Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
(FORMERLY CYBERPLEX INC.)
Years ended December 31, 2013 and 2012
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
DECEMBER 31, 2013 AND 2012
The accompanying consolidated financial statements of EQ Inc. (formerly Cyberplex Inc.) and its
subsidiaries (the "Company") and all the information in Management's Discussion and Analysis are
the responsibility of management and have been approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with
International Financial Reporting Standards, as issued by the International Accounting Standards
Board. The consolidated financial statements include certain amounts that are based on the best
estimates and judgments of management and in their opinion present fairly, in all material respects,
the Company's consolidated financial position, consolidated financial performance and consolidated
cash flows. Management has prepared the financial information presented elsewhere in
Management's Discussion and Analysis and has ensured that it is consistent with the consolidated
financial statements.
Management of the Company, in furtherance of the integrity of the consolidated financial statements,
has developed and maintains a system of internal controls. Management believes the internal
controls provide reasonable assurance that transactions are properly authorized and recorded,
financial records are reliable and form a proper basis for the preparation of consolidated financial
statements and that the Company's assets are properly accounted for and safeguarded. The internal
control processes include management's communication to employees of policies that govern ethical
business conduct.
The Board of Directors is responsible for overseeing management's responsibility for financial
reporting and is ultimately responsible for reviewing and approving the consolidated financial
statements. The Board of Directors carries out this responsibility through its Audit Committee.
The Audit Committee meets periodically with management, as well as the internal and external
auditors, to discuss internal controls over the financial reporting process, auditing matters and
financial reporting issues; to satisfy itself that each party is properly discharging its responsibilities;
and to review Management's Discussion and Analysis, the consolidated financial statements and the
external auditors' report. The Audit Committee reports its findings to the Board of Directors for
consideration when approving the consolidated financial statements for issuance to the shareholders.
The Audit Committee also considers, for review by the Board of Directors and approval by the
shareholders, the engagement or re-appointment of the external auditors.
The consolidated financial statements have been audited by KPMG LLP, the external auditors, in
accordance with Canadian generally accepted auditing standards on behalf of the shareholders.
KPMG LLP has full and free access to the Audit Committee.
March 31, 2014
"Geoffrey Rotstein"
Chief Executive Officer
"Peter Kanniah"
Vice President, Finance
KPMG LLP
Yonge Corporate Centre
4100 Yonge Street Suite 200
Toronto ON M2P 2H3
Canada
Telephone
Fax
Internet
(416) 228-7000
(416) 228-7123
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the Shareholders of EQ Inc.
We have audited the accompanying consolidated financial statements of EQ Inc. (formerly Cyberplex
Inc.), which comprise the consolidated statements of financial position as at December 31, 2013 and
December 31, 2012, the consolidated statements of comprehensive income (loss), changes in
shareholders' equity and cash flows for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of EQ Inc. (formerly Cyberplex Inc.) as at December 31, 2013 and
December 31, 2012, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
March 31, 2014
Toronto, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
EQ INC.
(FORMERLY CYBERPLEX INC.)
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2013 and 2012
Assets
Current assets:
Cash and cash equivalents (note 10)
Accounts receivable (note 19)
Other current assets (note 11)
Income taxes recoverable
Non-current assets:
Investment (note 3)
Property and equipment (note 12)
Domain properties and other intangible assets (note 13)
Goodwill (note 13)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 11)
Deferred lease inducements
Current portion of finance leases (note 14)
Deferred revenue
Non-current liabilities:
Finance leases (note 14)
Deferred lease inducements
Deferred tax liabilities (note 8)
2013
2012
$ 2,797
2,231
222
–
5,250
50
281
1,610
–
1,941
$
5,419
2,425
303
40
8,187
50
460
2,889
357
3,756
$ 7,191
$ 11,943
$ 2,316
14
122
602
3,054
64
–
–
64
$
2,703
41
155
549
3,448
186
14
244
444
Shareholders' equity (note 15)
4,073
8,051
Commitments and contingencies (note 20)
$ 7,191
$ 11,943
See accompanying notes to consolidated financial statements.
On behalf of the Board:
"Vernon Lobo"
Director
"Geoffrey Rotstein"
Director
1
EQ INC.
(FORMERLY CYBERPLEX INC.)
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
Revenue (note 5)
Expenses:
Publishing and advertising
Employee compensation and benefits
Other operating
Depreciation of property and equipment
Amortization of domain properties and other intangible assets
Impairment of goodwill and other intangible assets (note 13(c))
Restructuring
Loss from operations
Finance income (note 7)
Finance costs (note 7)
Loss before income taxes
Income tax recovery (note 8):
Current
Deferred
2013
2012
$ 8,044
$ 13,506
4,228
3,605
2,549
273
1,158
716
–
12,529
(4,485)
34
(257)
(4,708)
2
235
237
7,809
5,139
2,972
283
1,118
–
86
17,407
(3,901)
50
(94)
(3,945)
21
357
378
Loss for the year from continuing operations
(4,471)
(3,567)
Discontinued operation:
Income for the year from discontinued operation,
net of tax (note 4)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
to equity
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Income (loss) per share (note 9):
Basic
Diluted
Loss per share from continuing operations (note 9):
Basic
Diluted
See accompanying notes to consolidated financial statements.
2
–
(4,471)
436
436
5,129
1,562
(69)
(69)
$
(4,035)
$
1,493
$
(0.28)
(0.28)
(0.28)
(0.28)
$
0.10
0.10
(0.22)
(0.22)
EQ INC.
(FORMERLY CYBERPLEX INC.)
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars)
Years ended December 31, 2013 and 2012
Common shares
Number of
shares
Amount
Accumulated
other
Contributed comprehensive
income (loss)
surplus
Balances, January 1, 2013
Net loss
Share-based payments (note 16)
Share consolidation (note 15(a))
Foreign currency translation adjustments to equity
126,858,304
–
–
(111,001,079)
–
$ 66,278
–
–
–
–
$
2,338
–
57
–
–
$
$
(2,458)
–
–
–
436
Total
equity
(deficiency)
$
8,051
(4,471)
57
–
436
Deficit
(58,107)
(4,471)
–
–
–
Balances, December 31, 2013
15,857,225
$ 66,278
$
2,395
$
(2,022)
$
(62,578)
$
4,073
Common shares
Number of
shares
Amount
Accumulated
other
Contributed comprehensive
loss
surplus
Retained
earnings
(deficit)
Total
equity
(deficiency)
Balances, January 1, 2012
Net income
Share-based payments (note 16)
Transfer of share purchase loans (note 15(c))
Cancellation of common shares (note 15(c))
Repurchase and cancellation of common shares
(note 15(b))
Foreign currency translation adjustments to equity
133,839,896
–
–
–
(6,314,545)
$ 65,452
–
–
1,185
(324)
$
(667,047)
–
(35)
–
2,278
–
60
–
–
–
–
$
(2,389)
–
–
–
–
–
(69)
$
$
(59,669)
1,562
–
–
–
–
–
5,672
1,562
60
1,185
(324)
(35)
(69)
Balances, December 31, 2012
126,858,304
$ 66,278
$
2,338
$
(2,458)
$
(58,107)
$
8,051
See accompanying notes to consolidated financial statements.
3
EQ INC.
(FORMERLY CYBERPLEX INC.)
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31, 2013 and 2012
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation of property and equipment
Amortization of domain properties and other intangible assets
Amortization of deferred lease inducements
Share-based payments (note 16)
Foreign exchange loss (gain)
Finance cost (income), net
Current income tax recovery
Deferred income tax recovery
Impairment of goodwill and other intangible assets
Gain on sale of property and equipment
Gain on sale of domain properties and other intangible assets
Gain on sale of discontinued operation (note 4)
Restructuring
Change in non-cash operating working capital (note 22)
Cash used in operating activities
Income taxes received (paid)
Net cash used in operating activities
Cash flows from financing activities:
Repayment of finance lease
Repurchase of common shares under normal course issuer bid
Interest paid
Net cash used in financing activities
Cash flows from investing activities:
Purchase of long-term investment
Interest income received
Net proceeds on sale of available for sale investments
Proceeds on sale of discontinued operations,
net of cash disposed of (note 4)
Decrease in restricted cash and short-term investments
Net proceeds from disposal of property and equipment
Net proceeds from disposal of domain properties
Additions to property and equipment
Additions to intangible assets
Net cash from (used in) investing activities
Foreign exchange gain (loss) on cash held in foreign currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
2013
2012
$
(4,471)
$
1,562
273
1,158
(41)
57
260
(8)
(2)
(235)
716
1
–
–
–
160
(2,132)
44
(2,088)
(155)
–
(26)
(181)
–
34
–
–
–
2
–
(78)
(51)
(93)
(260)
(2,622)
5,419
551
3,291
(65)
60
(23)
718
(21)
(357)
–
(17)
(59)
(7,402)
307
(3,292)
(4,747)
(26)
(4,773)
(89)
(35)
(330)
(454)
(50)
53
200
6,293
201
17
82
(221)
(2)
6,573
23
1,369
4,050
Cash and cash equivalents, end of year
$
2,797
$
5,419
Supplemental cash flow information (note 22)
See accompanying notes to consolidated financial statements.
