Condensed Consolidated Interim Financial Statements

Transcription

1 Condensed Consolidated Interim Financial Statements for the three and six months ended March 31, 2017

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3 CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (in thousands of Canadian Dollars) Assets Current assets Notes March 31, 2017 September 30, 2016 Cash and cash equivalents $ 3,291 $ 1,652 Funds held in trust 3(A) 1,012 Due from carrying broker 3(A) 17,078 Trade and other receivables 21 6,852 3,684 Current income tax receivable 12 Investments at fair value through profit or loss Prepaid expenses Notes receivable 3(A)(v) 480 Assets held for sale $ 29,558 $ 6,155 Property and equipment 667 Prepaid deposits and expenses 303 Notes receivable 3(A)(v) 1, Intangible assets and goodwill 5 55,723 Deferred sales commissions Total assets $ 88,084 $ 7,747 Liabilities Current liabilities Due to clients 3(A) 17,078 Due to carrying broker 3(A) 1,012 Trade and other payables 21 8,389 4,441 Provisions 7 3,019 Promissory note 3(B), 8 6,812 Due to related parties 125 Liabilities related to assets held for sale $ 36,310 $ 4,862 Convertible debentures 9 14,803 Subordinated loan 11 Provisions 7 1,370 Deferred tax liabilities 19 4,774 Contingent consideration payable 3(B) 2,731 Noncontrolling interest Noncontrolling interest 97 Shareholders' equity Share capital $ 29,671 $ Treasury stock (11) Convertible debentures equity component 9 1,476 Contributed surplus 1,220 Accumulated deficit (4,368) 2,885 $ 27,988 $ 2,885 Total liabilities & shareholders' equity $ 88,084 $ 7,747 The notes are an integral part of these unaudited condensed consolidated interim financial statements. Approved on behalf of the Board of Directors "Signed" Director Joe Canavan "Signed" Director Colleen McMorrow 2 LOGiQ Asset Management Inc.

4 CONSOLIDATED INTERIM STATEMENT OF NET AND COMPREHENSIVE INCOME (LOSS) (in thousands of Canadian Dollars) Revenue Three months ended Six months ended Notes March 31, 2017 March 31, 2016 March 31, 2017 March 31, 2016 Management fees and other 21 $ 7,972 $ 3,266 $ 12,596 $ 6,879 Performance fees 22 (503) 1, Other income Expenses $ 7,548 $ 3,312 $ 14,367 $ 7,338 Salaries and wages 22 2, ,134 2,038 General and administrative 3,087 1,068 4,203 2,319 Restructuring costs 7 2,690 Trailer fees 1,385 1,015 2,424 2,187 Subadvisory expense , Share based compensation Amortization of deferred sales commissions Amortization of intangible assets finite life 5 1, , Depreciation of property and equipment Total operating expenses $ 10,104 $ 3,425 $ 18,164 $ 7,421 Net finance expense Total expenses $ 10,821 $ 3,425 $ 19,019 $ 7,421 Net gains (losses) on financial assets and liabilities at fair value through profit or loss 13 1 $ 6 (27) $ 7 Net loss before income taxes for the period $ (3,272) $ (107) $ (4,679) $ (76) Income tax expense (recovery) Current taxes 7 53 Deferred taxes (515) (701) Total income tax (recovery) (508) (648) Net loss for the period $ (2,764) $ (107) $ (4,031) $ (76) Net income to noncontrolling interest Net loss to controlling interest $ (2,765) $ (107) $ (4,035) $ (76) Total comprehensive income (loss) for the period $ (2,765) $ (107) $ (4,035) $ (76) Net loss per share Basic 15 $ (0.008) $ (0.001) $ (0.017) $ (0.001) Diluted 15 $ (0.008) $ (0.001) $ (0.017) $ (0.001) The notes are an integral part of these unaudited condensed consolidated interim financial statements. 3 LOGiQ Asset Management Inc.

5 CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (in thousands of Canadian Dollars) As at and for the periods ended Notes March 31, 2017 September 30, 2016 March 31, 2016 Number of common shares outstanding (in thousands) Outstanding at the beginning of the period , , ,563 Shares issued pursuant to business combinations: Shares issued to former shareholders of Aston Hill ,190 Shares issued to debentureholders of Aston Hill 10 48,711 Shares issued to owners of TCI 10 26,890 Shares issued pursuant to private placement 10 34,437 Shares issued other 10 3,333 Restricted shares vested and treasury stock granted 10, 12 2,108 Shares repurchased and held in treasury 12 (191) Outstanding at end of period 327, , ,563 Share capital Balance at the beginning of the period $ $ $ Shares issued pursuant to business combinations 3, 10 24,125 Shares issued pursuant to private placement 10 5,165 Shares issued other Share issue costs, net of deferred tax 10 (399) Balance at end of period $ 29,671 $ $ Treasury stock Balance at the beginning of the period $ $ $ Treasury stock granted Shares repurchased and held in treasury 12 (26) Balance at end of period $ (11) $ $ Convertible debentures equity component Balance at beginning of period $ $ $ Acquisition of Aston Hill 3(A) 1,476 Balance at end of period $ 1,476 $ $ Contributed surplus Balance at beginning of period $ $ $ Warrants issued Share based compensation expensed Share based compensation exercised (29) Vested component of stock based compensation 3(A) 502 Balance at end of period $ 1,220 $ $ Retained earnings (Accumulated deficit) Balance at beginning of period $ 2,885 $ 6,503 $ 6,503 Shares issued under Aston Hill's RSU Plan 12 (280) Distributions to parent company related to 3(A), 7 (1,225) liabilities transferred to the Group Net loss for the period (4,035) (76) (76) Other 13 Net distributions to the former partners 11 (1,726) (3,542) (3,480) of Front Street Capital Balance at end of period $ (4,368) $ 2,885 $ 2,947 Total equity $ 27,988 $ 2,885 $ 2,947 The notes are an integral part of these unaudited condensed consolidated interim financial statements. 4 LOGiQ Asset Management Inc.

