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Nexe Innovations Inc. — Audit Report / Information 2020
Mar 3, 2021
47866_rns_2021-03-02_5557fb8c-55d2-4aec-a6d9-fdcf7a814297.pdf
Audit Report / Information
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NEXE Innovations Inc.
(formerly Whatcom Capital Corp.)
Consolidated Financial Statements
For the year ended October 31, 2020 and for the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
SHIM & Associates LLP Chartered Professional Accountants Suite 970 – 777 Hornby Street Vancouver, B.C. V6Z 1S4 T: 604 559 3511 | F: 604 559 3501
SHIM & Associates LLP S H I M
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Opinion
We have audited the accompanying consolidated financial statements of NEXE Innovations Inc. (formerly Whatcom Capital Corp.) (the “Company”), which comprise the consolidated statements of financial position as at 31 October 2020 and 2019, and the consolidated statements of net and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended 31 October 2020 and for the period from the date of incorporation on September 19, 2019 to October 31, 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at 31 October 2020 and 2019, and its financial performance and cash flows for the year ended 31 October 2020 and for the period from the date of incorporation on September 19, 2019 to October 31, 2019 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 of the financial statements, which indicates that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises the information included in the Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
SHIM & Associates LLP Chartered Professional Accountants
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
-
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
-
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
-
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
-
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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Obtain sufficient appropriate audit evidence regarding the consolidated financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Dong H. Shim.
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CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada 1 March 2021
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
| October 31, 2020 |
October 31, 2019 |
|---|---|
| Assets Current Cash (Note 4) $ 633,008 Amounts receivable 7,667 Prepaids 150 |
$ 124,383 - - |
| Total Assets 640,825 |
124,383 |
| Liabilities Current Accounts payable and accrued liabilities 17,150 Due to related party (Note 6) 13,125 |
5,925 - |
| Total Liabilities 30,275 |
5,925 |
| Shareholders’ Equity Share capital (Note 5) 780,134 Contributed Surplus (Note 5) 49,145 Deficit (218,729) |
125,000 - (6,542) |
| Total Shareholders’Equity 610,550 |
118,458 |
Total Liabilities and Shareholders’Equity $ 640,825 |
$ 124,383 |
Nature of Operations and Going Concern (Note 1) Subsequent Events (Note 9)
Approved and authorized for issuance on behalf of the Board of Directors on March 1, 2021 by:
/s/ Darren Footz /s/ Ash Guglani Darren Footz, Director Ash Guglani, Director
The accompanying notes are an integral part of these consolidated financial statements
2
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Consolidated Statements of Net and Comprehensive Loss
(Expressed in Canadian dollars)
| Year ended October 31, September 19, 2019 (Incorporation) to October 31, 2020 $ 2019 $ |
Year ended October 31, September 19, 2019 (Incorporation) to October 31, 2020 $ 2019 $ |
|---|---|
| General and Administration Expenses Bank fees and interest 286 Office and general 2,290 Filing fees 39,633 Professional fees 127,596 Rent 10,000 Share-based compensation 29,560 Transferagent andlisting 2,822 |
134 483 - 5,925 - - - |
| Net and Comprehensive Loss (212,187) |
(6,542) |
| Net loss per share, basic and diluted (0.09) |
- |
| Weighted average shares outstanding, basic and diluted 2,241,096 |
- |
The accompanying notes are an integral part of these consolidated financial statements
3
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Consolidated Statement of Changes in Shareholders’ Equity (Expressed in Canadian dollars)
| Common Shares | Common Shares | |||||
|---|---|---|---|---|---|---|
| Number of | Contributed | |||||
| Shares | Amount | Surplus | Deficit | Equity | ||
| Balance, September 19, 2019 | ||||||
| (Date of Incorporation) | - $ | - | $ | - $ | - $ | - |
| Shares issued for cash (Note 5) | 1,000,000 | 125,000 | - | - | 125,000 | |
| Net loss for the period | - | - | - | (6,542) | (6,542) | |
| Balance, October 31, 2019 | 1,000,000 $ | 125,000 | $ | - $ | (6,542) $ | 118,458 |
| Shares issued for cash (Note 5) | 3,000,000 | 750,000 | - | - | 750,000 | |
| Share issue costs (Note 5) | - | (94,866) | 19,585 | - | (75,281) | |
| Share-based compensation (Note 5) | - | - | 29,560 | - | 29,560 | |
| Net loss for the period | - | - | - | (212,187) | (212,187) | |
| Balance, October 31, 2020 | 4,000,000 $ | 780,134 | $ | 49,145 $ | (218,729) $ | 610,550 |
The accompanying notes are an integral part of these consolidated financial statements
