UNITED STATES | OMB APPROVAL | |
SECURITIES AND EXCHANGE COMMISSION | OMB Number: 3235-0288 | |
Washington, D.C. 20549 | Expires: October 31, 2022 | |
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FORM
OR
For the fiscal year ended
OR
For the transition period from ______________________to ______________________
Commission file number _______________________________
(Exact name of Registrant as specified in its charter)
_______________________________________
(Translation of Registrant's name into English)
British Columbia,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Contact Person:
(Name, telephone, e-mail and/or facsimile number and Address of Company Contact Person)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
Name of each exchange on which registered |
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None |
Not applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
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(Title of Class)
Indicate the number of outstanding shares of each of the issuer's capital or common stock as of the close period covered by the annual report.
On November 30, 2021, there were a total of
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] YES [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[ ] YES [ ]
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ ] YES [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] |
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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.
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
[ ] ITEM 17 [ ] ITEM 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] YES
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F ("Annual Report") contains forward-looking statements, meaning statements that reflect our current expectations and views of future events and future financial performance. These forward-looking statements are made under the applicable safe-harbor provisions of United States and Canadian securities laws. In some cases, you can identify forward-looking statements by terminology such as "estimate", "project", "believe", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "potential", or "continue", the negative thereof or other variations thereon or comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. There can be no assurance that the forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.
Known and unknown risks, uncertainties and other factors include, but are not limited to:
Accordingly, shareholders and prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Annual Report speak only as to the date hereof. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
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REPORTING CURRENCY
In this Annual Report, unless otherwise stated, all dollar amounts are expressed in Canadian dollars. The financial statements and summaries of financial information contained in this Annual Report are also reported in Canadian dollars unless otherwise stated.
IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES
Our financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, unless expressly stated otherwise. The Company makes references to certain non-IFRS measures, including Adjusted EBITDA. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for the analysis of the Company's financial information reported under IFRS.
FREQUENTLY USED TERMS
As used in this Annual Report, unless the context otherwise requires or indicates otherwise, references to "we", "us", "our", "our Company" and "the Company" refer to Plymouth Rock Technologies Inc., a British Columbia corporation, and its wholly owned subsidiaries, Plymouth Rock Technologies Inc., a Delaware corporation ("Plymouth Rock USA"), Plymouth Rock Technologies Inc, incorporated in England and Wales ("Plymouth Rock UK"), and Tetra Drones Ltd. ("Tetra" or "Tetra Drones"), incorporated in England and Wales, unless otherwise stated.
In this Annual Report:
"Abicom International" means Abicom International Ltd.
"BCBCA" means British Columbia Business Corporations Act.
"CODA" refers to the Company's Cognitive Object Detection Apparatus, a compact modular radar utilized for a variety of applications, from aircraft to weapon detection.
"CPC" means a capital pool company CPC.
"CSE" means the Canadian Securities Exchange.
"DTC" means the U.S. Depository Trust Corporation, a subsidiary of the Depository Trust & Clearing Corporation, a U.S. company that manages the electronic clearing and settlement of publicly-traded companies.
"EMEA" means Europe, the Middle East and Africa.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"FCC" means the U.S Federal Communications Commission.
"FCPA" means the U.S. Foreign Corrupt Practices Act.
"IASB" means the International Accounting Standards Board.
"IFRS" means International Financial Reporting Standards.
"IRS" means the U.S. Internal Revenue Service.
"Investment Act" means the Investment Canada Act.
"JOBS Act" Refers to the Jumpstart Our Business Startups Act.
"MiRIAD" means Millimeter Remote Imaging from Airborne Drone, designed for use on UAVs.
"MMU" means Manchester Metropolitan University.
"NASA" means the U.S. National Aeronautics and Space Administration.
"NATO" refers to the North Atlantic Treaty Organization.
"non-resident holder" means a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be a resident of Canada for purposes of the Canadian Income Tax Act and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his, her or its common shares in the capital of our Company in connection with carrying on a business in Canada.
"OTCQB" means the OTCQB Venture Market electronic quotation facility operated by OTC Markets Group.
"QEF" means a "qualified electing fund" in which case the U.S. Holder would be taxed currently, for each taxable year that we are a PFIC, on its pro rata share of our ordinary earnings and net capital gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge).
"PCAOB" means the U.S. Public Company Accounting Oversight Board.
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"PFIC" means a passive foreign investment company.
"Qualifying Transaction" means a transaction where a CPC acquires Significant Assets, as defined by TSXV Policy 2.4, by way of purchase, amalgamation, merger or arrangement with another company or by other means.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"SS1" or "Shoe Scanner" refers to the Company's compact microwave radar system for scanning shoes.
"TSA ITF" means the U.S. Transport Security Administration's Innovation Task Force.
"TSXV" means the TSX Venture Exchange.
"Treaty" means the Canada-United States Tax Convention as amended by the Protocols thereto.
"UAS" means unmanned aircraft systems.
"UAVs" means unmanned aerial vehicles.
"Wi-Ti" or "Wireless Threat Indication" means a wall or portal mounted sensor system that will detect high-risk concealed threat items over an extended coverage area
"WTO" means the World Trade Organization.
References to "USD" and "US$" are to U.S. dollars, references to "CAD" and "$" are to Canadian dollars, and references to "GBP" and "£" are to the British pound. This Annual Report includes certain trademarks, service marks and trade names that we own or otherwise have the right to use, such as "Plymouth Rock Technologies", which are protected under applicable intellectual property laws.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable to Form 20-F filed as an annual report.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable to Form 20-F filed as an annual report.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable to Form 20-F filed as an annual report.
C. Reason for the Offer and Use of Proceeds
Not applicable to Form 20-F filed as an annual report.
D. Risk Factors
An investment in our securities carries a significant degree of risk. In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating our Company and its business, including our consolidated financial statements and related notes included herein, in connection with your ownership our securities. This Annual Report contains forward-looking statements and information within the meaning of U.S. and Canadian securities laws that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements and information. Factors that might cause such differences include those discussed below and elsewhere in this Annual Report.
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If any of the events described below occur, our business and financial results could be materially adversely affected. This could cause the trading price of our securities to decline, perhaps significantly, and you therefore may lose all or part of your investment. The risks set out below are not exhaustive and do not comprise all of the risks associated with an investment in the Company. Additional risks and uncertainties not currently known to us or which we currently deem immaterial may also have a material adverse effect on our business, financial condition and results of operations.
Summary of Risk Factors
The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Item 3.D. "Risk Factors" for a more thorough description of these and other risks:
Risks Associated with Our Business
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Risks Associated with our Common Shares
Risks Relating to Management
Risks Associated with Our Business
There is substantial doubt as to whether we will continue operations. If we discontinue operations, you could lose your investment.
Our financial statements have been prepared on the going concern basis, which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business. However, as at November 30, 2021, we have not generated significant revenue or cash flow from operations since inception. As at November 30, 2021, the Company has a working capital deficiency of $74,128 and an accumulated deficit of $13,867,962. We anticipate that we will incur increased expenses and there is a risk we will not realize sufficient revenues to offset those expenses. Our ability to continue our operations is dependent on obtaining additional financing and generating future revenues, and no assurance can be given that we will successfully be able to do so. Accordingly, our financial statements contain disclosure regarding the auditor's substantial doubt about our ability to continue as a going concern. Importantly, the inclusion in our financial statements of a going concern reference may negatively impact our ability to raise future financing and achieve future revenue. The reference regarding the substantial doubt about our ability to continue as a going concern will be removed only when, in the opinion of our auditor, our revenues have reached a level that is able to sustain our business operations or we have raised substantial additional funds through our financing efforts.
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Limited Operating History
The Company has a limited amount of business income in the last two years, and had generated limited revenue since its inception in 2011. We have incurred operating and net losses in each year of our existence. We experienced a net loss of $4,974,834 for the year ended November 30, 2021, compared to a net loss of $2,924,236 for the year ended November 30, 2020. The Company is subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that it will not achieve its growth objective. We expect to incur substantial and increasing losses for the foreseeable future as we research, develop and commercialize our products. If our products do not achieve market acceptance, we may never generate any revenue. We also cannot assure you that we will be profitable even if we successfully commercialize our products. The Company anticipates that it may take several years to achieve positive cash flow from operations. If we fail to generate sufficient revenues to operate profitability, or if we are unable to fund our continuing losses, you could lose all or part of your investment.
Substantial Capital Requirements and Liquidity
We will require substantial funds to develop, manufacture and market our products. If we do not raise sufficient funds, our plan of operation will be delayed until such time as we raise sufficient funds, provided we are able to do so. Further, the cost of carrying out our operating activities and development activities is not fixed, and our cash levels may at any time prove to be insufficient to finance them. Our financing needs may change substantially because a number of factors which are difficult to predict or which may be outside of our control. These include increased competition, the costs of inventory and protecting rights to our proprietary technology and the time required to obtain required licenses.
We may not succeed in raising the additional funds that we require because such funds may not be available to us on acceptable terms, if at all. We intend to seek additional funding through strategic alliances or through public or private sales of our equity securities, and we may also obtain equipment leases and pursue opportunities to obtain debt financing in the future. If we are unable to obtain sufficient funding on a timely basis, we may be forced to significantly curtail or cease our operations.
Regulatory Requirements
We operate in an industry which is highly regulated and is evolving rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Failure to comply with the requirements of the State licensing agencies within which we operate would have a material adverse impact on the business, financial condition and operating results of the Company.
We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings and could make future capital investments or the Company's operations uneconomic. The industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants and which cannot be reliably predicted.
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Our technology platform may not perform in line with customer specifications or expectations.
Our technology platform, consisting of our security and threat technology, may not perform in line with customers' expectations. For example, our technologies may not be as easy to operate or maintain as customers expect. Customers may require performance specifications that we are unable to deliver. Some of these target specifications, such as those dependent on battery technology, are constrained by the pace of general technological advancement and the capabilities of our suppliers, which are largely beyond our control.
Our technology platform may contain design or manufacturing defects that result in unsatisfactory performance or require repair. Our technology platform uses a substantial amount of algorithms and software to operate. Software products are inherently complex and often contain defects and errors, especially when first introduced. While we have performed extensive internal testing on our UAS software and hardware systems, we have a limited frame of reference by which to evaluate the long-term performance of our technology platform. There can be no assurance that we will be able to detect and fix any defects in our technology platform before we sell products and services to customers.
If our technology platform is defective or otherwise fails to perform as expected or in accordance with prescribed technical specifications and timetable, our UAS may experience accidents and we may suffer adverse publicity, order cancellations, revenue declines, delivery delays, product recalls, product liability claims, and significant warranty and other expenses. These consequences could have a material adverse impact on our business, financial condition, operating results and prospects.
We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and results of operations.
Our UASs may not perform in line with customers' expectations. Any product defects, accidents or any other failure of our UASs to perform as expected could harm our reputation and result in adverse publicity, revenue loss, delivery delays and product recalls, which could harm our brand and reputation. Any product recall or lawsuit seeking significant monetary damages either in excess of or outside of our insurance coverage may have a material adverse effect on our business and financial condition. In the future, we may, voluntarily or involuntarily, initiate a recall if any of our UASs, including any systems or components sourced from our suppliers, prove to be defective or noncompliant with applicable laws and regulations. Such recalls, whether voluntary or involuntary and whether caused by systems or components engineered or manufactured by us or our suppliers, could incur significant expenses and adversely affect our brand image in our target markets. They may also inhibit or prevent commercialization of our current and future product candidates.
We may become subject to product liability claims or warranty claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may be exposed to significant product liability claims if our UASs do not perform as expected or malfunction. Any defects, errors, or failures in our products or the misuse of our UASs, operating systems and infrastructure could also result in injury, death or property damage. Our risks in this area are particularly pronounced given we have limited field experience in the operation of our UASs. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our UASs and business and inhibit or prevent commercialization of our current and future UAS models. Our insurance coverage might not be sufficient to cover all potential product liability claims. In addition, the same level of insurance coverage may not be available in the future at economical prices, or at all. Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management's attention and resources, which could have a negative impact on our business, financial condition and result of operations.
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If we fail to successfully develop and commercialize new products, services and technologies that are well received by customers, our operating results may be materially and adversely affected.
Our future growth depends on whether we can continually develop and introduce new generations of our existing product lines and update our operating systems and infrastructure with enhanced functionalities and value-added services. This is particularly important in the current industry landscape where technologies and consumer preferences evolve rapidly, which may shorten the lifecycles of our existing products. We plan to upgrade our current UAS models and introduce new models in order to continue to provide UASs with the latest technologies. As technological advancements can be complex and costly, we could experience delays in the development and introduction of new products and services in the future.
Our ability to roll out new and innovative products and services depends on a number of factors, including significant investments in research and development, quality control of our products and services and effective management of our supply chain. We may need to devote more resources to the research and development of new or enhanced products, services and technologies, which may reduce our profitability. In addition, our research and development efforts may not yield the benefits we expect to achieve in a timely manner, or at all. To the extent that we are unable to execute our strategy of continuously introducing new and innovative products, diversifying our product portfolio and satisfying consumers' changing preferences, we may not be able to grow our user base, and our competitive position and results of operations may be adversely affected. Even if we are able to keep up with technological changes and develop new models, our prior models may as a result become obsolete sooner than expected, potentially reducing our return on investment.
Financing Risks and Dilution to Shareholders
The Company will have limited financial resources, no operations, and no revenues. There can be no assurance that the Company will be able to obtain adequate financing in the future or that such financing will be available on favorable terms or at all. It is likely such additional capital will be raised through the issuance of additional equity, which will result in dilution to the Company's shareholders.
Competition
The global market for security screening and threat detection is highly fragmented and intensely competitive. We compete principally in the market for threat detection solutions and UAS. Some of our competitors and potential competitors have greater research, development, financial and personnel resources, including governmental support, as well as established greater penetration into certain vertical markets or geographical market segments. We cannot assure you that we will be able to compete effectively relative to our competitors or continue to develop and market new products effectively. Continued competitive pressures could cause us to lose significant market share or erode profitability margins.
An accident involving a UAS provided by us or another manufacturer could harm the UAS industry.
An accident involving a UAS provided by us or another manufacturer could cause regulatory agencies around the world to tighten restrictions on the use of UASs, particularly over populated areas, and could cause the public to lose confidence in our products and UASs generally. There are risks associated with autopilot, flight control, communications and other advanced technologies, and, from time to time, there have been accidents associated with these technologies. The safety of certain cutting-edge technologies depends in part on user interaction, and users may not be accustomed to using such technologies. We could face unfavorable and tightened regulatory control and intervention on the use of autopilot and other advanced technologies and be subject to liability and government scrutiny to the extent accidents associated with our autonomous navigation systems occur. Should a high profile accident occur resulting in substantial casualty or damages, either involving our UASs or products offered by other companies, public confidence in and regulatory attitudes toward UASs could deteriorate. Any of the foregoing could materially and adversely affect our results of operations, financial condition and growth prospects.
We rely on some third-party distributors for sales, marketing and distribution activities relating to our products
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Some of our business partners are acting as third-party distributors that sell, market and distribute our products to their customers. Accordingly, we may be subject to a number of risks associated with third-party distributors, including a lack of day-to-day control over the activities of third-party distributors selling or using our products and solutions; third-party distributors may terminate their arrangements with us on limited or no notice, or may change the terms of these arrangements in a manner that is unfavorable to us for reasons outside of our control; and any disagreements with our third party distributors could lead to costly and time-consuming litigation or arbitration. If we fail to establish and maintain satisfactory relationships with our third-party distributors, we may not able to sell, market and distribute our products according to our internal budget and plans, our future revenues and market share may not grow at a pace that we expect, and we could be subject to increases in sales and marketing and other costs which would harm our results of operations and financial condition.
Our operations may be interrupted by production difficulties or delays due to mechanical failures, utility shortages or stoppages, fire, natural disaster or other calamities at or near our facilities.
Production difficulties, such as capacity constraints, mechanical and systems failures and the need for equipment upgrades, may suspend our production and/or reduce our output. There can be no assurance that we will not experience problems with our production facilities in the future or that we will be able to address any such problems in a timely manner. Problems with key equipment in one or more of our production facilities may affect our ability to produce our products or cause us to incur significant expenses to repair or replace such equipment. Scheduled and unscheduled maintenance programs may affect our production output. Any of these could have a material adverse effect on our business, financial condition, results of operations and prospects.
We depend on a continuous supply of utilities, such as electricity and water, to operate our production facilities. Any disruption to the supply of electricity or other utilities may disrupt our production, or cause the deterioration or loss of our inventory. This could adversely affect our ability to fulfill our sales orders and consequently may have an adverse effect on our business and results of operations. In addition, fire, natural disasters, pandemics or extreme weather, including droughts, floods, typhoons or other storms, or excessive cold or heat, could cause power outages, fuel shortages, water shortages, damage to our production, processing or distribution facilities or disruption of transportation channels, any of which could impair or interfere with our operations. We cannot assure you that such events will not happen in the future or that we will be able to take adequate measures to mitigate the likelihood or potential impact of such events, or to effectively respond to such events if they occur.
Our consumers may experience service failures or interruptions due to defects in the software, infrastructure, components or engineering system that compromise our products and services, or due to errors in product installation, any of which could harm our business.
Our products and services may contain undetected defects in the software, infrastructure, components or engineering system. Sophisticated software and applications, such as those adopted and offered by us, often contain "bugs" that can unexpectedly interfere with the software and applications' intended operations. Our internet services may from time to time experience outages, service slowdowns or errors. Defects may also occur in components or processes used in our products or for our services.
There can be no assurance that we will be able to detect and fix all defects in the hardware, software and services we offer. Failure to do so could result in decreases in sales of our products and services, lost revenues, significant warranty and other expenses, decreases in customer confidence and loyalty, losing market share to our competitors, and harm to our reputation.
Our business and prospects depend significantly on our ability to build our brand.
Our business and prospects are heavily dependent on our ability to build, maintain and strengthen our brand. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high-quality products and engage with our customers as intended. In addition, we expect that our ability to develop, maintain and strengthen our brand will also depend heavily on the success of our user development and branding efforts. Such efforts mainly include building a community of engaged online and offline users as well as other branding initiatives, such as UAS shows and events. To promote our brand, we may be required to change our user development and branding practices, which could result in substantially increased expenses. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
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Our brand could be subject to adverse publicity if incidents related to our products occur or are perceived to have occurred, whether or not we are at fault. In particular, given the popularity of social media, any negative publicity, regardless of its truthfulness, could quickly proliferate and harm consumer perceptions of and confidence in our brand. Furthermore, we may be affected by adverse publicity related to our manufacturing or other partners, whether or not such publicity is related to their collaboration with us. Our ability to successfully position our brand could also be adversely affected by perceptions of the quality of our partners' products and services. In addition, from time to time, our products are evaluated and reviewed by third parties. Any unfavorable reviews could adversely affect consumer perceptions of our products.
Any deterioration of our relationship with our strategic business partners could have a material adverse effect on our operating results.
We collaborate with various business partners to promote our products. For example, we collaborate with companies including SDS Group Australia Pty Ltd. and Trendset Communications Group to provide logistics services for last-mile delivery. There can be no guarantee that those business partners will continue to collaborate with us in the future. If we are unable to maintain good relationships with our business partners, or the business of our business partners declines, the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease.
Most of the agreements with our business partners do not prohibit them from working with our competitors or from offering competing services. If our partners change their standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continue working with us, or choose to devote more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially favorable terms, or at all, and our competitive advantages may diminish.
We are subject to risks associated with strategic alliances or acquisitions. If we cannot manage the growth of our business or execute our strategies effectively, our business and prospects may be materially and adversely affected.
We have entered into strategic alliances with various business partners including Hummingbird Drones' Fire AI, and may in the future enter into joint research and development agreements or co-branding agreements with third parties to further our business purpose from time to time. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the third parties and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties. If any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.
Although we currently do not have any specific acquisition plans, if appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business. In addition to any required shareholders' approval, we may also have to obtain approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable laws and regulations, which could result in delays and increased costs, and may derail our business strategy if we fail to do so. Furthermore, past and future acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
We rely on external suppliers for raw materials and certain components and parts used in our UASs, and have limited control over the quality of these components and parts.
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We purchase certain key components and raw materials, such as computers chips, batteries, motors and electronic displays, from external suppliers for use in our operations and production of UASs. A continuous and stable supply of components and raw materials that meet our standards is crucial to our operations and production. We cannot assure you that we will be able to maintain our existing relationships with our suppliers and continue to be able to stably source key components and raw materials at reasonable prices, or at all. We have integrated our suppliers' technologies within our products such that having to change to an alternative supplier may cause significant disruption to our operations. The supply of key components could be interrupted for any reason, or there could be significant increases in the prices of these key components. Additionally, changes in business conditions, force majeure, governmental changes and other factors beyond our control, or that we do not presently anticipate, could also affect our suppliers' ability to deliver components to us on a timely basis. If any of these events occurs, our business, financial condition, results of operations and prospects may be materially and adversely affected.
We cannot guarantee that the quality of components and parts manufactured by external suppliers will be consistent and maintained at a high standard. Any defects of or quality issues with these components or any noncompliance incidents associated with these third-party suppliers could result in quality issues with our UASs and hence compromise our brand image and results of operations. In extreme situations, we may be exposed to liabilities as a result of significant damages caused by certain components from external suppliers and we cannot assure you that we will be able to obtain sufficient insurance coverage at an acceptable cost in the future. A successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business, financial condition and operating results.
We rely on third-party logistics providers to deliver our domestic sales orders and certain overseas orders. Inadequate third-party logistics services or failure to mitigate the risks of damage or disruption to our distribution logistics could adversely affect our business.
Our ability to transport and sell our UASs is critical to our success across our operations. We typically rely on third-party logistics service providers to deliver our domestic sales orders and certain overseas orders. Damage or disruption to our distribution logistics due to disputes, weather, natural disasters, fire, explosions, terrorism, pandemics or labor strikes could impair our ability to distribute or sell our UASs. Inadequate third-party logistics services could also potentially disrupt our distribution and sales and compromise our business reputation. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
If our business partners, contractors, suppliers, sales agents, dealers or third-party logistics services providers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity beyond our own control.
Our reputation is sensitive to allegations of unethical business practices. We do not control the business practices of our business partners, independent contractors and suppliers, sales agents, dealers or third-party logistics services providers. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, sales agents or dealers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our suppliers, business partners, sales agent, dealers or third-party logistics services suppliers or the divergence of their labor or other practices from those generally accepted as ethical in the markets in which we do business could also attract negative publicity, diminish our brand image and reduce demand for our UASs and UAS products.
If customers modify our UASs or operating systems, the UASs may not operate properly, which may cause damage, create negative publicity and harm our business.
Our customers may try to modify our UASs or operating systems for various reasons, which could compromise the performance and safety of our UASs, as well as the safety of the users. During such modifications, they may use third-party parts that may not be compatible with our products. We do not test, nor do we endorse, such modification. In addition, the use of improper external cabling or unsafe charging outlets can expose our customers to injury from UAS malfunctioning. Any injuries or damages resulting from such modifications or misuses could result in adverse publicity, which would negatively affect our brand and harm our business, prospects, financial condition and operating results.
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An inability to secure or defend intellectual property rights and protections for our technologies may negatively impact our business or financial position.
We have developed security screening technologies that are adequate to counter various threats. We may be unable to prevent competitors from independently developing or selling products similar to or duplicate of our technology, and there can be no assurance that the resources invested by us to protect our Intellectual Property will be sufficient. We may be unable to secure or retain ownership or rights. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Regardless of the merit of such claims, responding to infringement claims can be expensive and time-consuming. If we are found to infringe any third-party rights, we could be required to pay substantial damages or we could be enjoined from offering some of products and services. Also, there can be no assurances that we will be able to obtain or renew from third parties the licenses we need in the future, and there is no assurance that such licenses can be obtained on reasonable terms.
In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages. The claims under any patents that issue from our patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. It is also possible that the intellectual property rights of others could bar us from licensing and exploiting any patents that are issued from our pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent applications and could subject our patent applications to invalidation. Finally, in addition to those who may claim priority, any of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
We have limited insurance coverage, which could subject us to significant costs and business disruption.
We have limited liability insurance coverage for our products and business operations. We may not be able to secure additional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful liability claim against us due to injuries or damages suffered by our users could materially and adversely affect our financial conditions, results of operations and reputation. Even if unsuccessful, such a claim could cause us adverse publicity, require substantial costs to defend, and divert the time and attention of our management. In addition, we do not have any business disruption insurance. Any business disruption could result in substantial cost to us and diversion of our resources. Furthermore, the United States, Canada or any other jurisdiction relevant to our business may impose requirements for maintaining certain minimum liability or other insurance relating to the operation of UASs. Such insurance policies could be costly, which would reduce the demand for our UASs. Alternatively, certain insurance products that would be desirable to UAS operators may not be commercially available, which would increase the risks of operating our UASs and also reduce the demand for them.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct our business or sell our products, including the Canadian Corruption of Foreign Public Officials Act, the FCPA, and other anti-corruption laws and regulations. These anti-corruption laws prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a "foreign official" for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.
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We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. We have also entered into joint ventures and/or other business partnerships with government agencies and state-owned or affiliated entities. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.
Conflicts of interest may arise as a result of our directors and officers being directors and officers of other technology companies.
Certain directors and officers of the Company will be engaged in, and will continue to engage in, other business activities on their own behalf and on behalf of other companies and, as a result of these and other activities, such directors and officers of the Company may become subject to conflicts of interest. The BCBCA provides that in the event that a director has a material interest in a contract or proposed contract or agreement that is material to the issuer, the director must disclose his interest in such contract or agreement and refrain from voting on any matter in respect of such contract or agreement, subject to and in accordance with the BCBCA. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the BCBCA. We cannot assure you that such conflicts will resolve in our favor.
We have granted, and may continue to grant, stock options under our stock option plan, which may result in increased share-based compensation expenses.
We adopted a new stock option plan in 2016, to incentivize our employees, directors and consultants and align their interests with ours. We recognize expenses in our consolidated statement of loss in accordance with IFRS. Under our current stock option plan, we are authorized to grant stock options to purchase up to 10% of our Company's issued and outstanding common shares. As of November 30, 2021, there were 4,225,000 stock options granted and outstanding. As of November 30, 2021, our unrecognized share-based compensation expenses relating to unvested awards, amounted to $307,734.
We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based awards to employees in the future. However, the number of shares reserved for issuance under our share incentive plan may not be sufficient to recruit new employees and to compensate existing employees. Furthermore, prospective candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. Thus, our ability to attract or retain highly skilled employees may be adversely affected by declines in the perceived value of our equity or equity awards. To attract and retain qualified employees, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.
Litigation
The Company and/or its directors may be subject to a variety of civil or other legal proceedings, with or without merit. We may be the subject of complaints or litigation from customers, employees or other third parties for various actions. The damages sought against us in some of these litigation proceedings could be substantial. We cannot assure you that we will always have meritorious defenses to the plaintiffs' claims. While the ultimate effect of these legal actions cannot be predicted with certainty, our reputation and the result of operations could be negatively impacted. The proceedings we may be involved in from time to time could incur substantial judgments, fines, legal fees or other costs and have a material adverse effect on our business, financial condition, results of operations and cash flows.
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As certain of the Company's officers have other outside business activities and, thus, may not be in a position to devote all of their professional time to the Company, the Company's operations may be sporadic, which may result in periodic interruptions or suspensions.
Epidemics and pandemics, such as the COVID-19 pandemic, could materially disrupt the Company's business and have a negative impact on the Company's financial results and financial condition
We are vulnerable to the general economic effects of epidemics, pandemics and other public health crises, such as the COVID-19 pandemic. Due to the recent outbreak of COVID-19, there has been a substantial curtailment of travel and business activities, which is causing significant disruptions to the global economy. The extent to which COVID-19 impacts our results will depend primarily on future developments, which are highly uncertain and cannot be predicted with confidence, including the severity and duration of the crisis, the speed and effectiveness of vaccine and treatment developments and deployment, potential mutations of COVID-19, and the impact of actions taken and that will be taken to contain COVID-19 or treat its impact, among others. For example, if COVID-19 continues to spread, we may need to limit operations or implement additional restrictions as a result of widespread government restrictions.
