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Orion Digital Corp. — Interim / Quarterly Report 2021
Jan 26, 2021
43197_rns_2021-01-26_68a7f42c-7acf-4486-8612-33fe8d75b56d.pdf
Interim / Quarterly Report
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Condensed Consolidated Interim Financial Statements of
THERMAL ENERGY INTERNATIONAL INC.
Quarters ended November 30, 2020 and 2019
(Unaudited)
THERMAL ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Financial Position
As at November 30 and May 31, 2020 (Expressed in Canadian dollars) (Unaudited)
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November 30, 2020 May 31, 2020
$ $
Assets
Current assets:
Cash and cash equivalents 4,903,323 4,774,580
Trade and other receivables (note 4) 3,062,114 2,211,381
Current tax receivable 219,798 232,904
Inventory 798,867 844,685
8,984,102 8,063,550
Non-current assets:
Property, plant and equipment (note 5) 370,998 431,597
Right-of-use assets 370,707 421,338
Intangible assets 1,213,909 1,415,756
Deferred tax assets 113,425 111,439
2,069,039 2,380,130
Total assets 11,053,141 10,443,680
Liabilities
Current liabilities:
Trade payables and other liabilities (note 6) 2,195,893 3,437,927
Current tax liabilities 29,080 18,710
Pensions and other employer obligations 213,558 139,359
Current portion of long-term debt (note 7) 630,721 269,886
Deferred revenue (note 8) 1,326,734 937,228
Provisions 283,245 283,635
Lease obligations (note 9) 77,726 105,269
4,756,957 5,192,014
Non-current liabilities:
Long-term debt (note 7) 2,984,557 2,489,786
Lease obligations (note 9) 411,760 431,976
Deferred tax liabilities 263,352 323,564
3,659,669 3,245,326
Total liabilities 8,416,626 8,437,340
Equity
Capital stock 32,117,242 32,117,242
Contributed surplus 4,527,157 4,426,697
Accumulated other comprehensive income 391,570 217,342
Deficit (34,314,400) (34,658,665)
Equity attributable to owners of the parent 2,721,569 2,102,616
Non-controlling interest (85,054) (96,276)
Total equity 2,636,515 2,006,340
Total liabilities and equity 11,053,141 10,443,680
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
On behalf of the Board:
" William Crossland "
Director
" Michael Williams " Director
1
THERMAL ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Comprehensive Income
For the three and six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars) (Unaudited)
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Three months ended Six months ended
November 30 November 30
2020 2019 2020 2019
$ $ $ $
Revenue (note 11) 5,019,682 7,848,096 7,847,544 12,813,885
Cost of sales 2,589,440 4,929,739 4,093,099 7,705,010
Gross profit 2,430,242 2,918,357 3,754,445 5,108,875
Expenses (note 12):
Administration 965,678 1,580,355 1,854,711 2,552,783
Selling, marketing and business development 821,000 858,987 1,373,790 1,722,528
Research and development 3,922 (130) 21,408 53,962
1,790,600 2,439,212 3,249,909 4,329,273
Operating income 639,642 479,145 504,536 779,602
Finance costs (71,504) (106,134) (170,749) (189,411)
Finance revenue - 2,111 - 5,144
Income before income taxes 568,138 375,122 333,787 595,335
Income taxes recovery 12,287 10,059 28,538 31,107
Net income for the period 580,425 385,181 362,325 626,442
Items that may be reclassified subsequently
to profit or loss:
Exchange differences arising on translation of
overseas operations 195 169,388 175,893 8,332
Total comprehensive income for the period 580,620 554,569 538,218 634,774
Net income for the period attributable to:
Owners of the parent 569,339 370,558 344,265 616,494
Non-controlling interest 11,086 14,623 18,060 9,948
Net income for the period 580,425 385,181 362,325 626,442
Total comprehensive income for the period
attributable to:
Owners of the parent 570,170 540,677 518,493 629,920
Non-controlling interest 10,450 13,892 19,725 4,854
Total comprehensive income for the period 580,620 554,569 538,218 634,774
Net income per share - basic and diluted 0.004 0.002 0.002 0.004
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
THERMAL ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Changes in Equity
For the six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars) (Unaudited)
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Accumulated Total
other attributable Non-
Capital Contributed comprehensive to owners of controlling Total
