capital       $95,646,343   $83,120,611 
Contributed surplus        10,117,324    8,518,476 
Accumulative other comprehensive income        2,459,624    1,669,596 
Deficit        (103,290,269)   (85,686,366)
Total shareholders’ equity       $4,933,022   $7,622,317 
Non-controlling interest        4,404,517    3,836,202 
Total equity       $9,337,539   $11,458,519 
Total liabilities and equity       $80,586,398   $77,318,811 

 

 

Events after the reporting period (Note 20)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

Approved on behalf of the Board of Directors on August 13, 2021

 

“Russ McMeekin” “Michael Allman”
Director Director

 

 

 1 | Condensed Consolidated Interim Financial Statements

 

mCloud Technologies Corp.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited - Expressed in Canadian dollars except number of shares)

 

      Three months ended June 30,  Six months ended June 30,
   Notes  2021  2020  2021  2020
Revenue   4, 5   $7,208,127   $5,010,082   $15,589,163   $11,568,286 
Cost of sales        (2,600,560)   (1,936,023)   (5,859,290)   (4,432,415)
Gross profit       $4,607,567   $3,074,059   $9,729,873   $7,135,871 
Expenses                         
Salaries, wages and benefits       $5,583,582   $5,338,818   $10,453,977   $11,122,885 
Sales and marketing        328,354    532,345    513,053    1,078,149 
Research and development        711,715    360,888    1,460,879    360,888 
General and administration        1,556,068    1,259,315    2,893,429    2,406,503 
Professional and consulting fees        2,700,524    2,513,726    4,439,945    4,590,589 
Share-based compensation   14    360,645    288,778    735,919    689,640 
Depreciation and amortization        1,993,021    1,547,306    3,963,971    3,181,154 
Total expenses       $13,233,909   $11,841,176   $24,461,173   $23,429,808 
Operating loss       $8,626,342   $8,767,117   $14,731,300   $16,293,937 
Other expenses (income)                         
Finance costs   16   $1,946,586   $1,368,067   $4,182,513   $2,833,288 
Foreign exchange loss (gain)        164,355    (19,852)   531,783    (897,598)
Business acquisition costs and other expenses        11,610    951,191    336,020    1,024,296 
Fair value (gain) loss on derivatives   11(b)   (1,113,106)   —      451,043    —   
Other income   3,8,12    (1,155,002)   (980,564)   (3,065,308)   (992,667)
Loss before tax       $8,480,785   $10,085,959   $17,167,351   $18,261,256 
Current tax expense (recovery)        240,562    78,666    479,359    (71,549)
Deferred tax expense (recovery)        (372,600)   (811,565)   (491,824)   (959,044)
Net loss for the period       $8,348,747   $9,353,060   $17,154,886   $17,230,663 
Other comprehensive (income) loss                         
Foreign subsidiary translation differences        (523,979)   483,201    (909,326)   1,081,994 
Comprehensive loss for the period       $7,824,768   $9,836,261   $16,245,560   $18,312,657 
Net loss (income) for the period attributable to:                         
mCloud Technologies Corp. shareholders       $8,278,648   $9,706,627   $17,603,903   $17,728,005 
Non-controlling interest        70,099    (353,567)   (449,017)   (497,342)
        $8,348,747   $9,353,060   $17,154,886   $17,230,663 
Comprehensive loss (income) for the period attributable to:                         
mCloud Technologies Corp. shareholders       $7,836,171   $9,558,570   $16,813,875   $18,235,637 
Non-controlling interest        (11,403)   277,691    (568,315)   77,020 
        $7,824,768   $9,836,261   $16,245,560   $18,312,657 
                          
Loss per share attributable to mCloud shareholders - basic and diluted       $0.25   $0.51   $0.58   $1.00 
Weighted average number of common shares outstanding - basic and diluted        33,364,193    19,060,651    30,455,325    17,694,119 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

 2 | Condensed Consolidated Interim Financial Statements

 

mCloud Technologies Corp.

Condensed Consolidated Interim Statements of Changes in Equity

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

   Notes 

Number of

Shares

  Share Capital  Contributed Surplus  Accumulated Other Comprehensive Income (loss)  Non-
controlling Interest		  Deficit  Total Equity
Balance, December 31, 2020        27,505,301   $83,120,611   $8,518,476   $1,669,596   $3,836,202   $(85,686,366)  $11,458,519 
Share-based payments   14    —      —      735,919    —      —      —      735,919 
RSUs exercised   14    32,320    129,814    (129,814)   —      —      —      —   
Broker warrants issued   13(b)   —      —      372,947    —      —      —      372,947 
Shares issued in public offering, net of costs   13(a)   6,900,000    12,395,918    —      —      —      —      12,395,918 
Investor warrants issued, net of costs   13(a)   —      —      619,796    —      —      —      619,796 
Net (loss) income for the period        —      —      —      —      449,017    (17,603,903)   (17,154,886)
Other comprehensive income for the period        —      —      —      790,028    119,298    —      909,326 
Balance, June 30, 2021        34,437,621   $95,646,343   $10,117,324   $2,459,624   $4,404,517   $(103,290,269)  $9,337,539 
                                         
Balance, December 31, 2019 - recast 1        15,848,788   $45,368,745   $7,278,119   $363,250   $1,924,238   $(48,816,099)  $6,118,253 
Share-based payments        —      —      689,640    —      —      —      689,640 
RSUs exercised        103,463    362,532    (506,930)   —      —      —      (144,398)
Stock options exercised        20,000    166,400    (96,400)   —      —      —      70,000 
Warrants exercised        344,345    1,860,618    (427,426)   —      —      —      1,433,192 
Shares issued in business combination        380,210    2,304,073    —      —      —      —      2,304,073 
Shares issued on conversion of 2019 debentures        10,000    50,000    —      —      —      —      50,000 
Shares issued for asset acquisition - AirFusion        200,000    820,000    —      —           —      820,000 
Issue of special warrants, net        —      —      12,217,171    —      —      —      12,217,171 
Conversion of special warrants        3,666,162    12,217,171    (12,217,171)   —      —      —      —   
Settlement of debt with RSUs        —      —      143,002    —      —      —      143,002 
Net (loss) income for the period        —      —      —      —      497,342    (17,728,005)   (17,230,663)
Other comprehensive (loss) for the period        —      —      —      (507,632)   (574,362)   —      (1,081,994)
Balance, June 30, 2020        20,572,968   $63,149,539   $7,080,005   $(144,382)  $1,847,218   $(66,544,104)  $5,388,276 

 

1 Contributed surplus and Deficit at December 31, 2019 were adjusted to reflect the $815,000 additional deferred tax recovery related to deferred tax assets recognized through profit and loss to offset deferred tax liabilities recognized in equity on the issuance of convertible debentures.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 3 | Condensed Consolidated Interim Financial Statements

 

mCloud Technologies Corp.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited - Expressed in Canadian Dollars)

 

