Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
Years ended December 31, 2020 and 2019
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of EQ Inc.
Opinion
We have audited the consolidated financial statements of EQ Inc. (the "Company"), which comprise
the consolidated statements of financial position as at December 31, 2020 and 2019 and the
consolidated statements of loss and comprehensive loss, changes in shareholders' equity and cash
flows for the years then ended, and notes to the consolidated financial statements, including 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 Company as at December 31, 2020 and 2019, and
its consolidated financial performance and its consolidated cash flows for the years then ended 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
Company 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.
Other Information
Management is responsible for the other information. The other information comprises the
Management's Discussion and Analysis, but does not include the financial statements and our
auditor's report thereon.
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 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 a material misstatement of this
other information, we are required to report that fact. 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
Company'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 Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company'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 Company'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 Company'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 Company 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.
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 15, 2021
Toronto, Ontario
EQ INC.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2020 and 2019
Assets
Current assets:
Cash
Accounts receivable (note 18(a))
Other current assets (note 9(a))
Non-current assets:
Property and equipment (note 10)
Right-of-use asset (note 5)
Intangible asset (note 2(l), 3 & 11)
Goodwill (note 3 & 4)
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (note 9(b) & 12 (a))
Lease liability (note 5)
Loans and borrowings (note 12(c))
Contract liabilities (note 9(c))
Earn-out (note 3 (a))
Non-current liabilities:
Lease liability (note 5)
Loans and borrowings (note 12 (b))
Shareholders’ equity
On behalf of the Board:
2020
2019
$
3,209 $
4,572
197
7,978
102
76
1,096
732
3,691
2,060
197
5,948
102
146
537
535
$
9,984 $
7,268
2,908
132
1,989
86
222
5,337
18
80
5,435
4,549
1,705
70
-
24
256
2,055
88
1,603
3,746
3,522
$
9,984 $
7,268
“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, 2020 and 2019
Revenue (note 6)
Expenses:
Publishing costs
Employee compensation and benefits
Other operating costs
Depreciation of property and equipment
Depreciation of right-of-use asset (note 5)
Amortization of intangible assets
Impairment of goodwill and intangible assets (note 4 and 11)
Loss from operations
Transaction costs of acquisition (note 3 (b))
Additional contingent consideration (note 3 (b))
Finance income (note 7)
Finance costs (note 7)
2020
2019
$
10,421 $
8,965
5,698
4,622
2,061
71
70
228
655
13,405
(2,984)
(32)
85
42
(538)
5,015
3,026
1,726
54
76
44
-
9,941
(976)
-
(406)
3
(535)
Net loss
(3,427)
(1,914)
Total comprehensive loss
$
(3,427) $
(1,914)
Loss per share:
Basic and diluted
$
(0.06) $
(0.04)
Weighted average number of shares outstanding basic and diluted
56,959,951
48,331,260
See accompanying notes to consolidated financial statements
2
EQ INC.
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
Common shares
Number of
shares
(note 13)
Amount
Contributed
surplus
Warrants
Balance, January 1, 2020
Net loss
Share-based payments (note 15)
Exercise of stock options
(note 13 & 15)
Exercise of warrants (note 13 & 14)
Warrants exercised
Expiry of warrants (note 12 & 13)
54,914,426 $
-
-
$
77,411
-
-
$
2,975
-
678
181,500
3,816,082
-
-
215
3,658
639
-
(97)
-
-
3
852
-
-
-
-
(639)
(3)
Accumulated
other
comprehensive
loss
$
(2,062) $
-
-
-
-
-
-
Deficit
Total equity
(75,654) $
(3,427)
-
3,522
(3,427)
678
-
-
-
-
118
3,658
-
-
Balance, December 31, 2020
58,912,008 $
81,923
$
3,559
$
210
$
(2,062) $
(79,081) $
4,549
See accompanying notes to consolidated financial statements
3
EQ INC.
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
Common shares
Number of
shares
(note 13)
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total equity
Balance, January 1, 2019
Net loss
Share-based payments (note 15)
Exercise of stock options
(note 13 & 15)
Warrants issued (note 12 (b), 13 &
14)
Exercise of warrants (note 13 & 14)
Warrants exercised
Expiry of warrants (note 12)
Proceeds from private placement
(note 13)
Share issuance costs (note 13)
Finders’ warrants (note 13)
47,483,306 $
-
-
$
72,555
-
-
$
2,605
-
155
21,332
-
466,198
-
-
6,943,590
-
-
4
-
280
55
-
4,593
(76)
-
(1)
-
-
-
216
-
-
-
-
271
-
-
-
257
-
(55)
(216)
587
-
8
$
(2,062) $
(73,740) $
-
-
-
-
-
-
-
-
-
-
(1,914)
-
-
-
-
-
-
-
-
-
(371)
(1,914)
155
3
257
280
-
-
5,180
(76)
8
Balance, December 31, 2019
54,914,426 $
77,411
$
2,975
$
852
$
(2,062) $
(75,654) $
3,522
See accompanying notes to consolidated financial statements
4
EQ INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
December 31, 2020 and 2019
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation of property and equipment
Depreciation of right-of-use asset
Amortization intangible assets
Share-based payments (note 15)
Unrealized foreign exchange loss (gain)
Additional contingent consideration
Transaction costs of acquisition
Impairment of goodwill and intangible assets
Finance cost, net
Change in non-cash operating working capital (note 20)
2020
2019
$
(3,427) $
(1,914)
71
70
228
678
(4)
(85)
32
655
529
(1,492)
54
76
44
155
19
406
-
-
533
(417)
Net cash used in operating activities
(2,745)
(1,044)
Cash flows from financing activities:
Repayment of obligations under property lease
Loans and borrowings (note 12(b))
Issuance of promissory notes
Proceeds from exercise of warrants (note 13)
Proceeds from private placement (note 13)
Share issuance costs (note 13)
Proceeds from exercise of stock options (note 15)
Interest paid
Net cash from financing activities
Cash flows from investing activities:
Interest income received (note 7)
Acquisition
Transaction costs of acquisition
Earn-out payout (note 3 (a))
Purchases of property and equipment (note 10)
Addition of intangible asset (note 11)
Net cash used in investing activities
Increase (decrease) in cash
Foreign exchange gain (loss) on cash held in foreign currency
Cash, beginning of year
(17)
80
-
3,658
-
-
118
(4)
3,835
8
(850)
(32)
(59)
(68)
(575)
(1,576)
(486)
4
3,691
(184)
-
183
280
5,180
(68)
3
(246)
5,148
2
169
-
(744)
(30)
(375)
(978)
3,126
(19)
584
Cash, end of year
$
3,209 $
3,691
See accompanying notes to consolidated financial statements
5
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
1.
