Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
Years ended December 31, 2017 and 2016
INDEPENDENT AUDITORS' REPORT
To the Shareholders of EQ Inc.
the accompanying consolidated
Inc.
We have audited
and its subsidiaries, which comprise the consolidated statements of financial position as at
December 31, 2017 and December 31, 2016 and the consolidated statements of loss and
comprehensive loss, changes in shareholders' deficiency and cash flows for the years then ended
and a summary of significant accounting policies and other explanatory information.
financial statements of EQ
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 the
auditor’s judgement, 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, the auditor considers 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
financial position of EQ Inc. and its subsidiaries, as at December 31, 2017 and December 31, 2016
in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements
which indicates that EQ Inc. incurred a net loss of $1,208,000 during the year ended December 31,
2017 and, as of that date, the Company's current liabilities exceeded its current assets by
$2,389,000. These conditions, along with others as set forth in Note 2, indicate the existence of
material uncertainties that may cast significant doubt about the Company's ability to continue as a
going concern.
Chartered Professional Accountants
Licensed Public Accountants
April 26, 2018
Toronto, Ontario
EQ INC.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2017 and 2016
Assets
Current assets:
Cash
Accounts receivable (note 16(a))
Other current assets (note 7(a))
Non-current assets:
Property and equipment (note 8)
Domain properties and other intangible assets (note 9)
Liabilities and Shareholders’ Deficiency
Current liabilities:
Accounts payable and accrued liabilities (note 7(b) and note 10 (a))
Deferred lease inducement
Loans and borrowings (note 10)
Deferred revenue
Non-current liabilities:
Loans and borrowings (note 10)
Shareholders’ deficiency
Going concern (note 2(b))
Commitments and contingencies (note 17)
On behalf of the Board:
2017
2016
$
891 $
1,292
64
2,247
137
-
151
890
138
1,179
8
121
$
2,384 $
1,308
1,494
-
3,132
10
4,636
-
1,892
63
268
7
2,230
2,421
4,636
4,651
(2,252)
(3,343)
$
2,384 $
1,308
“Vernon Lobo”
Director
“Geoffrey Rotstein”
Director
See accompanying notes to consolidated financial statements
1
EQ INC.
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of Canadian dollars, except per share amounts)
December 31, 2017 and 2016
Revenue
Expenses:
Publishing costs
Employee compensation and benefits
Other operating costs
Depreciation of property and equipment
Amortization of domain properties and other intangible assets
Loss from operations
Finance income (note 5)
Realized gain on sale of investment (note 3)
Gain from extension of loans and borrowings (note 10(b))
Finance costs (note 5)
2017
2016
$
5,514 $
3,414
2,915
1,931
1,174
29
121
6,170
(656)
56
-
80
(688)
1,702
1,667
1,348
13
121
4,851
(1,437)
12
201
179
(450)
Net loss
Other Comprehensive income that were reclassified to profit or loss in
subsequent periods (net of tax):
(1,208)
(1,495)
Net gain on sale of investment (note 3)
Other Comprehensive loss, net of tax
-
-
(201)
(201)
Total Comprehensive loss
$
(1,208) $
(1,696)
Loss per share:
Basic and diluted
$
(0.05) $
(0.09)
Weighted average number of shares outstanding basic and diluted
23,498,559
15,857,225
See accompanying notes to consolidated financial statements
2
EQ INC.