4
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
| September 19, | |||
|---|---|---|---|
| 2019 | |||
| Year ended | (Incorporation) | ||
| October 31, | to October 31, | ||
| 2020 | 2019 | ||
| Cash Flows from Operating Activities | |||
| Net loss for the period | $ | (212,187) $ | (6,542) |
| Items not affecting cash: | |||
| Share-based compensation | 29,560 | - | |
| Changes in non-cash working capital items | |||
| Increase in amounts receivable | (7,667) | - | |
| Increase in prepaids | (150) | - | |
| Increase in accounts payable and accrued liabilities | 11,225 | 5,925 | |
| Increase in due to related party | 13,125 | - | |
| Net cash used in operating activities | (166,094) | (617) | |
| Cash Flows from Financing Activities | |||
| Issuance of common shares, net of share issue costs | 674,719 | 125,000 | |
| Net cash provided by financing activities | 674,719 | 125,000 | |
| Change in Cash During the Period | 508,625 | 124,383 | |
| Cash, Beginning of Period | 124,383 | - | |
| Cash, End of Period | $ | 633,008 $ | 124,383 |
| Cash Paid During the Period for Interest | $ | -$ | - |
| Cash Paid During the Period for Income Taxes | $ | -$ | - |
The accompanying notes are an integral part of these consolidated financial statements
5
NEXE Innovations Inc. (formerly Whatcom Capital Corp.) Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
NEXE Innovations Inc. (formerly Whatcom Capital Corp.) (“Whatcom” or the “Company”) was incorporated under the Business Corporations Act (British Columbia) on September 19, 2019. The Company was classified as a Capital Pool Company (“CPC”). On December 15, 2020, the Company completed a Qualifying Transaction with NEXE Innovations Inc. (“NEXE”), a private British Columbiabased advanced materials company which has developed a fully compostable (plant-based) singleserve coffee pod for use in Keurig Brewing Systems (Note 9). The registered and head office of the Company is located at 750-1095 West Pender Street, Vancouver, B.C. V6E 2M6.
During the year ended October 31, 2020, the Company filed a prospectus dated January 17, 2020, an amended and restated prospectus dated April 3, 2020 and an amended and restated prospectus dated April 29, 2020 with the securities regulatory authorities in the provinces of British Columbia, Alberta, Saskatchewan and Ontario. On June 2, 2020, the Company completed its initial public offering (“IPO”) of 3,750,000 common shares of the Company at a price of $0.10 per share for aggregate gross proceeds of $375,000. The Shares were listed on June 2, 2020 on the TSX Venture Exchange (the “Exchange”) and commenced trading on the Exchange under the trading symbol “WHAT.P”.
Effective December 15, 2020, the Company completed the RTO with Nexe Innovations Inc. and its common shares, common share purchase warrants and share purchase options were consolidated on a 2.5 for 1 basis. This consolidation has been reflected in the reporting period and comparable period of the consolidated financial statements. See Subsequent Events note.
These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. As at October 31, 2020 the Company has not generated any revenues from operations and has an accumulated deficit of $218,729 (October 31, 2019 - $6,542). The Company expects to incur further losses in the development of its business, all of which casts significant doubt about the Company’s ability to continue as a going concern. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. Management is of the opinion that sufficient working capital will be obtained from external financing to meet the Company’s liabilities and commitments as they become due, although there is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company. These consolidated financial statements do not reflect any adjustments to the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used that may be necessary if the Company is unable to continue as a going concern.
COVID-19
On March 11, 2020, the World Health Organization declared the global outbreak of COVID-19 a pandemic. During this time, the Company has been actively responding to the pandemic. The Company is doing its part in managing the current ongoing crisis within the local community, and is taking a careful approach at managing its business and shifting much of the Company’s activities from the physical office setting to taking place remotely through telecommuting. The Company does not believe COVID-19 will have any material impact to the Company’s operations at this time.
6
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
2. BASIS OF PRESENTATION
Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretation Committee.
Basis of Preparation
The consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency. The consolidated financial statements are prepared on a historical cost basis except for financial instruments classified as fair value through profit or loss ("FVTPL"), which are stated at their fair value. The accounting policies have been applied consistently throughout the entire period presented in these consolidated financial statements.
