Consolidated Financial Statements
(In Canadian dollars)
EQ INC.
Years ended December 31, 2023 and 2022
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 statement of financial position as at December 31, 2023 and 2022, 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 material accounting policy information.
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, 2023 and 2022, 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.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company incurred
a net loss of $5,903,000 and reported negative cash flows from operating activities of $1,682,000 during the year
ended December 31, 2023 and, as of that date, the Company has a working capital deficit of $1,595,000. As
stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a
material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have
determined the matter described below to be the key audit matter to be communicated in our auditor’s report.
Goodwill and Intangible Asset Impairment
Refer to consolidated financial statements Note 2: Material accounting policies information; Note 4: Goodwill;
and Note 10: Intangible assets.
Management assesses at least annually, or at any time if an indicator of impairment exists, whether there has
been an impairment loss in the carrying value of the cash generating units (“CGUs”) that have recorded goodwill.
The Company performs its annual impairment analysis as of December 31 and estimates the recoverable
amount for each of the two CGUs to which goodwill has been allocated using a discounted cash flow model.
During the year ended December 31, 2023, the Company determined that the Juice and Paymi CGUs had
recoverable amounts that did not exceed their respective carrying values and as such, fully impaired the goodwill
and intangible assets in the Juice and Paymi CGUs.
We considered the goodwill and intangible asset impairment to be a key audit matter due to the magnitude of the
impairment losses and the significant judgements made by management to determine the assumptions and
estimates underlying the calculations of recoverable amount. Assessing the reasonableness of these
assumptions and estimates, including the cash flow forecasts, growth rates and the discount rates, required
significant auditor judgement and increased audit effort.
How our audit addressed the Key Audit Matter
Our audit procedures related to goodwill and intangible asset impairment included the following, among others:
We evaluated the reasonableness of the inputs used in management’s cash flow forecasts by
considering each of the CGUs historical revenue and results, industry growth, pipeline of contracts
and current customers;
We tested the mathematical accuracy of the impairment models;
We performed a sensitivity analysis on the discount rate by assessing how changes in the
discount rate would impact the recoverable amount of the CGUs; and
We evaluated the reasonableness of the allocation of the impairment loss.
Other Information
Management is responsible for the other information. The other information comprises the Management
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above 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 from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
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.
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Stephen McCourt.
Chartered Professional Accountants
Licensed Public Accountants
April 15, 2024
Toronto, Ontario
EQ INC.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
December 31, 2023 and 2022
Assets
Current assets:
Cash
Restricted cash (note 11(a))
Accounts receivable (note 17(a))
Other current assets (note 8(a))
Non-current assets:
Property and equipment (note 9)
Intangible assets (note 10)
Goodwill (note 4)
Liabilities and Shareholders’ Equity (Deficiency)
Current liabilities:
Accounts payable and accrued liabilities (notes 8(b) & 11 (a))
Rewards payable (note 8(c))
Loans and borrowings (note 11(b) & (c))
Contract liabilities (note 8(d))
Shareholders’ equity (deficiency)
Going concern (note 2(b))
On behalf of the Board:
2023
2022
$
381 $
48
3,962
206
4,597
25
985
-
1,253
-
3,535
234
5,022
55
2,156
2,914
$
5,607 $
10,147
$
3,237 $
1,387
1,568
-
6,192
(585)
3,488
1,281
79
60
4,908
5,239
$
5,607 $
10,147
“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, 2023 and 2022
Revenue (note 5)
Expenses:
Publishing costs
Employee compensation and benefits
Other operating costs
Depreciation of property and equipment
Depreciation of right-of-use asset
Amortization of intangible assets
Impairment of goodwill and intangible assets (notes 4 & 10)
Restructuring costs
Loss from operations
Finance income (note 6)
Finance costs (note 6)
Gain from acquisition-related transaction (note 3 (b))
Net loss
2023
2022
$
9,964
$
10,979
5,450
3,768
2,223
35
-
880
3,806
122
6,927
4,955
4,659
67
6
637
-
117
16,284
17,368
(6,320)
(6,389)
16
(82)
483
43
(89)
-
(5,903)
(6,435)
Total comprehensive loss
$
(5,903) $
(6,435)
Loss per share:
Basic and diluted
$
(0.08) $
(0.09)
Weighted average number of shares outstanding basic and diluted
69,460,190
69,435,624
See accompanying notes to consolidated financial statements
2
EQ INC.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
Common shares
Number of
shares
(note 12)
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total equity
Balance, January 1, 2023
Net loss
Share-based payments (note 14)
Exercise of stock options
(note 12 & 14)
$
69,435,624
-
-
33,333
$
94,291
-
-
46
$
4,481
-
53
(20)
Balance, December 31, 2023
69,468,957
$
94,337
$
4,514
$
-
-
-
-
-
$
$
$
(2,062)
-
-
-
$
(91,471)
(5,903)
-
-
5,239
(5,903)
53
26
(2,062)
$
(97,374)
$
(585)
Common shares
Number of
shares
(note 12)
Amount
Contributed
surplus
Warrants
Accumulated
other
comprehensive
loss
Deficit
Total equity
Balance, January 1, 2022
Net loss
Share-based payments (note 14)
Expiry of Warrants (note 13)
$
69,435,624
-
-
-
$
94,291
-
-
-
$
4,160
-
230
91
$
91
-
-
(91)
$
(2,062)
-
-
-
$
(85,036)
(6,435)
-
-
11,444
(6,435)
230
-
Balance, December 31, 2022
69,435,624
$
94,291
$
4,481
$
-
$
(2,062)
$
(91,471)
$
5,239
See accompanying notes to consolidated financial statements
3
EQ INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
December 31, 2023 and 2022
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 14)
Unrealized foreign exchange loss (gain)
Impairment of goodwill and intangible assets
Finance costs, net
Gain from acquisition-related transaction (note 3 (b))
Change in non-cash operating working capital (note 19)
2023
2022
$
(5,903) $
(6,435)
35
-
880
53
1
3,806
55
(483)
(126)
67
6
637
230
(41)
-
10
-
(97)
Net cash used in operating activities
(1,682)
(5,623)
Cash flows from financing activities:
Repayment of obligations under property lease
Proceeds from loans and borrowings (note 11(c))