stock surplus Deficit income the parent interest equity
$ $ $ $ $ $ $
Balance at June 1, 2019 32,464,780 4,002,683 (32,760,222) 267,889 3,975,130 (80,578) 3,894,552
- - - -
Share-based compensation (note 10) 103,332 103,332 103,332
- - - - -
Dividends paid (10,032) (10,032)
Transactions with owners - 103,332 - - 103,332 (10,032) 93,300
- - -
Net income for the period 616,494 616,494 9,948 626,442
Other comprehensive income (loss): exchange differences
- - -
arising on translation of overseas operations 13,426 13,426 (5,094) 8,332
- -
Total comprehensive income the period 616,494 13,426 629,920 4,854 634,774
Balance at November 30, 2019 32,464,780 4,106,015 (32,143,728) 281,315 4,708,382 (85,756) 4,622,626
Balance at June 1, 2020 32,117,242 4,426,697 (34,658,665) 217,342 2,102,616 (96,276) 2,006,340
- - - -
Share-based compensation (note 10) 100,460 100,460 100,460
- - - - -
Dividends paid (8,503) (8,503)
Transactions with owners - 100,460 - - 100,460 (8,503) 91,957
- - -
Net income for the period 344,265 344,265 18,060 362,325
Other comprehensive income: exchange differences
- - -
arising on translation of overseas operations 174,228 174,228 1,665 175,893
- -
Total comprehensive income the period 344,265 174,228 518,493 19,725 538,218
Balance at November 30, 2020 32,117,242 4,527,157 (34,314,400) 391,570 2,721,569 (85,054) 2,636,515
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
THERMAL ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Cash Flows
For the three and six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars) (Unaudited)
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Three months ended Six months ended
November 30 November 30
2020 2019 2020 2019
$ $ $ $
Operating activities:
Net income for the period 580,425 385,181 362,325 626,442
Add items not involving cash:
Depreciation of property, plant and equipment
29,662 27,849 59,248 49,603
(note 5)
Depreciation of right-of-use assets 32,676 33,364 65,847 59,057
Amortization of intangible assets 68,937 69,199 139,225 138,382
Write-down of finance lease receivable - 45,848 - 45,848
Finance revenue - (2,111) - (5,144)
Finance costs 71,504 106,134 170,749 189,411
Share-based compensation (note 10) 50,230 51,666 100,460 103,332
Income tax recovery (12,287) (10,059) (28,538) (31,107)
Unrealized foreign exchange and translation
(2,129) 243,762 136,617 102,632
adjustments
Changes in working capital:
Trade and other receivables (732,572) (406,692) (850,733) (472,839)
Inventory (844) (222,203) 45,818 (292,180)
Trade payables and other liabilities 528,742 1,861,680 (1,120,892) 1,642,926
Deferred revenue (note 8) (38,979) (2,233,321) 383,986 (623,558)
Income taxes (paid) received (3,298) (724) (3,298) 4,301
Interest paid (144,560) (73,525) (214,334) (140,965)
Net cash provided by (used in) operating activities 427,507 (123,952) (753,520) 1,396,141
Investing activities:
Additions to property, plant and equipment (note 5) (531) (227,538) (5,204) (247,562)
Net cash used in investing activities (531) (227,538) (5,204) (247,562)
Financing activities:
- - -
Issuance of long-term debt (note 7) 1,082,760
Repayment of long-term debt (note 7) (66,643) (99,245) (66,643) (164,833)
Repayment of lease obligations (note 9) (31,364) (17,876) (63,035) (42,058)
Dividends paid (8,503) (10,032) (8,503) (10,032)
Net cash (used in) provided by financing activities (106,510) (127,153) 944,579 (216,923)
Increase (decrease) in cash and cash equivalents for
320,466 (478,643) 185,855 931,656
the period
Cash and cash equivalents, beginning of period 4,589,333 5,600,331 4,774,580 4,177,260
Exchange differences on cash and cash equivalents (6,476) (87,481) (57,112) (74,709)
Cash and cash equivalents, end of period 4,903,323 5,034,207 4,903,323 5,034,207
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
1. Nature of operations:
Thermal Energy International Inc. (the “parent”) was incorporated under the Ontario Business Corporations Act on May 22, 1991 and is primarily engaged in the development, engineering and supply of pollution control, heat recovery systems, and condensate return solutions. The parent company’s common shares are listed on the TSX Venture Exchange (“TSX.V”) under the symbol TMG. The primary office is located at Suite 850, 36 Antares Drive, Ottawa, Ontario, K2E 7W5.