Basis of consolidation
Consolidated financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of comprehensive loss from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control exists.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, 1260350 B.C. LTD., a company incorporated in British Columbia, Canada.
Significant Accounting Judgments, Estimates and Assumptions
The preparation of 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 further periods if the review affects both current and future periods. There have been no significant judgments made by management in the application of IFRS that have a significant effect on these consolidated financial statements.
7
NEXE Innovations Inc. (formerly Whatcom Capital Corp.) Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards within the framework of the significant accounting policies described below:
Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
i) Financial assets
The Company adopted IFRS 9, Financial Instruments, on its incorporation. IFRS 9 replaces International Accounting Standards (IAS) 39, Financial Instruments: Recognition and Measurement.
Classification
The Company classifies its financial assets in the following measurement categories:
-
those to be measured subsequently at fair value (either through other comprehensive income (OCI) or through profit or loss); and
-
those to be measured at amortized cost.
The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses are either recorded in profit or loss or OCI.
At present, the Company classifies all financial assets as held at amortized cost. Cash is classified as a financial asset.
8
NEXE Innovations Inc. (formerly Whatcom Capital Corp.) Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Subsequent measurement of financial assets depends on their classification. There are three measurement categories under which the Company classifies its financial assets:
-
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included as finance income using the effective interest rate method.
-
Fair value through OCI (FVOCI): Debt instruments that are held for collection of contractual cash flows and for selling the debt instruments, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains and losses, interest revenue, and foreign exchange gains and losses which are recognized in profit or loss. When the debt instrument is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains (losses). Interest income from these debt instruments is included as finance income using the effective interest rate method.
-
Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on an investment that is subsequently measured at FVTPL is recognized in profit or loss and presented net as revenue in the statement of loss and comprehensive loss in the period in which it arises.
i) Financial liabilities
A financial liability is classified as at FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: where the Company optionally designates financial liabilities at FVTPL the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.
Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
At present, the Company classifies all of its financial liabilities as held at amortized cost. These financial liabilities are classified as current liabilities as the payment is due within 12 months.
9
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities.
A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Deferred Taxes
Deferred tax assets and liabilities are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that substantive enactment occurs.
A deferred tax asset is recognized 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, the deferred tax asset is reduced.
4. CASH RESTRICTION
The proceeds raised from the issuance of common shares may only be used to identify and evaluate assets or businesses for future investment, with the exception that not more than the lesser of 30% of the gross proceeds from the issuance of shares or $210,000 may be used to cover prescribed costs of issuing the common shares or administrative and general expenses of the Company.
These restrictions were applicable only until the completion of a Qualifying Transaction by the Company as detailed in Note 9.
5. SHARE CAPITAL
Authorized share capital
Unlimited Class A Common Shares without par value; and Unlimited Class B Preferred Shares without par value
Share issuances
On September 19, 2019, the Company issued 800,000 common shares at $0.125 per share to the directors of the Company for proceeds of $100,000.
On September 30, 2019, the Company completed a financing by issuing 200,000 common shares at $0.125 per share for proceeds of $25,000.
10
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
5. SHARE CAPITAL (Cont'd)
On June 2, 2020, the Company completed its initial public offering (“IPO”) and issued 1,500,000 common shares at a price of $0.25 per share for aggregate gross proceeds of $375,000. Industrial Alliance Securities Inc. (the “Agent”) acted as exclusive agent in respect of the IPO on a best efforts basis. Pursuant to the IPO, the Agent received a cash commission of $37,500 and an aggregate of 150,000 non-transferable warrants (“Agent Warrants”) entitling the Agent and members of its selling group to purchase 150,000 common shares of the Company at $0.25 per share at any time until June 2, 2022. The Agent also received a corporate finance fee of $22,123.
The fair value of the 150,000 Agent Warrants was $19,585 and was estimated using the BlackScholes pricing model with the following assumptions:
| Risk free interest rate | 0.372% |
|---|---|
| Expected life | 2 years |
| Expected volatility | 100% |
| Expected dividends | 0% |
Concurrently with the closing of the IPO, the Company completed a non-brokered private placement and issued 1,500,000 common shares at a price of $0.25 per common share for aggregate gross proceeds of $375,000.