Corporate information:
EQ Inc. (“EQ Works”) or (the "Company") enables businesses to better understand, predict, and
influence customer behavior. Using unique data sets, advanced analytics, machine learning and
artificial intelligence, the Company creates actionable intelligence for businesses to attract, retain,
and grow the customers that matter most. Through its proprietary SaaS technology platforms,
LOCUS and ATOM, the Company is able to ingest, enrich, analyze and action upon receipt of
large quantities of data. 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, 2020. The Board of Directors authorized the
consolidated financial statements for issue on April 15, 2021.
(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.
(c) Risk and uncertainties:
Since December 2019, the outbreak of the novel strain of coronavirus, specifically identified
as “COVID-19”, has resulted in government worldwide enacting emergency measures to
combat the spread of the virus. These measures, which include the implementation of travel
bans, self-imposed quarantine periods and social distancing, have caused material disruption
to businesses globally resulting in an economic slowdown, Global equity markets have
experienced with significant volatility and weakness. Governments and central banks have
reacted with significant monetary and fiscal interventions designed to stabilize economic
conditions. The extent to which COVID-19 and other pandemic or public health crisis impacts
the Company’s business, affairs, operations, financial condition, liquidity, availability of credit
and results of operations will depend on future developments that are highly uncertain and
cannot be predicted with any meaningful precision, including new information which may
emerge concerning the severity of the COVID-19 virus and the action required to contain the
6
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(c) Risk and uncertainties (continued):
COVID-19 virus or remedy its impact, among others. The duration and impact of the COVID-
19 outbreak is unknown this time, as is the efficacy of the government and central bank
interventions. As with most other industries, the year ended December 31, 2020, was
challenging as our media business had campaigns paused or reduced due to COVID-19. Our
response to the pandemic, in terms of investments, cost saving measures and productivity has
been strong resulting in improved results throughout the second half of the year. It is not
possible to reliably estimate the length and severity of these developments and the impact on
the financial results and condition of the Company and its operating subsidiaries in future
periods.
(d) Functional and presentation currencies:
These consolidated financial statements are presented in Canadian dollars, which is the
functional currency of the Company and its subsidiaries.
(e) 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.
There have been no material revisions to the nature and amount of estimates and judgments
made in prior periods. However, the effects of COVID-19 have required significant judgements
and estimates to be made. For assumptions made by the Company in the estimates made to
calculate the recoverable amount of CGUs, refer to Note 4.
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.
7
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(e) Use of estimates and judgments (continued):
(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.
(vi) Business combinations – IFRS 3, Business Combinations, is applied to account for all
business acquisitions. Identifying the fair value of assets and liabilities acquired, including
intangible assets and residual goodwill requires significant judgement by management
upon acquisition.
8
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(e) Use of estimates and judgments (continued):
(vii) Debt extinguishment - 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.
(f) 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 recognized at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or
liability is recognized 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 recognized 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
recognized 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
9
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(f) Business combinations (continued):
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 recognized and also recognizes 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.
Amendments to IFRS 3, issued in October 2018, provide clarification on the definition of a
business. The amendments permit a simplified assessment to determine whether a
transaction should be accounted for as a business combination or as an asset acquisition.
The amendments became effective for transactions for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or after January 1, 2020. The
amendment had no impact on these consolidated financial statements.
(g) Goodwill:
Goodwill is initially recognized at cost, being the excess of the purchase price of acquired
businesses over the estimated fair value of the tangible and intangible assets acquired and
liabilities assumed at the date acquired, and is allocated to the cash generating unit (“CGU”)
expected to benefit from the acquisition. A CGU is the smallest group of assets for which there
are separately identifiable cash flows.
Subsequently, goodwill and indefinite life intangible assets are not amortized but are assessed
at the end of each reporting period for impairment and more frequently whenever events or
circumstances indicate that their carrying value may not be fully recoverable. The Company
considers the relationship between its market capitalization and its book value, as well as other
factors, when reviewing for indicators of impairment. Goodwill is assessed for impairment
based on the CGUs or group of CGUs to which the goodwill relates. Any potential goodwill
impairment is identified by comparing the recoverable amount of a CGU or group of CGUs to
its carrying value which includes the allocated goodwill. If the recoverable amount is less than
its carrying value, an impairment loss is recognized.
The Company may need to test its goodwill for impairment between its annual test dates if
market and economic conditions deteriorate or if volatility in the financial markets causes
declines in the Company’s share price, increases the weighted average cost of capital, or
changes valuation multiples or other inputs to its goodwill assessment. In addition, changes in
the numerous variables associated with the judgments, assumptions, and estimates made by
management in assessing the fair value could cause them to be impaired. Goodwill impairment
charges are non-cash charges that could have a material adverse effect on the Company’s
consolidated financial statements but in themselves do not have any adverse effect on its
liquidity, cash flows from operating activities or debt covenants.