Repayment of loans and borrowings (notes 11 (b))
Proceeds from exercise of stock options (note 14)
Interest paid
Net cash from (used) in financing activities
Cash flows from investing activities:
Interest income received (note 6)
Increase in restricted cash (note 11 (a))
Earn-out payout (note 3 (a))
Purchases of property and equipment (note 9)
Addition of intangible assets (note 10)
Net cash used in investing activities
Decrease in cash
Foreign exchange gain (loss) on cash held in foreign currency
Cash, beginning of year
-
1,568
(80)
26
(66)
1,448
16
(48)
-
(5)
(600)
(637)
(871)
(1)
1,253
(45)
-
-
-
-
(45)
43
-
(1,305)
(21)
(600)
(1,883)
(7,551)
41
8,763
Cash, end of year
$
381 $
1,253
See accompanying notes to consolidated financial statements
4
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
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 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.
Material accounting policy information:
(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, 2023. The Board of Directors authorized the
consolidated financial statements for issue on April 15, 2024.
(b) Basis of presentation and going concern:
The consolidated financial statements have been prepared under the historical cost basis.
Other measurement bases used are described in the applicable notes.
The consolidated financial statements were prepared on a going concern basis, which
assumes that the Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in the normal course of
business.
The Company has incurred total comprehensive losses of $5,903 and negative cash flows
from operations of $1,682 for the year ended December 31, 2023, and has a working capital
deficit of $1,595 as at December 31, 2023.The Company’s ability to continue as a going
concern is dependent upon the Company’s ability to successfully generate profit from
operations, or to finance its cash requirements through equity financing, debt financing or
rights offerings from existing shareholders. The Company replaced its revolving line of credit
facility of $1,500 with an accounts receivable factoring facility. Under the new arrangement,
the Company can borrow up to $4,000 based on 85% of the eligible accounts receivable aged
under 90 days. There is no assurance that the Company will be successful in generating profits
or raising sufficient funds through equity financing. As a result, these material uncertainties
may cast significant doubt regarding the Company’s ability to continue as a going concern.
These consolidated financial statements do not reflect the adjustments that might be
necessary to the carrying amount of reported assets, liabilities, revenue, and expenses and
the statement of financial position classification used if the Company was unable to continue
operations in accordance with this assumption. Such adjustments could be material.
5
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(c) Functional and presentation currencies:
These consolidated financial statements are presented in Canadian dollars, which is the
functional currency of the Company and its subsidiaries.
(d) Use of estimates and judgments:
The preparation of consolidated financial statements and application of IFRS often involves
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.
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 and judgement:
(i) Useful lives of intangible assets - Useful lives over which intangible assets are amortized
are based on management's estimate of future use and performance. Expected useful
lives are reviewed annually for any change to estimates and assumptions.
(ii)
Impairment of non-financial assets – In assessing impairment, management estimates
the recoverable amount of each asset or cash generating unit based on expected future
cash flows and uses an interest rate to discount them. Estimation uncertainty relates to
assumptions about future operating results and the determination of a suitable discount
rate.
(iii) Revenue recognition – The recognition of revenue requires judgement in the assessment
of performance obligations, 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.
6
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(d) Use of estimates and judgments (continued):
(iv) 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.
(v) Share-based payments - The estimated fair value of stock options is determined using
Inputs to the model are subject to various
the Black-Scholes option pricing model.
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.
(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.
(e) Business combinations:
The acquisition method of accounting is used to account for business combinations regardless
of whether equity instruments or other assets are acquired. The consideration transferred is
the sum of the acquisition-date fair values of the assets transferred, equity instruments issued
or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any
non-controlling interest in the acquiree. For each business combination, the non-controlling
interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or
loss.
On the acquisition of a business, the acquirer assesses the financial assets acquired and
liabilities assumed for appropriate classification and designation in accordance with the
contractual terms, economic conditions, the consolidated entity's operating or accounting
policies and other pertinent conditions in existence at the acquisition-date. Contingent
consideration to be transferred by the acquirer is 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
7
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(e) Business combinations (continued):
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
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 12 months from the date of the acquisition.
The Company determines whether a business is acquired when the integrated set of assets
and activities includes at a minimum, an input and a substantive process and whether the
acquired set has the ability to contribute to the creation of outputs.
The Company also has an option to apply a ‘concentration test’ that permits a simplified
assessment of whether an acquired set of activities and assets is not a business. If
substantially all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar identifiable assets, the concentration test is met, and the
transaction is determined not to be a business combination. If the assets acquired are not a
business, the transaction is accounted for as an asset acquisition.
(f) 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.
8
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(f) Goodwill (continued):
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.
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.