      Six months ended June 30,
   Notes 

2021

  2020
Operating activities               
Net loss for the period       $(17,154,886)  $(17,230,663)
Items not affecting cash:               
Depreciation and amortization        3,963,971    3,181,154 
Share-based compensation   14    735,919    689,640 
Finance costs   16    4,182,513    2,833,288 
Other income        (873,950)   (112,487)
Fair value loss on derivatives   11(b)   451,043    —   
Unrealized foreign currency exchange loss (gain)        611,061    (897,598)
Current tax expense (recovery)        479,359    (71,549)
Deferred income tax (recovery)        (491,824)   (959,044)
(Decrease) increase in working capital   17    (3,244,239)   2,219,922 
Interest paid        (1,613,861)   (1,842,629)
Taxes paid        —      (158,564)
Net cash used in operating activities       $(12,954,894)  $(12,348,530)
Investing activities               
Acquisition of property and equipment       $(337,784)  $(92,479)
Acquisition of and expenditure on intangible assets        (436,555)   (375,573)
Acquisition of assets of AirFusion        —      (835,302)
Acquisition of business, net of cash acquired        —      (116,643)
Net cash used in investing activities       $(774,339)  $(1,419,997)
Financing activities               
Payment of lease liabilities       $(592,372)  $(385,801)
Repayment of loans        (7,009,073)   (5,568,046)
Proceeds from loans and bank indebtedness, net of transaction costs        8,760,673    4,053,615 
Net repayments of bank indebtedness        (953,584)   (1,419,527)
Proceeds from issuance of shares, net of issuance costs   13(a)   12,395,918    —   
Proceeds from issuance of convertible debentures, net of costs        5,527,298    —   
Advance from subscription of units   20(a)   420,000    4,000,000 
Proceeds from issuance of shares, net of issuance costs        —      12,217,171 
Proceeds from the exercise of stock options, net of issuance costs        —      70,000 
Proceeds from exercise of warrants, net   13(a)   619,796    1,433,192 
Net cash provided by financing activities       $19,168,656   $14,400,604 
Increase in cash and cash equivalents       $5,439,423   $632,077 
Effect of exchange rate fluctuations on cash held        (20,604)   13,317 
Cash and cash equivalents, beginning of period        1,110,889    529,190 
Cash and cash equivalents, end of period       $6,529,708   $1,174,584 

 

Supplemental cash flow information (Note 17)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 4 | Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 1 -  NATURE OF OPERATIONS

mCloud Technologies Corp. (“mCloud” or the “Company”), is a provider of proprietary technology solutions, AssetCare. Customers use AssetCare software-as-a-service (“SaaS”) and data solutions to ensure assets continuously operate at peak performance. AssetCare is an asset management platform combining IoT, AI and the cloud to drive next-level performance and efficiency. Through operating entities such as Agnity Global, Inc. (“Agnity”), mCloud offers foundational enterprise technology solutions enabling capabilities such as secure communications, connected work, and remote care.

The Company is domiciled in Vancouver, Canada with its head office in Calgary, Alberta and its registered offices located at 550-510 Burrard Street, Vancouver, British Columbia, V6C 3A8. The Company’s shares trade on the TSX Venture Exchange (“TSX.V”) under the symbol MCLD and on the OTCQB in the United States under the symbol MCLDF.

 

 

NOTE 2 -  BASIS OF ACCOUNTING

These condensed consolidated interim financial statements of the Company include the accounts of the Company, the ultimate parent company of its consolidated group, and its subsidiaries and are prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). Certain disclosures included in the annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the IASB have been condensed or omitted as they are not required for interim financial statements. Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated annual financial statements and notes thereto for the year ended December 31, 2020 (the “2020 Annual Financial Statements”), which are available on SEDAR at www.sedar.com. Selected explanatory notes are included in the interim financial statements to explain events and transactions that are significant to the understanding of changes in the Company’s financial position and performance since the last annual financial statements.

The Company’s presentation currency is Canadian dollars and all amounts are presented in Canadian dollars unless otherwise stated. These condensed consolidated interim financial statements have been prepared on a going- concern basis, under the historical cost convention except for certain financial instruments that have been measured at fair value. There were no changes in the entities contained in the consolidated results or the equity percentage held by the Company from December 31, 2020 as presented in Note 2 to the 2020 Annual Financial Statements. Certain comparative balances were reclassified to conform with current period’s presentation.

The accounting policies applied in the preparation of these condensed consolidated interim financial statements are consistent with those applied and disclosed in Note 2 to the 2020 Annual Financial Statements with the exception of the expansion of the accounting policy note (q) Convertible Debentures to add the accounting policy related to the issuance of convertible debentures in the six months ended June 30, 2021 (Note 19).

These condensed consolidated interim financial statements were authorized for issue by the Audit Committee, on behalf of the Board of Directors, on August 13, 2021.

 

 

NOTE 3 -  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In the preparation of the consolidated financial statements and 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 liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during each reporting period. The estimates and associated assumptions are limited by the relevance of historical data and uncertainty of future events. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

The Company applied critical judgements and estimates, including significant areas of estimation uncertainty in applying policies, in preparing these condensed consolidated interim financial statements, as described in Note 3 to the 2020 Annual Financial Statements. In addition, during the three and six months ended June 30, 2021, management made judgements related to the measurement of the fair value of the convertible debentures issued in the period, including the determination of the allocation of the proceeds between the host liability and conversion feature embedded derivative components (Note 11(b)). At inception of an instrument, the Company determines the value of the components of convertible debt and judgement is required in determining the inputs used in the fair value calculations and in determining the probability of certain outcomes. Changes in those judgements may result in a change to the recognized value of the convertible debt.

 

 5 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

 

Beginning in March 2020, the COVID-19 pandemic has had a substantial impact on world economies. As a result of the uncertainty associated with the unprecedented nature of the pandemic, certain of the Company’s significant assumptions may be impacted. Uncertain environments make estimating several items in the financial statements more challenging and are likely to result in more frequent changes in management’s expectations about the future. The long-term impact on the Company’s financial results and cash flows is unknown at this time. Although the Company has been negatively impacted by COVID-19, given the Company’s nature of operations, COVID-19 has increased customer demand and created new opportunities for mCloud to engage with new and existing customers using the remote connectivity offered by AssetCare.

 

The Company has received government assistance in both Canada and the United States to help temper the financial impact of COVID-19. During the three and six months ended June 30, 2021, government assistance in the form of wage subsidies and government loans forgiven of $1,124,926 and $2,418,782, respectively, was recorded in Other income on the condensed consolidated interim statements of loss and comprehensive loss for the periods then ended (three and six months ended June 30, 2020 - $657,966).

 

Going Concern

 

These condensed consolidated interim 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. During the six months ended June 30, 2021, the Company generated a net loss of $17,154,886 and negative cash flows from operating activities of

$12,954,894. As at June 30, 2021, the Company had a working capital deficiency of $19,966,040. These factors are indicators that material uncertainties exist that may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, its ability to realize assets and discharge liabilities in the normal course of business.

 

In making their assessment, management considered all available information, together with forecasts that management believes are plausible and other mitigating strategies, about the future which is at least, but not limited to, twelve months from the end of the reporting period.