The unaudited condensed consolidated interim financial statements comprise the financial results of the parent and its subsidiaries (collectively known as the “Company”) for the six months ended November 30, 2020 and 2019.
2. Basis of presentation:
- (a) Statement of compliance:
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed consolidated interim financial statements do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended May 31, 2020. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements for the year ended May 31, 2020.
The policies applied in these unaudited condensed consolidated interim financial statements are based on IFRS issued and effective as of January 21, 2021, the date the Board of Directors approved the unaudited condensed consolidated interim financial statements.
- (b) Significant accounting judgments and estimates:
In preparing these unaudited condensed consolidated interim financial statements, management makes judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The accounting policies and the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended May 31, 2020.
5
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
3. Segment reporting:
Management reporting comprises analysis of revenue and gross profit within two distinct geographical areas. All other items of revenue and expenses are considered on a geographical and/or global basis in making strategic decisions regarding the Company’s future. The Company has two operational bases (“reporting units”), one in Ottawa, Canada covering North America, and the other in Bristol, United Kingdom, covering Europe and the rest of the world. These areas are determined by proximity of the region to the reporting unit, plus the location of the contracts in existence with agents and distributors in the respective areas and the historical relationships with those agents and distributors. Corporate costs that cannot easily be attributed to either of the two reporting units are included in reconciling items. The chief operating decision maker focuses on revenues and costs by geographical segments, but manages assets and liabilities on a global basis.
Segment information for the quarter ended November 30, 2020 and the comparative period are detailed in the table below.
| Thermal Energy Ottawa | Thermal Energy Ottawa | Thermal Energy Bristol | Thermal Energy Bristol | Reconciling | Items | Total | ||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Total revenue | 3,334,287 | 5,542,554 | 1,685,395 | 2,305,542 | - | - | 5,019,682 | 7,848,096 |
| Cost of sales | (1,775,974) | (3,677,044) | (813,466) | (1,252,695) | - | - | (2,589,440) | (4,929,739) |
| Gross profit | 1,558,313 | 1,865,510 | 871,929 | 1,052,847 | - | - | 2,430,242 | 2,918,357 |
| Other expenses(1) | (637,986) | (968,518) | (785,498) | (882,678) | (367,116) | (588,016) | (1,790,600) | (2,439,212) |
| Net finance costs(2) | (7,468) | (6,019) | (1,563) | (2,341) | (62,473) | (95,663) | (71,504) | (104,023) |
| Income (loss) before taxation | 912,859 | 890,973 | 84,868 | 167,828 | (429,589) | (683,679) | 568,138 | 375,122 |
| Tax recovery (expense) | 1,212 | - | (7,538) | (10,563) | 18,613 | 20,622 | 12,287 | 10,059 |
| Net income (loss) | 914,071 | 890,973 | 77,330 | 157,265 | (410,976) | (663,057) | 580,425 | 385,181 |
| Attributable to: | ||||||||
| Owners of the parent | 914,036 | 891,575 | 66,279 | 142,040 | (410,976) | (663,057) | 569,339 | 370,558 |
| Non-controllinginterest | 35 | (602) | 11,051 | 15,225 | - | - | 11,086 | 14,623 |
(1) Other expenses related to depreciation of right-of-use assets of $33,364 for the quarter ended November 30, 2019 were reclassified from “Reconciling Items” to “Thermal Energy Ottawa” and “Thermal Energy Bristol” in the amount of $10,811 and $22,553, respectively, to conform to the current period presentation.
(2) Finance costs related to interest accretion on lease obligations of $10,471 for the quarter ended November 30, 2019 were reclassified from “Reconciling Items” to “Thermal Energy Ottawa” and “Thermal Energy Bristol” in the amount of $8,130 and $2,341, respectively, to conform to the current period presentation.