10
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(g) Goodwill (continued):
An impairment loss of goodwill is not reversed. For other assets, an impairment loss may be
reversed if the estimates used to determine the recoverable amount have changed. The
reversal is limited so that the carrying amount of the asset does not exceed its recoverable
amount or the carrying amount that would have been determined, net of amortization or
depreciation, had no impairment loss been recognized for the asset in prior years. The reversal
is recognized in the consolidated statements of income.
(h) 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
Jurisdiction
of incorporation
Ownership interest
December 31, December 31,
2019
2020
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 (a))
Delaware
Ontario
Ontario
Ontario
Ontario
Ontario
Texas
California
Ontario
Ontario
100%
-
100%
-
-
-
100%
100%
-
100%
100%
Amalgamated
100%
Amalgamated
Amalgamated
Amalgamated
100%
100%
Amalgamated
100%
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.
(ii) Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and
expenses arising from such transactions, are eliminated upon consolidation.
11
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(i) 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.
(j) Financial instruments:
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, accounts receivable, accounts payable and accrued liabilities, loan and borrowings, lease
liability 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.
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.
12
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(j) Financial instruments (continued):
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.
(k) 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.
13
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(k) 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.
(l)
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.
Intangible assets are recorded at cost when internally generated and at fair value when
acquired during a business acquisition. Intangible assets are amortized over their
estimated useful lives.
Software platform: Certain costs incurred in connection with the development of software
to be used internally is capitalized once a project has progressed beyond a conceptual,
preliminary stage to that of application development. Development costs that are directly
attributable to the design and testing of identifiable and unique software products
controlled by the Company are recognized as intangible assets when the following criteria
are met;
1. It is technically feasible to complete the software product so that it will be available for
use;
2. Management intends to complete the software product and use or sell it;
3. There is an ability to use or sell the software product;
4. It can be demonstrated how the software product will generate probable future
economic benefits;
14
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(l)
Intangible assets (continued):
(i)
Intangible assets (continued):
5. Adequate technical, financial and other resources to complete the development and to
use or sell the software product are available;
6. The expenditure attributable to the software product during its development can be
reliably measured.
Costs that qualify for capitalization include both internal and external costs.
(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
Software
Non-compete
Backlog
(iii) Research and development:
6 years
3 years
2 years
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.
15
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(l)
Intangible assets (continued):
(iii) Research and development (continued):
For the year ended December 31, 2020 $274 (2019 - $79) of research and development
costs have been reimbursed from the Scientific Research and Experimental Development
and Industrial Research Assistance Tax Incentive Program and recorded as part of
employee compensation and benefits in profit or loss.
(m) 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.
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.
(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.
16
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(n) 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.
Under the Company’s restricted share unit (“RSU”) plan, RSU’s may be granted to directors,
officers, employees and consultants. Compensation expense for each grant is recorded in the
statement of loss and comprehensive loss with a corresponding increase in contributed surplus
on the statement of financial position. The expense is based on the fair values at the time of the
grant and is recognized over the vesting period of the respective RSU. The Company settles
RSU’s by issuing shares.
(o) Warrants:
The Company follows the relative fair value method with respect to the measurement of
common shares and warrants issued as private placement units. The proceeds from the
issuance of units are allocated between share capital and warrants. Unit proceeds are allocated
to shares and warrants using the Black-Scholes option pricing model and the share price at the
time of financing. If and when the warrants are exercised, the applicable relative fair value
recognized in warrants is transferred to share capital. Any consideration paid on the exercise
of the warrants is credited to share capital. For those warrants that expire unexercised on
maturity, the recorded value is transferred to contributed surplus. In situation where warrants
are issued as consideration for goods and services received and some or all of the goods or
services received cannot be specifically identified or reliably measured, then these warrants are
measured at the fair value of the share-based payment. The fair value of the share-based
payment is determined using the Black-Scholes option pricing model.
(p) 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.
17
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(q) Revenue:
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.
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, 2020 the Company had $86 (2019 - $24) 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.
18
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(q) Revenue (continued):
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
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 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. Revenue 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 methods 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.
19
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(r) Leases:
At inception of a contract, the Company assesses whether a contract is, or contains, a lease.
A contract is, or contains a lease, if it conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To assess whether a contract conveys the
right to control the use of an identified asset, the Company assesses whether:
•
•
•
the contract involves the use of an identified asset – this may be specified explicitly or
implicitly, and should be physically distinct or represent substantially all of the capacity of
a physically distinct asset. If the supplier has a substantive substitution right, then the asset
is not identified;
the Company has the right to obtain substantially all of the economic benefits from use of
the asset throughout the period of use; and
the Company has the right to direct the use of the asset. The Company has this right when
it has the decision-making rights that are most relevant to changing how and for what
purpose the asset is used. In rare cases where all the decisions about how and for what
purpose the asset is used are predetermined, the Company has the right to direct to use
of the asset if either (i) the Company has the right to operate the asset, or (ii) the Company
has designed the asset in a way that predetermines how and for what purpose it will be
used.
If a contract is assessed to contain a lease, the Company recognizes a lease liability with a
corresponding right-of-use (“ROU”) asset on the date at which the leased asset is available for
use by the Company. The lease liability is initially measured at the present value of the lease
payments outstanding at the commencement date, discounted using the interest rate implicit
in the lease. If the implicit rate cannot be readily determined, the Company’s incremental
borrowing rate is used, being the rate that it would have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar economic environment. Generally, the Company
uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost and decreased by lease
payments made over the lease period. It is remeasured when there is a change in future lease
payments arising from a change in an index or rate, a change in the Company’s estimate of
any residual amount payable, or if applicable, the Company changes its assessment of whether
it will exercise a purchase, extension, or termination option.