 

Management has considered in its assessment the undrawn portion of the ATB operating line facility (Note 10), the maturity of the 2019 convertible debentures due May 31, 2022 if not converted on or before this date (Note 11(a)), expected increases in revenues and cash flows resulting from new revenue contracts expected over the next 12 months due to the anticipated reduction of COVID-19 related restrictions, which will be offset by cash used in investing activities and required cash principal and interest payments on indebtedness. In addition, management does not forecast that any debt covenants will be breached impacting the timing of their repayment. As a result of this assessment, management believes the Company will have sufficient capital arrangements to fund its current planned operations during the twelve-month period following June 30, 2021.

 

In the long-term, continuation of the Company as a going concern is dependent on its ability to achieve and maintain profitable operations and positive cash flow from operations, and, as necessary, to obtain the necessary equity or debt financing to continue with expansion in the AssetCare market. To date, the Company has funded its operations through debt and equity financing. 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.

 

 6 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

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 the CEO on a regular basis.

 

The Company’s revenue by location of the ultimate customer or consumer of product solution are as follows:

 

 

   Three months ended June 30,  Six months ended June 30,
   2021  2020  2021  2020
Canada  $3,917,898   $2,712,636   $7,144,996    6,508,138 
Asia-Pacific   1,578,004    478,665    3,286,804    478,665 
United States   1,569,643    1,365,544    4,930,822    4,128,246 
Europe, Middle East and Africa   142,582    453,237    226,541    453,237 
Total revenue  $7,208,127   $5,010,082   $15,589,163   $11,568,286 

 

The Company’s non-current assets by country are as follows:

 

   June 30, 2021  December 31, 2020
Canada  $35,673,548   $37,966,772 
Asia-Pacific   11,128,663    11,731,960 
United States   10,686,692    12,424,844 
Total non-current assets  $57,488,903   $62,123,576 

 

 

NOTE 5 -  REVENUE

 

The Company’s operations and main revenue streams are those described in Note 2(k) to the 2020 Annual Financial Statements. The Company’s revenue is derived from contracts with customers.

 

In the following tables, revenue is disaggregated by major service line and timing of revenue recognition.

 

 

   Three months ended June 30,  Six months ended June 30,
   2021  2020  2021  2020
AssetCare initialization  $590,820   $1,352,021   $1,739,490   $3,424,874 
AssetCare over time   6,448,752    2,683,670    12,639,821    3,676,215 
Engineering services   168,555    974,391    1,209,852    4,467,197 
   $7,208,127   $5,010,082   $15,589,163   $11,568,286 

 

 

   Three months ended June 30,   Six months ended June 30, 
Revenue recognized  2021  2020  2021  2020
Over time  $6,452,582   $4,151,005   $13,167,513   $8,636,356 
At a point in time 1   755,545    859,077    2,421,650    2,931,930 
   $7,208,127   $5,010,082   $15,589,163   $11,568,286 

 

1 Upon completion.

 

 7 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 5 - REVENUE (continued)

 

Significant changes in unbilled revenue and deferred revenue balances are as follows:

 

For the six months ended June 30, 2021  Unbilled revenue  Deferred revenue
Balance at December 31, 2020  $554,740   $1,771,120 
Additions   4,999,006    5,366,738 
Less: transferred to trade and other receivables   (4,741,816)   (4,858,950)
Currency translation adjustment   —      3,308 
Balance at June 30, 2021  $811,930   $2,282,216 

 

NOTE 6 -TRADE AND OTHER RECEIVABLES AND LONG-TERM RECEIVABLES

 

   June 30, 2021  December 31, 2020
Trade receivables from contracts with customers  $4,090,746   $4,770,056 
Unbilled revenue (Note 5)   811,930    554,740 
Indirect taxes receivable   315,371    341,583 
Income taxes receivable   429,066    594,036 
Other receivables   777,932    961,714 
Contract asset   153,178    153,178 
Loss allowance   (471,520)   (474,666)
Total trade and other receivables  $6,106,703   $6,900,641 

 

Long-term receivables

 

Long-term receivables represent receivables associated with revenue contracts whereby certain customers make fixed monthly installment payments over an extended period of time, ranging from one to three years, for performance obligations delivered upfront. These balances are presented net of loss allowance:

 

   June 30, 2021  December 31, 2020
Current portion of long-term receivables  $8,070,847   $5,857,386 
Non-current portion of long-term receivables   1,111,052    2,091,059 
Total long-term receivables  $9,181,899   $7,948,445 

 

NOTE 7 - TRADE PAYABLES AND ACCRUED LIABILITIES

 

   June 30, 2021  December 31, 2020
Trade payables  $4,516,922   $5,903,789 
Accrued salaries   2,748,481    2,882,928 
Accrued liabilities   1,834,866    1,912,814 
Interest payable   559,218    425,054 
Mastercard facility (Note 10)   340,416    600,590 
Due to related parties   428,802    846,228 
Other   919,851    352,853 
Total trade payables and accrued liabilities  $11,348,556   $12,924,256 

 

 8 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 8 - BUSINESS ACQUISITION PAYABLE

 

   June 30, 2021  December 31, 2020
Opening balance  $2,439,529   $1,043,314 
Contingent consideration related to CSA 1   (581,117)   879,066 
Contingent consideration recognized related to kanepi   —      568,638 
Effect of foreign exchange differences   (46,745)   (51,489)
Total   1,811,667    2,439,529 
Less: current portion   1,252,767    1,594,297 
Non-current portion of business acquisition payable  $558,900   $845,232 

 

1 During the three months ended March 31, 2021, the Company determined that a portion of the contingent consideration recognized at the date of acquisition of CSA (Note 18) was not payable as the operational performance metrics were not achieved and recognized $581,117 in Other income in the condensed consolidated interim statement of loss and comprehensive loss for the period then ended. The remaining fair value of the contingent consideration of $265,172 is classified as current as achievement of the remaining metrics will be determined in the three months ending March 31, 2022.

 

 

 

NOTE 9 - LOANS AND BORROWINGS

 

a) Loans and Borrowings

 

The Company’s loans are described in Note 17 to the 2020 Annual Financial Statements. The carrying value of loans and borrowings by entities controlled by the Company are as follows:

 

   June 30, 2021  December 31, 2020
Term loan  $10,134,112   $10,928,054 
Nations Interbanc facility   —      1,137,360 
Debenture payable to Industry Canada   52,837    76,227 
Loan payable   319,026    318,428 
Oracle financing   933,915    427,251 
Other loans and financing   185,436    264,980 
Total  $11,625,326   $13,152,300 

 

Current

   2,183,906    3,431,251 
Non-current   9,441,420    9,721,049 
Total  $11,625,326   $13,152,300 

 

The Company changed the presentation of funding received from the US government previously classified in Loans and Borrowings to Other Liabilities on the condensed consolidated interim statements of financial position. These forgivable loans are considered to be government grants as management believes there is reasonable assurance that they will be forgiven at which time the amounts will be recognized in Other Income on the condensed consolidated interim statements of loss and comprehensive loss (Note 12).

