Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
Years ended December 31, 2014 and 2013
EQ INC.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2014 and 2013
Assets
Current assets:
Cash and cash equivalents (note 9)
Accounts receivable (note 18 (a))
Other current assets (note 10(a))
Non-current assets:
Investment (note 3)
Property and equipment (note 11)
Domain properties and other intangible assets (note 12)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 10 (b))
Deferred lease inducement
Current portion of finance leases
Deferred revenue
Non-current liabilities:
Finance leases
Deferred lease inducement
Shareholders' (deficiency) equity (note 14)
Going concern (note 2)
Commitments and contingencies (note 19)
On behalf of the Board:
2014
2013
$
311
722
196
1,229
50
124
324
498
$
2,797
2,231
222
5,250
50
281
1,610
1,941
$ 1,727
$ 7,191
$
1,480
22
64
90
1,656
–
73
73
$
2,316
14
122
602
3,054
64
–
64
$
1,729
$ 3,118
(2)
4,073
$
1,727
$ 7,191
“Vernon Lobo”
Director
“Geoffrey Rotstein”
Director
See accompanying notes to consolidated financial statements.
1
EQ INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
Revenue (note 4)
Publishing cost and advertising
Employee compensation and benefits
Other operating expense
Depreciation of property and equipment
Amortization of domain properties and other intangible assets
Impairment of goodwill and other intangible assets (note 12)
Loss from operations
Finance income (note 6)
Finance costs (note 6)
Loss before income taxes
Income tax recovery (note 7):
Current
Deferred
2014
2013
$ 4,877
$ 8,044
2,322
2,990
2,217
186
1,093
265
9,073
(4,196)
13
(125)
(4,308)
22
–
22
4,228
3,605
2,549
273
1,158
716
12,529
(4,485)
34
(257)
(4,708)
2
235
237
Net loss
(4,286)
(4,471)
Other comprehensive income:
Foreign currency translation adjustments
to equity
Other comprehensive income, net of tax
Comprehensive loss
Loss per share (note 8):
Basic
Diluted
156
156
436
436
$
(4,130)
$
(4,035)
$
(0.27)
(0.27)
$
(0.28)
(0.28)
See accompanying notes to consolidated financial statements.
2
EQ INC.
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars)
Years ended December 31, 2014 and 2013
Common shares other Total
Accumulated
Number of
shares
Amount
Contributed comprehensive (deficiency)
equity
income (loss)
surplus
Deficit
Balances, January 1, 2014
Net loss
Share-based payments (note 15)
Foreign currency translation adjustments to equity
15,857,225
–
–
–
$ 66,278
–
–
–
$
2,395
–
55
–
$
(2,022)
–
–
156
$ (62,578)
(4,286)
–
–
$
4,073
(4,286)
55
156
Balances, December 31, 2014
15,857,225
$ 66,278
$
2,450
$
(1,866)
$ (66,864)
$
(2)
Common shares
Number of
shares
Amount
Accumulated
other
Contributed comprehensive
surplus Income (loss)
Deficit
Total
equity
Balances, January 1, 2013
Net loss
Share-based payments (note 15)
Share consolidation (note 14)
Foreign currency translation adjustments to equity
126,858,304
–
–
(111,001,079)
–
$ 66,278
–
–
–
–
$ 2,338
–
57
–
–
$
(2,458)
–
–
–
436
$
$ (58,107)
8,051
(4,471) (4,471)
57
–
436
–
–
–
Balances, December 31, 2013
15,857,225
$ 66,278
$
2,395
$
(2,022)
$ (62,578)
$
4,073
See accompanying notes to consolidated financial statements.