4
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
1.
Corporate information:
EQ Inc. (formerly Cyberplex Inc.) (the "Company") uses real-time technology and advanced
analytics to improve performance for all web, mobile, social and video advertising initiatives.
The Company balances the many components that comprise the complex advertising
ecosystem and establishes equilibrium for reaching the right audience at the right time through
any web or mobile device. The Company is governed by the Ontario Business Corporations
Act and is domiciled in Canada. The address of the Company's registered office is 1255 Bay
Street, Suite 400, Toronto, ON M5R 2A9. The Company is a publicly listed company on the
Toronto Stock Exchange ("TSX").
On June 13, 2013, the Company changed its name from Cyberplex Inc. to EQ Inc. and
operates as "EQ Works". The listing of the Company's common shares continued on the TSX
under the new symbol "EQ", with the predecessor symbol being "CX."
2.
Significant accounting policies:
The accounting policies set out below have been applied consistently to all years presented in
these consolidated financial statements:
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), as issued by the International
Accounting Standards Board ("IASB"). The accounting policies applied in these
consolidated financial statements are based on IFRS issued and outstanding as of
March 31, 2014, the date the Board of Directors authorized the consolidated financial
statements for issue.
(b) Basis of presentation:
The consolidated financial statements have been prepared mainly under the historical cost
basis. Other measurement bases used are described in the applicable notes.
The consolidated financial statements are prepared on a going concern basis.
5
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
On June 13, 2013, the Company announced the consolidation of all of the outstanding
common shares of the Company. The common shares were consolidated on the basis of
one new common share for eight existing common shares. Following the common share
the Company was
consolidation,
approximately 15,857,225. Accordingly, income (loss) per share have been determined on
a basis that is consistent with the effect of the share consolidation for all years presented.
the number of outstanding common shares of
On April 24, 2012, the Company disposed of a material portion of its business, being its
on-line publishing division (note 4). The results of operations from this division were
reclassified to discontinued operation in the consolidated statement of comprehensive
income (loss) for the year ended December 31, 2012. Note disclosures relating to
components of comprehensive income (loss) exclude balances from the discontinued
operation, except where noted.
(c) Functional and presentation currencies:
These consolidated financial statements are presented in Canadian dollars. The
Company's functional currency is the U.S. dollar. The Company has elected its
presentation currency to be the Canadian dollar as it is listed on the TSX and its
shareholders are primarily Canadian.
(d) Use of estimates and judgments:
The preparation of consolidated financial statements and application of IFRS often involve
management's judgment and the use of estimates and assumptions deemed to be
reasonable at the time they are made. The Company reviews estimates and underlying
assumptions on an ongoing basis. Revisions are recognized in the period in which the
estimates are revised and may impact future periods as well. Other results may be derived
with different judgments or using different assumptions or estimates and events may occur
that could require a material adjustment.
6
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
The following are critical accounting policies subject to such judgments and the key
sources of estimation uncertainty that the Company believes could have the most
significant impact on the reported consolidated results of operations and consolidated
financial position.
Key sources of estimation uncertainty:
(i) Useful lives of intangible assets - Useful lives over which intangible assets are
amortized are based on management's estimate of future use and performance.
Expected useful lives are reviewed annually for any change to estimates and
assumptions.
(ii) Impairment tests for non-financial assets - In their determination of the measurement of
the recoverable amount of
the Company’s cash generating units ("CGUs"),
management estimates include future cash flows and the pre-tax discount rate that
reflect current market assessments of the time value of money and risks specific to the
CGUs.
(iii) Revenue recognition - In their determination of the amount and timing of revenue to be
recognized, management relies on assumptions and estimates supporting its revenue
recognition policy. Revenue from fixed fee arrangements is recognized using the
percentage-of-completion method. Estimates of the percentage-of-completion for
customer projects are based upon current actual and forecasted information and
contractual terms.
(iv) Trade receivables - The Company monitors the financial stability of its customers and
the environment which they operate to make estimates regarding the likelihood that the
individual trade receivable balances will be paid. Credit risks for outstanding customer
receivables are regularly assessed and allowances are recorded for estimated losses.
7
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(v) Share-based payments - The estimated fair value of stock options is determined using
the Black-Scholes option pricing model. Inputs to the model are subject to various
estimates related to volatility, interest rates, dividend yields and expected life of the
stock options issued. Fair value inputs are subject to market factors, as well as internal
estimates. In addition to the fair value calculation, the Company estimates the
expected forfeiture rate with respect to equity-settled share-based payments based on
historical experience.
Critical judgments in applying accounting policies:
(i)
Impairment tests for non-financial assets - Judgment is applied in determining whether
events or changes in circumstances during the years are indicators that a review for
impairment should be conducted.
(ii) Revenue and cost recognition - For revenue from sales of third-party products or
services, management’s judgment is applied regarding the determination of whether
the Company is a principal or agent to the transaction.
(iii) Functional currency - Judgment is applied in situations where primary and secondary
indicators are mixed. Primary indicators such as the currency that mainly influences
sales prices are given priority before considering secondary indicators.
(e) Basis of consolidation:
(i) Business combinations:
Subsidiaries are entities controlled by the Company. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Transaction costs, other than
those associated with the issuance of debt and equity securities that the Company
incurs in connection with a business combination, are expensed as incurred.
(ii) Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and expenses
arising from such transactions, are eliminated upon consolidation.
8
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(f) Foreign currency transactions:
Transactions in foreign currencies are translated to the respective functional currencies of
the Company and its subsidiaries at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are
translated to the functional currency at the exchange rate at that date. Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are
translated to the functional currency at the exchange rate at the date that the fair value was
determined. Foreign currency differences arising on translation are recognized in finance
income or cost. Non-monetary assets and liabilities and related depreciation and
amortization are translated at historical exchange rates. Revenue and expenses, other
than depreciation and amortization, are translated at the average rates of exchange for the
year. Exchange gains and losses resulting from the translation of functional to presentation
currency are recorded to other comprehensive income (loss) ("OCI") in the year in which
they occur.
(g) Financial instruments:
(i) Non-derivative financial assets:
The Company initially recognizes loans and receivables and deposits on the date they
originate. All other financial assets (including assets designated at fair value through
profit or loss) are recognized initially on the trade date at which the Company becomes
a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash
flows from the asset expire, or it transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred.
9
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
Financial assets and liabilities are offset and the net amount presented in the
consolidated statements of financial position when, and only when, the Company has a
legal right to offset the amounts and intends either to settle on a net basis or to realize
the asset and settle the liability simultaneously.
Financial instruments are, for measurement purposes, grouped into categories. The
classification depends on the purpose and is determined upon initial recognition. The
Company has the following categories of non-derivative financial assets: financial
assets at fair value through profit or loss, loans and receivables and available-for-sale
financial assets.
(a) Financial assets at fair value through profit or loss:
A financial asset is classified at fair value through profit or loss if it is classified as
held-for-trading or is designated as such upon initial recognition. Financial assets
are designated at fair value through profit or loss if the Company manages such
investments and makes purchase and sale decisions based on their fair value in
accordance with the Company's documented risk management or investment
strategy. Upon initial recognition, attributable transaction costs are recognized in
profit or loss as incurred. Financial assets at fair value through profit or loss are
measured at fair value, and changes therein are recognized in profit or loss. The
Company's short-term investments, if any, are classified as held-for-trading.
(b) Loans and receivables:
Loans and receivables, which include cash equivalents and accounts receivable,
are recognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, loans and receivables are measured at amortized
cost using the effective interest method, less any impairment losses. Accounts
receivable comprise trade receivables, net of allowance for doubtful accounts.
10
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
Cash and cash equivalents comprise cash balances and cash deposits with
original maturities of three months or less and highly liquid investments that are
readily convertible to known amounts of cash and are subject to an insignificant
risk of changes in value. Bank overdrafts that are repayable on demand and form
an integral part of the Company's cash management are included as a component
of cash and cash equivalents for the purpose of the consolidated statements of
cash flows.
(c) Available-for-sale financial assets:
Available-for-sale financial assets are non-derivative financial assets that are
designated as available-for-sale and that are not classified in any of the previous
categories, and include private company investments. Subsequent to initial
recognition, they are measured at fair value and changes therein, other than
impairment losses and foreign currency differences on available-for-sale equity
instruments, are recognized in OCI and presented within equity in the fair value
reserve. When an investment is derecognized, the cumulative gain or loss in OCI
is transferred to profit or loss.
(ii) Non-derivative financial liabilities:
The Company initially recognizes debt securities issued and subordinated liabilities on
the date that they are originated. All other financial liabilities (including liabilities
designated at fair value through profit or loss) are recognized initially on the trade date
at which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are
discharged, cancelled or expired.
The Company's non-derivative financial liabilities consist of accounts payable and
accrued liabilities and finance leases. Such financial liabilities are recognized initially at
fair value plus any directly attributable transaction costs. Subsequent to initial
recognition and measurement, these financial liabilities are measured at amortized cost
using the effective interest method.