Consolidated Statements of Changes in Shareholders' Deficiency
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
Common shares
Number of
shares
(note 11)
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total
deficiency
Balance, January 1, 2017
Net loss
Share-based payments (note 13)
Exercise of stock options (note 13)
Warrants issued (note 12 & 10 (b))
Loss on extinguishment of debt -
warrants
Exercise of warrants (note 11 & 12)
Proceeds from private placement
net of issuance costs (note 11)
15,857,225 $
-
-
100,000
-
-
$
66,278
-
-
8
-
-
12,349,121
1,387
3,817,857
1,057
$
2,511
-
42
(3)
-
-
-
-
621
-
-
-
162
-
(343)
-
$
(2,062) $
(70,691) $
-
-
-
-
-
-
-
(1,208)
-
-
-
(11)
-
-
(3,343)
(1,208)
42
5
162
(11)
1,044
1,057
Balance, December 31, 2017
32,124,203 $
68,730
$
2,550
$
440
$
(2,062) $
(71,910) $
(2,252)
Common shares
Number of
shares
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total
deficiency
Balance, January 1, 2016
Net loss
Share-based payments (note 12)
Warrants issued (note 10 (b))
Other comprehensive income
15,857,225 $
-
-
-
-
66,278 $
-
-
-
-
2,509 $
-
2
-
-
-
-
-
621
-
$
(1,861) $
(69,160) $
-
-
-
(201)
(1,495)
-
(36)
-
(2,234)
(1,495)
2
585
(201)
Balance, December 31, 2016
15,877,225 $
66,278 $
2,511 $
621
$
(2,062) $
(70,691) $
(3,343)
See accompanying notes to consolidated financial statements
3
EQ INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
December 31, 2017 and 2016
Cash flows from operating activities:
Net loss
Adjustments to reconcile net 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 inducement
Gain on extension of loans and borrowings
Share-based payments (note 13)
Unrealized foreign exchange loss (gain)
Finance cost, net
Gain on sale of investment (note 3)
Change in non-cash operating working capital (note 19)
2017
2016
$
(1,208) $
(1,495)
29
121
(63)
(80)
42
5
680
-
(721)
13
121
(20)
(179)
2
(33)
450
(201)
(259)
Net cash used in operating activities
(1,195)
(1,601)
Cash flows from financing activities:
Repayment of term-loan (note 10(a))
Repayment of loans and borrowing (note 10 (b))
Issuance of promissory notes (note 10(b))
Proceeds from exercise of warrants (note 11)
Proceeds from private placement, net of issuance cost (note 11)
Proceeds from exercise of stock options (note 13)
Interest paid
Net cash from financing activities
Cash flows from investing activities:
Interest income received
Proceeds from disposal of investment (note 3)
Purchases of property and equipment
Net cash from (used) in investing activities
Increase in cash
Foreign exchange gain (loss) on cash held in foreign currency
Cash, beginning of year
-
(765)
765
1,044
1,057
5
(14)
2,092
1
-
(153)
(152)
745
(5)
151
Cash, end of year
$
891 $
(102)
-
1, 500
-
-
-
(10)
1,388
-
251
(5)
246
33
3
115
151
See accompanying notes to consolidated financial statements
4
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
1.
Corporate information:
EQ Inc. (“EQ Works”) or (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 1235 Bay Street, Suite 401, Toronto,
ON, M5R 3K4. The Company is a publicly listed on the TSX Venture Exchange ("TSX-V").
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 the 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 December 31, 2017. The Board of Directors authorized
the consolidated financial statements for issue on April 26, 2018.
(b) Basis of presentation and going concern:
The consolidated financial statements have been prepared 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.
The Company has incurred significant operating losses $1,208 and negative cash flows from
operations $1,195 and has a working capital deficiency $2,389. Whether and when the
Company can attain profitability and positive cash flows is uncertain. These uncertainties may
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. To address its financing
requirements, the Company will seek financing through debt and equity financings and rights
offerings to existing shareholders. The outcome of these matters cannot be predicted at this
time.
5
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(c) Functional and presentation currencies:
These consolidated financial statements are presented in Canadian dollars. Effective January
1, 2016, the functional currency changed from the U.S. dollar to the Canadian dollar as a result
of significant economic changes, including its predominant transaction currency for pricing of
revenues, being the Canadian dollar.
(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.
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 whic h intang ib le as s ets 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.
(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.
6
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(d) Use of estimates and judgments: (continued)
(v) Debt modification - From time to time, the Company pursues amendments to its credit
agreements based on prevailing market conditions. Such amendments, when completed,
are considered by the Company to be debt modifications or extinguishments. The
accounting treatment of a debt modification depends on whether the modified terms are
substantially different than the previous terms. Terms of an amended debt agreement are
considered to be substantially different based on qualitative factors, or when the
discounted present value of the cash flows under the new terms discounted using the
original effective interest rate, is at least ten percent different from the discounted present
value of the remaining cash flows of the original debt. If the modification is not
substantially different, it will be considered as a modification with any costs or fees
incurred adjusting the carrying amount of the liability and amortized over the remaining
term of the liability. If the modification is substantially different then the transaction is
accounted for as an extinguishment of the old debt instrument with an adjustment to the
carrying amount of the liability being recorded in the consolidated statements of
operations immediately.
(e) 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.
The Company has the following wholly owned subsidiaries:
Subsidiary
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.