3
EQ INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31, 2014 and 2013
Cash flows from operating activities:
2014
2013
Net loss $ (4,286) $ (4,471)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation of property and equipment 186 273
Amortization of domain properties and other intangible assets 1,093 1 ,158
Amortization of deferred lease inducement (28) (41)
Share-based payments (note 15) 55 57
Foreign exchange loss 123 260
Finance cost (income), net 2 (8)
Current income tax recovery (22) (2)
Deferred income tax recovery – (235)
Impairment of goodwill and other intangible assets 265 716
Loss on sale of property and equipment – 1
Gain on sale of domain properties and other intangible assets (79) –
Change in non-cash operating working capital (note 21) 346 160
Cash used in operating activities (2,345) (2,132)
Income taxes received 22 44
Net cash used in operating activities (2,323) (2,088)
Cash flows from financing activities:
Repayment of finance leases (123) (155)
Interest paid (15) (26)
Net cash used in financing activities (138) (181)
Cash flows from investing activities:
Interest income received 13 34
Net proceeds from disposal of property and equipment – 2
Net proceeds from disposal of domain properties 96 –
Additions to property and equipment (11) (78)
Additions to intangible assets – (51)
Net cash from (used in) investing activities 98 (93)
Foreign exchange loss on cash held in foreign currency
(123) (260)
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
(2,486) (2,622)
2,797
5,419
Cash and cash equivalents, end of year
$
311
$
2,797
See accompanying notes to consolidated financial statements.
4
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
1.
Corporate information:
EQ Inc. (“EQ Works”) (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 on the TSX Venture Exchange ("TSX-V") (note 22).
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") and interpretations of IFRS Interpretation Committee
(“IFRIC”), 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 April 30, 2015, the date the Board of Directors authorized the
consolidated financial statements for issue.
(b) Basis of presentation and going concern:
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 were prepared on a going concern basis, which
assumes that the Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in the normal course of
business.
5
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
The Company has incurred significant operating losses $ 4.3 million (2013 - $4.5) and negative
cash flows from operations $2.3 million (2013 - $2.1) in recent years, and has a working capital
deficiency $400 surplus of (2013 - $2.2 million). Whether and when the Company can attain
profitability and positive cash flows is uncertain. These uncertainties cast significant doubt
upon the Company’s ability to continue as a going concern.
The Company will need to raise capital in order to fund its operations. This need may be
adversely impacted by: a lack of normally available financing and an accelerating loss of
customers. To address its financing requirements, the Company will seek financing through
debt and equity financings, asset sales, and rights offerings to existing shareholders. The
outcome of these matters cannot be predicted at this time.
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.
(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-V 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.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
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.
(e) 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) 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.
(iii) Trade receivables - The Company monitors the financial stability of its customers and
the environment in which they operate to make estimates regarding the likelihood that
the individual trade receivable balances will be paid. Credit risks for outstanding trade
receivables are regularly assessed and allowances are recorded for estimated losses.
(iv) 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.
7
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
(f) 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) 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.
(g) Basis of consolidation:
(i) Subsidiaries:
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.
The Company has the following wholly owned subsidiaries:
CX Digital Media U.S.A Inc.
CX Digital Media Inc.
EQ Advertising Group LTD
Cyberplex Services Inc.
Cyberplex Ontario Holdings Inc.
1887811 Ontario Inc.
CX U.S.A Southwest Inc.
CX U.S.A. Pacific, Inc.
Bootcamp Media Inc.
Ownership interest
Jurisdiction
of incorporation
December 31, December 31,
2013
2014
Delaware
Ontario
Ontario
Ontario
Ontario
Ontario
Texas
California
Ontario
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(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.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
(h) 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.
(i) 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.
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
9
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
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.
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
10
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
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.
(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.
(j) 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.
11
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
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.
The estimated useful lives for the current and comparative years are as follows:
Furniture and fixtures 4 years
Computer equipment 3 years
Leasehold improvements 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, 2014, $349 (2013 - $90) of research and development
costs have been expensed primarily as part of employee compensation and benefits in
profit or loss.
12
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
(k) Intangible assets:
(i) 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.
(ii) 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:
Computer Software 2 years
Technology 4 years
Domain properties and content 7 years
1- 5 years
Customer relationships
(l) 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.
13
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
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 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.
14
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
(m) 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.
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.
(n) 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.
(o) Revenue:
The Company generates revenue from the targeted delivery of digital advertisements to
internet users through various channels, including online display, mobile, social and video
using its “Programmatic Marketing Platform”. The Company offers its services on a fully-
managed and a self-service technology basis. Revenue is recognized when all four of the
following criteria are met: (i) evidence of an arrangement exists, (ii) delivery has occurred or a
service has been provided, (iii) customer fees are fixed or determinable, and, (iv) collection is
reasonably assured.