6 CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (in thousands of Canadian Dollars) Cash flows from operating activities Notes March 31, 2017 March 31, 2016 Net and comprehensive (loss) for the period $ (4,035) $ (76) Adjustments for noncash items: Interest expense Depreciation of property and equipment Amortization of finite life intangible assets Amortization of deferred sales commissions Accretion expense Accretion income Share based compensation Net gains (losses) on financial assets and liabilities at fair value through profit or loss Deferred income taxes , , (45) (1) (701) Current income tax expense 53 $ (1,216) $ 653 Change in noncash working capital 16 (2,802) (1,301) $ (4,018) $ (648) Income taxes recovered 1,377 Net cash used in operating activities $ (2,641) $ (648) Investing Activities Acquisition of global advisory business 3(B) $ (3,154) $ Proceeds on sale of Jemekk Proceeds on sale of investments in mutual funds Property and equipment expenditures (104) Deferred sales commission paid 6 (160) (311) Net cash used in investing activities $ (2,569) $ (160) Financing Activities Proceeds from issuance of shares 10 $ 5,665 $ Cash acquired in reverse takeover transaction 3(A) 3,273 Share issue costs 10 (310) Settlement of promissory note on sale of Jemekk 4 (296) Net drawings by the former partners of Front Street Capital 11 (1,122) (3,479) Settlement of subordinated loans (200) Payment on promissory note liability to Integra Capital Ltd. 8 (45) Increase of loan payable 265 Interest paid 9 (90) Shares repurchased and held in treasury 12 (26) Net cash from financing activities $ 6,849 $ (3,214) Change in cash and cash equivalents $ 1,639 $ (4,022) Cash and cash equivalents, beginning of period 1,652 4,660 Cash and cash equivalents, end of period $ 3,291 $ 638 The notes are an integral part of these unaudited condensed consolidated interim financial statements. Six months ended 5 LOGiQ Asset Management Inc.

7 1. REPORTING ENTITY LOGiQ Asset Management Inc. ( LOGiQ Inc., or the Company ) is a company incorporated under the laws of the Province of Alberta, Canada, and is domiciled in Canada. LOGiQ Capital 2016 (the Partnership ) is a general partnership that was formed under the laws of the Province of Ontario on September 23, The Partnership was formerly known as Front Street Capital The Partnership is registered with the Ontario Securities Commission as an investment fund manager and, as a result, is required to maintain specified levels of working capital. On December 8, 2016, the businesses formerly named Aston Hill Financial Inc. ( Aston Hill ), Front Street Capital 2004 ( Front Street Capital ), and Tuscarora Capital Inc. ( TCI ) were combined to form the LOGiQ Asset Management group of companies ( the Group ). Aston Hill acquired all of the partnership interests in Front Street Capital and all of the issued and outstanding voting shares and nonvoting shares of the capital of TCI. Front Street Capital and TCI were under common control. In connection with the transaction, the names of the businesses were changed to better reflect the combined company. The transaction was accounted for as a reverse acquisition under the acquisition method of accounting for business combinations with Front Street Capital being the accounting acquirer. Current business name Former business name Legal and accounting status LOGiQ Asset Management Inc. Aston Hill Financial Inc. Legal parent / accounting acquiree LOGiQ Capital 2016 Front Street Capital 2004 Legal subsidiary / accounting acquirer The principal business of the Group includes (1) the management, marketing, distribution and administration of mutual funds, closed end funds, private equity funds, hedge funds, segregated institutional funds, and other feebased investment products for Canadian investors; and (2) institutional salesrelated fee earning arrangements. LOGiQ Inc. was formerly Aston Hill Financial Inc. LOGiQ Inc. is a publicly traded corporation on the Toronto Stock Exchange ( TSX ), with its head office and principal address being Suite 2110, 77 King Street West, Toronto, Ontario, M5K 1G8. The registered and records office of the Company is Suite 500, 31 6 th Avenue SW, Calgary, Alberta, T2P 3H3. These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on May 15, BASIS OF PREPARATION These condensed consolidated interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ( IFRS ) and in accordance with International Accounting Standards ( IAS ) 34, Interim Financial Reporting. The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Partnership s annual consolidated financial statements for the year ended September 30, 2016, except as described in the notes to the condensed consolidated interim financial statements. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended September 30, The LOGiQ Group For accounting purposes, the Partnership, LOGiQ Capital 2016, is the acquirer of LOGiQ Inc., and as such, these financial statements are a continuation of the financial statements of the Partnership with one adjustment, which is to adjust retroactively LOGiQ Capital 2016 s legal capital to reflect the legal capital of LOGiQ Inc. 6 LOGiQ Asset Management Inc.