A total of 1,000,000 of the Company’s issued and outstanding common shares are subject to a CPC Escrow Agreement. Under the CPC Escrow Agreement, 10% of the escrowed common shares will be released from escrow on the issuance of the Final Exchange Bulletin (the “Initial Release”) and an additional 15% will be released on the dates 6, 12, 18, 24, 30 and 36 months following the Initial Release. All common shares acquired on the exercise of stock options granted to directors, officers and non-employees prior to the completion of a qualifying transaction must also be deposited in escrow until the Final Exchange Bulletin is issued. In addition, all common shares of the Company acquired in the secondary market prior to the completion of a qualifying transaction by any person or company who becomes a control person are required to be deposited in escrow. Subject to certain exemptions permitted by the Exchange, all securities of the Company held by principals of the resulting issuer will also be escrowed.
11
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
6. SHARE CAPITAL (Cont'd)
Warrants
The following table summarizes warrant transactions:
| Number of | Weighted average | |||
|---|---|---|---|---|
| warrants | exercise price | |||
| $ | ||||
| Outstanding, October | 31, | 2019 | - | - |
| Issued | 150,000 | 0.25 | ||
| Outstanding,October | 31, | 2020 | 150,000 | 0.25 |
The following table summarizes the warrants outstanding and exercisable as at October 31, 2020:
| Exercise price | Number of warrants | Exercisable | Expiry date |
|---|---|---|---|
| $0.25 | 150,000 | - | June 2,2022 |
The weighted average remaining useful life of outstanding warrants is approximately 1.6 years as at October 31, 2020.
Stock Options
On November 12, 2019, the Company adopted an incentive stock option plan (the “Option Plan”) which allows the Company’s Board of Directors, at its discretion and in accordance with TSX Venture Exchange requirements, to grant non-transferable options to purchase common shares to its directors, officers, employees and technical consultants to the Company. The number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares. Such options will be exercisable for a period of up to ten years from the date of grant and vesting terms will be determined at the time of grant by the Board of Directors.
On June 2, 2020, the Company granted 160,000 stock options to a director and officer of the Company. The stock options are exercisable at $0.25 per share and expire on June 2, 2025. The fair value of the 160,000 stock options was $29,560 and was estimated using the Black-Scholes pricing model with the following assumptions:
| Risk free interest rate | 0.372% |
|---|---|
| Expected life | 5 years |
| Expected volatility | 100% |
| Expected dividends | 0% |
The following table summarizes stock option transactions:
| Number of | Weighted average | |||
|---|---|---|---|---|
| options | exercise price | |||
| $ | ||||
| Outstanding, October | 31, | 2019 | - | - |
| Granted | 160,000 | 0.25 | ||
| Outstanding,October | 31, | 2020 | 160,000 | 0.25 |
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NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
5. SHARE CAPITAL (Cont'd)
The following table summarizes the stock options outstanding and exercisable as at October 31, 2020 as follows:
| 2020 as follows: | |||
|---|---|---|---|
| Exercise price | Number of options | Exercisable | Expiry date |
| $0.25 | 160,000 | - | June 2,2025 |
The weighted average remaining useful life of outstanding options is approximately 4.6 years as at October 31, 2020.
6. TRANSACTIONS WITH RELATED PARTIES
Related parties include the Board of Directors and officers of the Company, including close family members and enterprises which are controlled by these individuals as well as persons performing similar functions.
During the year ended October 31, 2020, the Company accrued accounting fees of $12,500 to a former officer and director of the Company.
7. INCOME TAXES
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
| 2020 2019 | |
|---|---|
| $ $ | |
| Loss before income taxes | (212,187) (6,542) |
| Expected income tax (recovery) | (57,290) (1,766) |
Permanent differences |
(17,633) - |
| Unrecognized tax benefits | 74,923 1,766 |
| Total income tax recovery | - - |
13
NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
7. INCOME TAXES (Cont’d)
The significant components of the Company's deferred income tax assets that have not been included on the statement of financial position are as follows:
| 2020 | 2019 | |
|---|---|---|
| $ | $ | |
| Deferred income tax assets: | ||
| Non-capital loss carryforwards | 56,198 | 1,766 |
| Share issue costs | 20,491 | - |
| 76,689 | 1,766 | |
| Income tax benefits not recognized | (76,689) | (1,766) |
| Net deferred taxassets | - |
- |
The tax pools relating to these deductible temporary differences expire as follows:
| Expiry Date Range | |
|---|---|
| Temporary Differences | |
| Non-capital losses available for future period (Canada) | 2039-2040 |
| Share issue costs (Canada) | 2021-2024 |
8. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Capital Management
The Company's objective when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.
The Company includes share capital in the definition of capital.
