SOMEDIA NETWORKS INC.

Transcription

1 SOMEDIA NETWORKS INC. Consolidated Financial Statements (Expressed in Canadian Dollars) December 31, 2014 and 2013

2 Consolidated Statements of Comprehensive Loss (Expressed in Canadian Dollars) Years ended December 31, 2014 and 2013 Independent Auditor s Report INDEPENDENT AUDITORS REPORT To the Shareholders of SoMedia Networks Inc.: We have audited the accompanying consolidated financial statement of SoMedia Networks Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2014 and 2013 and the consolidated statements of comprehensive loss, changes in shareholders equity (deficiency), and cash flows for the years ended then and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these 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. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statement present fairly, in all material respects, the financial position of SoMedia Networks Inc. and its subsidiaries as at December 31, 2014 and 2013, and the results of their operations and their cash flows for the years ended then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 2 of these consolidated financial statements, which states that SoMedia Networks Inc. incurred significant losses from operations, negative cash flows from operating activities and has an accumulated deficit. This, along with other matters described in Note 2, indicates the existence of a material uncertainty which may cast significant doubt about the ability of SoMedia Networks Inc. to continue as a going concern. April 30, 2015 Vancouver, British Columbia Chartered Accountants See accompanying notes to the consolidated financial statements.

3 Consolidated Statements of Comprehensive Loss (Expressed in Canadian Dollars) Years ended December 31, 2014 and 2013 ASSETS Current assets December December Cash $ 62,460 $ 106,370 Receivables 6,056 6,122 Tax credits receivable (Note 12) 28, ,783 Prepaid expenses and deposits 99,904 96,505 Total current assets 196, ,780 Non-current asset Intangible asset (Note 6) 236, ,594 Property & equipment (Note 6) - 1,087 Total assets $ 432,648 $ 658,460 LIABILITIES Current liabilities Trade and other payables (Note 17) 1,511, ,947 Short-term loans (Note 7) 740, ,444 Deferred revenue 279, ,109 Current portion of long term debt (Note 8) 1,022,751 1,254,205 Total current liabilities 3,554,079 2,811,705 Non-current liabilities Long term debt (Note 8) 563,508 - Total non-current liabilities 563,508 - Total liabilities 4,117,587 2,811,705 SHAREHOLDERS DEFICIENCY Share capital (Note 9) 20,952,715 18,512,944 Equity portion of convertible debt Contributed surplus (Note 9) 1,095, ,077 Deficit (25,733,486) (21,334,265) Total shareholders deficiency (3,684,939) (2,153,244) Total liabilities and shareholders $ deficiency 432,648 $ 658,460 Going Concern (Note 2) Commitments (Note 13) Contingencies (Note 15) Approved on behalf of the Board of Directors /s/ "George Fleming" Director /s/ "Ash Katey" Director George Fleming Ash Katey See accompanying notes to the consolidated financial statements.

4 Consolidated Statements of Comprehensive Loss (Expressed in Canadian Dollars) Years ended December 31, 2014 and 2013 December December Revenue $ 368,752 $ 215,723 Operating Expenses Video production costs 141,667 98,243 Employment costs (Note 11b) 2,752,325 3,082,868 Office costs 243, ,371 Travel & meals 109, ,938 Technology services 91, ,300 Consultants & professional fees 620,016 1,299,183 Marketing & communications 208, ,580 Foreign exchange (gain)/loss 30,857 (16,326) Depreciation and amortization 1,087 34,304 Total operating expenses 4,198,553 5,279,461 Loss before other items and income tax (3,829,801) (5,063,738) Other income (expense) Interest income Interest and finance expense (304,641) (603,102) Gain on fair value of debt (Note 8) (30,784) - Impairment expense (Note 6) (234,594) - Effective interest expense - (13,285) Loss on fair value of debt (Note 8a, 9e) - (1,109,933) Loss before income tax (4,399,192) (6,790,058) Deferred income tax recovery - 6,663 Loss and comprehensive loss for the year $ (4,399,192) $ (6,783,395) Weighted Average shares outstanding 36,406,604 18,749,845 Basic and diluted loss per share $ (0.12) $ (0.36) See accompanying notes to the consolidated financial statements.

