UGE INTERNATIONAL LTD.

Transcription

1 Unaudited Condensed Consolidated Interim Financial Statements Three and six months ended June (Expressed in United States dollars)

2 Notice of No Auditors Review of Interim Financial Statements Under National Instrument , Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the unaudited condensed consolidated interim financial statements; they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company. The Company s independent auditors have not performed a review of these unaudited interim condensed consolidated financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditors.

3 Condensed Consolidated Interim Statements of Financial Position (Expressed in United States dollars) June 30, December 31, Assets Current assets Cash $ 1,400,870 $ 59,913 Restricted cash (Note 5) 126,372 1,224,887 Trade and other receivables (Note 6) 6,308,476 3,488,581 Prepaid expenses and deposits 129, ,059 Inventory (Note 7) 789, ,740 8,754,237 5,701,180 Non-current assets Property, plant and equipment 168,846 59,396 Intangible assets (Note 4) 351,051 - Goodwill 3,067,106 2,975,228 Total assets $ 12,341,240 $ 8,735,804 Liabilities Current liabilities Accounts payable and accrued liabilities $ 6,900,464 $ 3,256,612 Deferred revenue 21,941 2,505,504 Income taxes payable 108,986 51,880 Loans payable (Note 8) 2,859,651 1,362,523 9,891,042 7,176,519 Non-current liabilities Loans payable (Note 8) 3,600,000 3,600,000 Deferred income tax liability 96,936 3,397 13,587,978 10,779,916 Shareholders' deficiency Share capital (Note 9) 16,493,188 15,111,782 Contributed surplus 3,901,764 3,504,908 Accumulated other comprehensive income 111,452 69,279 Accumulated deficit (21,753,142) (20,730,081) (1,246,738) (2,044,112) Total liabilities and shareholders' deficiency $ 12,341,240 $ 8,735,804 Reporting entity and going concern (Note 1) Commitments and contingencies (Note 11) Approved on behalf of the Board: "Nicolas Blitterswyk" Director, President & Chief Executive Officer "Michael Doolan" Director 1

4 Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (Expressed in United States dollars) Three months ended June 30, Six months ended June 30, Revenue $ 6,312,272 $ 1,160,371 $ 11,810,366 $ 1,708,628 Cost of sales (5,104,972) (1,045,632) (10,015,867) (1,522,135) Gross profit 1,207, ,739 1,794, ,493 Operating expenses Selling, general and administrative (1,731,401) (1,033,824) (2,523,887) (1,784,257) Loss from operating activities (524,101) (919,085) (729,388) (1,597,764) Finance expense (90,760) (5,689) (197,376) (18,783) Finance income 38-3,293 2 Loss from continuing operations before income taxes (614,823) (924,774) (923,471) (1,616,545) Income tax expense (45,675) (77,273) (97,053) (68,047) Net loss from continuing operations (660,498) (1,002,047) (1,020,524) (1,684,592) Net loss from discontinued operations (Note 12) - (455,335) - (1,461,637) Net loss for the period (660,498) (1,457,382) (1,020,524) (3,146,229) Other comprehensive income (loss) items that are or may be reclassified to profit and loss Foreign currency translation differences (37,380) 12,794 (42,173) 238,633 Comprehensive loss for the period $ (697,878) $ (1,444,588) $ (1,062,697) $ (2,907,596) Net loss per share attributable to the shareholders of the Company Continuing operations - basic and diluted $ (0.02) $ (0.04) $ (0.03) $ (0.07) Net loss for the year - basic and diluted $ (0.02) $ (0.06) $ (0.03) $ (0.13) Weighted average number of shares basic and diluted 37,092,698 25,932,583 36,657,684 23,903,731 2