The ROU asset is depreciated using the straight-line method from the recognition date to the
earlier of the end of the useful life of the asset or the end of the lease term.
Payments associated with short-term leases and leases of low-value assets are expensed as
they are incurred in profit or loss. Short-term leases are leases with a lease term of 12 months
or less.
20
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(s) 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).
(t)
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.
21
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(t)
Income taxes (continued):
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 realize 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.
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.
(u) 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.
(v) Government assistance
Government assistance is recognized when there is reasonable assurance that the assistance
will be received and that the Company will comply with all relevant conditions. Government
assistance related to current expense is recorded as a reduction of the related expense.
22
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
2.
Significant accounting policies (continued):
(w) Segment reporting
Reportable segments are those whose operating results are reviewed by the chief operating
decision-maker, identified as the Chief Executive Officer, which is responsible for allocating
resources and assessing performance.
The Company has one reportable segment, refer to Note 6 for additional information.
3.
Acquisition:
(a) Tapped Networks Inc.:
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 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 Earn-out 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.
For the year ended December 31, 2020, an accretion of $25 (2019 - $70) in carrying amount of
Earn-out was recorded because of the use of present value factor at initial measurement.
Subsequent to the date of acquisition, the Company recorded an additional Earn-out of $406 which
has been recognized in profit and loss for the year ended December 31, 2019. The first year of Earn-
out of $744 was paid in December 2019. The second year Earn-out is still being finalized. The
Company paid $95 of second year Earn-out during 2020 and has a remaining accruals of $186 for
potential future claims. Refer to Note 4 for impairment analysis performed on the Tapped Mobile
CGU during 2020.
23
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
3.
Acquisition (continued):
(b) Juice Mobile
On March 1, 2020, the Company, through its wholly owned subsidiary EQ Advertising Group Ltd.,
completed the acquisition and licensing of certain assets of Curate Mobile Ltd. (“Curate”), including
Juice Mobile (“Juice Mobile”). Juice Mobile’s platform is targeted to advertisers looking to boost
user value or increase brand awareness on mobile. By leveraging existing and new clients under
the EQ Works Mobile umbrella, the expanded company will offer more precise and targeted mobile
programmatic ad buy solutions for agencies, brands, and publishers. The company will also use
machine learning and proprietary learning algorithms to optimize bidding behaviours towards a
range of campaign goals by making billions of automated decisions on a daily basis.
The total consideration was $850 and additional cash consideration to be paid out over the following
12 months based on certain performance thresholds being met.
In accordance with IFRS 3, Business Combinations, the assets acquired constitute a business for
accounting purposes and was accounted for using the acquisition method of accounting. The
Company incurred transaction costs of $32 associated with the acquisition which were expensed.
The allocation of the purchase consideration was as follows:
Allocation
Fixed assets
Customer relationships
Backlog
Goodwill
Contract liabilities
Net assets acquired
Purchase consideration:
Consideration in cash
Contingent consideration (“Earn-out”)
Purchase consideration
$
3
311
21
732
(138)
929
$
850
79
929
The acquisition agreement provides for contingent consideration payment up to $79, based on
achievement of certain predetermined revenue and gross profits targets, in the 12-months period
following the closing of the acquisition to a maximum total compensation paid to Curate up to $929.
The Company has estimated the Earn-out to be $87 of the contingent consideration. The estimated
Earn-out consideration was fair valued by discounting the after-tax cash flow over the life of the
capital payment period of 12 months at a discount rate of 12% to be $79 and was recognized at
March 31, 2020. For the year ended December 31, 2020, an accretion of $6 was recorded.
Subsequent to the date of acquisition, the Company wrote off Earn-out of $85, due to not achieving
predetermined revenue, which has been recognized in profit and loss for the year ended December
31, 2020.
24
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
3.
Acquisition (continued):
(b) Juice Mobile (continued):
As at December 31, 2020, the Company recognized goodwill of $732 arising from the acquisition of
Juice Mobile, on March 1, 2020. The acquisition of Juice Mobile will provide increased scale to the
Company’s existing business and additional sales presence to better service the Canadian market
and US Market and pursue strategic new partnership opportunities with some of North America’s
leading companies for location based data platforms and digital marketing solutions. The acquisition
also reflects the value of the Juice’s skilled and experienced workforce. The $732 recognized as
goodwill is deductible for tax purposes.
The Company recorded $2,218 of revenue and a $228 net income in these consolidated statements
of net loss and comprehensive loss for year ended December 31, 2020, from Juice Mobile as a
result of the Acquisition. If the Acquisition had occurred as at January 1, 2020, revenue for the year
ended December 31, 2020 would have been $2,354 and the loss would have been $45.
4.
Goodwill:
Changes to the carrying amount of goodwill during the fiscal years ended December 31, 2020 and
2019 were as follows:
Balance at January 1, 2020 and 2019
Acquired through business combination (Note 3 (b))
Impairment
Goodwill at December 31, 2020
Goodwill
$
535
732
(535)
732
On December 31, 2020, the Company performed its annual goodwill impairment test in accordance
with its policy described in note 2. Based on the results of the 2020 tests performed, the Company
concluded that the recoverable amount of the Juice Mobile CGU has exceeded its carrying amount,
and therefore goodwill was not impaired. However, during the year ended December 31, 2020, the
COVID-19 pandemic caused a reduction in sales volumes, delayed project deployment and delayed
expected growth in the Tapped Mobile CGU. Management has decided it will no longer pursue the
revival of the CGU, which had a negative impact on the impairment analysis and judgment was
applied in developing the key assumptions. Based on the impairment analysis performed, the
Company concluded the recoverable amount of the CGU is less than the carrying value, resulting in
a goodwill and intangible asset (Note 11) impairment charge. The Company recorded an impairment
expense during the year ended December 31, 2020 of $655 within operating expenses. Subsequent
to the impairment of the goodwill and intangible assets in the Tapped Mobile CGU, management
has realigned its CGUs as a result of its decision not to revive the operations of Tapped Mobile. The
operations of Tapped Mobile are now integrated within the EQ Ads CGU and as a result, the
Company has two CGUs at December 31, 2020.