8 2. BASIS OF PREPARATION (continued) The transactions and balances of Logic Inc., the legal parent, and its other subsidiaries, are included in these condensed consolidated interim financial statements from the effective date of the acquisition, being December 8, 2016, accordingly, the comparative figures for the 3 and 6 months ended March 31, 2016 include only the results of LOGiQ Capital 2016 (formerly Front Street Capital 2004). Refer also to note 3(A). Legal name Legal status Ownership interest LOGiQ Asset Management Ltd. Subsidiary of LOGiQ Inc % LOGiQ Capital 2016 Subsidiary of LOGiQ Inc % LOGiQ Capital Partners Inc. Subsidiary of LOGiQ Inc % Tuscarora Capital Inc. (i) Subsidiary of LOGiQ Inc % (i) Acquired by the Partnership as part of the December 8, 2016 business acquisition described more fully in note 3(A). As at March 31, 2017, LOGiQ Capital Partners Inc. is the only subsidiary that has noncontrolling interests that are material to the Group. The following tables shows the summarized financial information of LOGiQ Capital Partners Inc. as at March 31, 2017 and for the three and six months ended March 31, 2017: Current assets $ 877 Current liabilities $ 664 Noncurrent assets 1 Noncurrent liabilities 23 Shareholders' equity 191 Total assets $ 878 Total liabilities and equity $ 878 For the three months ended March 31, 2017 Revenue $ 312 Net and comprehensive income before tax 4 Net and comprehensive income after tax 3 For the six months ended March 31, 2017 Revenue $ 390 Net and comprehensive (loss) before tax (10) Net and comprehensive (loss) after tax (8) 3. BUSINESS ACQUISITIONS A) Reverse Acquisition of Aston Hill and Acquisition of TCI On September 9, 2016, Aston Hill entered into an acquisition agreement with the partners of Front Street Capital and the owners of TCI, pursuant to which Aston Hill agreed to acquire all of the partnership interests in Front Street Capital and all of the issued and outstanding voting shares and nonvoting shares of the capital of TCI ( the transaction ). Front Street Capital and TCI were under common control. Pursuant to the terms of the acquisition agreement, the owners of Front Street Capital and TCI collectively received 134,453,333 Aston Hill common shares and $1,800 in cash consideration. The transaction was completed on December 8, LOGiQ Asset Management Inc.

9 3. BUSINESS ACQUISITIONS (continued) Significant judgment determination of the acquirer for accounting purposes On the completion of the transaction, the pretransaction owners of Front Street Capital and TCI held approximately 45.9% and the historic Aston Hill shareholders held approximately 36.4% of the combined company (34.6% and 27.5%, respectively, on a fully diluted basis) after giving effect to the debenture amendments. In determining the acquirer for accounting purposes, management also looked to the composition of the Board of Directors, the composition of key management personnel and the proportionate ownership of each control block. While the board and key management composition did not clearly indicate which party to the transaction would have control of the combined company, the control block held by the former owners of Front Street Capital is the largest and as such, Front Street Capital is deemed to have control and is considered to be the acquirer of Aston Hill for accounting purposes. The transaction is accounted for as a reverse acquisition under the acquisition method of accounting for business combinations. Purchase Price Allocation Aston Hill As Front Street is considered to be the acquirer, the acquisition consideration for accounting purposes consists of Aston Hill s common shares held by the historic Aston Hill shareholders, as well as the fair value of the convertible debentures issued in conjunction with the transaction and as more fully described in notes 3(A)(ii) and 9. Based on the closing price of Aston Hill shares on December 7, 2016, the purchase price equated to an amount of $22,936,000 plus the fair value of debt issued to acquire Aston Hill of $16,181,000, for a total consideration of $39,117, LOGiQ Asset Management Inc.

10 3. BUSINESS ACQUISITIONS (continued) The details of the consideration transferred and the preliminary allocation of the purchase price to the acquired identifiable assets and liabilities assumed are presented below. As the value of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date. When the valuation is final, any changes to the preliminary valuation of acquired assets and liabilities could result in adjustments to identified intangibles and goodwill. Consideration transferred 104,190,221 shares outstanding at $0.15 per share (i) $ 15,629 48,710,950 shares issued to debentureholders at $0.15 cents per share (ii) 7,307 Fair value of debt assumed to acquire Aston Hill (iii) 16,181 Fair value of vested component of stock based compensation (vii) 502 $ 39,619 Fair value of assets and liabilities acquired Cash and cash equivalents $ 2,115 Trade and other receivables 1,590 Current income tax receivable 1,484 Investments at fair value through profit or loss 155 Prepaid expenses 281 Prepaid deposits and expenses 303 Notes receivable (v) 1,476 Property and equipment 645 Intangible assets and goodwill (iv) 44,408 Deferred sales commissions 230 Trade and other payables (4,925) Subordinated loan (11) Provisions (2,864) Deferred tax liabilities (4,954) Net identifiable assets acquired $ 39,933 Less: Noncontrolling interest (vi) (314) Net identifiable assets acquired $ 39,619 (i) LOGiQ Inc. shares outstanding LOGiQ Inc. s shares outstanding as disclosed per the unaudited financial statements of Aston Hill Financial Inc. for the nine months ended September 30, 2016 were 103,984,456, net of treasury stock of 2,459,304. As at December 8, 2016, after the effect of 205,765 common shares that were released pursuant to vesting under the deferred equity plan, there were 2,253,539 common shares held in treasury and 104,190,221 shares outstanding. The $0.15 share price used to calculate the value of shares issued for consideration was the closing price of Aston Hill s shares on December 7, LOGiQ Asset Management Inc.

