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Section 1: 40FR12G (FORM 40-F 12G)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 40-F

 ☒ Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
  or
 ☐ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934



For the fiscal year ended __________________ Commission File Number __________________

 

Acreage Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)
2833
(Primary Standard Industrial Classification Code Number)
98-1463868
(I.R.S. Employer
Identification Number)


366 Madison Avenue, 11th Floor

New York, New York 10017

United States

(646) 600-9181
(Address and telephone number of Registrant’s principal executive offices)

 

 

 

Acreage Holdings, Inc. 

366 Madison Avenue, 11th Floor
New York, New York 10017
United States

(646) 600-9181

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act: None

Title of each class Name of each exchange on which registered
N/A N/A

Securities registered pursuant to Section 12(g) of the Act: Subordinate Voting Shares, no par value

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this Form:

 Annual information form  Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: N/A

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

 
 

 

EXPLANATORY NOTE

Acreage Holdings, Inc. (the “Company”, the “Registrant”) is a Canadian issuer eligible to file its registration statement pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.

FORWARD LOOKING STATEMENTS

The Exhibits incorporated by reference into this Registration Statement of the Registrant contain forward-looking statements. All statements, other than statements of historical fact, incorporated by reference are forward-looking information. Generally, forward-looking information may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking information. The Registrant’s forward-looking statements contained in the Exhibits incorporated by reference into this Registration Statement are made as of the respective dates set forth in such Exhibits and on assumptions the Registrant believed are reasonable as of such date. These assumptions include, but are not limited to: market acceptance and approvals. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Registrant to be materially different from those expressed or implied by such forward-looking information. Such risks and other factors may include, but are not limited to: general business, economic, competitive, political and social uncertainties; general capital market conditions and market prices for securities; delay or failure to receive board or regulatory approvals; the actual results of future operations; competition; changes in legislation affecting the Registrant; the timing and availability of external financing on acceptable terms; and lack of qualified, skilled labor or loss of key individuals. A description of additional assumptions used to develop such forward-looking information and a description of additional risk factors that may cause actual results to differ materially from forward-looking information can be found in the Registrant’s disclosure documents, such as the Registrant’s Filing Statement filed on November 14, 2018, on the SEDAR website at www.sedar.com, attached hereto as Exhibit 99.40. Although the Registrant has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Forward-looking information contained in the Exhibits incorporated by reference are expressly qualified by this cautionary statement. The forward-looking information contained in the Exhibits incorporated by reference represents the expectations of the Registrant as of the date of such Exhibit and, accordingly, is subject to change after such date. However, the Registrant expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

 

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant prepares its financial statements, which are filed with this report on Form 40-F in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and the audit is subject to Canadian auditing and auditor independence standards.

PRINCIPAL DOCUMENTS

In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through 99.70, inclusive, as set forth in the Exhibit Index attached hereto.

In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed the written consents of the independent accountants named in the foregoing Exhibits as Exhibits 99.71 to 99.74, as set forth in the Exhibit Index attached hereto.

TAX MATTERS

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this registration statement on Form 40-F.

DESCRIPTION OF COMMON SHARES

The required disclosure is included under the heading “Description of the Securities” in the Registrant’s Filing Statement, attached hereto as Exhibit 99.40.

OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements.

CURRENCY

Unless otherwise indicated, all dollar amounts in this Registration Statement on Form 40-F are in Canadian dollars. The exchange rate of Canadian dollars into United States dollars, on August 31, 2018, based upon the daily exchange rate as quoted by the Bank of Canada was U.S.$1.00 = Cdn$1.3055.

 

CONTRACTUAL OBLIGATIONS

As of August 31, 2018, the Registrant was a shell company and the following table lists, as of August 31, 2018, information with respect to the Registrant’s known contractual obligations in Canadian dollars.

 

  Payments due by period
Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years
Long-Term Debt Obligations $304,348 - $304,3481 - -
Capital (Finance) Lease Obligations - - - - -
Operating Lease Obligations - - - - -
Purchase Obligations - - - - -
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under the GAAP of the primary financial statements - - - - -
Total $304,348 $0 $304,348 $0 $0

 Represents convertible Subordinate Voting Debentures

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form 40-F or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Registrant has concurrently filed a Form F-X in connection with the class of securities to which this Registration Statement relates.

Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

 

 

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 ACREAGE HOLDINGS, INC.
  
   
By:/s/ Glen Leibowitz
  Name: Glen Leibowitz
  Title: Chief Financial Officer


Date: January 29, 2019

 

 

 

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EXHIBIT INDEX

The following documents are being filed with the Commission as Exhibits to this Registration Statement:

Exhibit Description
99.1  Consolidated Financial Statements of Applied Inventions Management Corp. for the fiscal years ended August 31, 2018 and 2017
99.2 Management Discussion and Analysis of Financial Conditions and Results of Operations of Applied Inventions Management Corp. for the fiscal years ended August 31, 2018 and 2017
99.3 Certification of Annual Filings Venture Issuer Basic Certificate by CEO dated October 22, 2018
99.4 Certification of Annual Filings Venture Issuer Basic Certificate by Acting CFO dated October 22, 2018
99.5 News Release dated October 27, 2017
99.6 Consolidated Financial Statements of Applied Inventions Management Corp. for the fiscal years ended August 31, 2017 and 2016
99.7 Management Discussion and Analysis of Financial Conditions and Results of Operations of Applied Inventions Management Corp. for the fiscal years ended August 31, 2017 and 2016
99.8 Certification of Annual Filings Venture Issuer Basic Certificate by CEO dated December 4, 2017
99.9 Certification of Annual Filings Venture Issuer Basic Certificate by Acting CFO dated December 4, 2017
99.10 Unaudited Interim Consolidated Financial Statements of Applied Inventions Management Corp. for the three month period ended November 30, 2017
99.11 Management Discussion and Analysis of Financial Conditions and Results of Operations of Applied Inventions Management Corp. for the three month periods ended November 30, 2017 and 2016
99.12 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by CEO dated January 29, 2018
99.13 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by Acting CFO dated January 29, 2018
99.14 Unaudited Interim Consolidated Financial Statements of Applied Inventions Management Corp. for the six month period ended February 28, 2018
99.15 Management Discussion and Analysis of Financial Conditions and Results of Operations of Applied Inventions Management Corp. for the six month periods ended February 28, 2018 and 2017
99.16 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by CEO dated April 24, 2018
99.17 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by Acting CFO dated April 24, 2018
99.18 News Release dated May 28, 2018
99.19 Unaudited Interim Consolidated Financial Statements of Applied Inventions Management Corp. for the nine month period ended May 31, 2018
99.20 Management Discussion and Analysis of Financial Conditions and Results of Operations of Applied Inventions Management Corp. for the nine month periods ended May 31, 2018 and 2017
99.21 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by CEO dated July 24, 2018
99.22 Certification of Unaudited Interim Filings Venture Issuer Basic Certificate by Acting CFO dated July 24, 2018
99.23 Notice of Meeting and Record Date dated July 31, 2018
99.24 Notice of Meeting and Record Date dated September 19, 2018

99.25 News Release dated September 21, 2018
99.26 Material Change Report dated October 1, 2018
99.27 Lock-Up Agreement dated September 21, 2018
99.28 Business Combination Agreement dated September 21, 2018
99.29 Certification of Proxy-Related Materials dated September 21, 2018
99.30 Notice of Annual General and Special Meeting of Shareholders dated October 5, 2018
99.31 Management Information Circular dated October 5, 2018
99.32 Amendment to Management Information Circular
99.33 Form of Proxy for Annual and Special Meeting
99.34 News Release dated October 16, 2018
99.35 Certification of Dissemination of Proxy-Related Materials to Shareholders dated October 16, 2018
99.36 Certificate of Continuation dated November 9, 2018
99.37 Notice of Articles dated November 9, 2018
99.38 News Release dated November 13, 2018
99.39 News Release dated November 14, 2018
99.40 Filing Statement dated November 14, 2018
99.41 Coattail Agreement dated November 14, 2018
99.42 Third Amended and Restated Limited Liability Company Agreement dated November 14, 2018
99.43 Tax Receivable Agreement dated November 14, 2018
99.44 Support Agreement dated November 14, 2018
99.45 Support Agreement dated November 14, 2018
99.46 Notice of Change in Corporate Structure dated November 14, 2018
99.47 Material Change Report dated November 20, 2018
99.48 News Release dated November 26, 2018
99.49 Condensed Unaudited Interim Consolidated Financial Statements of RTO Acquirer for the three and nine month periods ended September 30, 2018 and 2017
99.50 Management Discussion and Analysis of Financial Conditions and Results of Operations of High Street Capital Partners, LLC d/b/a Acreage Holdings for the three and nine month periods ended September 30, 2018 and 2017
99.51 News Release dated November 29, 2018
99.52 News Release dated December 6, 2018
99.53 Agreement and Plan of Merger dated December 5, 2018
99.54 Material Change Report dated December 16, 2018
99.55 News Release dated December 20, 2018
99.56 Letter from Odyssey Trust Company to Canadian Securities Exchange dated November 12, 2018
99.57 CDS Confirmation dated November 13, 2018
99.58 Form 1A Application Letter dated November 14, 2018

99.59 Form 2B Listing Summary dated November 14, 2018
99.60 Form 4 Listing Agreement dated November 14, 2018
99.61 Form 6 Certificate of Compliance dated November 14, 2018
99.62 Form 11 Notice of Proposed Stock Option Grant or Amendment dated November 23, 2018
99.63 Form 9 Notice of Issuance of Securities dated November 23, 2018
99.64 Form 6 Certificate of Compliance dated November 27, 2018
99.65 Form 9 Notice of Proposed Issuance of Listed Securities dated December 6, 2018
99.66 Form 7 Monthly Progress Report dated December 6, 2018
99.67 Form 6 Certificate of Compliance dated December 6, 2018
99.68 Form 9 Notice of Issuance of Securities dated December 19, 2018
99.69 Form 6 Certificate of Compliance dated January 17, 2019
99.70 Form 9 Notice of Issuance of Securities dated January 17, 2019
99.71 Consent of RSM Canada LLP
99.72 Consent of Macias Gini & O’Connell LLP
99.73 Consent of Sheehan & Company, C.P.A, P.C.
99.74 Consent of Davidson & Company LLP

 

 

 

 

 

 

 

 

 

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Section 2: EX-99.1 (CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2018 AND 2017)

Exhibit 99.1

 

 

 

 

 

 

 

 

 

Applied Inventions Management Corp.

Consolidated Financial Statements

(Expressed in Canadian Dollars)

For the Years Ended August 31, 2018 and 2017

 
 

 

 

INDEPENDENT AUDITOR'S REPORT

 

To the Shareholders of Applied Inventions Management Corp.

 

We have audited the accompanying consolidated financial statements of Applied Inventions Management Corp. and its subsidiaries, which comprise the consolidated balance sheets as at August 31, 2018 and August 31, 2017 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years ended August 31, 2018 and August 31,2017 and a summary of significant accounting policies and other explanatory information.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors' Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Applied Inventions Management Corp. as at August 31, 2018 and August 31, 2017, and its financial performance and its cash flows for the years ended August 31, 2018 and August 31, 2017 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

 

 

 

 

THE POWER OF BEING UNDERSTOOD

AUDIT | TAX | CONSULTING

 

 

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent audit, tax, and consulting firms. Visit rsmcanada.com/aboutus for more information regarding RSM Canada LLP and RSM International.

 
 

Emphasis of Matter

 

Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes material uncertainties that may cast significant doubt about Applied Inventions Management Corp.'s ability to continue as a going concern.

 

 

 

 

Chartered Professional Accountants

Licensed Public Accountants

October 22, 2018, except Note 14, which is as of January 29, 2019

Toronto, Ontario

 
 

 

Applied Inventions Management Corp.

Consolidated Balance Sheets

 
(Expressed in Canadian Dollars)
As at August 31

   2018  2017
Assets      
Current          
Cash  $799   $599 
Accounts receivable   28,243    –   
   $29,042   $599 

 

Liabilities

          

Current

Accounts payable and accrued liabilities (Note 3)

  $106,142   $94,693 
Shareholder advances (Note 4)   147,244    89,056 
Subordinate voting debenture (Note 5)   –      331,875 
           
    253,386    515,624 
           
Subordinate voting debenture (Note 5)   304,348    –   
           
    557,734    515,624 

  

Shareholders' Deficiency

      
Capital stock (Note 6)   2,520,946    2,520,946 
Contributed surplus   806,381    749,685 
Warrant capital (Note 5 and 8)   46,323    46,323 
Equity component of convertible debentures (Note )   14,429    68,108 
Deficit   (3,916,771)   (3,900,087)
    (528,692)   (515,025)
    $ 29,042   $599 

 

Nature of Business and Going Concern (Note 1)

Subsequent Event (Note 13)

 

 

 

Approved by the Board "Michael Stein"   " Gabriel Nachman"
  Director (Signed)   Director (Signed)

 

See accompanying notes

 

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Applied Inventions Management Corp.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in Canadian Dollars)

Years Ended August 31 

   2018  2017
       
Expenses      
Accretion expense  $21,616   $71,972 
Bank charges
   131    215 
Interest on debenture and shareholder advances (Notes 4, 5 and 10)   48,801    63,639 
Gain on extinguishment of Subordinate voting debenture (Note 5)   (120,631)   –   
Professional fees   106,963    51,554 
Professional fees and expense recovery   (43,213)   –   
Stock based compensation   3,017    –   
           
Net Loss and comprehensive loss for the year  $16,684   $187,380 
           
Loss per share          
Basic and diluted  $0.002   $0.058 
           
Weighted average number of common shares outstanding          
Basic and diluted   8,228,034    3,216,607 

 

See accompanying notes

 

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Applied Inventions Management Corp.

Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

Years Ended August 31,2018 and 2017

  

Capltal Stock

(Note 6)

  Contributed Surplus  Warrant Capital  Equity Component of Convertible Debentures  Deficit  Total
Balance, September 1, 2016  $2,192,923   $731,785   $–     $128,048   $(3,712,707)  $(659,951)
Net Loss and comprehensive loss   –      –      –      –      (187,380)   (187,380)
Settlement of debt with shareholder   –      17,900    –      –      –      17,900 
Conversion of multiple voting debentures (Note 5)   328,023    –      46,323    (59,940)   –      314,406 
                               
Balance, August 31, 2017  $2,520,946   $749,685   $46,323   $68,108   $(3,900,087)  $(515,025)
Net Loss and comprehensive loss   –      –      –      –      (16,684)   (16,684)
Stock based compensation   –      3,017    –      –      –      3,017 
Extinguishment of Subordinate voting debenture (Note 5)   –      53,679    –      (53,679)   –      –   
                               
Balance, August 31, 2018  $2,520,946   $806,381   $46,323   $14,429   $(3,916,771)  $(528,692)

 

See accompanying notes

 

 

 

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Applied Inventions Management Corp.