 

Loan repayment terms vary depending on the nature of the debt. The term loan payments are blended payments of principal and interest until maturity in August 2026 and the loan is secured against the assets of the Company and one of its subsidiaries. The Company is required to maintain certain financial covenants related to the term loan and as at June 30, 2021 these covenants were met and at December 31, 2020 the lender waived these covenants.

 

At June 30, 2021, there were no outstanding funds advanced to a subsidiary of the Company under the accounts receivable factoring agreement with Nations Interbanc which remains in place. During the six months ended June 30, 2021, the Company entered into another financing arrangement with Oracle Credit Corporation associated with financing Oracle licenses used in operations which matures in February 2024.

 

Total interest expense associated with loans and borrowings recognized in net loss was $286,144 and $533,508 for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $197,311 and $516,383) (Note 16).

 

 9 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 10 -   BANK INDEBTEDNESS

 

As described in Note 28 to the 2020 Annual Financial Statements, the Company had access to an operating loan facility and Mastercard facility (collectively referred to as the “Credit Facility’”). On April 15, 2021, the operating loan facility which had a balance of $923,461 at December 31, 2020 was repaid. The Mastercard facility remains in place and $340,416 was drawn at June 30, 2021 (December 31, 2020 - $600,590). This amount is included in Trade payables and accrued liabilities on the condensed consolidated interim statements of financial position for the periods then ended.

 

ATB Financial Facility

On May 17, 2021, one of the Company’s subsidiaries executed a commitment letter for a $5,000,000 secured revolving operating facility with ATB Financial which is a financial institution wholly owned by the Province of Alberta. The facility is available by way of a variety of instruments. On June 24, 2021, $2,500,000 of the available amount was drawn. The facility is due on demand, bears interest at the prime rate plus 2% per annum with interest and fees due monthly at the end of each month. The facility may be prepaid without penalty.

The facility is secured against certain assets of the Company and its principal subsidiaries. In addition, the Company and certain of its subsidiaries have provided an unlimited guarantee for repayment of all amounts due under the facility.

 

 

NOTE 11 -  CONVERTIBLE DEBENTURES

 

   June 30, 2021  December 31, 2020
2019 Convertible debentures liability (a)  $20,779,691   $19,534,988 
2021 Convertible debentures liability (b)   7,257,832    —   
2021 Convertible debentures embedded derivative (b)   3,852,856    —   
Total  $31,890,379   $19,534,988 
           
Current debentures   20,779,691      — 
Non-current debentures  $11,110,688    19,534,988 
Total  $31,890,379   $19,534,988 

 

a)2019 Convertible debentures

 

   June 30, 2021  December 31, 2020
Opening balance  $19,767,472   $17,753,016 
Conversion of debentures into common shares   —      (50,000)
Interest paid   (1,172,875)   (2,345,750)
Accreted interest at effective interest rate   2,380,573    4,410,206 
Carrying amount of liability component  $20,975,170   $19,767,472 
Less: interest payable (Note 7)   (195,479)   (232,484)
Total  $20,779,691   $19,534,988 

 

As described in Note 18(a) to the 2020 Annual Financial Statements, the Company completed a private placement offering of convertible unsecured subordinated debentures (the “2019 Debentures”) for total aggregate gross proceeds of $23,507,500 on July 11, 2019. The 2019 Debentures bear interest at a rate of 10% per annum which is paid quarterly and mature on May 31, 2022 at which time the principal amount is repayable in cash if the 2019 Debentures have not been converted.

The principal amount of the 2019 Debentures is convertible into 4,691,500 units of the Company at the option of the holder at a conversion price of $5.00 per unit. Each unit is comprised of one common share and one share purchase warrant exercisable to acquire one common share at an exercise price of $7.50. If the 2019 Debentures are converted, share purchase warrants attached to the unit are exercisable until June 2024.

 

 10 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 11 -  CONVERTIBLE DEBENTURES (continued)

 

b)2021 Convertible debentures

On December 7, 2020, the Company commenced efforts to raise an aggregate of US$10,000,000 through a private placement offering (the “Offering”) of convertible unsecured subordinated debentures (the “2021 Debentures”) at a price of US$100 per debenture. Note 18(b) to the 2020 Annual Financial Statements describe certain terms of this Offering and refers to the debentures as the 2020 Debentures which will be referenced as the 2021 Debentures hereafter. The 2021 Debentures bear interest at 8% per annum, payable, at the option of the Company, in cash or common shares of the Company calculated in accordance with the debenture agreement which considers such factors as the price of the common stock on the TSX.V converted into U.S. Dollars (“USD”) at the date of record. Interest is payable quarterly in arrears on the last day of each calendar quarter with interest accruing from date of close included in first payment.

The 2021 Debentures mature on the date that is 36 months following the closing date of the applicable tranche (“Maturity Date”). The principal amounts of the 2021 Debentures are convertible into common shares at the option of the holder at any time prior to maturity at the calculated conversion price stated in the debenture. The principal amount of the 2021 Debentures outstanding will be repayable in common shares or cash at the election of the Company on the Maturity Date.

The Offering was closed in multiple tranches. At December 31, 2020, total proceeds of $5,285,997 (US$4,146,825) had been received associated with two tranches of the Offering; however, as the debenture certificates were not yet issued the proceeds were recorded as Other liabilities in the condensed consolidated interim statement of financial position at December 31, 2020.

During the six months ended June 30, 2021, all six tranches of the Offering closed with total gross proceeds of

$11,328,870 (US$8,884,000). These tranches closed between December 7, 2020 and May 25, 2021. Each tranche has a specific Maturity Date and conversion price which was set at the date of close in USD. The conversion prices range between $1.37 (US$1.14) and $2.76 (US$2.20) depending on the tranche.

The 2021 Debentures include a host liability and embedded derivative conversion option. The fair value of the embedded derivative was determined first, with the residual amount of the total fair value of the convertible debentures allocated to the host liability. The host liability is classified as a financial liability recognized at amortized cost and the embedded derivative conversion option is an embedded derivative classified as at fair value through profit or loss (“FVTPL”). The fair value measurement is further described in Note 15(b) - Financial Instruments under Valuation methodologies used in the measurement of fair value for Level 3 financial liabilities.

 

The balances associated with the 2021 Debentures are as follows:

 

   June 30, 2021
Proceeds from issue of convertible debentures  $11,328,870 
Fair value adjustments 1   1,615,102 
Total fair value of convertible debentures  $12,943,972 
Less: fair value of embedded derivative   (5,060,776)
Less: transaction costs 2   (734,758)
Carrying value of liability at inception  $7,148,438 
Interest expense associated with liability   747,421 
Foreign exchange adjustments   (274,289)

 

  $7,621,570 
Less: accrued interest included in accrued liabilities 3   (363,738)
Carrying value of liability at end of period  $7,257,832 

 

1 During the six months ended June 30, 2021, amount recognized as fair value loss on derivatives (Note 15).

2 Total transaction costs associated with the closed tranches were $1,138,440 which include cash compensation paid to brokers and the value of broker warrants issued. Transaction costs of $405,149 allocated to the embedded derivative portion of the convertible debentures were expensed in Finance costs in the condensed consolidated interim statements of loss and comprehensive loss for the six months ended June 30, 2021.