We have been affected in a number of ways, such as the way in which we deal with our researchers and their activities, and planning for and carrying out clinical trials, all of which have experienced some short-term disruption and may suffer long-term changes in the way we will do business. Actions such as government lock downs have slowed or, in some cases, temporarily stopped research and development activities and clinical trials. Various safety protocols for personal interactions may hamper research and development activities. To date, since we are mostly focused on the activities related to research and development we have not experienced the larger adverse economics of a slowed economy; however, we do expect that timelines for our research and development, clinical trials, regulatory approvals and bringing our products to market will cause our operational costs to be greater than anticipated in this current fiscal year and going forward. The financial effect will be that our development expenses will increase and we will have to obtain additional capital funding. Any required additional equity funding will be dilutive to the equity of our investors and debt financing will have restrictive covenants that could adversely affect our business plans and operational objectives. Any further funding that we may need may not be available or even if available it may not be on terms that are acceptable to the Company.
Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and operational challenges faced by our customers. Continued outbreaks of COVID-19 could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn or a global recession that could cause significant volatility or decline in the trading price of our securities, affect our ability to execute strategic business activities, affect demand for our products and likely impact our operating results. These may further limit or restrict our ability to access capital on favorable terms, or at all, lead to consolidation that negatively impacts our business, weaken demand, increase competition, cause us to reduce our capital spend further, or otherwise disrupt our business.
Risks Relating to the Common Shares
If our Company's business is unsuccessful, our shareholders may lose their entire investment
Although shareholders will not be bound by or be personally liable for our Company's expenses, liabilities or obligations beyond their total original capital contributions, should our Company suffer a deficiency in funds with which to meet our obligations, the shareholders as a whole may lose their entire investment in our Company.
The price of our common shares has been and may continue to be volatile.
The trading price for our common stock on the CSE (where our stock has traded since March 10, 2016) has been and is likely to continue to be highly volatile. Although our common shares are currently quoted on the OTCQB, there is no active market for our common shares, and no significant U.S. market may develop. If such a market develops, prices on that market are also likely to be highly volatile. As a result, an investor may find it difficult to sell, or to obtain accurate quotations of the price of our common shares.
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Factors that could adversely affect the price of our common shares include:
If we fail to implement and maintain an effective system of internal controls to remediate our material weaknesses over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence in our Company and the market price of our common shares may be materially and adversely affected.
Prior to the public listing of our common shares, we were a private company with limited accounting and financial reporting personnel and other resources to address our internal control over financial reporting. In connection with the audit of our consolidated financial statements as of and for the year ended November 30, 2021, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting. As defined in the standards established by the PCAOB, a "material weakness" is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that have been identified relate to our lack of sufficient accounting and financial reporting personnel with requisite knowledge of and experience in application of IFRS rules, and lack of financial reporting policies and procedures that are commensurate with IFRS and SEC reporting and compliance requirements. We are in the process of implementing a number of measures to address the material weaknesses and deficiencies that have been identified. See "Item 15. Controls and Procedures." However, we cannot assure you that these measures may fully address the material weaknesses and deficiencies in our internal control over financial reporting or that we may conclude that they have been fully remediated.
We are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse opinion on the effectiveness of internal control over financial reporting because of the existence of a material weakness if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain an effective internal control environment, it could result in material misstatements in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our businesses, financial condition, results of operations and prospects, as well as the trading price of our common shares, may be materially and adversely affected. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
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As a "foreign private issuer", our Company is exempt from certain sections of the Exchange Act which results in shareholders having less complete and timely data than if the Company were a domestic U.S. issuer.
Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our material events through press releases, distributed pursuant to the rules and regulations of the CSE. Press releases relating to material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information which would be made available to you were you investing in a U.S. domestic issuer.
In addition, due to the Company's status as a foreign private issuer, the officers, directors and principal shareholders of our Company are exempt from the short-swing insider disclosure and profit recovery provisions of Section 16 of the Exchange Act. Therefore, these officers, directors and principal shareholders are exempt from short-swing profits which apply to insiders of U.S. issuers. The foregoing exemption results in shareholders having less data in this regard than is available with respect to U.S. issuers.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.
We will incur increased costs after we cease to qualify as an "emerging growth company."
We are a public company and continue to incur significant legal, accounting and other expenses and costs associated with our public company reporting obligations. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting.
After we are no longer an "emerging growth company," we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
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Investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share if our Company issues additional shares or raise funds through the sale of equity securities.
Our constating documents currently authorize the issuance of an unlimited number of common shares without par value. If we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change in control of our Company.
Our Company does not intend to pay dividends on any investment in our common shares.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our Company will need to come through an increase in the market price of our common shares. This may never happen, and investors may lose all of their investment in our Company.
The risks associated with penny stock classification could affect the marketability of our common shares and shareholders could find it difficult to sell their shares.
Our common shares are subject to "penny stock" rules as defined in Rule 3a51-1 of the Exchange Act. The SEC adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Transaction costs associated with purchases and sales of penny stocks are likely to be higher than those for other securities. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common shares in the United States and shareholders may find it more difficult to sell their shares.
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Risks Relating to Management
We depend on key personnel to operate our business effectively in the competitive security and threat detection technology industry.
Our success largely depends upon on the performance of the directors and officers and our continuing ability to attract and retain highly qualified personnel. The loss of the services of these persons, or the failure to attract highly qualified personnel in the future, may have a material adverse effect on our business and prospects. Moreover, our competitors may hire and gain access to the expertise of our former employees or our former employees may compete with us. There is no assurance that we will be successful in attracting, integrating, motivating and retaining key personnel or that former employees will not compete with in the future. If we are unable to retain our key personnel and attract additional qualified personnel as and when needed, our business may be adversely affected.
Since certain of our officers and directors are located in Canada, it may be difficult to enforce any United States judgment for claims brought against such officers and directors.
Our Company is organized under the laws of the Province of British Columbia, Canada and certain of our officers and directors are residents of Canada. While a cross border treaty exists between the United States and Canada relating to the enforcement of foreign judgments, the enforcement process is cumbersome and in some cases has prevented the enforcement of judgments. As a result, while actions may be brought in Canada, it may be impossible to affect service of process within the United States on the Company's officers and directors or to enforce against these persons any judgments in civil and commercial matters, including judgments under United States federal securities laws. In addition, a Canadian court may not permit an original action in Canada or enforce in Canada a judgment of a United States court based on civil liability provisions of United States federal securities laws.
Our management is free to devote time to other ventures and shareholders may not agree with their allocation of time.
Our officers and directors devote a substantial amount of their time to the management and operation of the Company's business. Management is not however, contractually required to manage or direct the Company as their sole and exclusive function and they may have other business interests and engage in other activities in addition to those relating to the Company. This includes rendering advice or services of any kind to and creating or managing other businesses, including other businesses in the fiber optic industry. Our officers and directors are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interests, which they may have in any project or opportunity of the Company. If a conflict of interest arises, at a meeting of the board of directors of our Company, any director with a conflict is required to disclose their interest in the matter and to abstain from voting on such matter.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
The Company was incorporated as Alexandra Capital Corp. under the BCBCA on October 17, 2011. The head office, principal address and registered and records office of the Company are located at Suite 206 - 1045 West 8th Avenue, Vancouver, British Columbia V6H 1C3. We have three wholly owned subsidiaries, Plymouth Rock Technologies Inc., a Delaware corporation, Plymouth Rock Technologies Inc., incorporated in England and Wales, and Tetra Drones Ltd., incorporated in England and Wales.
Former listing on the TSXV
On May 2, 2012, the Company was listed on the TSXV as a CPC. On August 11, 2014, the Company completed its Qualifying Transaction with arm's length vendor Eastland Management Limited, whereby the Company was granted an option to acquire a 100% interest in Eastland's Southern Belle exploration project.
Transition to listing on the Canadian Securities Exchange
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On March 10, 2016, the Company was listed on the CSE and voluntarily delisted from the TSXV.
Business acquisition of Plymouth Rock USA and name change
On October 31, 2018, the Company completed its business acquisition of Plymouth Rock USA and changed its name from Alexandra Capital Corp. to Plymouth Rock Technologies Inc. and changed its trading symbol on the CSE to "PRT" (See "Business Acquisition" section of this report).
Commencement of trading on the Frankfurt Stock Exchange in Germany
On January 8, 2019, the Company's common shares commenced trading on the Frankfurt Stock Exchange in Germany under the Symbol: 4XA, WKN# - A2N8RH.
Depositary Trust Company eligibility
On February 12, 2019, the Company's common shares became eligible for electronic clearing and settlement through the DTC. DTC eligibility is expected to simplify the process of trading and enhance liquidity of the Company's common shares.
Commencement of trading on the facilities of the OTCQB
Effective August 27, 2019, the Company's common shares commenced trading on the OTCQB under the symbol: PLRTF.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our website address is www.plyrotech.com.
Historical Development of our Business
Entry into Defense Technology Industry by Acquisition of Plymouth Rock USA as a CSE Listed Company
Pursuant to an arm's length share purchase agreement dated June 21, 2018 with Plymouth Rock USA and its three shareholders, the Company acquired all of the issued and outstanding common shares of Plymouth Rock USA in consideration of the issuance of 3,000,000 common shares of the Company. As a result of the acquisition of Plymouth Rock USA, the Company's principal business activity, through its subsidiary Plymouth Rock USA, was changed from mineral exploration to developing technologies related to remotely detecting assault firearms and suicide bombs concealed on the person or a carry bag. The Company focuses on detection methods with and without the need for a checkpoint of the suspect who is being screened. The Company's planned products encompass the very latest radar, imaging, and UAS technologies for quickly detecting, locating and identifying the presence of threats and for search and rescue missions for law enforcement.
On March 26, 2021, the Company incorporated a new subsidiary in United Kingdom, Plymouth Rock Technologies UK Limited. The purpose of PRT UK is to augment the Company's existing research and development of the X-1 and X-V for the U.S. and EMEA markets. Many of the UK consultants of the Company became direct employees of the Company.
Acquisition of Tetra Drones
On June 7, 2021, the Company announced that it had completed the arm's length acquisition of Tetra Drones, a developer of custom-made, high-performance and niche UAS, which the Company had closely collaborated on sensor technology. Tetra Drones is a private company subsisting under the laws of England and Wales, which carries on the business of producing drones and was founded in 2017 in the UK. The acquisition of Tetra Drones provides the Company with a U.K. based production and sales team with experience selling to leading universities, law enforcement and environmental agencies for mission-specific UAS.
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The Company acquired all of the then issued and outstanding shares of Tetra Drones, 100 ordinary shares held by the sole Shareholder, Mr. Ben Pickard. Pursuant to the share purchase agreement, the Company acquired Tetra Drones for the sum of £350,000 GBP ($579,682 CAD), payable on an installment basis as follows:
As a result of the acquisition, the Company now owns all outstanding shares of Tetra Drones and assumed Tetra Drones' existing liabilities. The principal owner of Tetra Drones became part of the Company's management and shall be paid a monthly salary along with bonus shares or other equity instruments at the discretion of the board. All expenses related to the transaction were paid by the Company.
The Company sought an independent valuation for Tetra's net assets as at June 4, 2021. Tetra's working capital were all valued based on their carrying values as carrying value was deemed to approximate fair value as at June 4, 2021.
The fair value of net liabilities of Tetra amounted to $77,412 as at the date of acquisition. The Company applied the optional concentration test permitted under IFRS 3 to the acquisition which resulted in the acquired assets being accounted for as an asset acquisition. As such the purchase price was allocated to the identifiable assets and liabilities based on their fair values at the date of acquisition.
Since the transaction was deemed as an asset acquisition, all remaining amounts after deducting the net liabilities from consideration is allocated to Tetra's identifiable intangible asset (customer relationship total of $657,094). This will be amortized over a period of three years from date of acquisition.
B. Business Overview
Our Company
We are a security and threat detection technology company. We were formed by highly experienced scientists, engineers and business executives to develop and commercialize combined sensory and intelligence products. Our current activities are focused on the development of security screening and threat detection technology solutions using radar imaging and signal processing technology to remotely detect assault firearms and suicide bombs concealed on the person or a carry bag with and without the need for a checkpoint of the suspect who is being screened. The Company's planned products encompass the very latest radar, imaging, and UAS technologies for quickly detecting, locating and identifying the presence of threats and for other applications such as, search and rescue missions for law enforcement, environmental and humanitarian missions for global government agencies, and inspection of infrastructure for structural damage.
Our Strategy
The Company's objective is to maximize the value of the Company for our shareholders, and our strategy to obtain this result is to focus on project evaluations and project generation. To proceed with this strategy, additional financings may be required during the current fiscal year.
The Company is currently at the inflection point of moving from design/development of prototypes to Low-Rate- Initial-Production. Commercializing the products is a major step in the companies' strategic growth. With the pandemic being on the downturn, this will allow the company to spend appreciably more of its resources to meet with customers directly and start to attend trade shows in person. The marketing spend will also increase to accommodate this growth and sales strategy.
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Our Industry
We operate in the threat detection systems and global airport automated security industries. The threat detection systems market is expected to reach US$84 billion by 2024. The global airport automated security screening market is projected to reach US$16 Billion by 2024.
Our Technologies
The Company's core technologies include: (1) Wi-Ti - Wireless Threat Indication; (2) Shoe Scanner - SS1 Footwear Imaging Radar; (3) MiRIAD - Millimeter Remote Imaging from Airborne Drone; (4) X1 and XV Unmanned Aerial Systems; and (5) CODA - Cognitive Object Detection Apparatus.
1.Wi-Ti - Wireless Threat Indication
Wi-Ti is a wall or portal mounted sensor system that will detect concealed threat items over an extended coverage area. It is ideal for covertly screening unstructured crowds to widen the security perimeter in public places.
The past four years have seen significant advances in the monitoring of Wi-Fi radio wave analysis. This includes Wi-Fi used to track and trace the movements of people in real time through walls. Similar techniques have used Wi-Fi radio waves to detect subtle changes in breathing and heart rates. The Company's Wi-Ti technology advances that analysis to concealed threat detection. Unlike other emerging screening technologies, Wi-Ti can be used in airport concourse areas, stadiums, and open spaces at stand-off distances. Our unique radar imaging and signal processing technology allows for non-intrusive screening of crowds in real time. Further, with Wi-Ti, there are no radio emissions, so this method of detection can be freely used in any Wi-Fi enabled environment without special license or regulatory approval.
On February 19, 2019, the Company signed a memorandum of understanding with Abicom International, a Qualcomm authorized design partner, to assist in the continued development of the Plymouth Rock Wi-Ti (Wireless Threat Indication) system and prototype. Wi-Ti is a passive detection system that uses artificial-intelligence (AI) to analyze the radio waves within an area. The system uses radar-based algorithms to filter common items such as cell phones and general pocket items from concealed threats items such as assault weaponry and improvised explosive devices (IEDs).
Abicom International has worked with many prominent security and technology companies, including Bosch Security, Siemens Transportation, QinetiQ, Harris Systems and Northern Light Technologies. Abicom International's status as a Qualcomm design center is an assurance of excellence that is granted to less than eleven companies globally". The partnership between Plymouth Rock and Abicom International is about the drive to continuously expand the realm of possibilities for Wi-Fi based technologies.
2. Shoe Scanner - SS1 Footwear Imaging Radar
The SS1 is a floor-mounted 3D imaging system that uses harmless millimeter-wave imaging techniques to inspect footwear to determine if it has been altered or is being used to transport concealed items, such as weaponry, substances, compounds or electronic items. The SS1 can be used at security and identification checkpoints to eliminate the need for footwear removal, streamlining the security screening process and reducing bottle necks.
The Shoe Scanner allows for the rapid screening of footwear without necessitating removal of shoes. With a screening time of 30 persons per minute the Shoe Scanner is ideal for airport terminals, prisons/correctional facilities, public events and other high throughput, screening applications.
On March 12, 2019, the Company announced that MMU assigned their millimeter wave shoe scanning technology intellectual property to the Company in consideration of $30,000. The Millimeter Wave Shoe Scanner is a floor-mounted 3D imaging system that uses harmless millimeter wave imaging techniques to inspect footwear. The scanner is then able to identify if the footwear has been altered or is being used to transport concealed items, such as weaponry, substances, compounds, or electronic items.
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On October 8, 2019, the transfer of the intellectual property, including the UK patent, for the Shoe Scanner from MMU to the Company was completed.
On December 3, 2019, the Company announced the launch of the SS1 Shoe Scanner. The Company also filed on September 4, 2019 the U.S. Patent application No. 16/560,480 for its "Ellipsoidal" scanning technique under the title "Method and System for Determining Dielectric Properties of an Object." The scanning technique is used in the SS1 Shoe-Scanner. In October 2020, we received a Notice of Allowance by the U.S. Patent and Trademark Office for the Ellipsoidal scanning technique.
On December 17, 2019, the Company announced the SS-1 Shoe Scanner produced successful 3D images of potential threats of other concealments. In collaboration with the University of Chichester and Manchester Metropolitan University, these results have been published in a technical article "Thermography at Millimeter Wavelengths for Security Inspection of Footwear" in the online journal, Progress in Electromagnetics Research.
On or about September 7, 2020, the Company applied to the to have the SS1 Shoe-Scanner evaluated for use at security and identification checkpoints. On November 19, 2020, the Company announced that the SS1 shoe scanning technology was accepted into the TSA ITF evaluation process.
On February 22, 2022 the Company announced that it had been awarded a cooperative research and development agreement (CRADA) for its SSI Shoe Scanner system by the US department of homeland security. A CRADA is a written agreement that facilitates research and development (R&D) collaboration between one or more federal laboratories and one or more non-federal entities.
3. MiRIAD - Millimeter Remote Imaging from Airborne Drone
MIRIAD is a prototype compact sensor package that is specifically designed for use on UAS. The sensor is being designed to support a variety of functions, from the primary function of detecting assault weapons and person-borne improvised explosive devices, alongside a whole spectrum of other uses, such as detecting breaks in power cables, solar farm efficiencies, structure degradation and external corrosion. The sensor uses completely passive techniques, which means there are no emissions and therefore no regulatory issues.
MiRIAD uses a unique ultra-lightweight antenna to capture radar images of target subjects within a wide field of view. The captured radar image data, along with high resolution video is then backhauled wirelessly over a high-capacity data link to a central processing center for data analysis. Using algorithm based digital signal processing techniques the radar signature is analyzed and overlaid onto the video imagery to display a real time image of the video capture that includes an indication of any concealed threat item. The technology uses both artificial intelligence and augmented reality techniques to positively identify a threat and its exact location on subjects within its field of view. Multiple MiRIAD equipped UAVs can be supported by a single data processing facility to cover large areas.
MiRIAD's primary intended applications are outdoor public event crowd screening, special police and security service operations, and forward operating base protection. Other planned applications include remote infrastructure inspection and analysis; oil and gas pipeline inspection, and search and rescue (land and sea).
On August 31, 2020, the Company announced that it had produced definitive images of infrastructure corrosion utilizing its prototype MiRIAD Sensor system. This will provide a new and more importantly, low-cost capability for detecting civil and military aircraft fatigue, tanker and naval vessel corrosion, pipeline safety for oil and gas installations and infrastructure/bridge fatigue. The Company also believes that safe, passive detection will ultimately be applied to medical skin analysis for burns and next generation walk through detection for modern airports.
4. X1 and XV Unmanned Aerial Systems
The X1 is a purpose built coaxial multirotor UAS designed with the direct input of law enforcement, intelligence agencies, military, and rescue services. Using co-axial heavy lift motors, the X1 improves performance over traditional co-axial propeller designs and increases motor torque by 40%, delivering powerful propulsion and high power to weight capability.
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The XV is a fixed-wing UAS platform with the added capability of vertical take-off and landing. This unique capability allows operators to extend their operational range while removing the requirement for a large runway. The XV can launch from an area as small as 8 square meters fully autonomously and operate for up to 7 hours.
On October 15, 2019, the Company announced the launch of the X1 to address the global requirement for a multi-role, state-of-the-art aerial platform. As of the end of November 2020, the X1 was starting its low-rate demonstration phase. Currently, the Company is procuring materials to begin production of additional demonstration units. X1 systems will be manufactured for various applications and targeted customers.
On May 6, 2020, the Company announced that it has received permission to operate drone platform in UK airspace, the Permission for Commercial Operations from the UK Civil Aviation Authority, to operate small unmanned aircraft and small unmanned surveillance aircraft. The Company can now utilize its X1 platform for commercial operations, allowing our operators to demonstrate threat detection and surveillance in civilian airspace to both clients and potential partners. This also enables the Company to offer technical reconnaissance and non-destructive testing services for both civil and military applications.
On May 14, 2020, the Company announced that the X1 platform would be used in a series airborne tests for the UK National Health Service (NHS) for emergency apparatus delivery. This will involve several test scenarios, that if successful will lead to on-scene delivery of defibrillators and other critical trauma assistance technologies.
On June 10, 2020, the Company announced that it had signed a Letter of Intent with SDS Group Australia Pty Ltd., a leading provider of best of breed products and equipment to the Australian security and defense securities, to position X1 for procurement-focused evaluations following initial consultation with members of the Australian Government. The focus of the partnership is primarily centered around the need for the early detection and identification of remote wildfires.
On July 16, 2020, the Company began a strategic alliance with Hummingbird Drones' Fire AI division for wildfire analysis from the Company's X1 and XV platforms, to get analytics to the fire fighters as close to real time as possible. Hummingbird Drones is an infrared service provider in Canada, and their Fire AI data analytics service has been used as a hotspot detection platform for wildfires for since 2017.
On August 25, 2020, the Company announced that it has signed a re-seller and purchase agreement with Michigan-based Trendset Communications Group, a leading technology provider to the security, telecommunications, and technology sector.
On February 3, 2021, the Company announced the addition of MediMod to its X1 and XV UAV payload systems. MediMod is an active insulated refrigerated storage module that will have multiple medical uses and advantages, including assisting with the immediate need for rapid deployment of COVID-19 vaccine transportation to remote sites or between medical facilities as part of multiple national campaigns for mass vaccination. The transportation module will be dual-use and can be set for warm or cool state for the transportation of blood, human transplant organs and various vaccines across cities and remote destinations.
On February 24, 2021, the Company announced the launch of XV-S, a fixed-wing UAS platform with the added capability of vertical take-off and landing. This capability removes the requirement for a large runway or expensive launch catapult and recovery nets, which are usually required by most fixed-wing drones.
On June 24, 2021, the Company announced that its first X1-H model UAS had been sold and delivered to Aardvark LLP, to perform long range oil pipeline security and environmental operations in remote locations.
On July 13, 2021, the Company announced it closed a contract for the sale and delivery of an X1-Lite (a smaller version of the X1 UAS) to the Durrell Wildlife Conservation Trust to perform critical environmental operations in Madagascar. The Durrell Wildlife Conservation Trust will use the Company's drone-based thermal infrared cameras as a new way of monitoring lemurs and identifying any potential poachers.
On September 2, 2021, the Company announced the sale of custom drones to Survey-AR, delivering a drone swarm test capability. The project assessed an autonomous drone swarm system to optimize weather and air quality monitoring in atmospheric boundary layer environments with particular importance in urban and industrial areas. The Company supplied a fleet of UAS to autonomously operate together and formed a 'swarm'.
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On October 26, 2021, the Company announced the delivery of several new orders for environmental monitoring and Petrochemical inspection. Environmental monitoring will be carried out with X-Lite series drones, equipped with a winch and collection cup for deep water sampling. This will study plastic particulates in water and other microbiological impact. The drones will be operated by Swiss University, ETH Zürich. The UAS for petrochemical inspection will be used in Saudi Arabia for essential ultrasound testing of infrastructure at some of the world's highest volume petrochemical plants which includes those owned by Saudi Aramco oil. The petrochemical sale is in collaboration with the Company's partner Tritex NDT UK.
On October 26, 2021, the Company also announced the delivery of several new orders for environmental monitoring and Petrochemical inspection. Environmental monitoring was be carried out with X-Lite series drones, equipped with a winch and collection cup for deep water sampling to study plastic particulates in water and other microbiological impact. The drones were operated by Swiss university, ETH Zürich. The UAS for petrochemical inspection were used in Saudi Arabia for essential ultrasound testing of infrastructure at some of the world's highest volume petrochemical plants which included those owned by Saudi Aramco oil. The petrochemical sale is in collaboration with the Company's partner Tritex NDT UK.
5. CODA - Cognitive Object Detection Apparatus
CODA is a uniquely designed, ultra-compact radar device that can be utilized for a variety of applications across many industries, covering everything from traditional radar for drone or aircraft detection, to low-power stand-off weapon detection. The CODA system is a production status product - not a prototype and is the size of an electronic tablet, uses off the shelf high-speed processors and can be fitted to or inside a wall. It uses FCC allocated detection frequencies and has been demonstrated in several programs in the U.S. funded under the NATO Science for Peace and Security Program. The CODA system has also been through rigorous testing by the U.S. Army Night Vision and Electronic Sensors Directorate under the Adaptive Red Team Technical Support and Operational Analysis activity.
CODA-1 is a U.S. government tested stand-off weapon detection system, specifically configured to identify bombs, weapons and threat items that are concealed upon the person. Using artificial intelligence algorithms, the CODA-1 is able to detect concealed weapons, such as suicide bombs, assault weaponry and large bladed weapons from 3-10 feet. Its small and mobile configuration allows for quick set up and tear down, making it an ideal security measure for situations with short-term security concerns. The device can be used as a first layer detection device in government authorized checkpoint environments that have all relevant government and lawful search permissions. It can also be used at military checkpoints to screen personnel coming into a Forward Operating Base in any environment.
The Company also envisions the CODA-1 system being integrated on our X1 and XV drones and onto currently available security robots for threat detection in unstructured crowds. These types of robots add an additional layer of security in busy parking lot structures, shopping malls, hospitals and corporate campuses.
On September 17, 2020, the Company announced that it had executed a letter of intent with R3 Technologies Inc. to collaborate to bring CODA-1 to market. The CODA-1 is an available stock item from R3 Technologies that PRT has an exclusive right to re-sell. Since the signing of the LOI PRT has been upgrading the packaging, performed further operational testing, and plan to develop new software which has been an on-going R&D project and is currently on hold due to lack of funds. We expect to start the software development in Q32022.
On February 9, 2021, the Company announced that its CODA-1 system had undergone further successful testing for detection of various concealed weaponry on a person at its laboratories.
Sources and Availability of Raw Materials
We do not require or anticipate requiring any uncommon raw materials for manufacturing of our planned products. Our planned products will rely on common electronic components and materials which are not subject to significant price volatility.
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Patents and Licenses; Industrial Commercial and Financial Contracts; and New Manufacturing Processes
In conducting our business operations, we are dependent on certain proprietary or licensed technology, designs, and other intellectual property. We currently hold the United Kingdom patent for the Shoe Scanner technology for a term of 15 years. The patent number is GB2516410.
In October 2020, we received a Notice of Allowance by U.S. Patent and Trademark Office of patent application No. 16/560,480 for the "Method and System for Determining Dielectric Properties of an Object" used for the Shoe Scanner. We have not obtained any other patents, patents applications or trademarks in connection with our products or planned products and have no plans to do so in the immediate future. We intend to protect our intellectual property primarily through a combination of trade secrets, license restrictions, and copyright.