Consolidated Statements of Cash Flows

 
(Expressed in Canadian Dollars)
Years Ended August 31

 

 

2018

  2017

Cash provided by (used in)

          
Operations          
Net loss and comprehensive loss  $(16,684)  $(187,380)
Items not affecting cash          
Interest accrued on debentures and shareholder advances   48,801    63,639 
Shareholder payment of professional fees   44,768    10,494 
Accretion expense   21,616    71,972 
Gain on extinguishment of debenture   (120,631)   –  
Stock based compensation   3,017    –   
    (19,113)   (41,275)
Net changes in non-cash working capital
          
  Accounts receivable   (28,243)   –   
  Accounts payable and accrued liabilities   46,356    37,048 
    (1,000)   (4,227)

Financing

   
Shareholder advances   1,200    4,100 

Net change In cash

 200    (127)

Cash, beginning of year

   599    726 
Cash, end of year  $799   $599 

 

 

 

See accompanying notes

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Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

 

1.NATURE OF BUSINESS AND GOING CONCERN

 

Applied Inventions Management Corp. (the "Company"), is incorporated under the laws of the Province of Ontario. The Company has no assets other than a minimal amount of cash. The Company carries on the business of identification and evaluation of assets or businesses with a view to completing a potential transaction.

 

The registered office of the Company is located at 1 Adelaide Street East Suite 801 Toronto, Ontario M5C 2V9.

 

While these consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") on a going concern basis that presumes the realization of assets and discharge of liabilities in the normal course of business, there are material uncertainties related to adverse conditions and events that may cast significant doubt on the Company's ability to continue as a going concern.

 

During the year ended August 31, 2018, the Company did not earn revenue, incurred a loss of $16,684 (2017 - $187,380) and, as of that date, the Company had an accumulated deficit of $3,916,771 (2017 - $3,900,087), a working capital deficiency of $224,344 (2017 - $515,025) and negative cash flows from operations of $1,000 (2017 - $4,227). These factors create material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern.

 

The Company's continuing ability to meet its obligations as they come due is dependent upon continued financial support from related parties (Notes 4, 5 and 10) and the Company's ability to raise additional funds through the issuance of shares or debt.

 

These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue operations. Such adjustments could be material.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

 

Statement of Compliance

 

The consolidated financial statements have been prepared in accordance with IFRS and their interpretations adopted by the International Accounting Standards Board ("IASB").

 

The consolidated financial statements of the Company for the year ending August 31, 2018 were approved and authorized for issue by the Board of Directors on October 22, 2018, except Note 14, which is as of January 29, 2019.

 

Basis of Presentation

 

These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

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Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

             Basis of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Applied Inventions Management Corporation U.S.A. and Tour Technologies. The two subsidiaries are inactive.

 

Functional and Presentation Currency

 

These consolidated financial statements have been presented in Canadian dollars, which is also the Company's and its subsidiaries' functional currency.

 

Financial Instruments

 

Financial assets classified as fair value through profit and loss ("FVTPL") are measured at fair value with any resultant gain or loss recognized in profit or loss. Financial assets classified as loans and receivables and held to maturity, are measured at amortized cost using the effective interest rate method.

 

All financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. Financial liabilities are classified as other financial liabilities, and are subsequently measured at amortized cost using the effective interest rate method.

 

The Company's financial assets include cash while the Company's financial liabilities include accounts payable and accrued liabilities, shareholder advances, subordinate and multiple voting debentures. Classification of these financial instruments is as follows:

 

Financial Instrument Classification
   
Cash FVTPL
Accounts payable and accrued liabilities Other financial liabilities

Shareholder advances

Other financial liabilities

Subordinate and multiple voting debentures

Other financial liabilities

 

Financial instruments recorded at fair value on the consolidated balance sheet are classified using a fairvalue hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

Level 1: Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities

 

Level 2: Valuation techniques based on inputs other than quoted prices included in Level 1that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

Level 3: Valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs)

 

The Company's financial instruments measured at fair value on the consolidated balance sheet consist of cash.

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Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

            Compound Financial Instruments

Compound financial instruments include subordinate and multiple voting convertible debentures, which are comprised of two components, the debt component and the conversion feature, which is considered equity. The debt component of the instrument is initially recognized at fair value, with the residual being allocated to the conversion feature, classified as equity. Transaction costs are allocated between the debt component and the conversion feature on a pro rata basis.

 

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. Upon conversion of the subordinate voting and multiple voting convertible debenture the value of the equity component is reallocated to Class "A" and Class "B" shares. Upon expiry or extinguishment of the conversion feature or repayment of the debenture, the equity component is reallocated to contributed surplus.

 

Debt Modification

 

From time to time, the Company pursues amendments to its credit agreements based on prevailing market conditions. Such amendments, when completed, are considered by the Company to be debt modifications or extinguishments. The accounting treatment of a debt modification depends on whether the modified terms are substantially different than the previous terms. Terms of an amended debt agreement are considered to be substantially different based on qualitative factors, or when the discounted present value of the cash flows under the new terms discounted using the original effective interest rate, is at least ten percent different from the discounted present value of the remaining cash flows of the original debt. If the modification is not substantially different, it will be considered as a modification with any costs or fees incurred adjusting the carrying amount of the liability and amortized over the remaining term of the liability. If the modification is substantially different then the transaction is accounted for as an extinguishment of the old debt instrument with a gain/loss to the carrying amount of the liability being recorded in the consolidated statements of operations immediately. Also, the transaction costs related to the debt extinguishment are recorded in the profit and loss accounts.

 

Loss Per Share

 

The Company presents basic and diluted loss per share data for its shares, calculated by dividing the loss attributable to shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted loss per share is determined by adjusting the loss attributable to shareholders and the weighted average number of shares outstanding for the effects of all warrants and options outstanding, if any, that may add to the total number of shares. If the number of shares outstanding increases or decreases as a result of share split or consolidation, the calculation of basic and diluted loss per share for all periods presented, is adjusted retrospectively.

 9 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

 

 

Income Taxes

 

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

 

Deferred tax is provided using the balance sheet 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. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.

 

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, it does not record that excess.

 

Significant Accounting Judgments and Estimates

 

The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. The estimates and associated assumptions are based on anticipations and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods. The significant estimates made by management in the preparation of these consolidated financial statements is the inputs used in the valuation of the warrants related to the units attached to the multiple voting debentures during the year. The significant judgments made by management in the preparation of these consolidated financial statements are fair value of the liability component related to the subordinate voting debenture and multiple voting debenture and the assumption that the Company will continue as a going concern.

 10 

 

 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Recent Accounting Pronouncements

 

The International Accounting Standards Board ("IASB") issued a number of new and revised standards, amendments and related interpretations which are effective for the Company's financial year beginning on or after September 1, 2018. Many are not applicable or do not have a significant impact on the Company and so have been excluded from the list below. The following have not yet been adopted and are being evaluated to determine their impact on the Company.

 

IFRS 9, Financial Instruments was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. A new hedge accounting model is introduced and represents a substantial overhaul of hedge accounting which will allow entities to better reflect their risk management activities in the financial statements. The most significant improvements apply to those that hedge non-financial risk, and so these improvements are expected to be of particular interest to non-financial institutions. IFRS 9 is required for annual periods beginning on or after January 1, 2018. Earlier application is permitted. The Company does not expect this standard to have an effect on the Company's consolidated financial statements.

 

IFRS 16, Leases, which was issued in January 2016, will replace current lease accounting standards. It proposes to record all leases on the balance sheet with certain limited exceptions. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Limited earlier adoption is permitted. The Company does not expect this standard to have an effect on the Company's consolidated financial statements.

 

 

3.              ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   2018    2017   
 Trade payables  $32,273   $24,051 
Debenture interest   26,029    45,995 
Accrued liabilities:          

Legal

   37,515    14,647 
Audit and accounting   10,325    10,000 
   $ 106,142   $94,693 

 11 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

 

4.SHAREHOLDER ADVANCES

 

Shareholder advances, principal plus accrued interest, include advances made by the current controlling shareholder who is also a director and officer of the Company since September 1, 2009. The advances bear interest at the rate of 10% per annum calculated monthly, are secured by a general security agreement and are due on demand.

  

 

5.DEBENTURES

 

On April 27, 2016, the Company agreed to settle an aggregate of $645, 154 of indebtedness owing to the controlling shareholder, who is a director and officer of the Company, and to WFE Investments Corp. ("WFE"), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343, 154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE. The debentures bear interest at a stated rate of 10% per annum. Interest is payable quarterly and the principal amounts outstanding are due on April 27, 2018, the maturity date.

 

The secured subordinate voting debenture and the multiple voting debenture and any unpaid interest thereon are convertible, at the option of the holders into Subordinate Voting Units and Multiple Voting Units respectively at a conversion price of $0.05 per Subordinate Voting Unit or Multiple Voting Unit respectively prior to the maturity date. Each Subordinate Voting Unit and each Multiple Voting Unit will consist of one Class "A" subordinate voting share and one Class "B" multiple voting share respectively and one detachable share purchase warrant. Each warrant shall entitle the holder thereof to acquire one Class "A" subordinate voting share at a price of $0.06 per share until two years from the date of issuance.

 

The fair value of the liability component at the time of issue of $275,046 and $242,060 for the subordinate voting and multiple voting debentures, respectively, was calculated as the discounted cash flows for the convertible debenture assuming a 22% interest rate which was based on the estimated market interest rate for a convertible debenture without a conversion feature. The fair value of the equity component (conversion feature) of $68, 108 and $59,940 for the subordinate voting and multiple voting debentures, respectively, was determined at the time of issue as the difference between the fair value of the compound convertible debentures and the fair value of the liability component corresponding to a rate that the Company would have obtained for a similar financing without the conversion option.

 

On May 30, 2017, the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260, Multiple Voting Units, comprising 6,700,260 Class "B" Multiple Voting Shares and 6,700,260 Class "A" detachable share purchase warrants (Note 8).

 12 

 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

5.DEBENTURES (Cont'd)

 

On May 28, 2018 Subordinate Voting Debenture date was extended to October 27, 2020, on the same terms and conditions. The extension represents an extinguishment of the debenture. As such the new debt instrument was recorded at fair value on the amendment date.

 

   Original Subordinate  Amended Subordinate
   Voting  Voting
   Debenture  Debenture
Principal value of debentures issued  $343,154   $414,642 
Gain on settlement of debenture   –     (120,631)
Equity component from original   –     68,108 
Equity component   (68,108)   (14,429)
Loss on equity component   –     (531679)
Liability component at date of issue   275,046    294,011 
Accretion   56,829    –  
Liability component at August 31, 2017   331,875    –   
Accretion   11,279    10,337 
Settlement of debenture   (343,154)   –   
Liability component at August 31, 2018  $–     $304,348 

 

The fair value of the debt component upon amendment was $294,012, based on a market rate of borrowing of 25.79%. This resulted in a gain on extinguishment of $120,631. The fair value of the equity component upon amendment was $14,429 based on the Black Scholes option pricing model with the following assumptions: Share price $0.01, dividend yield 0%, expected volatility (based on comparables) 100%, a risk tree interest rate of 1% and an expected life of 2 years.

 13 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

6.CAPITAL STOCK

 

a)Authorized:
unlimited Class  "A"  subordinate  voting  convertible shares,  convertible  into an  equal number of Class “B” shares at the option of the holder upon an offer to purchase all or substantially all of the Class "B” shares of the Company;
unlimited Class "B" multiple voting (20 votes per share) convertible shares, convertible into an equal number of Class “A” shares at the option of the holder;
unlimited Class "C" preference shares, non-voting, redeemable at the option of the holder, convertible into an equal number of Class “A” shares at the option of the holder.

 

b)Issued and outstanding:

 

   Number of Class “A” Shares  Amount  Number of Class “B” Shares  Amount
Balance, August 31, 2016   388,435   $1,106,187    1,139,339   $1,086,736 
Issuance of Class "B" shares (Note 5)   –      –      6,700,260    328,023 
                     
Balance, August 31, 2017 and 2018   388,435   $1,106,187    7,839,599   $1,414,759 

 

 

7.STOCK OPTION PLAN

 

The Company's stock option plan provides options that can be exercised for a maximum of 10% of the issued and outstanding Class "A" Subordinate Voting Shares and a maximum of 10% of the issued and outstanding Class "B" Multiple Voting Shares on the date of grant.

 

On April 29, 2016, 150,000 options to purchase Class “A” shares were granted pursuant to the Company's stock option plan to directors of the Company. The options were fully vested at the date of granting, have an exercise price of $0.05 per share and expire on April 29, 2021.

 

On October 27, 2017, the Company granted 600,000 options to its directors. The options were fully vested at the date of granting, have an exercise price of $0.05 per share and expire on October 27, 2022.

 

See Note 13.

 

 

 

 14 

 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

7.STOCK OPTION PLAN (Cont'd)

 

The following summarizes the stock options outstanding for the year ended August 31, 2018:

 

   2018  2017
   Number of
Options
  Weighted Average Exercise Price  Number of
Options
  Weighted Average Exercise Price
Beginning balance   150,000   $0.05    150,000   $0.05 
Issued   600,000   $0.05    –     $ Nil 
Ending balance   750,000   $0.05    150,000   $0.05 
Exercisable   750,000   $0.05    150,000   $0.05 

 

The Company had the following options issued at August 31, 2018:

 

Number of

Options

  Exercisable 

Exercise

Price

 

Weighted Average

Time to Maturity

 150,000    150,000   $0.05   2.66 years
 600,000    600,000   $0.05   4.16 years
 750 000    750,000         

 

 

The fair value of the options granted during the year ended August 31, 2018 was $3,017, estimated at the time of the grant using the Black-Scholes option pricing model with the following weighted average inputs and assumptions:

 

 

   2016     
Exercise price  $0.05 
Expected volatility   100%
Risk-free interest rate   1.00%
Expected life   5.0 Years 
Estimated share price  $0.01 

 

The expected volatility and estimated share price of the options is based on comparable companies in the industry.