The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Company may attempt to raise additional funds through the issuance of equity or by securing strategic partners.
The Company is not subject to externally imposed capital requirements other than the cash restriction disclosed in Note 4.
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NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
8. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont’d)
Risk Disclosures and Fair Values
The Company's financial instruments, consisting of cash and accounts payable and accrued liabilities, 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, currency or credit risks arising from these financial instruments.
As at October 31, 2020, the Company had accounts payable and accrued liabilities of $17,150 (October 31, 2019 - $5,925), which are due within 12 months, $13,125 due to a related party (October 31, 2019 - $Nil) and had cash of $633,008 (October 31, 2019 - $124,383) to meet its current obligations. As a result the Company has minimal liquidity risk.
Credit Risk
Credit risk is the risk of loss associated with the counterparty's inability to fulfill its payment obligations. The Company believes it has no significant credit risk.
9. SUBSEQUENT EVENTS
On August 11, 2020, the Company announced that it entered into a three-cornered amalgamation agreement (the "Definitive Agreement") with NEXE Innovations Inc. ("NEXE") and 1260350 B.C. Ltd., a newly incorporated wholly-owned subsidiary of Whatcom. Pursuant to the Definitive Agreement, the Company acquired all of the issued and outstanding securities of NEXE from NEXE's securityholders (the “Transaction”). Each holder of NEXE common shares received one common share of the Resulting Issuer (hereinafter defined) ("Resulting Issuer Share") for each NEXE Share held, each holder of NEXE Class A Preferred Shares, Series A ("Series A Share") received one Resulting Issuer Share for each Series A Share held, each holder of NEXE Class A Preferred Shares, Series A Preferred ("Series A Preferred Share") received one Resulting Issuer Share for each Series A Preferred Share held, and each holder of NEXE Class A Preferred Shares, Series 1 ("Series 1 Share") received one and one-half Resulting Issuer Shares for each Series 1 Share held. All outstanding convertible securities of NEXE, including NEXE common share purchase warrants and NEXE stock options were exchanged or replaced with convertible securities of the Resulting Issuer based on a one-to-one basis and on the same economic terms and conditions as previously issued. Upon completion of the Transaction, NEXE became a wholly-owned subsidiary of the Company and the Company changed its name to "NEXE Innovations Inc”. The combined entity (the "Resulting Issuer") continued the business of NEXE as a Tier 1 “technology” issuer on the Exchange.
The Transaction was closed on December 15, 2020 with the parties receiving (i) all requisite regulatory approval, including the approval of the Exchange and any third party approvals and authorizations; (ii) NEXE obtaining the requisite shareholder approval for the Transaction; (iii) completion by Whatcom of a consolidation of the Whatcom securities on a 2.5 for 1 basis and (iv) completion of the Concurrent Financing discussed below.
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NEXE Innovations Inc. (formerly Whatcom Capital Corp.)
Notes to the Consolidated Financial Statements For the year ended October 31, 2020 and For the period from the date of incorporation on September 19, 2019 to October 31, 2019 (Expressed in Canadian dollars)
9. SUBSEQUENT EVENTS (Cont’d)
On December 15, 2020, NEXE closed a brokered private placement by issuing 11,437,500 units of NEXE at a price of $0.80 per unit and received gross proceeds of $9,150,000. Additionally, on December 15, 2020, NEXE completed a non-brokered private placement financing of 6,273,203 Units at a price of $0.80 per Unit for total proceeds of $5,018,562 (the "Non-Brokered Financing"). This represents an oversubscription of $518,562 from the previously announced Non-Brokered Financing of $4,500,000.
Each Unit consists of one common share of NEXE and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase a common share of NEXE at a price of $1.00 per share until December 15, 2021.
Under the Concurrent Private Placement, the Agent received a cash commission of up to 7% of the total proceeds of the Concurrent Private Placement except for subscribers of the president’s list in which case the Agent received a cash commission of up to 3%. The Agent was also issued a total 692,585 non-transferable common share purchase warrants (each an “Agent’s Warrant”). Each Agent’s Warrant will be exercisable into one Resulting Issuer Share at a price of $0.80 until December 15, 2021. The Agent also received a corporate finance fee consisting of $75,000 in cash and 93,750 Resulting Issuer Shares. NEXE also paid the Agent’s reasonable out-of-pocket expenses, including legal fees, plus disbursements and taxes.
From December 2020 to February 2021, the Company issued 9,888,569 common shares upon exercise of share purchase warrants.
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