3 The majority of interest payable is expected to be satisfied via the issuance of common shares and share purchase warrants (Note 20(a)).

 

 11 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 11 -   CONVERTIBLE DEBENTURES (continued)

 

b) 2021 Convertible debentures (continued)

 

   June 30, 2021
Fair value of embedded derivative at inception  $5,060,776 
Fair value decrease 1   (1,164,059)
Foreign exchange adjustments   (43,861)
Balance, embedded derivative  $3,852,856 

 

 

1 The fair value of the embedded derivative is remeasured at the end of each reporting period and recognized in Fair value (gain) loss on derivatives in the condensed consolidated interim statements of loss and comprehensive loss. For the three and six months ended June 30, 2021, a gain on change in fair value of derivatives of $1,113,106 and $1,164,059, respectively, was recognized.

 

On July 12, 2021, the Company announced the potential conversion of the majority of the principal amount and interest outstanding under the 2021 Debentures. The terms of the conversion and extinguishment of the debt are subject to a number of conditions including TSX.V approval (Note 20(a)).

 

 

 

NOTE 12 - OTHER LIABILITIES

 

 

   June 30, 2021  December 31, 2020
US Government loans (Note 9)  $1,509,129   $950,418 
Equity financing subscription payable (Note 20(b))   420,000    —   
2021 Debentures subscriptions payable (Note 11(b))   —      5,285,997 
Total  $1,929,129   $6,236,415 
Current portion 1  $1,200,697   $6,003,838 
Non-current portion   728,432    232,577 
Total  $1,929,129   $6,236,415 

 

1 Includes US Government loans of $780,697 and $717,841 respectively at June 30, 2021 and December 31, 2020.

 

 

During the six months ended June 30, 2021, the Company was granted two additional low-interest US government loans totaling $840,845, each bearing interest at 1% per annum with maturity dates in February and May 2026. Similar to the other loans received during Fiscal 2020 from the US Government as part of the Paycheck Protection Program (the “PPP”), a portion or the entirety of the amounts funded may be forgiven if the funds are used for qualifying expenses which include payroll costs, rent and utility costs, and employment and compensation levels are maintained. The Company intends to use the entire loan amount for qualifying expenses and as such expects these loans will be forgiven and no principal or interest payments will be made.

 

Companies may apply for forgiveness once all proceeds have been used. During the three and six months ended June 30, 2021, one government loan was forgiven and $183,557 was included in Other income associated with this forgiveness. Subsequent to June 30, 2021, two US government loans with a total carrying amount of $780,697 at June 30, 2021 were forgiven (Note 20(c)).

 

 12 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 13 - SHARE CAPITAL

 

a)Common shares

 

During the six months ended June 30, 2021, the Company issued 32,320 common shares on exercise of Restricted Share Units (Note 14(b)).

 

Brokered public offering

 

On April 15, 2021, the Company closed a public offering of 6,900,000 units of the Company (the “Units”) at a price of

$2.10 per unit for aggregate gross proceeds of $14,490,000. Each Unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one common share (“Warrant Share”) at an exercise price of $2.85 per Warrant Share for 36 months following closing subject to adjustment in certain events.

 

The public offering was brokered, and the underwriting agent received cash commissions of $1,014,300 or 7% of the gross proceeds under the offering. In addition, the Company also incurred $459,986 of share issuance costs in connection with the offering, for total net proceeds of $13,015,714. Net proceeds were allocated as $12,395,918 to Share capital for the value measured for common shares with the residual of $619,796 allocated to warrants which is included in Contributed surplus in the condensed consolidated interim statement of financial position at June 30, 2021.

 

Commons shares in escrow

 

At June 30, 2021, the Company has 2,751,598 (December 31, 2020 - 5,022,852) common shares subject to escrow conditions as described in Note 19(a) to the 2020 Annual Financial Statements.

 

b)Warrants

The Company’s warrants outstanding as at June 30, 2021 and December 31, 2020 are as follows:

 

   Number of Warrants 

Weighted Average
Exercise Price

$

 Balance, December 31, 2020    5,794,577   $4.94 
 Issued    7,247,280    2.81 
 Expired    (1,127,140)   4.50 
 Balance, June 30, 2021    11,914,717   $3.69 

 

During the six months ended June 30, 2021, the Company issued 347,280 warrants to brokers in connection with the issuance of the 2021 Debentures (Note 11(b)) and 6,900,000 warrants in connection with the April 15, 2021 public offering (Note 13(a)).

 

Warrant exercise prices associated with the 2021 Debentures are denominated in USD and range between $1.37 (US$1.14) and $2.76 (US$2.20). Warrants are exercisable for 24 months following the date of the close of the associated convertible debenture tranche. The Black-Scholes option model was used in calculating the fair value of the broker warrants which were valued at $372,947 in total. The underlying assumptions used in determining the fair value of the warrants were: issue date share price of $1.13 - $2.57; exercise price of $1.37 - $2.76; risk free rate of 0.15% to 0.30%; expected life of 1.87 - 2.00 years; expected volatility of 91% - 94%; and no expected dividends.

 

 13 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 13  -  SHARE CAPITAL (continued)

 

b) Warrants (continued)

Warrants outstanding as at June 30, 2021 were as follows:

 

 

Expiry Date

 

Exercise Price

$

  Outstanding Warrants
October 2021   5.00    642,317 
June 2022   5.00    58,751 
July 2022   4.75    1,575,343 
December 2022   1.88    3,000 
January 2023   1.91    112,200 
January 2023   2.32    76,200 
February 2023   2.60    24,000 
March 2023   2.76    27,000 
May 2023   1.37    104,880 
April 2024   2.85    6,900,000 
June 2024   7.50    10,000 
January 2025   5.40    1,833,081 
July 2025   4.75    547,945 
   $3.69    11,914,717 

 

The weighted average remaining contractual life of outstanding warrants was 2.55 years at June 30, 2021 (December 31, 2020 - 2.29 years). Exercise prices for broker warrants issued associated with the 2021 Debentures were converted at the exchange rate on the date of valuation to the C$ equivalent exercise prices.

 

 

NOTE 14 - SHARE BASED PAYMENT ARRANGEMENTS

 

The Company recorded share-based compensation as follows.

