Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
Years ended December 31, 2018 and 2017
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of EQ Inc.
Opinion
We have audited the consolidated financial statements of EQ Inc., and its subsidiaries (the "Group"),
which comprise the consolidated statements of financial position as at December 31, 2018 and
December 31, 2017 and the consolidated statements of loss and comprehensive loss, changes in
shareholders' deficiency and cash flows for the years then ended, and notes to the consolidated
financial statements, and a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at December 31, 2018 and December
31, 2017, and its consolidated financial performance and its consolidated cash flows for the years
ended December 31, 2018 and December 31, 2017 in accordance with International Financial
Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the
Group in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that EQ Inc.
incurred a total comprehensive loss of $1,830,000 during the year ended December 31, 2018 and, as
of that date, negative cash flows from operations of $1,385,000 and has a working capital deficiency
of $1,023,000. As stated in Note 2, these events or conditions, along with other matters as set forth in
Note 2, indicate that a material uncertainty exists that may cast significant doubt on EQ Inc.'s ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises the
information included in the Management's Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained the Management's Discussion and Analysis prior to the date of this auditor's report. If,
based on the work we have performed, we conclude that there is material misstatement of this other
information, we are required to report that fact in this auditor's report. We have nothing to report in
this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Group's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's financial reporting
process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion,
from error, as
fraud may
forgery,
Obtain an understanding of internal control relevant to the audit 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 Group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group's ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the consolidated financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor's report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Mark Jakovcic.
Chartered Professional Accountants
Licensed Public Accountants
April 30, 2019
Toronto, Ontario
EQ INC.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2018 and 2017
Assets
Current assets:
Cash
Accounts receivable (note 16(a))
Other current assets (note 7(a))
Non-current assets:
Property and equipment (note 8)
Intangible asset (note 3 & 9)
Goodwill (note 3)
Liabilities and Shareholders’ Deficiency
Current liabilities:
Accounts payable and accrued liabilities (note 7(b) and note 10 (a))
Loans and borrowings (note 10)
Deferred revenue (note 7(c))
Earn-out (note 3)
Non-current liabilities:
Earn-out (note 3)
Shareholders’ deficiency
Going concern (note 2(b))
Commitments and contingencies (note 17)
On behalf of the Board:
2018
2017
$
584 $
2,167
293
3,044
125
206
535
891
1,292
64
2,247
137
-
-
$
3,910 $
2,384
1,851
1,577
348
291
4,067
214
4,281
(371)
1,494
3,132
10
-
4,636
-
4,636
(2,252)
$
3,910 $
2,384
“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, 2018 and 2017
Revenue (note 4)
Expenses:
Publishing costs
Employee compensation and benefits
Other operating costs
Depreciation of property and equipment
Amortization of intangible assets
Loss from operations
Transaction costs of acquisition (note 3)
Finance income (note 5)
Gain from extension of loans and borrowings (note 10)
Finance costs (note 5)
Net loss before income taxes
Deferred tax recovery
Other comprehensive income that were reclassified to profit or loss in
subsequent periods (net of tax):
Other comprehensive loss, net of tax
2018
2017
$
5,868 $
5,514
3,137
2,383
1,498
46
59
7,123
(1,255)
(24)
1
-
(622)
2,915
1,931
1,174
29
121
6,170
(656)
-
56
80
(688)
(1,900)
(1,208)
70
-
-
-
Total comprehensive loss
$
(1,830) $
(1,208)
Loss per share:
Basic and diluted
$
(0.05) $
(0.05)
Weighted average number of shares outstanding basic and diluted
40,034,188
23,498,559
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, 2018 and 2017
Common shares
Number of
shares
(note 11)
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total
deficiency
Balance, January 1, 2018
Net loss
Share-based payments (note 13)
Exercise of stock options
(note 11 & 13)
Warrants issued (note 10 (b) & 12)
Exercise of Warrants (note 11)
Warrants exercised
Shares issued for acquisition of
Tapped Networks Inc. (note 3)
Proceeds from private placement
net of issuance costs (note 11)
32,124,203 $
-
-
$
68,730
-
-
$
2,550
-
56
19,666
-
11,727,197
-
2
-
1,149
440
1,000,000
630
2,612,240
1,604
(1)
-
-
-
-
-
440
-
-
-
271
-
(440)
-
-
$
(2,062) $
(71,910) $
-
-
-
-
-
-
-
-
(1,830)
-
-
-
-
-
-
-
(2,252)
(1,830)
56
1
271
1,149
-
630
1,604
Balance, December 31, 2018
47,483,306 $
72,555
$
2,605
$
271
$
(2,062) $
(73,740) $
(371)
Common shares
Number of
shares
15,857,225 $
-
-
Amount
66,278 $
-
-
100,000
-
-
12,349,121
3,817,857
8
-
-
1,387
1,057
32,124,203 $
68,730 $
Balance, January 1, 2017
Net loss
Share-based payments (note 13)
Exercise of stock options
(note 11& 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)
Balance, December 31, 2017
See accompanying notes to consolidated financial statements
Contributed
surplus
Warrants
2,511 $
-
42
(3)
-
-
-
621
-
-
-
162
-
(343)
-
2,550 $
-
440
$
3
Accumulated
other
comprehensive
loss
Deficit
Total
deficiency
$
(2,062) $
(70,691) $
-
-
-
-
-
-
-
(1,208)
-
-
-
(11)
-
-
(2,062) $
(71,910) $
(3,343)
(1,208)
42
5
162
(11)
1,044
1,057
(2,252)
EQ INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
December 31, 2018 and 2017
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 intangible assets
Deferred tax recovery
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 (note 5)
Change in non-cash operating working capital (note 19)
2018
2017
$
(1,830) $
(1,208)
46
59
(70)
-
-
56
(12)
585
(219)
29
121
-
(63)
(80)
42
5
680
(721)
Net cash used in operating activities
(1,385)
(1,195)
Cash flows from financing activities:
Repayment of loans and borrowings (note 10 (b)(c))