Competition
We are a security and threat detection technology company. We compete with other technology companies for financing and for market share in our fields of specialization. Many of the companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on the acquisition, development, and commercialization of technologies of merit. In addition, they may be able to afford more scientific or engineering expertise in the development of their technologies. This competition could result in competitors offering products of greater quality and interest to prospective investors who may finance additional development and commercialization. This competition could adversely impact on our ability to finance further product development and to achieve the financing necessary for us to develop our business.
Compliance with Government Regulation
Our business is subject to laws and regulations governing the production, sale and use of surveillance, threat detection and security technology, including but not limited to regulation regarding public safety, personal privacy, public transportation, criminal law, consumer protection, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, environmental protection, and other matters. Legislation such as the U.S. Airport Security Federalization Act, the U.S. Aviation and Transportation Security Act and the Canadian Aviation Security Act and their respective associated regulations, and all other applicable Federal, State, Provincial and municipal laws. The testing, marketing, and sale of our current and future products may require permissions or permits from various governmental and nongovernmental authorities. There can be no assurance, however, that all permissions or permits will be obtainable or achievable on reasonable terms or that compliance with such laws and regulations would not have an adverse effect on the profitability of any product that we may develop or seek to market.
In the U.S., the Federal Aviation Administration, or the FAA, one of several modal organizations within the Department of Transportation, or the DOT, is the regulatory agency with authority to oversee the safety of aircraft operations in the national airspace system of the United States, or the NAS. By statute, the U.S. Congress has vested the FAA with authority to regulate airspace use, management and efficiency, air traffic control, safety, navigational facilities, and aircraft. By contrast, the DOT retains regulatory control over all economic authority granted to commercial operations of aircraft. Thus, in addition to any FAA approvals and authorization required for operation of aircraft within the NAS, each aircraft operator conducting commercial operations must also be issued and hold economic authority (or an exemption) from the DOT. UAS are considered a category of aircraft for purposes of regulation by the FAA and the DOT. Our UAS and their operations are therefore subject to the approval by both the FAA and the DOT.
With respect to UAS operations in the NAS, the FAA currently has the authority to promulgate and enforce restrictions regarding (i) the types of flights that may be conducted; (ii) the equipment that may be used to conduct those flights; and (iii) the training required. The regulatory framework applicable to a particular UAS operation is determined by whether (a) the UAS is used by a government agency, for commercial purposes, or as a model aircraft; and (b) whether at takeoff the UAS (including any attachments) weighs less than 55 pounds (Small UAS), or equal to or more than 55 pounds (Large UAS). As a result of this regulation, commercial use and delivery of our UAS is and in the near future is expected to continue to be subject to an uncertain or lengthy approval process. We are unable to estimate the average length of time required to obtain the applicable regulatory approvals due to the nascent nature of UAS regulations and the lack of relevant precedents. We cannot predict when these regulations will change, and any new regulations may impose onerous requirements and restrictions. The FAA has yet to announce any new regulations.
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Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing the marketing, sale, or use of our products to be curtailed.
Amendments to current laws, regulations and permits governing the intended use of our technologies, or more stringent implementation thereof, could have a material adverse impact on our business and cause increases in capital expenditures or production costs, or require abandonment or delays in development of new products.
We are committed to complying with and are, to our knowledge, in compliance with, all governmental regulations applicable to our Company and our planned products.
Research and Development Expenditures
The Company has acquired its technology and intellectual property through acquisition. We accordingly incurred $985,006 in research and development expenditures during the fiscal year ended November 30, 2021.
Employees
Currently, we have two full time employees. Our directors and certain contracted individuals play an important role in the running of our Company. We do not expect any material changes in the number of employees over the next 12 month period. We do and will continue to outsource contract employment as needed.
We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with the development of our products.
C. Organizational Structure
The following table sets out the Company's subsidiaries as of the date of this Annual Report.
Entity |
Country of Incorporation |
Ownership Interest |
Plymouth Rock Technologies Inc. |
USA |
100% |
Plymouth Rock Technologies Inc. |
UK |
100% |
Tetra Drones Ltd. |
UK |
100% |
Plymouth Rock USA was incorporated under the General Corporation Law of the State of Delaware on March 22, 2018. Plymouth Rock UK was incorporated under the General Corporation Law for England and Wales on March 26, 2021. Tetra Drones was incorporated under the General Corporation Law for England and Wales on August 8, 2017.
D. Property, Plants and Equipment
Our Company's operating office is located in an office space in Plymouth, Massachusetts. In November 2018, Plymouth Rock USA entered into a two-year lease agreement for leased premises in Plymouth, Massachusetts, commencing December 1, 2018 and ended on November 30, 2020. The minimum base rent was US$2,917 per month for the period from December 1, 2018 to November 30, 2019 and US$3,005 per month from December 1, 2019 to November 30, 2020.
Effective December 1, 2020 the Company exercised its option to renew the lease for three additional years. After renewal, the minimum base rent is US$3,095 per month for the period from December 1, 2020 to November 30, 2021, US$3,188 per month from December 1, 2021 to November 30, 2022, and US$3,284 per month from December 1, 2022 to November 30, 2023.
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We believe that our existing facilities are adequate to meet our needs for the foreseeable future.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations for the fiscal year ended November 30, 2021 should be read in conjunction with our financial statements and related notes included in this Annual Report in accordance with "Item 8 - Financial Information"). Our financial statements for the fiscal year ended November 30, 2021 were prepared in accordance with IFRS and are expressed in Canadian Dollars.
A. Operating Results
Year Ended November 30, 2021
During the year ended November 30, 2021, the Company had a comprehensive loss of $4,944,231 compared to a comprehensive loss of $2,904,690 for the year ended November 30, 2020. The increase in comprehensive losses were primarily driven by the following:
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B. Liquidity and Capital Resources
The Company's approach to managing its liquidity is to ensure that it has sufficient resources to meet its liabilities as they come due and have sufficient working capital to fund operations for the ensuing fiscal year. Financing of operations has been achieved solely by equity financing. The Company anticipates that it will require significant funds from either equity or debt financing for the development of its technologies and to support general administrative expenses.
At year ended November 30, 2021, the Company had $632,538 in current assets (November 30, 2020 - $79,919) and $706,666 in current liabilities (November 30, 2020 - $322,738) for a working capital deficiency of $74,128 compared to a working capital deficiency of $242,819 as at November 30, 2020. The decrease in the working deficit to current working capital is primarily due to a significantly higher cash balance due to equity issuances.
At year ended November 30, 2021, the Company had a share capital balance of $11,834,582 (November 30, 2020 - $7,376,763) and an accumulated deficit of $13,867,962 (November 30, 2020 - $8,893,128). The increase share capital is primarily due to private placements, warrant exercises, and option exercises that have occurred during the year.
Financing of operations has been achieved solely by equity financing. As the Company will not generate sufficient funds from operations for the foreseeable future, the Company is primarily reliant upon the sale of equity securities in order to fund future operations. Since inception, the Company has funded limited operations through the issuance of equity securities on a private placement basis. The Company's ability to raise funds through the issuance of equity will depend on economic, market and commodity prices at the time of financing. The Company expects to generate similar losses quarter over quarter for the next fiscal year in relation to the Company's development, administration and promotion of its technologies. As of report date, management anticipates that the funds raised to date will not be sufficient to sustain operations and the development of the Companies technologies for the next fiscal year.
Detailed discussions related to the Company's cash flows during the year ended November 30, 2021
Cash balances increased by a total of $350,333 during the year ended November 30, 2021
(November 30, 2020 - decreased by $558,406). This is mainly due to the issuance of 8,930,000 shares through private placement and shares issued in relation to 6,129,572 warrants exercised and 425,000 options exercised for aggregate net proceeds of $4,417,047.
During the year ended November 30, 2021, cash used in operating activities was $3,441,102 compared to cash used in operating activities of $2,114,515 during the year ended November 30, 2020. The increase in cash used was primarily due to payments for the research and development, wages & salaries, consulting and legal fees.
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Cash used in investing activities during the year ended November 30, 2021 was $573,343 (November 30, 2020 - $61,094). The cash used in investing activities were primarily for equipment purchases for the development of demo equipment and the cash payment for the acquisition of Tetra Drones completed during the current year.
Cash provided by financing activities during the year ended November 30, 2021 was $4,326,442 compared to cash provided by financing activities of $1,587,091 during the year ended November 30, 2020. The increase was primarily due to the private placement completed during the year in addition to option and warrant exercises. This was partially offset by lease payments and some loan payments during the year.
The effect of foreign exchange rates on cash during the year ended November 30, 2021 amounted to $38,336 (November 30, 2020 -$30,112).
C. Research and Development, Patents and Licenses, etc.
Not applicable.
D. Trend Information
Other than as disclosed elsewhere in this Annual Report and specifically in "Item 4.B. Business Overview," we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
The following table summarizes selected financial data for our Company for the fiscal years ended November 30, 2021, 2020, 2019, 2018, and 2017 respectively, prepared in accordance with IFRS as issued by the IASB. The information in the table is expressed in Canadian Dollars was extracted from the detailed financial statements and related notes included in this Annual Report and should be read in conjunction with such financial statements.
Selected Financial Data
(CAD$)
Consolidated Statements of |
Year Ended |
||||
2021 |
2020 |
2019 |
2018 |
2017 |
|
Revenues |
184,396 |
70,931 |
28,257 |
Nil |
Nil |
Operating Expenses |
(5,014,097) |
(3,064,180) |
(4,617,362) |
(681,655) |
(116,359) |
Comprehensive Loss |
(4,944,231) |
(2,904,690) |
(4,320,563) |
(986,901) |
(115,989) |
Loss Per Share Basic and |
(0.09) |
(0.08) |
(0.14) |
(0.04) |
(0.01) |
Common Shares Outstanding |
59,239,336 |
42,762,264 |
32,796,600 |
31,761,300 |
19,349,500 |
Consolidated Statements of |
As at November 30 |
||||
2021 |
2020 |
2019 |
2018 |
2017 |
|
Current Assets |
632,538 |
79,919 |
727,526 |
2,811,971 |
589,850 |
Current Liabilities |
706,666 |
322,738 |
227,058 |
166,941 |
51,171 |
Working Capital (Deficit) |
(74,128) |
(242,819) |
500,468 |
2,645,030 |
538, 679 |
Total Liabilities and Shareholders' Equity |
1,549,139 |
261,385 |
739,990 |
3,893,973 |
760,862 |
Deficit |
(13,867,962) |
(8,893,128) |
(5,968,892) |
(1,602,085) |
(615,184) |
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E. Off Balance Sheet Arrangements
We do not have any off-balance sheets arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resource that is material to investors.
F. Tabular Disclosure of Contractual Obligations
In November 2018, Plymouth Rock USA entered into a two-year lease agreement for leased premises in Plymouth, Massachusetts, commencing December 1, 2018 and ending on November 30, 2020. The minimum monthly base rent was US$2,917 for the period from December 1, 2018 to November 30, 2019 and US$3,005 from December 1, 2019 to November 30, 2020. Effective December 1, 2020 the Company exercised its option to renew the lease for three additional years. After renewal, the minimum base rent is US$3,095 per month from December 1, 2020 to November 30, 2021, US$3,188 per month from December 1, 2021 to November 30, 2022, and US$3,284 per month from December 1, 2022 to November 30, 2023.
On April 1, 2019, the Company entered into a one-year lease agreement for leased premises in Vancouver, BC, commencing on April 1, 2019 and ending on March 31, 2020. The minimum monthly base rent was $2,500. At the end of the lease term, the Company continued to pay the base rent on a month-to-month basis until December 2020.
G. Safe Harbor
Not applicable.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
The following table sets forth our current directors and senior management:
Name |
Position(s) Held with Company |
Principal Business Activities and Other |
Dana Wheeler |
President, Chief Executive Officer and Director |
President, Chief Executive Officer and Director of Plymouth Rock Technologies Inc. since October 30, 2018; Business Development Advisor, Serco, Inc. from June, 2017 to June, 2018; Chief Executive Officer and managing director, Radio Physics Solutions, October 2009 to December, 2016. |
Susan J Gardner |
Chief Financial Officer (since January 13, 2022) |
Chief Financial Officer of the Company since 2022; VP, Controller & Treasurer of Boston Mutual Life Insurance Co. from Jun 2005 to Aug 2021. |
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Name |
Position(s) Held with Company |
Principal Business Activities and Other |
Zara Kanji |
Chief Financial Officer (until November 22, 2021) |
Owner, Zara Kanji & Associates, CPA, 2003 to present; Chief Financial Officer of Megastar Development Corp., September 2011 to present; Chief Financial Officer of World Class Extractions October 2018 to present; Chief Financial Officer of INEO Tech Corp January 2019 to present; Chief Financial Officer of TechX Technologies Inc. March 2021 to present.
|
Vivian Katsuris |
Secretary (until March 16, 2022) Director (from January 13, 2022 until March 16, 2022) Interim Chief Financial Officer (from November 22, 2021 until January 13, 2022) |
Secretary of the Company from August 2014 until March 16, 2022; President and Founder of Vivkor Holdings Inc. since August 2014; Director and Corporate Secretary of ArcPacific Resources Corp. (formerly Plate Resources Inc.) from January 2014 to July 2016 and CFO from June 2015 to July 2016; Investment Advisor at Global Securities Corporation from 2003 to 2013; Corporate Secretary of KAPA Gold Inc.(formerly KAPA Capital Inc), February 2018 to May 2022, and Director from February 2018 to present: Director of Zenith Capital Corporation, December 2019 to Present; Director of Brascan Gold Inc. from September 2020 to Present; Director of ACME Lithium Inc. November 2020 to present. |
Douglas Smith |
Chairman and Director |
Managing Director at Kent Strategies LLC and Executive Vice President for MWW Group LLC. In the past he occupied the position of Managing Partner at T-Street Capital LLC and Assistant Secretary at United States Homeland Security Council. Douglas A. Smith received an undergraduate degree from Beloit College and an undergraduate degree from SIT Graduate Institute. |
Angelos Kostopoulos |
Director |
Partner with Nakou & Associates Law Firm from March 2004 to Present focusing on tax and financial compliance; Director of Blue White Capital LLC from August 2011 to Present; Manager for Enron Wind from October 1998 to December 2001; Manager for GE Wind from January 2002 to February 2004; COO for UPC Renewables from July 2006 to January 2009. |
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Name |
Position(s) Held with Company |
Principal Business Activities and Other |
Khalid M. Al-Ali |
Director |
Founder of Grupo Senseta, Inc. and Silicon Valley Space Business Roundtable, Khalid Al-Ali is Executive Chairman for Grupo Senseta, Inc. and Chairman for Silicon Valley Space Business Roundtable. |
Thomas Nash |
Director |
Founder of Xalles Holdings, Inc., Thomas W. Nash presently is Chairman, President, CEO, CFO & Secretary at this company and President for Xalles Technology, Inc., President at Xalles Financial Services, Inc. and President & Director at Co-Owners Rewards, Inc. (which are all subsidiaries of Xalles Holdings, Inc.). Mr. Nash is also on the board of 5 other companies. Thomas W. Nash previously was Chief Operating Officer of Three2N International, Inc. |
Carl Cagliarini |
Director |
Co-Founder of the Company. Chief Strategy Officer of the Company since 2018. |
Dana Wheeler-President, Chief Executive Officer, Director (Age: 61)
Dana Wheeler has been the President, Chief Executive Officer and a director of our Company since October 30, 2018.
Mr. Wheeler is a customer focused executive with over 35 years of experience in hands-on leadership and engineering roles including CEO, COO, and VP of Engineering. His extensive background includes helping technology start-ups and growth companies launch/establish engineering operations, raise capital, and develop products specialties. In 2009 he co-founded Radio Physics Solutions Inc., a threat detection technology company where he served as president until 2016. From 1997 to 2008, he served as Chief Operating Officer of Terabeam-HXI, a wireless data equipment company. Currently, in addition to his role at Plymouth Rock, he is the principal of Wheeler Engineering Services, a firm providing engineering and business consulting services to the Microwave and Millimeter-Wave industry. Mr. Wheeler holds a Bachelor of Science in Electronics Engineering Technology from the University of Massachusetts Dartmouth.
Susan J Gardner-Chief Financial Officer (Age: 63)
Susan J Gardner was appointed Chief Financial Officer of the Company on January 13, 2022.
Ms. Gardner has over 40 years in the accounting industry. She was previously VP, Controller & Treasurer of Boston Mutual Life Insurance Co. from June 2005 to August 2021.
Vivian Katsuris-Secretary, Director (until March 16, 2022) (Age: 57)
Ms. Katsuris was appointed Chief Financial Officer and Secretary on August 11, 2014. On November 20, 2017 she resigned as CFO and was appointed President, Chief Executive Officer, and as a director. On October 31, 2018, she resigned as President, CEO and director, but remained Secretary. From November 22, 2021 until January 13, 2022 Ms. Katsuris acted as interim Chief Financial Officer, in addition to her role as Secretary. On January 13, 2022, the Company re-appointed Ms. Katsuris as a director. Ms Katsuris resigned as director and Secretary of the Company effective March 16, 2022.
37
Ms. Katsuris has over 30 years of experience in the brokerage industry, the North American capital markets & public financings. She was an Investment Advisor at Global Securities Corporation from 2003 to 2013 and worked at Canaccord Capital Corp. (Canada and U.S. divisions) from 1993 to 2003. Ms. Katsuris has served on the board as an officer and director of Universal Ventures Inc (TSX-UN) and Plate Resources Inc (TSX-PLR) and also currently serves as a director of Kapa Gold Inc. (formerly Kapa Capital Inc.) (TSXV-KAPA), Zenith Capital Corporation Inc (TSXV-ZENI.P), Brascan Gold Inc. (CSE-BRAS), and ACME Lithium Inc (CSE-ACME).
Douglas Smith-Chairman, Director (Age: 54)
Douglas Smith has been a director since April 29, 2020 and Chairman of the Board of Directors since May 13, 2020.
Mr. Smith is the former Assistant Secretary for the U.S. Department of Homeland Security. Douglas is currently the Managing Partner of Kent Strategies and brings over two decades of international experience in business development, communications, coalition building, public policy, and creating and managing public-private partnerships among Federal, State and local governments, and private industry. He has managed large-scale special projects and initiatives both within and outside of government. Douglas is a frequent public speaker both domestically and internationally and regularly appears on national television as an expert on national security and managing crisis.
Angelos Kostopoulos-Director (Age: 65)
Angelos Kostopoulos has been a director of our Company since November 20, 2018.
Mr. Kostopoulos, is a Registered Tax Return Preparer as designated by the Internal Revenue Service, and has been a tax adviser listed by the U.S. Embassy in Athens since 1992. Currently he is a partner at Nakou & Associates Law Firm (Athens, Greece), and Strati & Partner (Tirana, Albania), where he advised clients on a wide range tax and financial compliance matters. Since 2011 he has served as the president of Blue White Capital LLC a privately held, climate-friendly project developer, integrator, principal and boutique advisory firm. Mr. Kostopoulos holds a Bachelor of Arts (History) from Arizona State University, a Master of Arts (International Relations) from Indiana University Bloomington, a Master of Science (Military Science) from the Hellenic Army Supreme War College, and a Master of Laws (International Business) from the University of Cumbria.
Khalid M. Al-Ali-Director (Age: 51)
Dr. Khalid M. Al-Ali has been a director of our Company since July 8, 2020.
Dr. Al-Ali brings deep experience and expertise to his roles in various organizations, having spent much of his career in Silicon Valley. He is the Co-Founder and Executive Chairman of Senseta, a world leader in mission-critical big data fusion, artificial intelligence and drone-powered deep technologies. He is the Co-Founder and Chairman of the Silicon Valley Space Business Roundtable. He was the Executive Director of the University of California Office for NASA Partnerships and the University Affiliated Research Center. Dr. Al-Ali was the advisor to the Board of Directors of Qatar Foundation and CEO of the Qatar Science and Technology Park Project. He was a founding member of both Qatar's Information Technology and Communication Committee and the Steering Committee of the Information Technology and Communication Project. Dr. Al-Ali is the principal inventor of U.S. and worldwide-patented technologies, along with a multitude of disclosed inventions not yet patented. He holds a Ph.D. in Mechanical and Electrical Engineering from the University of California at Berkeley and dual B.S. degrees in Mechanical and Aerospace Engineering from the University of Colorado at Boulder.
38
Thomas Nash-Director (Age: 56)
Thomas W. Nash has been a director of our Company since July 31, 2020.
Mr. Nash is the Chairman and CEO of Xalles Holdings Inc., a Fintech holding company. Mr. Nash has provided strategic business advice to more than 200 firms worldwide from small firms to large organizations such as U.S. Bank, MasterCard, and Citibank. He also led the implementation of financial systems within the U.S. Government's Department of Defense and Department of Homeland Security as well as helped launch successful startup ventures in the payment, eCommerce and IT fields.
Carl Cagliarini-Director (Age: 50)
Carl Cagliarini has been a director of our Company since January 13, 2022, our Chief Strategy Officer since 2018, and currently heads Plymouth Rock UK. Mr. Cagliarini is an innovator and entrepreneur. Mr. Cagliarini co- founded the Company in 2016 to capture essential defense technologies and intellectual property that needed focus and appropriate finance to take them from concept to reality, with the goal of transforming the national security and defense capabilities of NATO allies. As Chief Strategy Officer of the Company, Mr. Cagliarini drives strategic direction and product roadmap of the Company, with a primary focus on the aerospace team.
Mr. Cagliarini has an extensive background in assisting tech-business transformation and significant success in telecommunications and laser technology breakthroughs which include delivery of the first wireless internet networks through to managing ground to space communication capabilities using laser technologies.
Mr. Cagliarini serves as a pro bono Chairman of a North West Academies Trust Ltd., recognized for excellence in Special Educational Needs by the UK Government review 2017. Mr. Cagliarini also works closely with the UK Department of Industry and Trade on the promotion of UK and Commonwealth defense and security technologies, which includes working with the UK Home Office and several UK universities on technology spin out. Mr. Cagliarini is a graduate of the University of Liverpool.
Family Relationships
There are no family relationships among any of our directors and senior management listed above.
B. Compensation
During the years ended November 30, 2021 and November 30, 2020, our directors and officers received the following compensation:
COMPENSATION TABLE |
|||||||||
Name |
Year |
Salary |
Bonus |
Stock |
Option |
Non-Equity |
Change in |
All |
Total |
Dana Wheeler President, CEO and Director |
2021 2020 |
313,626 133,387 |
Nil Nil |
Nil Nil |
133,275 44,454 |
Nil Nil |
Nil Nil |
Nil Nil |
446,901 177,842 |
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COMPENSATION TABLE |
|||||||||
Name |
Year |
Salary |
Bonus |
Stock |
Option |
Non-Equity |
Change in |
All |
Total |
Vivian Katsuris Former Secretary and former Director(1) |
2021 2020 |
63,000 55,125 |
Nil Nil |
Nil Nil |
33,319 11,113 |
Nil Nil |
Nil Nil |
Nil Nil |
96,319 66,238 |
Douglas Smith Chairman and Director |
2021 2020 |
Nil Nil |
Nil Nil |
Nil Nil |
1,536 79,527 |
Nil Nil |
Nil Nil |
307,734(8) 125,000(2) |
309,270 204,527 |
Angelos Kostopoulos Director |
2021 2020 |
Nil Nil |
Nil Nil |
Nil Nil |
479 16,670 |
Nil Nil |
Nil Nil |
Nil Nil |
479 16,670 |
Khalid M. Al-Ali Director |
2021 2020 |
Nil Nil |
Nil Nil |
Nil Nil |
99,000 Nil |
Nil Nil |
Nil Nil |
Nil Nil |
99,000 Nil |
Thomas Nash Director |
2021 2020 |
Nil Nil |
Nil Nil |
Nil Nil |
99,000 Nil |
Nil Nil |
Nil Nil |
Nil Nil |
99,000 Nil |
Zara Kanji Former Chief Financial Officer(3) |
2021 2020 |
55,000 59,000 |
Nil Nil |
Nil Nil |
33,319 11,113 |
Nil Nil |
Nil Nil |
41,202(4) 22,852(4) |
129,521 92,965 |
Tim Crowhurst Former Director(5) |
2021 2020 |
Nil Nil |
Nil Nil |
Nil Nil |
10,204 40,918 |
Nil Nil |
Nil Nil |
Nil Nil |
10,204 40,918 |
George Stubos Former Director(6) |
2021 2020 |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A Nil |
N/A 20,000(7) |
N/A 20,000 |
Notes:
(1) Vivian Katsuris previously acted as interim CFO for the Company from November 22, 2021 to January 13, 2022 and was appointed as a director effective January 13, 2022. Ms. Katsuris ceased to be a director and Secretary of the Company effective March 16, 2022.
(2) This refers to shares with a deemed value of $0.25 per share based on $125,000 paid to Douglas Smith as compensation pursuant to the consulting agreement with Mr. Smith. The amount represents payment owing under the consulting agreement for the fiscal year ended November 30, 2020.
(3) Zara Kanji ceased to be Chief Financial Officer on November 22, 2021.
(4) This refers to accounting fees and rent paid to a company controlled by the CFO.
(5) Tim Crowhurst ceased to be a director on January 13, 2022.
(6) George Stubos ceased to be a director on July 30, 2020.
(7) This refers to rent paid to a company controlled by a former director.
(8) This refers to shares with a fair value of $0.47 per share based on $307,734 paid to Douglas Smith as compensation pursuant to the consulting agreement with Mr. Smith. The amount represents payment owing under the consulting agreement for the fiscal year ended November 30, 2021.
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that share options may be granted at the discretion of our board of directors.
40
Written Management Agreements
Dana Wheeler, CEO, has a services agreement with the Company. The agreement is to pay for services at US$20,000 per month. The CEO can terminate the agreement with a 30 days' notice. The Company has to give 6 months' notice for any termination without cause.
Vivian Katsuris, former Secretary and former director, has a consulting agreement with the Company for compensation of $5,250 per month with a 60 day notice of termination.
Douglas Smith, Chairman of the Board of Directors, entered into a consulting agreement with Plymouth Rock USA dated April 1, 2020, for consulting services to the Company. Pursuant to the agreement the Company pays Mr. Smith $250,000 per annum, which is payable at the Company's option by the issuance of 1,000,000 common shares of the Company in four equal quarterly instalments in arrears. If the agreement is terminated for any reason before the completion of a full year, the number of common shares to be issued will be reduced in proportion to the period of engagement. On July 8, 2020, our shareholders approved the annual issuance of 1,000,000 common shares to Mr. Smith. As of November 30, 2021, a total of 1,156,250 shares had been issued to Mr. Smith pursuant to the agreement.
Stock Option Plan
We adopted our current stock option plan in 2016. The purpose of our stock option plan is to attract and motivate directors, senior officers, employees, management company employees, consultants and others providing services to our Company and its subsidiaries, and thereby advance our interests, by affording such persons with an opportunity to acquire an equity interest in our Company through the issuance of stock options.
Our stock option plan is a "rolling" stock option plan whereby 10% of the number of issued and outstanding shares of the Company at any given time may be reserved for issuance pursuant to the exercise of options.
Our stock option plan has the following terms and conditions:
|
• |
the term of an option cannot exceed ten (10) years from the date of grant; |
|
• |
no more than 5% of the issued and outstanding shares of the Company may be granted to any one individual in any 12 month period; |
|
• |
no more than 4% of the issued and outstanding shares of the Company may be granted to any one consultant in any 12 month period; |
|
• |
no more than 1% of the issued and outstanding shares of the Company may be granted to any one person conducting investor relations activities in any 12 month period; |
|
• |
options will vest at the discretion of the Company's directors; |
|
• |
options are non-assignable and non-transferable, except as provided for in the event of a death of an optionee; |
|
• |
the period in which an optionee's heirs or administrators can exercise any portion of outstanding options must not exceed 12 months from the optionee's death; |
|
• |
option grants are limited to bona fide directors, officers, employees or consultants, or corporations wholly owned by such directors, officers, employees or consultants, as the case may be; |
|
• |
vested options terminate 90 days subsequent to any director, officer, employee or consultant ceasing to be engaged by the Company for any reason other than death; and |
|
• |
vested options terminate 30 days subsequent to any optionee engaged in investor relations activities ceasing to be engaged by the Company. |
The full text of our stock option plan is attached hereto as Exhibit 4.2
41
Option-Based Awards
During the year ended November 30, 2021, the Company granted 1,700,000 new stock options to officers and directors (2020 - nil). A total of 425,000 stock options were exercised, of which 325,000 options were exercised by former directors of the Company (2020 - Nil).