11
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(iii) Derivative financial assets and liabilities:
The Company holds derivative financial instruments from time to time to hedge its
foreign currency exposures as compared to the functional currency of the Company or
its subsidiaries. Derivatives are recognized initially at fair value and attributable
transaction costs are recognized in profit or loss as incurred. Subsequent to initial
recognition, derivatives are measured at fair value with any gains or losses being
recognized in finance income or finance cost when they occur.
(h) Property and equipment:
(i) Recognition and measurement:
Property and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset.
Gains and losses on disposal of an item of property and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property and
equipment and are recognized net within operating income.
The costs of the day-to-day servicing of property and equipment are recognized in
operating income as incurred.
(ii) Depreciation:
Depreciation is calculated over the depreciable amount, which is the cost of an asset,
or other amount substituted for cost, less its estimated residual value. Depreciation is
recognized on a straight-line basis over the estimated useful lives of the property and
equipment, since this most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset.
12
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
The estimated useful lives for the current and comparative years are as follows:
Furniture and fixtures
Computer equipment
Leasehold improvements
4 years
3 years
Lesser of useful life and term of lease
Depreciation methods, useful lives and residual values are reviewed at each financial
year end and adjusted, if appropriate.
(iii) Research and development:
Expenditure on research activities, undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognized in profit or loss as
an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan
or design for the production of new substantially improved products and processes, is
capitalized only if the product or process is technically and commercially feasible, if
development costs can be measured reliably, if future economic benefits are probable,
if the Company intends to use or sell the asset and the Company intends and has
sufficient resources to complete development. To date, no material development
expenditures have been capitalized.
For the year ended December 31, 2013, $90 (2012 - $80) of research and development
costs have been expensed primarily as part of employee compensation and benefits in
profit or loss.
(i)
Intangible assets:
(i) Goodwill:
Upon initial recognition arising from a business combination, goodwill is measured at
the excess of the fair value of the consideration transferred over the fair value of the
identifiable net assets acquired. Subsequently, goodwill is measured at cost less
accumulated impairment losses.
13
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(ii) Domain properties and other intangible assets:
Other intangible assets that are acquired by the Company and have finite useful lives
are measured at cost less accumulated amortization and accumulated impairment
losses.
(iii) Amortization:
Amortization is calculated over the cost of the asset less its estimated residual value,
which typically is expected to be nil. Amortization is recognized in profit or loss on a
straight-line basis over the estimated useful lives of intangible assets, other than
goodwill, from the date that they are available for use, since this most closely reflects
the expected pattern of consumption of the future economic benefits embodied in the
asset. Useful lives, residual values and amortization methods for intangible assets with
finite lives are reviewed at least annually.
The estimated useful lives for the current and comparative years are as follows:
Customer relationships
Technology
Domain properties and content
Computer software
1 - 5 years
4 years
7 years
2 years
(j)
Impairment:
(i) Financial assets, including accounts receivable:
A financial asset is considered impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flow of that asset that
can be estimated reliably. Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets are assessed
collectively based on the nature of the asset.
14
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
An impairment loss on loans and receivables is measured as the difference between
the asset's carrying amount and the present value of the future cash flows expected to
be derived from the asset. The carrying value is reduced through the use of an
allowance for doubtful accounts, with the loss recognized in net income (loss).
An impairment loss on available-for-sale financial assets is recognized by reclassifying
the losses accumulated in the fair value reserve in equity to the consolidated
statements of comprehensive income (loss). The cumulative loss that is reclassified
from equity to net income (loss) is the difference between the acquisition cost less any
impairment loss previously recognized and the current fair value. An impairment loss in
respect of an equity-accounted investment is measured by comparing the recoverable
amount of the investment with its carrying amount.
(ii) Non-financial assets:
The carrying amounts of the Company's non-financial assets, other than deferred tax
assets, are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the asset's recoverable
amount is estimated. For goodwill and intangible assets that are not yet available for
use, the recoverable amount is estimated each year during the fourth quarter in
alignment with the Company's annual planning cycle.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. For
the purpose of impairment testing, assets that cannot be tested individually are
grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other CGU's. For the
purposes of goodwill impairment testing, goodwill acquired in a business combination is
allocated to the CGU, or the group of CGUs, that is expected to benefit from the
synergies of the combination. This allocation is subject to an operating segment ceiling
test and reflects the lowest level at which that goodwill is monitored for internal
reporting purposes.
15
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
The Company's corporate assets do not generate separate cash inflows. If there is an
indication that a corporate asset may be impaired, then the recoverable amount is
determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds
its estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in respect of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated to the units, and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro rata basis, as
applicable.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for
any indications that the loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been
recognized.
(k) Share-based payments:
Share-based payment arrangements in which the Company receives goods or services as
consideration for its own equity instruments are accounted for as equity-settled share-
based payment transactions, regardless of how the equity instruments are obtained by the
Company.
The grant date fair value of share-based payment awards granted to employees is
recognized as a compensation cost, with a corresponding increase in contributed surplus,
over the vesting period of the award. The amount recognized is adjusted to reflect the
number of awards for which the related service and non-market vesting conditions are
expected to be met, such that the amount ultimately recognized is based on the number of
awards that vest. Upon exercising the awards, such as options, the fair value of the stock
options exercised that has been expensed to contributed surplus along with the cash
received is reclassified to common shares and reflected in the statements of changes in
shareholders' equity.
16
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(l) Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. The timing or amount of the
outflow may still be uncertain. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The unwinding of the discount is
recognized as finance cost.
(m) Restructuring:
A provision for restructuring is recognized when the Company has approved a detailed and
formal restructuring plan, and the restructuring either has commenced or has been
announced publicly. Future operating losses are not provided for.
(n) Revenue:
The Company recognizes revenue when persuasive evidence exists, usually in the form of
an executed agreement, that it is probable the economic benefits of the transaction will flow
to the Company and revenue and costs can be measured reliably. If collection is not
considered probable, revenue is recognized only once fees are collected. Revenue is
recorded net of returns, trade discounts and volume rebates. If it is probable that discounts
will be granted and amounts can be measured reliably, then the discount is recognized as a
reduction of revenue as the related sales are recognized. Out-of-pocket expenses that are
contractually reimbursable from customers are recorded as gross revenue and expenses.
17
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
The Company offers certain of its products and services as part of multiple element
arrangements. Where multiple transactions or contracts are linked, such that the individual
transactions have no commercial effect on their own, the transactions are evaluated as a
combined customer arrangement for purposes of revenue recognition. When two or more
revenue-generating activities or deliverables are sold under an arrangement, each
deliverable that is considered a separate component is accounted for separately.
A deliverable is separately accounted for when a delivered item has standalone value from
undelivered items based on the substance of the arrangement. Where an arrangement
includes multiple components, revenue is allocated to the different components based on
their relative fair values or using the residual method, as applicable. Under the residual
method, revenue is allocated to undelivered components of the arrangement based on their
fair values and the residual amount of the arrangement revenue is allocated to delivered
components.
Revenue from sales of third-party supplier products or services is recorded on a gross
basis when the Company is a principal to the transaction and net of costs when the
Company is acting as an agent between the customer and supplier. Several factors are
considered to determine whether the Company is an agent or principal, most notably,
whether the Company is the primary obligor to the customer, has credit risk and adds
meaningful value to the supplier's product or service. Consideration is also given to
whether the Company was involved in the selection of the supplier's product or service, has
latitude in establishing the sales price and has inventory risk.
The Company recognizes revenue from advertisers or their agencies based upon the
execution or completion of agreed upon events, as defined in advance by both parties.
Events are defined by the parties based on a variety of performance-oriented models,
including for targeted advertisements as they are displayed, consumers clicking on those
display advertisements, or in some cases for each "action" by a consumer (which may
include qualified leads, registrations, downloads, inquiries or actual sales). These payment
models are commonly referred to as cost per impression, cost per click and cost per action.
For certain campaigns, the Company is also paid based on a percentage of the cost of
advertising placements, or "Cost Plus".
The Company recognizes revenue on a gross basis, based on the number of defined
events performed during the year.
18
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
In circumstances where the criteria for revenue recognition are not met, direct and
incremental campaign costs are deferred, up to the amount of contractual revenue, to the
extent deemed recoverable.
Professional services revenue is based on either time and material arrangements or fixed
fee arrangements. Revenue related to time and materials arrangements is recognized as
services are performed. Revenue from fixed fee arrangements is recognized using the
percentage-of-completion method, based on the ratio of total labour hours incurred to date
to total estimated labour hours. Changes in job performance, job conditions, estimated
profitability and final settlement may result in revisions to costs and income and are
recognized in the year in which the revisions are determined. Costs include direct material
and labour costs which are expensed as incurred. Provisions for estimated losses on
incomplete arrangements are made in the year in which such losses are determined.
Revenue from hosting services is recognized on a straight-line basis over the term of the
hosting arrangement.
Amounts billed in excess of revenue recognized to date on a contract-by-contract basis are
classified as deferred revenue, whereas revenue recognized in excess of amounts billed is
classified as accrued income within other current assets.