Revenue arrangements are evidenced by a fully executed insertion order (“IO”). Generally,
IOs specify the number and type of advertising impressions to be delivered over a specified
time at an agreed upon price, and performance objectives for an ad campaign.
Performance objectives are generally a measure of targeting as defined by the parties in
15
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
advance, such as number of ads displayed, consumer clicks on ads, or consumer actions
(which may include qualified leads, registrations, downloads, inquiries or purchase). These
payment models are commonly referred to as "CPM" (cost per impression), "CPC" (cost per
click) and "CPA" (cost per action).
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.
The Company determines collectability by performing ongoing credit evaluations and
monitoring its customers’ accounts receivable balances. For new customers and their agents,
which may be advertising agencies or other third parties, the Company may perform a credit
check with an independent credit agency and may check credit references to determine
creditworthiness. The Company only recognizes revenue when collection is reasonably
assured. If collection is not considered reasonably assured, revenue is recognized only once
fees are collected. Revenue is recorded net of 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.
In instances where the Company contracts with third party advertising agencies on behalf of
their advertiser clients, a determination is made to recognize revenue on a gross or net basis
based on an assessment of whether the Company is acting as the principal or an agent in the
transaction. Generally the Company is the primary obligor and is responsible for (i) fulfilling
the advertisement delivery, (ii) establishing the selling prices for delivery ofthe advertisements,
and (iii) performing all billing and collection activities including retaining credit risk, resulting in
a determination that the Company is acting as the principal in these arrangements and
therefore revenue earned and costs incurred are recognized on a gross basis.
16
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
In situations where amounts billed in excess of revenue recognized to date on an arrangement
by arrangement basis are classified as deferred revenue, whereas revenue recognized in
excess of amounts billed is classified as accrued receivables and included as part of accounts
receivable.
(p) 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.
(q) 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).
(r) 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
17
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
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.
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.
(s) Income (loss) per share:
Basic loss per share amounts are calculated by dividing net loss for the year attributable to
common shareholders by the weighted average number of common shares outstanding during
the year. Diluted loss per share amounts are calculated by dividing the net loss attributable to
18
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
common shareholders by the weighted average number of shares outstanding during the
period plus the weighted average number of shares that would be issued on the conversion of
all the dilutive potential ordinary shares into common shares.
(t) Recently issued accounting pronouncements:
Effective for annual periods beginning on or after January 1, 2016
(i) IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and
Joint Ventures were amended by the IASB in September 2014 to eliminate an inconsistency
between IFRS 10 and IAS 28 in dealing with the sale or contribution of assets between an
investor and its associate or joint venture. Subsequent to the amendments, a full gain or loss
is recognized when a transaction involves a business (whether it is housed in a subsidiary or
not) and a partial gain or loss is recognized when a transaction involves assets that do not
constitute a business, even if these assets are housed in a subsidiary. Earlier application is
permitted.
(ii) IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other
Entities and IAS 28 Investments in Associates and Joint Ventures were amended by the IASB
in December 2014 to clarify the application of the requirement for investment entities to
measure subsidiaries at fair value instead of consolidating them. Earlier application is
permitted.
(iii) IAS 1 Presentation of Financial Statements was amended by the IASB in December 2014.
The amendments are designed to further encourage companies to apply professional
judgement in determining what information to disclose in their financial statements. For
example, the amendments make clear that materiality applies to the whole of financial
statements and that the inclusion of immaterial information can inhibit the usefulness of
financial disclosures. Furthermore, the amendments clarify that companies should use
professional judgement in determining where and in what order information is presented in the
financial disclosures. Earlier application is permitted.
Effective for annual periods beginning on or after January 1, 2017
(iv) IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets were amended by
the IASB in May 2014. Amendments clarify that the use of revenue-based methods to
calculate the depreciation of an asset is not appropriate because revenue generated by an
activity that includes the use of an asset generally reflects factors other than the consumption
of the economic benefits embodied in the asset. The IASB also clarified that revenue is
19
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
2.
Significant accounting policies (continued):
generally presumed to be an inappropriate basis for measuring the consumption of the
economic benefits embodied in an intangible asset. This presumption, however, can be
rebutted in certain limited circumstances. Earlier application is permitted.