As at November 30, 2021, 1,725,000 options were held by the CEO, former CFO, the Corporate Secretary and the Company's directors. During the year ended November 30, 2021, the Company recognized as expense $410,132 (2020 - 1,650,000 options held, vested value of $271,993) related to the options held by the Company's officers and directors as above.
The following table sets forth the option based awards for each of directors and officers of the Company outstanding as at November 30, 2021.
Name | Option Based Awards | |||
Number of securities underlying unexercised options (#) |
Option exercise price ($) |
Option expiration date |
Value of unexercised in-the-money options ($)(1) |
|
Dana Wheeler, President, Chief Executive Officer, & Director |
400,000 | $0.60 | January 15, 2024(2) | Nil |
200,000 | $0.75 | January 21, 2026(5) | Nil | |
Zara Kanji, Former Chief Financial Officer |
100,000 | $0.60 | January 15, 2024(2) | Nil |
50,000 | $0.75 | January 21, 2026(5) | Nil | |
Vivian Katsuris, Former Secretary and former Director |
100,000 | $0.60 | January 15, 2024(2) | Nil |
50,000 | $0.75 | January 21, 2026(5) | Nil | |
Angelos Kostopoulos, Director | 150,000 | $0.60 | January 15, 2024(2) | Nil |
Douglas Smith Director |
150,000 | $0.60 | January 15, 2024(2) | Nil |
150,000 | $0.60 | March 20, 2024(3) | Nil | |
Tim Crowhurst, Former Director |
75,000 | $0.50 | November 28, 2024(4) | Nil |
Khalid M. Al-Ali, Director |
150,000 | $0.75 | January 21, 2026(5) | Nil |
Thomas Nash, Director |
150,000 | $0.75 | January 21, 2026(5) | Nil |
Notes:
(1) Value is calculated based on the difference between the market value of the securities underlying the options as at November 30, 2021, being $0.30, and the exercise price of the option.
(2) The options vest incrementally pursuant to the following schedule: (i) 50% on January 16, 2020; (ii) 12.5% on April 16, 2020; (iii) 12.5% on July 16, 2020; (iii) 12.5% on October 16, 2020; and (iv) 12.5 % on January 16, 2021.
42
(3) The options vest incrementally pursuant to the following schedule: (i) 50% on March 31, 2020; (ii) 12.5% on June 21, 2020; (iii) 12.5% on September 21, 2020; (iii) 12.5% on December 21, 2020; and (iv) 12.5 % on March 21, 2021.
(4) The options vest incrementally pursuant to the following schedule: (i) 50% on November 29, 2020; and (ii) 50 % on November 29, 2021.
(5) The options vest immediately upon grant on January 21, 2021.
Termination and Change of Control Benefits
Except as previously disclosed, we have no plans or arrangements in respect of remuneration received or that may be received by our directors and senior management in respect of compensating such person in the event of termination of employment (as a result of resignation, retirement, change of control, etc.) or a change in responsibilities.
Pension, Retirement or Similar Benefits
We have not set aside or accrued any amounts to provide pension, retirement or similar benefit for our directors or senior management during the fiscal year ended November 30, 2021.
C. Board Practices
Term of Office
Each director of our Company holds office until the next annual general meeting of our Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the articles of our Company or the provisions of the BCBCA. Each member of our senior management is appointed to serve at the discretion of our Board, subject to the terms of the employment agreements described above.
Service Contracts
Other than as disclosed herein, we do not have any service contracts with directors which provide for benefits upon termination of employment.
Committees
The audit committee is our only committee at this time. Our Company does not have a remuneration committee.
Audit Committee
The members of our audit committee are Thomas Nash, Angelos Kostopoulos and Khalid M. Al-Ali. All members are financially literate, meaning that they have the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by our financial statements.
We have adopted a charter for our audit committee, which is filed as an exhibit to this Form 20-F. The audit committee is responsible for review of both interim and annual financial statements for our Company. For the purposes of performing their duties, the members of the audit committee have the right at all times, to inspect all the books and financial records of our Company and any subsidiaries and to discuss with management and the external auditors of our Company any accounts, records and matters relating to the financial statements of our Company. The audit committee members meet periodically with management and annually with the external auditors. Our audit committee has the overall duties and responsibilities to:
|
• |
review the financial reporting process to ensure the accuracy of the financial statements of our Company; |
|
• |
assist the Board to properly and fully discharge its responsibilities; |
43
|
• |
strengthen the role of the Board by facilitating in depth discussions between directors, management and external auditors; |
|
• |
evaluate the independent auditor's qualifications, performance and independence; |
|
• |
facilitate the independence of the independent auditor; |
|
• |
assess the processes relating to the determination and mitigation of risks and the maintenance of an effective control environment; and |
|
• |
review the processes to monitor compliance with laws and regulations. |
D. Employees
As of November 30, 2021 we had two employees. As of the date of this report, we have six full-time employees. All six are at the level of our UK subsidiary, Plymouth Rock UK. Our directors and certain contracted individuals play an important role in the running of our Company. We do not expect any material changes in the number of employees over the next 12 month period. We do and will continue to outsource contract employment as needed.
We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with the development of our products.
E. Share Ownership
As at May 30, 2022, our directors and senior management beneficially owned the following common shares and stock options of our Company:
Name and Office Held |
Number of Common Shares Owned and |
Options Owned |
|
# of Shares |
% of Class(1) |
||
Dana Wheeler, President, Chief Executive Officer & Director |
1,350,000 |
2.3% |
600,000(2)
|
Zara Kanji, Former Chief Financial Officer |
Nil |
Nil |
150,000(2) |
Vivian Katsuris, Former Secretary and Former Director |
Nil |
Nil |
150,000(2) |
Douglas Smith, Chairman and Director |
1,234,375(3) |
2.5% |
300,000(2) |
Angelos Kostopoulos, Director |
Nil |
Nil |
150,000(2) |
Tim Crowhurst, Former Director |
Nil |
Nil |
75,000(2) |
Khalid M. Al-Ali, Director |
Nil |
Nil |
150,000(2) |
Thomas Nash, Director |
Nil |
Nil |
150,000(2) |
Carl Cagliarini, Director |
525,000 |
0.9% |
400,000(2) |
Notes:
(1) Based on 59,317,461 common shares issued and outstanding as at May 30, 2022.
(2) Options are exercisable into common shares on a one-for-one basis and vest incrementally pursuant to the schedule outlined in Item 6 B. Compensation - Option-based Awards.
(3) Pursuant to a consulting agreement with Douglas Smith, the Company, at its option, may issue up to 1,000,000 common shares annually to Mr. Smith for consulting services to the Company. As of May 30, 2022, 1,234,375 common shares had been issued to Mr. Smith pursuant to the consulting agreement.
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The voting rights attached to the common shares owned by our directors and senior management do not differ from those voting rights attached to shares owned by people who are not directors or senior management of our Company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
To the best of our knowledge, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over, securities carrying more than 5% of the voting rights attached to any class of voting securities of the Company.
Major Shareholder Voting Rights
The voting rights of our major shareholders do not differ from the voting rights of holders of our common shares who are not our major shareholders.
Residency of Shareholders
As at May 30, 2022, the registrar and transfer agent for our Company reported that there were 59,317,461 common shares of our Company issued and outstanding. Of the 59,317,461 common shares issued and outstanding, 51,922,605 were registered to Canadian residents (5 recorded shareholders), 4,888,356 were registered to residents of the United States (39 recorded shareholders), and 2,506,500 were registered to non-United States or Canadian residents (9 recorded shareholders).
As of May 30, 2022, our shareholder register indicates that our common shares are held as follows:
Location |
Number of Common |
Percentage of Total |
Number of Registered |
United States |
4,888,356 |
8.24% |
39 |
Canada |
51,922,605 |
87.53% |
5 |
Other |
2,506,500 |
4.23% |
9 |
Total |
59,317,461 |
100% |
53 |
Control and Control Arrangements
To the best of our knowledge, our Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly, except as disclosed in the above table regarding our major shareholders.
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in control of our Company.
B. Related Party Transactions
The Company recorded the following transactions with related parties during the period from the beginning of the Company's last financial year up to February 28, 2022.
The amounts due to and from related parties are due to the directors and officers of the Company. The balances are unsecured, non-interest bearing and have no specific terms for repayment. These transactions are in the normal course of operations and have been valued in these consolidated financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
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As at February 28, 2022 and as at November 30, 2021, the following amounts were due to directors and officers of the Company:
February 28, 2022 | November 30, 2021 | |||||
Company controlled by CFO | $ | 7,667 | $ | - | ||
Company controlled by Corporate Secretary | 10,500 | 10,500 | ||||
CEO of the Company | 87,733 | 561 | ||||
Director | 48,359 | 41,667 | ||||
$ | 154,259 | $ | 52,728 |
As at February 28, 2022 and as at November 30, 2021, the following amounts were prepaid to directors and officers of the Company:
February 28, 2022 | November 30, 2021 | |||||
Company controlled by Corporate Secretary | $ | - | $ | 5,513 | ||
Company controlled by the CFO | - | 525 | ||||
$ | - | $ | 6,038 |
During the three-month period ended February 28, 2022 and during the year ended November 30, 2021, the Company entered into the following transactions with related parties:
February 28, 2022 | November 30, 2021 | |||||
Management fees | $ | 23,417 | $ | 118,000 | ||
Consulting fees | 62,500 | 307,734 | ||||
Accounting fees | - | 36,202 | ||||
Rent | - | 5,000 | ||||
Share-based payments | - | 410,132 | ||||
Salaries and benefits to CEO | 72,941 | 313,626 | ||||
$ | 158,858 | $ | 1,190,694 |
During the three-month period ended February 28, 2022, no options were vested, and no stock-based compensation was recognized in profit or loss.
During the year ended November 30, 2021, 4,225,000 options were vested, and stock-based compensation amounting to $1,144,342 was recognized in profit or loss; of which $410,132 was for the Company's officers and directors as set out above.
On January 21, 2021, the Company granted 1,550,000 incentive stock options to directors, consultants, and employees with an exercise price of $0.75 per share for a period of five years from the date of grant.
During the three-month period ended February 28, 2022 and during the year ended November 30, 2021, management fees consisted of the following:
46
February 28, 2022 | November 30, 2021 | |||||
Company controlled by Corporate Secretary | $ | 15,750 | $ | 63,000 | ||
Company controlled by former CFO | - | 55,000 | ||||
Company controlled by CFO | 7,667 | - | ||||
$ | 23,417 | $ | 118,000 |
Douglas Smith, our Chairman, entered into a consulting agreement with Plymouth Rock USA dated April 1, 2020, for consulting services to the Company. Pursuant to the agreement the Company will pay Mr. Smith $250,000 per annum, which is payable at the Company's option by the issuance of 1,000,000 common shares of the Company in four equal quarterly instalments in arrears. If the agreement is terminated for any reason before the completion of a full year, the number of common shares to be issued will be reduced in proportion to the period of engagement. As of February 28, 2022, 1,234,375 common shares had been issued to Mr. Smith.
Compensation
For information regarding compensation for our directors and senior management, see Item 6.B - Compensation.
C. Interests of Experts and Counsel
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. Financial Statements and Other Financial Information
Our financial statements (included as Item 18 of this Form 20-F) are stated in Canadian dollars and are prepared in accordance with IFRS, as issued by the IASB.
The following financial statements and notes thereto are filed with and incorporated herein as part of this Annual Report:
|
(a) |
audited financial statements for the year ended November 30, 2021, including: independent auditors' report by Manning Elliott LLP, Chartered Professional Accountant, statements of financial position, statements of loss and comprehensive loss, statements of cash flows, statements of changes in equity, and notes to financial statements; |
These financial statements can be found under "Item 18 - Financial Statements" below.
Legal Proceedings
There have not been any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings, those involving any third party, and governmental proceedings pending or known to be contemplated, which may have, or have had in the recent past, significant effect our financial position or profitability.
There have been no material proceedings in which any director, any member of senior management, or any of our affiliates is either a party adverse to our Company or our subsidiaries or has a material interest adverse to our Company or our subsidiaries.
Policy on Dividend Distributions
We have not declared any dividends since our inception and do not anticipate that we will do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the development of our business. Any future payment of dividends or distributions will be determined by our Board on the basis of our earnings, financial requirements and other relevant factors.
47
B. Significant Changes
We are not aware of any significant change that has occurred since November 30, 2021, and that has not been disclosed elsewhere in this Annual Report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our common shares are listed for trading on the CSE under the symbol "PRT", on the OTCQB under the symbol "PLRTF" and on the Frankfurt Stock Exchange under the symbol "4XA".
B. Plan of Distribution
Not applicable to Form 20-F filed as an annual report.
C. Markets
Our common shares are traded on the CSE under the symbol "PRT", on the OTCQB under the symbol "PLRTF" and on the Frankfurt Stock Exchange under the symbol "4XA".
D. Selling Shareholders
Not applicable to Form 20-F filed as an annual report.
E. Dilution
Not applicable to Form 20-F filed as an annual report.
F. Expenses of the Issue
Not applicable to Form 20-F filed as an annual report.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable to Form 20-F filed as an annual report.
B. Memorandum and Articles of Association
Incorporation
We are incorporated under the BCBCA. Our British Columbia incorporation number is BC0922905.
Objects and Purposes of Our Company
Our articles do not contain a description of our objects and purposes.
Voting on Proposals. Arrangements, Contracts or Compensation by Directors
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Other than as disclosed below, our articles do not restrict directors' power to (a) vote on a proposal, arrangement or contract in which the directors are materially interested or (b) to vote compensation to themselves or any other members of their body in the absence of an independent quorum.
The BCBCA does, however, contain restrictions in this regard. The BCBCA provides that a director who holds a disclosable interest in a contract or transaction into which we have entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. A director who holds a disclosable interest in a contract or transaction into which we have entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting. A director or senior officer generally holds a disclosable interest in a contract or transaction if (a) the contract or transaction is material to our Company; (b) we have entered, or proposed to enter, into the contract or transaction, and (c) either (i) the director or senior officer has a material interest in the contract or transaction or (ii) the director or senior officer is a director or senior officer of, or has a material interest in, a person who has a material interest in the contract or transaction. A director or senior officer does not hold a disclosable interest in a contract or transaction merely because the contract or transaction relates to the remuneration of the director or senior officer in that person's capacity as director, officer, employee or agent of our Company or of an affiliate of our Company.
Borrowing Powers of Directors
Our articles provide that we, if authorized by our directors, may:
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borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; |
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issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of our Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; |
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guarantee the repayment of money by any other person or the performance of any obligation of any other person; and |
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mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of our Company. |
Qualifications of Directors
Under our articles, a director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the BCBCA to become, act or continue to act as a director.
Share Rights
All holders of common shares are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the board of directors may from time to time determine. All holders of common shares will share equally on a per share basis in any dividend declared by the board of directors. The dividend entitlement time limit will be fixed by the board of directors at the time any such dividend is declared. Each outstanding common share is entitled to one vote on all matters submitted to a vote of our shareholders in general meeting. There are no cumulative voting rights attached to any of our shares and, accordingly, the holders of more than half of the shares represented at a general meeting can elect all of the directors to be elected in a general meeting. All directors stand for re-election annually. Upon any liquidation, dissolution or winding up, all common shareholders are entitled to share ratably in all net assets available for distribution after payment to creditors. The common shares are not convertible or redeemable and have no preemptive, subscription or conversion rights. In the event of a merger or consolidation, all common shareholders will be entitled to receive the same per share consideration.
Procedures to Change the Rights of Shareholders
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Our articles state that the Company may by resolution of its directors or Company shareholders: (a) create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares; (b) increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established; (c) if the Company is authorized to issue shares of a class of shares with par value: (i) decrease the par value of those shares, (ii) if none of the shares of that class of shares are allotted or issued, increase the par value of those shares, (iii) subdivide all or any of its unissued or fully paid issued shares with par value into shares of smaller par value, or (iv) consolidate all or any of its unissued or fully paid issued shares with par value into shares of larger par value; (d) subdivide all or any of its unissued or fully paid issued shares without par value; (e) change all or any of its unissued or fully paid issued shares with par value into shares without par value or all or any of its unissued shares without par value into shares with par value; (f) alter the identifying name of any of its shares; (g) consolidate all or any of its unissued or fully paid issued shares without par value; (h) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; (i) vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued; (j) change the name of the Company; or (k) otherwise alter its shares or authorized share structure when required or permitted to do so by the BCBCA.
An amendment of our articles by shareholders would require the approval of holders of two-thirds of the votes of the Company's common shares cast at a duly called special meeting.
Meetings
Each director holds office until our next annual general meeting or until his office is earlier vacated in accordance with our articles or with the provisions of the BCBCA. A director appointed or elected to fill a vacancy on our board also holds office until our next annual general meeting.
Our articles and the BCBCA provide that our annual meetings of shareholders must be held at such time in each calendar year and not more than 15 months after the last annual general meeting and at such place as our Board may from time to time determine. Our directors may, at any time, call a meeting of our shareholders.
The holders of not less than five percent of our issued shares that carry the right to vote at a meeting may requisition our directors to call a meeting of shareholders for the purposes stated in the requisition.
Under our articles, the quorum for the transaction of business at a meeting of our shareholders is one or more persons who are, present in person or by proxy, shareholders who, in the aggregate hold at least 1% of the issued shares entitled to be voted at the meeting.
Our articles state that in addition to those persons who are entitled to vote at a meeting of our shareholders, the only other persons entitled to be present at the meeting are the directors, the president (if any), the secretary (if any), any lawyer or auditor for our Company, any persons invited to be present at the meeting by our directors or by the chair of the meeting and any person entitled or required under the BCBCA or our articles to be present at the meeting.
Limitations on Ownership of Securities
No share may be issued until it is fully paid.
Neither Canadian law nor our articles limit the right of a non-resident to hold or vote common shares of the Company, other than as provided in the Canadian Investment Act, as amended by the Canadian WTO Act. The purpose of the Canadian Investment Act is to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security. The Canadian Investment Act generally prohibits implementation of a direct reviewable investment (based on certain thresholds) by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian," as defined in the Investment Act, unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in common shares of the Company by a WTO investor (or by a non-Canadian other than a WTO investor if, immediately prior to the implementation of the investment the Company was controlled by WTO investors) would be reviewable under the Canadian Investment Act if it were an investment to acquire direct control of the Company and the value of the assets of the Company equaled or exceeded certain threshold amounts determined on an annual basis.
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The threshold for a pre-closing net benefit review depends on whether the purchaser is: (a) controlled by a person or entity from a member of the WTO; (b) a state-owned enterprise; or (c) from a country considered a "Trade Agreement Investor" under the Canadian Investment Act. A different threshold also applies if the Canadian business carries on a cultural business. The 2021 threshold for WTO investors that are state-owned enterprises is $415 million based on the book value of the Canadian business' assets. The 2021 thresholds for review for direct acquisitions of control of Canadian businesses by private sector investor WTO investors that are not state-owned enterprises is $1 billion (unless the WTO member is a party to one of a list of certain free trade agreements, in which case the amount is $1.5 billion), also based on the "enterprise value" of the Canadian business being acquired.
A non-Canadian, whether a WTO investor or otherwise, would be deemed to acquire control of the Company for purposes of the Canadian Investment Act if he or she acquired a majority of the common shares of the Company. The acquisition of less than a majority, but at least one-third of the shares, would be presumed to be an acquisition of control of the Company, unless it could be established that the Company is not controlled in fact by the acquirer through the ownership of the shares. In general, an individual is a WTO investor if he or she is a "national" of a country (other than Canada) that is a member of the WTO or has a right of permanent residence in a country (other than Canada) that is a member of the WTO. A corporation or other entity will be a "WTO investor" if it is a "WTO investor-controlled entity," pursuant to detailed rules set out in the Canadian Investment Act. The U.S. is a WTO member. Certain transactions involving our common shares would be exempt from the Canadian Investment Act, including:
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an acquisition of the shares if the acquisition were made in the ordinary course of that person's business as a trader or dealer in securities; |
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an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and |
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an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged. |
Change in Control
There are no provisions in our articles or in the BCBCA that would have the effect of delaying, deferring or preventing a change in control of our Company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving our Company or our subsidiaries.
Ownership Threshold
Our articles or the BCBCA do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed. Securities legislation in Canada, however, requires every person or company who acquires beneficial ownership of, or control or direction over, voting or our common shares (or securities convertible into such securities) which, together with the acquiror's previously acquired securities, represents 10% or more of the outstanding securities of that class to file, subject to certain exceptions, a press release and an early warning report, each of which contain certain prescribed information (including the acquiror's identity, intention and extent of holdings). In addition, such acquiror must make further disclosures where:
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such acquiror or any person acting jointly or in concert with such acquiror, acquires or disposes beneficial ownership of, or acquires or ceases to have control or direction over securities (or securities convertible into such securities) in an amount equal to 2% or more of the outstanding securities of the class of securities that was the subject of such acquiror's most recent early warning report; |
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such acquiror's beneficial ownership of, or control or direction over, the outstanding securities of the class of securities that was the subject of the acquiror's most recent early warning report decreases to less than 10%; or |
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there is a change in a material fact contained in the acquiror's most recent early warning report. |
Securities legislation in Canada also requires insiders of the Company to file reports disclosing information about transactions involving securities of the Company (or related financial instruments) held by such insider. Insiders of the Company include, among others, the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of the Company, directors of the Company and persons or companies that have beneficial ownership of, or control or direction over (or a combination thereof), whether direct or indirect, common shares of the Company carrying more than 10% of the voting rights attached to all of the Company's outstanding voting securities. This threshold is higher than the 5% threshold under U.S. securities legislation at which shareholders must report their share ownership.
C. Material Contracts
Except for contracts entered into by the Company in the ordinary course of business, the only material contracts entered into by the Company in the two years preceding the date of this Form 20-F are the following:
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Assignment Agreement with Manchester Metropolitan University dated March 12, 2019, whereby Manchester Metropolitan assigned the patent, rights and technology to the Shoe Scanner technology to the Company for $30,000. |
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Memorandum of understanding with Abicom International Ltd. dated February 19, 2019, to assist in the continued development of the Company's Wi-Ti system and prototype. |
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Letter agreement with Aerowave Corporation dated October 17, 2019, whereby the Company acquired the finished goods and inventory held by Aerowave, in exchange the Company issued 50,000 common shares to Aerowave. |
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Letter of Intent with SDS Group Australia Pty Ltd dated June 9, 2020, to work together to position the Company's UAS for procurement focused evaluations following initial consultation with members of the Australian Government. |
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Consulting agreement with Douglas Smith, Chairman and a director of the Company, dated April 1, 2020, for services to the Company. The Company will pay Mr. Smith $250,000 per annum, which is payable at the Company's option by the issuance of 1,000,000 common shares of the Company in four equal quarterly instalments in arrears. |
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Acquisition agreement with Tetra effective June 4, 2021. The Company acquired all the outstanding Tetra shares for the sum of £350,000 payable in installments and satisfied in cash. |
D. Exchange Controls
There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See "Taxation" below.
E. Taxation
Certain Canadian Federal Income Taxation
We consider that the following general summary fairly describes the principal Canadian federal income tax consequences applicable to a non-resident holder. This summary is based upon the current provisions of the Canadian Income Tax Act, the regulations thereunder, the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Treaty. This summary also takes into account the amendments to the Canadian Income Tax Act and the regulations publicly announced by the Canadian Minister of Finance prior to the date hereof and assumes that all such amendments or regulations will be enacted in their present form. However, no assurances can be given that such amendments or regulations will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax consequences described herein.
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This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.
Dividends
Dividends paid on our common shares to a non-resident holder will be subject under the Canadian Income Tax Act to withholding tax at a rate of 25% subject to a reduction under the provisions of an applicable tax treaty, which tax is deducted at source by our Company. The Treaty provides that the Canadian Income Tax Act standard 25% withholding tax rate is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as our Company) to residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting shares of the corporation paying the dividend.
Capital Gains
A non-resident holder is not subject to tax under the Canadian Income Tax Act in respect of a capital gain realized upon the disposition of a common share of our Company unless such share represents "taxable Canadian property", as defined in the Canadian Income Tax Act , to the holder thereof. Our common shares generally will be considered taxable Canadian property to a non-resident holder if:
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the non-resident holder; |
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persons with whom the non-resident holder did not deal at arm's length; or |
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the non-resident holder and persons with whom such non-resident holder did not deal at arm's length, |
owned, or had an interest in an option in respect of, not less than 25% of the issued shares of any class of our capital stock at any time during the 60 month period immediately preceding the disposition of such shares. In the case of a non-resident holder to whom shares of our Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.
United States Federal Income Taxation
The following is a general discussion of certain material United States federal foreign income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States federal income tax matters and does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. See "Certain Canadian Federal Income Tax Consequences" above.
The following discussion is based upon the Internal Revenue Code of 1986, as amended, U.S. Department of the Treasury regulations, published IRS rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with such statements and conclusions, or will not take, or a court will not adopt, a position contrary to any position taken herein.
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Holders and prospective holders of common shares should consult their own tax advisors with respect to federal, state, local, and foreign tax consequences of purchasing, owning and disposing of our common shares.
U.S. Holders
As used herein, a "U.S. Holder" includes a holder of less than 10% of our common shares who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of our common shares is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Distributions
The gross amount of a distribution paid to a U.S. Holder will generally be taxable as dividend income to the U.S. Holder for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions which are taxable dividends and which meet certain requirements will be "unqualified dividend income" and taxed to U.S. Holders at a maximum U.S. federal rate of 15%. Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holder's tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.
Capital Gains
In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder's adjusted tax basis in such shares. Such gain or loss will be U.S. source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder's holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
Foreign Tax Credit
A U.S. Holder who pays (or has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the tax credit, among which are an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder's United States income tax liability that the U.S. Holder's foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. There are further limitations on the foreign tax credit for certain types of income such as "passive income", "high withholding tax interest", "financial services income", "shipping income", and certain other classifications of income. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
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Passive Foreign Investment Company Status
We would be a PFIC if (taking into account certain "look-through" rules with respect to the income and assets of our corporate subsidiaries in which we own 25 percent (by value) of the stock) either (i) 75 percent or more of our gross income for the taxable year was passive income or (ii) the average percentage (by value) of our total assets that are passive assets during the taxable year was at least 50 percent.
If we were a PFIC, each U.S. Holder would (unless it made one of the elections discussed below on a timely basis) be taxable on gain recognized from the disposition of our common shares (including gain deemed recognized if the common shares are used as security for a loan) and upon receipt of certain "excess distributions" (generally, distributions that exceed 125% of the average amount of distributions in respect to such common shares received during the preceding three taxable years or, if shorter, during the U.S. Holder's holding period prior to the distribution year) with respect to our common shares as if such income had been recognized ratably over the U.S. Holder's holding period for the common shares. The U.S. Holder's income for the current taxable year would include (as ordinary income) amounts allocated to the current taxable year and to any taxable year period prior to the first day of the first taxable year for which we were a PFIC. Tax would also be computed at the highest ordinary income tax rate in effect for each other taxable year period to which income is allocated, and an interest charge on the tax as so computed would also apply. Additionally, if we were a PFIC, U.S. Holders who acquire our common shares from decedents (other than non-resident aliens) would be denied the normally available step-up in basis for such shares to fair market value at the date of death and, instead, would have a tax basis in such shares equal to the decedent's basis, if lower.