(o) Lease payments:
Payments made under operating leases are recognized in profit or loss on a straight-line
basis over the term of the lease. Lease incentives received are recognized as an integral
part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance
cost and the reduction of the outstanding liability. The finance cost is allocated to each
period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Contingent lease payments are accounted for in the period in which they are incurred.
19
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(p) Finance income and finance cost:
Finance income comprises interest income on funds invested (including available-for-sale
financial assets), gains on the disposal of available-for-sale financial assets and changes in
the fair value of financial assets at fair value through profit or loss. Interest income is
recognized as it accrues in profit or loss, using the effective interest method.
Finance cost comprises interest expense on loans and borrowings, changes in the fair
value of financial assets at fair value through profit or loss and impairment losses
recognized on financial assets.
Foreign currency gains and losses are reported on a net basis within finance cost (income).
(q) Income taxes:
Income tax expense for the year comprises current and deferred income taxes. Current
taxes and deferred taxes are recognized in the consolidated statements of comprehensive
income (loss), except to the extent that they relate to items recognized in OCI or directly in
equity. In these cases, the taxes are also recognized in OCI or directly in equity,
respectively.
The Company uses the asset and liability method of accounting for deferred income taxes.
Under this method, the Company recognizes deferred income tax assets and liabilities for
future income tax consequences attributable to temporary differences between the
consolidated financial statement carrying amounts of assets and liabilities and their
respective income tax bases, and on unused tax losses and tax credit carryforwards. The
Company measures deferred income taxes using tax rates and laws that have been
enacted or substantively enacted at the reporting date and are expected to apply when the
related deferred income tax asset is realized or the deferred income tax liability is settled.
The Company recognizes deferred income tax assets only to the extent that it is probable
that future taxable profit will be available against which the deductible temporary
differences, as well as unused tax losses and tax credit carryforwards can be utilized.
Deferred income tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized. The
Company recognizes the effect of a change in income tax rates in the year of enactment or
substantive enactment.
20
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
Deferred income taxes are not recognized if they arise from the initial recognition of
goodwill, nor are they recognized on temporary differences arising from the initial
recognition of an asset or liability in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss. Deferred income taxes are also
not recognized on temporary differences relating to investments in subsidiaries to the
extent that it is probable that the temporary differences will not reverse in the foreseeable
future.
The Company records current income tax expense or recovery based on taxable income
earned or loss incurred for the year in each tax jurisdiction where it operates, and for any
adjustment to taxes payable in respect of previous years, using tax laws that are enacted or
substantively enacted at the consolidated statements of financial position dates.
In the ordinary course of business, there are many transactions for which the ultimate tax
outcome is uncertain. The final tax outcome of these matters may be different from the
estimates originally made by management in determining the Company's income tax
provisions. Management periodically evaluates the positions taken in the Company's tax
returns with respect to situations in which applicable tax rules are subject to interpretation.
The Company establishes provisions related to tax uncertainties where appropriate, based
on its best estimate of the amount that will ultimately be paid to or received from tax
authorities.
(r) Income (loss) per share:
Basic income (loss) per share is calculated by dividing the income or loss attributable to
common shareholders of the Company by the weighted average number of common
shares outstanding during the year, adjusted for own shares held. Diluted net income
(loss) per share is determined by adjusting the income or loss attributable to common
shareholders and the weighted average number of common shares outstanding for the
effects of all dilutive potential common shares. The Company uses the treasury stock
method for calculating diluted net income (loss) per share. The diluted net income (loss)
per share calculation considers the impact of stock options.
21
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(s) Recently adopted accounting pronouncements:
(i)
IFRS 10, Consolidated Financial Statements ("IFRS 10"):
In May 2011, the IASB issued IFRS 10, which replaces the consolidation requirements
of Standing Interpretations Committee 12, Consolidation - Special Purpose Entities,
and International Accounting Standards ("IAS") 27, Consolidated and Separate
Financial Statements, and establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more other entities.
This new standard is effective for the Company's interim and annual consolidated
financial statements commencing January 1, 2013. The Company assessed the
accounting pronouncement and concluded there is no impact.
(ii) IFRS 12, Disclosure of Interests in Other Entities ("IFRS 12"):
In May 2011, the IASB issued IFRS 12, which establishes new and comprehensive
disclosure requirements for all forms of interests in other entities, including subsidiaries,
joint arrangements, associates and unconsolidated structured entities. This new
standard is effective for the Company's interim and annual consolidated financial
statements commencing January 1, 2013. The Company assessed the accounting
pronouncement and concluded there is no impact.
(iii) IFRS 13, Fair Value Measurement ("IFRS 13"):
In May 2011, the IASB issued IFRS 13, which replaces the fair value guidance
contained in individual IFRS with a single source of fair value measurement guidance.
The standard also requires disclosures that enable users to assess the methods and
inputs used to determine fair value measurement. This new standard is effective for
the Company's interim and annual consolidated financial statements commencing
January 1, 2013. The Company assessed the accounting pronouncement and
concluded there is no impact other than for the expanded disclosures required and
included in the Company's condensed consolidated interim financial statements.
22
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(iv) IAS 1, Presentation of Financial Statements ("IAS 1"):
to presenting
In June 2011, the IASB amended IAS 1. This amendment retains the one- or
income (loss) and
two-statement approach
comprehensive income (loss) at the option of the entity and only revises the way other
comprehensive income (loss) is presented. This new standard is effective for the
Company's
financial statements commencing
January 1, 2013. The Company assessed the accounting pronouncement and
concluded there is no impact.
interim and annual consolidated
the statements of
(v) IAS 27, Separate Financial Statements ("IAS 27"):
In May 2011, the IASB amended IAS 27. This amendment removes the requirements
for consolidated statements from IAS 27, and moves it over to IFRS 10. The
amendment mandates that when a company prepares separate financial statements,
investments in subsidiaries, associates and jointly controlled entities are to be
accounted for using either the cost method or in accordance with IFRS 9. In addition,
this amendment determines the treatment for recognizing dividends, the treatment of
certain group reorganizations, and some disclosure requirements. This amendment is
effective for the Company's interim and annual consolidated financial statements
commencing January 1, 2013. The Company assessed the accounting pronouncement
and concluded there is no impact.
23
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(t) Recent issued accounting pronouncements:
At the date of authorization of these consolidated financial statements, the IASB has issued
the following new and revised standards and amendments which are not yet effective for
the relevant periods:
(i)
IFRS 9, Financial Instruments ("IFRS 9"):
In October 2010, the IASB issued IFRS 9, which replaces IAS 39, Financial
Instruments - Recognition and Measurement, and establishes principles for the
financial reporting of financial assets and financial liabilities that will present relevant
and useful information to users of financial statements for their assessment of the
amounts, timing and uncertainty of an entity's future cash flows. This new standard is
effective for the Company's interim and annual consolidated financial statements
commencing January 1, 2015. The Company is assessing the impact of this new
standard on its consolidated financial statements.
(ii) IAS 32, Financial Instruments: Disclosures ("IAS 32"):
In December 2011, the IASB issued new disclosure requirements in IAS 32 to clarify
the requirements for offsetting financial assets and liabilities. The new disclosure
requirements are effective for the Company's interim and annual consolidated financial
statements commencing January 1, 2014 and is to be applied retrospectively. The
Company is assessing the impact of this new standard on its consolidated financial
statements.
(iii) IAS 36, Recoverable Amount Disclosures for Non-Financial Assets ("IAS 36"):
In May 2013, the IASB issued Recoverable Amount Disclosures for Non-Financial
Assets (Amendments to IAS 36). The new disclosure requirements are effective for the
Company's
financial statements commencing
January 1, 2014 and is to be applied retrospectively. The Company is assessing the
impact of this new standard on its consolidated financial statements.
interim and annual consolidated
24
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
2.
Significant accounting policies (continued):
(iv) International Financial Reporting Interpretations Committee 21, Levies ("IFRIC 21"):
In May 2013, the IASB issued IFRIC 21 which provides guidance on accounting for
levies in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities
and Contingent Assets. The new standard is effective for the Company's interim and
annual consolidated financial statements commencing January 1, 2014 and is to be
applied retrospectively. The Company is assessing the impact of this new standard on
its consolidated financial statements.
3.
Investment:
In July 2012, the Company acquired an available-for-sale equity investment in a private
company for $50. The fair value of the equity investment has not changed in 2013.
4.
Discontinued operation:
On April 24, 2012, the Company reached an agreement to sell 100% of the shares of its
subsidiary, Orion Foundry (Canada) Inc. ("Tsavo") in a transaction valued at approximately
$33,000. The Company received cash proceeds of $7,220, with additional defined payments
totalling $100 to be received within the first year following closing, and subsequently paid in full.
