RESAAS SERVICES INC.

Transcription

1 Interim Consolidated Financial Statements (Expressed in Canadian dollars) NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management. The Company s independent auditor has not performed a review of these financial statements.

2 Interim Consolidated Statements of Financial Position (Expressed in Canadian dollars) Assets Current assets March 31, 2018 December 31, 2017 (Note 3) Cash and cash equivalents 1,883,914 1,570,967 Amounts receivable 187, ,011 Prepaid expenses 81,476 51,576 Other receivable (Note 13) 9,558 Total current assets 2,162,479 1,723,554 Non-current assets Property and equipment (Note 5) 62,823 62,438 Intangible assets (Note 6) 835,402 44,106 Deposits 34,060 34,060 Total non-current assets 932, ,604 Total assets 3,094,764 1,864,158 Liabilities Current liabilities Accounts payable and accrued liabilities 469, ,471 Contract liabilities 49,365 51,014 Operating lease provision (Note 13) 10,269 Obligations under finance lease (Note 7) 8,345 8,550 Total current liabilities 537, ,035 Operating lease provision (Note 13) 16,258 Obligations under finance lease (Note 7) 11,550 7,511 Total liabilities 565, ,546 Shareholders equity Common shares 30,039,034 27,254,440 Common shares subscribed 164,500 Share-based payment reserve 14,400,828 12,930,118 Deficit (41,910,777) (39,157,446) Total shareholders equity 2,529,085 1,191,612 Total liabilities and shareholders equity 3,094,764 1,864,158 Going concern (Note 2(c)) Commitments and contingencies (Note 13) Approved and authorized for issuance by the Board of Directors on May 29, 2018: /s/ Cory Brandolini Cory Brandolini, Director /s/ Thomas Rossiter Thomas Rossiter, Director (The accompanying notes are an integral part of these interim consolidated financial statements) 1

3 Interim Consolidated Statements of Comprehensive Loss (Expressed in Canadian dollars except share amounts) Three Months Ended March 31, 2018 Three Months Ended March 31, 2017 Revenue 139, ,093 Expenses Amortization 8, ,666 Consulting fees 114, ,575 Filing fees 48,164 20,328 Foreign exchange loss 1,773 (370) General and administrative 867, ,992 Management fees (Note 8) 224,072 87,616 Promotion and advertising 101,704 69,349 Professional fees 58,814 51,215 Stock-based compensation (Notes 8 and 11) 1,426,112 69,165 Travel 44,655 81,596 Total operating expenses 2,896,363 1,396,132 Net loss before other income (2,756,942) (1,280,039) Other income Interest income 3,611 7,674 Net loss and comprehensive loss for the period (2,753,331) (1,272,365) Basic and diluted loss per common share (0.07) (0.03) Weighted average number of common shares outstanding 41,868,859 39,204,094 (The accompanying notes are an integral part of these interim consolidated financial statements) 2

4 Interim Consolidated Statements of Changes in Shareholders Equity (Expressed in Canadian dollars except share amounts) Common Shares Share-based Payment Common Shares Total Shareholders Amount Reserve Subscribed Deficit Equity Number Balance, December 31, ,172,469 27,071,707 11,884,059 (31,540,434) 7,415,332 Issuance of common shares to settle accrued liabilities at 1.99 per share 91, , ,733 Fair value of stock options granted 95,935 95,935 Net loss (1,272,365) (1,272,365) Balance, March 31, ,264,283 27,254,440 11,979,994 (32,812,799) 6,421,635 Balance as previously reported, December 31, ,264,283 27,254,440 12,930, ,500 (39,146,656) 1,202,402 IFRS 15 transitional amount (10,790) (10,790) Balance as adjusted, December 31, ,264,283 27,254,440 12,930, ,500 (39,157,446) 1,191,612 Issuance of common shares for cash 2,905,614 2,033,930 (164,500) 1,869,430 Share issuance costs (181,226) 44,598 (136,628) Purchase of Real-Block Inc. 1,102, , ,910 Issuance of common shares to settle accrued liabilities at 0.65 per share 330, , ,980 Fair value of stock options granted 1,426,112 1,426,112 Net loss (2,753,331) (2,753,331) Balance, 43,603,573 30,039,034 14,400,828 (41,910,777) 2,529,085 (The accompanying notes are an integral part of these interim consolidated financial statements) 3