5 Condensed Consolidated Interim Statements of Changes in Shareholders' Deficiency (Expressed in United States dollars) Accumulated other Share Contributed comprehensive Accumulated capital surplus income deficit Total Balance - January 1, 2016 $ 11,435,220 $ 1,772,351 $ 184,082 $ (19,641,795) $ (6,250,142) Net loss for the period (3,146,229) (3,146,229) Public offering of share units, net of issue costs 1,057, , ,410,820 Related party conversion of debt to equity 624, ,983 Amount issued on conversion of restricted share units 62,640 (62,640) Amounts issued for acquisition of EEPC 2,672, ,672,320 Contribution through favourable interest rate debt - 204, ,791 Related party forgiveness of of interest free debt - 249, ,623 Share-based compensation 311, , ,599 Foreign currency translation differences , ,633 Balance - June 30, 2016 $ 16,165,038 $ 2,694,669 $ 422,715 $ (22,788,024) $ (3,505,602) Accumulated other Share Contributed comprehensive Accumulated capital surplus income deficit Total Balance - January 1, 2017 $ 15,111,782 $ 3,504,908 $ 69,279 $ (20,730,081) $ (2,044,112) Net loss for the period (1,020,524) (1,020,524) Public offering of share units, net of issue costs (Note 9) 1,002, , ,365,537 Issued for conversion of restricted share units (Note 9) 27,170 (27,170) Amount issued for exercise of options and warrants (Note 9) 97, ,253 Finders fee related to acquisition of CSPC 158, ,287 Shares issued in relation to loan from MBF (Note 8) 94, ,973 Acquisition of UGE RE (2,537) (1,790) Share-based compensation (Note 9) - 61, ,465 Foreign currency translation differences ,173-42,173 Balance - June 30, 2017 $ 16,493,188 $ 3,901,764 $ 111,452 $ (21,753,142) $ (1,246,738) 3

6 Condensed Consolidated Interim Statements of Cash Flows for the six months ended (Expressed in United States dollars) Cash provided by (used in) operating activities Net loss from continuing operations $ (1,020,524) $ (1,684,592) Adjustment for: Depreciation and amortization 187,392 7,075 Income tax expense 97,053 61,344 Finance expense 194,083 18,783 Share-based compensation (Note 9) 61, ,888 Shares issued for finders fee from acquistion of CSPC 253,260 - (227,271) (1,101,502) Change in trade and other receivables (1,202,648) (620,731) Change in inventory (162,615) 471,907 Change in prepaid expenses and deposits 354,606 14,932 Change in accounts payable and accrued liabilities 3,158,819 1,502,156 Change in deferred revenue (2,509,130) - (588,239) 266,762 Income taxes paid (2,565) (2,978) Finance expenses paid (64,703) (18,783) Cash used in continuing operating activities (655,507) 245,001 Cash used in discontinued operating activities - (1,616,761) Cash provided by (used in) operating activities (655,507) (1,371,760) Cash provided by (used in) investing activities Decrease to restricted cash 1,136,341 - Additions to property, plant and equipment - (676) Acquisition of CSPC business (Note 4) (1,991,869) - Cash consideration paid and bank overdraft assumed on acquisition of EEPC - (698,072) Cash provided by (used in) continuing investing activities (855,528) (698,748) Cash used in discontinued investing activities - (93,349) Cash provided by (used in) investimg activities (855,528) (792,097) Cash provided by (used in) financing activities Cash received from exercise of options and warrants (Note 9) 97,253 - Proceeds on issue of share capital and warrants, net of share issue costs (Note 9) 1,365,537 1,401,141 Finance draw for acquisition of CSPC business (Note 8) 1,818,246 - Repayment of loans payable (409,282) (93,900) Cash from acquisition of UGE RE 3,628 - Cash provided by (used in) continuing financing activities 2,875,382 1,307,241 Cash provided by discontinued financing activities - 1,655,422 Cash provided by (used in) financing activities 2,875,382 2,962,663 Increase in cash for the period 1,364, ,806 Effect of exchange rate fluctuations on cash (23,390) (33,439) Cash at beginning of period 59, ,544 Cash at end of period $ 1,400,870 $ 944,911 4