The purchaser of Tsavo assumed the term loans owing to American Capital Ltd. ("American
Capital") (successor by merger to America Capital Financial Services Inc.) of $24,338, as well
as $530 of additional term loans owing by the Company. The Company also received certain
domain properties and content intangible assets valued at $150. As part of the transaction,
6,314,545 (789,318 common shares on a post-consolidated basis) common shares of the
Company, which were held by current and former management of Tsavo, were returned to the
Company for no consideration, except for the transfer of related share purchase loans of
$1,185 to the purchaser.
25
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
4.
Discontinued operation (continued):
Management committed to a plan to sell Tsavo on April 18, 2012. On April 18, 2012, the
Company agreed upon the sale price and received required lender approval for the sale of the
segment. The comparative statement of comprehensive income (loss) has been reclassified to
show results from discontinued operation separately from the continuing operations. Results of
the discontinued operation from January 1, 2012 through to the date of sale are as follows:
Revenue
Expenses:
Publishing and advertising
Employee compensation and benefits
Other operating
Depreciation of property and equipment
Amortization of intangible assets
Restructuring
Loss from operations
Finance income
Finance cost
Loss before income taxes
Current income tax recovery
Loss for the year, net of income tax
Gain on sale of discontinued operation
Net income
Income per share:
Basic
Diluted
26
2012
$ 16,355
11,970
2,007
1,461
267
2,173
221
18,099
(1,744)
22
(690)
(2,412)
(139)
(2,273)
7,402
$
5,129
$
0.32
0.32
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
4.
Discontinued operation (continued):
Cash flows from (used in) discontinued operation:
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash used in discontinued operation
Consideration received:
Consideration received from purchaser:
Cash consideration received
Deferred sales proceeds
Promissory note assumed by purchaser (note 14(b))
Intangible assets transferred to the Company
Fair value of common shares returned and cancelled (note 15(c))
Total consideration received on sale of Tsavo
Effect of disposal on the financial position of the group as of the date of sale:
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Other current assets
Restricted cash
Property and equipment
Intangible assets
Accounts payable and accrued liabilities
Income taxes payable
Current portion of deferred rent
Current portion of term loans
Long-term portion of term loans
Long-term portion of deferred rent
Net liabilities
27
2012
$
(2,809)
42
(234)
$
(3,001)
$
7,220
100
530
150
8,000
324
$
8,324
$
927
8,406
504
5,801
2,156
1,435
15,534
(10,339)
(171)
(8)
(6,757)
(17,581)
(57)
$
(150)
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
4.
Discontinued operation (continued):
Gain on disposal of Tsavo:
Consideration received
Net liabilities of Tsavo disposed of
Promissory notes transferred to purchaser
Share purchase loans transferred
Transaction costs
Gain on disposal
Net cash inflow on disposal of Tsavo:
Consideration received, satisfied in cash
Cash disposed of
Net cash inflow
5.
Revenue:
$
8,324
150
200
(1,185)
(87)
$
7,402
$
7,220
(927)
$
6,293
The Company sub-classifies revenue into the following components: advertising and
professional services revenue.
Advertising revenue is derived from the on-line network connecting advertisers and publishers
to execute advertising. Professional services revenue is derived from consulting services and
developing advertising strategies for the Company's customers.
Advertising
Professional services
2013
2012
$ 5,945
2,099
$ 10,322
3,184
$ 8,044
$ 13,506
28
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
6.
Segment information:
The Company has one operating segment.
The Company's chief operating decision maker is its Chief Executive Officer ("CEO"). The
disposition of Tsavo in 2012 resulted in changes to the organizational structure. In 2013, the
Company combined two of its former operating segments (EQ Advertising and CX Interactive).
In 2013, the operations have been closely integrated and aligned to targeted advertising, which
incorporates advertising technologies, data analytics and programmatic buying capabilities into
a single system. As a result, the Company now has one operating segment, being the
Company as a whole. The CEO evaluates performance, makes operating decisions and
allocates resources based on financial data consistent with the presentation in these
consolidated financial statements.
The Company's assets and operations are substantially all located in Canada; however, the
Company services many customers in the United States and internationally.
The Company generates revenue across three geographical regions; customer revenue by
region is as follows:
Canada
Outside North America
United States
2013
$ 3,776
116
4,152
$
2012
5,447
395
7,664
$ 8,044
$ 13,506
In 2013, there were two customers that comprised 21% and 17% of the Company's total
revenue from continuing operations. No other customers exceeded 10% of revenue from
continuing operations. In 2012, there were two customers that comprised 13% and 11% of the
Company's total revenue from continuing operations.
29
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
7.
Finance income and finance cost:
Finance income:
Interest income on cash and cash equivalents
Total finance income
Finance cost:
Other interest expense
Foreign exchange loss
Total finance cost
8.
Income taxes:
(a) Income tax recovery:
2013
2012
$
$
$
34
34
(26)
(231)
$
$
$
50
50
(55)
(39)
$
(257)
$
(94)
The Company recorded a deferred income tax recovery of $235 (2012 - $21) and a current
income tax recovery of $2 (2012 - $357) in the year ended December 31, 2013. The
deferred income tax recovery is primarily due to the amortization of the intangible assets
recognized on acquisitions and the related deferred tax liability that was recorded at that
time. The deferred tax liability is drawn down as that portion of the asset value is
amortized. No other deferred income tax recovery on losses is recorded in comprehensive
loss and will not be until, in the opinion of management, it is probable that the deferred tax
assets will be realized.
30
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
8.
Income taxes (continued):
The major components of income tax recovery:
Current income tax:
Current income tax recovery
Deferred tax:
Relating to the origination and reversal of
temporary differences
Relating to the changes in unrecognized tax losses
and deductible temporary differences
2013
2012
$
(2)
$
(21)
920
(1,155)
(1,651)
1,294
Income tax recovery reported in the consolidated
statements of comprehensive (loss)
$
(237)
$
(378)
A reconciliation between tax expense and the product of accounting profit multiplied by the
Company's domestic tax rate for the years ended December 31, 2013 and 2012 is as
follows:
Loss before income taxes
$
(4,708)
$
(3,945)
2013
2012
Income tax at the Company's statutory rate of
tax 26.5% (2012 - 26.5%)
Increase (decrease) in income taxes resulting from:
Permanent differences
Changes in unrecognized tax losses
and deductible temporary differences
Difference due to tax rates in other jurisdictions
Differences in effected tax rates
Effects of functional currency differences and other
$
(1,248)
$
(1,046)
1,508
(1,155)
45
–
613
207
1,295
(15)
(438)
(381)
Income tax recovery
$
(237)
$
(378)
31
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
8.
Income taxes (continued):
(b) Deferred taxes:
Recognized deferred income tax assets and deferred income tax liability:
Deferred income tax assets and liabilities are attributable to the following:
Intangible
assets
Financing
costs
Non-capital Property and
equipment
losses
Other
Set-off
of tax
Deferred income tax asset:
January 1, 2012
Recognized in profit or loss
Other
December 31, 2012
Recognized in profit or loss
Other
$ 309
(261)
–
$ 175
(117)
–
$
48
(48)
–
58
(58)
–
$
113
225
–
338
(55)
–
$
226
51
–
277
(277)
–
December 31, 2013
$
–
$
–
$
283
$
–
$
–
–
–
–
–
9
9
$
(823)
–
102
(721)
–
429
$
(292)
$
–
Deferred income tax liability:
January 1, 2012
Recognized in profit or loss
Other
December 31, 2012
Recognized in profit or loss
Other
December 31, 2013
Intangible
assets
Property and
equipment
$
$ (709)
144
–
(565)
308
–
$ (257)
$
32
(10)
(11)
–
(21)
(14)
–
(35)
Unrealized
foreign
exchange
$
(456)
78
–
(378)
378
–
Other
Set-off
of tax
$
$
(251)
247
3
823
–
(102)
721
–
(429)
(1)
1
–
–
$
–
$
$
292
$
–
$
Total
–
(102)
102
–
(438)
438
$
Total
(603)
458
(99)
(244)
673
(429)
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
8.
Income taxes (continued):
(c) Unrecognized deferred tax asset:
Deferred tax assets have not been recognized in respect of the following items:
Deductible temporary differences
Tax losses
2013
$ 7,198
79,225
2012
$
6,899
80,262
$ 86,423
$ 87,161
Deferred tax assets have not been recognized in respect of the above items because it is
not probable that future taxable profit will be available against which the Company can
utilize the benefits therefrom.
Inherent in the unrecognized deferred tax assets are non‐capital losses of $19,862 and
capital losses of $59,364.
The losses carried forward will expire as follows:
Canada:
2030
2031
2032
2033
United States:
2021
2022
2023
2029
2030
The capital losses carried forward do not expire.
33
$
Amount
9,506
2,987
3,007
3,488
$ 18,988
Amount
$
$
42
317
16
159
340
874
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
9.
Loss per share:
On June 13, 2013, the Company announced the consolidation of all of the outstanding common
shares of the Company. The common shares were consolidated on the basis of one new
common share for eight existing common shares. Following the common share consolidation,
the number of outstanding common shares of the Company was approximately 15,857,225.
Accordingly, income (loss) per share has been determined on a basis that is consistent with the
effect of the share consolidation for all years presented.