6
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
3. Segment reporting (continued):
Segment information for the six months ended November 30, 2020 and the comparative period are detailed in the table below.
| Thermal Energy Ottawa | Thermal Energy Ottawa | Thermal Energy Bristol | Thermal Energy Bristol | Reconciling Items | Reconciling Items | Total | ||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Total revenue | 4,885,024 | 9,305,246 | 2,962,520 | 3,508,639 | - | - | 7,847,544 | 12,813,885 |
| Cost of sales | (2,612,304) | (5,921,078) | (1,480,795) | (1,783,932) | - | - | (4,093,099) | (7,705,010) |
| Gross profit | 2,272,720 | 3,384,168 | 1,481,725 | 1,724,707 | - | - | 3,754,445 | 5,108,875 |
| Other expenses(1) | (975,801) | (1,786,355) | (1,353,020) | (1,689,086) | (921,088) | (853,832) | (3,249,909) | (4,329,273) |
| Net finance costs(2) | (15,238) | (3,395) | (3,443) | (5,306) | (152,068) | (175,566) | (170,749) | (184,267) |
| Income (loss) before taxation | 1,281,681 | 1,594,418 | 125,262 | 30,315 | (1,073,156) | (1,029,398) | 333,787 | 595,335 |
| Tax recovery (expense) | 3,443 | - | (12,496) | (10,563) | 37,591 | 41,670 | 28,538 | 31,107 |
| Net income (loss) | 1,285,124 | 1,594,418 | 112,766 | 19,752 | (1,035,565) | (987,728) | 362,325 | 626,442 |
| Attributable to: | ||||||||
| Owners of the parent | 1,285,089 | 1,599,983 | 94,741 | 4,239 | (1,035,565) | (987,728) | 344,265 | 616,494 |
| Non-controllinginterest | 35 | (5,565) | 18,025 | 15,513 | - | - | 18,060 | 9,948 |
-
(1) Other expenses related to depreciation of right-of-use assets of $59,057 for the six months ended November 30, 2019 were reclassified from “Reconciling Items” to “Thermal Energy Ottawa” and “Thermal Energy Bristol” in the amount of $14,547 and $44,510, respectively, to conform to the current period presentation.
-
(2) Finance costs related to interest accretion on lease obligations of $13,845 for the six months ended November 30, 2019 were reclassified from “Reconciling Items” to “Thermal Energy Ottawa” and “Thermal Energy Bristol” in the amount of $8,539 and $5,306, respectively, to conform to the current period presentation.
Reconciling items comprise the following:
| Three months | ended | Six months ended | Six months ended | |
|---|---|---|---|---|
| November | 30 | November 30 | ||
| 2020 | 2019 | 2020 | 2019 | |
| $ |
$ | $ | $ | |
| Corporate admin costs | 145,736 | 188,737 | 269,716 | 338,651 |
| Stock-based compensation | 50,230 | 51,666 | 100,460 | 103,332 |
| Professional fees | 75,954 | 94,606 | 169,646 | 153,493 |
| Depreciation of property, plant and equipment | 29,662 | 27,849 | 59,248 | 49,603 |
| Amortization of intangible assets | 68,937 | 69,199 | 139,225 | 138,382 |
| Acquisition costs | 3,361 | - | 13,461 | - |
| Foreign exchange differences (gain) loss | (6,764) | 155,959 | 169,332 | 70,371 |
| Total | 367,116 | 588,016 | 921,088 | 853,832 |
Corporate administration costs include directors’ fees, all costs relating to both the CEO and CFO, directors’ and officers’ insurance, corporate legal costs, public relations costs, professional fees relating to group tax planning and corporate filing costs as well as the Annual General Meeting.
Finance costs within the reconciling items include interest and deferred financing charge on the long-term debt, and interest accretion on lease obligations.