 15 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

8.WARRANT CAPITAL

 

The following summarizes the warrants issued during the year ended August 31, 2018:

 

 

   2018  2017
     

Weighted

       Weighted  
  Number   Average  Number     Average  
  of  Exercise  of     Exercise  
  Warrants  Price  Warrants     Price  
Beginning balance   6,700,260   $0.06    —     $ Nil 
Issued (Note 5)   —     $  Nil    6,700,260   $0.06 
Ending balance   6,700,260   $0.06    6,700,260   $0.06 

 

The Company had the following warrants issued at August 31, 2018:

 

Number

of Warrants

Exercise

Price

Weighted Average
Time to Maturity
6,700,260 $ 0.06 0.75 years

 

See Note 13.

  

 

9.INCOME TAXES

 

Provision for Income Taxes

 

The Company's effective income tax rate differs from the amount that would be computed by applying the combined federal and provincial statutory rate of 26.50% (2017 - 26.50%) to the net loss and comprehensive loss for the period. The reason for the difference is as follows:

 

 

 

   2018       2017    
Loss before income taxes  $(16,684)  $(187,380)
Statutory rate   26.50%   26.50%
Expected income tax recovery  $(4,421)  $(49,656)
Increase (decrease) resulting from:          
Non-deductible stock based compensation   800    –   
Non-deductible accretion expense   5,728    –  
Non-taxable gain on debt extinguishment   (31,967)   –  
Change in deferred tax assets not recognized   29.860    49,656 
Income tax exeense  $    $ 
 16 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

9.       INCOME TAXES (Cont'd)

 

The Company's deferred income tax assets are estimated as follows:

 

   2018     2017  
Deferred income tax assets          
Non-capital losses  $195,570   $165,734 
Less: Deferred tax assets not recognized   (195,570)   (165,734)
Net deferred income tax asset  $–     $–   

 

 

Losses Carried Forward

 

As at August 31, 2018, the Company has non-capital losses for income tax purposes of approximately $738,000 available to apply against future taxable income. If not utilized, the non-capital losses will expire as follows:

 

 2026   $6,000 
 2028    5,000 
 2030    1,000 
 2031    56,000 
 2032    55,000 
 2033    39,000 
 2034    62,000 
 2035    57,000 
 2036    157,000 
 2037    187,000 
 2038    113,000 
     $ 738,000 

 

 

 

1O. RELATED PARTY TRANSACTIONS

 

(a)The interest expense of $48,801 (2017 - $63,639) is for the current controlling shareholder who is also a director and officer of the Company. Interest expense of $12,220 (2017 - $6,674) is interest accrued on outstanding shareholder advances that are interest bearing. Interest expense of $36,581 (2017 - $56,965) is interest accrued on the outstanding subordinate and multiple voting debentures.

 

(b)As at August 31, 2018 the Company has shareholder loans due to the current controlling shareholder who is also an officer and director of the Company, consisting of a $147,244 (2017 - $89,056) advance bearing interest at 10% per annum, secured by a general security agreement.

 

(c)

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder who is a director and officer of the Company, and to WFE Investments Corp. ("WFE"), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE (Note 5).

 17 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

 

 

10.RELATED PARTY TRANSACTIONS (Cont'd)

 

(d)On May 30, 2017 WFE a company controlled by the controlling shareholder of the Company converted a secured multiple voting debenture into 6,700,260, Multiple Voting Units, at $0.05 per Unit comprising 6,700,260 Class "B" Multiple Voting Shares and 6,700,260 Class "A" detachable shares purchase warrants totaling $374,346, of which $46,323 was allocated to the share purchase warrants.

 

The conversion was accounted for as the elimination of the multiple voting debenture liability with a transfer of the recorded liability and the equity component of the debenture to capital stock.

 

(e)Included in accounts payable and accrued liabilities is $6,030 (2017 - $16,030) related to expense reimbursement (2017 - consulting fees) owed to an officer, director and current controlling shareholder.

 

(f)During the year ended August 31, 2017, the current controlling shareholder who is also a director and officer of the Company forgave $17,900 worth of outstanding payables due to him, or a company controlled by the controlling shareholder. This amount was recorded as a direct increase in contributed surplus.

  

 

11.CAPITAL RISK MANAGEMENT

 

The Company considers capital stock, contributed surplus and deficit to represent capital. As at August 31, 2018 and 2017, the Company has a shareholders' deficiency and management's objective is to maintain its ability to continue as a going concern (Note 1).

 

The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the years ended August 31, 2018 and 2017.

 

 

12.FINANCIAL INSTRUMENTS AND RISK FACTORS

 

Risk management is the responsibility of management who is of the opinion that the Company is exposed to financial risks as described below. The Company's financial instruments comprised of cash, accounts payable and accrued liabilities, shareholder advances and subordinate and multiple voting debentures, approximate fair values due to the relatively short term maturities of the instruments. It is management's opinion that the Company is not exposed to significant interest and currency risks. The Company is not exposed to significant interest risk as the interest rates on the shareholder advances and subordinate voting debenture are fixed.

 

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company minimizes its credit risk by maintaining cash at major banks and financial institutions.

 18 

 

 

 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2018 and 2017

 

 

 

12.FINANCIAL INSTRUMENTS AND RISK FACTORS (Cont'd)

 

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. As at August 31, 2018, the Company has current liabilities of $253,386 (2017 - $515,624) and no significant assets other than a cash balance of $799 (2017 - $599) and accounts receivable of $28,243 (2017 - $NIL). As a result, the Company is dependent on obtaining additional financing to meet its current obligations. The Company's accounts payable outstanding for over 90 days amount to $NIL (2017 - $19,224).

 

13.SUBSEQUENT EVENTS

 

Subsequent to the year end:

 

(a)Directors of the Company exercised their stock options and purchased 750,000 Class “A” Subordinate voting shares at $0.05 per share.

 

(b)WFE Investments Corp. exercised 2,300,000 Class "A” Subordinate Voting shares at $0.06 per warrant and the balance of 4,400,260 Class “A” share purchase warrants were cancelled.

 

(c)The controlling shareholder converted $115,000 of the secured Class "A" Subordinate Voting Convertible debenture into 2,300,000 Class “A” Subordinate Voting Units. Each Unit is comprised of one Class "A” Subordinate Voting Share and one Class "A" Subordinate Voting Share purchase warrant exercisable at $0.06 per warrant for up to 2 years from date of conversion. The balance of $299,642 and accrued interest has been forgiven and the 2,300,000 Class "A" Subordinate Voting Share purchase warrants have been cancelled.

 

14.COMBINATION AGREEMENT

 

On September 21, 2018, the Company and High Street Capital Partners, LLC (d/b/a Acreage Holdings) ("Acreage Holdings") entered into a definitive business combination agreement (the "Combination Agreement") pursuant to which Acreage Holdings will complete a reverse take-over of the Company (the "Proposed Transaction") and the securityholders of Acreage Holdings will hold substantially all of the outstanding securities of the Company following the Proposed Transaction (the "Resulting Issuer'').

 

Pursuant to the Combination Agreement, the Company will continue from the Province of Ontario into the Province of British Columbia and will: (i) subdivide its existing Class "B" multiple voting shares (the “Class “B” Multiple Voting Shares”) on the basis of one and one-half (1.5) Class “B” Multiple Voting Shares for each Class “B” Multiple Voting Share issued and outstanding immediately prior thereto; (ii) consolidate its issued and outstanding Class "A" subordinate voting shares ("Applied Class "A" Subordinate Voting Shares ) such that Acreage Holdings units are ultimately exchanged on a 1:1 basis for Resulting Issuer subordinated voting shares pursuant to the Proposed Transaction (the “Consolidation"); (iii) approve the adoption of Articles under the Business Corporations Act (British Columbia) which will effect the amendment of the Company's existing Articles; (iv) change its name to Acreage Holdings Inc.; (v) approve a new equity compensation plan; and (vi) change its financial year end to December 31.

 

The Proposed Transaction is expected to close in November of 2018 and is subject to the conditions set out in the Combination Agreement, including obtaining the requisite approval of Acreage Holdings and the Company's shareholders.

 

An application has been made to list the Resulting Issuer's subordinate voting shares on the Canadian Securities Exchange (the "Exchange") upon completion of the Proposed Transaction. The listing will be subject to satisfying all of the Exchange's initial listing requirements.

 

On November 14, 2018, the Proposed Transaction was completed.

 

 

 

 19 
(Back To Top)

Section 3: EX-99.2 (MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED AUGUST 31, 2018 AND 2017)

Exhibit 99.2

 

 

APPLIED INVENTIONS MANAGEMENT CORP.

 

Management Discussion and Analysis of Financial Conditions and Results of
Operations for the fiscal years ended August 31, 2018 & 2017

This Management Discussion and Analysis (M. D. & A.) should be read in conjunction with Applied Inventions Management Corp.'s (the "Company") consolidated annual audited financial statements and the accompanying notes thereto which have been prepared in accordance with International Financial Reporting Standards (IFRS) in Canada. All monetary amounts are expressed in Canadian dollars. Additional information regarding the Company is available on the SEDAR website at www.sedar.com

 

FORWARD - LOOKING INFORMATION

 

The M. D. & A. and analysis and other sections of this report contain forward-looking statements. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause results to differ materially from those contemplated by these forward-looking statements. Management considers the assumptions on which these forward-looking statements are reasonable at the time the statements were prepared, but cautions the reader that they could cause actual results to differ materially from those anticipated.

 

DATE OF M. D. & A.

 

This M. D. & A. was prepared on October 22, 2018.

 

GENERAL OVERVIEW

 

A cease trade order ("CTO") was imposed on the Company by the Ontario Securities Commission on February 20, 2001for failure to file its annual audited consolidated financial statements for the year ended August 31, 2000 and interim unaudited consolidated financial statements for the three month period ended November 30, 2000. These consolidated financial statements were subsequently filed on SEDAR by the Company.

 

On August 27, 2011 the Ontario Securities Commission issued a Revocation Order of the CTO. The Company is now seeking to complete a transaction that would allow the reinstatement of trading privileges on a recognized stock exchange.

 

Prior to 2002, the Company manufactured, marketed and distributed the SAVE swimming pool intrusion alarm.

The Company is in the process of reorganizing its affairs.

 1 

 

SELECTED ANNUAL INFORMATION

 

For the years ended August 31st 2017 2018
Sales $Nil $ Nil
Net Loss and Comprehensive Loss ($187,380) ($16,684)
Loss per share ($0.058) ($0.002)
Total Assets $599 $29,042
Current Liabilities $515,624 $253,386
Total Long Term Debt $ Nil $304,348
Cash Dividends $ Nil $ Nil
Deficit ($3,900,087) ($3,916,771)

 

 

RESULTS OF OPERATION AND QUARTERLY RESULTS

 

Applied Inventions Management Corp. has incurred administrative costs,professional fees and consulting fees associated with preparing and filing annual audited consolidated financial statements, unaudited interim consolidated financial statements and all other regulatory filing requirements and has continued to accrue interest on its secured demand Debenture payable and its interest bearing shareholder loan. Professional fees incurred for the year August 31,2018 were $106,963 (August 31, 2017 - $51,554). Interest accrued on the secured demand Debenture and shareholder advances was $48,801(August 31,2017 - $63,639). Bank charges were $131 during the year ended August 31,2018 (August 31,2017 - $215). 

 

 

 

Aug 31 

2018

May 31 

2018

Feb 28 

2018

Nov 30 

2017

Aug 31 

2017

May 31 

2017

Feb 28 

2017

Nov 30 

2016

  Q4 Q3 Q2 Ql Q4 Q3 Q2 Ql

 

Total Revenue

 

$NIL

 

$ NIL

 

$ NIL

 

$ NIL

 

$ NIL

 

$ NIL

 

$ NIL

 

$ NIL

Gain / (Net Loss) and comprehensive loss $53,093 ($20,406) ($32,184) ($17,187) ($19,039) ($41,246) ($90,622) ($36 473)
Gain / (Net Loss) per Share

 

$0.006

 

($0.002)

 

($0.004)

 

($0.002)

 

($0.002)

 

($0.026)

 

($0.059)

 

($0.024)

Weighted average shares outstanding 8,228 034 8,228,034 8,228,034 8,228 034 8 228,034 1,527,774 1,527,774 1,527,774

 

 

 2 

 

 

 

LIQUIDITY

 

The Company has been dependent upon one of its shareholders who is an officer and director of the Company, to provide financing for ongoing administrative expenses and for costs of re-organizing the affairs of the Company. The shareholder, who is an officer and director of the Company, has indicated that he will continue to fund costs anticipated to be approximately $15,000 per annum. However, if the shareholder decides not to fund the ongoing costs, the Company will have to attempt to raise monies to fund ongoing operations from an alternative source. There is no assurance that the Company will be able to raise the required monies at competitive rates to continue operations.

 

As at August 31,2018 the Shareholder advances payable, which is owing to a principal shareholder who is a director and officer of the Company, was $147,244 (August 31,2017- $89,056) including accumulated interest advanced to the Company by the same Shareholder and bears interest at 10% per annum and is secured by a General Security Agreement.

 

FINANCIAL INSTRUMENTS

 

Financial assets classified as fair value through profit and loss ("FVTPL") are measured at fair value with any resultant gain or loss recognized in profit or loss. Financial assets classified as loans and receivables and held to maturity, are measured at amortized cost using the effective interest rate method.

 

All financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. Financial liabilities are classified as other financial liabilities, and are subsequently measured at amortized cost using the effective interest rate method.

 

The Company's financial assets include cash while the Company's financial liabilities include accounts payable and accrued liabilities, shareholder advances, subordinate and multiple voting debentures. Classification of these financial instruments is as follows:

 

Financial Instrument Classification
Cash FVTPL
Accounts payable and accrued liabilities Other financial liabilities
Shareholder advances Other financial liabilities
Subordinate and multiple voting debentures Other financial liabilities

 

Financial instruments recorded at fair value on the consolidated balance sheet are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

Level 1: Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities

 3 

 

Level 2: Valuation techniques based on inputs other than quoted prices included in Level 1that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

Level 3: Valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs)

 

The Company's financial instruments measured at fair value on the consolidated balance sheet consist of cash.