Jurisdiction
of incorporation
Ownership interest
December 31, December 31,
2016
2017
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.
7
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
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 retranslated
to the functional currency using 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 using 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 monthly average rates of exchange for the year.
(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.
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.
(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.
8
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(g) Financial instruments (continued):
(i) Non-derivative financial assets (continued):
(b)
Loans and borrowings, and receivables:
Loans and borrowings, and receivables, which include cash and accounts
receivable and other current assets, 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 comprise cash balances and cash deposits. 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 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 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 accumulated other
comprehensive income (“AOCI”). When an investment is derecognized, the
cumulative gain or loss in AOCI 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 loans and borrowings. 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.
9
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(g) Financial instruments (continued):
(iii) Derivative financial assets and liabilities:
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 re-measured each period with the movement being recorded as a gain or loss in the
statement of profit or loss.
(iv) Fair value measurement:
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.
(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 loss from operations.
The costs of the day-to-day servicing of property and equipment are recognized in
operating income as incurred.
10
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(h) Property and equipment: (continued)
(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.
(i)
Intangible assets:
(i) Domain properties and other intangible assets:
Domain properties and 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:
Customer relationships
Technology
Domain properties and content
Computer Software
1 - 5 years
4 years
7 years
2 years
11
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(i)
Intangible assets (continued):
(iii) Research and development:
Research and development activities are assessed to determine if they qualify for
recognition as internally generated intangible assets. Apart from complying with the
general requirements for initial measurement of an intangible asset, qualification criteria
are met only when technical as well as commercial feasibility can be demonstrated and
cost can be reliably measured. It must also be probable that the intangible asset will
generate future economic benefits, be clearly identifiable and allocable to a specific
product. Further to meeting these criteria, only such costs that relate solely to the
development phase of a self-initiated project are capitalized. Any costs that are classified
as part of the research phase of a self-initiated project are expensed as incurred. If the
research phase cannot be clearly distinguished from the development phase, the
respective project-related costs are treated as if they were incurred in the research phase
only. Capitalized development costs are amortized over the estimated useful life of the
internally generated intangible asset. Internally generated intangible assets are reviewed
for impairment annually when the asset is not yet in use or when events or changes
in circumstances indicate that the carrying amount may not be recoverable and the
asset is in use
For the year ended December 31, 2017 $101 (2016 - $104) of research and development
costs have been reimbursed from the Scientfic Research and Experimental Development
Tax Incentive Programm recorded a as part of employee compensation and benefits in
profit or loss.
(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.
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 the statement of profit or loss.
When available-for-sale financial assets are impaired, the cumulative gain (loss)
previously recognized directly in equity is recognized in profit or loss.
(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. An impairment test is conducted annually, for intangible assets that are not yet
available for use.
12
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(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.
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.
(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) Revenue:
Advertising revenue is generated 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
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).
Marketing 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.
13
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued)
(m) Revenue (continued):
Revenue from hosting services is recognized on a straight-line basis over the term of the
hosting arrangement.
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 of
the 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.
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.
(n) 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.
14
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(o) Finance income and finance cost:
Finance income comprises interest income on funds invested (including available-for-sale
financial instruments), 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 instruments at fair value through profit or loss and impairment losses
recognized on financial assets.
Foreign currency gain and losses arriving from the translation and settlement of assets and
liabilities as well as revenue and expenses are reported on a net basis within finance cost
(income).
(p) 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 statement of financial position 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.
15
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(p) Income taxes (continued):
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.
(q) Earnings/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 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.
(r) Recently issued accounting pronouncements:
The following new standards, amendments to standards and interpretations have been issued, but
are not effective for the current fiscal year, and have not been applied in preparing these financial
statements. Future changes to our existing accounting policies and other note disclosures may
result. The Company is currently assessing the impact that new pronouncements may have on its
results of operations, financial position and disclosure.
Effective for annual periods beginning on or after January 1, 2018:
(i)
IFRS 15, Revenue from Contracts with Customers, was issued by the IASB in May 2016
and supersedes existing standards and interpretations including IAS 18, Revenue, and
IFRIC 13, Customer Loyalty Programmes. IFRS 15 introduces a single model for
recognizing revenue from contracts with customers with the exception of certain contracts
under other IFRSs such as IAS 17, Leases. The standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods or services to a
customer and at an amount that reflects the expected consideration receivable in exchange
for transferring those goods or services. This is achieved by applying the following five
steps:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
IFRS 15 also provides guidance relating to the treatment of contract acquisition and
contract fulfillment costs. The standard is effective for annual periods beginning on or after
January 1, 2018.