7
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
4. Trade and other receivables:
| November 30, 2020 | May 31, 2020 | |
|---|---|---|
| Trade receivables, gross | $ 2,720,270 | $ 1,888,144 |
| Allowance for doubtful accounts | (67,837) | (67,438) |
| Trade receivables, net | 2,652,433 | 1,820,706 |
| Unbilled revenue | 34,716 | 77 |
| Work in progress | 38,938 | 10,289 |
| Prepayments | 169,781 | 166,144 |
| Sales tax and other miscellaneous receivables | 166,246 | 214,165 |
| Balance,end ofperiod | $ 3,062,114 | $2,211,381 |
The net carrying value of trade receivables is considered a reasonable approximation of fair value.
At November 30, 2020, $206,096 (7.6%) of the Company’s trade receivables balance was over 90 days past due. $48,698 of the past due balance was impaired at November 30, 2020. $19,139 of trade receivables that was not over 90 days past due was also impaired.
At May 31, 2020, $189,442 (10%) of the Company’s trade receivables balance was over 90 days past due. $61,120 of the past due balance was impaired at May 31, 2020. $6,318 of trade receivables that was not over 90 days past due was also impaired.
The Company’s trade and other receivables have been reviewed for indicators of impairment. For the six months ended November 30, 2020, provisions of $17,384 were made as expected credit losses and recorded under administrative expense on the condensed consolidated interim statements of comprehensive income ($132,142 – November 30, 2019). For the six months ended November 30, 2020, $15,583 ($nil – November 30, 2019) of the allowance for doubtful accounts was released due to the collection.
5. Property, plant and equipment:
During the six months ended November 30, 2020, the Company acquired property, plant and equipment of $5,204 ($247,562 – November 30, 2019) and the Company did not dispose of any assets ($nil – November 30, 2019). Depreciation expense of $59,248 ($49,603 – November 30, 2019) was recognized under administration expense. Translation loss of $6,555 ($2,442 – November 30, 2019) was recognized under exchange differences arising on translation of overseas operations.
8
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
6. Trade payables and other liabilities:
Trade payables and other liabilities recognized in the statements of financial position can be summarized as follows:
| November 30, 2020 | May 31, 2020 | |
|---|---|---|
| Trade payables | $ 1,149,563 | $ 1,156,736 |
| Accruals | 705,094 | 1,118,819 |
| Other government remittances payable | 243,191 | 891,162 |
| Government grants | 98,045 | 271,210 |
| $ 2,195,893 | $3,437,927 |
All amounts are short-term. The carrying values of trade payables and other liabilities are considered to be a reasonable approximation of fair value.
Included in accruals is $21,060 due to directors ($46,580 at May 31, 2020).
7. Long-term debt:
| November 30, 2020 | May 31, 2020 | |
|---|---|---|
| Term loan (equivalent to USD$1,952,425), net of | $ 2,531,319 | $ 2,759,672 |
| deferred financing costs of $29,269 (equivalent to | ||
| USD$22,575), bearing interest at US dollar floating | ||
| base rate plus a variance of between 1.50% to | ||
| 8.00%, repayable in monthly principal instalments of | ||
| $32,413 (equivalent to USD$25,000) starting July 1, | ||
| 2019 and continuing up to the maturity date, with a | ||
| balloon payment of $615,838 | ||
| (equivalent to USD$475,000) payable on the maturity | ||
| date, December 1, 2025 (a) | ||
| Term loan, net of deferred financing costs of $2,571, | 997,429 | - |
| bearing interest at the institution’s floating base rate | ||
| less a variance of 1.10%, repayable in monthly | ||
| principal instalments of $40,000 starting June 15, 2021 | ||
| and continuing up to the maturity date, with a balloon | ||
| payment on the maturity date, May 15, 2023 (b) | ||
| Term loan (equivalent to GBP£50,000), bearing zero | 86,530 | - |
| interest for the first 12 months and 2.50% thereafter, | ||
| repayable in monthly principal instalments of $1,535 | ||
| (equivalent to GBP£887) starting June 10, 2021 and | ||
| continuing up to the maturity date, May 10, 2026 (c) | ||
| Total long-term debt | 3,615,278 | 2,759,672 |
| Less: current portion | (630,721) | (269,886) |
| Longtermportion | 2,984,557 | 2,489,786 |
9
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
7. Long-term debt (continued):
- (a) On March 19, 2020, the lender agreed to postpone the next three payments of principal to the end of the payment schedule as a COVID-19 relief measure to the Company. On May 13, 2020, the lender agreed to further postpone another three payments to the end of the payment schedule. Consequently, the maturity date of the loan was extended by six months from June 1, 2025 to December 1, 2025.