7 1. Reporting entity and going concern (a) Reporting entity UGE International Ltd. (the "Company" or "UGE") is incorporated under the laws of the Province of Ontario and its common shares are listed on the TSX Venture Exchange under the symbol "UGE". The Company s registered office is located at 40 Eglinton Avenue East, Suite 802, Toronto, Ontario, Canada. The principal business activity of the Company is to provide renewable energy solutions to its customers. Primarily, it provides development, engineering, procurement and construction work in the commercial solar sector. (b) Going concern These condensed consolidated interim financial statements have been prepared assuming the Company will continue as a going concern, notwithstanding that the Company has a working capital deficiency and incurred losses from operations. During the six months ended June 30, 2017, the Company had a net loss of $1,020,524 and negative cash flow from operations of $655,507, prior to the release of $1,136,341 of restricted cash. As at June 30, 2017, the Company has a working capital deficiency of $1,136,805 and shareholders' deficiency of $1,246,738. The Company s ability to continue as a going concern and realize its assets and discharge its liabilities in the normal course of business is dependent upon achieving sustained profitability and the ability to raise additional debt or equity financing to fund any working capital deficits. There are various risks and uncertainties affecting the Company s operations including, but not limited to, the market acceptance and rate of commercialization of the Company s offerings, the ability of the Company to successfully execute its business plan, and general global economic conditions, certain of which are beyond the Company s control. The Company s strategy to mitigate these risks and uncertainties is to execute a business plan aimed at continued focus on renewable energy solutions, revenue growth, improving overall gross profit, managing operating expenses and working capital requirements, and securing additional financing, as needed, through one or more of bank loans and equity investments from existing or potential shareholders. There are no guarantees that the funds raised will be sufficient to sustain the Company s ongoing operations beyond twelve months or that additional debt or equity financing will be available to the Company or available at acceptable terms. Failure to implement the Company s business plan could have a material adverse effect on the Company s financial condition and/or financial performance. Accordingly, there are material risks and uncertainties that cast significant doubt about the Company s ability to continue as a going concern. These condensed consolidated interim financial statements do not include any adjustments or disclosures that would be required if assets are not realized and liabilities and commitments are not settled in the normal course of operations. If the Company is unable to continue as a going concern, then the carrying value of certain assets and liabilities would require revaluation to a liquidation basis, which could differ materially from the values presented in the condensed consolidated interim financial statements. 5

8 2. Basis of preparation (a) Statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. Accordingly, certain disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards ( IFRS ) have been omitted or condensed. These condensed consolidated interim financial statements were prepared using the same accounting policies and methods as those used in the consolidated financial statements of the Company for the year ended December 31, 2016 and should be read in conjunction with those financial statements. These condensed consolidated interim financial statements were approved for issuance by the Board of Directors on August 25, (b) Basis of presentation and accounting These condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. (c) Functional and presentation currency These condensed consolidated interim financial statements are presented in United States dollars ("USD"). The functional currency of the Company, UGE Canada Ltd. ( UGE Canada ) (formerly Endura Energy Project Corp. ( EEPC )) and UGE RE Inc. ( UGE RE ) is the Canadian dollar ("CAD"); the functional currency of UGE USA Inc. ( UGE USA ) is the USD; and the functional currency of UGE Philippines Inc. ( UGE Philippines ) is the Filipino peso ("PhP"). (d) Basis of measurement These condensed consolidated interim financial statements have been prepared on the historical cost basis. (e) Business combinations The acquisition of a business is accounted for using the acquisition method. The consideration for an acquisition is measured at the aggregate of the fair values, at the date of exchange, of the assets transferred, the liabilities incurred to former owners of the acquired business, and equity instruments issued by the acquirer in exchange for control of the acquired business. The acquired business identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date, except for income taxes which are measured in accordance with IAS 12, Income Taxes. To the extent that the aggregate of the fair value of consideration paid, the amount of any noncontrolling interest and the fair value of any previously held interest in the acquiree exceeds the fair value of the net identifiable tangible and intangible assets, goodwill is recognized. To the extent that this excess is negative, the excess is recognized as a gain in income. 6

9 2. Basis of preparation (continued) (f) Accounting assumptions, estimates and judgments The preparation of the condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could may differ from these amounts. Significant areas having estimation uncertainty in applying accounting policies that have the most significant effect on the amounts recognized in the condensed consolidated interim financial statements include the: stock based compensation; and valuation of goodwill and intangible assets. Critical judgments that management has made in applying the Company s accounting policies that have the most significant effect on the amounts recognized in the condensed consolidated interim financial statements include: assessment of the Company's ability to continue as a going concern (note 1(b)); and determination of the functional currency of the principal operations of the Company (note 2(c)). 3. New standards and interpretations not yet adopted Other than disclosed in annual audited consolidated financial statements for the year ended December 31, 2016, there are no new standards and interpretations that have been issued and not yet adopted. 7