As an alternative to the tax treatment described above, a U.S. Holder could elect to treat us as a "qualified electing fund", in which case the U.S. Holder would be taxed currently, for each taxable year that we are a PFIC, on its pro rata share of our ordinary earnings and net capital gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge). Special rules apply if a U.S. Holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC. In the event that we conclude that we will be classified as a PFIC, we will make a determination at such time as to whether we will be able to provide U.S. Holders with the information that is necessary to make a QEF election. Amounts includable in income as a result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions, if any, received from us. A U.S. Holder's basis in its common shares will increase by any amount included in income and decrease by any amounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long as a U.S. Holder's QEF election is in effect with respect to the entire holding period for its common shares, any gain or loss realized by such holder on the disposition of its common shares held as a capital asset ordinarily will be capital gain or loss. Such capital gain or loss ordinarily would be long-term if such U.S. Holder had held such common shares for more than one year at the time of the disposition. For non-corporate U.S. Holders, long-term capital gain is generally subject to a maximum U.S. federal income tax rate of 15% for taxable years beginning on or before November 30, 2012. The QEF election is made on a shareholder-by-shareholder basis, applies to all common shares held or subsequently acquired by an electing U.S. Holder and can be revoked only with the consent of the IRS.
As an alternative to making the QEF election, a U.S. Holder of PFIC stock which is publicly traded may in certain circumstances avoid certain of the tax consequences generally applicable to holders of a PFIC by electing to mark the stock to market and recognizing as ordinary income or loss, each taxable year that we are a PFIC, an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. Holder's adjusted tax basis in the PFIC stock. Special rules apply if a U.S. Holder makes a mark-to-market election after the first taxable year in its holding period in which we are a PFIC. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. This election is available for so long as the Company's common shares constitute "marketable stock," which includes stock of a PFIC that is "regularly traded" on a "qualified exchange or other market." Generally, a "qualified exchange or other market" includes a national market system established pursuant to Section 11A of the Exchange Act, or a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and that has certain characteristics. A class of stock that is traded on one or more qualified exchanges or other markets is "regularly traded" on an exchange or market for any calendar year during which that class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter, subject to special rules relating to an initial public offering. It is not entirely clear whether either the OTCQB or TSXV are qualified exchanges or other markets, or whether there will be sufficient trading volume with respect to the Company's common shares, and accordingly, whether the common shares will be "marketable stock" for these purposes. Furthermore, there can be no assurances that the Company's common shares will continue to trade on any of the exchanges listed above.
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We believe we were not a PFIC for the year ending November 30, 2021 and do not expect to be classified as a PFIC for the year ending November 30, 2022. However, PFIC status is determined as of the end of each taxable year and is dependent on a number of factors, including the value of our passive assets, the amount and type of our gross income, and our market capitalization. Therefore, there can be no assurance that we will not become a PFIC for the current taxable year ending November 30, 2022 or in a future taxable year. We will notify U.S. Holders in the event we conclude that we will be treated as a PFIC for any taxable year.
F. Dividends and Paying Agents
There is no dividend restriction; however, we have not declared any dividends since our inception and do not anticipate that we will do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the development of our business. Any future payment of dividends or distributions will be determined by our Board on the basis of our earnings, financial requirements and other relevant factors. There is no special procedure for nonresident holders to claim dividends. Any remittances of dividends to United States residents and to other nonresidents are, however, subject to withholding tax. See "Taxation" above.
G. Statements by Experts
The financial statements of our Company for the year ended November 30, 2021 included in this Annual Report have been audited by Manning Elliott LLP, Chartered Professional Accountants, with a business address at 1700 - 1030 West Georgia Street, Vancouver, British Columbia, Canada V6E 2Y3, as stated in their reports appearing in this Annual Report and have been so included in reliance upon the reports of such firm given their authority as experts in accounting and auditing.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act, and we file reports and other information with the Securities and Exchange Commission. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Room 1024, Washington, DC, 20549. In addition, the Securities and Exchange Commission maintains a web site that contains reports and other information regarding registrants that file electronically with the Securities and Exchange Commission at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The documents concerning our Company referred to in this Form 20-F may be viewed at our offices, Suite -06 - 1045 West 8th Avenue, Vancouver, British Columbia V6H 1C3, or you may request them by calling our office at 604-729-2500. Copies of our financial statements and other continuous disclosure documents required under securities rules are available for viewing on the internet at www.sedar.com.
I. Subsidiary Information
Refer to the notes to the consolidated financial statements under Item 18.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The Company classifies its financial instruments as follows: cash and short-term investments are classified as a financial asset at FVTPL, other receivables are classified as loans and receivables, and accounts payable is classified as other financial liabilities, which are measured at amortized cost. The carrying value of these instruments approximates their fair values due to their short term to maturity.
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The Company has exposure to the following risks from its use of financial instruments:
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Credit risk; |
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Liquidity risk; and |
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Interest rate risk. |
Credit Risk
Credit risk is the risk of financial loss to our Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Our Company reduces its credit risk on cash by placing these instruments with institutions of high credit worthiness.
Liquidity Risk
Liquidity risk is the risk that our Company is not able to meet its financial obligations as they become due. There can be no assurance that our Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Our Company may seek additional financing through equity offerings and advances from related parties, but there can be no assurance that such financing will be available on terms acceptable to the Company.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates. The Company has no significant interest rate risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable to Form 20-F filed as an annual report.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The phrase "disclosure controls and procedures" refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer, or CEO, and chief financial officer, or CFO, as appropriate to allow timely decision regarding required disclosure.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of November 30, 2021, the end of the period covered by this Annual Report. Based on such evaluation, our CEO and CFO have concluded that as of November 30, 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
57
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Our management, with the participation of our CEO and CFO, has assessed the effectiveness of the internal control over financial reporting as of November 30, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013 Framework). Based on this evaluation, our management has concluded that the internal control over financial reporting has the following material weakness and significant deficiency in internal controls as of November 30, 2021:
1) The Company does not have a formal policy on closing the general ledger at fiscal year-end which resulted into cut-off errors in the expenses and accounts payable balances.
2) The Company does not have proper review in place to ensure all the significant transactions and balances are accounted for in the financial statements, in accordance with IFRS, including revenues, asset impairment, and the deferred tax balance.
3) The Company, due to its size, lacks proper segregation of duties in the accounting department.
4) The Company does not maintain proper corporate records regarding the minutes for Board of Director meetings.
This Annual Report does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for "emerging growth companies."
As a result of the material weakness and significant deficiency noted above, the Company will adopt the following measures:
1) The Company will develop formal closing procedures that should include a checklist to document who will perform each procedure, when completion of each procedure is due, and when it was accomplished.
2) The Company will develop formal review processes related to the accounting treatment for the significant non-routine transactions to ensure all the transactions are properly accounted for in accordance with IFRS.
3) The Company will undertake a review to ensure that it has compensating controls where possible. The Company will also adopt formal review procedures by management to reduce the risk of errors.
4) The Company will document the minutes of director meetings in writing.
Attestation Report of the Registered Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm on our internal control over financial reporting. Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report.
Changes in Internal Controls over Financial Reporting
58
During the period ended November 30, 2021, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The members of our audit committee are Thomas Nash, Angelos Kostopoulos and Khalid M. Al-Ali. All members are financially literate, meaning that they have the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by our financial statements.
We have adopted a charter for our audit committee. The audit committee is responsible for review of both interim and annual financial statements for our Company. For the purposes of performing their duties, the members of the audit committee have the right at all times, to inspect all the books and financial records of our Company and any subsidiaries and to discuss with management and the external auditors of our Company any accounts, records and matters relating to the financial statements of our Company. The audit committee members meet periodically with management and annually with the external auditors. Our audit committee has the overall duties and responsibilities to:
|
• |
review the financial reporting process to ensure the accuracy of the financial statements of our Company; |
|
• |
assist the Board to properly and fully discharge its responsibilities; |
|
• |
strengthen the role of the Board by facilitating in depth discussions between directors, management and external auditors; |
|
• |
evaluate the independent auditor's qualifications, performance and independence; |
|
• |
facilitate the independence of the independent auditor; |
|
• |
assess the processes relating to the determination and mitigation of risks and the maintenance of an effective control environment; and |
|
• |
review the processes to monitor compliance with laws and regulations. |
The Board of Directors has determined that Thomas Nash, Angelos Kostopoulos and Khalid M. Al-Ali, who are independent directors, are audit committee financial experts as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
ITEM 16B. CODE OF ETHICS
Our Company has not adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because we do not believe that, given our small size and limited operations, a code of ethics is warranted. As our Company grows, we may adopt a Code of Ethics in the future.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed for professional audit services for the audit of the Company's annual financial statements by Manning Elliott LLP, Chartered Professional Accountants, our principal external auditors, for the fiscal years ended November 30, 2021 and 2020, and fees billed for other services rendered during the fiscal years 2021 and 2020.
59
|
Fiscal 2021 |
Fiscal 2020 |
Audit Fees |
$37,000 |
$28,000 |
Audit Related Fees (1) |
Nil |
Nil |
Tax Fees (2) |
Nil |
Nil |
All Other Fees |
Nil |
Nil |
Total |
$37,000 |
$28,000 |
Notes:
(1) Includes fees associated with assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statement. This category includes fees related to consultation regarding generally accepted accounting principles.
(2) Tax Fees consist of fees for tax compliance, tax advice and tax planning. The fee includes the preparation of the Company's income tax returns, franchise tax reports, and other tax filings.
Our audit committee pre-approves all audit and non-audit services provided to the Company.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable. The change of the Company's independent registered public accounting firm effective as of July 8, 2020 from MNP LLP to Manning Elliott LLP was reported in the Company's Form 20-F for the financial year ended November 30, 2020 previously filed with the Commission.
60
PART III
ITEM 17. FINANCIAL STATEMENTS
See "Item 18 - Financial Statements".
ITEM 18. FINANCIAL STATEMENTS
Our financial statements are stated in Canadian dollars and are prepared in accordance with IFRS, as issued by the IASB.
The following financial statements and notes thereto are filed with and incorporated herein as part of this Annual Report:
|
(a) |
audited consolidated financial statements for the years ended November 30, 2021 and November 30, 2020, including: independent auditors' report by Manning Elliott LLP, Chartered Professional Accountants, consolidated statements of financial position, consolidated statements of loss and comprehensive loss, cash flows and changes in equity (deficiency), and notes to consolidated financial statements. |
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2021, 2020 and 2019
(Expressed in Canadian Dollars)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Shareholders and Directors of Plymouth Rock Technologies Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Plymouth Rock Technologies Inc. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at November 30, 2021 and 2020, and the consolidated statements of loss and comprehensive loss, changes in shareholders' equity (deficiency) and cash flows for the years ended November 30, 2021, 2020 and 2019, and the related notes, including a summary of significant accounting policies and other explanatory information (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2021 and 2020, and its financial performance and its cash flows for the years ended November 30, 2021, 2020 and 2019 accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 the Company has not generated positive cash flows from operations since inception. As at November 30, 2021, the Company has a working capital deficiency of $74,128 and an accumulated deficit of $13,867,962. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Audit Matter
As described in Note 3 to the consolidated financial statements, the Company acquired 100% of the issued and outstanding ordinary shares of Tetra Drones Ltd. ("Tetra Drones") which resulted in the recognition of an intangible asset related to customer relationships. Management assesses whether any indication of impairment exists at the end of each reporting period with respect to finite life intangible assets. In this assessment, management applies significant judgement to assess the existence of impairment indicators that could give rise to the requirement to conduct a formal impairment test. Due to the judgements and assumptions involved in the making this assessment, we identified this area as critical audit matter.
We have determined that the assessment of existence of impairment indicators for the customer relationships is a critical audit matter primarily due to the application of judgment in assessing specific factors such as (a) the high degree of auditor judgement and subjectivity in performing procedures relating to the assessment of indicators of impairment, (b) significant changes with an adverse effect on the use of the intangible asset and (c) current period cash flow or operating losses, combined with very little history of operations associated with the use of the customer relationships. This led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate audit evidence relating to the judgements made by management in their assessment.
Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures included amongst others, (a) evaluating the reasonableness of management's assessment of indicators of impairment with respect to the customer relationships, (b) completion of our own assessment of impairment indicators, (c) a review of matters that impact the Company's ability to continue operations, and (d) evaluating whether there were adverse economic changes in the Company's industry by considering external observable market inputs.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
CHARTERED PROFESSIONAL ACCOUNTANTS
May 2, 2022
We have served as the Company's auditor since 2020.
PLYMOUTH ROCK TECHNOLOGIES INC. Consolidated Statements of Financial Position |
As at | Note | November 30, 2021 | November 30, 2020 | ||||
ASSETS | |||||||
Current assets | |||||||
Cash | $ | $ | |||||
Accounts receivable | |||||||
Sales tax receivable | |||||||
Inventories | |||||||
Prepaid expenses | 4 | ||||||
Due from related parties | 8 | ||||||
Total current assets | |||||||
Non-current assets | |||||||
Equipment | 5 | ||||||
Right of use asset | 16 | ||||||
Intangible assets, net | 3,6 | ||||||
Total assets | $ | $ | |||||
LIABILITIES | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | 7 | $ | $ | ||||
Lease liability | 16 | ||||||
Current portion of loans payable | 10 | ||||||
Due to related parties | 8 | ||||||
Total current liabilities | |||||||
Non-current liabilities | |||||||
Lease liability | 16 | ||||||
Loan payable | 10 | ||||||
Total liabilities | |||||||
SHAREHOLDERS' EQUITY (DEFICIENCY) | |||||||
Share capital | 8,12 | ||||||
Contributed surplus | 12 | ||||||
Accumulated other comprehensive losses | |||||||
Deficit | ( |
) | ( |
) | |||
Total shareholders' equity (deficiency) | ( |
) | |||||
Total liabilities and shareholders' equity | $ | $ |
Going concern - Note 1
Commitments - Note 15
Subsequent events - Note 20
These consolidated financial statements are authorized for issuance by the Board of Directors on May 2, 2022.
Approved on behalf of the Board: | |
"Thomas Nash" | "Angelos Kostopoulos" |
Thomas Nash, Director | Angelos Kostopoulos, Director |
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
Consolidated Statements of Loss and Comprehensive Loss |
Years Ended November 30 | ||||||||||
Note | 2021 | 2020 | 2019 | |||||||
Sales | 18 | $ | $ | $ | ||||||
Cost of sales | ||||||||||
Gross profit | ||||||||||
OPERATING EXPENSES | ||||||||||
General and administrative | 17 | |||||||||
Selling | 17 | |||||||||
Research and development | 17 | |||||||||
Total expenses | ||||||||||
OTHER INCOME (EXPENSES) | ||||||||||
Written-off of inventories | ( |
) | ||||||||
Impairment of development assets | ( |
) | ||||||||
Impairment of goodwill | ( |
) | ||||||||
Interest income | ||||||||||
Interest expense | ( |
) | ( |
) | ||||||
Paycheck protection program | 9 | |||||||||
Foreign exchange loss | ( |
) | ( |
) | ( |
) | ||||
NET LOSS BEFORE INCOME TAX | ( |
) | ( |
) | ( |
) | ||||
Deferred income tax recovery | ||||||||||
NET LOSS | ( |
) | ( |
) | ( |
) | ||||
OTHER COMPREHENSIVE INCOME | ||||||||||
Foreign currency translation gain | ||||||||||
TOTAL COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
LOSS PER SHARE, basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||||
SHARES OUTSTANDING, basic and diluted |
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
Share capital | |||||||||||||||||||||
Number of shares |
Amount |
Shares to be issued |
Contributed Surplus |
Deficit |
Accumulated other comprehensive losses |
Total |
|||||||||||||||
Balance, November 30, 2018 | - | ( |
) | - | |||||||||||||||||
Net loss for the year | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
Shares issued for warrants exercised | - | - | - | - | |||||||||||||||||
Stock-based compensation | - | - | - | - | - | ||||||||||||||||
Shares issued for options exercised | - | - | - | - | |||||||||||||||||
Fair value of agent warrants exercised | - | - | ( |
) | - | - | - | ||||||||||||||
Fair value of options exercised | - | - | ( |
) | - | - | - | ||||||||||||||
Shares to be issued | - | - | - | - | - | ||||||||||||||||
Foreign currency translation | - | - | - | - | - | ||||||||||||||||
Balance, November 30, 2019 | ( |
) | |||||||||||||||||||
Net loss for the year | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
Shares issued for warrants exercised | - | - | - | - | |||||||||||||||||
Private placements | ( |
) | - | - | |||||||||||||||||
Share issuance costs | - | ( |
) | - | - | - | - | ( |
) | ||||||||||||
Shares issued as compensation | - | - | - | - | |||||||||||||||||
Stock-based compensation | - | - | - | - | - | ||||||||||||||||
Foreign currency translation | - | - | - | - | - | ||||||||||||||||
Balance, November 30, 2020 | $ | $ | - | $ | $ | ( |
) | $ | $ | ( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
Share capital | ||||||||||||||||||
Number of shares |
Amount | Contributed Surplus |
Deficit | Accumulated other comprehensive gain |
Total | |||||||||||||
Balance, November 30, 2020 | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||
Net loss for the year | - | - | - | ( |
) | - | ( |
) | ||||||||||
Foreign currency translation gain | - | - | - | - | ||||||||||||||
Shares issued for warrants exercised | - | - | - | |||||||||||||||
Fair value of warrants exercised | - | ( |
) | - | - | - | ||||||||||||
Shares issued for options exercised | - | - | - | |||||||||||||||
Fair value of options exercised | - | ( |
) | - | - | - | ||||||||||||
Private placements | - | - | ||||||||||||||||
Fair value of broker warrants granted | - | ( |
) | - | - | - | ||||||||||||
Shares issued to finders | ( |
) | - | - | - | ( |
) | |||||||||||
Cash paid to finders | ( |
) | - | - | - | ( |
) | |||||||||||
Shares issued as compensation | - | - | - | |||||||||||||||
Stock-based compensation | - | - | - | - | ||||||||||||||
Balance, November 30, 2021 | $ | $ | $ | ( |
) | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
PLYMOUTH ROCK TECHNOLOGIES INC. Consolidated Statements of Cash Flows |
Years Ended November 30 | |||||||||
2021 | 2020 | 2019 | |||||||
Cash Provided By (Used In) | |||||||||
Operating Activities | |||||||||
Net loss for the year | $ | ( |
) | $ | ( |
) | $ | ( |
) |
Items not affecting cash: | |||||||||
Stock-based compensation | |||||||||
Amortization expense | |||||||||
Interest accretion | |||||||||
Impairment of development assets | |||||||||
Impairment of goodwill | |||||||||
Write-off of inventory | |||||||||
Interest expense | |||||||||
Consulting fees | |||||||||
Deferred income tax recovery | ( |
) | |||||||
Changes in non-cash working capital: | |||||||||
Sales tax receivable | ( |
) | ( |
) | |||||
Accounts receivable | ( |
) | ( |
) | ( |
) | |||
Inventories | ( |
) | |||||||
Prepaid expenses | ( |
) | ( |
) | |||||
Due from related parties | ( |
) | ( |
) | |||||
Due to related parties | ( |
) | |||||||
Accounts payable and accrued liabilities | |||||||||
Net cash used in operating activities | ( |
) | ( |
) | ( |
) | |||
Investing Activities | |||||||||
Purchase of equipment | ( |
) | ( |
) | ( |
) | |||
Acquisition of Tetra, net of cash deficiency | ( |
) | |||||||
Development expenses | ( |
) | |||||||
Net cash used in investing activities | ( |
) | ( |
) | ( |
) | |||
Financing Activities | |||||||||
Common shares issued for cash, net of share issuance costs | |||||||||
Lease payments | ( |
) | ( |
) | |||||
Repayment of loan payable | ( |
) | ( |
) | |||||
Net cash provided by financing activities | |||||||||
Increase (decrease) in cash | ( |
) | ( |
) | |||||
Effect of foreign exchange rate changes on cash | ( |
) | |||||||
Cash, beginning of the year | |||||||||
Cash, end of the year | $ | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
- 8 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
Plymouth Rock Technologies Inc. (the "Company") was incorporated under the Business Corporations Act of British Columbia on October 17, 2011. The head office, principal address and registered and records office of the Company are located at 206 - 1045 West 8th Avenue, Vancouver, B.C., V6H 1C3.
On March 10, 2016, the Company's common shares commenced trading on the CSE. On January 8, 2019, the Company's common shares commenced trading on the Frankfurt Stock Exchange in Germany under the Symbol: 4XA, WKN# - A2N8RH. Effective August 27, 2019, the Company's common shares commenced trading on the OTC Markets Group ("OTCQB") under the symbol: PLRTF.
Since the Company completed its business acquisition with Plymouth Rock Technologies Inc. ("Plymouth Rock USA") in 2018, it has changed its name from Alexandra Capital Corp. to Plymouth Rock Technologies Inc. with the trading symbol "PRT" on November 1, 2018. As a result of the acquisition, the Company's principal business activity through its subsidiary, Plymouth Rock USA ("PRT USA"), was changed to focus on developing technologies related to remotely detecting assault firearms and suicide bombs concealed on the person or a carry bag. The Company focuses on detection methods with and without the need for a checkpoint of the suspect who is being screened. The Company's planned products encompass the very latest radar, imaging, and Unmanned Aerial System ("UAS") technologies for quickly detecting, locating and identifying the presence of threats and for search and rescue missions for law enforcement.
On March 26, 2021, the Company incorporated a subsidiary in United Kingdom, Plymouth Rock Technologies UK Limited ("PRT UK"). The purpose of PRT UK is to augment the Company's existing research and development of its drone technologies for the US and EMEA markets.
On June 4, 2021, the Company completed its acquisition of Tetra Drones Limited ("Tetra") (Note 3). The acquisition of Tetra provides the Company with drones production line in the United Kingdom.
Going Concern
These consolidated financial statements are prepared on a going concern basis, which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. At present, the Company's operations do not generate cash flows from operations. The Company has incurred losses since inception and has a comprehensive loss of $
The Company is not expected to be profitable during the ensuing 12 months, and therefore, must rely on securing additional funds from either issuance of debt or equity financing for cash consideration. During the year ended November 30, 2021, the Company received net cash proceeds of $
- 9 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN (continued)
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future rather than a process of forced liquidation. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Such adjustments could be material.
In March 2020, the World Health Organization declared a global pandemic known as COVID-19. The expected impacts on global commerce are expected to be far reaching. Material uncertainties may come into existence that could influence management's going concern assumption. The duration and impact of the COVID-19 outbreak is currently unknown and it is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its subsidiaries, in future periods, such as:
• |
This will and has impacted demand and testing for the Company's products and services in the near term and will and has impacted the Company's supply chains. |
|
• |
It may and has also impacted the availability of external funding sources during this year. |
|
• |
the effect on labor availability due to the severity and the length of potential measures taken by governments to manage the spread of the disease. |
Management continues to closely evaluate the impact of COVID-19 on the Company's business.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements ("Financial Statements") have been prepared in accordance with IFRS as issued by the International Accounting Standard Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").
These Financial Statements are authorized for issue by the Board of Directors on May 2, 2022.
These Financial Statements have been prepared on the historical cost basis. In addition, these Financial Statements have been prepared using the accrual basis of accounting.
These Financial Statements are presented in Canadian dollars, which is the Company's functional currency. The functional currency of PRT USA is U.S. Dollars and the functional currency of PRT UK and Tetra is British Pound Sterling ("£"). The assets and liabilities of PRT USA, PRT UK and Tetra are translated into Canadian dollars at the rate of exchange prevailing at the reporting date and their income and expense items are translated at average exchange rates for the period. Exchange differences arising on the translation are recognized in other comprehensive income.
Significant accounting judgments, estimates and assumptions
The preparation of these Financial Statements in conformity with IFRS requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and reported amounts of income and expenses during the period. Actual results could differ from these estimates.
- 10 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant accounting judgments, estimates and assumptions (continued)
Significant judgements and estimates used in preparing the Financial Statements include, but are not limited to the following:
(i) Deferred taxes
The calculation of deferred tax is based on the ability of the Company to generate future taxable income, the estimation of which is subject to significant uncertainty as to the amount and timing. The calculation of deferred tax is also based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Deferred tax recorded is also subject to uncertainty regarding the magnitude on non-capital losses available for carry forward and of the balances in various tax pools as the corporate tax returns have not been prepared as of the date of financial statement preparation.
(ii) Stock-based compensation
The fair value of stock options and finders' warrants issued are subject to the limitations of the Black-Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the expected lift, volatility of share prices, risk-free rate and dividend yield, changes in subjective input assumptions can materially affect the fair value estimate.
(iii) Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit ("CGU") exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model.
At November 30, 2019, Management was unable to project cash flows that can be generated from its CGUs and consequently, the intangible assets acquired and the goodwill generated from a previously completed business acquisition were determined to be impaired, therefore an impairment loss of $
Significant judgments used in the preparation of these Financial Statements include, but are not limited to the following:
(i) Going concern
Management has applied judgements in the assessment of the Company's ability to continue as a going concern when preparing its Financial Statements for the year ended November 30, 2021. Management prepares the Financial Statements on a going concern basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so.
- 11 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant accounting judgments, estimates and assumptions (continued)
(i) Going concern (continued)
In assessing whether the going concern assumption is appropriate, management accounts for all available information about the future, which is at least, but is not limited to, 12 months from the end of the reporting period.
(ii) Business combinations
Determination of whether a set of assets acquired and liabilities assumed constitute the acquisition of a business or asset may require the Company to make certain judgments as to whether or not the assets acquired and liabilities assumed include the inputs, processes and outputs necessary to constitute a business as defined in IFRS 3 - Business Combinations. Based on an assessment of the relevant facts and circumstances, the Company concluded that the acquisition disclosed in Note 3 was an asset acquisition.
(iii) Intangible assets
Intangible assets can be capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. To determine if the future economic benefit is probable depends on the successful commercialization of its technologies and that in turn depends on the management's judgement and knowledge. As at November 30, 2021, the Company has customer relationships reported as intangible assets that are being amortized over a period of three years from date of acquisition.
Cash
Cash consists of amounts held in banks and highly liquid investments with limited interest and credit risk.
Consolidation
The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances, transactions and any unrealized gains and losses arising from intercompany transactions, have been eliminated. The Company's subsidiaries are presented in the table below. PRT USA was incorporated under the General Corporation Law of the State of Delaware on March 22, 2018. PRT UK was incorporated under the General Corporation Law for England and Wales on March 26, 2021 and Tetra was acquired on June 4, 2021.
Entity |
Country of incorporation |
Effective economic interest |
PRT USA |
|
|
PRT UK |
|
|
Tetra |
|
|
- 12 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets
Intangible assets that are reflected in the consolidated statements of financial position consist of assets acquired through business combinations or assets acquisition. Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost). An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Accordingly, the Company does not amortize these intangible assets, but reviews them for impairment, annually or more frequently if events or changes in circumstances indicate that the assets might be impaired.
Development costs for internally-generated intangible assets are capitalized when all of the following conditions are met:
• |
technical feasibility can be demonstrated; |
|
• |
management has the intention to complete the intangible asset and use it; |
|
• |
management can demonstrate the ability to use the intangible asset; |
|
• |
it is probable that the intangible asset will generate future economic benefits; |
|
• |
the Company can demonstrate the availability of adequate technical, financial and other resources to complete the development and to use the intangible asset; and |
|
• |
costs attributable to the asset can be measured reliably. |
The amount initially recognized for internally-generated intangible assets is the sum of the expenditures incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditures are charged to the consolidated statements of loss and comprehensive loss in the period in which they are incurred.
Intangible assets with finite life are amortized over the estimated useful lives.
Equipment
Recognition and measurement
On initial recognition, equipment is valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing the items. The corresponding liability is recognized within provisions.
Equipment is subsequently measured at cost less accumulated amortization, less any accumulated impairment losses.