(g) Basis of consolidation:
(i) Subsidiaries:
Subsidiaries are entities controlled by the Company. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
The Company has the following wholly owned subsidiaries:
Subsidiary
Jurisdiction
of incorporation
Ownership interest
December 31, December 31,
2023
2022
CX Digital Media U.S.A Inc.
EQ Advertising Group Ltd.
CX U.S.A Southwest Inc.
CX U.S.A. Pacific, Inc.
Tapped Networks Inc. (note 3 (a))
Integrated Rewards Inc. (note 3 (b))
Delaware
Ontario
Texas
California
Ontario
Ontario
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(ii) Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and
expenses arising from such transactions, are eliminated upon consolidation.
9
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(h) Foreign currency transactions:
Transactions in foreign currencies are translated to the respective functional currencies of
the Company and its subsidiaries at exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies at the reporting date are 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
into the functional currency using the exchange rate at the date that the fair value was
determined.
Foreign currency differences arising from 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.
(i) 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 cost: Financial instruments at amortized cost 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 investments in 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.
10
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(i) Financial instruments (continued):
For other 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.
(j) Property and equipment:
(i) Recognition and measurement:
Property and equipment are measured at cost
less accumulated depreciation and
accumulated impairment losses. Cost includes expenditures that are directly attributable
to the acquisition of the asset. Gains and losses on disposal of an item of property and
equipment are determined by comparing the proceeds from disposal with the carrying
amount of property and equipment and are recognized net within loss from operations.
The costs of the day-to-day servicing of property and equipment are recognized in
operating income as incurred.
(ii) Depreciation:
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or
other amount substituted for cost, less its estimated residual value. Depreciation is
recognized on a straight-line basis over the estimated useful lives of the property and
equipment, since this most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset.
11
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(j) Property and equipment (continued):
The estimated useful lives for the current and comparative years are as follows:
Furniture and fixtures 4 years
Computer equipment 3 years
Depreciation methods, useful lives and residual values are reviewed at each financial year
end and adjusted, if appropriate.
(k) Intangible assets:
(i)
Intangible assets:
Intangible assets that are acquired by the Company and have finite useful
measured at cost less accumulated amortization and accumulated impairment losses.
lives are
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;
5. Adequate technical, financial and other resources to complete the development and to
use or sell the software product are available, and
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.
12
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(k) Intangible assets (continued):
(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
Customer relationships for Paymi
Software
Developed technology
Non-compete
Backlog
Paymi brand
(iii) Research and development:
6 years
8.5% per year
3 years
1-3 years
2 years
1 year
Indefinite
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
the
research phase cannot be clearly distinguished from the development phase,
respective project-related costs are treated as if they were incurred in the research phase
only. Capitalized development costs are amortized over the estimated useful
life of the
internally generated intangible asset. Internally generated intangible assets are reviewed
for impairment annually when the asset is not yet
in use or when events or changes
in circumstances indicate that
the carrying amount may not be recoverable and the
asset is in use.
For the year ended December 31, 2023 $100 (2022 - $84) 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.
13
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(l)
Impairment:
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 indefinite life intangible assets and intangible assets that are not
yet available for use.
(m) Share-based payments:
Share-based payment arrangements in which the Company receives goods or services as
consideration for its own equity instruments are accounted for as equity-settled share-based
payment transactions.
The grant date fair value of share-based payment awards granted to employees is recognized
as a compensation cost, with a corresponding increase in contributed surplus, over the vesting
period of the award. The amount recognized is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that
the amount ultimately recognized is based on the number of awards that vest. Upon exercising
the awards, such as options, the fair value of the stock options exercised that has been
expensed to contributed surplus along with the cash received is reclassified to common shares
and reflected in the statements of changes in shareholders' equity.
(n) Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. The timing or amount of the outflow
may still be uncertain. Provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(o) Revenue:
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.
14
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(o) Revenue (continued):
The Company determines collectability by performing ongoing credit evaluations and
monitoring its customers’ accounts receivable balances. For new customers and their agents,
which may be advertising agencies or other third parties, the Company may perform a credit
check with an independent credit agency and check credit references to determine
creditworthiness. The Company only recognizes revenue when collection is reasonably
assured. If collection is not considered reasonably assured, revenue is recognized only once
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, 2023 the Company had nil (2022 - $60) in contract liabilities.
In instances where the Company collects payment in advance and there is a significant
financing component, the practical expedient is applied as the period from delivery of the goods
or services is within one year of when the customer pays. No adjustment is made to the
transaction price. The practical expedient is also applied to commission contract costs and
these are expensed as incurred.
Advertising Services
The Company generates revenue from the delivery of targeted digital media solutions, enabling
advertisers to connect intelligently with their audiences across online display, video, social and
mobile campaigns using its Programmatic Marketing Platform. The Company offers its services
on a fully-managed and a self-serve basis. In instances of self-serve basis, the Company also
provides its customers with access to the Programmatic Marketing Platform which includes
promises related to hosting and support services. These arrangements are evidenced by a fully
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.
15
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(o) Revenue (continued):
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.
Content revenue
On July 5, 2021, the Company announced the closing of its acquisition of all of the issued
and outstanding shares of Integrated Rewards Inc. (“Paymi”).