11 3. BUSINESS ACQUISITIONS (continued) (ii) Shares issued to debentureholders On November 22, 2016, the holders of LOGiQ Inc. s 6.50% extendible convertible unsecured debentures approved the debenture amendments as described more fully in note 8. The amendments included that the debentureholders received, for each $1,000 principal amount of existing debentures, 1,445 shares of LOGiQ Inc. Immediately prior to the closing of the reverse takeover transaction, there was $33,710,000 in principal amount of debentures outstanding. Accordingly, 48,710,950 shares were issued to debentureholders concurrent with the closing of the transaction. (iii) Fair value of debt assumed to acquire Aston Hill The fair value of debt assumed to acquire Aston Hill was calculated based on the opening trading price of the amended debentures, when they commenced trading on December 14, Refer to note 9 for further details. (iv) Intangible assets and goodwill The balance of intangible assets acquired represents $28,245,000 of indefinite life intangible assets, representing the value allocated to the acquiree s openend mutual fund management contracts, and $13,467,000 of finite life intangible assets, being the value allocated to the acquiree s closedend fund and institutional management contracts. Goodwill of $2,475,000 recorded on the reverse takeover transaction was reduced by $221,000, being the difference between the fair value of the noncontrolling interests in Aston Hill and the carrying amount at which Aston Hill had recorded the noncontrolling interest at acquisition date. Refer to note 5 for further details in respect of acquired intangible assets and goodwill. (v) Notes receivable The Group acquired the following notes receivable on acquisition date: Note receivable with a principal amount of $1,600,000 and a maturity date of March 31, Note receivable with a principal amount of $840,000 and a maturity date of March 31, The fair value of each note receivable was calculated by discounting the cash flows of the notes receivable over terms of ten and five years, respectively, at an appropriate riskadjusted discount rate. (vi) Accounting policy choice for noncontrolling interests The group recognizes noncontrolling interests in an acquired entity either at fair value or at the noncontrolling interest s proportionate share of the acquired entity s net identifiable assets. This decision is made on an acquisitionbyacquisition basis. For the noncontrolling interests in Aston Hill, the group elected to recognize the noncontrolling interests at fair value. (vii) Fair value of vested component of stock based compensation Represents the vested portion of stock based compensation granted to Aston Hill employees prior to December 8, LOGiQ Asset Management Inc.

12 3. BUSINESS ACQUISITIONS (continued) Liabilities assumed by the Group on the reverse acquisition of Aston Hill On the completion of the reverse takeover transaction, LOGiQ Inc. assumed certain liabilities from the former partners of Front Street Capital, as follows: Up to $3,100,000 of performance fees earned (after certain tax adjustments) on certain funds managed by Front Street Capital between the completion of the transaction and April 1, 2019 are to be paid to certain former partners of Front Street. The fair value of the liability as at December 8 and December 31, 2016, amounted to $1,060,000 and reflected actual performance fees earned to December 31, 2016 and management s estimate of future performance fees that may be earned in the period to April 1, During the three months ended March 31, 2017, management reduced its estimated liability from $1,060,000 to $743,000. As at March 31, 2017 management s estimate of the portion of the liability related to future performance fees is $nil. This estimate is based on the current net asset value ( NAV ) of the relevant funds, and an expected growth rate in NAV of 5%. The liability recorded as at December 31, 2016 was in respect of actual performance fees earned, was recorded within trade and other payables in the consolidated interim statement of financial position. At each period end, the fair market value of this liability will be reassessed. Performance fees earned are a significant estimate and subject to management judgement. For the period ended March 31, 2017, management used the best information available at the time the estimates were made to determine the amount of performance fees to include in the period. Certain former partners of Front Street Capital may be paid an amount of up to $3,750,000 determined by achieving certain average assets under management targets by February 23, 2018, with an option to extend this date by an additional year if certain conditions are met. As of December 8, 2016, the fair market value of this liability was estimated to be $800,000 and was included within noncurrent provisions on the consolidated interim statement of financial position. At each period end the fair market value of this liability will be reassessed. As at the end of March 31, 2017, this liability has been reassessed as $nil, and the earnout liability provision has been adjusted accordingly (see note 7). A preexisting agreement to release excess working capital in the amount of $496,000 to the former partners of Front Street Capital was assumed by the Group. This liability is recorded within trade and other payables in the consolidated interim statement of financial position as at March 31, The assumption of these liabilities represents a distribution to the former partners of Front Street Capital. On recognition of the each of the above liabilities, the offsetting charge was recorded directly in retained earnings (accumulated deficit). 11 LOGiQ Asset Management Inc.