When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment.
Gains and losses
Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount and are recognized net within other income in profit or loss.
- 13 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Equipment (continued)
Amortization
Half of the normal amortization is taken in the year of acquisition for equipment with declining balance method. The amortization rates applicable to each category of property and equipment are as follows:
Computer equipment
Furniture
Leasehold improvements
Demo equipment
Vehicles
Inventories
The Company values inventories at the lower of cost and net realizable value. Cost includes the costs of purchases net of vendor allowances plus other costs, such as transportation, that are directly incurred to bring the inventories to their present location and condition.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of acquisition, of assets transferred, liabilities incurred or assumed, and equity instruments issued by the Company. The acquiree's identifiable assets and liabilities assumed are recognized at their fair value at the acquisition date. Acquisition related costs are recognized in profit or loss as incurred. The excess of the consideration over the fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. Any gain on a bargain purchase is recorded in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. Any goodwill that arises is tested annually for impairment.
Share capital
The Company records proceeds from the issuance of its common shares as equity. Proceeds received on the issuance of units, consisting of common shares and warrants are allocated between the common share and warrant component. The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the most easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component.
The fair value of the common shares issued in the private placement was determined to be the more easily measurable component and were valued at their fair value, as determined by the closing quoted price on the issuance date. The remaining proceeds, if any, are allocated to the attached warrants. Any fair value attributed to the warrants is recorded as warrant reserve. Management does not expect to record a value to the warrant in most equity issuances as unit private placements are commonly priced at market or at a permitted discount to market. If the warrants are issued as share issuance costs, the fair value of agent's warrants are measured using the Black-Scholes option pricing model and recognized in equity as a deduction from the proceeds.
If the warrants are exercised, the related amount is reclassified as share capital. If the warrants expire unexercised, the related amount remains in warrant reserve.
Incremental costs directly attributable to the issue of new common shares are shown in equity as a deduction, net of tax, from the proceeds. Common shares issued for consideration other than cash are valued based on their market value at the date that shares are issued.
- 14 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
The Company recognizes stock-based compensation expense for the estimated fair value of equity-based instruments granted to both employees and non-employees. Compensation expense is recognized when the options are granted with the same amount being recorded as contributed surplus. The expense is determined using an option pricing model that accounts for the exercise price, the term of the option, the current share price, the expected volatility of the underlying shares, the expected dividend yield, and the risk-free interest rate for the term of the option. If the options are exercised, contributed surplus will be reduced by the applicable amount. Stock-based compensation Share-based payment calculations have no effect in the Company's cash position.
Earnings (loss) per share
Basic earnings (loss) per share are calculated using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are calculated using the treasury stock method. This method assumes that common shares are issued for the exercise of options, warrants and convertible securities and that the assumed proceeds from the exercise of options, warrants and convertible securities are used to purchase common shares at the average market price during the period. The difference between the number of shares assumed issued and the number of shares assumed purchased is then added to the basic weighted average number of shares outstanding to determine the fully diluted number of common shares outstanding. No exercise or conversion is assumed during the periods in which a net loss is incurred as the effect is anti-dilutive.
Financial instruments
Financial assets
The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.
Subsequent to initial recognition, all financial assets are classified and subsequently measured at amortized cost. Interest income is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in profit or loss. Financial assets measured at amortized cost are comprised of cash, accounts receivable and due from related parties.
- 15 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Financial assets (continued)
The Company reclassifies debt instruments only when its business model for managing those financial assets has changed. Reclassifications are applied prospectively from the reclassification date and any previously recognized gains, losses or interest are not restated.
The Company recognizes a loss allowance for the expected credit losses associated with its financial assets. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.
The Company applies the simplified approach for accounts receivable that do not contain a significant financing component. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets' contractual lifetime.
Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.
The Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.
Financial liabilities
The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in profit or loss.
Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains, and losses relating to a financial liability are recognized in profit or loss. Financial liabilities measured at amortized cost are comprised of accounts payable, lease liability, loans payable and due to related parties.
The Company derecognizes a financial liability only when its contractual obligations are discharged, cancelled or expire.
Interest
Interest income and expense are recognized in profit or loss using the effective interest method.
The 'effective interest rate' is the rate that exactly discounts estimated future cash payments over the expected life of the financial instrument to the gross carrying amount of the financial asset or the amortized cost of the financial liability. The effective interest rate is calculated considering all contractual terms of the financial instruments, except for the expected credit losses of financial assets.
The 'amortized cost' of a financial asset or financial liability is the amount at which the instrument is measured on initial recognition minus principal repayments, plus or minus any cumulative amortization using the effective interest method of any difference between the initial amount and maturity amount and adjusted for any expected credit loss allowance. The 'gross carrying amount' of a financial asset is the amortized cost of a financial asset before adjusting for any expected credit losses.
- 16 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Interest (continued)
Interest income and expense is calculated by applying the effective interest rate to the gross carrying amount of the financial asset (when the asset is not credit-impaired) or the amortized cost of the financial liability.
Where a financial asset has become credit-impaired subsequent to initial recognition, interest income is calculated in subsequent periods by applying the effective interest method to the amortized cost of the financial asset. If the asset subsequently ceases to be credit-impaired, calculation of interest income reverts to the gross basis.
Offsetting
Financial assets and financial liabilities are offset, with the net amount presented in the statement of financial position, when, and only when, the Company has a current and legally enforceable right to set off the recognized amounts and intends either to settle on a net basis or realize the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRS, or when arising from a group of similar transactions if the resulting income and expenses are not material.
Revenue recognition
Revenue is recognized by applying the five-step model under IFRS 15. The Company recognizes revenue when, or as the goods or services are transferred to the control of the customer and performance obligations are satisfied. The Company's revenue is comprised of sales of its radar systems, radar components and engineering design and development services. The Company's revenue is recognized when control of the goods has been transferred, being when the goods are delivered to customers and when all performance obligations have been fulfilled. The amounts recognized as revenue represent the fair values of the considerations received or receivable from third parties on the sales of goods to customers, net of goods and services taxes and less returns, and discounts, at which time there are no conditions for the payment to become due other than the passage of time. For its engineering design and development services, revenue is recognized when the service has been rendered.
Government Grants
Government grants are recognized at fair value once there is reasonable assurance that the Company will comply with the conditions attached to the grants and that the grants will be received. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate. A forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.
- 17 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
Income tax is recognized in profit or loss except to the extent that it relates to equity items, 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 at period end, adjusted for amendments to tax payable with regards to previous years. Deferred tax is recorded using the 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 do not result in deferred tax assets or liabilities: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting profit (loss) nor taxable profit (loss); and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. 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 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. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Related party transactions
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 and 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.
Leases
The company adopted IFRS 16 effective December 1, 2019. The Company chose to adopt the modified retrospective approach on transition to IFRS 16 and has chosen not to restate comparative information in accordance with the transitional provisions in IFRS 16. As a result, the comparative information continues to be presented in accordance with the Company's previous accounting policies. The adoption of IFRS 16 resulted in the recognition of a right-of-use asset and a lease liability measured at the present value of the future lease payments on the consolidated statements of financial position. An amortization expense on the right-of-use asset and an interest expense on the lease liability has replaced the operating lease expense. IFRS 16 has changed the presentation of cash flows relating to leases in the Company's consolidated statements of cash flows, however, it does not cause a difference in the amount of cash transferred between the parties of the lease. In accordance with the transition of IFRS 16, the Company recognized a right-of-use asset and lease liability of $
- 18 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
New IFRS standards that are effective for the current year
In October 2018, the IASB issued "Definition of a Business (Amendments to IFRS 3)". The amendments clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or an asset acquisition. The amendments provide an assessment framework to determine when a series of integrated activities is not a business. The amendments are effective for business combinations occurring on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. The Company adopted this amendment on December 1, 2020 and has determined that there has been no material impact to the Company's consolidated financial statements.
Accounting standards, amendments and interpretations not yet effective
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or the IFRIC during the year but are not yet effective. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.
IAS 1 - Presentation of Financial Statements ("IAS 1") - Classification of Liabilities as Current or Noncurrent were amended to clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the reporting period, and introduce a definition of 'settlement' to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier adoption is permitted.
IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use - The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced before that asset is available for use, i.e. proceeds while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Consequently, an entity recognizes such sales proceeds and related costs in profit or loss. The entity measures the cost of those items in accordance with IAS 2 Inventories. The amendments are effective for annual reporting periods beginning on or after January 1, 2022. Earlier adoption is permitted.
These new and amended standards are not expected to have a material impact on the Company's consolidated financial statements.
- 19 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
3. ACQUISITION
On June 4, 2021, the Company acquired the
1) An amount of £
2) An amount of £
3) An amount of £
4) The remaining balance of £
The Company applied the optional concentration test permitted under IFRS 3 to the acquisition which resulted in the acquired assets being accounted for as an asset acquisition. As such the purchase price was allocated to the identifiable assets and liabilities based on their fair values at the date of acquisition.
The allocation of the consideration for the purposes of the consolidated statements of financial position is as follows:
Total Consideration | |||
Cash | $ | ||
Net assets acquired (liabilities assumed) | |||
Cash indebtedness | $ | ( |
) |
Equipment | |||
Prepaid expenses | |||
Due to a related party | ( |
) | |
Bank loan | ( |
) | |
Accounts payable | ( |
) | |
Vehicle loan | ( |
) | |
Net assets acquired (liabilities assumed) | $ | ( |
) |
Purchase price allocation | |||
Net identifiable assets acquired | $ | ( |
) |
Customer relationships | |||
$ |
- 20 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
As at November 30, 2021 and 2020, the Company's prepaid expenses consist of the following:
November 30, 2021 | November 30, 2020 | |||||
Advertising and promotions | $ | $ | ||||
Rent | ||||||
Other | ||||||
$ | $ |
As at November 30, 2021, other includes $
- 21 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
5. EQUIPMENT
Computer | Furniture | Vehicles | Leasehold improvement |
Demo equipment |
Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Cost: | ||||||||||||||||||
Balance at November 30, 2019 | ||||||||||||||||||
Additions | ||||||||||||||||||
Foreign currency translation adjustment | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
Balance at November 30, 2020 | ||||||||||||||||||
Additions (Note 3) | ||||||||||||||||||
Foreign currency translation adjustment | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||
Balance at November 30, 2021 | ||||||||||||||||||
Accumulated Depreciation: | ||||||||||||||||||
Balance at November 30, 2019 | ||||||||||||||||||
Amortization | ||||||||||||||||||
Foreign currency translation adjustment | ( |
) | ( |
) | ( |
) | ||||||||||||
Balance at November 30, 2020 | ||||||||||||||||||
Amortization | ||||||||||||||||||
Foreign currency translation adjustment | ||||||||||||||||||
Balance at November 30, 2021 | ||||||||||||||||||
Net Book Value: | ||||||||||||||||||
At November 30, 2020 | ||||||||||||||||||
At November 30, 2021 |
As at November 30, 2021, the demo equipment is under construction and thus it is not available for use. As a result, there was no amortization taken on the equipment.
- 22 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
6. INTANGIBLE ASSETS
During the year ended November 30, 2021, the Company acquired Tetra, see Note 3. Included in the acquisition is the identifiable intangible asset, customer relationships valued at $
Previously, the Company's intangible assets were composed of the assets acquired from the acquisition of Plymouth Rock USA. The Company is in the process of developing and commercializing the following intangible assets: (1) A Millimeter Remote Imaging from Airborne Drone ("Drone X1 System"); (2) A compact microwave radar system for scanning shoe's ("Shoe-Scanner"); and (3) Wi-Fi radar techniques for threat detection screening in Wi-Fi enabled zones in buildings and places, such as airports, shopping malls, schools and sports venues ("Wi-Ti"). These assets can remotely detect, locate and identify the presence of threats.
Cost: | Customer relationship |
Drone X1 System |
Shoe- Scanner |
Wi-Ti | Total | ||||||||||
Balance at November 30, 2018 | $ | $ | $ | $ | $ | ||||||||||
Additions | |||||||||||||||
Impairment | ( |
) | ( |
) | ( |
) | ( |
) | |||||||
Foreign currency translation adjustment | ( |
) | |||||||||||||
Balance at November 30, 2019 and 2020 | |||||||||||||||
Additions | |||||||||||||||
Balance at November 30, 2021 | |||||||||||||||
Accumulated amortization: | |||||||||||||||
Balance at November 2018, 2019 and 2020- | |||||||||||||||
Amortization | ( |
) | ( |
) | |||||||||||
( |
) | ( |
) | ||||||||||||
Net book value | |||||||||||||||
Balance at November 30, 2020 and 2019- | |||||||||||||||
Balance at November 30, 2021 | $ | $ | $ | $ | $ |
For impairment testing purpose, the Company identified that each intangible asset is a separate cash- generating unit ("CGU'). Management was unable to project cash flows that could be generated from each of the CGUs, and consequently an impairment loss to write-down the carrying amounts to $nil was recognized during the year ended November 30, 2019.
During the year ended November 30, 2019, the development costs of $
- 23 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
7. ACCOUNTS PAYABLE
As at November 30, 2021 and 2020, the Company's accounts payable consist of the following:
November 30, 2021 | November 30, 2020 | |||||
Professional fees | $ | $ | ||||
Funds to be returned to investors | ||||||
Advertising costs | ||||||
Due to former shareholder of Tetra | ||||||
Payroll | ||||||
Development costs | ||||||
Others | ||||||
$ | $ |
As at November 30, 2021, an amount of £
8. RELATED PARTY TRANSACTIONS AND BALANCES
Key management compensation
The amounts due to and from related parties are due to the directors and officers of the Company. The balances are unsecured, non-interest bearing and due on demand. These transactions are in the normal course of operations and have been valued in these consolidated financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Key management is comprised of directors and officers of the Company.
As at November 30, 2021, $
As at November 30, 2021, $
November 30, 2021 | November 30, 2020 | |||||
Company controlled by Former Chief Financial Officer | $ | $ | ||||
Company controlled by Corporate Secretary | ||||||
Chief Executive Officer of the Company | ||||||
Director | ||||||
$ | $ |
As at November 30, 2021, prepaid expenses include prepayments of $
- 24 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
8. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
During the years ended November 30, 2021, 2020 and 2019, the Company entered into the following transactions with related parties:
November 30, 2021 | November 30, 2020 | November 30, 2019 | |||||||
Management fees | $ | $ | $ | ||||||
Consulting fees | |||||||||
Accounting fees | |||||||||
Rent | |||||||||
Stock-based compensation | |||||||||
Salaries and benefits to CEO | |||||||||
$ | $ | $ |
Management fees consisted of the following:
November 30, 2021 | November 30, 2020 | November 30, 2019 | |||||||
Company controlled by Interim CFO and Corporate Secretary | $ | $ | $ | ||||||
Company controlled by Former CFO | |||||||||
$ | $ | $ |
During the year ended November 30, 2021, the Company issued
During the year ended November 30, 2021, accounting fees of $
During the year ended November 30, 2021, the Company had
November 30, 2021 | November 30, 2020 | November 30, 2019 | ||||||||||||||||
Number of options held |
Expense for the year (vested) |
Number of options held |
Expense for the year (vested) |
Number of options held |
Expense for the year (vested) |
|||||||||||||
CEO | $ | $ | $ | |||||||||||||||
Former CFO | ||||||||||||||||||
Corporate Secretary | ||||||||||||||||||
Directors | ||||||||||||||||||
$ | $ | $ |
- 25 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
9. GOVERMENT ASSISTANCE RECEIVED
On May 4, 2020, the Company received a CARES Act Paycheck Protection Program Loan ("PPP Loan") of US$
During the year ended November 30, 2020 , the PPA Loan was forgiven as the Company met the requirements and as a result, the amount of $
10. LOAN PAYABLE
As at November 30, 2021, the Company assumed the loan payable related to the vehicle acquired from Tetra as described in note 3. The interest rate and maturity date are as follows:
Principal |
Principal |
Interest |
Commencement |
Maturity |
Balance, November 30, 2021 |
|||||||||||||
Vehicle | £ |
$ |
|
|
$ |
The vehicle is collateral for the loan. In the event of default in payments, the interest is increased to
11. CAPITAL MANAGEMENT
The Company considers its capital structure to include net residual equity of all assets, less liabilities. The Company's objectives when managing capital are to (i) maintain financial flexibility in order to preserve its ability to meet financial obligations and continue as a going concern; (ii) maintain a capital structure that allows the Company to pursue the development of its projects and products; and (iii) optimize the use of its capital to provide an appropriate investment return to its shareholders commensurate with risk.
The Company's financial strategy is formulated and adapted according to market conditions in order to maintain a flexible capital structure that is consistent with its objectives and the risk characteristics of its underlying assets. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of its underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or acquire or dispose of assets.
- 26 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL
(a) Common Shares
Authorized: Unlimited number of common shares without par value
As at November 30, 2021, there were
As at November 30, 2021, the Company has
During the year ended November 30, 2021
On January 29, 2021, the Company issued
On August 9, 2021, the Company issued
During the year ended November 30, 2021, the Company issued
During the year ended November 30, 2021, the Company issued
During the year ended November 30, 2021, the Company issued
- 27 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(a) Common Shares (continued)
During the year ended November 30, 2020
On September 30, 2020, the Company issued
On September 30, 2020, the Company issued
On September 30, 2020, the Company issued an aggregate of
On September 30, 2020, the Company issued
On September 24, 2020, the Company issued
On September 22, 2020, the Company issued
On August 21, 2020, the Company issued
On August 13, 2020, the Company issued
On July 3, 2020, the Company issued
On May 15, 2020, the Company issued an aggregate of
On April 24, 2020, the Company issued an aggregate of
In connection with the April 24, 2020 and May 15, 2020 private placements, the Company paid $
- 28 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(a) Common Shares (continued)
On February 4, 2020, the Company arranged a non-brokered private placement financing of up to
During the year ended November 30, 2019
During the year ended November 30, 2019, the Company issued a total of
(b) Stock Options
On November 12, 2014 the Company adopted an incentive stock option plan (the "Option Plan") which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the Exchange requirements, grant to directors, officers, employees, and consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed
During the year ended November 30, 2021
On January 21, 2021, the Company granted
On June 10, 2021, the Company granted
The Company also recorded $
- 29 -
PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(b) Stock options (continued)
During the year ended November 30, 2020
During the year ended November 30, 2020,
During the year ended November 30, 2019
On January 16, 2019, the Company granted
On March 21, 2019, the Company granted an aggregate of
On November 29, 2019, the Company granted an aggregate of
Stock option transactions and the number of stock options outstanding as at November 30, 2021, 2020 and 2019 are summarized as follows:
Number of Options |
Weighted Average Exercise Price |
|||||
Balance, November 30, 2019 | $ | |||||
Cancelled | ( |
) | ||||
Balance, November 30, 2020 | ||||||
Granted | ||||||
Exercised | ( |
) | ||||
Balance, November 30, 2021 | $ |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(b) Stock options (continued)
The following summarizes the stock options outstanding at November 30, 2021:
Weighted average |
Weighted | ||||||||||||
Exercise |
Numbers of options |
Numbers of options |
remaining contractual |
average exercise |
|||||||||
Expiry Date | Price | outstanding | exercisable | life (year) | price | ||||||||
$ | $ | ||||||||||||
January 15, 2024 |
|
||||||||||||
March 20, 2024 |
|
||||||||||||
November 28, 2024 |
|
||||||||||||
January 21, 2026 |
|
||||||||||||
June 10, 2026 |
|
||||||||||||
|
(c) Share purchase warrants
During the year ended November 30, 2021
On August 9, 2021, the Company issued
$
On August 9, 2021, the Company also issued
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PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(c) Share purchase warrants (continued)
On January 29, 2021, the Company issued
On January 29, 2021, the Company also issued
During the year ended November 30, 2020
On September 30, 2020, the Company granted
On May 15, 2020, the Company granted
On April 24, 2020, the Company granted
Share purchase warrant transactions and the number of share purchase warrants outstanding as at November 30, 2021, 2020 and 2019 are summarized as follows:
Number of Warrants |
Weighted Average Exercise Price |
|||||
Balance, November 30, 2019 | $ | |||||
Warrants granted | ||||||
Warrants exercised | ( |
) | ||||
Balance, November 30, 2020 | ||||||
Warrants granted | ||||||
Warrants exercised | ( |
) | ||||
Balance, November 30, 2021 | $ |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
12. SHARE CAPITAL (continued)
(c) Share purchase warrants (continued)
The following summarizes the stock warrants outstanding at November 30, 2021:
Expiry Date | Exercise Price |
Number of Warrants outstanding and exercisable |
Weighted average remaining contractual life (year) |
Weighted average exercise price |
||||||
$ | $ | |||||||||
May 15, 2022 |
|
|||||||||
September 30, 2022 |
|
|||||||||
January 29, 2026 |
|
|||||||||
August 9, 2026 |
|
|||||||||
|
13. FINANCIAL RISK MANAGEMENT
The Company's financial assets consist of cash, accounts receivable and due from related parties. The estimated fair values of cash, accounts receivable, and due from related parties approximate their respective carrying values due to the short period to maturity.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
a. Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;
b. Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
c. Level 3 - inputs that are not based on observable market data.
For the years ended November 30, 2021 and 2020, the fair values of the cash, accounts receivable, accounts payable, and amounts due to and from related parties, and loan payable approximate the book value due to the short-term nature.
The Company is exposed to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of counterparty limits, controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company ensures, as far as reasonably possible, it will have sufficient capital in order to meet short- term business requirements, after taking into account cash flows from operations and the Company's holdings of cash. The Company believes that these sources will be sufficient to cover the likely short-term cash requirements.
The Company's cash is currently invested in business accounts which is available on demand by the Company for its operations.
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PLYMOUTH ROCK TECHNOLOGIES INC. |
13. FINANCIAL RISK MANAGEMENT
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company has no significant interest rate risk due to the short-term nature of its interest generating assets.
Credit Risk
Credit risk is the risk of a loss when a counterparty to a financial instrument fails to meet its contractual obligations. The Company's exposure to credit risk is limited to its cash. The Company limits its exposure to credit risk by holding its cash in deposits with high credit quality financial institutions in Canada, USA and United Kingdom.
Foreign Currency Risk
The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable, leases, amounts due to and from related parties, and accounts payable that are denominated in US dollars and British Pound Sterling. A
14. SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended November 30, 2021, 2020 and 2019, the Company has the following non-cash investing and financing activities:
November 30, 2021 $ |
November 30, 2020 $ |
November 30, 2019 $ |
|||||||
Non-cash financing activities: | |||||||||
Fair value of options granted and vested | |||||||||
Fair value of options exercised | |||||||||
Fair value of options cancelled and expired | |||||||||
Fair value of warrants granted | |||||||||
Fair value of warrants exercised | |||||||||
Shares issued for finders | |||||||||
Shares issued for options exercised | |||||||||
Shares issued for warrants exercised | |||||||||
Non-cash investing activities: | |||||||||
Shares to be issued for acquisition of inventory | |||||||||
Shares issued for consulting services |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
15. COMMITMENTS
As at November 30, 2021, the Company has the following commitments:
The Company signed a consulting agreement with an unrelated party whereby the consultant will assist the expansion of the Company's network in Europe. The agreement commenced in October 2021 for a period of 12 months with a monthly fee of $
PRT UK has a license fee agreement whereby it will lease a parcel of land for an annual fee of £
PRT USA has a warehouse lease until June 3, 2022 with a monthly fee of US$
In November 2018, PRT USA entered into
On April 1, 2020 the Company entered into an agreement with a Director of the Company to provide consulting services. In line with this, the Company shall pay $
The Company has certain commitments related to key management compensation for approximately $
16. RIGHT-OF-USE ASSETS AND LEASE LIABILITY
Right-of-use Assets
The following is the continuity of the cost and accumulated depreciation of right-of-use assets, for the year ended November 30, 2021 and for the year ended November 30, 2020:
Opening balance, December 1, 2019 | $ | ||
Recognition upon adoption of IFRS 16 | |||
Amortization expense | ( |
) | |
Balance, November 30, 2020 | |||
Amortization expense | ( |
) | |
Cumulative translation adjustment | ( |
) | |
Balance, November 30, 2021 | $ |
During the year ended November 30, 2020, the Company recognized right-of-use assets and corresponding lease liabilities upon the adoption of IFRS 16 related to its Massachusetts premises under lease (Note 15). The right-of-use assets are depreciated on a straight-line basis over the terms of the underlying lease agreements.
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PLYMOUTH ROCK TECHNOLOGIES INC. |
16. RIGHT-OF-USE ASSETS AND LEASE LIABILITY (continued)
Lease liability
The following is the continuity of lease liability, for the years ended November 30, 2021 and 2020:
Opening balance, December 1, 2019 | $ | ||
Recognition upon adoption of IFRS 16 | |||
Lease payments | ( |
) | |
Interest on lease liability | |||
Balance, November 30, 2020 | $ | ||
Lease payments | ( |
) | |
Interest on lease liability | |||
Cumulative translation adjustment | ( |
) | |
Balance, November 30, 2021 | $ | ||
Current Portion | $ | ||
Long-term portion | $ |
As at November 30, 2021, the minimum lease payments for the lease liabilities are as follows:
Year ending: | |||
2022 | $ | ||
2023 | |||
Less: Interest expense on ease liabilities | ( |
) | |
Total present value of minimum lease payments | $ |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
17. BREAKDOWN OF EXPENSES
General and Administrative Expenses | Note | 2021 | 2020 | 2019 | ||||||
Accounting and audit fees | 8 | $ | $ | $ | ||||||
Amortization | 5,6,16 | |||||||||
Consulting fees | 8 | |||||||||
General office expenses | ||||||||||
Insurance | ||||||||||
Interest and accretion | 16 | |||||||||
Legal fees | ||||||||||
Management fees | 8 | |||||||||
Rent | 8 | |||||||||
Stock-based compensation | 8,12 | |||||||||
Transfer agent and filing fees | ||||||||||
Wages, salaries and benefits | 8 | |||||||||
Total | $ | $ | $ |
Research and Development | 2021 | 2020 | 2019 | ||||||
Labor | $ | $ | $ | ||||||
Materials | |||||||||
Total | $ | $ | $ |
Selling expenses during the year ended November 30, 2021 consisted of business development expenses amounting to $
18. SEGMENTED INFORMATION
The Company operates in one business segment which is focusing on developing technologies as described in Note 1 in the USA and UK.