5 Consolidated Statements of Changes in Shareholders Deficiency (Expressed in Canadian Dollars) Years ended December 31, 2014 and 2013 No. of Class A Common Shares Share Capital Contributed Surplus Equity Portion of Convertible Debt Deficit Total Balance December 31, ,260,202 $ 5,924,329 $ 142,750 $ 301,697 $ (14,550,870) $ (8,182,094) Shares issued on conversion of debentures 139,399 53, ,416 Shares issued at IPO 3,823,529 3,250, ,250,000 Conversion of convertible debt to equity at IPO 10,080,424 8,542, ,542,872 Conversion of equity portion of convertible debt at IPO - 301,697 - (301,697) - - Shares issued for cash 1,675, , ,000 Shares issued as payment for services (Note 9d, 9f) 453, , ,093 Shares issued as payment for services (Difference Capital Note 9e) - 238, ,750 Agent warrants issued for services - (121,781) 121, Share based payments stock option , ,546 Share issuance costs - (526,579) (526,579) Shares issued on over-allotment of IPO 131, , ,148 Loss for the year (6,783,395) (6,783,395) Balance December 31, ,564,131 18,512, ,077 - (21,334,265) (2,153,244) Shares issued for cash 13,697,917 2,528, ,528,000 Shares issued as payment for services (Note 9e, 9f) 355, , ,799 Agent warrants issued for services - (34,838) 34, Share based payments stock option , ,917 Share issuance costs - (155,190) (155,190) Loss for the period (4,399,192) (4,399,192) 41,617,222 20,952,715 1,095,832 - (25,733,486) 3,684,939 See accompanying notes to the consolidated financial statements.

6 Consolidated Statements of Cash Flows (Expressed in Canadian Dollars) December 31, 2014 December 31, 2013 Cash flows from operating activities Loss for the period $ (4,399,192) $ (6,783,395) Items not affecting cash Amortization 1,087 34,304 Share based compensation 392, ,733 Services paid in shares - 644,399 Loss on fair value of debt 30,784 1,109,933 Accretion expense - 13,285 Deferred income tax recovery - (6,663) Impairment of intangible asset 234,594 - Interest accrued on long-term debt 163, ,438 Sub total $ (3,577,481) $ (4,095,966) Changes in non-cash working capital items Receivables $ 66 (1,876) Tax credits receivable 185,611 27,952 Prepaid expenses and deposits 92,198 (59,644) Trade and other payables 578, ,661 Deferred revenue 106,688 90,329 Cash flows from operating activities $ (2,614,229) $ (3,937,543) Cash flows relating to investing activities Deferred development costs (236,056) 234,594 Purchase of property and equipment - (407) Cash flows relating to investing activities $ (236,056) $ (235,001) Cash flows relating to financing activities Proceeds from issue of common shares $ 2,528,000 3,697,148 Cost of share issuance (87,706) (266,579) Proceeds from (repayment of) issue of short-term loans 206, ,579 Proceeds from issue of long-term debt 160, ,000 $ 2,806,374 $ 4,030,148 Increase (decrease) in cash (43,910) (142,397) Cash, beginning of period 106, ,767 Cash, end of period $ 62,460 $ 106,370 See Note 11 for a description of non-cash Investing and financing activities not included in the Statement of cash flows. See accompanying notes to the consolidated financial statements.

7 (Expressed in Canadian Dollars) Page 1 Note 1 Corporate Information The Company was incorporated as Inveslogic Inc. under the Canada Business Corporation Act on February 10, The name of the Company was changed to SoMedia Networks Inc. ( SoMedia or the Company ). The Company s registered office is located at East 10 th Ave, Vancouver, British Columbia, V5T 4V1. The Company s head office is located at Suite Cambie St, Vancouver, British Columbia, V6B 2M9. The Company is a developer and operator of cloud-based video content production platforms and video production series targeting the business and news markets across North America. The Company has two wholly-owned subsidiaries, SoMedia Productions II Inc. (incorporated on March 5, 2009) and SoMedia Video Technologies Corp, (incorporated on November 22, 2011), both incorporated pursuant to the provisions of the Business Corporations Act (British Columbia). Neither of the two wholly-owned subsidiaries is or has been involved in any business activities to date. Note 2 Going Concern These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will continue in operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments as they are due. The Company has incurred a loss of $4,399,192 for the year ended December 31, 2014, has a working capital deficiency of $3,121,431, and an accumulated deficit of $25,733,486 at December 31, 2014 and expects to incur further losses in the development of its business. These conditions indicate the existence of material uncertainties which may cast significant doubt on the Company s ability to continue as a going concern. For the Company to continue to operate as a going concern it must obtain additional financing and generate profitable operations. Although the Company has been successful in the past at raising funds and financing with gross proceeds of $1,300,000 was obtained subsequent to December 31, 2014 and also settled Accounts Payable worth 156,936 with the issuance of shares (See Note 19), there can be no assurance that this will continue in the future. The financial statements do not reflect any adjustments to the carrying value of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. Note 3 Basis of Preparation These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The financial statements were authorized for issue by the Board of Directors on April 30, These consolidated financial statements have been prepared in accordance with those IFRS Standards and International Financial Reporting Interpretations Committee ( IFRIC ) interpretations issued and effective or issued and early adopted as at the date of these consolidated financial statements. The financial statements have been prepared on a historical cost basis except for the fair value changes to long-term debt. The consolidated financial statements are presented in Canadian dollars, which is also the Company s and its subsidiaries functional currency.