Issuance of promissory notes (note 10(b)(c))
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 (note 5)
Acquisition of Tapped Mobile (note 3)
Purchases of property and equipment (note 8)
Net cash from (used) in investing activities
Increase (decrease) in cash
Foreign exchange gain (loss) on cash held in foreign currency
Cash, beginning of year
(2,949)
1,534
1,149
1,604
1
(460)
879
1
213
(28)
186
(320)
13
891
Cash, end of year
$
584 $
(765)
765
1,044
1,057
5
(14)
2,092
1
-
(153)
(152)
745
(5)
151
891
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, 2018 and 2017
1.
Corporate information:
EQ Inc. (“EQ Works”) or (the "Company") uses first-party, location-based behaviour signals,
advanced data analytics, and proprietary software, EQ Works creates and targets customized,
performance-boosting audience segments. Proprietary algorithms and data generate attribution
models that connect consumer behavior in the physical world to consumer behavior in the digital
world, solving complex challenges for brands and agencies. 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:
(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, 2018. The Board of Directors authorized
the consolidated financial statements for issue on April 30, 2019.
(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 total comprehensive losses of $1,830 and negative cash flows
from operations of $1,385 and has a working capital deficiency of $1,023. The Company
will need to raise capital in order to fund its operations. This need may be adversely impacted
by: a lack of available financing. To address its financing requirements, the Company will
seek financing through debt and equity financings and rights offerings from existing
shareholders. The outcome of these matters cannot be predicted at this time. 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.
(c) Functional and presentation currencies:
These consolidated financial statements are presented in Canadian dollars, which is the
functional currency of the Company and its subsidiaries.
5
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(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 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 – The recognition of revenue requires judgement in the assessment
of performance obligation, whether they are distinct and separate, within a contract and
the assessment of recognizing at a point in time or over a period of time. In instances of
bundle contracts, management estimates and allocates the transaction price to each
performance obligation based on its stand-alone selling price. The determination of
whether revenue should be reported on a gross or net basis is based on an assessment
of whether the Company is acting as the principal or an agent in these transactions with
advertisers and involves judgement based on an evaluation of the terms of each
arrangement. While none of the factors individually are considered presumptive or
determinative, in reaching conclusions on gross versus net revenue recognition,
management places the most weight on the analysis of whether the Company controls
the services before they are transferred to the customer.
(iii) Expected credit losses - 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. The Company reviews the components
of these accounts on a regular basis to evaluate and monitor this risk. The Company’s
customers are generally financially established organizations, which limits the credit risk
relating to the customers. In addition, credit reviews by the Company take into account
the counterparty’s financial position, past experience and other factors.
(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.
(v) Earn-out – Acquisition – the fair value of contingent consideration liabilities is based on
the estimated future financial performance of the acquired business. Financial targets
used in the estimation process include certain defined financial targets and realized
internal rates of return.
6
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(d) Use of estimates and judgments (continued):
(vi) 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 recorded through profit or loss at the date of modification. 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) Business combinations:
The acquisition method of accounting is used to account for business combinations regardless
of whether equity instruments or other assets are acquired. The consideration transferred is
the sum of the acquisition-date fair values of the assets transferred, equity instruments issued
or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any
non-controlling interest in the acquiree. For each business combination, the non-controlling
interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or
loss.
On the acquisition of a business, the acquirer assesses the financial assets acquired and
liabilities assumed for appropriate classification and designation in accordance with the
contractual terms, economic conditions, the consolidated entity's operating or accounting
policies and other pertinent conditions in existence at the acquisition-date. Contingent
consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or
liability is recognised in profit or loss. Contingent consideration classified as equity is not
remeasured and its subsequent settlement is accounted for within equity. The difference
between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the
fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the
consideration transferred and the pre-existing fair value is less than the fair value of the
identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is
recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only
after a reassessment of the identification and measurement of the net assets acquired, the
non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's
previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer
retrospectively adjusts the provisional amounts recognised and also recognises additional
assets or liabilities during the measurement period, based on new information obtained about
the facts and circumstances that existed at the acquisition-date. The measurement period
ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the
acquirer receives all the information possible to determine fair value.