 

FINANCIAL RISK MANAGEMENT- LIQUIDITY RISK

 

Risk management is the responsibility of management who is of the opinion that the Company is exposed to financial risks as described below. It is management’s opinion that the Company is not exposed to significant interest and currency risk.

 

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company minimizes its credit risk by maintaining cash at major banks and financial institutions.

 

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. As at August 31, 2018 the Company had current liabilities of $253,386 (August 31, 2017 - $515,624) and assets of $29,042 (August 31, 2017 - $599). As a result, the Company has liquidity risk and is dependent on obtaining additional financing to meet its current obligations.

 

CAPITAL RISK MANAGEMENT

 

The Company considers capital stock and deficit to represent capital. As at August 31, 2018 and August 31, 2017 the Company has a negative capital balance and management's objective is to maintain its ability to continue as a going concern by identifying sources for additional financing for working capital and to fund the development of a business.

 

The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year August 31, 2018 and August 31, 2017.

 

OFF BALANCE SHEET ACTIVITIES

 

As at August 31, 2018 and 2017, the Company had no off balance sheet financial commitments and does not anticipate entering into any contracts of such nature.

 

DEBENTURES

 

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder, who is a director and officer of the Company, and to WFE Investments Corp. ("WFE"), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE. The debentures bear interest at a stated rate of 10% per annum. Interest is payable quarterly and the principal amounts outstanding are due on April 27, 2018,the maturity date.

 4 

 

The secured subordinate voting debenture and the multiple voting debenture and any unpaid interest thereon are convertible, at the option of the holders into Subordinate Voting Units and Multiple Voting Units respectively at a conversion price of $0.05 per Subordinate Voting Unit or Multiple Voting Unit respectively prior to the maturity date. Each Subordinate Voting Unit and each Multiple Voting Unit will consist of one Class "A" subordinate voting share and one Class "B" multiple voting share respectively and one detachable share purchase warrant. Each warrant shall entitle the holder thereof to acquire one Class "A" subordinate voting share at a price of $0.06 per share until two years from the date of issuance.

 

The fair value of the liability component at the time of issue of $275,046 and $242,060 for the subordinate voting and multiple voting debentures, respectively, was calculated as the discounted cash flows for the convertible debenture assuming a 22% interest rate which was based on the estimated market interest rate for a convertible debenture without a conversion feature. The fair value of the equity component (conversion feature) of $68,108 and $59,940 for the subordinate voting and multiple voting debentures, respectively, was determined at the time of issue as the difference between the fair value of the compound convertible debentures and the fair value of the liability component corresponding to a rate that the Company would have obtained for a similar financing without the conversion option.

 

On May 30, 2017, the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260, Multiple Voting Units, comprising 6,700,260 Class "B" Multiple Voting Shares and 6,700,260 Class "A" detachable share purchase warrants.

 

On May 28, 2018 Subordinate Voting Debenture date was extended to October 27, 2020, on the same terms and conditions. The extension represents an extinguishment of the debenture. As such the new instrument was recorded at fair market value on the amendment date. 

 

   Original  Amended
   Subordinate  Subordinate
   Voting  Voting
   Debenture  Debenture
       
Principal value of debentures issued  $343,154   $414,642 
Gain on settlement of debenture   –      (120,631)
Equity component from original   –      68,108 
Equity component   (68,108)   (14,429)
Loss on equity component   –      (53,679)
Liability component at date of issue   275,046    294,011 
Accretion   56,829    –   
Liability component at August 31, 2017  $331,875   $–   
           
Accretion   11,279    10,337 
Settlement of debenture   (343,154)   –   
           
           
Liability component at August 31, 2018  $–     $304,348 

  

The fair value of the debt component upon amendment was $294,012, based on a market rate of borrowing of 25.79%. This resulted in a gain on extinguishment of $120,631. The fair value of the equity component

 5 

 

upon amendment was $14,429 based on the Black Scholes option pncmg model with the following assumptions: Share price $0.01,dividend yield 0%, expected volatility (based on comparables) 100%,a risk tree interest rate of 1% and an expected life of 2 years.

 

 

RELATED PARTY TRANSACTIONS

 

Transactions with related parties are listed below and incurred in the normal course of business and are measured at the exchange amount:

 

(a)The interest expense of $48,801(2017 - $63,639) is for the current controlling shareholder who is also a director and officer of the Company. Interest expense of $12,220 (2017 - $6,674) is interest accrued on outstanding shareholder advances that are interest bearing. Interest expense of $36,581 (2017 - $56,965) is interest accrued on the outstanding subordinate and multiple voting debentures.

 

(b)As at August 31, 2018 the Company has shareholder loans due to the current controlling shareholder who is also an officer and director of the Company, consisting of a $147,244 (2017 - $89,056) advance bearing interest at 10% per annum,secured by a general security agreement.

 

(c)On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder who is a director and officer of the Company,and to WFE Investments Corp. ("WFE"), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE .

 

(d)On May 30,2017 WFE a company controlled by the controlling shareholder of the Company converted a secured multiple voting debenture into 6,700,260,Multiple Voting Units,at $0.05 per Unit comprising 6,700,260 Class "B" Multiple Voting Shares and 6,700,260 Class "A" detachable shares purchase warrants totaling $374,346, of which $46,323 was allocated to the share purchase warrants.

 

The conversion was accounted for as the elimination of the multiple voting debenture liability with a transfer of the recorded liability and the equity component of the debenture to capital stock.

 

(e)Included in accounts payable and accrued liabilities is $6,030 (2017 - $16,030) related to expense reimbursement (2017 -consulting fees) owed to an officer, director and current controlling shareholder.

 

(f)During the year ended August 31, 2017, the current controlling shareholder who is also a director and officer of the Company forgave $17,900 worth of outstanding payables due to him,
 6 

 

or a company controlled by the controlling shareholder. This amount was recorded as a direct increase in contributed surplus.

 

 

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

The preparation of financial statements in compliance with IFRS requires the Company's management to make certain estimates and assumptions that they consider reasonable and realistic. Despite regular reviews of these estimates and assumptions,based in particular on past achievements or anticipations, facts and circumstances may lead to changes in these estimates and assumptions which could impact the reported amount of the Company's asset, liabilities,equity or earnings. There have been no judgments made by management in the application of IFRS that have a significant effect on the financial statements for the year ended August 31,2018 and 2017. Actual results could differ from those estimates.

 

 

 

CONTROLS AND PROCEDURES

 

Management is responsible for the design of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with IFRS. Based on a review of its internal control procedures at the end of the period covered by this MD&A, management believes its internal controls and procedures, for the nature and size of the entity,are effective in providing reasonable assurances that financial information is recorded, processed,summarized and reported in a timely manner.

 

Management is also responsible for the design and effectiveness of disclosure controls and procedures to provide reasonable assurance that material information related to the Company, is made known to the Company's certifying officers. Management has evaluated the effectiveness of the Company's disclosure controls and procedures and has concluded that these controls and procedures are effective, for the nature and size of the entity, in providing reasonable assurance that material information relating to the Company is made known to them by others within the Company.

 

 

 

OUTSTANDI NG SHARE DATA

 

Common Shares

 

As at August 31, 2018 the Company had 388,435 (August 31, 2017 - 388,435) Class "A" Subordinate Voting Shares and 7,839,599 (August 31,2017 -7,839,599) Class "B" Multiple Voting Shares issued and outstanding.

 

On May 30, 2017 the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260 Multiple Voting Units, comprising 6,700,260 Class "B" Multiple Voting Shares and 6,700.260 Class "A" detachable shares purchase warrants.

 7 

 

Stock Options and share purchase warrants

 

The Company's stock option plan provides options that can be exercised for a maximum of 10% of the issued and outstanding Class "A” Subordinate Voting Shares and a maximum of 10% of the issued and outstanding Class "B" Multiple Voting Shares on the date of grant.

 

On April 29, 2016, 150,000 options to purchase Class "A" shares were granted pursuant to the Company's stock option plan to directors of the Company. The options were fully vested at the date of granting,have an exercise price of $0.05 per share and expire on April 29, 2021

 

On October 27, 2017, the Company granted 600,000 options to its directors. The options were fully vested at the date of granting,have an exercise price of $0.05 per share and expire on October 27, 2022.

 

On May 30, 2017 6,700,200 Class "A" detachable share purchase warrants were issued. Each warrant shall entitle the holder to acquire one Class "A" subordinate voting share at $0.06 per share until two years from date of issue, which was extended to October 27, 2020 on the same terms and conditions (see Debentures above).

 

SUBSQUENT EVENTS

 

Subsequent to the year end:

 

(a)Directors of the Company exercised their stock options and purchased 750,000 Class "A" Subordinate voting shares at $0.05 per share.
(b)WFE Investments Corp. exercised 2,300,000 Class "A" Subordinate Voting shares at $0.06 per warrant and the balance of 4,400,260 Class "A" share purchase warrants were cancelled.
(c)The controlling shareholder converted $115,000 of the secured Class "A" Subordinate Voting Convertible debenture into 2,300,000 Class "A" Subordinate Voting Units. Each Unit is comprised of one Class "A" Subordinate Voting Share and one Class "A" Subordinate Voting Share purchase warrant exercisable at $0.06 per warrant for up to 2 years from date of conversion. The balance of $299,642 and accrued interest has been forgiven and the 2,300,000 Class "A" Subordinate Voting Share purchase warrants have been cancelled.

 

COMBINATION AGREEMENT

 

On September 21, 2018, the Company and HighStreet Capital Partners,LLC (d/b/a Acreage Holdings) ("Acreage Holdings") entered into a definitive business combination agreement (the "Combination Agreement") pursuant to which Acreage Holdings will complete a reverse take-over of the Company (the " Proposed Transaction") and the securityholders of Acreage Holdings will hold substantially all of the outstanding securities of the Company following the Proposed Transaction (the "Resulting Issuer").

 

Pursuant to the Combination Agreement, the Company will continue from the Province of Ontario into the Province of British Columbia and will: (i) subdivide its existing Class "B" multiple voting shares (the "Class B Multiple Voting Shares") on the basis of one and one-half (1.5) Class "B" Multiple Voting Shares for each Class

 

 

 8 

 

"B" Multiple Voting Share issued and outstanding immediately prior thereto; (ii) consolidate its issued and outstanding Class "A" subordinate voting shares ("Applied Class "A" Subordinate Voting Shares") such that Acreage Holdings units are ultimately exchanged on a 1:1 basis for Resulting Issuer subordinated voting shares pursuant to the Proposed Transaction (the "Consolidation"); (iii) approve the adoption of Articles under the Business Corporations Act (British Columbia) which will effect the amendment of the Company's existing Articles; (iv) change its name to Acreage Holdings Inc.;(v) approve a new equity compensation plan;and (vi) change its financial year end to December 31.

 

The Proposed Transaction is expected to close in November of 2018 and is subject to the conditions set out in the Combination Agreement, including obtaining the requisite approval of Acreage Holdings' and the Company's shareholders.

 

An application has been made to list the Resulting Issuer's subordinate voting shares on the Canadian Securities Exchange (the "Exchange") upon completion of the Proposed Transaction. The listing will be subject to satisfying all of the Exchange's initial listing requirements.

 

 

 

OFFICERS AND DIRECTORS

 

As at August 31,2018 the officers and directors of the Company include:

Michael Stein - President and Director
Gabriel Nachman FCPA, FCA - Acting CFO, Director and Chair of Audit Committee
Nicholas Hariton - Director
Barry Polisuk - Director

 

ADDITIONAL INFORMATION

 

Additional information relating to the Company is available:

 

On the Internet at the SEDAR website at www.sedar.com or,
By contacting Michael Stein at 416-816-9690

 

 

 9 
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Section 4: EX-99.3 (CERTIFICATION OF ANNUAL FILINGS VENTURE ISSUER BASIC CERTIFICATE BY CEO DATED OCTOBER 22, 2018)

Exhibit 99.3

 

 

FORM 52-109FV1
CERTIFICATION OF ANNUAL FILINGS
VENTURE ISSUER BASIC CERTIFICATE

 

I, MICHAEL B. STEIN, the CHIEF EXECUTIVE OFFICER of APPLIED INVENTIONS MANAGEMENT CORP., certify the following:

 

1.Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of APPLIED INVENTIONS MANAGEMENT CORP. (the “issuer”) for the financial year ended AUGUST 31, 2018.

 

2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

Date: October 22, 2018.

 

"Michael B. Stein"

 

Michael B. Stein

Chief Executive Officer

 

NOTE TO READER

 

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:

 

i)  

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the

issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

ii)  

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with the issuer’s GAAP.

 

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

 

 

 

 

 

 

12308417.1

 

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Section 5: EX-99.4 (CERTIFICATION OF ANNUAL FILINGS VENTURE ISSUER BASIC CERTIFICATE BY ACTING CFO DATED OCTOBER 22, 2018)

Exhibit 99.4

 

 

FORM 52-109FV1
CERTIFICATION OF ANNUAL FILINGS
VENTURE ISSUER BASIC CERTIFICATE

 

I, GABRIEL NACHMAN, the ACTING CHIEF FINANCIAL OFFICER of APPLIED INVENTIONS MANAGEMENT CORP., certify the following:

 

 

 

1.Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of APPLIED INVENTIONS MANAGEMENT CORP. (the “issuer”) for the financial year ended AUGUST 31, 2018.

 

2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

Date: October 22, 2018.

 

"Gabriel Nachman"

 

Gabriel Nachman

Acting Chief Financial Officer

 

 

NOTE TO READER

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:

 

i)  

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

ii)  

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge

to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

 

 

 

12308420.1

 

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Section 6: EX-99.5 (NEWS RELEASE DATED OCTOBER 27, 2017)

Exhibit 99.5

 

Applied Inventions Management Corp.

Announces the Grant of Stock Options

 

TORONTO, ONTARIO - October 27, 2017 - Applied Inventions Management Corp. (“AIM or the Company”) announces that effective October 27, 2017 it has granted an aggregate of 600,000 options (the Options”) to certain directors of the Corporation to purchase up to an aggregate of 600,000 Class A subordinate voting shares (the “Shares”) in the capital of the Company. The Options are exercisable at a price of $0.05 per Share and expire on October 27, 2022.

 

For further information please contact:

 

Michael Stein
President

Tel: 416-410-7722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11028869.1

 

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Section 7: EX-99.6 (CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2017 AND 2016)

Exhibit 99.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Applied Inventions Management Corp.