(v) IFRS 15 Revenue from Contracts with Customers was issued by the IASB in May 2014.
The core principle of the new standard is for companies to recognize revenue to depict the
transfer of goods or services to customers in amounts that reflect the consideration (that is,
payment) to which the company expects to be entitled in exchange for those goods or services.
The new standard will also result in enhanced disclosures about revenue, provide guidance
for transactions that were not previously addressed comprehensively (for example, service
revenue and contract modifications) and
for multiple-element
arrangements. Earlier application is permitted. IFRS 15 supersedes the following standards:
IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes,
IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from
Customers, and SIC-31 Revenue—Barter Transactions Involving Advertising Services.
improve guidance
Effective for annual periods beginning on or after January 1, 2018
(ii) IFRS 9 Financial Instruments was issued by the IASB in July 2014 and will replace IAS 39
Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to
determine whether a financial asset is measured at amortized cost or fair value, replacing the
multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its
financial instruments in the context of its business model and the contractual cash flow
characteristics of the financial assets. Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged to IFRS 9. The new
standard also requires a single impairment method to be used, replacing the multiple
impairment methods in IAS 39. Earlier application is permitted.
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 2014 or 2013.
20
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
4.
Revenue:
The Company sub-classifies revenue into the following components: advertising and Marketing
services revenue.
Advertising revenue is derived from the on-line network connecting advertisers and publishers
to execute advertising. Marketing services revenue is derived from consulting services and
developing advertising strategies for the Company's customers.
Advertising
Marketing services
2014
2013
$ 3 ,507
1,370
$ 5,945
2,099
$ 4 ,877
$ 8,044
21
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
5.
Segment information:
The Company has one operating segment and report as such. EQ’s business focus on targeted
advertising and incorporates the most sophisticated advertising technologies, data analytics and
programmatic media buying capabilities into a single system. The chief operating decision maker
evaluates the Company’s performance, makes operating decision, and allocates resources based
on financial data consistent with the presentation in these 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
2014
$ 3,533
80
1,264
$
2013
3,776
116
4,152
$ 4,877
$ 8,044
In 2014, there was one customer that comprised 12% of the Company's total revenue from
operations. No other customers exceeded 10% of revenue. In 2013, there were two customers
that comprised 21% and 17% of the Company's total revenue from operations, respectively.
22
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
6.
Finance income and finance cost:
Finance income:
Interest income on cash and cash equivalents
Total finance income
Finance costs:
Other interest expense
Foreign exchange loss
Total finance costs
7.
Income taxes:
(a) Income tax recovery:
2014
2013
$
$
13
13
$
34
$
34
$
(15)
(110)
$
(26)
(231)
$
(125)
$ (257)
The Company recorded a deferred income tax recovery of $ nil (2013 - $235) and a current
income tax recovery of $22 (2013 - $2) in the year ended December 31, 2014. 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.
23
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
7.
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
2014
2013
$ (22)
$
(2)
temporary differences (1,060)
920
Relating to the changes in unrecognized tax losses
and deductible temporary differences
(1,060) (1,155)
Income tax recovery reported in the consolidated
statements of comprehensive income (loss)
$ (22)
$
(237)
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, 2014 and 2013 is as
follows:
Loss before income taxes
$
(4,308)
$
(4,708)
2014
2013
Income tax at the Company's statutory rate of
tax 26.5% (2013 - 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
–
–
(36)
$
(1,142)
$
(1,248)
96
1,060
1,508
(1,155)
45
–
613
Income tax recovery
$
(22)
$
(237)
24
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
7.
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
Unrealized
foreign
exchange
Other
Set-off
of tax
$ (709)
144
–
(565)
308
–
$
(10)
(11)
–
(21)
(14)
–
$ (456)
78
–
$ (251)
247
3
$
(378)
378
–
(1)
1
–
–
823
–
(102)
721
–
(429)
$ (257)
$
(35)
$
–
$
32
$
292
$
–
$
Total
–
(102)
102
–
(438)
438
$
Total
(603)
458
(99)
(244)
673
(429)
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
7.
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
2014
$ 1,188
83,893
2014
$
7,198
79,225
$ 85,081
$ 86,423
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 $24,462 and capital
losses of $59,431.