16
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
2.
Significant accounting policies (continued):
(r) Recently issued accounting pronouncements (continued):
(ii)
(iii)
(iv)
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment,
clarifying how to account for certain types of share-based payment transactions. The
amendments apply for annual periods beginning on or after January 1, 2018. As a practical
simplification, the amendments can be applied prospectively. Retrospective, or early,
application is permitted if information is available without the use of hindsight.
In November 2009, the IASB issued IFRS 9, which covers classification and measurement
as the first part of its project to replace IAS 39. In October 2010, the IASB also incorporated
new accounting requirements for liabilities. The standard introduces new requirements for
measurement and eliminates the current classification of loans and receivables, available-
for-sale and held-to maturity, currently in IAS 39. There are new requirements for the
accounting of financial liabilities as well as a carryover of requirements from IAS 39. In
2013, the IASB also incorporated new accounting requirements for hedging and introduced
a new expected-loss impairment model that will require more timely recognition of expected
credit losses. Specifically, the new standard requires entities to account for expected credit
losses from when financial instruments are first recognized and to recognize full lifetime
expected losses on a timelier basis. The effective date of this pronouncement has been set
to be effective for annual periods beginning on or after January 1, 2018.
In January 2016, the IASB issued IFRS 16 - Leases (“IFRS 16”), which replaces IAS 17 –
Leases (“IAS 17”) and related interpretations. IFRS 16 provides a single lessee accounting
model, requiring the recognition of assets and liabilities for all leases, unless the lease term
is 12-months or less or the underlying asset has a low value. IFRS 16 substantially carries
forward the lessor accounting in IAS 17 with the distinction between operating leases and
finance leases being retained. IFRS 16 will be applied retrospectively for annual periods
beginning on or after January 1, 2019.
3.
Investment:
In July 2012, the Company acquired 116,267 shares of an available-for-sale equity investment
(“Investment”) in a private company for $50. On February, 2016, the Company sold its Investment for
$251. The gross realized gain on the sale of such Investment was $201.
4.
Segment information:
The Company has one operating segment and does not sub-classified revenue into various streams
of revenue. EQ Works business focuses 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 all located in Canada; however, the Company services
customers in the United States and internationally.
17
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
4.
Segment information (continued):
The Company generates revenue across three geographical regions; customer revenue by
region is as follows:
Canada
United States
Outside North America
$
2017
4,622 $
888
4
2016
3,262
112
40
$
5,514 $
3,414
In 2017, there were two customers that comprised 14% and 14%, respectively, of the Company's
total revenue from operations. In 2016, there was one customer that comprised 26% of the Company's
total revenue from operations.
5.
Finance income and finance cost:
Finance income:
Interest income on cash
Foreign exchange gain, net
Total finance income
Finance costs:
Other interest expense
Accretion on promissory notes (note 10)
Interest on loans and borrowings (note 10)
Total finance costs
2017
2016
1
55
56
-
12
12
2017
2016
(7) $
(446)
(235)
(688)
(13)
(278)
(159)
(450)
$
$
$
$
18
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
6.
Income taxes:
(a) Income tax expense:
The following table reconciles income taxes calculated at combined Canadian federal/
provincial tax rates with the income tax expense in these financial statements:
Loss before income taxes
Statutory rate
Expected income tax recovery
Effect on income taxes of unrecognized deferred income tax
assets relating to deductible temporary differences on:
Impact of ITCs
Non-deductible expenses and other items
Change deferred taxes not recognized
2017
2016
$
(1,208) $
26.5%
(1,495)
26.5%
(320)
(396)
(210)
689
(159)
(100)
370
126
Income tax recovery $ - $ -
(b) Unrecognized deferred income taxes:
Deferred tax assets have not been recognized in respect of the following items, because it is
not probable that future taxable profit will be available against which the Company can use
the benefits therefrom.
The temporary differences that give rise to deferred income tax assets and deferred
income tax liabilities are presented below:
Amounts related to tax loss and SRED costs
Property and equipment and domain properties and other
Intangible assets
Leasehold inducement
Share issue cost
2017
2016
$
97,235 $
98,080
-
425 746
63
9 -
98,889
$
97,669 $
The Company also has non-capital losses of approximately $39,694 expiring as follows:
$
1,040
7,143
2,404
2,535
3,077
14,547
1,965
1,730
4,193
$ 38,694
2029
2030
2031
2032
2033
2034
2035
2036
2037
19
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
6.