7
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(f) 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.
Tapped Networks Inc. (note 3)
Jurisdiction
of incorporation
Ownership interest
December 31, December 31,
2017
2018
Delaware
Ontario
Ontario
Ontario
Ontario
Ontario
Texas
California
Ontario
Ontario
100%
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.
(g) 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.
8
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(h) Financial instruments:
IFRS 9 Financial Instruments (“IFRS 9”): This standard replace IAS 39 Financial Instruments
Recognition and Measurement. This standard sets out revised guidance for classifying and
measuring financial assets and liabilities, introduced a new expected credit loss (“ECL”) model
for calculating impairment of financial assets and includes a reformed approach to hedge
accounting. The standard also requires that when a financial liability at amortized cost is
modified or exchanges, and such modification or exchange does not result in derecognition,
that the adjustment to the amortized cost of the financial liability is recognized in profit or loss.
The Company has adopted IFRS 9 on a retrospective basis without restating comparative
periods.
All financial assets are required to be subsequently measured at amortized cost or fair value
on the basis of the Company’s business model for managing the financial assets and the
contractual cash flow characteristics of the financial assets.
The Company completed a detailed assessment of its financial assets and liabilities as at
January 1, 2018. The following table shows the original classification under IAS 39 and the new
classification under IFRS 9:
Financial assets
Cash and cash equivalents
Accounts receivable
Financial liabilities
Accounts payable and accrued liabilities
Loans and borrowings
Earn-out - acquisition
Original
Classification
(IAS 39)
New
Classification
(IFRS 9)
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVPL
Amortized cost
Amortized cost
FVPL
The adoption of IFRS 9 by the Corporation had no impact on the consolidated financial
statements.
The Company classifies its financial assets in the following measurement categories:
(i) Those to be measured subsequently through fair value (either through other
comprehensive income (“OCI”), or through profit or loss), and
(ii) Those to be measured at amortized cost using the effective interest method.
At initial recognition, the Company measures a financial asset at its fair value plus, in the case
of a financial asset not at fair value through profit or loss (“FVPL”), transaction costs that are
directly attributable to the acquisition of the financial asset. The transaction costs of a financial
asset carried at FVPL are expensed in profit or loss.
Financial instruments at amortized costs: Financial instruments at amortized costs include cash
and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, loan
and borrowings and other current and non-current liabilities. Assets that are held for collection
of contractual cash flows where those cash flows represent solely payments of principal and
interest are measured at amortized costs. When material, interest income from these financial
assets are included in finance income using the effective interest rate method. Impairment
losses are presented as a separate line item in the statement of operations.
9
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(h) Financial instruments (continued):
Equity instruments: The Company subsequently measures all equity instruments at fair value.
Dividends from such investments will be recognized in profit or loss as other income when the
Company’s right to receive payments is established. Changes in the fair value of the financial
assets at FVPL are recognized in other gains or (losses) in the statement of operations as
applicable. Impairment losses (and reversal of impairment losses) on equity investments
measured at FVPL are not reported separately from other changes in fair value.
For assets measured at fair value, gains and losses will be recorded directly in the statement
of operations or OCI. For financial assets other than equities measured at fair value through
other comprehensive income (“FVOCI”) changes in the carrying amount will be recorded in OCI
except for recognition of impairment losses, interest revenue and foreign exchange gain and
losses on the instrument’s amortized cost which are recognized in income. For investments in
equity instruments that are not held for trading, this will depend on whether the Company has
made an irrevocable election at the time of initial recognition to account for the equity instrument
at FVOCI.
When derecognized the cumulative gain or loss in OCI (on non-equity FVOCI financial assets)
is reclassified from equity to income. Interest income is recognized on FVOCI financial assets
using the effective interest method.
Impairment of Financial Assets
The Company assesses on a forward-looking basis the expected credit losses associated with
its debt instruments carried at amortized cost. The impairment methodology applied depends
on whether there has been a significant increase in credit risk.
For accounts receivables, the Company applies the simplified approach permitted by IFRS 9,
which requires ECL to be recognized from initial recognition of the receivables.
10
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(i) 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.
(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.
11
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(j)
Intangible assets:
(i)
Intangible assets:
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
Non-compete
Backlog
(iii) Research and development:
6 years
2 years
Less than 1 year
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, 2018 $43 (2017 - $101) of research and development
costs have been reimbursed from the Scientific Research and Experimental Development
and Industrial Research Assistance Tax Incentive Program recorded a as part of
employee compensation and benefits in profit or loss.
12
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(k) 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 expected
credit losses accounts, with the loss recognized in the statement of profit or loss.
On January 1, 2018, the Company adopted IFRS 9, resulting in changes in accounting
policies for financial instruments. In accordance with the transition provisions, the
Company has adopted the standard rules retrospectively. There were no adjustments to
the amounts recognized in the consolidated financial statements on adoption of the new
standard. For trade and other receivables, the Company applies the simplified approach
permitted by IFRS 9, Financial Instruments, which requires expected lifetime losses to be
recognized at the time of initial recognition of the receivables. There was no impact due to
this change in accounting policy.