The Company's revenues were generated from operations in the USA and UK with no concentration of customers. All the long-lived assets are located in the U.S. and UK as of November 30, 2021 and 2020. The following table summarizes the revenue and long-lived assets by geographical location:
Canada | USA | UK | Total | |||||||||
For the year ended November 30, 2021 | ||||||||||||
Revenues | $ | $ | $ | $ | ||||||||
Gross Profit | ||||||||||||
For the year ended November 30, 2020 | ||||||||||||
Revenues | $ | $ | $ | $ | ||||||||
Gross Profit | ||||||||||||
For the year ended November 30, 2019 | ||||||||||||
Revenues | $ | $ | $ | $ | ||||||||
Gross Profit |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
18. SEGMENTED INFORMATION (continued)
Geographical information relating to the Company's non-current assets (other than financial instruments) is as follows:
Canada | USA | UK | Total | |||||||||
For the year ended November 30, 2021 | ||||||||||||
Equipment | $ | $ | $ | $ | ||||||||
Right of use asset | ||||||||||||
Intangible assets | ||||||||||||
For the year ended November 30, 2020 | ||||||||||||
Equipment | $ | $ | $ | $ | ||||||||
Right of use asset |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
19. INCOME TAXES
The following table reconciles the expected income taxes expense (recovery) at the Canadian statutory income tax rates to the amounts recognized in the statement of operations and comprehensive loss for the years ended November 30, 2021 and 2020:
2021 | 2020 | 2019 | |||||||
Net loss before tax and comprehensive loss | ( |
) | $ | ( |
) | $ | ( |
) |
|
Combined statutory tax rate | |||||||||
Expected income tax (recovery) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
Permanent differences | |||||||||
Non-deductible items and others | |||||||||
Goodwill impairment | |||||||||
Change in estimates | ( |
) |
|||||||
Change in deferred tax assets not recognized | |||||||||
Income tax expense (recovery) | $ | $ | $ | ( |
) |
Significant components of the Company's unrecognized deferred tax assets (liabilities) for the years ended November 30, 2021 and 2020 are shown below:
2021 | 2020 | |||||
Non-capital losses | $ | $ | ||||
Capital losses | ||||||
Equipment | ||||||
Share issuance costs | ||||||
Intangible assets | ||||||
Others | ||||||
Net deferred tax assets | $ | $ |
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PLYMOUTH ROCK TECHNOLOGIES INC. |
19. INCOME TAXES (continued)
Non-capital losses carryforward:
The Company has non-capital loss carryforwards and net operating losses, for which no deferred tax asset has been recognized of approximately $
Expiry | 2021 | ||
2031 | $ | ||
2032 | |||
2033 | |||
2034 | |||
2035 | |||
2036 | |||
2037 | |||
2038 | |||
2039 | |||
2040 | |||
2041 | |||
TOTAL | $ |
20. SUBSEQUENT EVENTS
(a) On December 31, 2021, the Company issued
(b) In February 2022, a
- 40 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Years Ended November 30, 2021 and 2020
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INTRODUCTION
The following information, prepared as of May 2, 2022, should be read in conjunction with the audited consolidated financial statements of Plymouth Rock Technologies Inc. ("the Company" or "Plymouth Rock" or "PRT") for the year ended November 30, 2021 as well as the audited consolidated financial statements of the Company for the year ended November 30, 2020; including the notes thereto. The financial statements and financial data contained in this discussion and analysis are presented in accordance with International Financial Reporting Standards ("IFRS"). The reporting currency is the Canadian dollar.
The following discussion and analysis provide information that management believes is relevant to the assessment and understanding of the Company's results of operations and financial condition. Certain statements herein contain forward-looking statements relating to the operations or to the environment in which we operate, which are based on our operations, forecasts, and projections. Forward-looking statements are not guaranteed of future performance. They involve risks, uncertainties and assumptions; and actual results may differ materially from those anticipated in these forward-looking statements. The risks include those outlined under the "Risk Factors" section of this MD&A and elsewhere in the Company's public disclosure documents. Included in the risk factors is the public health crisis caused by the pandemic, COVID-19 which caused disruptions in global supply chain, business operations and financial markets. As of report date, the crisis has not altered the ability of the Company to progress and test its technologies. It is possible that COVID-19 may have other material adverse effect on the Company's business and financial condition, however the full effects of the impact are uncertain.
BUSINESS OVERVIEW AND OVERALL PERFORMANCE
The Company was incorporated under the Business Corporations Act of British Columbia on October 17, 2011. The head office, principal address and registered and records office of the Company are located at 206 - 1045 West 8th Avenue, Vancouver, B.C., V6H 1C3.
On October 31, 2018, the Company completed its business acquisition of Plymouth Rock Technologies Inc. (Plymouth Rock USA) and changed its name from Alexandra Capital Corp. to Plymouth Rock Technologies Inc. with new trading symbol "PRT" on November 1, 2018 (See "Business Acquisition" section of this report). As a result of the acquisition, the Company's principal business activity through its subsidiary, Plymouth Rock USA, was changed to focus on developing technologies related to remotely detecting assault firearms and suicide bombs concealed on the person or a carry bag. The Company focuses on detection methods with and without the need for a checkpoint of the suspect who is being screened. The Company's planned products encompass the very latest radar, imaging and Unmanned Aerial System (UAS) technologies for quickly detecting, locating and identifying the presence of threats and for other applications such as, search and rescue missions for law enforcement, environmental and humanitarian missions for global government agencies, and inspection of infrastructure for structural damage.
On March 10, 2016, the Company's common shares commenced trading on the CSE under the symbol "AXC". On November 1, 2018, upon the change in name, the Company started trading under the new trading symbol "PRT". On January 8, 2019, the Company's common shares commenced trading on the Frankfurt Stock Exchange in Germany under the Symbol: 4XA, WKN# - A2N8RH. Effective August 27, 2019, the Company's common shares commenced trading on the OTC Markets Group ("OTCQB") under the symbol: PLRTF.
On January 28, 2021, the Company supplied its first Unmanned Aerial Vehicle (UAV) to the United Nations (UN) as part of UNSOM (United Nations Assistance Mission in Somalia) under the United Nations Environment Program (UNEP) for a tree-reseeding mission (See DEVELOPING TECHNOLOGIES).
As at February 3, 2021, the Company has reached a milestone in its progress of MediMod, the latest addition to its PRT X1 and XV UAV (Unmanned Aerial Vehicle) payload systems. MediMod is an active insulated refrigerated storage module that will have multiple medical uses and advantages, including assisting with the immediate need for rapid deployment of COVID-19 vaccine transportation to remote sites or between medical facilities as part of multiple national campaigns for mass vaccination (See DEVELOPING TECHNOLOGIES).
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As at February 9, 2021, the Company's CODA-1(Cognitive Object Detection Apparatus) system has undergone further successful testing for detection of various concealed weaponry on a person at its laboratories. CODA is a uniquely designed, ultra-compact radar device that can be utilized for a variety of applications across many industries, covering everything from traditional radar for drone or aircraft detection, to low-power stand-off weapon detection.
On February 10, 2021 during the UN mission in Somalia a PRT drone broke the existing beyond visual line of sight (BVLOS) drone delivery record, and also believed to have set an additional new record for complete 'round trip' autonomous delivery capability. UN observers and aviation officials that monitor scheduled UN flights have agreed to supply the recorded flight data and witness statements required for the official recognition by adjudicators of Guinness World Records.
As at February 24, 2021, the Company's XV-S drone has passed more than 20 hours of flight testing. The XV-S is a fixed-wing UAS platform capable of vertical take-off and landing, removing the requirement for large runways or launch catapult and recovery nets, which are usually required by most fixed-wing drones. The XV-S can launch fully autonomously from an area as small as 100 square feet and operate for up to 4 hours.
On March 26, 2021, the Company incorporated a new subsidiary in United Kingdom, Plymouth Rock Technologies UK Limited ("PRT UK"). The purpose of PRT UK will be to augment the Company's existing research and development of the X-1 and X-V for the US and EMEA markets. Many of the UK consultants of the company have since become direct employees as the company expands its operations globally.
Effective February 1, 2021, Dr. Gianluca De Novi has been appointed to VP of Engineering. Dr. De Novi is a Harvard Faculty member, Director of the Medical Device and Simulation Laboratory at the Imaging Department of the Massachusetts General Brigham Hospital and CEO at XSurgical Robotics. Dr. De Novi, was formerly a Scientific Advisor and then transitioned to VP of Engineering as the company accelerates the market deployment of its shoe scanner and CODA-1 threat detection systems.
On September 2, 2021, the Company sold custom drones to Survey-AR to deliver a drone swarm test capability. The project will assess an autonomous drone swarm system to optimize weather and air quality monitoring in atmospheric boundary layer environments with particular importance in urban and industrial areas. Plymouth Rock Technologies will be supplying a fleet of Unmanned Aircraft Systems (UAS) which will autonomously operate together to form a 'swarm'.
On September 9, 2021, the Company has completed the qualification for ISO 9001:2015 and has been accredited this under certificate 377662021. ISO is one of the most rigorous and well-regarded standards in the world. The implementation and application of ISO reinforces our company focus on creating products and services, measured against global benchmarks of industry excellence.
On September 21, 2021, the Company sold custom drones and training services to Cranfield University in collaboration with the UK Civil Aviation Authority (CAA) National Beyond Visual Line of Sight Experimentation Corridor (NBEC). The goal of the NBEC is to provide a safe, managed environment to test and develop concepts, principles, and related technologies to enable flying unmanned aircraft systems beyond visual line of sight (BVLOS) in non-segregated airspace.
On October 13, 2021, Aardvark LLP ("Aardvark") have issued a purchase order for a PRT XV-L Fixed-wing Vertical Take-off and Landing (VTOL) Unmanned Aircraft System (UAS) to perform long-range security and environmental operations in remote locations. This is expected to add revenues to the Company for the year as well as establish Aardvark as a significant client of the Company.
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On October 26, 2021, The company has announced the delivery of several new orders for environmental monitoring and petrochemical inspection. Environmental monitoring will be carried out with PRT X-Lite series drones, equipped with a winch and collection cup for deep water sampling. This will study plastic particulates in water and other microbiological impact. The drones will be operated by Swiss University, ETH Zürich
On February 9, 2022,The company secured a contract for Large, Long-range Unmanned Aircraft Systems as per announcement dated. The end use of for the aircraft is for long range natural resource monitoring. Initial deliveries are anticipated to take place by April 2022.
On February 16, 2022, Plymouth received an order for an Unmanned Aircraft System(UAS) for beyond visual line of sight (BVLOS) operations. Delivery will be to the Norfolk constabulary, in Norfolk, United Kingdom, before April 2022.
On February 26, 2022 Plymouth been awarded a cooperative research and development agreement (CRADA) for its SSI Shoe Scanner system by the US department of homeland security. A CRADA is a written agreement that facilitates research and development (R&D) collaboration between one or more federal laboratories and one or more non-federal entities.
On March 8, 2022 Plymouth has joined the Naval Aviation Systems Consortium and Launches new customer focused website and currently engaged in procurement requests with the US department of defense.
On April 1, 2022, the Company announced that the Company has been delayed in filing its audited financial statements as a result of Covid-19 related and other delays in obtaining information with respect to a U.K. subsidiary acquired during the fiscal period. The Company has applied for, and has been granted, a management cease trade order (the "MCTO") by the British Columbia Securities Commission.
Business Acquisition
On June 4, 2021, the Company signed a definitive acquisition agreement outlining the terms and conditions with respect to an acquisition of Tetra Drones Ltd. ("Tetra Drones" or "Tetra"), an arm's length, privately held, UK-based company a developer of custom-made, high-performance and niche Unmanned Aircraft Systems (UAS). The acquisition of Tetra provides Plymouth with a U.K. based production and sales team with a record of success.
The Company acquired all of the then issued and outstanding shares of Tetra Drones. Tetra Drones has issued and outstanding share capital of 100 ordinary shares held by the sole Shareholder, Mr. Ben Pickard.
Pursuant to the share purchase agreement, the Company acquired Tetra for the sum of £350,000 GBP ($579,682 CAD), payable on an installment basis as follows:
As a result of the acquisition, the Company now owns all outstanding shares of Tetra and will assume Tetra's existing liabilities. The principal owner of Tetra became part of the Company's management and shall be paid a monthly salary along with bonus shares or other equity instruments at the discretion of the board. All expenses related to the transaction were paid by the Company.
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The fair value of net liabilities of Tetra amounted to $77,412 as at the date of acquisition. The Company applied the optional concentration test permitted under IFRS 3 to the acquisition which resulted in the acquired assets being accounted for as an asset acquisition. As such the purchase price was allocated to the identifiable assets and liabilities based on their fair values at the date of acquisition.
DEVELOPING TECHNOLOGIES
The Company's core technologies include: (1) A Millimeter-wave Remote Imaging system from Airborne Drone ("MiRIAD"); (2) A compact millimeter-wave radar system for scanning shoe's ("Shoe-Scanner"); and (3) Two microwave radar systems for stand-off threat detection ("CODA") and screening in Wi-Fi enabled zones in buildings and places, such as airports, shopping malls, schools and sports venues ("Wi-Ti" - Wireless Threat Indication). In addition, the Company launched on October 15, 2019 its newest technology, the "PRT-X1", a next generation Unmanned Aerial System (UAS) drone. In early 2021 the Company launched its newest UAS drone, the PRT-XV, a fixed wing UAS platform with the added capability of verticle take-off and landing (VTOL).
MiRIAD (Millimeter-wave Remote Imaging from Airborne Drone) Updates
Increasing threat of terrorist activities, rising territorial conflicts, and geopolitical instabilities have led to the rise in the demand for threat detection systems. Also, increasing need for large-scale surveillance systems at public and commercial places is driving the demand for threat detection equipment.
The threat detection systems market is led by the public infrastructure that is further segmented into airports, railway stations, sports stadiums, shopping malls, pilgrimages, and others. The high demand for threat detection devices from airport security agencies and shopping malls, especially for explosive detectors, video surveillance systems, and biometric systems, is one of the major factors driving the growth of the threat detection systems market for the public infrastructure application.
On April 3, 2019, the Company's MiRIAD system has passed internal payload flight testing demonstrations in the Morongo and Coachella Valley, California, USA. The test allowed the Company to assess the stability and maneuverability of a UAS (Unmanned Aircraft System) with a MiRIAD system attached. With the successful payload test and lightweight antenna design, the Company's management and scientific advisors are confident that Plymouth Rock would be the first company to realize millimeter-wave imaging from commercial drones.
In Q4 2019, the Company fielded a multispectral imaging capability aboard a small Search & Rescue drone (the "PRT=X1") by combining visible, IR (infrared) and millimeter-wave imaging sensors on a single aerial vehicle. Chemical trace detection sensors are also being investigated along with sensors that measure human biometrics, which is the measurement and statistical analysis of people's unique physical and behavioral characteristics. The technology is mainly used for identification and access control, or for identifying individuals who are under surveillance.
In Q1 2021 the company updated the design of the MiRIAD sensors with digital signal processors to process the image data received from the sensors. Fully integrated units with antennas will commence testing in Q3 2021.
Another key application for the MiRIAD sensor mounted to a UAS is for critical infrastructure inspection such as railways, buildings, bridges, roads, gas and oil pipelines to name just a few.
Due to funding issues in Q3/Q4 2021 the MiRIAD sensor development was put on hold. We expect to complete the development and testing in Q3 2022.
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Millimeter Wave, Shoe Scanning Technology
The Millimeter-wave Shoe Scanner allows for the rapid screening of footwear without necessitating removal of shoes. With a screening time objective of 30 PPM (Persons/Minute) the Shoe Scanner is ideal for airport terminals, prison/correctional facilities, public events, theft prevention and other high throughput, screening applications.
On March 12, 2019, Manchester Metropolitan University assigned the Millimeter-wave, Shoe Scanning technology IP to the Company for the consideration of $30,000. The Millimeter-wave Shoe Scanner is a floor-mounted 3D imaging system that uses harmless millimeter-wave imaging techniques to inspect footwear. The scanner is then able to identify if the footwear has been altered or is being used to transport concealed items, such as weaponry, substances, compounds, or electronic items. As of October 8, 2019, the IP and patent transfer for this technology was completed.
On October 29, 2020 the Company received a "Notice of Allowance" by the US Patent and Trademark Office of patent application No. 16/560,480 for the "Method and System for Determining Dielectric Properties of an Object". The invention uses millimeter wave ("MMW") shoe-scanning technologies for fast, contactless screening of passengers' footwear in highly secure environments such as airports, prisons, border points of entry and government buildings
On September 7, 2020 the company submitted a BAA (Broad Agency Announcement) to the Transport Security Administration (TSA) Innovation Task Force (ITF) for its MMW shoe-scanning technology to be used in airports for safe, stand-off detection of threats.
On November 19, 2020, the SS1 Shoe-Scanner was accepted into the Transport Security Administration (TSA) Innovation Task Force (ITF) evaluation process. A unit was scheduled to be delivered to TSA in Q3 2021 for testing at TSA Laboratories. This timeline has slipped into Q4 2021 due to critical semiconductor components not being readily available from US distributors and resellers.
In December of 2020 the company started a low-rate-initial-production (LRIP) of the SS1 shoe scanners. One unit for the TSA evaluation (airport security) and 4 other units for demonstrations to various interested customers for applications such as theft prevention, prisons and correctional institutes for smuggling of contraband and federal facility security.
Wi-Ti Updates
The past three years have seen significant advances in the monitoring of Wi-Fi radio wave analysis. This includes Wi-Fi used to track and trace the movements of people in real time through walls. Similar techniques have used Wi-Fi radio waves to detect subtle changes in breathing and heart rates. The Plymouth Rock Wi-Ti technology advances that analysis to concealed threat detection. Unlike other emerging screening technologies Wi-Ti can be used in airport concourse areas, stadiums and open spaces at stand-off distances. Our unique radar imaging and signal processing technology allows for non-intrusive screening of crowds in real time.
In Q4 2020 the company made numerous laboratory tests to prove the Wi-Ti concept and started the process of writing a detailed invention report to file an application for patent.
On December 8, 2020 the company prepared a trademark application for the mark Wi-Ti class 009 - System for detecting threats, such as concealed weaponry, within a Wi-Fi enabled environment and electronic filing of the same with the USPTO (United States Patent and Trademark Office).
On December 15, 2020 the company filed the Trademark Application for Wi-Ti in Class 009.
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PRT-X1 Updates
On October 15, 2019, the Company launched its new product under development, the PRT-X1 which is a search and rescue grade Unmanned Aerial System (UAS) drone designed with the direct input of law enforcement, intelligence agencies, military, and rescue services to address the global requirement for a multi-role, state-of-the-art aerial platform. The prototype PRT-X1 has been unveiled live at the 2019 International Security Conference (ISC), at the Javits Center in New York City on November 20-21, 2019.
On August 19, 2020 the company signed a Re-seller and Purchase Agreement with Trendset Communication Group ("TCG") of 40498 Mound Rd., Sterling Heights, MI 48310 for their PRT X1 UAS drones. Trendset Communications Group (TCG) is an integrator of RF and related systems with a dedicated support staff to plan, deploy, support by way of maintenance services, systems in the field.
As of the end of November 2020, the PRT-X1 is starting its low rate demonstration phase. Multiple X1 systems are being manufactured for various applications and targeted customers.
As at the year ended November 30, 2021, PRT-X1 demonstration units have been sold to customers for various applications such as oil and natural gas pipeline inspection/security and agriculture/environmental missions.
PRT-XV Updates
The PRT XV is a fixed-wing UAS platform with the added capability of vertical take-off and landing (VTOL).
This unique capability allows operators to extend their operational range while removing the requirement for a large runway - the XV can launch from an area as small as 8 square meters fully autonomously and operate for up to 7 hours.
As at the year ended November 30, 2021, the PRT-XV has been prototyped and demonstrated to interested customers.
It has begun its low rate demonstration phase that had continued into Q4 of fiscal year 2021.
The following table shows the Company's expenditures on its Developing Technologies recognized in Research and Development expenses:
November 30, | |||||||||
Research and Development by Technology | 2021 | 2020 | 2019 | ||||||
Aerowave | $ | 57,181 | $ | 1,452 | $ | - | |||
X-1 | 484,850 | 184,634 | - | ||||||
XV | 129,352 | - | - | ||||||
Shoe Scanner | 232,501 | 73,493 | - | ||||||
CODA | 75,816 | 2,632 | - | ||||||
MiRIAD | 5,306 | 100,887 | - | ||||||
Wi-Ti | - | 22,946 | |||||||
Total | $ | 985,006 | $ | 386,044 | $ | - |
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November 30, 2021 | |||||||||
Demo Equipment Capitalized | Cost - USD | Cost - GBP | Cost - CAD | ||||||
X1 - 1 | US$ | 16,378 | £ | 58,551 | $ | 120,454 | |||
X1 - 2 | 30,829 | - | 39,437 | ||||||
X1 - 3 | 11,308 | - | 14,465 | ||||||
X1 - 4 | 11,308 | - | 14,465 | ||||||
X1 - 5 | 11,308 | - | 14,465 | ||||||
X1 - 6 | 2,435 | - | 3,115 | ||||||
XV | 26,068 | - | 33,346 | ||||||
Total | US$ | 109,634 | £ | 58,551 | $ | 239,747 |
The R&D expenses incurred for the X1/XV and shoe-scanner were primarily design and process documentation related. The CODA expenses were related to testing of prototypes and software discovery and upgrades. Tetra expense was for the transfer of "know-how" of the Tetra products and the MiRIAD expense was for NDT (Non-Destructive Testing) of various infrastructure for structural integrity.
RESULTS OF OPERATIONS
Selected Annual Information
The following table provides a brief summary of the Company's financial operations for the last three fiscal years. This information has been presented in accordance with International Financial Reporting Standards ("IFRS"). The reporting currency is the Canadian dollar. For more detailed information, please refer to the November 30, 2021, 2020 and 2019 audited financial statements.
Year Ended November 30, 2021 |
Year Ended November 30, 2020 |
Year Ended November 30, 2019 |
|||||||
Revenues | $ | 184,396 | $ | 70,931 | $ | 28,257 | |||
Interest income | - | 193 | 14,226 | ||||||
Net income (loss) for the year | (4,974,834 | ) | (2,924,236 | ) | (4,366,807 | ) | |||
Basic and diluted earnings (loss) per share |
(0.09 | ) | (0.08 | ) | (0.14 | ) | |||
Total assets | 1,549,139 | 261,385 | 739,990 | ||||||
Total long term liabilities | 69,670 | 90,735 | - | ||||||
Cash dividends | - | - | - |
Year ended November 30, 2021 and 2020
During the year ended November 30, 2021, the Company had a comprehensive loss of $4,944,231 compared to a comprehensive loss of $2,904,690 for the year ended November 30, 2020. The increase in comprehensive losses were primarily driven by the following:
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FOURTH QUARTER
During the quarter ended November 30, 2021, the Company had a net loss of $1,713,366 compared to a net loss of $625,644 of quarter ended November 30, 2020. The increase in net loss was mostly caused by the following:
During the quarter ended November 30, 2021, the Company recognized government grant income of $nil (2020 -$100,818) relating to the Paycheck Protection Program.
SUMMARY OF QUARTERLY RESULTS
The following table sets out selected financial data in respect of the last eight quarters of the Company. The data is derived from the financial statements of the Company prepared in accordance with IFRS.
Qtr 4 | Qtr 3 | Qtr 2 | Qtr 1 | |
November 30, | August 31, | May 31, | February 29, | |
2021 | 2021 | 2021 | 2021 | |
Total Revenues, including interest income | $ 65,372 | $ 96,484 | $ 2,942 | $ 19,598 |
Net loss | (1,713,366) | (887,777) | (1,086,008) | (1,287,685) |
Basic and diluted loss per common share | (0.04) | (0.01) | (0.02) | (0.03) |
Qtr 4 | Qtr 3 | Qtr 2 | Qtr 1 | |
November 30, | August 31, | May 31, | February 29, | |
2020 | 2020 | 2020 | 2020 | |
Total Revenues, including interest income | $ 25,206 | $ 20,777 | $ 24,585 | $ 556 |
Net loss | (625,644) | (823,776) | (626,880) | (847,936) |
Basic and diluted loss per common share | (0.00) | (0.02) | (0.02) | (0.03) |
The higher net loss in 2021 compared with 2020 was primarily due the higher stock-based compensation and business development expenditures in 2021 as well as increase in wages, salaries and benefits. Furthermore, the reduced 2020 losses relate in part to decreased operations and management decreasing compensation costs in response to the COVID-19 pandemic as well as some relief from government incentives. The net loss increased in the quarters ended 2021 compared with the 2020 quarters primarily due to increase in research and development as well as the ramp up of operations in 2021 following the easing of restrictions brought about by the pandemic.
LIQUIDITY AND CAPITAL RESOURCES
The Company's approach to managing its liquidity is to ensure that it has sufficient resources to meet its liabilities as they come due and have sufficient working capital to fund operations for the ensuing fiscal year. Financing of operations has been achieved solely by equity financing. The Company anticipates that it will require significant funds from either equity or debt financing for the development of its technologies and to support general administrative expenses.
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At year ended November 30, 2021, the Company had $632,538 in current assets (November 30, 2020 - $79,919) and $706,666 in current liabilities (November 30, 2020 - $322,738) for a working capital deficiency of $74,128 compared to a working capital deficiency of $242,819 as at November 30, 2020. The decrease in the working deficit to current working capital is primarily due to a significantly higher cash balance due to equity issuances.
At year ended November 30, 2021, the Company had a share capital balance of $11,834,582 (November 30, 2020 - $7,376,763) and an accumulated deficit of $13,867,962 (November 30, 2020 - $8,893,128). The increase share capital is primarily due to private placements, warrant exercises, and option exercises that have occurred during the year.
Financing of operations has been achieved solely by equity financing. As the Company will not generate sufficient funds from operations for the foreseeable future, the Company is primarily reliant upon the sale of equity securities in order to fund future operations. Since inception, the Company has funded limited operations through the issuance of equity securities on a private placement basis. The Company's ability to raise funds through the issuance of equity will depend on economic, market and commodity prices at the time of financing.
The Company expects to generate similar losses quarter over quarter for the next fiscal year in relation to the Company's development, administration and promotion of its technologies. As of report date, management anticipates that the funds raised to date will be sufficient to sustain operations and the development of the Companies technologies for the next fiscal year.
Detailed discussions related to the Company's cash flows during the year ended November 30, 2021
Cash balances increased by a total of $350,333 during the year ended November 30, 2021
(November 30, 2020 - decreased by $558,406). This is mainly due to the issuance of 8,930,000 shares through private placement and shares issued in relation to 6,129,572 warrants exercised and 425,000 options exercised for aggregate net proceeds of $4,417,047.
During the year ended November 30, 2021, cash used in operating activities was $3,441,102 compared to cash used in operating activities of $2,114,515 during the year ended November 30, 2020. The increase in cash used was primarily due to payments for the research and development, wages & salaries, consulting and legal fees.
Cash used in investing activities during the year ended November 30, 2021 was $573,343 (November 30, 2020 - $61,094). The cash used in investing activities were primarily for equipment purchases for the development of demo equipment and the cash payment for the acquisition of Tetra Drones completed during the current year.
Cash provided by financing activities during the year ended November 30, 2021 was $4,326,442 compared to cash provided by financing activities of $1,587,091 during the year ended November 30, 2020. The increase was primarily due to the private placement completed during the year in addition to option and warrant exercises. This was partially offset by lease payments and some loan payments during the year.
The effect of foreign exchange rates on cash during the year ended November 30, 2021 amounted to $38,336 (November 30, 2020 -$30,112).
PROPOSED TRANSACTIONS
The Company has no proposed transactions for the year ended November 30, 2021.
OFF-BALANCE SHEET ARRANGEMENTS
To the best of Management's knowledge, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
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CONTRACTUAL COMMITMENTS
In November 2018, Plymouth Rock USA entered into two-year lease agreement for leased premises in Plymouth, Massachusetts, commencing December 1, 2018 and ending on November 30, 2020. On December 31, 2020, the Company renewed this lease agreement to November 30, 2023. The minimum base rent for the remaining lease term are: USD$3,005 per month from December 1, 2019 to November 01, 2020; USD$3,095 per month from December 1, 2020 to November 30, 2021; USD$3,188 per month from December 1, 2021 to November 30, 2022; and USD$3,284 per month from December 1, 2022 to November 30, 2023.
On April 1, 2020 the Company entered into an agreement with a Director of the Company to provide consulting services. In line with this, the Company shall pay $250,000 annually either through cash in 12 monthly installments at the end of each calendar month or through the issuance of 1,000,000 common shares of the Company in four equal quarterly installments, in arrears (see Transactions with Related Parties).
On June 9, 2020, the Company entered into a Letter of Intent (LOI) with SDS Group Australia Pty Ltd ("SDS"), a leading provider of best of breed products and equipment to the Australian security and defense industries. Pursuant to the LOI, the Company will work with SDS to position the Company's Unmanned Aircraft Systems (UAS) for procurement focused evaluations following initial consultation with member of the Australian Government. As of end of May 2021 two X1 UAS units have been delivered to SDS for initial testing. These will be used for "bush" fire location identification.