Paymi is a downloadable app for iOS or Android that uses card linking technology. Paymi
provides a seamless experience for members to securely connect their debit and credit cards
and redeem cashback on their purchases. Paymi works with Merchant (“Client”) for offers to
be placed on its app. Paymi members can access the offers on the app and can redeem on
purchases. Upon confirmation of the purchase by a Paymi member, revenue is calculated by
multiplying the transaction amount by a certain rate and is recorded as commission revenue,
and cash back expense for Paymi members are recorded simultaneously. Commission
revenue and expenses arising from the provision of this service are recorded as revenue on a
gross basis. Paymi bears all of the risk in delivering the cash-back rewards to its members
16
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(o) Revenue (continued):
regardless of the subsequent collection of funds from the Client. Paymi work with our Client to
set the percentage of cash back offered (often at different tiers based on targeting) and then
set a commission fee based on the competitive landscape. Furthermore, we often strategize
with the client about the content of the reward campaigns to make recommendations about the
total cash back amounts, minimum spends, and whether to have one broad offer or multiple
segmented offers with different cash back amounts. Paymi has the right to enforce discretionary
control of the Client and Paymi members over the transaction and pricing.
License
Clear Lake (“CL”) is a proprietary consumer insight platform. CL provides users with real-time
access to one of Canada's largest and most comprehensive consumer purchasing panels. The
data incorporates aggregated transactional spend data, geospatial insights on consumer
location, other proprietary and exclusive data, and the ability to execute against these data with
recommended placement opportunities. The agreement is at least for 12 months and shall
automatically renew for an additional year unless the customer provides notice of intention to
cancel the contract within 30 days before the end of the term of the license. Revenue is billed
and recognized monthly once the service performance obligations are satisfied.
(p) Finance income and finance cost:
Finance income comprises interest income on funds invested (including available-for-sale
financial instruments), gains on the disposal of available-for-sale financial assets and changes
in the fair value of financial assets at fair value through profit or loss. Interest income is
recognized as it accrues in profit or loss, using the effective interest method.
Finance cost comprises interest expense on loans and borrowings, changes in the fair value of
financial instruments at fair value through profit or loss and impairment losses recognized
on financial assets.
Foreign currency gain and losses arriving from the translation and settlement of assets and
liabilities as well as revenue and expenses are reported on a net basis within finance cost
(income).
(q) Income taxes:
Income tax expense for the year comprises current and deferred income taxes. Current taxes
and deferred taxes are recognized in the consolidated statements of comprehensive income
(loss), except to the extent that they relate to items recognized in OCI or directly in equity. In
these cases, the taxes are also recognized in OCI or directly in equity, respectively.
17
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(q) Income taxes (continued):
The Company uses the asset and liability method of accounting for deferred income taxes.
Under this method, the Company recognizes deferred income tax assets and liabilities for future
income tax consequences attributable to temporary differences between the consolidated
statement of financial position carrying amounts of assets and liabilities and their respective
income tax bases, and on unused tax losses and tax credit carryforwards. The Company
measures deferred income taxes using tax rates and laws that have been enacted or
substantively enacted at the reporting date and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax liability is settled. The Company
recognizes deferred income tax assets only to the extent that it is probable that future taxable
profit will be available against which the deductible temporary differences, as well as
unused tax losses and tax credit carryforwards can be utilized. Deferred income tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized. The Company recognizes the effect of a change in
income tax rates in the year of enactment or substantive enactment.
Deferred income taxes are not recognized, if they arise from the initial recognition of goodwill,
nor are they recognized on temporary differences arising from the initial recognition of an
asset or liability in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss. Deferred income taxes are also not recognized on
temporary differences relating to investments in subsidiaries to the extent that it is probable that
the temporary differences will not reverse in the foreseeable future.
An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
(a)
(b)
the entity has a legally enforceable right to set off current tax assets against current tax
liabilities; and
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.
18
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(q) Income taxes (continued):
In the ordinary course of business, there are many transactions for which the ultimate tax
outcome is uncertain. The final tax outcome of these matters may be different from the
estimates originally made by management in determining the Company's income tax
provisions. Management periodically evaluates the positions taken in the Company's tax
returns with respect to situations in which applicable tax rules are subject to interpretation.
The Company establishes provisions related to tax uncertainties where appropriate, based on
its best estimate of the amount that will ultimately be paid to or received from tax authorities.
(r) Loss per share:
Basic loss per share amounts are calculated by dividing net loss for the year attributable to
common shareholders by the weighted average number of common shares outstanding during
the year. Diluted loss per share amounts are calculated by dividing the net loss attributable to
common shareholders by the weighted average number of shares outstanding during the
period plus the weighted average number of shares that would be issued on the conversion of
all the dilutive potential ordinary shares into common shares.
(s) 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 5 for additional information.
(t) Rewards payable:
Paymi works with Merchant (“Client”) for offers to be placed on its app. Paymi members can
access the offers on the app and can redeem on purchases. Upon confirmation of the purchase
by a Paymi member, cash back will be deposited in members account. Cash back rewards to
its members are booked as cost of sales on the statement of loss and comprehensive loss and
as current liability on the statement of financial position. Once a member chooses to redeem
the cash back rewards, the Company issues payment via e-transfer and derecognizes the
liability.
(u) Future accounting standards:
Classification of Liabilities as Current or Non-current (Amendments to IAS 1, Presentation of
Financial Statements). The amendments to IAS 1 provide a more general approach to the
classification of liabilities based on the contractual arrangements in place at the reporting date.
The amendments clarify that the classification of liabilities as current or non-current should be
based on rights that are in existence at the end of the reporting period and align the wording in
all affected paragraphs to refer to the right to defer settlement by at least twelve months and
make explicit that only rights in place at the end of the reporting period should affect the
19
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
2.