(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.
(l) 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.
13
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(m) 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.
(n) Revenue:
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) was adopted by the Company
on January 1, 2018. This standard replace IAS 11 Construction Contracts, IAS 18 Revenue
and IFRIC 13 Customer Loyalty Programmes. IFRS 15 introduces a single comprehensive
model for recognizing revenues from contracts with customers. The standard requires revenue
to be recognized in a manner that depicts the transfer of promised services to a customer at
an amount that reflects the consideration expected to be received in exchange for transferring
those services.
The application of this new standard had no impact on the reported results, specifically with
regard to the timing of recognition and classification of revenues. There was no impact on the
cash flows from operating activities as a result of adopting this standard.
As a result of adopting this standard, the consolidated financial statements include
disaggregation of revenues by activity, the nature of services provided, and the timing of
revenue recognition, including disclosures relating to certain contract assets and liabilities. The
Company adopted IFRS 15 using a modified retrospective method, which involves not
restating periods prior to the date of initial application.
Revenue is recognized based on the five-step model outlined in IFRS 15:
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.
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 performs a credit
check with an independent credit agency and checks 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
all amounts are collected.
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. The Company is acting as the principal in these arrangements and therefore
revenue earned and costs incurred are recognized on a gross basis as the Company has
control and is responsible for fulfilling the advertisement delivery, establishing the selling prices
and the delivery of the advertisements for fully managed revenue, providing training and
updates for the self- serve proprietary platform and performing all billing and collection
activities.
14
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(n) Revenue (continued):
The timing of revenue recognition sometimes differs from the contract payment schedule,
resulting in revenues that have been billed but not earned which are recorded as contract
liabilities. As at December, 31, 2018 the Company had $348 (2017 - $10) in contract liabilities.
In instances where the Company collects payment in advance and there is a significant
financing component, the practical expedient is applied as the period from delivery of the
goods or services is within one year of when the customer pays. No adjustment is made to the
transaction price. The practical expedient is also applied to commission contract costs and
these are expensed as incurred.
Advertising Services
The Company generates revenue from the delivery of targeted digital media solutions,
enabling advertisers to connect intelligently with their audiences across online display, video,
social and mobile campaigns using its Programmatic Marketing Platform. The Company offers
its services on a fully-managed and a self-serve basis. In instances of self-serve basis, the
Company also provides its customers with access to the Programmatic Marketing Platform
which includes promises related to hosting and support services. These arrangements are
evidenced by a fully excuted 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 based on client needs. Performance obligation
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 purchases). These payment models are
commonly referred to as cost per impression (“CPM”), cost per click (“CPC”) and cost per
action (“CPA”). The performance obligations are satisfied over time as the volume of
impressions are delivered up to the contractual maximum for fully-managed revenue and the
delivery of impressions for self-serve. Revenue is recognized over time using the output
method when the performance obligations are satisfied. Typically, campaigns run for a period
of one to three months and are billed at the end of the month.
Fixed Fee Data Sales
The Company provides customers with research and analytics of data. The Company has
concluded that these promises are not distinct and are recognized as one performance
obligation. The IOs will specify the fixed fee arrangement to be delivered over an agreed upon
price. Revnue is recognized as the performance obligation are satisfied over time as the
services are provided to the customer. Typically this service is bundled with advertising
services and campaigns are generally for a period of one month and are billed at the end of
the month.
CPM Data Sales
The Company provides customers with the ability to track the effectiveness of advertisements.
The payment model is measured based on the number of impressions for results achieved
through the tracking. The performance obligation are satisfied over time as the volume of
impressions are delivered up to the contractual maximum. Revenue is recognized over time
using the output methos when the performance obligations are satisfied. Typically, campaigns
run for a period of one to three months and are billed at the end of the month.
Other Services
The Company provides customers with consultation services to improve advertisement
effectiveness and performance. These services are fixed fee arrangements for specified
consulting services and each project is considered distinct. Each performance obligation is
satisfied over time as the services are provided to the customer. Revenue is recognized using
the input method for time incurred compared to the estimated time for specified services.
15
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(o) Lease payments:
Payments made under operating leases are recognized in profit or loss on a straight-line basis
over the term of the lease. Lease incentives received are recognized as an integral part of
the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance
cost and the reduction of the outstanding liability. The finance cost is allocated to each
period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Contingent lease payments are accounted for in the period in which they are incurred.
(p) 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).
16
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(q) Income taxes:
Income tax expense for the year comprises current and deferred income taxes. Current taxes
and deferred taxes are recognized in the consolidated statements of comprehensive income (loss),
except to the extent that they relate to items recognized in OCI or directly in equity. In these cases,
the taxes are also recognized in OCI or directly in equity, respectively.
The Company uses the asset and liability method of accounting for deferred income taxes. Under
this method, the Company recognizes deferred income tax assets and liabilities for future income
tax consequences attributable to temporary differences between the consolidated 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.