Income taxes (continued):
In addition, the Company has undeducted scientific research and experimental
development (“SRED”) costs of approximately $422 available to apply against future
taxable income, as well as federal investment tax credits SRED costs of approximately
$994 and provincial investment tax credits relating to SRED of approximately $214
available to reduce future taxes payable. The Company also has capital losses of
$58,119 available. The potential tax benefit relating to the non-capital losses, capital
losses and tax credit carryforwards has not been reflected in these consolidated financial
statements.
7.
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
Accrued income
2017
2016
$
$
42 $
22
64 $
106
32
138
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
2017
1,276 $
218
1,494 $
2016
1,516
376
1,892
$
$
20
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
8.
Property and equipment:
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
Cost
Balance, January 1, 2016
Additions
Balance, December 31, 2016
Cost
Balance, January 1, 2017
Additions
Disposal
Balance, December 31, 2017
Depreciation
Balance, January 1, 2016
Depreciation
Balance, December 31, 2016
Depreciation
Balance, January 1, 2017
Depreciation
Disposal
Balance, December 31, 2017
Carrying amounts
December 31, 2016
December 31, 2017
$
$
$
$
$
$
$
$
$
$
1,192
–
1,192
1,192
26
(1,184)
34
1,187
3
1,190
1,190
7
(1,184)
13
$
$
$
$
$
$
$
$
4,611 $
5
4,616 $
4,616 $
32
(4,600)
48 $
4,600 $
10
4,610 $
4,610 $
7
(4,600)
17 $
496
–
496
496
100
(496)
100
496
–
496
496
15
(496)
15
$
$
$
$
$
$
$
$
Total
6,299
5
6,304
6,304
158
(6,280)
182
6,283
13
6,296
6,296
29
(6,280)
45
2
$
6 $
–
$
8
21
$
31 $
85
$
137
21
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
9.
Domain properties and other intangible assets:
Customer
relationships Technology
Domain
properties
and content
Computer
software
Total
$
18,207 $
11,098 $
7,876 $
1,408 $
38,589
18,207
(18,207)
11,098
(11,029)
7,876
(6,776)
1,408
(1,408)
38,589
(37,420)
Cost
Balance,
January 1, 2016 and
December 31, 2016
Balance
January 1, 2017
Disposals
Balance,
December 31, 2017
$
– $
69 $
1,100 $
– $
1,169
Amortization and
impairment loss
Balance,
Customer
relationships Technology
Domain
properties
and content
Computer
software
Total
January 1, 2016
$
Amortization
Balance,
18,207 $
–
11,072 $
17
$
7,660
104
1,408 $
–
38,347
121
December 31, 2016
$
18,207 $
11,089 $
7,764
$
1,408 $
38,468
Balance,
January 1, 2017
$
18,207 $
11,089 $
Disposal
Amortization
Balance,
(18,207)
–
(11,029)
9
7,764
(6,776)
112
$
1,408 $
(1,408)
–
38,468
(37,420)
121
December 31, 2017
$
– $
69 $
1,100
$
– $
1,169
Carrying amounts
Balance,
December 31, 2016
$
Balance,
December 31, 2017
$
– $
– $
9
–
$
$
112 $
– $
121
– $
– $
–
22
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
10.
Loans and borrowings:
(a) Bank credit facility:
The Company has a credit card facility with a Canadian chartered bank. As at December 31,
2017, $56 (2016 - $53) was outstanding under the credit card facility included in accounts
payable. The aggregate of available borrowings under all facilities described below cannot
exceed $60 at any time. Borrowings outstanding under this facility is secured by accounts
receivable with an aging less than 90 days, as defined in the credit agreement. Amounts
outstanding are repayable upon demand.
(b) Promissory notes payable:
On November 25, 2015, the Company entered into promissory notes (the “2015 Notes”) in
the amount of $1,421 due on November 25, 2016. The 2015 Notes, which are non-convertible,
bear interest at an annual rate of 8% with principal and interest payment due on maturity date.
The lenders received seven non-transferable warrants (the “2015 Bonus Warrants”) for each
dollar of principal amount of 2015 Notes, with each Bonus Warrant being exercisable for a
period of twelve months from the date of issuance for one common share of the Company at
an exercise price of $0.10 per common share. All Bonus Warrants are subject to a four
months hold period from the date of issuance in accordance with the applicable securities
law.