25
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
4.
Goodwill (continued):
The Juice Mobile CGU's recoverable amount was determined based on value in use using a 5 year
discounted cash flow model. Key assumptions used in the discounted cash flow model are as
follows: (a) projected revenue used in the forecast was estimated considering current and historical
results with growth rates between 5% and 43% and a 2% terminal growth to reflect the inflationary
growth; (b) projected general and administrative expenses used in the forecast were estimated using
current and historical results as a percentage of revenue with consideration to variable costs, with
fixed costs estimated to remain fairly constant, the gross margin has been estimated at 50%
throughout the forecast; and (c) working capital and capital expenditures were estimated considering
industry benchmarks as a percentage of revenue. The pre-tax discount rate applied in the
discounted cash flow model was 26.29%.
5.
Right-of- use asset and lease liability:
The Company has one office facility under lease. The lease term is 5 years from 2017, with an option
to renew the lease after that date.
Non-cancellable lease rentals are payable as follows:
Less than 1 year
Between 1 and 5 years
more than 5 years
2020
252 $
32
-
2019
186
236
-
284 $
422
$
$
The lease liabilities are measured at the present value of the remaining lease payments, discounted
using the lessee’s incremental borrowing rate. The lessee’s incremental borrowing rate applied to
the lease liabilities is 7.5%.
For the year ended December 31, 2020, an accretion of $9 (2019 - $14) in carrying amount of
lease liability was recorded because of the use of present value factor at initial measurement.
For the year ended December 31, 2020, variable lease payments of $107 (2019 - $76) was
recorded.
26
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
5.
Right-of- use asset and lease liability (continued):
The Company’s lease liability and movements therein during the year ended December 31, 2020
and 2019:
Lease liability recognized on adoption of IFRS 16 on January 1, 2019
Accretion on lease liability
Lease payment
Lease liability at December 31, 2019
Lease liability at January 1, 2020
Accretion on lease liability
Lease payment
Lease liability at December 31, 2020
Of which are:
Current lease liabilities
Long-term lease liabilities
Lease liability
$
$
$
222
14
(78)
158
158
9
(17)
150
132
18
150
The Company’s right-of-use assets and movements therein during the year ended December
31, 2020 and 2019:
Right-of-use assets recognized on adoption of IFRS 16 on January 1, 2019
Depreciation on right-of-use assets
Right-of-use assets at December 31, 2019
Right-of-use assets at January 1, 2020
Depreciation on right-of-use assets
Right-of-use assets at December 31, 2020
6.
Segment information:
Office lease
$
$
222
(76)
146
146
(70)
76
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 reportable 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.
27
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
6.
Segment information (continued):
The Company generates revenue across three geographical regions; customer revenue
by region is as follows:
Canada
United States
Outside North America
$
2020
9,919 $
502
-
2019
7,513
1,445
7
$
10,421 $
8,965
In 2020, there were two customers that comprised 23% and 14%, respectively, of the Company's
total revenue from operations. In 2019, there were three customers that comprised 27%, 13%
and 11%, respectively of the Company's total revenue from operations.
The components of revenue are as follows:
Advertising Services
Data Sales(1)
Other Services
$
2020
7,596 $
2,546
279
2019
7,518
1,308
139
$
10,421 $
8,965
(1) Data Sales are comprised of Fixed Fee Data Sales and CPM Data Sales.
7.
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 Earn-out (note 3)
Accretion on lease
Accretion on promissory notes (note 12 (c))
Interest on loans and borrowings (note 12 (c))
$
$
$
2020
2019
8
34
42
2
1
3
2020
2019
(5)
(31)
(116)
(179)
(207)
$
(8)
(70)
(76)
(198)
(183)
(535)
Total finance costs
$
(538)
28
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
8.
Income taxes:
(a) Income tax expense:
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:
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 unrecognized tax losses
Change in rates
Change deferred taxes not recognized
2020
2019
$
(3,427) $
26.5%
(1,914)
26.5%
(908)
(507)
17
772
-
119
12
346
-
149
Deferred 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 intangible assets
Share issue cost
Change deferred taxes not recognized
2020
2019
$
$
99,169 $ 99,099
358
77
99,598 $ 99,534
373
56
29
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
8.
Income taxes (Continued):
(b) Unrecognized deferred income taxes (continued):
The Company also has non-capital losses of approximately $39,873 expiring as follows:
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
$
2,325
907
3,470
8,685
2,959
14,402
1,923
1,769
818
448
954
1,213
$ 39,873
In addition, the Company has undeducted scientific research and experimental development
(“SRED”) costs of approximately $494 available to apply against future taxable income, as
well as federal investment tax credits SRED costs of approximately $1,031 and provincial
investment tax credits relating to SRED of approximately $1,718 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.
9.
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
2020
93 $
21
83
197 $
2019
153
44
-
197
$
$
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
30
2020
2,096 $
812
2,908 $
2019
1,229
476
1,705
$
$
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
9.
Other current assets and accounts payable and accrued liabilities (continued):
(c) Contract liabilities:
Outstanding, beginning of the year
Addition
Acquisition of Juice Mobile
Earned
10.