The losses carried forward will expire as follows:
Canada:
2030 $ 9,506
2031 2,987
2032 3,007
2033 3,488
Amount
$ 18,988
Amount
$ 404
382
$
786
United States:
2029
2030
The capital losses carried forward do not expire.
33
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
8.
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, 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, 2014
and 2013 are as follows:
Net loss $ (4,286) $ (4,471)
2014
2013
Weighted average number of shares outstanding:
Basic
Diluted
Loss per share:
Basic
Diluted
15,857,225
15,857,225
15,857,225
15,857,225
$
$ (0.28)
(0.27)
(0.27) (0.28)
Stock options to purchase 1,037,498 common shares were outstanding during 2014 but were not
included in the computation of diluted 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, 2014, was 1,037,498 (2013 – 1,106,871)
34
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
9.
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)
$
311
–
$ 4 94
2,303
$ 311
$ 2 ,797
2014
2013
All cash and cash equivalents are with major financial institutions.
10. 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
2014
2013
$
141
$
160
–
55
55
–
62
62
$
196
$
222
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
$ 926
554
$ 1,052
1,264
2014
2013
$ 1 ,480
$ 2,316
35
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
11. Property and equipment:
Cost
Balance, January 1, 2013
Additions
Disposal
Effect of movements in
exchange rates
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
Total
$
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
Cost
Balance, January 1, 2014
Additions
Effect of movements in
exchange rates
$
662
1
159
$
3,001
10
$
482
303
–
58
$
3,966
11
699
Balance, December 31, 2014
$
822
$
3,493
$
361
$
4,676
Depreciation
Balance, January 1, 2013
Depreciation
Disposal
Effect of movements in
exchange rates
$
593
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
Depreciation
Balance, January 1, 2014
Depreciation
Effect of movements in
exchange rates
$
655
2
58
$
2,727
184
$
465
303
–
58
$
3,685
186
681
Balance, December 31, 2014
$
815
$
3,376
$
361
$
4,552
Carrying amounts
December 31, 2013
December 31, 2014
$
7
7
$
274
117
$
–
–
$
281
124
Included in property and equipment is equipment acquired under finance leases with an original
cost of $269 (2013 - $469) and a carrying value of $60 (2013 - $175).
36
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
12. Domain properties and other intangible assets and goodwill:
(a) Intangible assets by category are as follows:
Cost
Balance, January 1, 2013
Additions
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2013
Cost
Balance, January 1, 2014
Additions
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2014
Amortization and
impairment loss
Balance, January 1, 2013
Amortization
Impairment
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2013
Amortization and
impairment loss
Balance, January 1, 2014
Amortization
Impairment
Disposals
Effect of movements in
exchange rates
Balance, December 31,
2014
Carrying amounts
December 31, 2013
December 31, 2014
Customer
relationships
Technology
Domain
properties
and content
Computer
software
Total
$
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
$
18,032
–
–
$ 9,998
–
–
$ 7,800
–
(32)
$
1,119
–
–
$
36,949
–
(32)
53
328
113
87
581
$
18,085
$
10,326
$
7,881
$
1,206
$
37,498
$
17,669
112
232
–
$ 8,052
869
–
–
19
147
$
6,820
173
103
–
25
$
1,052
4
–
–
$ 33,593
1,158
335
–
62
253
$
18,032
$
9,068
$
7,121
$
1,118
$ 35,339
$ 18,032
–
–
–
$ 9,068
926
–
–
$ 7,121
166
265
(14)
$
1,118
1
–
–
$
35,339
1,093
265
(14)
53
296
55
87
491
$ 18,085
$ 10,290
$ 7,593
$
1,206 $ 37,174
37,1
74
$
–
–
$
930
36
$
679
288
$
1
–
$
1,610
324
37
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
12. Domain properties and other intangible assets and goodwill (continued):
(b) Goodwill:
Balance, January 1, 2013
Impairment
Effect of movements in exchange rates
Balance, December 31, 2013
c) Intangible assets:
$
357
(381)
24
$
–
Balance, January 1, 2014
$ 1,610
Impairment 265
Amortization 1,093
Effect of movements in exchange rates 72
Balance, December 31, 2014
$
324
(d) Impairment:
In 2013, 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. The Company has applied significant estimates and assumptions to estimates the lives
of intangible assets. In 2014 the Company booked an impairment for the domain properties and
other intangible assets of $265 using the discounted cash flows approach, the Company
determined the recoverable amount of this assets to be lower than its carrying value.