10 4. Acquisition of Assets of Carmanah Solar Power Corp. On April 3, 2017, the Company acquired, for nominal consideration, a 60% interest in UGE RE, a shell entity, which then purchased substantially all the assets and certain liabilities of Carmanah Solar Power Corp. ("CSPC"), a wholly owned subsidiary of Carmanah Technologies Inc. ("CMH"). On June 8, 2017, the remaining 40% of UGE RE was acquired by the Company for the repayment of the cash provided towards the acquisition by its prior owners, thereby making UGE RE a wholly owned subsidiary of the Company. CSPC operates a business similar to UGE Canada, providing solutions to clients during the solar project design-build lifecycle. All Toronto-based employees of CSPC were included in the purchase. Cash consideration of $1,991,869 (CAD$2,665,778) was paid by UGE RE to CMH, which was funded primarily by a loan of $1,793,280 (CAD$2,400,000) from The M.H. Brigham Foundation ( MBF ), an arm's length third party to the transaction (Note 8). The total costs incurred related to this acquisition was $286,160 for the six-months ended June 30, 2017 and is included in selling, general and administration expenses. The consideration paid and the allocation of the consideration to the fair values of the assets acquired and liabilities assumed have been determined on a preliminary basis, based on Management s current estimates of their fair value as follows: Consideration Purchase price paid 1,991,869 Total Consideration 1,991,869 Net Assets acquired Trade and other receivables 1,507,971 Inventory 22,204 Property, plant and equipment 120,010 Prepaid expenses and deposits 113,298 Intangible assets 512,449 Income taxes payble (1,055) Accounts payable and accrued liabilities (147,209) Deferred tax liability (135,799) Total 1,991,869 The intangible asset identified as shown above is related to the backlog from the projects that were acquired from CSPC. Management determined that in nine months the cashflows from these specific projects will be realized and therefore, the Company will be amortizing the intangible assets over nine months. Consolidated revenue and net profit for the six months ended June 30, 2017 includes revenue and net income from the acquisition of assets from CSPC of approximately $2,054,890 and $248,428, respectively. The revenue and profit or loss of the combined entity from January 1, 2017 is not available as not all assets and liabilities were purchased from CSPC. The allocation of the purchase price is based on preliminary estimates and has not been finalized. The Company is currently in the process of finalizing the fair values of net assets acquired. 8

11 5. Restricted cash As at June 30, 2017, the Company has restricted cash of $126,372 (December 31, $1,224,887) related to cash security for a construction financing loan (Note 8 Loan 3). 6. Trade and other receivables June 30, December 31, Trade and other receivables, net of allowance for doubtful accounts of $Nil $ 2,731,677 $ 3,041,041 Unbilled revenue 3,419, ,571 Corporate income taxes receivable 157, ,969 $ 6,308,476 $ 3,488, Inventory At times, the Company may have inventory for specific projects for a short period of time related to project deployment. The inventory balance as at June 30, 2017 of $789,167 (December 31, $570,740) was primarily due to equipment for a specific project for which the Company took ownership of equipment until it arrived on site. There were no write-downs, or reversals of previously recorded write-downs, in the six months ended June 30, 2017, and