5 Interim Consolidated Statements of Cash Flows (Expressed in Canadian dollars) Operating activities Three Months Ended March 31, 2018 Three Months Ended March 31, 2017 Net loss (2,753,331) (1,272,365) Items not affecting cash: Amortization 8, ,666 Stock-based compensation 1,426,112 69,165 Changes in non-cash operating working capital: Amounts receivable (86,520) 12,368 Prepaid expenses (29,900) 16,383 Leasehold improvement allowance 16,969 Accounts payable and accrued liabilities 59,337 59,468 Contract liabilities (1,649) 107,664 Net cash used in operating activities (1,360,270) (673,651) Investing activities Purchase of property and equipment (2,280) Acquisition of intangible assets (672) Acquisition of Real-Block Inc. (75,000) Website development costs (289,576) Net cash used in investing activities (77,280) (290,248) Financing activities Repayment of finance lease obligations (2,369) (1,563) Proceeds from common shares issued 1,752,866 Net cash provided by financing activities 1,750,497 (1,563) Increase (decrease) in cash and cash equivalents 312,947 (965,462) Cash and cash equivalents, beginning of period 1,570,967 6,056,127 Cash and cash equivalents, end of period 1,883,914 5,090,665 Cash and cash equivalents is comprised of: Amounts held in legal trust account 17,718 18,297 Cash in bank 1,784,615 5,072,368 Cashable guaranteed investment certificates 81,581 76,288 Total cash and cash equivalents 1,883,914 5,166,953 Non-cash investing and financing activities: Stock compensation capitalized as website development costs 26,770 (The accompanying notes are an integral part of these interim consolidated financial statements) 4

6 1. Corporate Information RESAAS Services Inc. (the Company ) was incorporated on June 4, 2009 under the Business Corporations Act (British Columbia). The Company is engaged in the development of web and mobile communications software for the real estate industry. The Company s head office is located at Suite W. Georgia St., Vancouver, British Columbia, Canada, V6B 5A1. 2. Basis of Presentation (a) Statement of Compliance and Principles of Consolidation These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, The Company uses the same accounting policies and methods of computation as in the annual consolidated financial statements, except for the impact of the changes in accounting policy disclosed in Note 3. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, RESAAS USA Inc., The Real Estate Social Network Ltd., and Real-Block Inc. All significant intercompany transactions have been eliminated on consolidation. (b) Basis of Measurement These interim consolidated financial statements have been prepared on a historical cost basis and are presented in Canadian dollars, which is also the Company s functional currency. The preparation of these interim consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the period. These estimates are, by their nature, uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the reporting date that could result in a material adjustment to the carrying amounts of assets and liabilities include the following: i) The useful life and recoverability of long-lived assets: ii) The inputs used in the valuation of share-based payments: iii) Recognition of deferred income tax assets: iv) Revenue recognition for special contracts and projects: Significant areas of judgment include: i) Qualification of costs to capitalize as website development costs: ii) Revenue recognition for special contracts and projects: iii) Application of the going concern assumption: 5

7 2. Basis of Presentation (continued) (c) Going Concern These interim consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As of, the Company had not yet generated significant revenue or positive cash flow from operations and had an accumulated deficit of 42,006,206. These factors, among others, create substantial doubt as to the ability of the Company to continue as a going concern. Management believes that the proceeds from additional equity financing activities that it is currently pursuing, combined with revenue that the Company expects to generate in subsequent periods, will provide the Company with sufficient working capital to satisfy its liabilities and commitments as they become due for the foreseeable future. There can be no assurances that sufficient equity can be raised on acceptable terms on a timely basis. These interim consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these consolidated financial statements. 3. Accounting Policies Implemented on January 1, 2018 The Company has adopted new accounting standard IFRS 9 - Financial Instruments, effective for annual periods beginning on or after January 1, The adoption of IFRS 9 did not result in any changes to the classification, measurement or carrying amounts of the Company s existing financial instruments on transition date. The new standard brings together the classification and measurement, impairment and hedge accounting phases of the IASB s project to replace IAS 39 - Financial instruments: recognition and measurement. The standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The Company continues to classify and measure its financial instruments at fair value through profit or loss with changes in fair value recognized in profit or loss as they arise ( FVTPL ), unless restrictive criteria regarding the objective and contractual cash flows of the instrument are met for classifying and measuring at either amortized cost or fair value through other comprehensive income. Cash and cash equivalents, and trade receivables continue to be recorded at FVTPL. Trade and other payables are classified and measured as financial liabilities, initially at FVTPL, and subsequently at amortized cost using the effective interest rate method. The Company has adopted new accounting standard IFRS 15 Revenue from Contracts with Customers, effective for annual periods beginning on or after January 1, 2018 using the retrospective method of adoption. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. The Company principally generates revenue from subscription fees, online advertising sales and projects pursuant to contractual arrangements with its customers. Revenue from subscription fees and online advertising is generally earned over time and is recognized on a straight-line basis over the term of the contract. The Company has reviewed its sources of revenue from subscription fees and online advertising using the guidance found in IFRS 15 and determined that there are no material changes to the timing and measurement of the Company s revenue from these sources as compared to the previous standards. Revenue from projects is recognized when the Company has fulfilled all performance obligations related to the services provided, Revenue is generally earned at a point in time and is based on the consideration the Company expects to receive for the transfer of services to the customer. The Company has reviewed its sources of project revenue and major contracts with customers using the guidance found in IFRS 15 and determined that changes resulting from the adoption of this standard was an increase in total current liabilities of 10,790, with a corresponding increase in deficit of 10,790 at December 31,