This loan bears interest at the institution’s US dollar floating base rate, plus a variance. The US dollar floating base rate was 4.70% on November 30, 2020 and May 31, 2020. The variance is reset annually based on the Company’s consolidated total funded debt to EBITDA ratio. As at November 30, 2020, the variance was at 1.50% (8.00% at May 31, 2020). Interest is payable monthly in arrears on the 1st day of the month.
The Company had certain covenants in accordance with this term loan. As at May 31, 2020, the Company was in compliance with its covenants. On May 13, 2020, the lender waived the covenants for all the periods from June 1, 2020 up to May 15, 2021 as another COVID-19 relief measure to the Company.
-
(b) On June 9, 2020, the Company entered into a Working Capital – COVID-19 loan with a lending institution for a total amount of $2,300,000. This loan bears interest at the institution’s floating base rate less a variance of 1.10% and is repayable over the next 3 years. The institution’s floating base rate was 4.55% on June 9, 2020 and November 30, 2020. Interest is payable monthly in arrears on the 15th day of the month. The first tranche of proceeds in the amount of $1,000,000 was received by the Company on July 23, 2020. According to the agreement, the remaining amount of $1,300,000 can be drawn later, subject to meeting certain conditions in accordance with this term loan. A standby fee of 1.50% per annum will be charged on the portion of the amount which has not been advanced or cancelled by February 2021. The amount advanced under the financing was expected to support internal working capital needs related to operations and to assist with a degree of continuity of operations of the Company during the current economic environment.
-
(c) On June 10, 2020, the Company entered into a COVID-19 bounce back fixed rate loan with a UK lending institution for a total amount of $86,530 (equivalent to GBP£50,000). This loan bears zero interest for the first 12 months and 2.50% thereafter and is repayable over the next 6 years.
10
THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
8. Deferred revenue:
| Deferred revenue | Deferred revenue | Total | |
|---|---|---|---|
| relating to heat | relating to sales of | deferred | |
| recovery solutions | goods and rendering | revenue | |
| ofservices | |||
| Balance, June 1, 2020 | $ 771,089 | $ 166,139 | $ 937,228 |
| Increase from payments received | 5,061,441 | 93,483 | 5,154,924 |
| Decrease from revenue recognized | (4,627,492) | (143,446) | (4,770,938) |
| Translation adjustments | 3,203 | 2,317 | 5,520 |
| Balance,November 30,2020 | $ 1,208,241 | $ 118,493 | $ 1,326,734 |
| Balance, June 1, 2019 | $ 2,530,047 | $ 74,543 | $ 2,604,590 |
| Increase from payments received | 9,630,974 | 58,174 | 9,689,148 |
| Decrease from revenue recognized | (10,296,161) | (16,545) | (10,312,706) |
| Translation adjustments | 44,250 | 1,545 | 45,795 |
| Balance,November 30,2019 | $1,909,110 | $117,717 | $2,026,827 |
All amounts are short-term and will be settled within the next reporting year.
9. Lease obligations:
The following table presents the contractual undiscounted cash flows for lease obligations:
| November 30, 2020 | May 31, 2020 | |
|---|---|---|
| Less than one year | $ 111,361 | $ 141,157 |
| One to five years | 292,754 | 293,827 |
| Six to ten years | 252,375 | 286,500 |
| Total undiscounted lease obligations | 656,490 | 721,484 |
| Less: impact of present value | (167,004) | (184,239) |
| Total lease obligations | 489,486 | 537,245 |
| Less: current portion | (77,726) | (105,269) |
| Longtermportion | $ 411,760 | $431,976 |
During the six months ended November 30, 2020, the interest expense on lease obligations was $18,678 and total cash outflow for leases was $135,119, including $53,406 for short-term leases.
During the six months ended November 30, 2019, the interest expense on lease obligations was $13,845 and total cash outflow for leases was $116,515, including $60,612 for short-term leases.