12 8. Loans payable June 30, December 31, Loan 1 $ 3,600,000 $ 3,600,000 Loan 2 476, ,260 Loan 3 505, ,263 Loan 4 1,842,720 - Loan 5 35,406 - Loan 6-20,000 Loan 7-500,000 Total debt 6,459,651 4,962,523 Current portion 2,859,651 1,362,523 Non-current portion $ 3,600,000 $ 3,600,000 Loan 1 Upon the sale of UGE Holdings Ltd. ( UGE Holdings ) in 2016, UGE USA issued promissory notes for a total of $3,600,000 (December 31, $3,600,000) to a subsidiary of UGE Holdings (Note 12). These unsecured loans bear a fixed annual interest rate of 6.5% and are due on August 31, Loan 2 - As at June 30, 2017, the Company has a revolving demand credit facility with the Toronto Dominion Bank ("TD Bank") with a maximum limit of CAD$750,000, of which $476,036 (CAD$620,000) (December 31, $428,260, CAD$575,000) was drawn. The credit facility bears interest at a rate equal to TD Bank s prime rate plus 1.45% per annum and is secured by a general security agreement covering all assets of UGE Canada. Loan 3 As at June 30, 2017, the Company has a construction financing facility with TD Bank with a maximum limit of $550,000, guaranteed by Export Development Canada. The facility bears interest at a rate equal to TD Bank s prime rate plus 1.45% and is due on demand. As at June 30, 2017, the Company made draws from the facility of $505,489 (December 31, 2016 $414,263) and has provided TD Bank a 25% term deposit on all draws equal to $126,372 recorded as restricted cash. Loan 4 Upon the acquisition discussed in Note 4, UGE RE issued a promissory note for a total of $1,793,280 million (CAD$2,400,000 million) to MBF. This promissory note bears interest at a rate of 10% per annum and is payable on demand. The promissory note is guaranteed by the Company, and in consideration for the provision of the Loan, The M.H. Brigham Foundation received 218,182 common shares of UGE with a fair value of $94,373 (CAD$120,000) (being 5% of the promissory amount), and an origination fee of $7,472 (CAD$10,000) recorded in selling, general and administration expenses. Loan 5 - Upon the acquisition discussed in Note 4, UGE RE received loans from affiliates of OYA Solar Inc. and Polar Racking Inc. for a total of $34,506 (CAD$46,113) (December 31, $Nil), bearing interest at a rate of 6% per annum. Loan 6 As at December 31, 2016, the Company had a loan of $20,000 from a former director of the Company which during the six months ended June 30, 2017 was repaid in full. The loan was unsecured, non-interest bearing with a 5% processing fee due upon repayment. Loan 7 - As at December 31, 2016, the Company had a loan of $500,000 from a third-party lender which was repaid in full during the six months ended June 30, The loan bore interest of 16% per annum and was secured by first charge of all the assets of UGE USA. 10

13 9. Share capital The authorized share capital of the Company consists of an unlimited number of common shares with no par value. The issued and outstanding share capital is as follows: Six months ended June 30, 2017 Six months ended June 30, 2016 Number of Number of Number special Number special of shares warrants Amount of shares warrants Amount Balance at beginning of period 36,118,927 5,100,000 $ 15,111,782 18,838,990 10,200,000 $ 11,435,220 Public offering of share units, net of share costs 3,450,000-1,002,976 6,238,863-1,057,906 Shares issued for conversion of restricted share units 120,000-27, ,000-62,640 Amount issued for exercise of options and warrants 300,188-97, Finders fee related to acquisition of CSPC 363, , Shares issued in relation to loan from MBF (Note 8) 218,181-94, Acquisition of UGE RE Shares issed to settle debt ,240, ,983 Shares issued on the acquisition of EEPC ,888,888-2,672,320 Share-based compensation ,969 Balance at end of period 40,570,932 5,100,000 $ 16,493,188 35,315,648 10,200,000 $ 16,165,038 On June 27, 2017, the Company completed a bought deal private placement equity financing of 3,450,000 units of the Company at a price of $0.60 per unit for gross proceeds of $1,562,229 (CAD $2,070,000). Each unit consisted of one full common share of the Company and one-half share purchase warrant. Each warrant is exercisable at an exercise price of CAD$0.80 for a period of 24 months from the date of issuance. The total share issue cash costs related to the financing were $196,754 (CAD $260,704) and commission paid and other transaction costs are recognized as a reduction in both share capital and contributed surplus. The Company also issued 241,500 warrants to an agent as part of the equity offering. The fair value of these agent warrants, as estimated by the Black-Scholes model, was $70,856 (CAD$93,886). Significant assumptions used in the Black- Scholes model included an expected life of 2 years, volatility of 113.4% and a risk-free rate of 0.97%. The fair value of the warrants was recognized as a reduction in share capital as well as a portion of the share issue costs allocated to the warrants. Restricted share units The Company has a restricted share unit plan that provides for the granting of restricted share units to directors, officers, employees and consultants of up to 1,005,125 shares of the Company of which 20,286 are available for grant as at June 30, Upon vesting, the Company will issue shares from treasury to the employees for no additional consideration. As at June 30, 2017, rights to receive 160,376 shares have been granted of which 158,937 vests in 2017 and 1,439 vests in During the six months ended June 30, 2017, the Company issued 120,000 shares for the rights that vested. 11