Consolidated Financial Statements

 

(Expressed in Canadian Dollars)

 

For the Years Ended August 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

INDEPENDENT AUDITOR'S REPORT

 

To the Shareholders of Applied Inventions Management Corp.

 

We have audited the accompanying consolidated financial statements of Applied Inventions Management Corp. and its subsidiaries, which comprise the consolidated balance sheets as at August 31, 2017 and August 31, 2016 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years ended August 31, 2017 and August 31, 2016 and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Applied Inventions Management Corp. as at August 31, 2017 and August 31, 2016, and its financial performance and its cash flows for the years ended August 31, 2017 and August 31, 2016 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

 

 

  1 
 

 

Emphasis of Matter

 

Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes material uncertainties that may cast significant doubt about Applied Inventions Management Corp.'s ability to continue as a going concern.

 

 

 

Chartered Professional Accountants

Licensed Public Accountants

December 1, 2017

Toronto, Ontario

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2 
 

 

Applied Inventions Management Corp.

Consolidated Balance Sheets

(Expressed in Canadian Dollars)

As at August 31

 

  

 

2017

  2016
       
Assets      
       
Current          

Cash

  $599   $726 
Liabilities          
Current          

Accounts payable and accrued liabilities (Note 3)

  $94,693   $108,105 
Shareholder advances (Note 4)   89,056    11,276 
Subordinate voting debenture (Note 5)   331,875    —   
    515,624    119,381 
Subordinate voting debenture (Note 5)   —      287,912 
Multiple voting debenture (Note 5)   —      253,384 
    515,624    660,677 
 Shareholders' Deficiency          
Capital stock (Note 6)   2,520,946    2,192,923 
Contributed surplus   749,685    731,785 
Warrant capital (Note 5 and 8)   46,323    —   
Equity component of convertible debentures (Note 5)   68,108    128,048 
Deficit   (3,900,087)   (3,712,707)
    (515,025)   (659,951)
   $599   $726 

 

 Nature of Business and Going Concern (Note 1)

 

          
Subsequent Event (Note 13)          

 

 

 

Approved by the Board

"Michael Stein"

 

"Gabriel Nachman"

  Director (Signed)   Director (Signed)

 

 

 

 

 

See accompanying notes

 

  3 
 

 

Applied Inventions Management Corp.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in Canadian Dollars)

Years Ended August 31

 

 

   2017  2016
Expenses          

Accretion expense

  $71,972   $24,190 
Bank charges   215    236 
Interest on debenture and shareholder advances (Note 5 and 10)   63,639    40,589 
Professional fees   51,554    91,997 
Stock based compensation   —      745 

 

Net loss and comprehensive loss for the year

  $187,380   $157,757 

 

 

Loss per share      
       
Basic and diluted  $0.058   $0.103 
           
           
Weighted average number of common shares outstanding          
           
Basic and diluted   3,216,607    1,527,774 

 

 

 

 

 

 

See accompanying notes

 

  4 
 

 

Applied Inventions Management Corp.

Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

Years Ended August 31, 2017 and 2016

 

  

 

 

 

 

Capital Stock

(Note 6)

 

 

 

 

Contributed Surplus

 

 

Warrant capital

  Equity Component of Convertible Debentures  Deficit  Total
 

Balance, September 1,

2015

  $2,192,923   $731,040   $—    $—     $(3,554,950)  $(630,987)
Net loss and comprehensive loss   —      —          —      (157,757)   (157,757)
Stock based compensation
   —      745    —     —      —     745 
Equity component of convertible debentures (Note 5)   —      —      —     128,048    —     128,048 

 

Balance, August 31, 2016

  $2,192,923   $731,785   $—    $128,048   $(3,712,707)  $(659,951)
Net loss and comprehensive loss   —      —      —     —      (187,380)   (187,380)
Settlement of debt with shareholder   —      17,900    —     —      —     17,900 
Conversion of multiple voting debentures (Note 5)   328,023    —      46,323    (59,940)   —     314,406 

 

Balance, August 31, 2017

  $2,520,946   $749,685    46,323   $68,108   $(3,900,087)  $(515,025)

 

 

 

 

 

 

 

 

 

 

See accompanying notes

 

  5 
 

 

Applied Inventions Management Corp.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

Years Ended August 31

 

 

   2017  2016

 

Cash provided by (used in)

 

          
Operations          

Net loss and comprehensive loss

  $(187,380)  $(157,757)
Items not affecting cash          
Interest accrued on debentures and shareholder advances   63,639    40,589 
Shareholder payment of professional fees   10,494    15,026 
Accretion expense   71,972    24,190 
Stock based compensation   —      745 
    (41,275)   (77,207)
Net changes in non-cash working capital          
Accounts payable and accrued liabilities   37,048    74,259 
    (4,227)   (2,948)
Financing          

Shareholder advances

   4,100    —   
           
Net change in cash   (127)   (2,948)
Cash, beginning of year   726    3,674 
Cash, end of year  $599   $726 

 

 

 

 

 

 

See accompanying notes

 

  6 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

1.NATURE OF BUSINESS AND GOING CONCERN

 

Applied Inventions Management Corp. (the "Company"), is incorporated under the laws of the Province of Ontario. The Company has no assets other than a minimal amount of cash. The Company carries on the business of identification and evaluation of assets or businesses with a view to completing a potential transaction.

 

The registered office of the Company is located at 1 Adelaide Street East Suite 801 Toronto, Ontario M5C 2V9.

 

While these consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") on a going concern basis that presumes the realization of assets and discharge of liabilities in the normal course of business, there are material uncertainties related to adverse conditions and events that may cast significant doubt on the Company's ability to continue as a going concern.

 

During the year ended August 31, 2017, the Company did not earn revenue, incurred a loss of $187,380 (2016 - $157,757) and, as of that date, the Company had an accumulated deficit of $3,900,087 (2016 - $3,712,707), a working capital deficiency of $515,025 (2016 - $118,655) and negative cash flows from operations of $4,227 (2016 - $2,948). These factors create material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern.

 

The Company's continuing ability to meet its obligations as they come due is dependent upon continued financial support from related parties (Notes 4, 5 and 10) and the Company's ability to raise additional funds through the issuance of shares or debt.

 

These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue operations. Such adjustments could be material.

 

2.SIGNIFICANT ACCOUNTING POLICIES

 

Statement of Compliance

 

The consolidated financial statements have been prepared in accordance with IFRS and their interpretations adopted by the International Accounting Standards Board ("IASB").

 

The consolidated financial statements of the Company for the year ending August 31, 2017 were approved and authorized for issue by the Board of Directors on December 1, 2017.

 

Basis of Presentation

 

These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

 

 

  7 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

 

Basis of Consolidation

 

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Applied Inventions Management Corporation U.S.A. and Tour Technologies. The two subsidiaries are inactive.

 

Functional and Presentation Currency

 

These consolidated financial statements have been presented in Canadian dollars, which is also the Company's and its subsidiaries' functional currency.

 

Financial Instruments

 

Financial assets classified as fair value through profit and loss ("FVTPL") are measured at fair value with any resultant gain or loss recognized in profit or loss. Financial assets classified as loans and receivables and held to maturity, are measured at amortized cost using the effective interest rate method.

 

All financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. Financial liabilities are classified as other financial liabilities, and are subsequently measured at amortized cost using the effective interest rate method.

 

The Company's financial assets include cash while the Company's financial liabilities include accounts payable and accrued liabilities, shareholder advances, subordinate and multiple voting debentures. Classification of these financial instruments is as follows:

 

Financial Instrument Classification
   
Cash FVTPL
Accounts payable and accrued liabilities Other financial liabilities
Shareholder advances Other financial liabilities
Subordinate and multiple voting debentures Other financial liabilities

 

Financial instruments recorded at fair value on the consolidated balance sheet are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

Level 1: Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities

 

Level 2: Valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

Level 3: Valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs)

 

The Company's financial instruments measured at fair value on the consolidated balance sheet consist of cash.

 

 

  8 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

2.       SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

 

Compound Financial Instruments

 

Compound financial instruments include subordinate and multiple voting convertible debentures, which are comprised of two components, the debt component and the conversion feature, which is considered equity. The debt component of the instrument is initially recognized at fair value, with the residual being allocated to the conversion feature, classified as equity. Transaction costs are allocated between the debt component and the conversion feature on a pro rata basis.

 

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on modification. Upon conversion of the subordinate voting and multiple voting convertible debenture the value of the equity component is reallocated to Class A and Class B shares. Upon expiry of the conversion feature or repayment of the debenture, the equity component is reallocated to contributed surplus.

 

Loss Per Share

 

The Company presents basic and diluted loss per share data for its shares, calculated by dividing the loss attributable to shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted loss per share is determined by adjusting the loss attributable to shareholders and the weighted average number of shares outstanding for the effects of all warrants and options outstanding, if any, that may add to the total number of shares. If the number of shares outstanding increases or decreases as a result of share split or consolidation, the calculation of basic and diluted loss per share for all periods presented, is adjusted retrospectively.

 

Income Taxes

 

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

 

Deferred tax is provided using the balance sheet 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. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.

 

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, it does not record that excess.

 

 

  9 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

2.SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

 

Significant Accounting Judgments and Estimates

 

The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. The estimates and associated assumptions are based on anticipations and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods. The significant estimates made by management in the preparation of these consolidated financial statements is the inputs used in the valuation of the warrants related to the units issued on the conversion of the multiple voting debentures during the year. The significant judgments made by management in the preparation of these consolidated financial statements are fair value of the liability component related to the subordinate voting debenture and multiple voting debenture issued in prior year and the assumption that the Company will continue as a going concern.

 

Recent Accounting Pronouncements

 

The International Accounting Standards Board (“IASB”) issued a number of new and revised standards, amendments and related interpretations which are effective for the Company’s financial year beginning on or after September 1, 2017. Many are not applicable or do not have a significant impact on the Company and so have been excluded from the list below. The following have not yet been adopted and are being evaluated to determine their impact on the Company.

 

IFRS 9 Financial Instruments was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. A new hedge accounting model is introduced and represents a substantial overhaul of hedge accounting which will allow entities to better reflect their risk management activities in the financial statements. The most significant improvements apply to those that hedge non-financial risk, and so these improvements are expected to be of particular interest to non-financial institutions. IFRS 9 is required for annual periods beginning on or after January 1, 2018. Earlier application is permitted. The Company does not expect this standard to have an effect on the Company’s consolidated financial statements.

 

IFRS 16, Leases, which was issued in January 2016, will replace current lease accounting standards. It proposes to record all leases on the balance sheet with certain limited exceptions. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Limited earlier adoption is permitted. The Company does not expect this standard to have an effect on the Company’s consolidated financial statements.

 

 

  10 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

3.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

   2017  2016
Trade payables  $24,051   $39,163 
Debenture interest   45,995    22,139 
Accrued liabilities:          
Legal   14,647    40,303 
Audit and accounting   10,000    6,500 
   $94,693   $108,105 

 

 

 

4.SHAREHOLDER ADVANCES

 

Shareholder advances, principal plus accrued interest, include advances made by the current controlling shareholder who is also a director and officer of the Company since September 1, 2009. The advances bear interest at the rate of 10% per annum calculated monthly, are secured by a general security agreement and have no specified terms of repayment.

 

 

 

5.DEBENTURES

 

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder, who is a director and officer of the Company, and to WFE Investments Corp. (“WFE”), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of

$302,000 to WFE. The debentures bear interest at a stated rate of 10% per annum. Interest is payable quarterly and the principal amounts outstanding are due on April 27, 2018, the maturity date.

 

The secured subordinate voting debenture and the multiple voting debenture and any unpaid interest thereon are convertible, at the option of the holders into Subordinate Voting Units and Multiple Voting Units respectively at a conversion price of $0.05 per Subordinate Voting Unit or Multiple Voting Unit respectively prior to the maturity date. Each Subordinate Voting Unit and each Multiple Voting Unit will consist of one Class “A” subordinate voting share and one Class “B” multiple voting share respectively and one detachable share purchase warrant. Each warrant shall entitle the holder thereof to acquire one Class “A” subordinate voting share at a price of $0.06 per share until two years from the date of issuance.

 

 

  11 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

5.DEBENTURES (Cont’d)

 

The fair value of the liability component at the time of issue of $275,046 and $242,060 for the subordinate voting and multiple voting debentures, respectively, was calculated as the discounted cash flows for the convertible debenture assuming a 22% interest rate which was based on the estimated market interest rate for a convertible debenture without a conversion feature. The fair value of the equity component (conversion feature) of $68,108 and $59,940 for the subordinate voting and multiple voting debentures, respectively, was determined at the time of issue as the difference between the fair value of the compound convertible debentures and the fair value of the liability component corresponding to a rate that the Company would have obtained for a similar financing without the conversion option.

 

On May 30, 2017, the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260, Multiple Voting Units, comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable shares purchase warrants (Note 8).

 

   Subordinate Voting Debenture  Multiple Voting Debenture
 Principal value of debentures issued  $343,154   $302,000 
Equity component   (68,108)   (59,940)
 Liability component at date of issue   275,046    242,060 
Accretion   12,866    11,324 
 Liability component at August 31, 2016  $287,912   $253,384 
Accretion   43,963    28,009 
Conversion   —      (281,393)
 Liability component at August 31, 2017  $331,875   $—   

 

 

 

 

 

 

 

 

  12 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

6.CAPITAL STOCK

 

a)Authorized:
unlimited Class "A" subordinate voting convertible shares, convertible into an equal number of Class B shares at the option of the holder upon an offer to purchase all or substantially all of the Class B shares of the Company;
unlimited Class "B" multiple voting (20 votes per share) convertible shares, convertible into an equal number of Class A shares at the option of the holder;
unlimited Class "C" preference shares, non-voting, redeemable at the option of the holder, convertible into an equal number of Class A shares at the option of the holder.

 

b)Issued and outstanding:

 

   Number of Class A Shares  Amount 

Number of Class B

Shares

  Amount
Balance, August 31, 2015 and 2016   388,435   $1,106,187    1,139,339   $1,086,736 
Issuance of Class B shares (Note 5)   —      —      6,700,260    328,023 

Balance, August 31, 2017

   388,435   $1,106,187    7,839,599   $1,414,759 

 

 

 

7.STOCK OPTION PLAN

 

The Company's stock option plan provides options that can be exercised for a maximum of 10% of the issued and outstanding Class "A" Subordinate Voting Shares and a maximum of 10% of the issued and outstanding Class "B" Multiple Voting Shares on the date of grant.