13 3. BUSINESS ACQUISITIONS (continued) Purchase Price Allocation TCI Prior to the transaction, TCI was controlled by FS Group Holdings Ltd., and as a result was considered to be under the common control of the former partners of Front Street Capital. In accounting for the acquisition of TCI, the Group has made the accounting policy choice to account for the acquisition of TCI at fair value using the acquisition method. In legal form, the consideration paid for TCI is represented by the number of shares of LOGiQ Inc. that were issued to the owners of TCI pursuant to the transaction, being 26,890,667, or 20% of the total 134,453,333 shares to the owners of Front Street Capital and TCI. For accounting purposes, the consideration paid for TCI has been determined based on TCI s fair value. Consideration transferred $ 1,189 Fair value of assets and liabilities acquired Cash and cash equivalents Funds held in trust (ii) Due from carrying broker (iii) Trade and other receivables Intangible assets and goodwill (i) Due to clients (iv) Trade and other payables Subordinated loan $ 1, , (18,814) Deferred tax liabilities (i) (70) Net identifiable assets acquired $ 1,189 (78) (200) (i) Intangible assets and goodwill Intangible assets acquired of $265,000 represent TCI s registration with the Investment Industry Regulatory Organization of Canada ( IIROC ), and its investment dealer infrastructure. These intangible assets allow TCI to operate as an investment dealer. The IIROC registration and an investment dealer infrastructure therefore represent an expected future economic benefit that will flow to the Group as a result of this acquisition. The value of this intangible assets has been determined with reference to a comparable historical transaction by the Group and the expected cost of setting up an IIROC registrant. Goodwill of $70,000 with a corresponding deferred tax liability of the same amount, represents the fair value of the tax shield available to a third party purchaser of the assets. (ii) (iii) (iv) Funds held in trust Funds held in trust represent the funds held in trust for registered retirement savings plans or tax free savings accounts on behalf of clients. Due from carrying broker Amounts due from brokers represent receivables for securities sold, net of payables for securities purchased that have been contracted for but not yet settled or delivered on the consolidated interim statement of financial position date respectively. Due to clients The due to clients balance represents client assets held by the carrying broker on behalf of clients. 12 LOGiQ Asset Management Inc.

14 3. BUSINESS ACQUISITIONS (continued) B) Acquisition of Global Advisory Agreements On December 22, 2016, the Group completed the acquisition of certain global advisory agreements from Integra Capital Limited ( the Vendor ) to form the foundation for its new Institutional Advisory Group. Several employees key to the success and growth of the acquired business were recruited to the Group from the Vendor concurrent with the closing of the acquisition. The details of the consideration transferred and the allocation of the purchase price to the acquired identifiable assets and liabilities assumed are presented below. As the value of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date. When the valuation is final, any changes to the preliminary valuation of acquired assets and liabilities could result in adjustments to identified intangibles and goodwill. Consideration transferred Cash paid $ 3,154 Promissory note (i) 6,699 Contingent consideration (ii) 2,731 $ 12,584 Fair value of assets and liabilities acquired Prepaid expenses $ 30 Intangible assets management contracts (iii) 9,823 Net identifiable assets acquired $ 9,853 Goodwill (iv) 2,731 $ 12,584 (i) Promissory note The promissory note is a senior secured promissory note of LOGiQ Inc., bearing interest at the rate of 6% per annum due one year after the acquisition date. The maturity date may be deferred at the discretion of LOGiQ Inc. for up to two successive 6 month periods upon additional payment to the Vendor of $250,000 in cash for each 6 month period. The Group has the right to repay any amount of the promissory note prior to maturity. The purchase agreement requires LOGiQ Inc. to pay 55% of revenue received in respect of the purchased management contracts toward the promissory note, with such payment applied firstly to accrued and unpaid interest and secondly to the reduction of the principal amount of the promissory note. Should the Group issue equity prior to the promissory note being repaid the proceeds, or such applicable portion thereof, must be used to reduce the principal balance of the promissory note. The principal amount of the promissory note is $6,889,000, and the note bears interest at the rate of 6.0% per annum, accrued daily. The fair value of the promissory note, of $6,699,000 was calculated using a discount rate of 9.0%. The Group has elected to treat the term extension option as a loan commitment. The Group has calculated the fair value of the loan commitment to be $nil, on the basis that the additional payment of $500,000 to extend the note for one year approximates the difference between the market interest rate and the rate at which the promissory note bears interest. 13 LOGiQ Asset Management Inc.