14 9. Share capital (continued) During the three and six months ended June 30, 2017, the Company recognized a total of $14,871 (2016 $29,188) and $40,179 ( $62,867), respectively, as compensation expense pursuant to restricted share units in selling, general, and administration expenses. Special warrants As at June 30, 2017, the Company had 5,100,000 special warrants outstanding held by related parties and all are exercisable in The special warrants are convertible into shares of the Company on a one for one basis for no additional consideration provided that at the time on the conversion at least 20% of the issued and outstanding shares of the Company are held by Public Shareholders after the conversion of the special warrants. Public Shareholders are those shareholders who are not directors, officers or other insiders of the Company as defined by the TSX Venture Exchange. Stock options The Company offers an incentive stock option plan that provides for the granting of options up to 10% of its issued and outstanding common shares to directors, officers, employees and consultants. The stock option activity is as follow: Six months ended Year ended June 30, 2017 December 31, 2016 Weighted Weighted average average Number exercise Number exercise of options price (CAD) of options price (CAD) Balance at beginning of period 2,972,461 $ ,400 $ 0.50 Granted 814, ,937, Forfeited (338,383) 0.43 (215,000) 0.73 Exercised (70,767) Balance at end of period 3,377,955 $ ,972,461 $ 0.45 Balance exercisable at end of period 2,013,805 $ ,733,752 $

15 9. Share capital (continued) Details of the outstanding stock options are as follows (in CAD): Number Number of options Weighted Weighted of options Weighted outstanding at average average exercisable at average Exercise June 30, remaining exercise June 30, exercise price (CAD) 2017 life (months) price (CAD) 2017 price (CAD) $ , $ ,200 $ , , , , , ,485, , , , , , , , ,377, $ ,013,805 $ 0.45 During the three and six months ended June 30, 2017, the Company recorded an expense to stockbased compensation of $28,633 (2016 $100,364) and $21,286 (2016 $114,763), respectively, relating to stock options in selling, general, and administration expenses. The compensation expense was based on the fair value of each stock option on the date of the grant using the Black- Scholes option pricing model with the following weighted average assumptions: Expected life 5 years 5 years Expected volatility in market price of shares 113.4% 85.8% Expected dividend rate 0.0% 0.0% Risk-free interest rate 0.97% 0.68% Weighted average fair value per option granted ( $ 0.59 $ 0.24 Warrants Six months ended June 30, 2017 Year ended December 31, 2016 As at June 30, 2017, the Company has warrants outstanding allowing the holders to purchase an additional 2,934,300 common shares at an exercise price of CAD$0.48 per share and 393,767 common shares at an exercise price of CAD$0.38 per share until June 23, During the six months ended June 30, 2017, 96,921 warrants at an exercise price of CAD$0.38 were exercised for a value of $27,711 (CAD$36,830) and 132,500 warrants at an exercise price of CAD$0.48 were exercised for a value of $47,853 (CAD$63,600). As at June 30, 2017, the Company also has warrants outstanding allowing the holders to purchase an additional 1,725,000 common shares at an exercise price of CAD$0.80 per share and 241,500 common shares at an exercise price of CAD$0.60 per share until June 26,