Material accounting policy information (continued):
(u) Future accounting standards (continued):
classification of a liability. The amendments are effective for annual reporting periods beginning
on or after January 1, 2024 and are to be applied retroactively to January 1, 2022. The
application of these amendments and interpretations will not have any significant impact on the
Company’s consolidated financial position or results of operations.
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. 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 first year of Earn-out of $744 was paid in December 2019. The Company paid $95 of second
year Earn-out and has a remaining accrual of $1,401 for potential future Earn-out and legal fees in
2021. The two parties were in dispute regarding the amount owed relating to the second year
earnout. However, the Ontario Superior Court ruled that the Company was to pay the former
shareholders of Tapped Mobile the entire amount for the second year earnout under the Share
Purchase Agreement. The Company did not agree with this judgement and appealed the decision
to the upper court. However, the upper court upheld the decision and the Company has paid the
remainder of $1,305 of the second year Earn-out, and legal fees of $96 and interest of $46 during
2022.
(b) Integrated Rewards Inc.
On July 2, 2021, the Company completed the acquisition of all the shares of Integrated Rewards
Inc., and its consumer facing application Paymi.com (“Paymi”). In addition to a working capital
adjustment, the purchase price payable on closing was $2,500, of which $500 was paid in cash
and of which net liabilities of $2,000 were assumed by the Company and will be settled in the
manner directed by Paymi.
There was a dispute related to the working capital adjustment. The Company and the former
shareholder of Paymi engaged a third party to review the working capital adjustment. During the
year ended December 31, 2023, the dispute between the Company and the former shareholder
of Paymi was resolved. Based on the third party review, the Company recognized a gain on
acquisition-related transaction of $483.
20
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
4.
Goodwill:
Changes to the carrying amount of goodwill during the fiscal years ended December 31, 2023 and
2022 were as follows:
Balance at January 1, 2023 and 2022
Impairment:
Juice Mobile
Paymi
Goodwill at December 31, 2023
Goodwill
$
2,914
(732)
(2,182)
-
$
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.
On December 31, 2023, the Company performed its annual goodwill impairment test in accordance
with its policy in note 2(f). During the year and into the foreseeable future, the CGU’s lacked long-
term revenue commitments from its customers to attain a sustainable level of revenue and operating
income and the recoverable amount of the CGU declined during 2023.
Based on the impairment analysis performed, the Company concluded that the recoverable amount
of the Juice Mobile and Paymi CGU was less than its carrying value, resulting in a goodwill and
intangible assets (note 11) impairment. The Company recorded an impairment charge during the
year ended December 31, 2023 of $2,914 of Goodwill and $891 of intangible assets for a total of
$3,806.
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 a decline in business in 2024 and growth rates of 20% in 2025, 20% in 2026, 20% in
2027 and 20% in 2028 and a 3.35% 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 45% 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
14.30%.
21
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
4.
Goodwill (continued):
The Paymi 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 with growth rates of 22% growth in
2024,110% in 2025, 64% in 2026, 48% in 2027 and 36% in 2028 and a 3.35% terminal growth to
reflect the inflationary growth; and (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 between 47% to 53% over the 5 year period. The pre-tax discount rate applied
in the discounted cash flow model was 25.50%.
5.
Segment information:
The Company’s management and chief operating decision maker reviews performance of the
Company on a consolidated basis and has integrated its services as one 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 North America.
The Company generates revenue across two geographical
region is as follows:
regions; customer
revenue by
Canada
United States
2023
9,946 $
18
2022
10,962
17
9,964 $
10,979
$
$
In 2023, there were three customers that comprised 26%, 18% and 10%, respectively, of the
Company's total revenue from operations. In 2022, there were three customers that comprised
30%, 17% and 11%, respectively, of the Company's total revenue from operations.
The components of revenue are as follows:
Advertising Services
Data Sales(1)
$
$
(1) Data Sales are comprised of Fixed Fee, Variable CPM and License.
2023
7,323 $
2,641
2022
8,329
2,650
9,964 $
10,979
22
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
6.
Finance income and finance costs:
Finance income:
Interest income on cash
Total finance income
Finance costs:
Other interest expense
Accretion on loan (note 11 (b))
Accretion on escrow (note 3(b))
Accretion on lease
Accretion on promissory notes (note 18)
Interest on loans and borrowings (note 11 (c))
Foreign exchange loss, net
Total finance costs
7.
Income taxes:
(a) Provision for income taxes:
2023
2022
$ 16
$ 43
$ 16
$ 43
2023
2022
$ (14)
(1)
-
-
(5)
(52)
(10)
$ (23)
(2)
(22)
(29)
-
-
(13)
$ (82)
$ (89)
The reconciliation of the combined Canadian federal and provincial statutory tax rate of
26.5%to the effective tax rates is as follows:
Loss before income taxes
Statutory rate
Expected income tax recovery based on statutory rate
Adjustment to expected income tax recovery:
Change in statutory foreign tax, foreign exchange rates
and other
Permanent differences
Adjustment to prior years provision versus statutory returns
Change in unrecognized deductible temporary differences
Other
2023
2022
$
(5,903) $
26.5%
(6,435)
26.5%
(1,564)
(1,705)
(1)
610
271
979
(296)
2
68
(1,914)
3,821
(272)
Deferred tax recovery $
- $
-
23
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
7.