For the six months ended November 30, 2020 and 2019, expenses for leases of low-dollar value items are not material. Extension options are included in the measurement of lease obligations when the Company is reasonably certain to exercise that option.
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THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
10. Share based compensation:
Activity in stock options was as follows:
| Three months ended | Three months ended | Three months ended | Three months ended | |
|---|---|---|---|---|
| November 30, 2020 | November 30, 2019 | |||
| Weighted | Weighted | |||
| Average | Average | |||
| # | Exercise Price | # | Exercise Price | |
| Options | $ | Options | $ | |
| Outstanding, beginning of period | 17,821,276 | 0.07 | 14,259,193 | 0.07 |
| Granted | 4,653,000 | 0.09 | 4,085,000 | 0.08 |
| Expired | (3,228,360) | 0.08 | - | - |
| Forfeited | (497,916) | 0.07 | - | - |
| Outstanding,end ofperiod | 18,748,000 | 0.08 | 18,344,193 | 0.08 |
| Options exercisable,end ofperiod | 9,056,667 | 0.07 | 9,142,526 | 0.07 |
| Six months ended | Six months ended | |||
| November 30, 2020 | November 30, 2019 | |||
| Weighted | Weighted | |||
| Average | Average | |||
| # | Exercise Price | # | Exercise Price | |
| Options | $ | Options | $ | |
| Outstanding, beginning of period | 17,821,276 | 0.07 | 14,259,193 | 0.07 |
| Granted | 4,653,000 | 0.09 | 4,085,000 | 0.08 |
| Expired | (3,228,360) | 0.08 | - | - |
| Forfeited | (497,916) | 0.07 | - | - |
| Outstanding,end ofperiod | 18,748,000 | 0.08 | 18,344,193 | 0.08 |
| Options exercisable,end ofperiod | 9,056,667 | 0.07 | 9,142,526 | 0.07 |
The following tables summarize information about stock options outstanding at November 30, 2020:
| Options outstanding | Options outstanding | Options exercisable | Options exercisable | ||
|---|---|---|---|---|---|
| Number | Weighted | Number | |||
| outstanding | average | Weighted | exercisable at | Weighted | |
| Range of exercise | November 30, | remaining | average | November 30, | average |
| prices | 2020 | contractual life | exercise price | 2020 | exercise price |
| 0.05-0.07 | 2,625,000 | 0.5 | 0.05 | 2,625,000 | 0.05 |
| 0.08-0.10 | 15,873,000 | 2.37 | 0.08 | 6,181,667 | 0.08 |
| 0.11-0.12 | 250,000 | 0.99 | 0.12 | 250,000 | 0.12 |
| 18,748,000 | 2.09 | 0.08 | 9,056,667 | 0.07 |
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THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
10. Share based compensation (continued):
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Scholes model.
The following inputs were used in the measurement of the fair values at grant date of the sharebased payment plans:
| 26-Nov-20 | 30-Nov-19 | |
|---|---|---|
| Grant date share price ($)(1) | 0.09 | 0.08 |
| Exercise price ($) | 0.09 | 0.08 |
| Expected volatility (%)(2) | 81.14 | 84.01 |
| Expected life (years) | 4.00 | 4.00 |
| Expected dividend yield (%) | 0.00 | 0.00 |
| Risk-free interest rate (%) | 0.44 | 1.49 |
| Forfeiture rate(%) | 14.00 | 11.00 |
(1) The closing market price of the shares on the TSX Venture Exchange on the day immediately preceding the date of grant or the last day of trading preceding the date of grant if no shares traded on the day immediately preceding the date of grant.
(2) The expected volatility was based on historical volatility of the Company over a period of time that is commensurate with the expected life of the options.