On August 25, 2020, the Company signed the re-seller and purchase agreement with an arm's length company to become the first authorized re-seller of the Company's X1 Unmanned Aerial Vehicles (UAV) and related sensor payloads. Trendset Communications is currently ready to take delivery of the first line item (X1 UAS) on the purchase order. These UAS will be primarily used for infrastructure inspection (NDT
On June 4, 2021, the Company completed the acquisition of all outstanding shares of Tetra Drones Ltd.("Tetra Drones") for a total consideration of GBP350,000. As of report date, the Company still has GBP140,000 payable to the previous owner of Tetra Drones (see Business Overview).
On September 13, 2021, the Company signed a consulting agreement with an arm's length party to analyze and assess the opportunities to broaden the Company's shareholder base and expand the Company's network within Europe. The total contract price for this agreement is $90,000 for 12 months commencing on October 1, 2021.
On September 20, 2021, the Company signed a services agreement with an arm's length party to provide media tools to boost the Company's business prospects. The total contract price for this campaign is $63,085 (US$50,000).
TRANSACTIONS WITH RELATED PARTIES
The amounts due to related parties are due to the directors and officers of the Company. The balances are unsecured, non-interest bearing and have no specific terms for repayment. These transactions are in the normal course of operations and have been valued in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
As at November 30, 2021, $Nil (November 30, 2020 - $2,500) was due from directors and officers of the Company.
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As at November 30, 2021, $52,728 (November 30, 2020 - $46,355) was due to directors and officers of the Company:
November 30, 2021 | November 30, 2020 | |||||
Company controlled by the Former CFO | $ | - | $ | 3,865 | ||
Company controlled by the Corporate Secretary | 10,500 | - | ||||
CEO of the Company | 561 | 823 | ||||
Director | 41,667 | 41,667 | ||||
$ | 52,728 | $ | 46,355 |
As at November 30, 2021, $5,513 (November 30, 2020 - $4,000) prepayment to directors and officers of the Company:
November 30, 2021 | November 30, 2020 | |||||
Company controlled by the Corporate Secretary | $ | 5,513 | $ | - | ||
Former Director | - | 4,000 | ||||
$ | 5,513 | $ | 4,000 |
During the years ended November 30, 2021, 2020 and 2019, the Company entered into the following transactions with related parties:
November 30, 2021 | November 30, 2020 | November 30, 2019 | |||||||
Management fees | $ | 118,000 | $ | 114,125 | $ | 123,000 | |||
Consulting fees | 307,734 | 166,667 | - | ||||||
Accounting fees | 36,202 | 22,852 | 24,490 | ||||||
Rent | 5,000 | 20,000 | - | ||||||
Share-based payments | 410,132 | 271,993 | 260,145 | ||||||
Salaries and benefits to CEO | 313,626 | 133,387 | 318,790 | ||||||
$ | 1,190,694 | $ | 729,024 | $ | 726,425 |
Management fees consisted of the following:
November 30, 2021 | November 30, 2020 | November 30, 2019 | |||||||
Company controlled by Corporate Secretary | $ | 63,000 | $ | 55,125 | $ | 63,000 | |||
Company controlled by CFO | 55,000 | 59,000 | 60,000 | ||||||
$ | 118,000 | $ | 114,125 | $ | 123,000 |
Consulting fees of $307,734 (2020 - $166,667) were paid or accrued in common shares to Douglas Smith, a Director. During the year ended November 30, 2021, 656,250 shares valued at $307,734 were issued for consulting services to him representing the period of December 1, 2020 to November 30, 2021.
During the year ended November 30, 2021, accounting fees of $36,202 (2020 - $22,852) and rent of $5,000 were paid or accrued to a Company controlled by the Former CFO (2020 - $20,000 paid to a company controlled by a George Stubos, a Former Director).
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During the year ended November 30, 2021, 1,725,000 options were held by the CEO, Former CFO, the Corporate Secretary, and the Company's directors. The amount recognized as expense for these options for the year ended November 30, 2021 is as follows:
November 30, 2021 | November 30, 2020 | |||||||||||
Number of options held |
Expense for the year (vested) |
Number of options held |
Expense for the year (vested) |
|||||||||
Dana Wheeler, CEO | 600,000 | $ | 133,276 | 400,000 | $ | 44,455 | ||||||
Zara Kanji, Former CFO | 150,000 | 33,319 | 100,000 | 11,113 | ||||||||
Vivian Katsuris, Corporate Secretary | 150,000 | 33,319 | 100,000 | 11,113 | ||||||||
Angelos Kostopoulos, Director | 150,000 | 479 | 150,000 | 16,670 | ||||||||
George Stubos, Former Director | - | - | 450,000 | 68,197 | ||||||||
Tim Crowhurst, Director | 75,000 | 10,204 | 150,000 | 40,918 | ||||||||
Douglas Smith, Director and Chairman | 300,000 | 1,536 | 300,000 | 79,527 | ||||||||
Dr. Khalid Al-Ali, Director | 150,000 | 99,000 | - | - | ||||||||
Thomas Nash, Director | 150,000 | 99,000 | - | - | ||||||||
1,725,000 | $ | 410,132 | 1,650,000 | $ | 271,993 |
As at November 30, 2021, 4,225,000 options were vested, and stock-based compensation amounting to $1,144,342 (2020 - $479,107) was recognized in profit or loss; of which $410,132 (2020 - $271,933) were for the Company's officers and directors as above.
On July 31, 2020, George Stubos resigned as a Director of the Company (see Directors). Out of 450,000 options held by him, 200,000 were cancelled during the year ended November 30, 2020. As at November 30, 2021, 125,000 stock options granted to a Company controlled by him will be cancelled if not exercised by November 28, 2024.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
All significant accounting policies and critical accounting estimates are fully disclosed in Note 2 of the audited consolidated financial statements for the year ended November 30, 2021 that are available on SEDAR at www.sedar.com.
FINANCIAL RISK MANAGEMENT
The Company's financial assets consist of cash, and due from related parties. The estimated fair values of cash, subscription receivable, and due from related parties approximate their respective carrying values due to the short period to maturity.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
a. Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;
b. Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
c. Level 3 - inputs that are not based on observable market data.
For the years ended November 30, 2021 and 2020, the fair value of the cash, accounts receivable, accounts payable, and due to and from related parties approximate the book value due to the short term nature.
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As at November 30, 2021 and 2020, the Company's financial instruments are classified as follows:
As at November 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||
$ | $ | $ | $ | |||||||||
Financial assets at fair value | ||||||||||||
Cash | 375,046 | - | - | 375,046 | ||||||||
Accounts receivable | 11,848 | - | - | 11,848 | ||||||||
Total financial assets at fair value | 386,894 | - | - | 386,894 | ||||||||
Financial liabilities at amortized cost | ||||||||||||
Accounts payable | 608,385 | - | - | 608,385 | ||||||||
Due to related parties | 52,728 | - | - | 52,728 | ||||||||
Total financial liabilities at fair value | 661,113 | - | - | 661,113 |
As at November 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||
$ | $ | $ | $ | |||||||||
Financial assets at fair value | ||||||||||||
Cash | 24,713 | - | - | 24,713 | ||||||||
Accounts receivable | 2,786 | - | - | 2,786 | ||||||||
Due from related parties | 2,500 | - | - | 2,500 | ||||||||
Total financial assets at fair value | 29,999 | - | - | 29,999 | ||||||||
Financial liabilities at amortized cost | ||||||||||||
Accounts payable | 242,278 | - | - | 242,278 | ||||||||
Due to related parties | 46,355 | - | - | 46,355 | ||||||||
Total financial liabilities at fair value | 288,633 | - | - | 288,633 |
The Company is exposed to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of counterparty limits, controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company ensures, as far as reasonably possible, it will have sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company's holdings of cash. The Company believes that these sources will be sufficient to cover the likely short-term cash requirements. The Company's cash is currently invested in business accounts which is available on demand by the Company for its operations.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company has no significant interest rate risk due to the short-term nature of its interest generating assets.
Credit Risk
Credit risk is the risk of a loss in a counterparty to a financial instrument when it fails to meet its contractual obligations. The Company's exposure to credit risk is limited to its cash. The Company limits its exposure to credit risk by holding its cash in deposits with high credit quality Canadian financial institutions.
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Foreign Currency Risk
The Company is exposed to foreign currency risk on fluctuations related to cash, due from related parties and accounts payable and accrued liabilities that are denominated in US dollars. 10% fluctuations in the US dollar against the Canadian dollar have affected comprehensive loss for the year by approximately $1,200
(November 30, 2020 - $7,085).
CAPITAL STOCK
The authorized capital of the Company consists of an unlimited number of common shares without par value. As at November 30, 2021 and report date, the following table summarizes the outstanding share capital, stock options, and share purchase warrants of the Company:
As at | ||||||
November 30, 2021 | Report Date | |||||
Common shares | 59,239,336 | 59,317,461 | ||||
Stock Options | 4,225,000 | 4,100,000 | ||||
Share Purchase Warrants | 9,991,242 | 9,991,242 |
Transactions after the year ended November 30, 2021:
Subsequent to November 30, 2021, the Company issued 78,125 common shares at $0.22 per share for consulting fees.
Subsequent to November 30, 2021, the 125,000 stock options with exercise price of $0.50 were cancelled.
During the year ended November 30, 2021:
On January 29, 2021, the Company issued 3,180,000 Units at $0.20 per unit for proceeds of $636,000. Each unit comprised one common share and one full non-transferable common share purchase warrant, with each warrant entitling the holder to purchase one additional common share at a price of $0.25 for five years. The Company paid cash of $10,480, issued 170,000 finders' Units with a fair value of $34,000 and 222,400 broker warrants as finder's fees . Each finder's Unit comprised of one common share and one full non-transferable common share purchase warrant with exercise price of $0.25 per share for five years. The broker warrants are exercisable at $0.25 per share for five years.
On August 9, 2021, the Company issued 5,750,000 Units at $0.40 per unit for proceeds of $2,300,000. Each unit comprised one common share and one full non-transferable common share purchase warrant, with each warrant entitling the holder to purchase one additional common share at a price of $0.50 for five years. The Company paid cash of $63,700, issued 166,250 finders' Units with a fair value of $66,500 and 325,750 broker warrants as finder's fees. Each finders' Unit comprised of one common share and one full non-transferable common share purchase warrant, with exercise price of $0.50 per share for five years. The broker warrants are exercisable at $0.50 per share for five years.
During the year ended November 30, 2021, the Company issued 425,000 common shares for gross proceeds of $222,500 from the exercise of 425,000 stock options at $0.50 to $0.60 per share.
During the year ended November 30, 2021, the Company issued 6,129,572 common shares for gross proceeds of $1,332,727 from the exercise of 6,129,572 share purchase warrants at $0.20 to $0.50 per share.
During the year ended November 30, 2021, the Company issued 656,250 common shares were issued as compensation for consulting fees to a director (Note 8) valued at a total of $307,734.
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During the year ended November 30, 2020:
On February 4, 2020, the Company announced that it has arranged a non-brokered private placement financing of up to 10,000,000 units of securities at a price of $0.40 CAD per Unit for aggregate gross proceeds of up to $4,000,000 CAD (the "Offering").. On March 16, 2020, due to the instability in the financial markets caused by the COVID-19 pandemic, the Company cancelled this private placement.
On April 24, 2020, the Company issued an aggregate of 3,128,334 units at a price of CDN $0.15 per unit for gross proceeds of $469,250.10. Each unit consists of one common share in the capital of the Company and one whole transferable common share purchase warran(a "Warrant"). Each whole Warrant is exercisable to acquire one common share at an exercise price of CDN $0.20 per share until April 24, 2022.
On May 15, 2020, the Company issued an aggregate of 3,718,831 units at a price of CDN$0.15 per unit for gross proceeds of $557,825 Each unit consists of one common share in the capital of the Company and one whole transferable common share purchase warrant (a "Warrant"). Each whole Warrant is exercisable to acquire one common share at an exercise price of CDN $0.20 per share until May 15, 2022.
In connection with the April 24, 2020 and May 15, 2020 private placements, the Company paid $38,238 in share issuance costs.
On July 3, 2020, the Company issued 500,000 common shares pursuant to the exercise of 500,000 share purchase warrants at $0.20 per share.
On August 13, 2020, the Company issued 483,334 common shares pursuant to the exercise of 483,334 share purchase warrants at $0.20 per share.
On August 21, 2020, the Company issued 250,000 common shares were issued as compensation for consulting fees to a Director valued at a total of $62,500.
On September 30, 2020, the Company issued an aggregate of 1,335,165 units at a price of CDN$0.30 per unit for gross proceeds of $400,550. Each Unit consists of one common share and one-half of one non-transferable common share purchase warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one additional common share at a price of $0.50 for two years until September 30, 2022. The fair value of the warrants is determined to be $40,055.
On September 30, 2020, the Company issued 250,000 common shares were issued as compensation for consulting fees to a director valued at a total of $62,500.
On September 30, 2020, the Company issued 50,000 units at a fair value of $22,811 pursuant to the binding agreement with Aerowave Corporation. Each Unit consists of one common share and one-half of one non-transferable common share purchase warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one additional common share at a price of $0.50 for two years until September 30, 2022. The fair value of the warrants is determined to be $1,500.
During the year ended November 30, 2019:
During the year ended November 30, 2019, the Company issued a total of 910,300 common shares for gross proceeds of $187,120 for 7,500 warrants exercised at a price of $0.60 per share, 307,800 warrants exercised at a price of $0.40 per share and 595,000 warrants exercised at a price of $0.10 per share. The Company also issued a total of 125,000 common shares for gross proceeds of $37,500 for 125,000 options exercised at a price of $0.30 per share.
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Stock Options
During the year ended November 30, 2021, 100,000 options were exercised at $0.60 per share and 325,000 options were exercised at $0.50 per share.
On June 10, 2021, the Company granted 150,000 incentive stock options to a consultant, options vested on grant date and with an exercise price of $0.50 per share for a period of five years from the date of grant. The fair value was estimated using the Black-Scholes pricing model with estimated, stock price of $0.485, volatility 100%, risk-free rate 0.82%, dividend yield 0%, and expected life of 5 years. With these assumptions, the fair value of options was determined to be $53,682 and the amount was recognized on the consolidated statements of loss and comprehensive loss for the year ended November 30, 2021.
On January 21, 2021, the Company granted 1,550,000 incentive stock options to directors, consultants, and employees, options vested on grant date and with an exercise price of $0.75 per share for a period of five years from the date of grant. The fair value was estimated using the Black-Scholes pricing model with estimated, stock price of $0.75, volatility 100%, risk-free rate 0.43%, dividend yield 0%, and expected life of 5 years. With these assumptions, the fair value of options was estimated to be $1,022,995 and the amount was recognized on the consolidated statements of loss and comprehensive loss for the year ended November 30, 2021.
Stock-based compensation recognized in profit or loss for the year ended November 30, 2021 amounted to $1,144,342 (November 30, 2020 - $479,107).
Stock option transactions and the number of stock options outstanding as at November 30, 2021, November 30, 2020 and November 30, 2019 are summarized as follows:
Number of | Weighted Average | |||||
Options | Exercise Price | |||||
Balance, November 30, 2019 | 3,150,000 | $ | 0.30 | |||
Cancelled | (200,000 | ) | 0.60 | |||
Balance, November 30, 2020 | 2,950,000 | 0.58 | ||||
Granted | 1,700,000 | 0.73 | ||||
Exercised | (425,000 | ) | 0.52 | |||
Balance, November 30, 2021 | 4,225,000 | $ | 0.65 |
Expiry Date | Exercise Price |
Numbers of options outstanding |
Numbers of options exercisable |
Weighted average remaining contractual life (year) |
Weighted average exercise price |
||||||||
$ | $ | ||||||||||||
January 15, 2024 | 0.60 | 2,050,000 | 2,050,000 | 1.03 | 0.29 | ||||||||
March 20, 2024 | 0.60 | 150,000 | 150,000 | 0.08 | 0.02 | ||||||||
November 28, 2024 | 0.50 | 325,000 | 162,500 | 0.23 | 0.04 | ||||||||
January 21, 2026 | 0.75 | 1,550,000 | 1,550,000 | 1.52 | 0.28 | ||||||||
June 10, 2026 | 0.50 | 150,000 | 150,000 | 0.16 | 0.02 | ||||||||
4,225,000 | 4,225,000 | 3.02 | 0.65 |
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Share Purchase Warrants
On August 9, 2021, the Company granted 5,750,000 common share purchase warrants as part of a non-brokered private placement. Each warrant is exercisable to acquire one common share at an exercise price of $0.50 per share until August 9, 2026.
On August 9, 2021, the Company also granted 492,000 warrants to finders in connection with the Private Placement. Each warrant is exercisable to acquire one common share at an exercise price of $0.50 per share until August 9, 2026. The fair value was estimated using the Black-Scholes pricing model with estimated, stock price of $0.35, volatility 100%, risk-free rate 0.88%, dividend yield 0%, and expected life of 5 years. With these assumptions, the fair value of options was determined to be $119,425.
On January 29, 2021, the Company granted 3,350,000 common share purchase warrants as part of a non-brokered private placement. Each warrant is exercisable to acquire one common share at an exercise price of $0.25 per share until January 29, 2026. During the year ended November 30, 2021, 30,000 warrants were exercised at $0.25 per share.
On January 29, 2021, the Company also granted 222,400 warrants to finders in connection with the Private Placement. Each warrant is exercisable to acquire one common share at an exercise price of $0.50 per share until August 9, 2026. During the year ended November 30, 2021, 4,240 warrants were exercised at $0.25 per share. The fair value was estimated using the Black-Scholes pricing model with estimated, stock price of $0.52, volatility 100%, risk-free rate 0.43%, dividend yield 0%, and expected life of 5 years. With these assumptions, the fair value of options was determined to be $95,395.
During the year ended November 30, 2021, 6,129,572 warrants were exercised at $0.22 per share.
Share purchase warrant transactions and the number of share purchase warrants outstanding as at November 30, 2021, November 30, 2020 and 2019 are summarized as follows:
Number of Warrants | Weighted Average Exercise Price | |||||
Balance, November 30, 2019 | - | $ | - | |||
Warrants granted | 7,539,748 | 0.90 | ||||
Warrants exercised | (1,233,334 | ) | 0.11 | |||
Balance, November 30, 2020 | 6,306,414 | 0.23 | ||||
Warrants granted | 9,814,400 | 0.08 | ||||
Warrants exercised | (6,129,572 | ) | 0.01 | |||
Balance, November 30, 2021 | 9,991,242 | $ | 0.41 |
Expiry Date | Exercise Price |
Number of Warrants outstanding and exercisable |
Weighted average remaining contractual life (year) |
Weighted average exercise price |
||||||
$ | $ | |||||||||
April 24, 2022 | 0.20 | - | - | 0.00 | ||||||
May 15, 2022 | 0.20 | 160,499 | 0.01 | 0.00 | ||||||
September 30, 2022 | 0.50 | 400,582 | 0.03 | 0.02 | ||||||
January 29, 2026 | 0.25 | 3,188,160 | 1.33 | 0.08 | ||||||
August 9, 2026 |
0.50 | 6,242,000 | 2.93 | 0.31 | ||||||
9,991,242 | 4.30 | 0.41 |
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RISKS RELATED TO OUR BUSINESS
The Company believes that the following risks and uncertainties may materially affect its success.
Limited Operating History
The Company has only started generating revenues in the prior year. The Company was incorporated on October 17, 2011 and has yet to generate a profit from its activities. The Company is subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that it will not achieve its growth objective. The Company anticipates that it may take several years to achieve positive cash flow from operations.
Substantial Capital Requirements and Liquidity
Substantial additional funds for the establishment of the Company's current and planned operations will be required. No assurances can be given that the Company will be able to raise the additional funding that may be required for such activities, should such funding not be fully generated from operations. Revenues, taxes, transportation costs, capital expenditures, operating expenses and development costs are all factors which will have an impact on the amount of additional capital that may be required. To meet such funding requirements, the Company may be required to undertake additional equity financing, which would be dilutive to shareholders. Debt financing, if available, may also involve restrictions on financing and operating activities. There is no assurance that additional financing will be available on terms acceptable to the Company or at all. If the Company is unable to obtain additional financing as needed, it may be required to reduce the scope of its operations or anticipated expansion and pursue only those development plans that can be funded through cash flows generated from its existing operations.
Regulatory Requirements
The current or future operations of the Company require permits from various governmental authorities, and such operations are and will be governed by laws and regulations governing development, production, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, site safety and other matters. There can be no assurance that all permits which the Company may require for the facilities and conduct of operations will be obtainable on reasonable terms or that such laws and regulation would not have an adverse effect on any development project which the Company might undertake.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in operations may be required to compensate those suffering losses or damages and may have civil or criminal fines or penalties imposed upon them for violation of applicable laws or regulations. Amendments to current laws, regulation and permits governing operations and activities of companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or development costs or require abandonment or delays in the development of new projects.
Financing Risks and Dilution to Shareholders
The Company will have limited financial resources, no operations and hardly have revenues. There can be no assurance that the Company will be able to obtain adequate financing in the future or that such financing will be available on favorable terms or at all. It is likely such additional capital will be raised through the issuance of additional equity, which will result in dilution to the Company's shareholders.
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Competition
There is competition within the security screening and threat detection market. The Company will compete with other companies, many of which have greater financial, technical and other resources than the Company, as well as for the recruitment and retention of qualified employees and other personnel.
Intellectual Property
The Company has developed security screening technologies that are adequate to counter various threats. The Company may be unable to prevent competitors from independently developing or selling products similar to or duplicate of the Company, and there can be no assurance that the resources invested by the Company to protect the Intellectual Property will be sufficient. The Company may be unable to secure or retain ownership or rights. In addition, the Company may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Regardless of the merit of such claims, responding to infringement claims can be expensive and time-consuming. If the Company is found to infringe any third-party rights, it could be required to pay substantial damages, or it could be enjoined from offering some of products and services. Also, there can be no assurances that the Company will be able to obtain or renew from third parties the licenses it needs in the future, and there is no assurance that such licenses can be obtained on reasonable terms.
Reliance on Management and Dependence on Key Personnel
The success of the Company will be largely dependent upon on the performance of the directors and officers and the ability to attract and retain key personnel. The loss of the services of these persons may have a material adverse effect on the Company's business and prospects. The Company will compete with numerous other companies for the recruitment and retention of qualified employees and contractors. There is no assurance that the Company can maintain the service of its directors and officers, or other qualified personnel required to operate its business. Failure to do so could have a material adverse effect on the Company and its prospects.
Governmental Regulations and Processing Licenses and Permits
The activities of the Company are subject to various government approvals, various laws governing prospecting, development, land resumptions, production taxes, labor standards and occupational health, toxic substances and other matters. Although the Company believes that its activities are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner, which could limit or curtail production or development. Amendments to current laws and regulations governing operations and activities, or more stringent implementation thereof, could have a material adverse impact on the business, operations and financial performance of the Company. Further, the licenses and permits issued in respect of its projects may be subject to conditions that, if not satisfied, may lead to the revocation of such licenses.
Conflicts of Interest
Certain of the directors and officers of the Company will be engaged in, and will continue to engage in, other business activities on their own behalf and on behalf of other companies and, as a result of these and other activities, such directors and officers of the Company may become subject to conflicts of interest. The British Columbia Business Corporations Act ("BCBCA") provides that in the event that a director has a material interest in a contract or proposed contract or agreement that is material to the issuer, the director must disclose his interest in such contract or agreement and refrain from voting on any matter in respect of such contract or agreement, subject to and in accordance with the BCBCA. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the BCBCA.
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Litigation
The Company and/or its directors may be subject to a variety of civil or other legal proceedings, with or without merit.
Public Health Crisis
In March 2020, the World Health Organization declared a global pandemic known as COVID-19. The expected impacts on global commerce are expected to be far reaching. This will impact demand for the Company's products and services and its ability to continue developing and testing their technologies in the near term and will impact the Company's supply chains. It may also impact expected credit losses on the Company's receivables. The duration and impact of the COVID-19 outbreak is unknown at this time and it is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its subsidiary, in future periods. The management is closely evaluating the impact of COVID-19 on the Company's business.
As certain of the Company's officers have other outside business activities and, thus, may not be in a position to devote all of their professional time to the Company, the Company's operations may be sporadic, which may result in periodic interruptions or suspensions.
FORWARD-LOOKING STATEMENTS
This MD&A may include certain "forward-looking statements" within the meaning of applicable securities legislation. All statements, other than statements of historical facts, included in this MD&A that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future business strategies competitive strengths, goals, expansion and growth of the Company's businesses, operations, plans and other such matters are forward-looking statements. When used in this MD&A, the words "estimate", "plan", "anticipate", "expect", ''intend'', "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, risks that actual results of current exploration activities will differ, changes in project parameters as plans continue to be refined, unavailability of financing, fluctuations in precious and/or base metals prices and other factors, as outlined in the Company's preliminary long form prospectus filed on SEDAR. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
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CAPITAL MANAGEMENT
The Company considers its capital structure to include net residual equity of all assets, less liabilities. The Company's objectives when managing capital are to (i) maintain financial flexibility in order to preserve its ability to meet financial obligations and continue as a going concern; (ii) maintain a capital structure that allows the Company to pursue the development of its projects and products; and (iii) optimize the use of its capital to provide an appropriate investment return to its shareholders commensurate with risk.
The Company's financial strategy is formulated and adapted according to market conditions in order to maintain a flexible capital structure that is consistent with its objectives and the risk characteristics of its underlying assets. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or acquire or dispose of assets.
DIRECTORS
Certain directors of the Company are also directors, officers and/or shareholders of other companies that may be engaged in the similar business of developing technologies. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required to act in good faith with a view to the best interests of the Company and to disclose any interest they may have in any project opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his/her interest and abstain from voting in the matter(s). In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.
The Company appointed Douglas Smith to its Board of Directors on April 29, 2020 and named him as Chairman on May 13, 2020.
The Company appointed Dr. Khalid M. Al-Ali to its Board of Directors on July 9, 2020.
On July 31, 2020, George Stubos resigned as a Director of the Company. The Company then appointed Thomas Nash to the Board of Directors on the same date.
On November 22, 2021, Zara Kanji resigned as the Chief Financial Officer and was replaced in the interim by Vivian Katsuris, PRT's Corporate Secretary, who served as CFO of the Company from August 2014 to January 2018.
On January 13, 2022, the company appointed Susan Gardner as the company's CFO.
Current Directors and Officers of the Company are as follows:
Dana Wheeler, President, CEO and Director
Susan Gardner, CFO
Vivian Katsuris, Corporate Secretary
Tim Crowhurst, Director
Angelos Kostopoulos, Director
Thomas Nash, Director
Douglas Smith, Director and Chairman
Dr. Khalid M. Al-Ali, Director
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OUTLOOK
The Company's objective is to maximize the value of the Company for our shareholders, and our strategy to obtain this result is to focus on project evaluations and project generation. To proceed with this strategy, additional financings may be required during the current fiscal year.
The company is currently at the inflection point of moving from design/development of prototypes to Low-Rate-Initial-Production (LRIP). Commercializing the products is a major step in the companies' strategic growth. With the pandemic being on the downturn, this will allow the company to spend appreciably more of its resources to meet with customers directly and start to attend trade shows in person. The marketing spend will also increase to accommodate this growth and sales strategy.
The company believes that an increase in revenue will occur in the next 6-12 months due to the forecasted sales pipeline and successful demonstration of the various products.
ADDITIONAL INFORMATION
Additional information relating to the Company can also be found on SEDAR at www.sedar.com.
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62
ITEM 19. EXHIBITS
** Filed herewith.
63
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
PLYMOUTH ROCK TECHNOLOGIES INC.
(Registrant)
/s/Dana Wheeler |
Dana Wheeler |
President and Chief Executive Officer |
(Principal Executive Officer) |
/s/ Susan J Gardner |
Susan J Gardner |
Chief Financial Officer |
(Principal Financial Officer) |
Date: June 3, 2022