Property and equipment:
2020
24 $
270
138
(346)
86 $
2019
348
7
-
(331)
24
$
$
Cost
Balance, January 1, 2019
Additions
Balance, December 31, 2019
Cost
Balance, January 1, 2020
Additions
Acquisition (note 3 (b))
Balance, December 31, 2020
Depreciation
Balance, January 1, 2019
Depreciation
Balance, December 31, 2019
Depreciation
Balance, January 1, 2020
Depreciation
Balance, December 31, 2020
Carrying amounts
December 31, 2019
December 31, 2020
Total
216
30
246
246
68
3
317
90
54
144
144
71
215
102
102
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
36
8
44
44
6
–
50
21
8
29
29
10
39
15
11
$
$
$
$
$
$
$
$
$
$
80 $
22
102 $
102 $
62
3
167 $
34 $
26
60 $
60 $
41
101 $
42 $
66 $
100
–
100
100
–
–
100
35
20
55
55
20
75
45
25
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
31
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
11.
Intangible assets:
Customer
relationships
Non-compete
Backlog
Software
Total
Cost
Balance
January 1, 2019
$
Addition
Balance,
$
190
–
$
25
–
$
50
–
$
–
375
265
375
December 31, 2019
$
190
$
25
$
50
$
375
$
640
Cost
Balance
January 1, 2020
$
Addition
Acquisition (note 3 (b))
Balance,
$
190
–
311
$
25
–
–
$
50
–
21
$
375
575
–
640
575
332
December 31, 2020
$
501
$
25
$
71
$
950
$
1,547
32
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
11.
Intangible assets (continued):
Amortization
Balance,
Customer
relationships
Non-compete
Backlog
Software
Total
January 1, 2019
$
Amortization
Balance,
6
32
$
3
12
$
$
50
–
December 31, 2019
$
38
$
15
$
50
$
Amortization
Balance
January 1, 2020
$
Amortization
Impairment (see note
4)
Balance,
$
38
75
120
$
15
10
–
$
50
18
–
$
$
$
–
–
–
–
125
–
59
44
103
103
228
120
December 31, 2020
$
233
$
25
$
68
$
125
$
451
Carrying amounts
Balance,
December 31, 2019
$
152
$
10
Balance,
December 31, 2020
$
268
$
–
$
$
–
$
375
$
537
3 $
825 $
1,096
As of December 31, 2019, EQ has completed 75% of the development work and capitalized $375 of developers’ salary. Since the
product wasn’t completed as at December 31, 2019, no amortization was recorded. In 2020, EQ completed the rest of 25% of the
development work and capitalized $125. Amortization of $125 was recorded. EQ has started the new development work and capitalized
$450 of developers’ salary. In 2020, the Company booked an impairment of the intangible assets of $120 using the value in use
impairment test, the Company determined the recoverable amount of the CGU to be lower than its carrying value which resulted in the
impairment of the intangible assets (see note 4).
33
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
12.
Loans and borrowings:
(a) Bank credit facility:
In July 2020, the Company closed a new $1,600 (2019 - $500) revolving credit facility (the
“Facility”), including credit card facility of $100 (2019 - $50), with a Canadian chartered bank.
Borrowing under this Facility are secured by accounts receivable and the Facility bears interest
at the bank’s prime rate plus 2.5% per annum. As at December 31, 2020, nil (2019 – nil) was
outstanding under the Facility included in the loans and borrowings and $61 (2019 – nil) was
outstanding under the credit card facility included in accounts payable.
(b) Canada Emergency Business Loan:
The Government of Canada launched the Canada Emergency Business Loan (“CEBA”) to
provide interest-free loans to business to help cover operating costs during the period of
COVID-19. The Company received $80 from the CEBA. The loan is interest-free until
December 31, 2022. The remaining balance is converted to a 3 years term loan at an annual
interest rate of 5% after December 31, 2022.
(c) Promissory notes payable:
On August 19, 2019, the promissory notes entered in 2018 ($1,534) were fully repaid.
On August 19, 2019, the Company entered into debt financing (the “2019 Notes”) in the
amount of $1,717 due on January 19, 2021. The 2019 Notes, which are non-convertible, bear
interest at annual rate of 12% with principal and interest payment due on maturity date. The
lenders received one and half non-transferable warrants (the “2019 Bonus Warrants”) for each
dollar of principal amount of 2019 Notes, with each 2019 Bonus Warrants being exercisable
for a period of seventeen months from the date of issuance for one common share of the
Company at an exercise price of $0.66 per common share. All 2019 bonus Warrants are
subject to a four month hold period from the date of issuance in accordance with the applicable
securities law.
The 2019 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 issuance was
calculated as the discounted cash flows for the debentures assuming a 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 issuance 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.
34
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
12.
Loans and borrowings (continued):
(c) Promissory notes payable (continued):
2018 Notes, 10% Maturing August 2019
2019 Notes, 12% Maturing January 2021
Equity component of promissory notes payable
Accrued interest and interest paid
Accretion in carrying amount of notes
2020
2019
$
- $
1,717
(257)
1,717
(257)
1,460
282
247
1,460
75
68
Balance end of year
$
1,989
$
1,603
The following table outlines the activity for loans and borrowings
Promissory notes balance, January 1,
Promissory notes
Repayment of promissory notes (2016, 2017 and 2018 Notes)
Warrants
Accretion of interest
Accrued interest
Interest Paid
$
Total promissory notes payable
(d) Change in liabilities arising from financing activities:
Balance, January 1, 2019
Net cash from financing activities
Balance, December 31, 2019
Net cash used in financing activities
Balance, December 31, 2020
2020
2019
1,603 $
-
-
-
179
207
-
1,577
1,717
(1,534)
(257)
184
145
(229)
1,989
1,603
Loans and borrowings
$ 1,465
-
1,465
-
$ 1,465
13.
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 January 9, 2019, the Company closed the second tranche of 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 proceeds gross proceeds of $180.