 

On April 29, 2016, 150,000 options to purchase Class ”A” shares were granted pursuant to the Company’s stock option plan to directors of the Company. The options were fully vested at the date of granting, have an exercise price of $0.05 per share and expire on April 29, 2021.

 

The following summarizes the stock options outstanding for the year ended August 31, 2017:

 

   2017  2016
  Number of Options

    Weighted Average Exercise Price Number of Options     Weighted Average Exercise Price  
                  
Beginning balance   150,000   $0.05    —     $ Nil 
Issued   —     $   Nil    150,000   $0.05 
Ending balance   150,000   $0.05    150,000   $0.05 
Exercisable   150,000   $0.05    150,000   $0.05 

 

 

  13 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

7.       STOCK OPTION PLAN (Cont’d)

 

 

The Company had the following options issued at August 31, 2017:

 

Number

of Options

  Exercisable  Exercise Price  Weighted Average Time to Maturity
 150,000    150,000   $0.05    

3.66 years

 
 150,000    150,000           

 

The fair value of the options granted during the year ended August 31, 2016 was $745, estimated at the time of the grant using the Black-Scholes option pricing model with the following weighted average inputs and assumptions:

 

 

   2016
Exercise price  $0.05 
Expected volatility   100%
Risk-free interest rate   0.87%
Expected life   5.0 years 
Estimated share price  $0.01 

 

The expected volatility and estimated share price of the options is based on comparable companies in the industry.

 

 

 

8.WARRANT CAPITAL

 

The following summarizes the warrants issued during the year ended August 31, 2017:

 

   2017   2016
   Number of Options  Weighted Average Exercise Price  Number of Options  Weighted Average Exercise Price
                  
Beginning balance   —     $   Nil    —     $ Nil 
Issued (Note 5)   6,700,260   $0.06    —     $Nil 
Ending balance   6,700,260   $0.06    —     $ Nil 

      

 

 

  14 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

8.         WARRANT CAPITAL (Cont’d)

 

The Company had the following warrants issued at August 31, 2017:

 

Number of Warrants  Exercise Price  Weighted Average Time to Maturity
 6,700,260   $0.06    

1.75 years

 

 

 

 

9.INCOME TAXES

 

Provision for Income Taxes

 

The Company's effective income tax rate differs from the amount that would be computed by applying the combined federal and provincial statutory rate of 26.50% (2016 - 26.50%) to the net loss and comprehensive loss for the period. The reason for the difference is as follows:

 

   2017  2016
Loss before income taxes  $(187,380)  $(157,757)
Statutory rate   26.50%   26.50%
Expected income tax recovery
  $(49,656)  $(41,806)
Increase (decrease) resulting from:          
Non-deductible expenses   —      198 
Change in deferred tax assets not recognized   49,656    41,608 
 Income tax expense  $—     $—   

 

The Company's deferred income tax assets are estimated as follows:

 

 

   2017  2016
 Deferred income tax assets          
Non-capital losses  $165,734   $116,078 
Less: Deferred tax assets not recognized   (165,734)   (116,078)
 Net deferred income tax asset  $—     $—   

 

 

 

  15 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

9.INCOME TAXES (Cont’d)

 

Losses Carried Forward

 

As at August 31, 2017, the Company has non-capital losses for income tax purposes of approximately $625,000 available to apply against future taxable income. If not utilized, the non-capital losses will expire as follows:

 

 2026 $6,000 
 2028  5,000 
 2030  1,000 
 2031  56,000 
 2032  55,000 
 2033  39,000 
 2034  62,000 
 2035  57,000 
 2036  157,000 
 2037  187,000 
   $625,000 

 

 

 

10.RELATED PARTY TRANSACTIONS

 

(a)The interest expense of $63,639 (2016 - $40,589) is due to the current controlling shareholder who is also a director and officer of the Company. Interest expense of $6,674 (2016 - $300) is interest accrued on outstanding shareholder advances that are interest bearing. Interest expense of $56,965 (2016 - $22,139) is interest accrued on the outstanding subordinate and multiple voting debentures.

 

(b)As at August 31, 2017 the Company has shareholder loans due to the current controlling shareholder who is also an officer and director of the Company, consisting of a $89,056 (2016 - $11,276) advance bearing interest at 10% per annum, secured by a general security agreement.

 

(c)On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder who is a director and officer of the Company, and to WFE Investments Corp. (“WFE”), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE (Note 5).

 

(d)On May 30, 2017 WFE a company controlled by the controlling shareholder of the Company converted a secured multiple voting debenture into 6,700,260, Multiple Voting Units, at $0.05 per Unit comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable shares purchase warrants totaling $374,346, of which $46,323 was allocated to the share purchase warrants.

 

The conversion was accounted for as the elimination of the multiple voting debenture liability with a transfer of the recorded liability and the equity component of the debenture to capital stock.

 

 

  16 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

10.RELATED PARTY TRANSACTIONS (Cont’d)

 

(e)Included in accounts payable and accrued liabilities is $16,030 (2016 - $24,200) related to consulting fees owed to an officer, director and current controlling shareholder.

 

(f)During the year ended August 31, 2017, the current controlling shareholder who is also a director and officer of the Company forgave $17,900 worth of outstanding payables due to him, or a Company controlled by the controlling shareholder. This amount was recorded as a direct increase in contributed surplus.

 

 

 

11.CAPITAL RISK MANAGEMENT

 

The Company considers capital stock, contributed surplus and deficit to represent capital. As at August 31, 2017 and 2016, the Company has a shareholders' deficiency and management's objective is to maintain its ability to continue as a going concern (Note 1).

 

The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the years ended August 31, 2017 and 2016.

 

 

 

12.FINANCIAL INSTRUMENTS AND RISK FACTORS

 

Risk management is the responsibility of management who is of the opinion that the Company is exposed to financial risks as described below. The Company's financial instruments comprised of cash, accounts payable and accrued liabilities, shareholder advances and subordinate and multiple voting debentures, approximate fair values due to the relatively short term maturities of the instruments. It is management's opinion that the Company is not exposed to significant interest and currency risks. The Company is not exposed to significant interest risk as the interest rates on the shareholder advances and subordinate voting debenture are fixed.

 

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company minimizes its credit risk by maintaining cash at major banks and financial institutions.

 

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. As at August 31, 2017, the Company has current liabilities of $515,624 (2016 - $119,381) and no significant assets other than a cash balance of $599 (2016 - $726). As a result, the Company is dependent on obtaining additional financing to meet its current obligations. The Company's accounts payable outstanding for over 90 days amount to $19,224 (2016 - $21,512).

 

 

  17 
 

 

Applied Inventions Management Corp.

Notes to Consolidated Financial Statements

(Expressed in Canadian Dollars)

August 31, 2017 and 2016

 

 

 

13.SUBSEQUENT EVENT

 

a)On September 29, 2017, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) to complete a business combination with a third party (the “Target”), resulting in a reverse takeover of the Company (the “Proposed Transaction”). During the exclusivity period which expires on December 31, 2017, the parties have agreed to negotiate a binding agreement to complete the Proposed Transaction. As part of the Exclusivity Agreement the Target has agreed to pay certain expenses of the Company during the exclusivity period. There is no guarantee that the parties will be able to negotiate a mutually acceptable binding agreement or successfully complete the Proposed Transaction.

 

b)On October 27, 2017, the Company granted 600,000 options to its directors with an exercise price of $0.05 and an expiry date of October 27, 2022.

 

 

 

 

 

 

 

 

  18 

 

 

(Back To Top)

Section 8: EX-99.7 (MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED AUGUST 31, 2017 AND 2016)

Exhibit 99.7

 

APPLIED INVENTIONS MANAGEMENT CORP.

Management Discussion and Analysis of Financial Conditions and Results of Operations for the fiscal years ended Augusts 31, 2017 & 2016

This Management Discussion and Analysis (M. D. & A.) should be read in conjunction with Applied Inventions Management Corp.’s (the “Company”) consolidated annual audited financial statements and the accompanying notes thereto which have been prepared in accordance with International Financial Reporting Standards (IFRS) in Canada. All monetary amounts are expressed in Canadian dollars. Additional information regarding the Company is available on the SEDAR website at www.sedar.com

 

FORWARD - LOOKING INFORMATION

The M. D. & A. and analysis and other sections of this report contain forward-looking statements. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause results to differ materially from those contemplated by these forward-looking statements. Management considers the assumptions on which these forward-looking statements are reasonable at the time the statements were prepared, but cautions the reader that they could cause actual results to differ materially from those anticipated.

 

DATE OF M. D. & A.

This M. D. & A. was prepared on December 1, 2017.

 

GENERAL OVERVIEW

A cease trade order (“CTO”) was imposed on the Company by the Ontario Securities Commission on February 20, 2001 for failure to file its annual audited consolidated financial statements for the year ended August 31, 2000 and interim unaudited consolidated financial statements for the three month period ended November 30, 2000. These consolidated financial statements were subsequently filed on Sedar by the Company.

 

On August 27, 2011 the Ontario Securities Commission issued a Revocation Order of the CTO. The Company is now seeking to complete a transaction that would allow the reinstatement of trading privileges on a recognized stock exchange.

 

Prior to 2002, the Company manufactured, marketed and distributed the SAVE swimming pool intrusion alarm.

 

The Company is in the process of reorganizing its affairs.

 

  1 

 

 

TERMINATED LETTER OF INTENT

On May 12, 2016, the Company signed a letter of intent proposing to acquire all of the issued and outstanding shares of World Defense Holdings WDH Ltd. ("WDH"), a Montreal, Canada based company providing program based defense services in South America, the Middle East and to certain U.S. allied countries to combat terrorism and ensure global security. In consideration for the WDH shares, it was proposed that the principle shareholder of WDH would receive an aggregate of 4,000,000 Units of the Company at a deemed price of $0.25 per Unit. Each Unit would consist of one Class “A” subordinate voting share of the Company and one share purchase warrant exercisable into one Class “A” share at a price of

$0.50 per share for a period of two years from the date of issue.

 

The definitive agreement contemplated under the Letter of Intent has not been entered into and the time to complete such a definitive agreement has lapsed as a result the transaction will not go forward.

 

SELECTED ANNUAL INFORMATION

 

For the years ended August 31st 2016 2017
Sales $Nil $ Nil
Net Loss and Comprehensive Loss ($157,757) ($187,380)
Loss per share ($0.103) ($0.058)
Total Assets $726 $599
Current Liabilities $119,381 $515,624
Total Long Term Debt $ Nil $ Nil
Cash Dividends $ Nil $ Nil
Deficit ($3,712,707) ($3,900,087)

 

RESULTS OF OPERATION AND QUARTERLY RESULTS

Applied Inventions Management Corp. has incurred administrative costs, professional fees and consulting fees associated with preparing and filing annual audited consolidated financial statements, unaudited interim consolidated financial statements and all other regulatory filing requirements and has continued to accrue interest on its secured demand Debenture payable and its interest bearing shareholder loan. Professional fees incurred for the year August 31, 2017 were $51,554 (August 31, 2016 - $91,997). Interest accrued on the secured demand Debenture and shareholder advances was $63,639 (August 31, 2016 - $40,589). Bank charges were $215 during the year ended August 31, 2017 (August 31, 2016 - $236).

 

  2 

 

 

 

  Aug 31 May 31 Feb 28 Nov 30 Aug 31 May 31 Feb 28 Nov 30
  2017 2017 2017 2016 2016 2016 2016 2015
  Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
                 
Total Revenue $ NIL $ NIL $ NIL $NIL $NIL $ NIL $NIL $NIL
                 

Net Loss and

comprehensive

loss

($19,039) ($41,246) ($90,622) ($36,473) ($117,955) ($17,024) ($10,230) ($12,548)
                 
Net Loss per Share ($0.002) ($0.026) ($0.059) ($0.024) ($0.077) ($0.011) ($0.007) ($0.008)

Weighted average

shares outstanding

8,228,034 1,527,774 1,527,774 1,527,774 1,527,774 1,527,774 1,527,774 1,527,774
                 

 

 

LIQUIDITY

The Company has been dependent upon one of its shareholders who is an officer and director of the Company, to provide financing for ongoing administrative expenses and for costs of re-organizing the affairs of the Company. The shareholder, who is an officer and director of the Company, has indicated that he will continue to fund costs anticipated to be approximately $15,000 per annum. However, if the shareholder decides not to fund the ongoing costs, the Company will have to attempt to raise monies to fund ongoing operations from an alternative source. There is no assurance that the Company will be able to raise the required monies at competitive rates to continue operations.

 

As at August 31, 2017 the Shareholder advances payable, which is owing to a principal shareholder who is a director and officer of the Company, was $89,056 (August 31, 2016 - $11,276) including accumulated interest advanced to the Company by the same Shareholder and bears interest at 10% per annum and is secured by a General Security Agreement.

 

FINANCIAL INSTRUMENTS

All financial instruments are recorded initially at fair value. In subsequent periods, all financial instruments are measured based on the classification adopted for the financial instrument: held to maturity, loans and receivables, fair value through profit or loss (“FVTPL”), available for sale, FVTPL liabilities or other liabilities.

 

FVTPL assets and liabilities are subsequently measured at fair value with the change in the fair value recognized in net income (loss) during the period.

 

Held to maturity assets, loans and receivables, and other liabilities are subsequently measured at amortized cost using the effective interest rate method.

 

The Company’s financial assets include cash while the Company’s financial liabilities include accounts payable and accrued liabilities, shareholder advances, subordinate and multiple voting debentures. Classification of these financial instruments is as follows;

 

 

  3 

 

 

 

Financial Instrument Classification
Cash FVTPL
Accounts payable and accrued liabilities Other liabilities
Shareholder advances Other liabilities
Subordinate and multiple voting debentures Other liabilities

 

 

Cash is measured at level 1 of the fair value hierarchy. The Company does not have any financial instruments at level 2 or 3 of the fair value hierarchy. The three levels of the fair value hierarchy are as follows:

 

Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

 

Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

 

FINANCIAL RISK MANAGEMENT- LIQUIDITY RISK

Risk management is the responsibility of management who is of the opinion that the Company is exposed to financial risks as described below. It is managements opinion that the Company is not exposed to significant interest and currency risk.

 

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company minimizes its credit risk by maintaining cash at major banks and financial institutions.