 

 

   Three months ended June 30,  Six months ended June 30,
   2021  2020  2021  2020
Stock options (a)  $116,892   $149,858   $247,790   $381,116 
Restricted share units (b)   243,753    138,920    488,129    308,524 
Total  $360,645   $288,778   $735,919   $689,640 

 

a) Stock Options

 

   Number of
Options		 

Weighted Average Exercise

Price

 

Weighted Average

Remaining Contractual Life (years)

 Balance, December 31, 2020    1,269,934   $3.67    6.81 
 Granted    191,000    2.10    10.00 
 Forfeited    (55,410)   3.98    9.00 
 Expired    (9,267)   3.79    1.16 
 Balance, June 30, 2021    1,396,257   $3.47    7.28 

 

 

 14 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 14 - SHARE BASED PAYMENT ARRANGEMENTS (continued)

 

a)Stock Options (continued)

 

Of these outstanding options, 540,184 were exercisable at a weighted average exercise price of $3.86 at June 30, 2021 (December 31, 2020 - 483,732 exercisable at a weighted average exercise price of $3.90). Exercise prices of exercisable stock options range from $2.90 to $6.01 per share as disclosed by expiry date in Note 20(a) to the 2020 Annual Financial Statements.

 

As at June 30, 2021, unrecognized share-based compensation expense related to non-vested stock options granted is $558,358 (December 31, 2020 - $710,934; June 30, 2020 - $614,918).

 

The Company fair valued the options using the Black-Scholes option pricing model with the following weighted average inputs for the six months ended June 30.

 

   2021  2020
Grant date share price  $1.72    $4.20 - $4.35 
Exercise price  $2.10    $4.20 - $4.25 
Risk free rate   1.15%   0.64% - 0.65%
Expected life, years   6.50    6.50 
Expected volatility   72%   64%
Expected dividends   —  %   —  %
Forfeiture rate   —  %   —  %

 

 

b)Restricted Share Units (“RSUs”)

 

At June 30, 2021, 704,341 RSUs were outstanding of which 250,745 were exercisable at a weighted average exercise price of $2.82 per RSU. At December 31, 2020, 666,661 RSUs were outstanding with 100,548 exercisable at a weighted average exercise price of $3.67 per RSU.

 

During the six months ended June 30, 2021, 85,000 RSUs were granted, 32,320 common shares were issued on the exercise of 32,320 RSUs at a weighted average share price at exercise of $4.02, and 15,000 RSUs were forfeited.

 

The fair value of each RSU is based on the market price of the Company’s common shares on the date of grant and the total fair value of RSU grants in the six months ended June 30, 2021 was $157,285. As at June 30, 2021, unrecognized share-based compensation expense related to non-vested RSUs granted was $413,708 (December 31, 2020 - $ 807,830; June 30, 2020 - $555,875).

 

 15 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 15 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

 

a)Classification and measurement of financial assets and liabilities by category

The following represents the carrying values of the financial assets and liabilities of the Company and the associated classifications and measurement basis for each balance.

 

Financial assets  Level  Measurement
basis		  June 30, 2021  December 31, 2020
Cash and cash equivalents   1   Amortized cost  $6,529,708   $1,110,889 
Trade and other receivables 1   2   Amortized cost   5,209,088    5,811,844 
Long-term receivables   2   Amortized cost   9,181,899    7,948,445 
Derivative asset   2   FVTPL   —      131,400 
           $20,920,695   $15,002,578 
Financial liabilities                  
Bank indebtedness   2   Amortized cost  $2,555,195   $976,779 
Trade payables and accrued liabilities 1   2   Amortized cost   10,582,058    12,693,256 
Loans and borrowings   2   Amortized cost   11,625,326    13,152,300 
Lease liabilities 2   n/a   Amortized cost   3,489,978    3,945,076 
2019 Debentures - host liability 3   2   Amortized cost   20,779,691    19,534,988 
2021 Debentures - host liability 3   3   Amortized cost   7,257,832    —   
2021 Debentures embedded derivative   3   FVTPL   3,852,856    —   
Warrant liabilities   2   FVTPL   696,481    710,924 
Business acquisition payable   3   Amortized cost   1,811,667    2,439,529 
Other liabilities   2   Amortized cost   1,929,129    6,236,415 
           $64,580,213   $59,689,267 

 

 

Financial liabilities

1       Excludes amounts for indirect taxes, income taxes and contract asset, where applicable.

2       Lease liabilities are not subject to classification in the fair value hierarchy.

3       2019 Debentures (Note 11(a)) and 2021 Debentures host liability (Note 11(b)).

 

Financial instruments not measured at fair value

The carrying values of the financial assets and liabilities where the measurement basis is other than FVTPL approximate their fair values due to the immediate or short-term nature of these instruments considering there have been no significant change in credit and market interest rates since origination date.

 

b)Measurement of fair value

As described in Note 21 and Note 2(p) to the 2020 Annual Financial Statements, the fair value hierarchy establishes three levels to classify the significance of inputs to valuation techniques used in making fair value measurements of all financial assets and liabilities. Classifications by level of the fair value hierarchy are disclosed above. At June 30, 2021 and December 31, 2020, there were no financial assets and financial liabilities measured and recognized at fair value on a non-recurring basis.

The Company’s policy for determining when a transfer between levels of the fair value hierarchy occurs is to assess the impact at the date of the event or change in circumstance that could result in the transfer. During the six months ended June 30, 2021, subscriptions payable included in Other liabilities of $5,285,997 were transferred from Level 2 to Level 3 related to the 2021 Debentures. There were no transfers between any other of the levels during the six months ended June 30, 2021.

 

Valuation methodologies used in the measurement of fair value for Level 2 financial assets and financial liabilities

The measurement of level 2 financial assets and liabilities is made by reference to the inputs used to determine the fair value of each instrument using an appropriate valuation method. The fair value of long-term receivables is based on the present value considering the time value of the long-term contracts.

 

 16 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 15 -  FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)

b)Measurement of fair value (continued)

 

Valuation methodologies used in the measurement of fair value for Level 2 financial assets and financial liabilities

The fair value of loans and borrowings approximates their carrying value and has been determined by discounting the contractual cash flows using implied yields of obligations with similar credit risk and maturities. The fair value of the host liability for the 2019 Debentures was calculated using a discount rate of 25% for an equivalent, non-convertible loan at the date of issue. Warrant liabilities are measured based on the amount of cash that is payable in certain circumstances. A portion of other liabilities represent subscriptions payable and the carrying amount of these balances approximates fair value.

 

Valuation methodologies used in the measurement of fair value for Level 3 financial liabilities

 

2021 Debentures

The fair value of the entire financial instrument associated with the 2021 Debentures was determined using a partial differential equation model for convertible debt which considered that the convertible debt consists of two components, each having different default risks. The model calculates the value based on key inputs, which impact the value of the convertible debt including: yield to maturity; principal and coupon payments; share price; exercise price; volatility; term; risk free rates and dividends. The risk adjusted discount rate was applied in determining yield to maturity and this is the most significant unobservable input and the estimated fair value would increase (decrease) if the risk-adjusted discount rate were lower (higher).

The 2021 Debentures include an embedded derivative for the conversion option. The fair value of the embedded derivative was determined using the same methodology as above adjusted for the nature of the instrument. The embedded derivative includes a foreign currency component which reflects the foreign exchange exposure to convert to common shares denominated in Canadian dollars. The fair value of the embedded derivative is determined first with the residual of the total fair value of the instrument allocated to the host debt. The embedded derivative will be remeasured at each period end with changes in the fair value recognized in the condensed consolidated interim statements of loss and comprehensive loss.