35
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
13.
Common shares (continued):
On December 10, 2019, the Company completed the first tranche of a non-brokered private
placement (the “Private Placement”) of 6,101,830 units (“Units”) at a price of $0.75 per Unit for
aggregate gross proceeds of $4,577 (the “First Tranche”).
On December 17, 2019, the Company completed the second and final tranche of the Private
Placement of 564,836 Units at a price of $0.75 per Unit for aggregate gross proceeds of $423 (the
“Second Tranche”).
Each Unit is comprised of one common share in the capital of the Company (“Common Share”)
and one-half of one common share purchase warrant (each full warrant, a “Warrant”).
Each Warrant is exercisable at a price of $1.00 per Common Share, for a period of 24 months
following the closing of the Private Placement. The expiry date of the Warrants may be accelerated
by the Company at any time if the closing price of the Common Shares on the facilities of the TSX
Venture Exchange is greater than $1.25 for any 10 consecutive trading days following the date that
is four months and one day after the closing of the Private Placement.
In connection with the Private Placement, the Company paid finders fee of $26 in cash and issued
34,893 finder warrants at a fair value of $8 on the same terms as the Warrants.
Total gross cash proceeds of $5,000 from the Private Placement were allocated as $4,413 and
$587, respectively, to the common shares and warrants issued in the Private Placement based on
their relative fair values at the closing date of the Private Placement. The Company incurred share
issuance costs of $76, including the finder warrants.
On May 29, 2020, the Company announced that it is accelerating the expiry date of 3,333,333
outstanding common share purchase warrants (the “Warrants), which were issued pursuant to a
non-brokered private placement in December 2019. Each Warrant is exercisable at a price of $1.00
per common share for a period of 24 months following issuance. The terms of the Warrants are
such that the expiry date can be accelerated by the Company at any time if the closing price of the
Company’s common shares on the facilities of the TSX-V is greater than $1.25 for any 10
consecutive trading days following the date that is four months and one day after the closing of the
private placement (the “Acceleration Trigger”). The Company confirmed that as of the close of
markets on May 25, 2020, the Acceleration Trigger had occurred.
The Company received proceeds of approximately $3,658 as a result of the exercise of 3,816,082
warrants. Each warrant was converted into one common share. The warrants were issued in
connection of the 2019 Private Placement and 2019 Notes, with expiry dates of December 9, 2021,
and January 19, 2021, respectively. 3,349,884 of 2019 Private Placement warrants at $1.00 and
466,198 of 2019 Bonus warrants at $0.66 were exercised. The expiry date of the warrants in
connection of 2019 Private Placement was accelerated by the Company set to be June 28, 2020.
36
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
13.
Common shares (continued):
On August 16, 2019, the Company received proceeds of $280 as a result of the exercise of 466,198
warrants at $0.60 per common share. Each warrant was converted into one common share. The
bonus warrants were issued in connection with the Company’s 2018 Notes, which were set to expire
on August 19, 2019.
During 2020, 181,500 stock options were exercised into 181,500 common share with an average
exercise price of $0.65 for a total proceeds of $118. During 2019, 21,332 stock options were
exercised into 21,332 common share with an average exercise price $0.15 for a total proceeds of
$3.
14. Warrant Capital:
The Company had the following warrants outstanding at December 31, 2020
2020
2019
Number of
warrants
Weighted
average
exercise
price
Number of
warrants
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
Expired
5,943,207 $
-
(3,816,082)
(18,342)
0.85
-
0.96
1.00
2,300,578 $
5,9435207
(466,198)
(1,834,380)
0.60
0.85
0.60
0.60
Outstanding, end of year
2,108,783 $
0.66
5,943,207 $
0.85
15.
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:
2020
2019
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
1,865,501 $
2,648,000
(181,500)
(78,334)
0.25
0.98
0.65
0.93
1,651,834 $
255,000
(21,332)
(20,001)
Outstanding, end of year
4,253,667
0.68
1,865,501
0.19
0.74
0.15
0.56
0.25
Options exercisable, end of year
1,692,664 $
0.23
1,656,166
$
0.19
37
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
15.
Share-based payments (continued):
A summary of the status of the Company's options under the Plan is as follows:
Range of
exercise price
$0.05
$0.60 – 0.69
$0.70 – 0.79
$0.80 – 0.89
$0.90 – 0.99
$1.30 – 1.39
Number
of
options
1,306,667
14,000
300,000
55,000
2,413,000
165,000
2020
Weighted
average
remaining
contractual
life (years)
0.9
2.8
3.1
3.8
4.3
4.9
Number of
options
exercisable
1,306,667
9,332
283,332
18,333
-
75,000
Number
of options
1,329,001
31,500
450,000
-
-
-
2019
Weighted
average
remaining
contractual
life (years)
1.9
3.8
4.2
-
-
-
Number of
options
exercisable
1,329,001
10,499
316,666
-
-
-
The Company granted 125,000 Restricted Share Units (each unit an “RSU”) to an officer of the
Company in accordance with the Company’s shareholder approved RSU plan. Each RSU is
exercisable into one common share of the Company. This is a normal-course grant that comprises
part of the long-term compensation and employee retention incentive provided by the Company.
The RSU will vest over 3 years and will expired on August 24, 2025 and an expense of $59 was
expensed.
The following table summarizes the continuity of RSUs for the period ended:
Outstanding, beginning of the
period
Grant
Outstanding, end of the period
RSUs exercisable, end of the
period
December 31, 2020
Number of
RSUs
Market price
at the grant
date
- $
125,000
125,000
-
1.50
1.50
-
$
-
During 2020, the Company recorded share-based payments of $678 (2019 - $155).
During 2020, 2,648,000 stock options were granted and 181,500 were exercised. During 2019,
255,000 stock options were grant and 21,332 stock options were exercised.