Income taxes (Continued):
(b) Deferred income taxes:
Deferred taxes are a result of temporary differences that arise due to the differences between
the income tax values and the carrying amount of assets and liabilities:
Recognized deferred tax assets and liabilities
Property, plant and equipment
Intangible assets
Non-capital losses
Deferred income tax liability
Deferred income tax asset recognized
Net deferred income asset/(liability)
$
2023
- $
-
-
-
-
-
2023
2022
(2)
(188)
190
(190)
190
-
2022
Unrecognized deferred tax assets
Deferred income tax assets have not been recognized in respect of the following deductible
temporary differences:
Non-capital losses available for future period
Capital losses available for future period
Property, plant and equipment
Intangible assets
Share issue costs
Amounts related to SRED
Receivables
15,037 $
$
7,875
63
481
81
3,839
58
27,434
(27,434)
15,242
7,875
57
6
125
3,101
57
26,463
(26,463)
Unrecognized deferred tax assets
Net deferred tax asset
-
-
Deferred tax assets have not been recognized in respect of these items because it is not
probable that future taxable profit will be available against which the Company can use the
benefits.
The significant components of the Company’s temporary difference, unused tax losses
that have not been included on the consolidated statement of financial position are as
follows:
Temporary differences
Non-capital losses available for future periods
Capital losses available for future periods
Property and equipment
Intangible assets
Share issue costs
SRED investment tax credit
SRED expenditure pool
Receivables
24
$
2023
Expiry date
range
57,027
2029 to 2043
59,431 No expiry date
239 No expiry date
1,816 No expiry date
2029 to 2045
304
2039 to 2043
3,248
4,862 No expiry date
221 No expiry date
$
127,148
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
8.
Other current assets, rewards payable, contract liabilities, and accounts payable and
accrued liabilities:
(a) Other current assets:
The major components of other current assets are as follows:
2023
2022
Prepaid expenses
Accrued income
Other receivables
Promissory notes (note 18)
Balance, end of year
$
$
23 $
20
61
102
206 $
(b) Accounts payable and accrued liabilities:
The major components of accounts payable and accrued liabilities are as follows:
Trade accounts payable
Accrued liabilities
Balance, end of year
(c) Rewards payable:
Outstanding, beginning of the year
Addition
Redemption
Balance, end of year
(d) Contract liabilities:
Outstanding, beginning of the year
Addition
Earned
Balance, end of year
2023
2,310 $
927
3,237 $
2023
1,281 $
158
(52)
1,387 $
2023
60 $
667
(727)
- $
$
$
$
$
$
$
32
20
55
127
234
2022
1,892
1,596
3,488
2022
1,071
266
(56)
1,281
2022
529
432
(901)
60
The timing of revenue recognition sometimes differs from the contract payment schedule,
resulting in revenues that have been billed and collected in full, but not earned which are
recorded as contract liabilities. As of December 31, 2023, the Company had nil (2022 - $60) in
contract liabilities.
25
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
9.
Property and equipment:
Cost
Balance, January 1, 2022
Additions
Balance, December 31, 2022
Cost
Balance, January 1, 2023
Additions
Disposal
Balance, December 31, 2023
Depreciation
Balance, January 1, 2022
Depreciation
Balance, December 31, 2022
Depreciation
Balance, January 1, 2023
Depreciation
Disposal
Balance, December 31, 2023
Carrying amounts
December 31, 2022
December 31, 2023
Furniture
and fixtures
Computer
equipment
Leasehold
improvements
$
$
$
$
$
$
$
$
$
$
50
–
50
50
–
(50)
–
44
3
47
47
3
(50)
–
3
–
$
$
$
$
$
$
$
$
$
$
241 $
21
262 $
262 $
5
–
267 $
151 $
59
210 $
210 $
32
–
242 $
52 $
25 $
100
–
100
100
–
(100)
–
95
5
100
100
-
(100)
–
–
–
$
$
$
$
$
$
$
$
$
$
Total
391
21
412
412
5
(150)
267
290
67
357
357
35
(150)
242
55
25
26
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
10.
Intangible assets:
(a) Intangible assets:
Customer
relationships
Non-compete
Backlog
Software
Developed
Technology
Paymi
Brand
Total
Cost
Balance
January 1, 2022
$
Addition
Disposal
Balance,
$
1,141
–
–
$
25
–
(25)
$
71
–
(71)
$
1,550
460
–
$
178
140
–
$
120
–
–
3,085
600
(96)
December 31, 2022
$
1,141 $
– $
– $
2,010 $
318 $
120 $
3,589
Cost
Balance
January 1, 2023
$
Addition
Balance,
1,141
–
$
$
–
–
$
–
–
2,010
600
$
$
318
–
$
120
–
3,589
600
December 31, 2023
$
1,141 $
– $
– $
2,610 $
318 $
120 $
4,189
27
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
10.
Intangible assets (continued):
(a) Intangible assets (continued):
Amortization
Balance,
Customer
relationships
Non-compete
Backlog
Software
Developed
Technology
Paymi
Brand
Total
January 1, 2022
$
Amortization
Disposal
Balance,
326
91
–
$
25
–
(25)
$
$
71
–
(71)
$
417
512
–
$
33
54
–
$
20
(20)
–
892
637
(96)
December 31, 2022
$ 417
$
–
$
–
$
929
$
87
$
–
$
1,433
Amortization
Balance
January 1, 2023
$
Amortization
Impairment (note 4)
Balance,
$
417
99
625
$
–
–
–
$
–
–
–
$
929
696
–
$
87
85
146
$
–
–
120
1,433
880
891
December 31, 2023
$
1,141 $
– $
– $
1,625 $
318 $
120 $
3,204
Carrying amounts
Balance,
December 31, 2022
$
724
Balance,
December 31, 2023
$
–
$
$
–
–
$
$
–
$
1,081
$
231
$
120
$
2,156
– $
985 $
– $
– $
985
As of December 31, 2022, EQ has capitalized $600 of development work related to internally generated software. Amortization expenses
of $116 were recorded related to the internally generated software. As of December 31, 2023, EQ has capitalized $600 of development
work related to internally generated software. Amortization expenses of $25 were recorded related to the internally generated software.