8 3. Accounting Policies Implemented on January 1, 2018 (continued) Changes resulting from the adoption of this standard are described below: Current liabilities As Previously Reported December 31, 2017 IFRS 15 Effects As Currently Reported Contract liabilities 51,014 51,014 Deferred revenue 40,224 (40,224) Total current liabilities 654,245 10, ,035 Total liabilities 661,756 10, ,546 Deficit (39,146,656) (10,790) (39,157,446) Total shareholders equity 1,202,402 (10,790) 1,191, Accounting Standards Issued But Not Yet Effective Certain pronouncements were issued by the IASB or the IFRS Interpretations Committee that are mandatory for annual periods beginning after January 1, 2019 or later periods. On January 13, 2016, the IASB published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and offbalance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a frontloaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company is currently assessing the impact of the new standard including the optional exemptions available. The recognition of all leases on balance sheet is expected to increase the assets and liabilities on the Consolidated Statement of Financial Position upon adoption. The increase primarily relates to property leases currently accounted for as operating leases. The Company does not intend to early adopt the standard. Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company s financial statements. 5. Property and Equipment Furniture Computer Leasehold Equipment Under Improvement Finance Lease Computer Equipment Cost: Balance, December 31, ,307 17,714 32,446 82, ,016 Additions 2,280 6,203 8,483 Total Balance, 27,307 19,994 38,649 82, ,499 Accumulated amortization: Balance, December 31, ,967 4,294 21,053 66,264 97,578 Additions 1,366 2,138 2,386 2,208 8,098 Balance, 7,333 6,432 23,439 68, ,676 7

9 5 Property and Equipment (continued) Carrying amounts: Balance, December 31, ,340 13,420 11,393 16,285 62,438 Balance, 19,974 13,562 15,210 y 14,077 62, Intangible Assets Accumulated Carrying Cost Amortization Amounts Balance, December 31, ,555 6,449 44,106 Additions 791, Balance, 842,465 7, ,402 On February 27, 2018, the Company acquired Real-Block Inc., ( RBI ), a company holding a real estate blockchain application. As consideration for the acquisition, the Company paid the shareholders of RBI 75,000 in cash and issued 1,102,938 common shares of the Company with a deemed value of 750,000 using a volume-weighted average price formula for total consideration of 825,000. The shares had a fair value of 716,910 at the date of issuance and were capitalized to intangible assets along with the 75,000 cash payment. Upon the completion by RBI of a beta test of its technology with at least one real estate association or land registry office within two years, the Company will issue the shareholders of RBI an additional 750,000 in RESAAS shares valued using a volume-weighted average price formula for an aggregate total potential fair value consideration of 1,575,000. In connection with the acquisition of RBI, the Company entered into a consulting agreement with the principal of RBI for two years for a fee of 100,000 per year. 7. Obligations Under Finance Lease The Company entered into several agreements to lease computer equipment for two or three years. The computer equipment leases are classified as finance leases. The interest rates underlying the obligations in the finance leases are 1%, 4%, 5%, 8%, 16%, and 56% per annum. The following is a schedule by years of future minimum lease payments under finance leases together with the present value of the net minimum lease payments as of : Fiscal year ending December 31: , , , Net minimum lease payments 21,300 Less: amount representing interest payments (1,405) Present value of net minimum lease payments 19,895 Less: current portion (8,345) Long-term portion 11, Related Party Transactions During the three months ended, salary of 224,072 ( ,616) to the Company s key management is included in management fees. The following table summarizes the compensation of the Company s key management: 8