15 3. BUSINESS ACQUISITIONS (continued) The promissory note is secured by a continuing, specific and fixed mortgage, charge and security interest in all of LOGiQ Inc. s property, assets, and undertaking, both present and future, of whatever nature and kind, tangible and intangible, real and personal, moveable and immovable, legal and equitable, wherever situate and all proceeds thereof which LOGiQ Inc. may be possessed of or entitled to or which may hereafter be held or acquired. Refer to note 8 for a summary of the changes in the carrying value of the promissory note for the period ended March 31, (ii) Contingent consideration The determination of contingent consideration payable is subject to significant assumptions and management judgment and may be adjusted in respect of the following events occurring subsequent to the acquisition date: If defined key service contracts are not fully assigned or economic benefits not transferred to the Group within a specified period, the principal amount of the promissory note would be reduced by the annualized revenue of the key service contracts not assigned or for which economic benefits have not been transferred. As of March 31, 2017, the Group expects that all key service contracts will be assigned If the Group enters into defined prospect contracts in the period up to and including December 31, 2017, the Group must pay to the Vendor in cash, or in LOGiQ Inc. shares, an amount equal to 3 times the annualized revenue of the prospect contracts entered into, reduced by an amount equal to 5 times the annualized revenue of any management contracts that have been cancelled or terminated by a client between December 22, 2016 and December 31, The fair value of the liability will be assessed at each period end with changes in the fair value of the liability being reflected in the consolidated statement of net and comprehensive income (loss) as change in fair value of contingent consideration. The Group has estimated the fair value of the liability to be $2,731,000, based on the following estimates and assumptions: Probability estimates based on historical experience, for the success rates of the pipeline contracts moving through each stage from the first stage (search uncovered) to the fifth stage (contract entered into). Estimates based on historical experience, of the length of time for the defined pipeline contracts to move through each stage, on average. The expected revenue rates on the potential global advisory agreements. The Group does not expect any management contracts to be cancelled or terminated by a client. If the Group enters into defined prospect contracts in the period between January 1, 2018 and March 31, 2018, LOGiQ Inc. must pay to the Vendor in cash, or in LOGiQ Inc. shares, an amount equal to 1.5 times the annualized revenue of the prospect contracts entered into, reduced by an amount equal to 5 times the annualized revenue of any management contracts that have been cancelled or terminated by a counterparty between December 22, 2016 and December 31, Using the same estimates and assumptions as described in (ii) above, LOGiQ Inc. has estimated the fair value of the liability to be $nil. The key unobservable input to the calculation of the total contingent consideration liability, of $2,731,000, is the probability estimate of the success rates of the prospect contracts being ultimately entered into. Management has performed sensitivity analysis by increasing or decreasing the probability of the prospect contracts moving to the next stage, relative to the base rate probabilities and holding all other elements constant, by +20% and 20%. If the base case probabilities were increased or decreased by 20% relative to their existing values, the fair value estimate of the total contingent consideration would increase by $920,000 or decrease by $775,000, respectively. Subsequent to December 31, 2016, Management obtained additional information about facts and circumstances that existed at the acquisition date of December 22, This resulted in a decrease in the acquisition date goodwill and contingent consideration payable, of $720,000 compared to the $3,451,000 recognized as at December 31, LOGiQ Asset Management Inc.

16 3. BUSINESS ACQUISITIONS (continued) Contingent consideration payable, if any, is due on April 30, 2018, or before this date at the option of the Group, and may be satisfied in cash or a variable number of common shares of LOGiQ Inc. If the Group were to elect settlement in shares, the number of shares to be issued is determined by dividing the final contingent consideration payable, if any, by the value weighted average price of LOGiQ Inc. s shares for the 30 trading days ending on the trading day that is two days before the issuance of such shares. As the shares to be issued, if any, would be of a variable amount, the contingent consideration payable is classified as a financial liability. (iii) Intangible assets management contracts The identifiable assets acquired comprised institutional management contracts. Based on the historical average holding periods, the useful life of the management contracts is determined to be eight years, with the management contracts to be amortized on a straightline basis. Refer also to note 5. (iv) Goodwill Goodwill of $2,731,000 was recognized on the acquisition of the global advisory management contracts. This amount was reestimated as at March 31, 2017 as described in part (ii) of this note. The goodwill is attributable to revenue generating contracts that are expected to be entered into pursuant to either commitments from counterparties and/or probabilistic analysis but that have not been fully executed. Goodwill is not deductible for tax until such time as the contingent consideration is paid and no deferred tax is recognized at inception pursuant to IAS12.15(a). C) Effect of acquisitions on results of the combined group For the three and six month periods ended March 31, 2017 revenue of $3,850,000 and $5,084,000 respectively, attributable to the reverse acquisition of Aston Hill, is included in the consolidated interim statement of net and comprehensive income (loss). It is impracticable to disclose the net profit before tax of Aston Hill as a standalone entity, due to the financing structure of the group and share options issued pursuant to the transaction. For the three months ended March 31, 2017, revenue of $586,000 and a net profit before tax of $366,000 attributable to the acquisition of TCI, is included in the consolidated interim statement of net and comprehensive income (loss). For the six month period ended March 31, 2017, revenue of $648,000 and a net profit before tax of $392,000 attributable to the acquisition of TCI, is included in the consolidated interim statement of net and comprehensive income (loss) For the three months ended March 31, 2017, revenue of $630,000 and a net profit before tax of $23,000 is included in the consolidated interim statement of net and comprehensive income (loss) in respect of the acquired global advisory agreements, with the difference between revenue and net profit including an amortization charge of $307,000 on the acquired management contracts. For the six month period ended March 31, 2017, revenue of $703,000 and a net profit before tax of $51,000 is included in the consolidated interim statement of net and comprehensive income (loss) in respect of the acquired global advisory agreements, with the difference between revenue and net profit including an amortization charge of $353,000 on the acquired management contracts. If all business combinations that occurred during the six months ended March 31, 2017 had been as at the beginning of the period, the revenue of the combined group for the six months ended March 31, 2017 would have been $18,932,000. It is impracticable to disclose the net profit before tax of the combined group as if the business combination had occurred at the beginning of the three and six month periods ended March 31, 2017, due to the extent of changes in the financing structure of the group and share options issued pursuant to the transaction. These proforma figures are not necessarily indicative of what the actual results of the combined business would have been during the three and six months ended March 31, LOGiQ Asset Management Inc.