In 2023, the Company booked an impairment of intangible assets of $891 related to the acquisition of Paymi ($779) and Juice Mobile
($112), 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).
28
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
10.
Intangible assets (continued):
(b) Impairment:
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.
During the year ended December 31, 2023, the CGU’s lacked long-term revenue commitments
from its customers to attain a sustainable level of revenue and operating income. The Company
recorded an impairment of intangible assets of $891 in the intangible assets test associated with the
acquisition of Paymi and Juice Mobile. Using the discounted cash flows approach, the Company
determined the recoverable amount of this CGU to be lower than its carrying value.
11.
Loans and borrowings:
(a) Bank credit facility:
The Company has a cash secured credit card facility of $48 (the “Facility”) with a Canadian
chartered bank. Borrowings under this Facility are secured by cash. The Company set aside
$48 in restricted cash that is held by the Company to support the Facility. As at December
31, 2023, $50 (2022 – $79) was outstanding under the Facility included in accounts payable
and accrued liabilities.
(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. As at December 31, 2020, the Company received $80 from the CEBA. For the year
ended December 31, 2021, the Company received an additional $40 CEBA loan, on top of the
$80 received in 2020. The loan is interest-free until December 31, 2023 and 5% starting on
January 1, 2024. No principal repayment is required before December 31, 2023 and is due on
December 31, 2025. Interest payments is required if the principal remains outstanding after
December 31, 2023. The Company plan to repay the loan on or before December 31, 2023
and expect a loan forgiveness of $40. The loan balance is measured at the present value,
discounted using 7.5%. For the year ended December 31, 2023, an accretion of $1 was
recorded. The company repaid the CEBA in full as at December 31, 2023.
29
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
11.
Loans and borrowings (Continued):
(c) Accounts receivable factoring facility:
The Company replaced its revolving line of credit facility with an accounts receivable factoring
facility (the “Factoring”). Under the new arrangement, the Company can borrow up to $4,000
based on 85% of the eligible accounts receivable aged under 90 days. Under the Factoring
agreement, 85% of the eligible accounts receivable under 90 days will be available as a line of
credit for drawing. The Company retains the credit risk with uncollectible accounts receivable.
The accounts receivable collection will be paying off the Facility first and the remaining 15% of
the receivable will be available for drawing. Trade receivables that are factored by financial
institutions with recourse to the Company are not derecognized as the risks and rewards of the
receivables remain with the Company. The cash received from the financial institutions is
considered a form of financing and is recorded in current liabilities and any fee incurred to effect
factoring is recognized in the income statement as part of interest expense. The borrowings
bear interest at the bank’s prime rate plus 6% per annum. As at December 31, 2023, $1,568
(2022 – $Nil) was outstanding under the accounts receivable factoring facility. The Prime rate
as of December 31, 2023 was 7.2% and borrowing rates equate to 13.2%.
12.
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.
During 2023, 33,333 stock options were exercised into 33,333 common shares of the Company at
an average exercise price of $0.76 for total proceeds of $26. During 2022, no stock options was
exercised.
13.
Warrant Capital:
The Company had the following warrants outstanding at December 31, 2023 and 2022:
2023
2022
Number of
warrants
Weighted
average
exercise
price
Number of
warrants
Weighted
average
exercise price
Outstanding, beginning of year
Expired or cancelled
Outstanding, end of year
- $
-
- $
-
-
-
230,160 $
(230,160)
- $
1.60
1.60
-
30
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
14.
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:
2023
2022
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
2,191,000 $
100,000
(33,333)
(374,167)
1.08
0.95
0.77
1.10
2,746,000 $
112,500
-
(667,500)
Outstanding, end of year
1,883,500
1.07
2,191,000
1.08
1.18
-
1.08
1.08
Options exercisable, end of year
1,755,999 $
1.08
1,526,500
$
1.07
The average market price on the date of exercise was approximately $1.27.
A summary of the status of the Company's options under the Plan is as follows:
Range of
exercise price
$0.70 – 0.79
$0.80 – 0.89
$0.90 – 0.99
$1.10 – 1.19
$1.20 – 1.29
$1.30 – 1.39
$1.40 – 1.49
$1.70 – 1.79
Number
of
options
125,000
40,000
1,176,000
45,000
12,500
150,000
235,000
100,000
1,883,500
2023
Weighted
average
remaining
contractual
life (years)
0.59
0.91
1.57
3.64
3.09
1.88
2.43
2.40
Number of
options
exercisable
125,000
40,000
1,109,333
14,999
6,667
150,000
210,000
100,000
1,755,999
Number
of options
275,000
55,000
1,091,000
45,000
212,500
157,500
255,000
100,000
2,191,000
2022
Weighted
average
remaining
contractual
life (years)
1.17
1.80
2.29
4.63
3.90
2.90
3.42
3.40
Number of
options
exercisable
275,000
55,000
727,334
22,500
-
155,000
191,666
100,000
1,526,500
During 2023, 100,000 stock options were granted and 33,333 were exercised. During 2022,
112,500 stock options were granted and nil were exercised.