38
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
15.
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, 2020 December 31, 2019
Dividend yield
Expected volatility (historical data basis)
Risk-free interest rate
Share price
Forfeiture rate
Expected life (years)
0%
98%
0.72%
0%
121%
1.39%
$ 0.98
$ 0.75
22%
5 years
50%
5 years
Weighted average grant date fair value
$ 0.98
$ 0.75
16.
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, 2020
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
39
Carrying value
total
Fair value
total
$
3,209
4,572
$
3,209
4,572
$
7,781
$
7,781
$
$
2,908
2,069
4,977
222
2,908
2,079
4,987
222
$
5,199
$
5,209
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
16.
Fair values of financial instruments (continued):
December 31, 2019
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
$
$
$
$
3,691
2,060
$
3,691
2,060
5,751
$
5,751
1,705
1,603
3,308
256
3,564
$
$
1,705
1,791
3,496
256
3,752
There have been no transfers of assets between levels during the years ended December
31, 2020 and 2019.
17.
Capital risk management:
The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its
strategy of organic growth combined with strategic acquisitions and to provide returns to its
shareholders. The Company defines capital that it manages as the aggregate of its shareholders'
equity, which comprises issued capital, contributed surplus, accumulated other comprehensive
income and retained earnings (deficit). The Company manages its capital structure and makes
adjustments to it in light of general economic conditions, the risk characteristics of the underlying
assets and the Company's working capital requirements. In order to maintain or adjust its capital
structure, the Company, upon approval from its Board of Directors, may issue shares,
repurchase shares, pay dividends or 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
2020 from 2019.
18.
Financial risk management:
The Company's Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Audit Committee reviews the
Company's risk management policies on an annual basis. The finance department identifies and
evaluates financial risks and is charged with the responsibility of establishing controls and
procedures to ensure that financial risks are mitigated in accordance with the approved policies.
40
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
18.
Financial risk management (continued):
(a) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a
financial instrument fails to meet its contractual obligations and arises from the Company's
accounts receivable and cash. The majority of the Company's customers are located in
Canada. At December 31, 2020, two customers represented 20% and 15% of the gross
accounts receivable balance of $4,786, respectively. At December 31, 2019, two customers
represented 35% and 22% of the gross accounts receivable balance of $2,102, respectively.
No other individual customers represented more than 10% of accounts receivable. As at
December 31, 2020, the expected credit losses was $214 (2019 - $42). 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, 2020, approximately 82%, $997 (2019 – 68%, $89) of accounts receivable
balances over 90 days were not impaired. The consolidated entity has a credit risk exposure
with two agency located in Canada, which as at December 31, 2020 owed the consolidated
entity $1,652 (35% of trade receivables) (2019: $744 (35% of trade receivables)).This
balance was within its terms of trade and no impairment was made as at December 31, 2020.
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, 2020 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.
41
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
18.
Financial risk management (continued):
(b) Liquidity risk (continued):
The following are the undiscounted contractual maturities for the Company’s obligations:
2020
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other
payables(i)
Leases
Loans and borrowings
Earn-out
$
2,908 $
2,908 $
2,908 $
- $
150
2,069
222
284
2,090
222
252
2,010
222
32
80
-
$
5,349 $
5,504 $
5,392 $ 112
$
2019
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other payables(i)
Leases
Loans and borrowings
Earn-out
$
1,705 $
158
1,603
256
1,705 $
422
2,010
281
1,705 $
186
-
281
- $
236
2,010
-
$
3,722 $
4,418 $
2,172
$ 2,246 $
(i) Trade and other payables exclude other non-contractual liabilities
-
-
-
-
-
-
-
-
-
-
(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 12%. Management believes that the
Company is not significantly exposed to cash flow interest rate risk in the next twelve
months.
42
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
18.
Financial risk management (continued):
(c) Market risk (continued):
(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 $19
(2019 - $26) 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
Accounts receivable
Accounts payable and accrued liabilities
19.
Related party transactions and balances:
2020
US
$
$
239
111
498
2019
US
488
76
304
On August 19, 2019, $888 of the 2019 Notes were subscribed by officers and directors of the
Company. The Company issued 1,332,448 of warrants related to the 2019 Notes.
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, 2020 and 2019 was as follows:
Short-term employee benefits
Share-based payments
43
2020
2019
$
$
791 $
538
1,329 $
562
126
688
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2020 and 2019
20.
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
21.
Subsequent events
a. Repayment of 2019 Promissory Notes
2020
$
(2,512) $
-
1,096
(76)
2019
107
(73)
(127)
(324)
$
(1,492) $
(417)
On January 19, 2021, the 2019 Promissory Notes of $1,717 and accrued and unpaid interest of
$293 were fully repaid.
b. Exercise of 2019 Bonus Warrant
The Company received proceeds of approximately $1,392 as a result of the exercise of 2,108,783
warrants. Each warrant was converted into one common share. The warrants were issued in
connection of the 2019 Notes, with expiry dates of January 19, 2021. 2,108,783 of 2019 Bonus
warrants at $0.66 were exercised. The Company used the proceeds from the Bonus Warrants as
partial repayment for the amount owed under the 2019 Promissory Notes.
c. Public offering
On February 19, 2021, the Company closed an overnight marketed public offering of aggregate
of 7,187,500 shares in the capital of the Company at a price of $1.60 per offered security for total
proceeds of $11,500, which includes the full exercise of the over-allotment option granted to the
Underwriters.
22.
Additional information
During the year ended December 31, 2020, the Company benefited from Canadian Employment
Wage Subsidy (“CEWS”) for $624, which was used to reduce the salary on the consolidated
statement of loss. The CEWS benefits reduced employee compensation and benefits by $624.
44