38
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
13. Bank credit facilities, loans and borrowings:
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, 2014, no amounts
were outstanding under the revolving demand facility and there was $61 outstanding under the
business credit card facility (2013 - $77) included in accounts payable. The aggregate of available
borrowings under all facilities described below cannot exceed $250 at any time.
The revolving demand facility is up to $100 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 amended demand facility with the lender during the year
ended December 31, 2014 and under the amended credit agreement, the Company is required
to maintain a minimum cash balance of $275. The Company did not draw against the line of credit
as at December 31, 2014.
14. Shareholders' equity:
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 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.
39
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
15. 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.
The following table summarizes the continuity of options issued under the Plan on a post-
consolidated basis (note 14):
2014
2013
Number of
options
Weighted
average
exercise
price
Outstanding, beginning of year
Granted
Forfeited or cancelled
Adjustment on consolidation
1,106,871
200,000
(269,373)
–
$
Outstanding, end of year
1,037,498
Options exercisable, end of year
302,080
1.75
0.54
3.76
–
0.99
1.63
Number of
options
1,109,104
95,000
(97,228)
(5)
1,106,871
Weighted
average
exercise
price
$
2.08
0.55
4.73
–
1.75
347,286
$
3.89
40
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
15. Share-based payments (continued):
A summary of the status of the Company's options under the Plan is as follows:
Range of
exercise
prices
Number of
options
$0.54 - 0.55
$0.80
$4.08 - $4.72
$6.08 - 6.40
200,000
768,750
68,748
–
2014
Weighted
average
remaining
contractual
life (years)
Number of
options
exercisable
Number of
options
2013
Weighted
average
remaining
contractual
life (years)
4.01
2.50
0.54
–
–
233,332
68,748
–
95,000
787,500
68,748
155,623
4.85
3.50
1.54
0.23
1,037,498
302,080
1,106,871
Number of
options
exercisable
–
122,915
68,748
155,623
347,286
During the year ended December 31, 2014, the Company recorded compensation expense
related to stock options granted to employees of $55 (2013 - $57).
During the year ended December 31, 2014, 200,000 stock options were granted and no stock
options were exercised. During the year ended December 31, 2013, 95,000 stock options were
granted and no stock options were exercised.
The weighted average grant date fair value of options granted during 2014 was $0.33
(2013 - $0.03). 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, 2014: dividend yield of
nil (2013 - nil), expected volatility of 108% (2013 - 108%), weighted average risk-free interest
rate of 1% (2013 - 1%), and expected lives of 2.5 (2013 - 2.5) years forfeiture rate.
41
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
16. 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, 2014:
Measurement basis
Financial assets:
Cash and cash equivalents
Accounts receivable
Other current assets
Investment
Financial liabilities:
Accounts payable and
accrued liabilities
Finance lease
Loans and
receivables/
other financial
liabilities
Available-
for-sale
securities
Amortized cost
Fair value
$
$
311
722
196
–
$
1,229
$
1,480
64
$
$
1,544
$
$
–
–
–
50
50
–
–
–
Total
$ 311
722
196
50
$ 1 ,279
$ 1 ,480
64
$ 1 ,544
42
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
16. 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, 2013:
Loans and
receivables/
other financial
liabilities
Available-
for-sale
securities
Total
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
$
2,797
2,231
222
–
$
–
–
–
50
$ 2 ,797
2,231
222
50
$
5,250
$
50
$ 5 ,300
$
2,316
186
$
2,502
$
$
–
–
–
$ 2,316
186
$ 2 ,502
43
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
16. 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, 2014 and 2013:
2014
2013
Carrying
value
Fair
value
Carrying
value
Fair
value
$
311
722
196
$
311
722
196
$ 2,797
2,231
222
$ 2,797
2,231
222
50
50
50
50
$ 1,279
$ 1,279
$ 5,300
$ 5,300
$ 1,480
64
$ 1,480
64
$ 2,316
186
$ 2,316
186
$ 1,544
$ 1,544
$ 2,502
$ 2,502
Financial assets:
Cash and cash
equivalents
Accounts receivable
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.