17 3. BUSINESS ACQUISITIONS (continued) D) Accounting Policy Business Combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred liabilities incurred to the former owners of the acquired business equity interests issued by the group fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any preexisting equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognizes any noncontrolling interest in the acquired entity on an acquisitionbyacquisition basis either at fair value or at the noncontrolling interest s proportionate share of the acquired entity s net identifiable assets. Acquisitionrelated costs are expensed as incurred. The excess of the: consideration transferred, amount of any noncontrolling interest in the acquired entity, and acquisitiondate fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognized directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss. E) Operating Segments Management has assessed for operating segments and concluded, as at March 31, 2017, that no separate material identifiable operating segments exist. Management continues to evaluate whether presentation of operating segments will be appropriate based on the new organizational structure and will continue to monitor how performance is reported to the Chief Operating Decision Maker. 4. SALE OF JEMEKK CAPITAL MANAGEMENT INC. On November 15, 2016, the sale of Jemekk Capital Management Inc. ( JCM ) to J2 Capital Management Inc. was completed. The assets and liabilities associated with the sale were presented as held for sale in the financial statements as at September 30, The Group received cash proceeds of $746,000 in consideration for the sale of the management contracts, which was equal to their carrying value as at September 30, 2016 and November 15, A promissory note payable of $296,000 was presented as liabilities related to assets held for sale as at September 30, 2016, and was settled on the completion of the sale of JCM. The sale transaction and settlement of the liability had no impact in the statement of net and comprehensive income (loss) for the three months and six months ended March 31, LOGiQ Asset Management Inc.

18 5. INTANGIBLE ASSETS AND GOODWILL Carrying amount Management contracts finite life Management contracts indefinite life IIROC Registration indefinite life Goodwill At September 30, 2015 $ 1,600 $ $ $ $ 1,600 Amortization (300) (300) Fair value adjustment on classification to held for sale (554) (554) Reclassified to held for sale assets (746) (746) At September 30, 2016 $ $ $ $ $ Acquisitions through business combinations: Aston Hill 13,467 28,245 2,475 44,187 TCI Global Advisory 9,823 2,731 12,554 Amortization (1,353) (1,353) At March 31, 2017 $ 21,937 $ 28,245 $ 265 $ 5,276 55,723 Total Intangible assets acquired and goodwill recognized pursuant to reverse acquisition of Aston Hill On the reverse acquisition of Aston Hill, the Group acquired Aston Hill s fund management contracts and institutional accounts. These contracts grant the Group the ability (and legal rights) to market, sell and manage those accounts. These contracts represent an expected future economic benefit that will flow to the Group as a result of this business combination. The acquired management contracts comprised three distinct types open end mutual funds, closed end funds, and institutional management contracts. To calculate the fair value of acquired management contracts, management obtained enterprise value over assets under management ( EV/AUM ) multiples data for comparable transactions in Canada s asset management sector over the last ten years. For each type of management contract (open end, closed end, and institutional), management obtained the range of EV/AUM multiples and used professional judgment to select a multiple within the range for the valuation of the acquired assets: A multiple of 1.6% was applied to the acquired closedend fund AUM of $703,000,000, for an acquired fair value of finite life intangible assets relating to closedend management contracts, of $11,248,500. The multiple applied was at the lower end of the range of multiples from comparable transactions due to the current market conditions preventing this type of asset from being a growth vehicle for the Group at the time of the reverse acquisition. A multiple of 0.7% was applied to the acquired institutional AUM of $317,000,000 for an acquired fair value of finite life intangible assets relating to institutional accounts, of $2,219,000. The multiple applied was at the lower end of the range of multiples from comparable transactions, reflecting the lower fee structures typical of these types of assets. A multiple of 4.61% was applied to the acquired openend fund AUM of $612,500,000 for an acquired fair value of openend fund management contracts, of $28,245,000. The multiple selected was midrange for comparable transactions as the Group views these assets as the platform for future growth. As the acquired openend mutual funds have no fixed termination date and because management expects to utilize them for the foreseeable future, openend mutual fund management contracts are classified as indefinite life intangible assets. Management has determined the expected lives of the closed end management contracts by reference to their termination date, or in respect of those closedend funds with no fixed termination date, the useful life was determined to be ten years. The useful lives of acquired closedend fund management contracts range from 15 months to 12 years. The expected life of the acquired institutional management contracts is five years. Finite life management contracts are amortized on a straight line basis over their expected life. 17 LOGiQ Asset Management Inc.