Stock-based compensation expense related to the issuance of stock options is included in administration, selling, marketing and business development expenses and is broken down as follows:
| Three months ended | Three months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Administration | $ 40,339 | $ 42,043 |
| Selling, marketing and business development | 9,891 | 9,623 |
| $ 50,230 | $51,666 | |
| Six months ended | Six months ended | |
| November 30, 2020 | November 30, 2019 | |
| Administration | $ 80,678 | $ 84,086 |
| Selling, marketing and business development | 19,782 | 19,246 |
| $ 100,460 | $103,332 |
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THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
11. Revenue:
| Three months ended | Three months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Sale of goods | $ 1,730,597 | $ 1,029,534 |
| Rendering of services | 315,469 | 397,266 |
| Contracts for heat recovery solutions | 2,973,616 | 6,421,296 |
| $ 5,019,682 | $7,848,096 |
| Six months ended | Six months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Sale of goods | $ 2,632,087 | $ 1,930,350 |
| Rendering of services | 563,038 | 802,705 |
| Contracts for heat recovery solutions | 4,652,419 | 10,080,830 |
| $ 7,847,544 | $12,813,885 |
12. Other significant expenses:
Other significant expenses included in administration expense are as follows:
| Three months ended | Three months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Depreciation of property, plant and equipment | $ 29,662 | $ 27,849 |
| Depreciation of right-of-use assets | 32,676 | 33,364 |
| Amortization of intangible assets | 68,937 | 69,199 |
| Foreign exchange(gain)loss | (6,764) | 155,959 |
| Six months ended | Six months ended | |
| November 30, 2020 | November 30, 2019 | |
| Depreciation of property, plant and equipment | $ 59,248 | $ 49,603 |
| Depreciation of right-of-use assets | 65,847 | 59,057 |
| Amortization of intangible assets | 139,225 | 138,382 |
| Foreign exchange loss | 169,332 | 70,371 |
The Company received funding from various government bodies as COVID-19 wage subsidies. For the three months ended November 30, 2020, a total amount of $212,109 related to COVID-19 wage subsidies was recognized as a reduction to operating expenses, of which $197,306 was netted against administration expenses and $14,803 against selling, marketing and business development expenses.
For the six months ended November 30, 2020, a total amount of $620,672 related to COVID-19 wage subsidies was recognized as a reduction to operating expenses, of which $480,609 was netted against administration expenses and $140,063 against selling, marketing and business development expenses.
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THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
13. Financial instruments:
The fair values of the following financial instrument assets and liabilities are not measured at fair value, but fair value disclosures are required: cash and cash equivalents, trade and other receivables, trade payables and other liabilities, lease obligations, and long-term debt. The carrying values of cash and cash equivalents, trade and other receivables, trade payables and other liabilities approximate their fair values due to their short-term to maturity.
The carrying values of long-term debt and lease obligations are different from their fair values. The fair values of long-term debt, except the COVID-19 bounce back fixed rate loan, are subject to market interest rate. The fair values of lease obligations are subject to incremental borrowing rate. Fair value increases with lower market interest rates and incremental borrowing rates, and decreases with higher market interest rates and incremental borrowing rates.
14. Related party transactions:
Related parties include the members of the Board of Directors and key management personnel, as well as close family members and enterprises that are controlled by these individuals and shareholders.
Transactions with key management personnel
Key management personnel of the Company include members of the Company’s Board of Directors as well as members of the Company’s senior management team. Key management personnel remuneration includes the following expenses:
| Three months ended | Three months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Salaries and other short-term employee benefits | $ 182,115 |
$ 213,221 |
| Share-based payments | 19,403 | 24,876 |
| $ 201,518 | $238,097 |
| Six months ended | Six months ended | |
|---|---|---|
| November 30, 2020 | November 30, 2019 | |
| Salaries and other short-term employee benefits | $ 357,715 | $ 421,876 |
| Share-based payments | 38,318 | 49,752 |
| $ 396,033 | $471,628 |
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THERMAL ENERGY INTERNATIONAL INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Six months ended November 30, 2020 and 2019 (Expressed in Canadian dollars except share amounts)
14. Related party transactions (continued):
Salaries and other short-term employee benefits include cash payments for base salaries and related social security costs and employee benefits, as well as payments made into defined contribution pension plans of the Company’s UK based subsidiary, amounts expensed in the period as due to key management personnel under the Company’s employee incentive plan, and Directors’ fees including meeting fees, committee chairman fees and retainers. Share-based payments include the fair value of equity settled share-based payment arrangements expensed during the period.
15. Comparative information:
Certain figures and information from prior period have been adjusted to conform to the current period presentation, see note 3 for more details.
16