44
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
16. 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, 2014 and 2013 in the
consolidated financial statements are summarized below:
2014 Level 1 Level 2 Level 3 Total
Financial assets:
Cash and cash equivalents
Available-for-sale equity
securities(i)
$
311
–
$
311
$
$
–
–
–
$
–
$
311
50
50
$
50
$
361
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
(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, 2014 and 2013.
There have been no transfers of assets between levels during the years ended December 31,
2014 and 2013.
45
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
17.
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.
18. 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.
46
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
18. 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, 2014, three
customers represented 20%, 12% and 10% of the gross accounts receivable balance of
$779, respectively. At December 31, 2013, three customers represented 27%, 17% and
11% of the gross accounts receivable balance of $2,322, respectively. The accounts
receivable balances due from these significant customers were aged less than 30 days and
classified as current at December 31, 2014. No other individual customers represented
more than 10% of accounts receivable. As at December 31, 2014, the allowance for doubtful
accounts was $57 (2013 - $91). 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, 2014, 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,
2014 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.
47
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
18. 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
forecasted and actual revenue and expenditures and cash flows from
monitoring
operations. Management is also actively involved in the review and approval of planned
expenditures. The Company's principal cash requirements are for principal and interest
payments on its debt, capital expenditures and working capital needs. The Company uses
its operating cash flows, o p e r a t i n g facilities and cash balances to maintain liquidity.
48
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
18. Financial risk management (continued):
The following are the contractual maturities for the financial liabilities:
2014
Carrying
amount
Contractual
cash flow
On demand
Trade and other payables(i)
Finance leases
$ 1,480
64
$
1,480
64
$ 1,544
$
1,544
$
$
–
–
–
2013
Carrying
amount
Contractual
cash flow
On demand
Trade and other payables(i)
Finance leases
$ 2,316
186
$
2,316
186
$ 2,502
$
2,502
$
$
–
–
–
(i)
Trade and other payables exclude sales tax payable and other non-contractual liabilities.
Less than
1 year
$
1,480
64
$
1,544
Less than
1 year
$
2,316
186
$
2,438
1 - 3 years
>3 years
$
$
–
–
–
$
$
–
–
–
1 - 3 years
>3 years
$
$
–
64
186
$
$
–
–
–
49
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
18. 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, 2014 and 2013, 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, 2014. The
gain (loss) realized during the year in respect of these instruments was ($4) (2013 - $13).
50
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
18. Financial risk management (continued):
The Company has performed a sensitivity analysis model for foreign exchange exposure
over fiscal 2014. 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
2014. 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 2014
of approximately $124. 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
$255 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
2014
2013
$ 3 0 6
707
132
501
95
64
2
$ 2 ,668
1,295
149
910
14
186
284
51
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
19.
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
2014
2013
$
280
$ 359
1,092 1,276
– 112
$ 1,372
$ 1,747
The Company leases a number of office facilities under operating leases. The lease terms are
between 1 and 5 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.
During the year ended December 31, 2014, a net amount of $312 was recognized as an expense
in profit or loss in respect of operating leases (2013 - $323).
20. 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, 2014 and 2013 was as follows:
Short-term employee benefits
Share-based payments
2014
$
650
31
$
681
2013
$ 650
55
$ 705
52
EQ INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2014 and 2013
21.
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
Lease inducement
2014
$ 1,535
26
(821)
(503)
109
346
$
2013
252
105
(266)
69
–
160
$
$
22. Subsequent event
(i)
(ii)
On March 27, 2015, EQ’s common shares had been accepted for listing by the TSX-V
through its streamlined listing procedures, and trading of the common shares on the TSX-
V commenced at the opening of the market on March 31, 2015.
On March 30, 2015, EQ closed a financing consisting of $700,000 15% secured notes
(“Notes”), $300,000 of such Notes having been subscribed for by certain insiders of the
Company. The Notes, which are non-convertible, have a six-month maturity and all
interest and principal owing under the Notes are payable at maturity.
(iii)
In February 2015, all issued and outstanding stock options of 1,037,498 were cancelled.
The stock options value were greater than the average market price.
53