An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
(a) the entity has a legally enforceable right to set off current tax assets against current
tax liabilities; and
(b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied
by the same taxation authority on either:
(i)
the same taxable entity; or
(ii) different taxable entities which intend either to settle current tax liabilities and assets on a
net basis, or to realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are expected to be
settled or recovered
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.
17
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
2.
Significant accounting policies (continued):
(q) Income taxes (continued):
The Company establishes provisions related to tax uncertainties where appropriate, based on its
best estimate of the amount that will ultimately be paid to or received from tax authorities.
(r) 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.
(s) 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, 2019:
(i)
(ii)
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.
IFRS 23 Uncertainty over Income tax treatments (“IFRS”): this interpretation clarifies how
to apply the recognition and measurement requirements of IAS 12 Income Taxes for taxable
profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates to determine
current or deferred tax asset or liability when there is uncertainty over income tax
treatments. The Company will adopt IFRIC 23 on January 1, 2019.
18
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
3.
Acquisition:
On October 15, 2018, the Company completed the purchase of 100% of the shares of Tapped Networks
Inc. (“Tapped Mobile”), an Ontario based company. Tapped’s marketing solutions enables and expand
the Company’s offering and enter into new markets as the Company continue to help the Company’s
clients drive better business results. Pursuant to the purchase and effective upon closing, Tapped
Mobile became a wholly owned subsidiary of EQ Inc. and all issued and outstanding common shares
of Tapped Mobile were transferred to EQ Inc. The total consideration was up to $3,500 through the
issuance of 1,000,000 common shares at a price of $0.63 to the shareholders of Tapped Mobile and
additional cash consideration of up to $2,800 to be paid out over the following 24 months based on
certain performance thresholds being met.
The acquisition has been accounted for as a business combination with EQ Inc. as the acquirer.
Transaction costs of $24 associated with the acquisition were expensed.
The allocation of the purchase consideration was as follows:
Allocation
Cash and cash equivalents
Accounts receivable
Other current and non-current assets
Fixed assets
Intangible assets
Goodwill
Current liabilities
Deferred revenue
Deferred tax liability
Net assets acquired
Purchase consideration:
Consideration in the Company’s common shares
(1,000,000 common shares)
Contingent consideration (“Earn-out”)
Working capital adjustment
Purchase consideration
$
213
758
33
6
265
535
(385)
(389)
(70)
966
$
630
505
(169)
966
The acquisition agreement provides for contingent consideration payment up to $2,800, based on
achievement of certain predetermined revenue and gross profits targets, in the 24-months period
following the closing of the acquisition to a maximum total compensation paid to the former shareholders
of Tapped Mobile up to $3,500. The Company has estimated the Earn-out to be $319 and $281 in the
first and second year of the contingent consideration period, respectively. The estimated Earnout
consideration was fair valued by discounting the after-tax cash flow over the life of the capital payment
period of two years at a discount rate of 18% to be $505 and was recognized at December 31, 2018.
As at December 31, 2018, the Company recognized goodwill of $535 arising from the acquisition of
Tapped Mobile, on October 15, 2018. The acquisition of Tapped Mobile will provide increased scale to
the Company’s existing business and additional sales presence to better service the Canadian market
and pursue strategic new partnership opportunities with some of North America’s leading company’s for
mobile and digital marketing solutions.
Goodwill is impaired if the recoverable amount is less than the carrying amount. The recoverable amount
of an asset is the higher of its fair value less costs to sell and value in use.
19
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
3.
Acquisition (Continued):
The Company uses estimates in determining the recoverable amount of goodwill. The determination of
the recoverable amount for the purpose of impairment testing requires the use of significant estimates,
such as: future cash flows; terminal growth rates; and discount rates.
The Company has not identified any goodwill impairments as at December 31, 2018.
As at December 31, 2018, the Company tested for an impairment on the accounts receivable, other
current and non-current assets, fixed assets, current liabilities and deferred revenue. Based on the
impairment test all of the assets were carried at recoverable amount.
The majority of the Tapped Mobile customers are located in Canada. As at December 31, 2018, the
expected credit losses was $7 from the opening accounts receivable of $758. The Company reviews
the components of these accounts on a regular basis to evaluate and monitor this risk. The Company’s
customers are generally financially established organizations, which limits the credit risk relating to the
customers.
As at December 31, 2018, The Company included $427 of revenue from Tapped Mobile and a net loss
of $47 was realized.
4.
Segment information:
The Company’s management and chief operating decision maker reviews performance of the
Company on a consolidated basis and has integrated its services as one operating segment, which
provides real-time technology and advance analytics to improve performance for all web, mobile,
social and video advertising initiatives and 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.
The Company generates revenue across three geographical regions; customer revenue by
region is as follows:
Canada
United States
Outside North America
$
2018
5,279 $
588
1
2017
4,622
888
4
$
5,868 $
5,514
In 2018, there were two customers that comprised 34% and 13%, respectively, of the Company's
total revenue from operations. In 2017, there were two customers that comprised 14% and 14%,
respectively of the Company's total revenue from operations.
20
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
4.