The Company determined that at the initial recognition date, which was the date of issuance of the debentures, that the fair value of the financial instruments was in excess of the transaction price for tranches one through five (i.e., the fair value of the proceeds received) and the fair value of the tranche six financial instrument was equal to the proceeds received. There were fluctuations in the fair value inputs that arose in the period between the closing of tranches one through five of the Offering and the date of the actual issuance of the debenture certificates. As such the difference between the fair value and transaction price was deferred at initial recognition and the deferred difference was recognized as a loss as factors including the passage of time were met which required recognition. The reconciliation of the opening to closing balances associated with the 2021 Debentures are presented in Note 11(b) including fair value changes.

In the measurement of the fair value of the derivative liability at June 30, 2021, the Company considered the potential conversion of the majority of the 2021 Debentures into the Company’s equity (Note 20(a)) which result in changes to maturity date (i.e., shorter to match anticipated timing of the conversion) and yield to maturity which correspondingly impacted other inputs at June 30, 2021, and decreased the fair value of the derivative liability. In addition, the fair value of the derivative liability reflects the amended conversion price for certain tranches of the Offering and common share purchase warrants to be issued to the 2021 Debenture holders as agreed to by the parties at June 30, 2021, which increased the fair value of the derivative liability.

 

Business acquisition payable

The business acquisition payable consists of contingent consideration payable, the values of which were determined using a discounted cash flow method based on the present value of probability weighted average amount of expected payments discounted at an appropriate discount rate. The reconciliation of the opening to closing balances for Level 3 fair values are presented in Note 8.

 

c)Financial instruments risk

A description of the Company’s financial instruments and financial risks that the Company is exposed to and management of these risks is included in Note 21 to the 2020 Annual Financial Statements. There were no significant changes in the Company’s exposures to those risks during the six months ended June 30, 2021 except for additional commitments as noted below which impacts liquidity risk and an increase in foreign currency risk resulting from the issuance of the 2021 Debentures in USD.

 

 17 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 15 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)

 

c) Financial instruments risk (continued) Commitments

Information regarding the Company’s undiscounted contractual cash flows payable and the Company’s commitments at December 31, 2020 are disclosed in Note 21 and Note 25, respectively, to the 2020 Annual Financial Statements. During the six months ended June 30, 2021, the most significant change in commitments were associated with the issuance of the 2021 Debentures, change in operating line facility, additional loans and borrowings and forgivable government loans, described following. Commitments at December 31, 2020 have been reduced by normal course payments made during the period to June 30, 2021.

 

2021 Debentures

At June 30, 2021, the issuance of the 2021 Debentures increased commitments by C$ equivalent total principal and interest payments of approximately $13.7 million with approximately $451,000 due in interest in the next six months and the first repayment in December 2023. This increase was offset by the reduction of Other liabilities of $5,285,997 which were associated with the subscriptions payable which are now included as part of the 2021 Debentures (Note 12). As described in Note 11(b), the Company has the option to issue common shares in lieu of cash interest payments and principal repayment and therefore management does not believe these instruments increase the Company’s liquidity risk. The Company opted to issue common stock in lieu of interest payments. Subsequent to June 30, 2021, the Company received TSX.V approval to convert the majority of the 2021 Debentures to equity of the Company (Note 20(a)).

 

Operating facilities

During the six months ended the Company repaid the bank indebtedness at December 31, 2020 and obtained a new operating line in the amount of $5,000,000 of which $2,500,000 was drawn at June 30, 2021 (Note 10).

 

Loans and borrowings

The Company received new borrowings in the principal amount of approximately $577,000 in the six months ended June 30, 2021 with quarterly payments of approximately $65,000 payable starting November 2021.

 

Government loans

At December 31, 2020, undiscounted cash flow commitments of approximately $1,000,000 were included in loans and borrowings representing amounts provided by the US government via forgivable loans for COVID-19 support. During the six months ended June 30, 2021, a portion of this amount was forgiven and additional government loans of $840,845 were funded. Management believes that the amount recognized in Other liabilities will ultimately be forgiven and no cash outflow will be required (Note 20(c)).

 

Foreign currency risk

At June 30, 2021, the C$ equivalent carrying amount of the Company’s USD denominated monetary assets and liabilities was $10,573,095 (December 31, 2020 - $8,291,005) and $20,329,066 (December 31, 2020 - $16,398,521), respectively. Assuming all other variables remain constant, a fluctuation of +/- 5.0% in the exchange rate between C$ and US$ would impact the net loss for the period by approximately $487,799 (December 31, 2020 - $405,376).

 

 

NOTE 16 - FINANCE COSTS

 

 

   Three months ended June 30,  Six months ended June 30,
   2021  2020  2021  2020
Interest on loans and borrowings (Note 9)  $286,144   $197,311   $533,508   $516,383 
Interest on convertible debentures (Note 11)   1,592,597    1,078,162    3,105,233    2,134,913 
Interest on lease liabilities   75,179    92,594    154,854    181,992 
Transaction costs expensed   87,070    —      454,574    —   
Other finance costs   (94,404)   —      (65,656)   —   
Total finance costs  $1,946,586   $1,368,067   $4,182,513   $2,833,288 

 

 

 18 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 17   -   SUPPLEMENTAL CASH FLOW INFORMATION

 

The following are changes in non-cash working capital.

 

For the six months ended June 30,  2021  2020
Trade and other receivables decrease  $575,145   $893,907 
Long-term receivables (increase) decrease   (1,416,364)   359,181 
Prepaid expenses and deposits (increase)   (926,225)   (477,887)
Other assets decrease (increase)   207,989    (75,998)
Trade payables and accrued liabilities (decrease) increase   (2,231,429)   645,526 
Deferred revenue increase   546,645    875,193 
(Decrease) increase in working capital  $(3,244,239)  $2,219,922 

 

The following are non-cash investing and financing activities.

 

For the six months ended June 30,  2021  2020
Addition to right of use assets  $—     $222,109 
Addition to lease liabilities  $—     $222,109 
Shares issued in business combination   —      2,304,073 
Share issued on conversion of debentures   —      50,000 
Shares issued on AirFusion asset acquisition   —      820,000 
Settlement of liabilities through issuance of common shares or RSUs  $—     $143,002 
Non-cash accretion of interest included in finance cost  $1,572,967   $966,289 
Non-cash broker warrants compensation (Note 13(b))  $372,947   $—   

 

 

NOTE 18 -  CSA ACQUISITION

 

As described in Note 7 to the 2020 Annual Financial Statements, on January 24, 2020, the Company completed its acquisition of all the outstanding and issued common shares of Construction Systems Associates, Inc. USA (“CSA”). The acquisition was accounted for as a business combination using the acquisition method whereby the assets acquired, and the liabilities assumed were recorded at fair value. At acquisition date the fair values assigned to intangible assets, goodwill and the deferred tax liabilities were measured on a provisional basis and have been revised by the Company as additional information was received.