10 8 Related Party Transactions (continued) 9. Share Capital Preferred Shares Three Months Ended March 31, Management fees 224,072 87,616 Share based payments to officers and directors 1,085,264 The Company is authorized to issue an unlimited number of non-voting, non-transferable Class A preferred shares with a par value of 0.01 per share. The Class A preferred shares cannot be issued at a price less than 2.00 per share. Holders of Class A preferred shares are not entitled to receive any dividends. Each issued and outstanding Class A preferred share shall be converted into one fully paid common share immediately prior to the consummation of any Change of Control Event. The Company is authorized to issue an unlimited amount of Class B preferred shares without par value. The Class B preferred shares allow the Board to fix the number of shares in the series and to fix the preferences, special rights and restrictions, privileges, conditions and limitations attached to the shares of that series, before the issuance of shares of any particular series. The Board has the authority to fix, amongst other things, the number of shares constituting any such series, the voting powers, designation, preferences and relative participation, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights and dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the shareholders of the Company. As at, there are no Class A or Class B preferred shares issued and outstanding. Common Shares The Company is authorized to issue an unlimited number of common shares without par value. a) On February 28, 2017, the Company paid performance bonuses by issuing 91,814 common shares to certain directors, officers and employees. As the bonuses were earned during the year ended December 31, 2016, the Company recorded the fair value of the shares of 182,733 in accounts payable and accrued liabilities at December 31, The Company capitalized 50,104 as website development costs and expensed 132,629 of the performance bonus during the year ended December 31, b) On January 25, 2018, the Company closed a non-brokered private placement of units (each, a Unit ) at a price of 0.70 per Unit for aggregate gross proceeds of 2,033,930. Each of the 2,905,614 Units consists of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of 0.90 per share until January 25, In connection with the private placement, the Company paid a cash commission of 116,564, issued 178,472 Finder s Warrants, and paid 20,063 share issuance costs. Each Finder s Warrant is exercisable into one common share at a price of 0.90 per share until January 25, The Company plans to use the proceeds of the private placement for the continued development of its technology platform, investor relations activities, increasing sales team, general working capital, and research and development in emerging technologies. c) On February 27, 2018, the Company issued 1,102,938 common shares of the Company with a fair value of 716,910 as consideration for the acquisition of RBI (Note 5). d) On February 28, 2018, the Company paid performance bonuses by issuing 330,738 common shares to certain directors, officers and employees. As the bonuses were earned during the year ended December 31, 2017, the Company recorded the fair value of the shares of 214,980 in accounts payable and accrued liabilities at December 31,

11 10. Share Purchase Warrants The following table summarizes the continuity of share purchase warrants: Weighted Average Number of Warrants Exercise Price Balance, December 31, ,212, Issued 3,084, Exercised Expired Balance, 4,296, The following table summarizes information about warrants outstanding and exercisable at March 31, 2018: Warrants Outstanding Exercise Price Expiry Date 967, August 31, , September 7, ,084, January 25, , February 26, ,296, Stock Options The following table summarizes information about the stock options. Three Months Ended Number of Options Weighted Average Exercise Price Year Ended December 31, 2017 Number of Options Weighted Average Exercise Price Outstanding beginning of period 5,723, ,985, Granted 2,674, ,138, Cancelled Expired (650,000) 2.31 (401,000) 2.28 Exercised Outstanding end of period 7,747, ,723, Exercisable end of period 7,082, ,863,

12 11. Stock Options (continued) The following table summarizes information about stock options outstanding and exercisable as at March 31, Exercise Price Expiry Date Number of Options Outstanding Number of Options Exercisable Weighted Average Remaining Contracted Life (Years) 1.00 December 23, ,000 75, December 23, ,000 75, May 5, ,300,000 1,300, May 5, , , May 5, , , December 20, , , December 20, , , December 20, ,000 5, May 19, , , February 27, ,047,200 3,532, ,747,400 7,082, The fair value of stock options granted was determined using the Black-Scholes option pricing model. During the three months ended, the Company granted stock options with a fair value of 1,078,648, of which 1,012,766 was expensed relating to stock options that vested during the period. During the three months ended, the Company expensed 413,346 for the vesting of previously granted stock options. During the three months ended, the Company amended the terms of outstanding options to purchase an aggregate of 3,048,000 shares by (i) reducing their exercise price to 1.00 from between 1.50 and 2.50 and (ii) extending the expiry date of certain options to February 27, 2023 from between December 23, 2019 and May 19, The fair value of the stock options was recalculated using the Black-Scholes option pricing model on the amendment date. During the period ended March 31, 2018, the Company recognized 372,786 of stock-based compensation relating to the incremental increase in fair value of modified stock options. The weighted average fair value of the options granted during the three months ended was 0.40 per option. No options were exercised during the three months ended or March 31, Capital Management The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of equity comprised of issued share capital, share-based payment reserve and deficit. The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its board of directors, will balance its overall capital structure through new equity issuances or by undertaking other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital requirements and the Company s overall strategy with respect to capital risk management remains unchanged from the year ended December 31,