During 2023, the Company recorded share-based payment of $53 (2022 - $230).
31
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
14.
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, 2023
December 31, 2022
Dividend yield
Expected volatility (historical data basis)
Risk-free interest rate
Share price
Forfeiture rate
Expected life (years)
0%
42%
3.96%
$ 0.95
40%
5 years
0%
48%
2.78%
$ 1.19
29%
5 years
Weighted average grant date fair value
$ 0.40
$ 0.54
15.
Fair values of financial instruments:
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, 2023
Measurement basis
Carrying value
total
Fair value
total
Financial assets at amortized cost:
Cash
Restricted cash
Accounts receivable
Promissory notes
$
Financial liabilities at amortized cost:
Accounts payable and accrued
liabilities
Rewards payable
Loans and borrowings
32
$
$
$
$
381
48
3,962
102
381
48
3,962
102
4,493
$
4,493
3,237
1,387
1,568
6,192
$
$
3,237
1,387
1,568
6,192
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
15.
Fair values of financial instruments (continued):
December 31, 2022
Measurement basis
Financial assets at amortized cost:
Cash
Accounts receivable
Promissory notes
Financial liabilities at amortized cost:
Accounts payable and accrued liabilities
Rewards payable
Loans and borrowings
Carrying value
total
Fair value
total
$
$
$
$
1,253
3,535
127
4,915
3,488
1,281
79
4,848
$
$
$
$
1,253
3,535
127
4,915
3,488
1,281
79
4,848
There have been no transfers of assets between levels during the years ended December
31, 2023 and 2022.
16.
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 raise capital and borrowings, as deemed appropriate under the
specific circumstances. The Company is not subject to externally imposed capital requirements.
There have been no changes to the Company’s capital management approach in 2023 from
2022.
17.
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.
33
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
17.
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, 2023, four customers represented 28%, 16%, 16% and 16% of
the gross accounts receivable balance of $4,183, respectively. At December 31, 2022, three
customers represented 24%, 19% and 18% of the gross accounts receivable balance of
$3,748, respectively. No other individual customers represented more than 10% of accounts
receivable. As at December 31, 2023, the expected credit losses were $221 (2022 - $213).
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, 2023, approximately 73%, $609 (2022 – 43%, $162) of
accounts receivable balances over 90 days were not impaired. The consolidated entity has
a credit risk exposure with two agencies located in Canada, which as at December 31, 2023
owed the consolidated entity $1,839 (44% of trade receivables) (2022: $1,600 (43% of trade
receivables)). This balance was within its terms of trade and no impairment was made as at
December 31, 2023. 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, 2023 is not subject to
external restrictions, except for restricted cash, 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.
34
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
17.
Financial risk management (continued):
(b) Liquidity risk (continued):
The following are the undiscounted contractual maturities for the Company’s obligations:
2023
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other
payables(i)
Reward payable
Loans and borrowings
$
3,237 $
3,237 $
3,237
$
1,387
1,568
1,387
1,568
1,387
1,568
$
-
-
-
$
6,192
$
6,192
$
6,192
$ -
$
2022
Carrying
amount
Contractual
cash flow
Less than
1 year
1-3 years
>3 years
Trade and other payables(i)
Rewards payable
Loans and borrowings
$
3,488 $
1,281
79
3,488 $
1,281
120
3,488 $
1,281
-
$
-
-
120
$
4,848
$
4,889
$
4,769
$ 120
$
(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 primarily from its loans and borrowings
obligations, which is the bank’s prime rate plus 6%. As the bank’s prime rate is at a 22-
year high, management believes the Company has significant exposure to cash flow
interest rate risk in the next twelve months.
35
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
17.
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 $22
(2022 - $17) 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
18.
Related party transactions and balances:
2023
US
28
-
190
$
2022
US
95
1
225
$
On December 29, 2021, the corporation provided certain employees with $157 of short terms
loans to cover the taxes owing in terms of the option excise. The Loans were provided pursuant
to promissory notes issued to the Corporation by each employee (collectively, the “Promissory
Notes”). The Promissory Notes are fully secured by all of the options exercised. The Promissory
Notes bear interest at a rate of 2.45%. All interest accrued under the Promissory Notes is to be
paid at the maturity date.
During 2022, $59 was repaid and the remaining balance was extended to December 29, 2023 at
an interest rate of 6.45%. All interest accrued under the Promissory Notes is to be paid at the
maturity date. In December, 2023, the Promissory Notes was extended to December 29, 2024 at
an interest rate of 7.2%. The balance is measured at the present value, discounting using 13.2%.
In 2023, an accretion of interest expense of $6 was recorded.
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.
36
EQ INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2023 and 2022
18.
Related party transactions and balances (continued):
The remuneration of key management personnel of
December 31, 2023 and 2022 was as follows:
the Company during the years ended
Short-term employee benefits
Share-based payments
2023
2022
$
$
442 $
16
458 $
808
153
961
Included in accounts payable and accrued liabilities was $52 (December 31, 2022 - $7) owing to
a director. These amounts payable are non-interest bearing, unsecured and have neither specific
term nor a date of repayment.
19.
Consolidated statements of cash flows:
The change in non-cash operating working capital comprises the following:
Accounts receivable
Other current assets
Accounts payable and accrued liabilities
Rewards payable
Deferred revenue
$
2023
2022
(427) $
(18)
273
106
(60)
1,152
132
(1,122)
210
(469)
$
(126) $
(97)
37