19 5. INTANGIBLE ASSETS AND GOODWILL (continued) Goodwill of $2,475,000 was recognized on the reverse acquisition of Aston Hill. This goodwill is net of $221,000, being the difference between the fair value of the noncontrolling interests in Aston Hill and the carrying amount at which Aston Hill had recorded the noncontrolling interest at acquisition date. Refer to note 5 for further details in respect of acquired intangible assets and goodwill. Intangible assets acquired and goodwill recognized pursuant to the acquisition of TCI Intangible assets acquired of $265,000 represent TCI s registration with the Investment Industry Regulatory Organization of Canada ( IIROC ), and its investment dealer infrastructure. These intangible assets allow TCI to operate as an investment dealer. The IIROC registration and an investment dealer infrastructure therefore represent an expected future economic benefit that will flow to the Group as a result of this acquisition. The value of this intangible asset has been determined with reference to a comparable historical transaction by the Group and the expected cost of setting up an IIROC registrant. Goodwill of $70,000 was recognized on the acquisition of TCI. Intangible assets acquired and goodwill recognized pursuant to the acquisition of global advisory management contracts The identifiable intangible assets acquired, of $9,823,000 comprised institutional management contracts. Based on the historical average holding periods, the useful life of the acquired management contracts was determined to be eight years, with the management contracts to be amortized on a straightline basis over their expected life. The purchase price for the intangible assets was valued at a multiple of five times the net revenue in respect of the acquired contracts. Goodwill of $2,731,000 was recognized on the acquisition of the global advisory management contracts. The goodwill is attributable to revenue generating contracts that are expected to be entered into pursuant to either commitments from counterparties and/or probabilistic analysis but that have not been fully executed. Material finite life intangible assets The Group s material finite life intangible assets as at March 31, 2017, consist of: Material finite life intangible assets Global advisory management contracts Institutional account management Aston Hill VIP Income Fund Carrying value Remaining amortization periods (years) $ 9,483 8 $ 2,079 5 $ 2, Voya Floating Rate Income Fund $ 2, DEFERRED SALES COMMISSIONS March 31, 2017 September 30, 2016 Gross balance, beginning of period $ 3,425 $ 2,915 Acquired in business acquisition 230 Deferred sales commissions paid Gross balance, end of period $ 3,815 $ 3,425 Accumulated amortization, beginning of period 2,438 1,611 Amortization of deferred sales commissions Accumulated amortization, end of period $ 3,023 $ 2,438 Carrying amount $ 792 $ LOGiQ Asset Management Inc.

20 7. PROVISIONS Carrying amount Short term incentives Onerous contracts Termination benefits Earnout liability Balance at September 30, 2016 $ $ $ $ $ Acquired in business acquisition 520 1, ,864 Provisions recorded during the period 889 2,690 3,579 Provisions reversed during the period (116) (116) Provisions charged directly to retained earnings Change in fair value of provisions (800) (800) Provisions utilized during the period (520) (125) (1,293) (1,938) Balance at March 31, 2017 $ 889 $ 1,767 $ 1,733 $ 4,389 Current ,733 3,019 Noncurrent 1,370 1,370 Short term incentives Relates to the Group s annual obligation to award short term incentive payments to employees of the Group. Management estimates and provides for the obligation to award short term incentive payments to employees of the Group on a quarterly basis. Onerous contracts The acquired onerous contract provision relates to contractual obligations for the lease of office space in Calgary that does not provide future economic benefits to the Group. The lease will be terminated on March 31, The fair value of the onerous lease contract has been calculated using the remaining lease payments, net of estimated sublet recoveries, discounted over the remaining 5 year lease term. The key unobservable input used in the calculation of the present value of the obligation, net of sublease recoveries, is management s estimate of the period over which the premises can be sublet, and the extent of the recovery. The current sublease arrangement terminates on November 30, 2018, after which management expects to recover to the extent of operating costs only for the remaining term to expiry. If, at the end of the current sublease, the Group was only able to recover 50% of operating costs, the present value of the liability would be $352,000 higher. Conversely, if, at the end of the current sublease, the Group was able to recover 100% of operating costs and 50% of rent, the present value of the liability would be $546,000 lower. Total Termination benefits The acquired provision for termination benefits relates to the Group s estimate of benefits payable arising from the termination of Aston Hill employees. These termination benefits were initially recognized by Aston Hill as restructuring costs in June The Group recorded a restructuring provision reversal of ($116,000) for the three months ended March 31, 2017 (for the six months ended March 31, 2017 a restructuring provision of $2,574,000) in respect of the Group s estimate of benefits payable arising from the termination of employees of the Group as a result of the acquisition. The termination and related postemployment benefits were communicated to the parties involved before December 31, LOGiQ Asset Management Inc.