On August 18, 2016, the Company extended the maturity dates of $1,175, including accrued
interest of $68, of the outstanding 2015 Notes from November 25, 2016 to February 18, 2018.
$246 of the 2015 Notes were not extended and, including accrued interest of $22, classified
as current liabilities. The extension of the maturity dates was considered a substantial change
in terms of the loan and, accordingly, the Company calculated a gain on extinguishment of the
2016 Notes of $179 and a loss on extinguishment of the Bonus Warrants of $36, as the
difference between the fair value of the 2016 Notes immediately after the amendment and the
amortized costs of the 2015 Notes immediately prior to the extension.
On August 16, 2016 the Company cancelled the existing non-transferable 2015 Bonus
Warrants with new warrants (“2015 Extended Bonus Warrants”) on a one-for-one basis.
23
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
10.
Loans and borrowings (continued):
(b) Promissory notes payable (continued):
On August 18, 2016, the Company completed the first tranche of a debt financing. Pursuant
to this first tranche closing, the Company issued $1,155 non-convertible promissory notes (the
“2016 Notes”). On November 18, 2016, the Company completed the second tranche of the
2016 Notes. Pursuant to this second tranche closing, the Company issued $345 non-
convertible promissory notes. The 2016 Notes bear interest at a rate of 8% per annum,
calculated annually, and have a maturity date of February 18, 2018 (note 20).
In connection with the issuance of the 2016 Notes, the lenders received seven non-
transferable warrants (the “2016 Bonus Warrants”) for each dollar of principal amount of 2016
Notes, with each 2016 Bonus Warrant being exercisable for a period of fifteen months from
the date of issuance for one common share of the Company at an exercise price of $0.08 per
common share.
On May 10, 2017, the Company entered into new promissory notes (the “2017 Notes”) in the
amount of $765 due on December 31, 2018. The 2017 Notes, which are non-convertible, bear
interest at an annual rate of 8% with principal and interest payment due on the maturity date.
The lenders received seven non-transferable warrants (the “2017 Bonus Warrants”) for each
dollar of principal amount of 2017 Notes, with each 2017 Bonus Warrant being exercisable for
a period of twenty months from the date of issuance for one common share of the Company
at an exercise price of $0.13 per common share. All 2017 Bonus Warrants are subject to a
four month hold period from the date of issuance in accordance with the applicable securities
law.
In connection with the above-mentioned 2017 Notes, in which, $490 were considered an
extension of the 2016 Notes. The extension of the maturity dates was considered a substantial
change in terms of the loan and, accordingly, the Company calculated a gain on
extinguishment of the 2017 Notes of $80 and a loss on extinguishment of the 2017 Bonus
Warrants of $11, as the difference between the fair value of the 2016 Notes immediately after
the amendment and the amortized costs of the 2016 Notes immediately prior to the extension.
24
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
10.
Loans and borrowings (continued):
(b) Promissory notes payable (continued):
The 2015 Notes, 2016 Notes, and 2017 Notes were separated into their liability and equity
components using the effective interest rate method. The fair value of the liability component
at the time of issue was calculated as the discounted cash flows for the debentures assuming
an 29.4%, 25.0% and 26.47% effective interest rate, respectively which was the estimated
rate for the debentures without the warrants. The fair value of the warrants was determined at
the time of issue as the difference between the face value of the debentures and the fair value
of the liability component. The value of the warrants has been classified as a component of
equity.
2015 Notes, 8% Maturing February 2018
2016 Notes, 8% Maturing February 2018
2017 Notes, 8% Maturing December 2018
Equity component of promissory notes payable
Accrued interest and interest paid
Accretion in carrying amount of notes
2017
2016
$
1,243 $ 1,509
1,046
1,500
765
-
(480)
(519)
2,574
242
316
2,490
75
124
Balance end of year
$
3,132
$
2,689
Current
Non-current
3,132
$
$ -
268
2,421
$
$
The Following table outlines the activity for loans and borrowings
Promissory notes balance, January 1,
Promissory notes
Repayment of promissory notes
Warrants
Accretion of interest
Gain on extension of loans and borrowings
Loss on extinguishment of warrants
Accrued interest
Interest Paid
Total promissory notes payable
$
2017
2,689 $
765
(765)
(162)
446
(80)
11
235
(7)
3,132
2016
1,221
1,500
-
(290)
278
(179)
-
159
-
2,689
25
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
11.