Segment information (Continued):
The Company generates revenue across four streams is as follows:
Advertising Services
Fixed Fee Data Sales
CPM Data Sales
Other Services
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)
Foreign exchange loss, net
Total finance costs
6.
Income taxes:
(a) Income tax expense:
$
2018
4,934 $
415
334
185
2017
5,075
133
42
264
$
5,868 $
5,514
2018
2017
1
-
1
1
55
56
2018
2017
(6)
(362)
(223)
(31)
(622)
(7)
(446)
(235)
-
(688)
The following table reconciles income taxes calculated at combined Canadian federal and
provincial tax rates with the income tax expense in these consolidated financial statements:
2018
2017
Loss before income taxes
Statutory rate
$
(1,900) $
26.5%
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 in rates
Change deferred taxes not recognized
(503)
9
411
(190)
343
(1,208)
26.5%
(320)
(210)
689
-
(159)
Deferred tax recovery $
70 $ -
21
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
6.
Income taxes (Continued):
(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:
2018
2017
Amounts related to tax loss and SRED costs
97,235
Property and equipment and intangible assets 259 425
22 9
Share issue cost
97,669
98,961 $
98,680 $
$
$
The Company also has non-capital losses of approximately $40,140 expiring as follows:
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
$
3,344
932
3,642
9,614
3,077
14,547
1,974
1,768
998
244
$ 40,140
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.
22
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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
Other receivables
2018
2017
$
$
61 $
63
169
293 $
42
22
-
64
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
(c) Deferred revenue:
Outstanding, beginning of the year
Addition
Acquisition of Tapped Mobile
Earned
2018
1,399 $
452
1,851 $
2018
10 $
105
389
(156)
348 $
2017
1,276
218
1,494
2017
7
752
-
(749)
10
$
$
$
$
23
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
8.
Property and equipment:
Cost
Balance, January 1, 2017
Additions
Disposal
Balance, December 31, 2017
Cost
Balance, January 1, 2018
Additions
Acquisition (note 3)
Balance, December 31, 2018
Depreciation
Balance, January 1, 2017
Depreciation
Disposal
Balance, December 31, 2017
Depreciation
Balance, January 1, 2018
Depreciation
Balance, December 31, 2018
Carrying amounts
December 31, 2017
December 31, 2018
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
Total
$
$
$
$
$
$
$
$
$
$
1,192
26
(1,184)
34
34
–
2
36
1,190
7
(1,184)
13
13
9
22
$
$
$
$
$
$
$
$
4,616 $
32
(4,600)
48 $
496
100
(496)
100
48 $
28
4
80 $
100
–
–
100
4,610 $
7
(4,600)
17 $
496
15
(496)
15
17 $
17
34 $
15
20
35
$
$
$
$
$
$
$
$
6,304
158
(6,280)
182
182
28
6
216
6,296
29
(6,280)
45
45
46
91
21
$
31 $
85
$
137
14
$
46 $
65
$
125
24
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
9.
Intangible assets:
Cost
Balance
January 1, 2018
Acquisition (note 3)
Balance,
Customer
relationships
Non-compete
Backlog
Total
$
$
–
190
$
–
25
$
–
50
December 31, 2018
$
190
$
25
$
50
$
Amortization
Balance,
Customer
relationships
Non-compete
Backlog
Total
January 1, 2018
$
Amortization
Balance,
–
6
–
$
3
$
$
–
50
December 31, 2018
$
6
$
3
$
50
$
–
265
265
–
59
59
Carrying amounts
Balance,
December 31, 2017
$
–
$
–
Balance,
December 31, 2018
$
184
$
22
$
$
–
$
–
– $
206
25
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
10.
Loans and borrowings:
(a) Bank credit facility:
The Company has a revolving line of credit and credit card facility with a Canadian chartered
bank of $60. As at December 31, 2018, $47 (2017 - $56) was outstanding under the credit
card facility included in accounts payable. The aggregate of available borrowings under all
facilities cannot exceed $110 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. The line of credit is up to $50 with interest
at the bank’s prime rate plus 1% per annum.
(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. The Company cancelled
the existing non-transferable 2015 Bonus Warrants with new warrants (“2015 Extended Bonus
Warrants”) on a one-for-one basis. On February 18, 2018, the 2015 Notes were fully repaid.
26
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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 bore interest at a rate of 8% per annum,
calculated annually, and had a maturity date of February 18, 2018.
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. All 2016 Bonus Warrants are subject to a four months hold period from
the date of issuance in accordance with the applicable securities law.
On May 10, 2017, the Company partially settled $490 of the 2015 and 2016 Notes. On
February 18, 2018, the 2016 Notes were fully repaid.
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 issuance 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.
On December 31, 2018, the 2017 Notes were fully repaid.
27
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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.
On February 19, 2018, the Company entered into new promissory notes (the ‘2018 Notes’) in
the amount of $1,534 due on August 19, 2019. The 2018 Notes, which are non-convertible,
bear interest at a rate of 10% with principal and interest due on the maturity date. The lenders
received one and half non-transferable warrants (the “2018 Bonus Warrants”) for each dollar
of principal amount of 2018 Notes, 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
four month hold period from the date of issuance in accordance with applicable securities law.