The computations for basic and diluted loss per share for the years ended December 31, 2013
and 2012 are as follows:
Net income (loss)
Loss for the year from continuing operations
Weighted average number of shares outstanding:
Basic
Diluted
Income (loss) per share:
Basic
Diluted
Loss per share from continuing operations:
Basic
Diluted
$
2013
(4,471)
(4,471)
$
2012
1,562
(3,567)
15,857,225
15,857,225
16,162,940
16,162,940
$
(0.28)
(0.28)
$
0.10
0.10
(0.28)
(0.28)
(0.22)
(0.22)
Stock options to purchase 1,106,871 common shares were outstanding during 2013 but were
not included in the computation of diluted income (loss) per share because the options'
exercise price was greater than the average market price of the common shares. The total
number of options that were excluded from the calculation of diluted loss per share, because
their inclusion would have been anti-dilutive for the year ended December 31, 2013, was
1,106,871.
34
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
10. Cash and cash equivalents:
The major component of cash and cash equivalents is as follows:
Cash on deposit
Cashable Guaranteed Investment Certificate (1.4% yield)
$
494
2,303
$ 2,391
3,028
$ 2,797
$ 5,419
2013
2012
All cash and cash equivalents are with major financial institutions.
11. Other current assets and accounts payable and accrued liabilities:
(a) Other current assets:
The major components of other current assets are as follows:
Prepaid expenses
Other assets:
Tax credits receivable
Accrued income
2013
2012
$
160
$
188
–
62
62
64
51
115
$
222
$
303
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
35
2013
2012
$ 1,052
1,264
$ 1,759
944
$ 2,316
$ 2,703
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
12. Property and equipment:
Cost
Balance, January 1, 2012
Additions
Disposal of Tsavo
Effect of movements in
exchange rates
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
Total
$
1,178
51
(538)
(146)
$
4,788
415
(2,490)
$
1,889
24
(1,602)
$
7,855
490
(4,630)
(118)
(49)
(313)
Balance, December 31, 2012
$
545
$
2,595
$
262
$
3,402
Cost
Balance, January 1, 2013
Additions
Disposal
Effect of movements in
exchange rates
$
545
7
(4)
114
$
2,595
65
–
341
$
262
–
–
41
$
3,402
72
(4)
496
Balance, December 31, 2013
$
662
$
3,001
$
303
$
3,966
Depreciation
Balance, January 1, 2012
Depreciation
Disposal of Tsavo
Effect of movements in
exchange rates
$
938
28
(370)
(57)
$
3,802
466
(1,944)
(181)
$
1,117
57
(881)
(33)
$
5,857
551
(3,195)
(271)
Balance, December 31, 2012
$
539
$
2,143
$
260
$
2,942
Depreciation
Balance, January 1, 2013
Depreciation
Disposal
Effect of movements in
exchange rates
$
539
2
(1)
115
$
2,143
269
–
315
$
260
2
–
41
$
2,942
273
(1)
471
Balance, December 31, 2013
$
655
$
2,727
$
303
$
3,685
Carrying amounts
December 31, 2012
December 31, 2013
$
6
7
$
452
274
$
2
–
$
460
281
Included in property and equipment is equipment acquired under finance leases with an original
cost of $469 and a carrying value of $175.
36
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
13. Domain properties and other intangible assets and goodwill:
(a) Intangible assets by category are as follows:
Cost
Balance, January 1, 2012
Additions
Disposal of Tsavo
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2012
Cost
Balance, January 1, 2013
Additions
Effect of movements in
exchange rates
Balance, December 31,
2013
Amortization and
impairment loss
Balance, January 1, 2012
Amortization
Disposal of Tsavo
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2012
Amortization and
impairment loss
Balance, January 1, 2013
Amortization
Impairment
Effect of movements in
exchange rates
Balance, December 31,
2013
Carrying amounts
December 31, 2012
December 31, 2013
Customer
relationships
Technology
Domain
properties
and content
Computer
software
Total
$
38,190
–
(19,714)
–
$ 15,460
–
(5,513)
–
$ 15,497
150
(7,725)
(28)
(482)
(235)
(175)
$
1,682
2
(602)
–
(25)
$
70,829
152
(33,554)
(28)
(917)
$
17,994
$
9,712
$
7,719
$
1,057
$
36,482
$
17,994
–
$
9,712
51
$
7,719
–
$
1,057
–
$
36,482
51
38
235
81
62
416
$
18,032
$
9,998
$
7,800
$
1,119
$
36,949
$
28,274
1,582
(11,930)
–
$ 10,003
1,206
(3,067)
–
$
8,835
488
(2,445)
(5)
(257)
(90)
(53)
$
1,648
15
(578)
–
(33)
$
48,760
3,291
(18,020)
(5)
(433)
$
17,669
$
8,052
$
6,820
$
1,052
$
33,593
$
17,669
112
232
19
$
8,052
869
–
147
$
6,820
173
103
25
$
1,052
4
–
62
$
33,593
1,158
335
253
$
18,032
$
9,068
$
7,121
$
1,118
$
35,339
$
325
–
$
1,660
930
$
899
679
$
5
1
$
2,889
1,610
37
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
13. Domain properties and other intangible assets and goodwill (continued):
(b) Goodwill:
Balance, January 1, 2012
Impairment
Effect of movements in exchange rates
Balance, December 31, 2012
Balance, January 1, 2013
Impairment
Effect of movements in exchange rates
Balance, December 31, 2013
(c) Impairment:
$
$
$
365
–
(8)
357
357
(381)
24
$
–
The Company has identified four CGUs, which are consistent with the Company's product
lines, which represent the lowest level within the Company that generates cash inflows for
continuing use independent of other CGUs. The Company tested its one remaining CGU
with allocated goodwill for impairment as at December 31 of each year. In assessing
whether or not there is impairment, the Company used a discounted cash flows approach
to assess the value in use for each CGU. The Company estimated the discounted future
cash flows for five years and a terminal value. The future cash flows are based on the
Company's estimates and include consideration for expected future operating results,
economic conditions and a general outlook for the industry in which the CGU operates.
The discount rates used by the Company consider debt to equity ratios and certain risk
premiums. The terminal value is the value attributed to the CGUs' operations beyond the
projected time period of the cash flows, using a perpetuity rate based on expected
economic conditions and a general outlook for the industry. The Company has made
certain assumptions for the discount and terminal growth rates to reflect variations in
expected future cash flows. Based on this assessment, the Company's analysis reflected
on estimated recoverable amount that could no longer support the carrying value of the
CGU, inclusive of goodwill.
38
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
14. Bank credit facilities, loans and borrowings:
(a) Bank credit facilities:
The Company has a revolving demand facility and credit card facility with a Canadian
chartered bank, to be used for general operating requirements. As at December 31, 2013,
no amounts were outstanding under the revolving demand facility and there was $77
outstanding under the business credit card facility (2012 - $73) included in accounts
payable. The aggregate of available borrowings under all facilities described below cannot
exceed $1,000 at any time.
The revolving demand facility is up to $850 by way of Canadian and U.S. dollar currency
loans. The facility bears interest at the bank's prime rate plus 2.35%. Borrowings
outstanding under this facility plus a $150 business credit card allocation must not exceed
75% of accounts receivable with an aging less than 90 days, as defined in the credit
agreement. Amounts outstanding are repayable upon demand.
The Company renegotiated the revolving demand facility with the lender during the year
ended December 31, 2013 and under the amended credit agreement, the Company is
required to maintain a minimum cash balance of $1,200. As at December 31, 2013, the
Company was in compliance with the renegotiated covenants. The Company did not draw
against the line of credit as at December 31, 2013.
(b) Loans and borrowings (other than finance leases):
The Company's former subsidiary, Tsavo, signed an amended and restated credit
agreement with American Capital in 2011.
On April 24, 2012, the purchaser of Tsavo assumed the term loans, eliminating any liability
for the Company.
39
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
14. Bank credit facilities, loans and borrowings (continued):
On September 30, 2011, the Company entered into a promissory note with a Canadian
lender in the amount of $800, due September 30, 2013. The note bears interest at an
annual rate of 12% with principal and interest payments due quarterly. The note is secured
by a guarantee from the Company and a general security agreement over specified
intangible assets of the Company. As part of the Tsavo sale transaction, the Company
repaid $100 of the principal outstanding and the purchaser assumed liability for the
remaining principal and interest of $730.
The following table outlines the activity for term loans and borrowings for the year ended
December 31, 2013:
Balance, December 31, 2011
Term loan extinguished on sale of Tsavo (U.S. $24,493)
Realized foreign exchange gains on term loan extinguishment
Accrued interest on term loan (U.S. $632)
Interest payment on term loan (U.S. $272)
Settlement of promissory note
Promissory note assumed by purchaser of Tsavo
Accrued interest on promissory note
Repayment of interest on promissory note
Balance, December 31, 2012 and 2013
$ 25,366
(24,338)
(563)
630
(272)
(100)
(730)
32
(25)
$
–
(c) The following table outlines the activity for finance leases for the year ended December 31,
2013:
Balance, December 31, 2011
Additions of finance lease
Repayment of finance lease
Balance, December 31, 2012
Additions of finance lease
Repayment of finance lease
Less current portion
Balance, December 31, 2013
40
$ 167
263
(89)
341
–
(155)
186
122
$
64
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
15. Shareholders' equity:
(a) Common shares:
The authorized share capital of the Company comprises an unlimited number of common
shares without par value. The holders of common shares are entitled to receive dividends
when declared and are entitled to one vote per share at annual meetings of the Company.