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 7, 2017, the Company closed a private placement, resulting in the issuance of 3,817,857
common shares of the Company at a price of $0.28 per common share, resulting in proceeds of
$1,057 net of issuance costs of $12.
During 2017, the Company received proceeds of approximately $1,044 as a result of the exercise
of 12,349,121 warrant, each warrants was converted in to one common share. The bonus warrants
were issued in connection with the Company’s 2016 Notes and 2017 Notes, which were set to
expire on February 18, 2018 and December 31, 2018 respectively. 11,219,220 of 2016 bonus
warrants at $0.08 and 1,129,901 of 2017 bonus warrants at $0.13 were exercised.
During 2017, 100,000 stock options were exercised into 100,000 common share with and exercise
price of $0.05 for a total proceeds of $5.
12. Warrant Capital:
The Company had the following warrants outstanding at December 31, 2017
Number of Warrants
Maturity
Exercise Price
7,502,854
February 18, 2018
4,224,343
December 31, 2018
$0.08
$0.13
11,727,197
On February 18, 2018, 7,502,854 warrants expired.
26
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
13.
Share-based payments:
The following table summarizes the continuity of options issued under the Company’s stock
option plan for the year ended:
2017
2016
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
1,305,000 $
385,000
(100,000)
(185,000)
0.05
0.12
0.05
0.10
- $
1,305,000
-
-
Outstanding, end of year
1,405,000 $
0.06
1,305,000
-
0.05
-
-
0.05
Options exercisable, end of year
501,667 $
0.05
-
$
-
A summary of the status of the Company's options under the Plan is as follows:
Range
of
exercise
price
Number
of
options
2017
Weighted
average
remaining
contractual
life (years)
Number of
options
exercisable
Number
of options
2016
Weighted
average
remaining
contractual
life (years)
Number of
options
exercisable
$0.05
$0.47
1,370,000
35,000
3.9
4.8
501,667
-
1,305,000
-
5
-
300,000
-
During 2017, the Company recorded share-based payments of $42 compared to $2 during the
same period in 2016.
27
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
13.
Share-based payments (continued):
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 input and
assumptions:
Year Ended
December 31, 2017
December 31, 2016
Dividend yield
Expected volatility (historical data basis)
Risk-free interest rate
Share price
Forfeiture rate
Expected life (years)
0%
154%
0.72%
$ -
50%
5 years
0%
155%
1%
$ -
36%
2.5 years
Weighted average grant date fair value
$ 0.13
$ 0.05
28
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
14.
Fair values of financial instruments:
(a) Classification of financial instruments:
The following table provides the allocation of financial instruments, their associated
financial instrument classifications, their carrying values, and fair values including their
most appropriate level within the fair value hierarchy, based on the inputs used to
determine the fair value at the measurement date:
Loans and
receivables/
other
financial
liabilities
Amortized
cost
Carrying
value
total
Fair value
total
December 31, 2017
Measurement basis
Financial assets:
Cash
Accounts receivable
$
891 $
1,292
891 $
1,292
891
1,292
$
2,183 $
2,183 $
2,183
Financial liabilities:
Accounts payable and
accrued liabilities
Loans and borrowings
$
1,494 $
3,132
1,494 $
3,132
1,494
3,132
$
4,626 $
4,626 $
4,626
29
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
14.
Fair values of financial instruments (continued):
(a) Classification of financial instruments: (continued)
December 31, 2016
Measurement basis
Financial assets:
Cash
Accounts receivable
Financial liabilities:
Accounts payable and
accrued liabilities
Loans and borrowings
Loans and
receivables/
other
financial
liabilities
Amortized
cost
Carrying
value
total
Fair value
total
$
151 $
890
151 $
890
151
890
$
1,041 $
1,041 $
1,041
$
1,892 $
2,689
1,892 $
2,689
1,892
2,689
$
4,581 $
4,581 $
4,581
There have been no transfers of assets between levels during the years ended December
31, 2017 and 2016.
15.
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 raising capital and borrowings, as deemed appropriate
under the specific circumstances. The Company is not subject to externally imposed capital
requirements. There has been no changes to the Company’s capital management approach in
2017 from 2016.
30
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
16.
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.