13 13. Commitments and Contingencies The Company had no significant commitments or contractual obligations with any parties respecting executive compensation, consulting arrangements, or other matters. Management services provided are on a month-to-month basis. a) On August 22, 2016, the Company entered into a lease for the provision of facility space from November 1, 2016 to October 31, On March 30, 2017, the Company entered into a Lease Extension and Amending Agreement for additional facility space and extended the term to October 31, The Company s future minimum lease payments for the premise lease is as follows: Fiscal year ending December 31, ,055 Fiscal year ending December 31, ,207 Fiscal year ending December 31, ,477 Total: 513,739 Under the terms of the lease, the Company is entitled to a leasehold improvement allowance. During the period ended, the Company recognized a provision of 29,094 for leasehold improvement allowance, which will be amortized on a straight-line basis over the remainder of the lease. As at, the Company has received 19,535 of the leasehold improvement allowance and recognized 9,558 as a leasehold improvement allowance receivable. During the period ended, the Company recognized amortization of 2,567 of leasehold improvement allowance towards lease payments. As at, there is a remaining balance of leasehold improvement allowance of 26,527. b) The Company has entered into two leases for Company vehicles until October 28, 2018 and September 21, The Company s future minimum lease payments for the vehicle leases are as follows: Fiscal year ending December 31, ,161 Fiscal year ending December 31, ,954 Total: 21, Financial Instruments and Risk Management The Company is exposed in varying degrees to a variety of financial instrument and related risks. Those risks and management s approach to mitigating those risks are as follows: (a) Fair Values The fair values of financial instruments, which include cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, and obligations under finance lease approximate their carrying values due to the relatively short-term maturity of these instruments. (b) Credit Risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company s exposure to credit risk is in its cash and receivables. Cash is held with major banks in Canada and the United States, which are high credit quality financial institutions as determined by rating agencies. The carrying amount of financial assets represents the maximum credit exposure. Amounts Receivable Amounts receivable consists of GST refunds which are due from the Government of Canada and at, 119,201 of trade receivables is owed from several customers. 12

14 14. Financial Instruments and Risk Management (continued) The following table represents the customers that represented 10% or more of total revenue for the three months ended : Customer A 31% Customer B 14% 18% Customer C 14% Customer D 8% 32% (c) Currency Risk The Company s functional currency is the Canadian dollar. Currency risk is the risk that the fair value of the Company s financial instruments will fluctuate because of changes in foreign currency exchange rates. The Company s head office and operating expenses are mainly denominated in Canadian dollars. A large portion of the Company s revenue is denominated in US dollars. If the US dollar depreciates compared to the Canadian dollar revenue would decrease in Canadian dollars. There is an immaterial foreign exchange risk to the Company as the Company still has a minimal amount of revenue. (d) Interest Rate Risk The Company s exposure to interest rate risk relates to its ability to earn interest income on cash balances at variable rates and its short-term term deposits at prescribed market rates. The fair value of the Company s cash is not significantly affected by changes in short-term interest rates. The income earned from the bank accounts and short-term term deposits is subject to movements in interest rates. (e) Liquidity and Funding Risk Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. The Company s objective in managing liquidity risk is to maintain sufficient readily available capital in order to meet its liquidity requirements. Management maintains sufficient cash to satisfy short-term liabilities in highly liquid investments. Funding risk is the risk that market conditions will impact the Company s ability to raise capital through equity markets under acceptable terms and conditions. A summary of the Company s obligations is as follows: As at Carrying amount Contractual cash flows 1 year or less 1-5 Years Trade and other payables 469, , ,892 Obligations under finance lease 19,894 21,300 9,489 11, , , ,457 11, Subsequent Event Subsequent to quarter end the company took steps to reduce its operating costs. As a result, the company reduced headcount by approximately 18% and took steps which, once realized fully will result in general monthly operating costs reducing by approximately 40%. As a result of these actions, a onetime charge of 37, will be recorded in the second quarter financial results. 13