 

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. As at August 31, 2017 the Company had current liabilities of $515,624 (August 31, 2016 - $119,381) and assets of $599 (August 31, 2016 - $726). As a result, the Company has liquidity risk and is dependent on obtaining additional financing to meet its current obligations.

 

CAPITAL RISK MANAGEMENT

The Company considers capital stock and deficit to represent capital. As at August 31, 2017 and August 31, 2016 the Company has a negative capital balance and management’s objective is to maintain its ability to continue as a going concern by identifying sources for additional financing for working capital and to fund the development of a business.

 

The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year August 31, 2017 and August 31, 2016.

 

  4 

 

 

OFF BALANCE SHEET ACTIVITIES

As at August 31, 2017, the Company had no off balance sheet financial commitments and does not anticipate entering into any contracts of such nature.

 

DEBENTURES

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder, who is a director and officer of the Company, and to WFE Investments Corp. (“WFE”), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured subordinate voting debenture in the principal amount of $343,154 to the controlling shareholder and a first secured multiple voting debenture in the principal amount of $302,000 to WFE. The debentures bear interest at a stated rate of 10% per annum. Interest is payable quarterly and the principal amounts outstanding are due on April 27, 2018, the maturity date.

 

The secured subordinate voting debenture and the multiple voting debenture and any unpaid interest thereon are convertible, at the option of the holders into Subordinate Voting Units and Multiple Voting Units respectively at a conversion price of $0.05 per Subordinate Voting Unit or Multiple Voting Unit respectively prior to the maturity date. Each Subordinate Voting Unit and each Multiple Voting Unit will consist of one Class “A” subordinate voting share and one Class “B” multiple voting share respectively and one detachable share purchase warrant. Each warrant shall entitle the holder thereof to acquire one Class “A” subordinate voting share at a price of $0.06 per share until two years from the date of issuance.

 

The fair value of the liability component at the time of issue of $275,046 and $242,060 for the subordinate voting and multiple voting debentures, respectively, was calculated as the discounted cash flows for the convertible debenture assuming a 22% interest rate which was based on the estimated market interest rate for a convertible debenture without a conversion feature. The fair value of the equity component (conversion feature) of $68,108 and $59,940 for the subordinate voting and multiple voting debentures, respectively, was determined at the time of issue as the difference between the fair value of the compound convertible debentures and the fair value of the liability component corresponding to a rate that the Company would have obtained for a similar financing without the conversion option.

 

On May 30, 2017, the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260, Multiple Voting Units, comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable shares purchase warrants (Note 8).

 

  5 

 

 

 

 

 

   Subordinate
Voting
Debenture
  Multiple
Voting
Debenture

 

Principal value of debentures issued

  $343,154   $302,000 
Equity component   (68,108)   (59,940)

 

Liability component at date of issue

   275,046    242,060 
Accretion   12,866    11,324 

 

Liability component at August 31, 2016

  $287,912   $253,384 
Accretion   43,963    28,009 
Conversion   —      (281,393)

 

Liability component at August 31, 2017

  $331,875   $—   

 

 

RELATED PARTY TRANSACTIONS

Transactions with related parties are listed below and incurred in the normal course of business and are measured at the exchange amount:

 

(a)The interest expense of $63,639 (August 31, 2016 - $40,589) is due to the current controlling shareholder who is also a director and officer of the Company. Interest expense of $6,674 (August 31, 2016 - $300) is interest accrued on outstanding shareholder loans that are interest bearing. Interest expense of $56,965 (August 31, 2016 - $22,139) is interest accrued on the outstanding subordinate and multiple voting debentures.

 

(b)As at August 31, 2017 the Company has shareholder loans due to the current controlling shareholder who is also an officer and director of the Company, consisting of a $89,056 (August 31, 2016 - $11,276) advance bearing interest at 10% per annum, both advances being secured by a general security agreement.

 

(c)Included in accounts payable and accrued liabilities is $16,030 (2016 - $24,200) for consulting fees and out of pocket expenses to the principal shareholder, officer of the Company or a company controlled by the controlling shareholder.

 

(d)During the year ended August 31, 2017, the current controlling shareholder who is also a director and officer of the Company forgave $17,900 worth of outstanding payables due to him or a Company controlled by the controlling shareholder.

 

 

  6 

 

 

(e) On May 30, 2017 WFE a company controlled by the controlling shareholder of the Company converted a secured multiple voting debenture into 6,700,260, Multiple Voting Units, at $0.05 per Unit comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable shares purchase warrants totaling $374,346, of which $46,323 was allocated to the share purchase warrants.

 

The conversion was accounted for as the elimination of the multiple voting debenture liability with a transfer of the recorded liability and the equity component of the debenture to capital stock.

 

SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

 

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. The estimates and associated assumptions are based on anticipations and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods. The significant estimates made by management in the preparation of these consolidated financial statements is the inputs used in the valuation of the warrants related to the units issued on the conversion of the multiple voting debentures during the year. The significant judgments made by management in the preparation of these consolidated financial statements are fair value of the liability component related to the subordinate voting debenture and multiple voting debenture issued in prior year and the assumption that the Company will continue as a going concern.

 

CONTROLS AND PROCEDURES

Management is responsible for the design of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with IFRS. Based on a review of its internal control procedures at the end of the period covered by this MD&A, management believes its internal controls and procedures, for the nature and size of the entity, are effective in providing reasonable assurances that financial information is recorded, processed, summarized and reported in a timely manner.

 

Management is also responsible for the design and effectiveness of disclosure controls and procedures to provide reasonable assurance that material information related to the Company, is made known to the Company’s certifying officers. Management has evaluated the effectiveness of the Company’s disclosure controls and procedures and has concluded that these controls and procedures are effective, for the nature and size of the entity, in providing reasonable assurance that material information relating to the Company is made known to them by others within the Company.

 

  7 

 

 

OUTSTANDING SHARE DATA

Common Shares

 

As at August 31, 2017 the Company had 388,435 (August 31, 2016 - 388,435) Class “A” Subordinate Voting Shares and 7,839,599 (August 31, 2016 -1,139,339) Class “B” Multiple Voting Shares issued and outstanding.

 

On May 30, 2017 the multiple voting debenture and accrued interest of $33,013 were converted into 6,700,260 Multiple Voting Units, comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable shares purchase warrants.

 

Stock Options and share purchase warrants

The Company’s stock option plan provides options that can be exercised for a maximum of 10% of the issued and outstanding Class “A” Subordinate Voting Shares and a maximum of 10% of the issued and outstanding Class “B” Multiple Voting Shares on the date of grant.

 

On April 29, 2016, 150,000 options to purchase Class “A“ shares were granted pursuant to the Company’s stock option plan to directors of the Company. The options were fully vested at the date of granting, have an exercise price of $0.05 per share and expire on April 29, 2021.

 

On May 30, 2017, 6,700,200 Class “A” detachable share purchase warrants were issued. Each warrant shall entitle the holder to acquire one Class “A” subordinate voting share at $0.06 per share until two years from date of issue.

 

SUBSQUENT EVENT

 

Proposed Transaction

 

On September 29, 2017, the Company entered into an exclusivity agreement (the “Exclusivity Agreement”) to complete a business combination with a third party (the “Target”), resulting in a reverse takeover of the Company (the “Proposed Transaction”). During the exclusivity period which expires on December 31, 2017, the parties have agreed to negotiate a binding agreement to complete the Proposed Transaction. As part of the Exclusivity Agreement the Target has agreed to pay certain expenses of the Company during the exclusivity period. There is no guarantee that the parties will be able to negotiate a mutually acceptable binding agreement or successfully complete the Proposed Transaction.

 

Stock Options

 

On October 27, 2017, the Company granted 600,000 options to its directors with an exercise price of $0.05 and an expiry date of October 27, 2022.

 

  8 

 

 

OFFICERS AND DIRECTORS

As at August 31, 2017 the officers and directors of the Company include:

 

Michael Stein - President and Director
   
Gabriel Nachman FCPA, FCA - Acting CFO, Director and Chair of Audit Committee
   
Nicholas Hariton - Director
   
Barry Polisuk - Director

 

 

 

ADDITIONAL INFORMATION

Additional information relating to the Company is available:

 

On the Internet at the SEDAR website at www.sedar.com or,
By contacting Michael Stein at 416-816-9690

 

  9 
(Back To Top)

Section 9: EX-99.8 (CERTIFICATION OF ANNUAL FILINGS VENTURE ISSUER BASIC CERTIFICATE BY CEO DATED DECEMBER 4, 2017)

Exhibit 99.8

 

 

(Back To Top)

Section 10: EX-99.9 (CERTIFICATION OF ANNUAL FILINGS VENTURE ISSUER BASIC CERTIFICATE BY ACTING CFO DATED DECEMBER 4, 2017)

Exhibit 99.9

 

 

(Back To Top)

Section 11: EX-99.10 (UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2017)

Exhibit 99.10 

 

 

 

 

 

 

 

 

 

 

APPLIED INVENTIONS MANAGEMENT CORP.

 

Unaudited Interim Consolidated Financial Statements

 

For the three-month period ended November 30, 2017

(Expressed in Canadian Dollars)

 

 

 

 

 

 

 

 

 

 

 

 
 

 

Applied Inventions Management Corp.

November 30, 2017 Unaudited

 

 

 

Notice to Reader

 

Pursuant to National Instrument 51-102, Part 4, subsection 4.3(3)(a) issued by the Canadian Securities Administrators, if the auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by the auditor.

 

The accompanying unaudited interim consolidated financial statements of the Company for the interim periods ended November 30, 2017 and November 30, 2016, have been prepared in accordance with International Financial Reporting Standards and are the responsibility of the Company’s management.

 

The Company’s independent auditors, RSM Canada LLP, have not performed a review of the interim consolidated financial statements for the interim periods ended and as at November 30, 2017 and November 30, 2016 in accordance with the standards established by the Canadian Institute of Chartered Professional Accountants for a review of interim financial statements by an entity’s auditor.

 

 

 

 

 

 

 

  2 
 

 

 

Applied Inventions Management Corp.

November 30, 2017

Unaudited 

 

 

CONTENTS

 

   Page
Unaudited Interim Consolidated Financial Statements:     
      
Balance Sheets   4 
      
Statements of Loss and Comprehensive Loss   5 
      
Statements of Changes in Equity   6 
      
Statements of Cash Flows   7 
      
Notes to Financial Statements   8 - 11 

 

 

 

 

 

 

  3 
 

 

Applied Inventions Management Corp.

Unaudited Interim Consolidated Balance Sheets

(Expressed in Canadian Dollars)

 

As at  November 30,  August 31,
   2017  2017
      (Audited)
       
Assets          
           
Current          
Cash          
Professional fees and expense recovery (Note 6b)  $567   $599 
    11,938    —   
   $12,505   $599 
Liabilities          
           
Current          
Account payable and accrued liabilities  $106,043   $94,693 
Shareholder advances - interest bearing (Note 5b))   94,022    89,056 
Subordinate voting debenture (Note 3b))   344,652    331,875 
   $544,717   $515,624 
           
Shareholder’s deficiency          
           
Capital stock (Note 4)  $2,520,946   $2,520,946 
           
Equity portion of convertible debenture (Note 3b))   68,108    68,108 
           
Warrant capital   46,323    46,323 
           
Contributed surplus   749,685    749,685 
           
Deficit   (3,917,274)   (3,900,087)
   $(532,212)  $(515,025)
   $12,505   $599 

 

 

Nature of Business and Going Concern (Note 1)

 

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

 

¨Michael Stein¨   ¨Gabriel Nachman¨
Director (signed)   Director (signed)

 

 

  4 
 

 

Applied Inventions Management Corp.

Unaudited Interim Consolidated Statement of Loss and Comprehensive Loss

(Expressed in Canadian Dollars)

 

 

   Three months ended
       
    November 30,    November 30, 
    2017    2016 
           
Expenses          
Interest - debenture accretion and          
shareholder advances  $23,602   $35,177 
         —   
Professional fees and expense recovery (Note 6b)   (11.938)     
Professional fees   5,491    1,217 
Bank charges   32    79 
Net Loss and Comprehensive Loss  $17,187   $36,473 
           
           
Loss per share          
Basic and fully diluted  $0.002   $0.024 
           
           
Weighted average shares outstanding   8,228,034    1,527,774 

 

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

 

 

 

 

 

 

 

  5 
 

Applied Inventions Management Corp.

Unaudited Interim Consolidated Statement of Changes in Equity

(Expressed in Canadian Dollars)

 

 

As at  November 30,  November 30,
   2017  2016
       
Capital Stock          
           
Balance, beginning of year  $2,520,946   $2,192,923 
Conversion of convertible debenture and accretion interest        —    
Balance, end of period  $2,520,946    2,192,923 
           
Contributed Surplus          
Balance, beginning of year  $749,685   $731,040 
Balance, end of period  $731,785   $731,040 
           
Equity Component of Convertible Debentures          
           
Balance, beginning of year  $68,108   $128,048 
Adjustment of equity component on conversion of convertible debenture (Note 4b))        —   
Equity component of convertible debentures (Note 3b))   —        
Balance, end of period  $68,108   $128,048 
           
           
Warrant capital          
           
Balance, beginning of year  $46,323    —   
Issue of warrants and conversion of convertible          
Debenture (Note 4b))   —      —   
Balance, end of period  $46,323    —   
           
           
Deficit          
Balance, beginning of year  $(3,900,087)  $(3,712,707)
Net Loss and Comprehensive Loss for the period   (17,187)   (36,473)
Balance, end of period   (3,917,274)   (3,749,180)
           
           
Shareholders’ Equity          
           
Balance, beginning of year  $(515,025)  $(659,951)
Conversion of convertible debenture   —      —   
Adjustment of equity component of convertible debenture   —      —   
Issue of warrants          
Net Loss and Comprehensive Loss for the period   (17,187)   (36,473)
Balance, end of period  $(532,212)  $(696,424)

 

 

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

 

 

  6 
 

Applied Inventions Management Corp.