On June 13, 2013, the Company announced the consolidation of all of the outstanding
common shares of the Company. The common shares were consolidated·on the basis of
one new common share for eight existing common shares. Following the common share
consolidation,
the Company was
approximately 15,857,225. Accordingly, income (loss) per share has been determined on a
basis that is consistent with the effect of the share consolidation for all years presented.
the number of outstanding common shares of
(b) Normal Course Issuer Bid ("NCIB"):
On April 24, 2012, the Company announced a NCIB under which it could purchase up to
11,913,232 (1,489,154 common shares on a post-consolidated basis) of its common
shares, representing approximately 10% of the "public float" of common shares as of that
date, commencing on May 14, 2012 for a period of one year. During the year ended
December 31, 2012, the Company repurchased and cancelled 667,047 (83,380 common
shares on a post-consolidated basis) of its common shares under the NCIB. A charge of
$35 was recorded in common stock for the consideration paid for the common shares. The
NCIB expired on May 13, 2013. The Company did not buy back any common shares
during the year ended December 31, 2013.
On November 14, 2012, the Company instituted an Automatic Share Purchase Plan in
connection with the NCIB, whereby M Partners Inc., as broker, is authorized and directed to
effect stock purchases during the term of the NCIB subject to the price limits, maximum
number of shares and other terms set forth in the Automatic Share Purchase Plan, all as
approved by the TSX. The automatic share repurchase plan expired as of May 13, 2013.
41
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
15. Shareholders' equity (continued):
(c) Cancellation of common shares:
On April 24, 2012, the Company obtained 6,314,545 (789,318 common shares on a post-
share consolidation basis) common shares of the Company held by former management of
Tsavo as part of the consideration for the sale of Tsavo. The fair value of these common
shares was $324 on the day of the sale transaction and the shares were cancelled on the
same date. The Company forgave $1,185 of related share purchase loans owed by former
management of Tsavo as part of this sale transaction.
16. Share-based payments:
The Company's stock option plan (the "Plan") provides for the granting of options to employees,
officers, directors and consultants of the Company. The maximum number of common shares
which may be set aside for issuance under the Plan is a rolling fixed maximum percentage of
10% of the common shares issued and outstanding from time to time and automatically
reloaded after the exercise of an option, provided the number of common shares issuable does
not then exceed the maximum percentage. Options issued under the Plan may be exercised
during a period not exceeding five years from the grant date and typically vest annually over a
three- or four-year period.
The common shares issuable, upon exercise of any option that is cancelled or terminated prior
to its exercise, will become available again for grant under the Plan. In accordance with the
Plan, the exercise price of options is determined based on the fair market value per share on
the day preceding the grant date.
Options granted under the Plan may be exercised during a period not exceeding five years
from the date of grant, subject to earlier termination if the optionee ceases to be an employee,
officer or director of the Company. Options issued under the Plan are non-transferable.
42
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
16. Share-based payments (continued):
The following table summarizes the continuity of options issued under the Plan on a post-
consolidated basis (note 15(a)):
2013
2012
Outstanding, beginning of year
Granted
Forfeited or cancelled
Adjustment on consolidation
Outstanding, end of year
Number of
options
1,109,104
95,000
(97,228)
(5)
1,106,871
Options exercisable, end of year
347,286
Weighted
average
exercise
price
$
2.08
0.55
4.73
–
1.75
3.89
Number of
options
816,513
831,250
(538,659)
–
1,109,104
Weighted
average
exercise
price
$
4.88
0.80
4.32
–
2.08
261,187
$
5.44
During 2012, the Company granted 4,850,000 (606,250 stock options on a post-consolidated
basis) stock options to executives. The terms of these options provide for accelerating vesting
if the Company's shares achieve a stated price on the TSX. This price was not obtained as at
December 31, 2013.
A summary of the status of the Company's options under the Plan is as follows:
Range of
exercise
prices
$0.55
$0.80
$2.72
$4.08 - $4.72
$6.08 - 6.40
Number of
options
95,000
787,500
–
68,748
155,623
1,106,871
2013
Weighted
average
remaining
contractual
life (years)
4.85
3.50
–
1.54
0.23
Number of
options
exercisable
–
122,915
–
68,748
155,623
Number of
options
–
793,750
18,750
97,917
198,687
347,286
1,109,104
2012
Weighted
average
remaining
contractual
life (years)
–
4.50
1.00
1.97
1.02
Number of
options
exercisable
–
–
18,750
75,000
167,437
261,187
During the year ended December 31, 2013, the Company recorded compensation expense
related to stock options granted to employees of $57 (2012 - $60).
43
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
16. Share-based payments (continued):
During the year ended December 31, 2013, 95,000 stock options were granted and no stock
options were exercised. During the year ended December 31, 2012, 6,650,000 (831,250 stock
options on a post-consolidated basis) stock options were granted and no stock options were
exercised.
The weighted average grant date fair value of options granted during 2013 was $0.30
(2012 - $0.03 or $0.24 on a post-consolidated basis). The fair value of each option granted has
been estimated on the date of grant using the Black-Scholes fair value option pricing model
with the following weighted average assumptions used for grants for the year ended
December 31, 2013: dividend yield of nil (2012 - nil), expected volatility of 108% (2012 -
99.85%), weighted average risk-free interest rate of 1% (2012 - 1%), and expected lives of 2.5
(2012 - 2.5) years.
17. Fair values of financial instruments:
(a) Classification of financial instruments:
The following table provides the allocation of financial instruments and their associated
financial instrument classifications as at December 31, 2013:
Measurement basis
Financial assets:
Cash and cash equivalents
Accounts receivable
Other current assets
Investment
Financial liabilities:
Accounts payable and
accrued liabilities
Finance leases
Loans and
receivables/
other financial
liabilities
Available-
for-sale
securities
Amortized cost
Fair value
$
$
2,797
2,231
222
–
$
5,250
$
$
2,316
186
$
2,502
$
$
–
–
–
50
50
–
–
–
Total
$ 2,797
2,231
222
50
$ 5,300
$ 2,316
186
$ 2,502
44
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
17. Fair values of financial instruments (continued):
The following table provides the allocation of financial instruments and their associated
financial instrument classifications as at December 31, 2012:
Loans and
receivables/
other financial
liabilities
Available-
for-sale
securities
Measurement basis
Amortized cost
Fair value
Financial assets:
Cash and cash equivalents
Accounts receivable
Other current assets
Investments
Financial liabilities:
Accounts payable and
accrued liabilities
Finance leases
$
$
5,419
2,425
303
–
$
8,147
$
$
2,703
341
$
3,044
$
$
–
–
–
50
50
–
–
–
Total
$ 5,419
2,425
303
50
$ 8,197
$ 2,703
341
$ 3,044
45
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
17. Fair values of financial instruments (continued):
(b) Carrying value and fair value of financial instruments:
The following table provides the carrying value and fair value of financial instruments as at
December 31, 2013 and 2012:
2013
2012
Carrying
value
Fair
value
Carrying
value
Fair
value
$ 2,797
2,231
–
222
$ 2,797
2,231
–
222
$ 5,419
2,425
40
303
$ 5,419
2,425
40
303
50
50
50
50
$ 5,300
$ 5,300
$ 8,237
$ 8,237
$ 2,316
186
$ 2,316
186
$ 2,703
341
$ 2,703
341
$ 2,502
$ 2,502
$ 3,044
$ 3,044
Financial assets:
Cash and cash
equivalents
Accounts receivable
Income taxes recoverable
Other current assets
Available-for-sale
investment
Financial liabilities:
Accounts payable and
accrued liabilities
Finance leases
(c) Fair value measurements:
The Company provides disclosure of the three-level hierarchy that reflects the significance
of the inputs used in making the fair value measurement. The three levels of fair value
hierarchy based on the reliability of inputs are as follows:
Level 1 - inputs are quoted prices in active markets for identical assets and liabilities;
Level 2 - inputs are based on observable market data, either directly or indirectly other
than quoted prices; and
Level 3 - inputs are not based on observable market data.
46
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
17. Fair values of financial instruments (continued):
In the tables below, the Company has segregated all financial assets and financial liabilities
that are measured at fair value into the most appropriate level within the fair value
hierarchy, based on the inputs used to determine the fair value at the measurement date.
The Company has no financial liabilities measured at fair value.