The 2018 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 26.47% effective
interest rate 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
2018 Notes, 10% Maturing August 2019
Equity component of promissory notes payable
Accrued interest and interest paid
Accretion in carrying amount of notes
2018
2017
$
- $ 1,243
-
1,046
-
765
1,534
-
(271)
(480)
1,263
134
180
2,574
242
316
Balance end of year
$
1,577
$
3,132
28
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
10.
Loans and borrowings (continued):
(b) Promissory notes payable (continued):
The following table outlines the activity for loans and borrowings
Promissory notes balance, January 1,
Promissory notes (2018 Notes)
Repayment of promissory notes (2015, 2016 and 2017 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
(c) Change in liabilities arising from financing activities:
Balance, January 1, 2017
Net cash from financing activities
Balance, December 31, 2017
Net cash used in financing activities
Balance, December 31, 2018
11.
Common shares:
2018
3,132 $
1,534
(2,949)
(271)
362
-
-
223
(454)
1,577
2017
2,689
765
(765)
(162)
446
(80)
11
235
(7)
3,132
Loans and borrowings
$ 2,810
215
3,025
(1,560)
$ 1,465
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.
On June 29, 2018, the Company closed a private placement, resulting in the issuance 1,535,000
common shares of the Company at a price of $0.60 per share, resulting in proceeds of $914, net
of issuance costs of $7.
On October 15, 2018, the Company issued 1,000,000 common shares at a price of $0.63 for
consideration of Tapped Mobile. (Note 3)
29
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
11.
Common shares (continued):
On December 31, 2018, the Company closed the first tranche of a private placement, resulting in
the issuance of 1,077,240 common shares of the Company at a price of $0.65 per common share,
resulting in proceeds of $690 net of issuance costs of $10. The second tranche was closed on
January 9, 2019. (Note 20)
During 2017, the Company received proceeds of approximately $1,044 as a result of the exercise
of 12,349,121 warrants, each warrants was converted into one common share. The bonus warrants
were issued in connection with the Company’s 2016 Notes and 2017 Notes, with expiry dates of
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 2018, the Company received proceeds of approximately $1,149 as a result of the exercise
of 11,727,197 warrants. Each warrant was converted into one common share. The bonus warrants
were issued in connection with the Company’s 2016 Notes and 2017 Notes, with expiry dates of
February 18, 2018 and December 31, 2018, respectively. 7,502,854 of 2016 Bonus Warrants at
$0.08 and 4,224,343 of 2017 Bonus Warrants at $0.13 were exercised.
During 2018, 19,666 stock options were exercised into 19,666 common share with an exercise
price of $0.05 for a total proceeds of $1. During 2017, 100,000 stock options were exercised into
100,000 common share with an exercise price $0.05 for a total proceeds of $5.
12. Warrant Capital:
The Company had the following warrants outstanding at December 31, 2018
2018
2017
Number of
warrants
Weighted
average
exercise
price
Number of
warrants
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
11,727,197 $
2,300,578
(11,727,197)
0.10
0.60
0.10
18,722,074 $
5,354,244
(12,349,121)
0.08
0.13
0.08
Outstanding, end of year
2,300,578 $
0.60
11,727,197 $
0.10
30
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
13.
Share-based payments:
The following table summarizes the continuity of options issued under the Company’s stock
option plan (the “Plan”) for the year ended:
2018
2017
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
1,405,000 $
301,500
(19,666)
(35,000)
0.06
0.74
0.05
0.47
1,305,000 $
385,000
(100,000)
(185,000)
Outstanding, end of year
1,651,834 $
0.19
1,405,000
0.05
0.12
0.05
0.10
0.06
Options exercisable, end of year
1,060,334 $
0.12
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
2018
Weighted
average
remaining
contractual
life (years)
$0.05
$0.47
$0.60 – 0.69
$0.70 – 0.79
1,350,334
-
51,500
250,000
3.0
-
4.8
4.8
Number of
options
exercisable
960,334
-
-
100,000
Number
of options
1,370,000
35,000
-
-
2017
Weighted
average
remaining
contractual
life (years)
3.9
4.8
-
-
Number of
options
exercisable
501,667
-
-
-
During 2018, the Company recorded share-based payments of $56 (2017 - $42).
31
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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, 2018 December 31, 2017
Dividend yield
Expected volatility (historical data basis)
Risk-free interest rate
Share price
Forfeiture rate
Expected life (years)
0%
122%
2.29%
$ 0.74
50%
5 years
0%
154%
0.72%
$ -
50%
5 years
Weighted average grant date fair value
$ 0.61
$ 0.13
14.
Fair values of financial instruments:
(a) Classification of financial instruments:
The following table provides the allocation of financial assets and liabilities required
to be measured at amortized cost or fair value and their carrying values:
December 31, 2018
Measurement basis
Financial assets at amortized cost:
Cash
Accounts receivable
Financial liabilities at amortized cost:
Accounts payable and accrued
liabilities
Loans and borrowings
Earn-out at fair value
Carrying value
total
Fair value
total
$
584
2,167
$
584
2,167
$
2,751
$
2,751
$
$
1,851
1,577
3,428
505
1,851
1,524
3,375
505
$
3,933
$
3,880
32
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
14.