16 10. Segmented information The Company has determined that it operates in one operating segment, renewable energy solutions. During the three and six months ended June 30, 2017, the Company has revenues in the United States, Canada and the Philippines, and is organized into sales geographic areas consisting of these countries. During the three and six months ended June 30, 2017, the Company had two customers that accounted for more than 10% of consolidated revenue as listed below. No other customer accounted for more than 10% of the Company s consolidated revenue. p Three months ended June 30, Six months ended June 30, Customer 1 59% 27% 74% 17% Customer 2 20% 0% 11% 0% Information by geographic area based on external revenue recognized by the continuing operations is outlined below. Total revenue from continuing operations for the three and six months ended June 30, 2017 was as follows: Three months ended June 30, Six months ended June 30, Canada $ 5,926,871 $ 1,056,422 $ 11,155,263 $ 1,366,121 United States 345, ,420 - Philippines 39,840-56,683 - Panama - 103, ,507 $ 6,312,272 $ 1,160,371 $ 11,810,366 $ 1,708,628 All non-current assets are related to the Company s Canadian operations. 11. Contingencies On March 24, 2017, UGE USA and UGE International Ltd., along with a subsidiary of UGE Holdings, which was sold on September 6, 2016 (Note 12), was named in a legal action for breach of contract and fraud in relation to an order of wind turbines from a subsidiary of UGE Holdings to the plaintiff in The order value was approximately $75,000, but the total claimed was in excess of $2,500,000. The Company believes it was wrongly named; however, without admitting liability, the Company has agreed to a settlement with the plaintiff to dismiss the litigation upon delivery of certain products. The Company expects the cost of this delivery to be approximately $30,

17 11. Contingencies (continued) On June 14, 2017, UGE International Ltd., Nick Blitterswyk, and a subsidiary of UGE Holdings, which was sold on September 6, 2016 (Note 12), was named in a legal action for breach of contract and misrepresentation in relation to legal fees incurred by a subsidiary of UGE Holdings for claims surrounding patent infringement of the divested wind business. The Company is defending the claim of $79,616 as management strongly believes it has been wrongly named. UGE has reserved a hearing on a motion to dispose of this case prior to trial based on management's belief that it is without merit. The Company is subject to possible claims that arise in the ordinary course of business. The outcome of these claims, either individually or in the aggregate, are not expected to have a material impact on the Company s financial position or financial performance. 12. Discontinued operations On September 6, 2016, the Company sold all the shares of UGE Holdings, which included the Company s wind operations. Upon the closing of the sale, UGE Holdings has been presented as a discontinued operation in the consolidated statements of operations and comprehensive loss and cash flows and certain related comparative amounts have been restated to reflect this change. Results of discontinued operations for the three and six months ended June 30, was as follows: Three months ended June 30, Six months ended June 30, Revenue $ - $ 529,881 $ - $ 947,027 Cost of sales - (360,204) - (708,720) Gross profit - 169, ,307 Expenses Selling, general and administrative - (586,209) - (1,117,191) Finance expense - (127,531) - (669,715) Finance income - 85,802-86,586 Loss from discontinued operartions before income taxes - (458,261) - (1,462,013) Income tax recovery (expense) - 2, Net loss from discontinued operations $ - $ (455,335) $ - $ (1,461,637) Net loss per share attributable to the shareholders of the Company Basic and diluted $ - $ (0.02) $ - $ (0.06) 15

18 12. Discontinued operations (continued) Cash flows from discontinued operations for the six months ended June 30, was as follows: Cash flow by (used in) operating activities Net loss for the period $ - $ (1,461,637) Adjustment for: Depreciation and amortization - 49,666 Income tax expense - 6,327 Finance income - (86,588) Finance expense - 669,715 Share-based compensation - (6,289) - (828,806) Change in trade and other receivables - 348,228 Change in inventory - (661,837) Change in prepaid expenses and deposits - (447,169) Change in accounts payable and accrued liabilities - 110,409 Change in warranty reserve - 10,221 - (1,468,954) Finance expenses paid - (147,807) Cash used in operating activities - (1,616,761) Cash flow from (used in) investing activities Additions to property plant and equipment - (102,810) Cash consideration for Endura - 9,461 Cash used in investing activities - (93,349) Cash flow from financing activities Issuance of shares - 1,655,422 Cash provided by financing activities - 1,655,422 Decrease in cash for the period - (54,688) Effect of exchange rate fluctuations on cash - (45,965) Cash at beginning of period - 179,188 Cash at end of period $ - $ 78,535 16