(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. The majority of the Company's customers are located in
Canada. At December 31, 2017, three customers represented 25%, 13% and 11% of the
gross accounts receivable balance of $1,273, respectively. At December 31, 2016, two
customers represented 34% and 14% of the gross accounts receivable balance of $932,
respectively. No other individual customers represented more than 10% of accounts
receivable. As at December 31, 2017, the allowance for doubtful accounts was $22 (2016 -
$42). 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, 2017, approximately 69%, $51 (2016 – 53%, $46) 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 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, 2017 is not subject to external restrictions and is held with Schedule I banks in Canada.
(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 principal and interest
payments on its debt, capital expenditures and working capital needs. The Company uses
its operating cash flows, operating facilities and cash balances to maintain liquidity.
Subsequent to year end, a portion of the promissory notes was repaid and the remaining was
extended (note 20).
31
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
16.
Financial risk management (continued):
(b) Liquidity risk: (continued)
The following are the undiscounted contractual maturities for the Company’s obligations:
2017
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other
payables(i)
Operating leases
Loans and borrowings
$
1,494 $
1,494 $
1,494 $
- $
720
3,132
720
3,403
167
3,403
523
-
$
5,346 $
5,617 $
5,064 $ 523 $
(i) trade and other payables exclude other non-contractual liabilities
-
30
-
30
(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:
The Company’s interest rate risk arises primary from its loans and
borrowings obligations, which bear a
interest rate of 8%.
Management believes that the Company is not significantly exposed to
cash flow interest rate risk in the next twelve months.
fixed
(ii) Currency risk:
The Company operates internationally with the Canadian dollar as its
functional currency and is exposed to foreign exchange risk from purchase
transactions, as well as recognized financial assets and liabilities
denominated in U.S dollars. The Company's main objective in managing
its foreign exchange risk is to maintain U.S. cash on hand to support
international 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
held.
32
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
16.
Financial risk management (continued):
(c) Market risk:
(iii) Currency risk:
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 $75 (2016 - $126) due to the fluctuation and this would be
recorded in the consolidated statements of comprehensive income (loss).
Balances held in non-Canadian dollars are as follows:
Cash and cash equivalents
Accounts receivable
Other current assets
Accounts payable and accrued liabilities
17.
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
2017
US
124 $
49
-
774
2016
US
20
11
67
1,037
2017
2016
167 $
553
-
720 $
161
690
30
881
$
$
$
The Company has one office facility under operating lease. The lease term is 5
years, with an option to renew the lease after that date.
During 2017, a net amount of $90 was recognized as an expense in profit or loss in
respect of operating leases (2016 - $251).
From time to time the Company sublets unused space. Sublease payments of $11
were received during 2017 (2016 - $54).
33
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
18.
Related party transactions and balances:
On May 10, 2017 the Company announced the closing of the 2017 Notes, $242 of
such 2017 Notes having been subscribed for by officers and directors of the Company.
During April 2017, 1,125,000 of the warrants were exercised by officer and director of
the Company for a total proceeds of $90. The exercise prices of the warrants were
$0.08 per share.
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, 2017 and 2016 was as follows:
Short-term employee benefits
Share-based payments
2017
2016
$
$
534 $
15
549 $
535
1
536
19. 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
$
2017
(402) $
74
(396)
3
2016
(177)
53
(123)
(12)
$
(721) $
(259)
34
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2017 and 2016
20.
Subsequent event
Subsequent to December 31, 2017, certain promissory note holders exercised
7,582,577 bonus warrants to acquire 7,582,577 common shares of the Company, at
an exercise price of $0.08 and $0.13 per share for total proceeds of $611.
On February 19, 2018, the Company closed a debt financing of $1,534 non-convertible
secured promissory notes (the “2018 Notes) to certain arm’s length and non-arm’s
length lenders. The 2018 Notes bear interest at a rate of 10% per annum, calculated
annually, and mature August 19, 2019. A total of $889 of the 2015 Notes were repaid.
The remaining $1,295 plus interest of $238 was extended to August 19, 2019.
In connection with the 2018 Notes, the lender received up to 2,300,578 non-
transferable warrants (the “2018 Bonus Warrants”), with each 2018 Bonus Warrant
being exercisable for a period of eighteen months from the date of issuance for one
common share of the Company at an exercise price of $0.60 per common share. All
2018 Bonus Warrants will be subject to a hold period for four months from the date of
issuance of the Bonus Warrants in accordance with applicable securities law.
35