Fair values of financial instruments (continued):
(a) Classification of financial instruments: (continued)
December 31, 2017
Measurement basis
Financial assets at amortized cost:
Cash
Accounts receivable
Financial liabilities at amortized cost:
Accounts payable and accrued liabilities
Loans and borrowings
Carrying value
total
Fair value
total
$
$
$
$
891
1,292
$
891
1,292
2,183
$
2,183
1,494
3,132
$
1,494
3,132
4,626
$
4,626
There have been no transfers of assets between levels during the years ended December
31, 2018 and 2017.
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
2018 from 2017.
33
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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, 2018, one customer represented 34% of the gross accounts
receivable balance of $2,199. At December 31, 2017, three customers represented 25%,
13% and 11% of the gross accounts receivable balance of $1,273, respectively. No other
individual customers represented more than 10% of accounts receivable. As at December
31, 2018, the expected credit losses was $32 (2017 - $22). The Company reviews the
components of these accounts on a regular basis to evaluate and monitor this risk. The
Company’s customers are generally financially established organizations, which limits the
credit risk relating to the customers. In addition, credit reviews by the Company take into
account the counterparty’s financial position, past experience and other factors. As at
December 31, 2018, approximately 86%, $202 (2017 – 69%, $51) of accounts receivable
balances over 90 days were not impaired. The consolidated entity has a credit risk exposure
with an agency located in Canada, which as at 31 December 2018 owed the consolidated
entity $757 (34% of trade receivables) (2017: $316 (25% of trade receivables).This balance
was within its terms of trade and no impairment was made as at 31 December 2018. The
Company’s payment terms range from 30 days to 60 days from the invoice date. There are
no guarantees against this receivable but management closely monitors the receivable
balance on a monthly basis and is in regular contact with this customer to mitigate risk.
Management believes that the expected credit loss 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, 2018 is not subject to external
restrictions and is held with Schedule I banks in Canada.
34
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
16.
Financial risk management (continued):
(b) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as
they become due. The Company's approach to managing liquidity is to ensure, to the
extent possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Company's reputation. The Company manages its liquidity risk by continually
monitoring forecasted and actual revenue and expenditures and cash flows from
operations. Management is also actively involved in the review and approval of planned
expenditures. The Company's principal cash requirements are for 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.
The following are the undiscounted contractual maturities for the Company’s obligations:
2018
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other
payables(i)
Operating leases
Loans and borrowings
Earn-out
$
1,851 $
1,851 $
1,851 $
- $
632
1,577
505
632
1,763
600
184
1,763
291
410
-
214
$
4,565 $
4,846 $
4,089 $ 624 $
-
38
-
-
38
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 $
720
3,132
1,494 $
720
3,403
1,494 $
167
3,403
- $
523
-
$
5,346 $
5,617 $
5,064 $ 523 $
(i) Trade and other payables exclude other non-contractual liabilities
-
30
-
30
35
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
16.
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:
The Company’s interest rate risk arises primary from its loans and borrowings
obligations, which bear a fixed interest rate of 10%. Management believes that the
Company is not significantly exposed to cash flow interest rate risk in the next twelve
months.
(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.
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 $28
(2017 - $75) 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
Accounts payable and accrued liabilities
2018
US
$
$
134
154
504
2017
US
124
49
774
36
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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
2018
2017
$
$
184 $
448
-
632 $
167
553
-
720
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 2018, a net amount of $204 was recognized as an expense in profit or loss in respect of
operating leases (2017 - $90).
From time to time the Company sublets unused space. Sublease payments of $1 were received
during 2018 (2017 - $11).
18.
Related party transactions and balances:
On February 19, 2018, $773 of the 2018 Notes were subscribed for by officers and directors of
the Company.
During 2018, 5,782,537 of warrants at exercise price of $0.08 were exercised by officers, directors
and a company controlled by a director of the Company for a total proceeds of $463 and 1,693,308
warrants at exercise price of $0.13 were exercised for total proceeds of $220.
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, 2018 and 2017 was as follows:
Short-term employee benefits
Share-based payments
2018
2017
$
$
525 $
40
565 $
534
15
549
37
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2018 and 2017
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
$
2018
(101) $
(27)
(25)
(66)
2017
(402)
74
(396)
3
$
(219) $
(721)
20.
Subsequent events
On January 1, 2019, the Company amalgamated Cyberplex Ontario Holdings Inc. into EQ Inc.
and amalgamated CX Digital Media Inc., Cyberplex Services Inc., 1887811 Ontario Inc. and
Bootcamp Media Inc. into EQ Advertising Group Ltd.
On January 9, 2019, the Company closed the second tranche of a private placement,
resulting in the issuance of 276,924 common shares of the Company at a price of $0.65
per common share, resulting in gross proceeds of $180.
38