Financial assets measured at fair value as at December 31, 2013 and 2012 in the
consolidated financial statements are summarized below:
2013
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and cash equivalents
Available-for-sale equity
securities(i)
$
2,797
–
$
2,797
$
$
–
–
–
$
–
$
2,797
50
50
$
50
$
2,847
2012
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and cash equivalents
Available-for-sale equity
securities(i)
$
5,419
–
$
5,419
$
$
–
–
–
$
–
$
5,419
50
50
$
50
$
5,469
(i)
The Company initially measured the available-for-sale equity investment purchased in 2012 based on the cash
exchanged between the parties. The investment is being accounted for at its estimated fair value. No
significant change in fair value was determined through December 31, 2013.
There have been no transfers of assets between levels during the years ended
December 31, 2013 and 2012.
47
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
18. Capital risk management:
The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its
strategy of organic growth combined with strategic acquisitions and to provide returns to its
shareholders. The Company defines capital that it manages as the aggregate of its
shareholders' equity, which comprises issued capital, contributed surplus, accumulated other
comprehensive income and retained earnings (deficit). The Company manages its capital
structure and makes adjustments to it in light of general economic conditions, the risk
characteristics of the underlying assets and the Company's working capital requirements. In
order to maintain or adjust its capital structure, the Company, upon approval from its Board of
Directors, may issue shares, repurchase shares, pay dividends or undertake other activities, as
deemed appropriate under the specific circumstances. The Company is not subject to
externally imposed capital requirements.
19. Financial risk management:
The Company's Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Audit Committee reviews the
Company's risk management policies on an annual basis. The finance department identifies
and evaluates financial risks and is charged with the responsibility of establishing controls and
procedures to ensure that financial risks are mitigated in accordance with the approved
policies.
48
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
19. Financial risk management (continued):
(a) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a
financial instrument fails to meet its contractual obligations and arises from the Company's
accounts receivable and cash and cash equivalents. The majority of the Company's
customers are located in the United States and Canada. At December 31, 2013, three
customers represented 27%, 17% and 11% of the gross accounts receivable balance of
$2,322, respectively. At December 31, 2012, three customers represented 22%, 13% and
11% of the gross accounts receivable balance of $2,474, respectively. The accounts
receivable balances due from these significant customers were aged less than 30 days and
classified as current at December 31, 2013. No other individual customers represented
more than 10% of accounts receivable. As at December 31, 2013, the allowance for
doubtful accounts was $91 (2012 - $49). In establishing the appropriate allowance for
doubtful accounts, management makes assumptions with respect to the future collectability
of the receivables. Assumptions are based on an individual assessment of a customer's
credit quality, as well as subjective factors and trends. As at December 31, 2013,
approximately 59% of accounts receivable balances over 90 days were not provided for.
Management believes that the allowance is adequate. The Company, from time to time,
invests its excess cash in cash equivalents and other short-term investments, with the
objective of maintaining safety of the principal and providing adequate liquidity to meet
current payment obligations and future planned capital expenditures and with the
secondary objective of maximizing the overall yield of the portfolio. The Company's cash
as at December 31, 2013 is not subject to external restrictions and is held with Schedule I
banks in Canada. Investments must be rated at least investment grade by recognized
rating agencies. Given these high credit ratings, the Company does not expect any
counterparties to these investments to fail to meet their obligations.
49
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
19. Financial risk management (continued):
(b) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as
they become due. The Company's approach to managing liquidity is to ensure, to the
extent possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Company's reputation. The Company manages its liquidity risk by
continually monitoring forecasted and actual revenue and expenditures and cash flows
from operations. Management is also actively involved in the review and approval of
planned expenditures. The Company's principal cash requirements are for working capital
requirements, principal and interest payments on finance leases, capital expenditures and
working capital needs. The Company uses its operating cash flows, bank credit facilities
and cash balances to maintain liquidity. While there is no certainty the Company's current
business plan will be achieved, management believes that the plan is such that feasible
cost reduction programs can be implemented if revenue forecasts are lower than projected.
On
the Company's
it appropriate
consolidated financial statements on a going concern basis.
this basis, management considers
to prepare
50
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
19. Financial risk management (continued):
The following are the contractual maturities for the financial liabilities:
2013
Carrying
amount
Trade and other payables(i)
Finance leases
$
2,316
186
Contractual
cash flow
$
2,316
186
$
2,502
$
2,502
2012
Carrying
amount
Trade and other payables(i)
Finance leases
$
2,703
341
Contractual
cash flow
$
2,703
341
$
3,044
$
3,044
On demand
$
$
–
–
–
On demand
$
$
–
–
–
Less than
1 year
$
2,316
122
$
2,438
Less than
1 year
$
2,703
155
$
2,858
1 - 3 years
>3 years
$
$
–
64
64
$
$
–
–
–
1 - 3 years
>3 years
$
$
–
186
186
$
$
–
–
–
(i)
Trade and other payables exclude sales tax payable and other non-contractual liabilities.
51
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
19. Financial risk management (continued):
(c) Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange rates,
interest rates and the Company's share price, will affect the Company's income or the value
of its financial instruments.
(i)
Interest rate risk:
Interest rate risk is insignificant on the Company's cash and cash equivalents due to
the short-term maturity of the investments held.
(ii) Currency risk:
The Company operates internationally with the U.S. dollar as its functional currency
and is exposed to foreign exchange risk from purchase transactions and payroll, as
well as recognized financial assets and liabilities denominated in Canadian dollars. In
addition, the Company is exposed to exchange gains or losses on translation from its
U.S. dollar functional currency to its Canadian dollar presentation currency. The
Company's main objective in managing its foreign exchange risk is to maintain
Canadian cash on hand to support Canadian forecasted obligations and cash flows.
To achieve this objective, the Company monitors forecasted cash flows in foreign
currencies and attempts to mitigate the risk by modifying the nature of cash and cash
equivalents held. The Company also utilizes foreign currency derivative instruments to
hedge against currency fluctuations from time to time. During the years ended
December 31, 2013 and 2012, the Company maintained a portion of its cash resources
in both U.S. and Canadian dollar cash and cash equivalents. The Company does not
have any foreign currency derivative instruments outstanding as at December 31,
2013. The gain (loss) realized during the year in respect of these instruments was $13
(2012 - nil).
52
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
19. Financial risk management (continued):
The Company has performed a sensitivity analysis model for foreign exchange
exposure over fiscal 2013. The analysis used a modeling technique that compares the
U.S. dollar equivalent of all revenue recognized and expenses incurred in Canadian
dollars, at the actual exchange rate, to a hypothetical 10% adverse movement in the
foreign currency exchange rates against the U.S. dollar, with all other variables held
constant. Foreign currency exchange rates used were based on the market rates in
effect during fiscal 2013. The sensitivity analysis indicated that a hypothetical 10%
adverse movement in foreign currency exchange rates would result in an increase in
net loss for fiscal 2013 of approximately $194. There can be no assurances that the
above projected exchange rate decrease will materialize.
If a shift in foreign currency exchange rates of 10% were to occur, the foreign exchange
gain or loss on the Company's net monetary assets could change by approximately
$398 due to the fluctuation and this would be recorded in the consolidated statements
of comprehensive income (loss).
Balances held in Canadian dollars are as follows:
Cash and cash equivalents
Accounts receivable
Other current assets
Accounts payable and accrued liabilities
Deferred lease inducement
Finance lease
Deferred revenue
2013
2012
$ 2,668
1,295
149
910
14
186
284
$ 4,757
1,408
214
1,044
55
341
120
53
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
20. Commitments and contingencies:
Non-cancellable operating lease rentals are payable as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
$
2013
359
1,276
112
$ 1,747
2012
$ 507
235
–
$ 742
The Company leases a number of office facilities under operating leases. The lease terms are
between 5 and 10 years, with an option to renew the lease after that date. Some leases
provide for additional rent payments that are based on changes in the local price index.
One of the leased properties has been sublet by the Company. The sublease will expire in
2014. Total future sublease payments expected in 2014 are $47 and have been presented net
of lease expenses included as part of other operating expenses.
During the year ended December 31, 2013, a net amount of $323 was recognized as an
expense in profit or loss in respect of operating leases (2012 - $281).
21. Related party transactions and balances:
Transactions with key management personnel:
The key management personnel of the Company are the members of the Company's executive
management team and Board of Directors.
The remuneration of key management personnel of the Company during the years ended
December 31, 2013 and 2012 was as follows:
Short-term employee benefits
Share-based payments
54
2013
$
650
55
$
705
2012
$ 828
53
$ 881
EQ INC.
(FORMERLY CYBERPLEX INC.)
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2013 and 2012
21. Related party transactions and balances (continued):
Amounts for 2012 include all amounts for key management personnel of the discontinued
operation.
22. Consolidated statements of cash flows:
The change in non-cash operating working capital comprises the following:
Accounts receivable
Other current assets
Accounts payable and accrued liabilities
Deferred revenue
Income taxes payable
Current portion of loans and borrowings
$
2013
252
105
(266)
69
–
–
$
2012
(2,319)
388
(1,170)
52
(143)
(100)
$
160
$
(3,292)
Supplementary disclosure of non-cash investing and financing activities:
Acquisition of property and equipment through
finance leases
Repayment of promissory note
Property and equipment acquired, not yet paid for
2013
2012
$
–
–
–
$
(263)
(100)
(6)
55