Unaudited Interim Consolidated Statement of Cash Flows

(Expressed in Canadian Dollars)

 

 

   November 30,  November 30,
For the three months ended  2017  2016
       
CASH FLOWS FROM OPERATING ACTIVITIES          
           
Net loss and comprehensive loss  $(17,187)  $(36,473)
Interest and accretion accrued   23,602    35,177 
    6,415    (1,296)
Working capital adjustment:          
           
Increase (decrease) in accounts payable and accrued liabilities   2,795    (10,017)
Increase in Professional fees and expense recovery   (11,938)   —   
Net cash flows used in operating activities   (2,728)   (13,313)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Advances from shareholder   2,696    11,334 
Net cash flows generated from financing activities   2,696    11,334 
           
NET (DECREASE) INCREASE IN CASH AND CASH   (32)   21 
EQUIVALENTS          
           
Cash and cash equivalents, beginning of the year   599    726 
           
Cash and cash equivalents, end of the period  $567   $747 

 

 

 

 

 

 

 

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

 

  7 
 

 

Applied Inventions Management Corp.

Notes to Unaudited Interim Consolidated Financial Statements

November 30, 2017

(Expressed in Canadian Dollars)

 

1.NATURE OF BUSINESS GOING CONCERN

 

On August 29, 2014, the Company filed articles of amendment changing its name from Applied Inventions Management Inc. to Applied Inventions Management Corp.

 

Applied Inventions Management Corp. (the "Company") is incorporated under the laws of the Province of Ontario.

 

These unaudited consolidated interim financial statements have been prepared on a going concern basis which assumes that the Company will realize its net assets and discharge its liabilities in the normal course of business. The Company has minimal assets. Without financial support from directors or shareholders, the Company will not be able to discharge its liabilities in the normal course of business and there are material uncertainties related to adverse conditions and events that cast significant doubt on the Company’s ability to continue as a going concern. The Company carries on the business of identification and evaluation of assets or businesses with a view to completing a potential acquisition.

 

The registered office of the Company is located at 1 Adelaide Street East, Suite 801, Toronto, Ontario M5C 2V9.

 

The board of directors of the Company approved these unaudited interim consolidated financial statements on January 29, 2018

 

2.SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURE

 

These unaudited consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are in compliance with IAS 34, Interim Financial Reporting.

 

These unaudited interim consolidated financial statements do not include all disclosures normally provided in annual financial statements for the year ended August 31, 2017. In management's opinion, the unaudited interim consolidated financial information includes all the adjustments necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the year. The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited annual financial statements for the year ended August 31, 2017 in accordance with International Financial Reporting Standards.

 

These unaudited interim consolidated financial statements are presented in Canadian dollars, which is the Company’s functional and reporting currency.

 

3.SHAREHOLDER ADVANCES AND DEBT SETTLEMENT

 

 

a)Shareholder Advances

 

Shareholder advances, principal plus accrued interest, include advances made by the shareholder on behalf of the Company since September 1, 2009. The advances bear interest at the rate of 10% per annum, are calculated on a monthly basis, are secured by a general security agreement and have no specified terms of repayment.

 

  8 
 

 

Applied Inventions Management Corp.

Notes to Unaudited Interim Consolidated Financial Statements

November 30, 2017

(Expressed in Canadian Dollars)

 

 

b)Debt Settlement - Voting Debentures

 

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder who is a director and President of the Company, and to WFE Investments Corp. (“WFE”), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured Subordinate Voting Debenture in the nominal principle amount of $343,154 to the controlling shareholder and a first secured Multiple Voting Debenture in the nominal principle amount of $302,000 to WFE. The debentures bear interest at a stated rate of 10% per annum. Interest is payable quarterly and the principle amounts outstanding are due on April 27, 2018, the maturity date.

 

The secured Subordinate Voting Debenture and the Multiple Voting Debenture and any unpaid interest thereon are convertible, at the option of the holders into Subordinate Voting Units and Multiple Voting Units respectively at a conversion price of $0.05 per Subordinate Voting Unit or Multiple Voting Unit respectively prior to the maturity date. Each Subordinate Voting Unit and each Multiple Voting Unit will consist of one Class “A” subordinate voting share and one Class “B” multiple voting share respectively and one detachable share purchase warrant. Each warrant shall entitle the holder thereof to acquire one Class “A” subordinate voting share at a price of $0.06 per share until two years from the date of issuance.

 

The fair value of the liability component at the time of issue of $275,046 and $242,060 for the Subordinate Voting and Multiple Voting Debentures respectively, was calculated as the discounted cash flows for the convertible debenture assuming a 22% interest rate which was based on the estimated market interest rate for a convertible debenture without a conversion feature. The fair value of the equity component (conversion feature) of $68,108 and $59,940 for the subordinate voting and multiple voting debentures, respectively, was determined at the time of issue as the difference between the fair value of the compound convertible debentures and the fair value of the liability component corresponding to a rate that the Company would have obtained for a similar financing without the conversion option.

 

On May 30, 2017, the Multiple Voting Debenture and accrued interest were converted into 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class ”A” detachable share purchase warrants.

 

 

   Subordinate Voting  Multiple Voting
   Debenture  Debenture
Nominal value of debentures issued  $343,154   $302,000 
Equity Component   (68,108)   (59,940)
Liability component at date of issue  $275,046   $242,060 
           
Accretion   69,606    39,333 
Conversion   —      281,393 
Liability component at November 30, 2017  $344,652   $—   

 

 

 

 

4.CAPITAL STOCK

 

a)Authorized:

 

Unlimited Class "A" Subordinate Voting Shares, convertible into an equal number of Class “B” shares at the option of the holder upon an offer to purchase all or substantially all of the Class “B” shares of the Company;

 

Unlimited Class "B" Multiple Voting (20 votes per share) Shares, convertible into an equal number of Class “A” Shares at the option of the holder;

 

  9 
 

 

Applied Inventions Management Corp.

Notes to Unaudited Interim Consolidated Financial Statements

November 30, 2017

(Expressed in Canadian Dollars)

 

Unlimited Class "C" Preference Shares.

 

b)Issued and outstanding:

 

 

   November 30, 2017  August 31, 2017
   Number of  Amount  Number of  Amount
   Shares     Shares   
             
Class “A” Subordinate Voting Shares   388,435   $1,106,187    388,435   $1,106,187 
Class “B” Multiple Voting Shares   7,839,599    1,414,759    7,839,599    1,414,759 
                     
    8,228,034   $2,471,509    8,228,034   $2,520,946 

 

 

c)Stock Options

 

On April 26, 2016, 150,000 options to purchase Class “A” shares were granted under the Company’s stock option plan to directors of the Company. The options were fully vested at the date of granting, have an exercise price of $0.05 per share and expire on April 29, 2021. The fair value of these stock purchase options granted was determined, at the time of grant using the Black-Scholes option pricing model, to be $745 (see Note 7 of the Company’s audited consolidated statements as at August 31, 2017).

 

d)   On October 27, 2017, the Company granted 600,000 options to its directors with an exercise price of $0.05 and an expiry date of October 27, 2022

 

 

5.RELATED PARTY TRANSACTIONS

 

 

a)The interest expense of $23,602 (2016 - $35,177) is due to the current controlling shareholder who is also a director and officer of the Company. Interest expense of $2,270 (2016 - $382) is interest accrued on outstanding shareholder advances that are interest bearing. Interest expense of $8,555 (2016 - $16,084) is interest accrued on the outstanding Subordinate and Multiple Voting Debentures.

 

b)As at November 30, 2017 the Company has Shareholder Loans due to the current controlling shareholder who is also an officer and director of the Company of a $94,022 (August 31, 2017 - $89,056) bearing interest at 10% per annum secured by a general security agreement.

 

On April 27, 2016, the Company agreed to settle an aggregate of $645,154 of indebtedness owing to the controlling shareholder who is a director and officer of the Company, and to WFE Investments Corp. (“WFE”), a company controlled by the controlling shareholder of the Company, in exchange for the Company issuing a first secured Subordinate Voting Debenture in the principal amount of $343,154 to the controlling shareholder and a first secured Multiple Voting Debenture in the principal amount of $302,000 to WFE (Note 3b).

 

On May 30, 2017 WFE a company controlled by the controlling shareholder of the Company converted a secured Multiple Voting Debenture into 6,700,260, Multiple Voting units, at $0.05 per unit comprising 6,700,260 Class “B” Multiple Voting Shares and 6,700,260 Class “A” detachable share purchase warrants totaling $335,013.

 

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Applied Inventions Management Corp.

Notes to Unaudited Interim Consolidated Financial Statements

November 30, 2017

(Expressed in Canadian Dollars)

 

The conversion was accounted for as the elimination of the Multiple Voting Debenture liability with a transfer of the recorded liability and the equity component of the debenture to be paid in value of the Class “B” Multiple Voting Shares and detachable share purchase warrants (Note 3b).

 

 

(c)  Included in accounts payable and accrued liabilities is $16,030 (August 31, 2017 - $24,200) related to the reimbursement of expenses and fees owed to an officer, director and current controlling shareholder.

 

 

6.EXCLUSIVITY AGREEMENT

 

a)On September 29, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) to complete a business combination with a third party (the “Target”), resulting in a reverse takeover of the Company (the “Proposed Transaction”). During the exclusivity period which expires on December 31, 2017, the parties have agreed to negotiate a binding agreement to complete the Proposed Transaction. As part of the Exclusivity Agreement the Target has agreed to pay certain expenses of the Company during the exclusivity period. There is no guarantee that the parties will be able to negotiate a mutually acceptable binding agreement or successfully complete the Proposed Transaction.

 

Subsequent to the period end, the Exclusivity Agreement has expired however, negotiations continues with the third party.

 

b)Professional fees and expenses incurred by the Company amounting to $ 11,938 (2016- $nil) with respect to the potential transaction are recoverable which have now been paid.

 

 

 

 

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Section 12: EX-99.11 (MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 2017 AND 2016)

Exhibit 99.11 

 

APPLIED INVENTIONS MANAGEMENT CORP.

Management Discussion and Analysis of Financial Conditions and Results of Operations for the three month periods ended November 30, 2017 & 2016

This Management Discussion and Analysis (M.D. & A.) should be read in conjunction with Applied Inventions Management Corp.’s (the “Company”) consolidated annual audited financial statements and the accompanying notes thereto which have been prepared in accordance with International Financial Reporting Standards (IFRS) in Canada. All monetary amounts are expressed in Canadian dollars. Additional information regarding the Company is available on the SEDAR website at www.sedar.com

 

FORWARD - LOOKING INFORMATION

The M. D. & A. and analysis and other sections of this report contain forward-looking statements. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause results to differ materially from those contemplated by these forward-looking statements. Management considers the assumptions on which these forward-looking statements are reasonable at the time the statements were prepared, but cautions the reader that they could cause actual results to differ materially from those anticipated.

DATE OF M. D. & A.

This M. D. & A. was prepared on January 29, 2018.

 

GENERAL OVERVIEW

On August 29, 2014, the Company filed articles of amendment changing its name from Applied Inventions Management Inc. to Applied Inventions Management Corp

 

A cease trade order (“CTO”) was imposed on the Company by the Ontario Securities Commission on February 20, 2001 for failure to file its annual audited consolidated financial statements for the year ended August 31, 2000 and interim unaudited consolidated financial statements for the three month period ended November 30, 2000. These consolidated financial statements were subsequently filed on Sedar by the Company.

On August 27, 2011, the Ontario Securities Commission issued a Revocation Order of the CTO. The Company is now seeking to complete a transaction that would allow the reinstatement of trading privileges on a recognized stock exchange.

Prior to 2002, the Company manufactured, marketed and distributed the SAVE swimming pool intrusion alarm.

The Company is in the process of reorganizing its affairs.

 

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SELECTED ANNUAL INFORMATION

 

For the years ended August 31st 2016 2017
Sales $Nil $ Nil
Net Loss and Comprehensive Loss ($157,757) ($187,380)
Loss per share ($0.103) ($0.058)
Total Assets $726 $599
Current Liabilities $119,381 $515,624
Total Long Term Debt $ Nil $ Nil
Cash Dividends $ Nil $ Nil
Deficit ($3,712,707) ($3,900,087)

 

 

 

RESULTS OF OPERATION AND QUARTERLY RESULTS

Applied Inventions Management Corp. has incurred administrative costs, professional fees and consulting fees associated with preparing and filing annual audited consolidated financial statements, unaudited interim consolidated financial statements and all other regulatory filing requirements and has continued to accrue interest on its interest bearing shareholder advances and its Multiple and Subordinate Voting Debentures. Professional fees incurred for the three month period November 30, 2017 were $5,491 (November 30, 2016 - $1,217). Interest accrued on the secured demand Debenture, and shareholder advances was $23,602 (November 30, 2016 - $35,177). Bank charges were $32 during the three month period ended November 30, 2017 (November 30, 2016 - $79).

 

  Nov 30 Aug 31 May 31 Feb 28 Nov 30 Aug 31 May 31 Feb 28
  2017 2017 2017 2017 2016 2016 2016 2016
  Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Total Revenue $ NIL $ NIL $ NIL $ NIL $ NIL $ NIL $ NIL $ NIL

Net Loss and comprehensive

loss

($17,187) ($19,039) ($41,246) ($90,622) ($36,473) ($117,955) ($17,024) ($10,230)

Net Loss per

Share

($0.002) ($0.002) ($0.026) ($0.059) ($0.024) ($0.077) ($0.011) ($0.007)

Weighted average shares

outstanding

8,228,034 8,228,034 1,527,774 1,527,774 1,527,774 1,527,774 1,527,774 1,527,774
                 

 

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LIQUIDITY

The Company has been dependent upon one of its shareholders who is an officer and director of the Company, to provide financing for ongoing administrative expenses and for costs of re- organizing the affairs of the Company, subject to expense recoveries pursuant to the exclusivity agreement described herein. The shareholder, who is an officer and director of the Company, has indicated that he will continue to fund costs anticipated to be approximately $15,000 per annum. However, if the shareholder decides not to fund the ongoing costs, the Company will have to attempt to raise monies to fund ongoing operations from an alternative source. There is no assurance that the Company will be able to raise the required monies at competitive rates to continue operations.

As at November 30, 2017, Shareholder advances payable which is owing to a principal shareholder who is also a director and officer of the Company was $94,022 (August 31, 2017 - $89,056) including accumulated interest advanced to the Company by the same Shareholder and bears interest at 10% per annum and is secured by a General Security Agreement.

FINANCIAL INSTRUMENTS

All financial instruments are recorded initially at fair value. In subsequent periods, all financial instruments are measured based on the classification adopted for the financial instrument: held to maturity, loans and receivables, fair value through profit or loss (“FVTPL”), available for sale, FVTPL liabilities or other liabilities.

 

FVTPL assets and liabilities are subsequently measured at fair value with the change in the fair value recognized in net income (loss) during the period.