 

On January 24, 2021, the measurement period for the acquisition ended and the following table summarizes the acquisition-date fair value, the measurement period adjustments and the final balances of each major class of consideration transferred, the recognized amounts of the identifiable assets acquired and liabilities assumed, and the resulting value of goodwill.

 

  

Preliminary 1

  Measurement period adjustments  Final
Consideration transferred:            $703,212 
Cash consideration  $298,086   $405,126      
Fair value of common share consideration   2,303,967    106    2,304,073 
Fair value of contingent consideration payable   1,734,866    (855,800)   879,066 
Total consideration  $4,336,919   $(450,568)  $3,886,351 

 

 

 19 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 18 - CSA ACQUISITION (continued)

 

  

Preliminary 1

  Measurement period adjustments  Final
Fair value of assets and liabilities recognized:             
Cash  $181,408   $—     $181,408 
Trade and other receivables   262,846    —      262,846 
Prepaid expenses and other deposits   323,439    (309,576)   13,863 
Property and equipment   2,098    —      2,098 
Right of use assets   291,843    (48,949)   242,894 
Intangible - technology   4,512,406    (3,960,526)   551,880 
Intangible - customer relationships   —      801,540    801,540 
Accounts payable and accrued liabilities   (168,542)   —      (168,542)
Short-term loan   (466,081)   94,471    (371,610)
Lease liabilities   (291,843)   48,949    (242,894)
Deferred tax liabilities   (310,655)   310,655    —   
Fair value of net assets acquired  $4,336,919   $(3,063,436)  $1,273,483 
Goodwill  $—     $2,612,868   $2,612,868 

1 As reported in the condensed consolidated interim financial statements for the three months ended March 31, 2020 as amended. Measurement period adjustments as reported in Note 7 to the 2020 Annual Financial Statements were recognized in various periods after the acquisition.

 

The fair value of the contingent consideration payable is based on an estimated weighted probability of certain revenue and EBITDA targets being met in a 2-year period from the acquisition date. In January 2021, a portion of the fair value of the contingent consideration payable was determined not to be payable to the previous owners of CSA and as such was recognized in Other income in the condensed consolidated interim statements of loss and comprehensive loss for the six months ended June 30, 2021 (Note 8).

The Company is required during the measurement period to retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period adjustments from acquisition date to the end of the measurement period are reflected above with the cumulative changes increasing goodwill. The impact on net income (loss) of recognizing these adjustments to the provisional amounts as if the accounting had been completed at the acquisition date are limited to a decrease in amortization of intangibles and related foreign currency translation differences. As measurement period adjustments associated with intangibles were substantially complete at June 30, 2020, there were no other material adjustments.

 

 

NOTE 19  -  SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied in the preparation of these condensed consolidated interim financial statements are consistent with those applied and disclosed in Note 2 to the 2020 Annual Financial Statements with the exception of the expansion of the accounting policy note (q) Convertible Debentures to add the accounting policy related to the issuance of convertible debentures in the six months ended June 30, 2021. The revised accounting policy follows.

 

Convertible debentures

Convertible debentures are accounted for depending on the terms of the contract. The fair value of the debentures are allocated into components parts, which may include separate host debt, embedded derivative(s) and/or equity components based on the terms of the contract. Where the fair value of the financial instrument is different than the transaction price then the measurement is dependent on whether the fair value was determined based on a valuation technique that only uses data from observable markets (level 1 input) or otherwise. For compound financial instruments such as the 2019 Debentures where there is a liability and equity component, 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 are allocated to the liability component first with the remainder of the proceeds 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 the effective interest rate method until it is extinguished on conversion or redemption. The carrying amount of the conversion option is not remeasured in subsequent periods.

 

 

 20 | Notes to the Condensed Consolidated Interim Financial Statements

mCloud Technologies Corp.

Notes to the Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2021 and 2020

(Unaudited - Expressed in Canadian Dollars except number of shares)

 

 

NOTE 19 - SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Convertible debentures (continued)

 

For the majority of 2021 Debentures, the fair value of the financial instruments was greater than the transaction price. The residual is treated as a deferred amount and recognized similar to fair value adjustments on derivatives. For hybrid financial instruments such as the 2021 Debentures where there is a liability and embedded derivative component, the fair value of the embedded derivative is determined first with the residual of the total fair value for the instrument allocated to the host debt. The host debt (liability), net of transaction costs, is subsequently measured at amortized cost using the effective interest rate method until it is extinguished on conversion or redemption.

 

Transaction costs are apportioned between each component of the convertible debentures based on a percentage of proceeds when the instruments are initially recognized. Transaction costs attributable to the liability and equity components are offset against the respective balances with transaction costs attributable to embedded derivatives directly expensed.

 

Accounting standards development

As described at the end of Note 2 to the 2020 Annual Financial Statements there are a number of new accounting standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that are not expected to have a material impact on the Company in the year of adoption.

 

In February 2021, the IASB issued amendments to two existing accounting standards regarding accounting estimates and accounting policies. These amendments are applicable starting January 1, 2022 and are not expected to have a material impact on the Company.

 

In May 2021, the IASB issued an amendment to the income tax standard which provides for an exception to the initial recognition exemption related to deferred tax assets and liabilities arising from a single transaction including those associated with right-of-use assets and lease liabilities. This amendment is applicable starting January 1, 2023. The Company has decided not to early adopt any of the new or amended standards at this time.

 

 

NOTE 20  -  EVENTS AFTER THE REPORTING PERIOD

 

a)Conversion of 2021 Debentures

On July 12, 2021, the Company announced that it had entered into conversion agreements with holders of more than 99.2% of the outstanding principal amount of the 2021 Debentures subject to a number of conditions including TSX.V approval, which it received on August 13, 2021. The Company in consideration for the extinguishment of 99.2% of the principal and accrued interest thereon to the date of the conversion agreements will issue an aggregate of 6,323,360 common shares and 6,323,360 common share purchase warrants. The common share purchase warrants entitle the holder to purchase one common share of the Company at an exercise price of US$2.29 and mature 36 months after issuance. These conversion agreements include terms which are different than the original 2021 Debenture agreements and provide for the issuance of a specified number of warrants and for certain tranches a change in the conversion price. The impact of this change in terms on the Company’s financial results has not yet been determined.

 

b)Non-brokered private placement offering

On July 12, 2021, the Company announced the intention to complete a non-brokered private placement offering of 227,027 units of the Company at a unit price of $1.85 for gross proceeds of $420,000 which have already been received and are included in Other Liabilities on the condensed consolidated statement of financial position at June 30, 2021 (Note 12). Each unit consists of one common share and one share purchase warrant at an exercise price of

$2.85 per common share with warrants expiring April 2024. This non-brokered private placement was completed on August 13, 2021.

 

c)US Government loans

Subsequent to June 30, 2021, two US Government loans with a total carrying amount of $780,697 at June 30, 2021 were forgiven and there will be no required payment of principal or interest (Note 12).

 

 21 | Notes to the Condensed Consolidated Interim Financial Statements