8 (Expressed in Canadian Dollars) Page 2 Note 3 Basis of Preparation (cont d) The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company s accounting policies. The areas involving a higher degree of judgment of complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5. Note 4 Significant accounting policies The accounting policies set out below have been applied consistently to all years presented in these financial statements, unless otherwise indicated. a) Principles of consolidation Subsidiaries are those entities where the Company has the power, either directly or indirectly, to govern the financial and operating policies of the entity. The consolidated financial statements include the accounts of SoMedia and its inactive wholly-owned subsidiaries: SoMedia Productions II Inc. and SoMedia Video Technologies Corp. All inter-company balances and transactions have been eliminated on consolidation. b) Foreign Currency Transactions At the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the year-end date, unsettled monetary assets and liabilities are translated into Canadian dollars by using the exchange rate in effect at the year-end date and the related translation differences are recognized in net income. Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. Non-monetary assets and liabilities that are measured at fair value or a revalued amount are translated into Canadian dollars by using the exchange rate in effect at the date the value is determined and the related translation differences are recognized in net income or other comprehensive loss consistent with where the gain or loss on the underlying non-monetary asset or liability has been recognized. c) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, demand deposits with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value. For cash flow statement presentation purposes, cash and cash equivalents includes bank overdrafts. d) Property & Equipment The Company s policy is to capitalize assets purchased when those assets have both an expected life in excess of one year and a pre-tax price of more than $1,000. On initial recognition, property, plant and equipment are valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions.

9 (Expressed in Canadian Dollars) Page 3 Note 4 Significant accounting policies (cont d) d) Property & Equipment (cont d) Property, plant and equipment is subsequently measured at cost less accumulated depreciation, less any accumulated impairment losses. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial year in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in profit or loss. Depreciation is recognized in profit or loss and is provided on a straight-line basis over the estimated useful life of the assets as follows: Furniture and fixtures: Office equipment: Leasehold improvements: 3 Years 3 Years Initial term of the lease Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. e) Revenue recognition Revenue is recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The Company earns revenue through the sale of business videos and extended licenses to those videos via a reseller channel. Revenue for both products is recognized when the work initially contracted for is completed and the client either explicitly approves the video or does not provide any revision notes within a reasonable period of time. Revenue is measured at the fair value of the consideration received or receivable, net of discounts and sales taxes. Consideration received from reseller clients in advance of completion is recorded as deferred revenue.

10 (Expressed in Canadian Dollars) Page 4 Note 4 Significant accounting policies (cont d) e) Revenue recognition (cont d) The extended license is provided to clients who wish to maximize control of their videos; the impact on SoMedia is that the Company and its resellers may not use the final video in any way, nor gain from it commercially, while the license is in effect. The full value of the license is recognized upon the sale of the license, which corresponds with the endclient s acceptance of the video. f) Share capital Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company's common shares, stock options, and share warrants are classified as equity instruments. g) Basic and diluted loss per share Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method. Diluted earnings per share exclude all dilutive potential common shares if their effect is anti-dilutive. Potentially dilutive common shares related to warrants, options and convertible debt outstanding totaling 11,954,222 at December 31, 2014 (December 31, 2013: 4,180,360) were not included in the computation of loss or share outstanding because their effect was anti-dilutive. The potentially dilutive number of common shares related to convertible debt was calculated based on the principal and interest outstanding at each period end using the original conversion rate stated in the agreements without adjustments for reversed rates due for forced conversions (See Note 8 and 19). The actual numbers of shares for convertible debt conversion will vary depending on date and conditions under which they are converted. h) Share-based Payments Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive loss/income over the vesting period. The Company has no performance or market-based vesting provisions. Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The fair value of the grant is determined to be the price assigned to each share as laid out in the grant document, usually the employment contract, or the latest selling price of the Company s shares, whichever is greater. The grant date fair value is recognized in comprehensive loss/income over the vesting period, described as the period during which all the vesting conditions are to be satisfied.

11 (Expressed in Canadian Dollars) Page 5 Note 4 Significant accounting policies (cont d) h) Share-based Payments (cont d) Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive loss/income. Options or warrants granted relating to the issuance of shares are recorded as a reduction of share capital. When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. All equity-settled share-based payments are reflected in contributed surplus, until exercised. Upon exercise, shares are issued from treasury and the amount reflected in contributed surplus is credited to share capital, adjusted for any consideration paid. Where a grant of options is cancelled or settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured at the repurchase date. Any such excess is recognized as an expense. i) Share issue costs The Company markets both equity and debt instruments simultaneously. Issuance costs are aggregated for both types of financings, and then allocated pro-rata against share capital and long-term debt based on the same ratio as these accounts are increased during the period. j) Income Taxes Income tax expense comprises current and deferred tax. Income tax expense is recognized in the consolidated statement of comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

12 (Expressed in Canadian Dollars) Page 6 Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively Note 4 Significant accounting policies (cont d) j) Income Taxes (cont d) enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred 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. k) Investment Tax Credits From time to time the Company receives government incentive programs such as investment tax credits. Government incentives are accrued when there is reasonable assurance of realization and recorded as a reduction of the related asset or expense. In the event the actual investment tax credits received are different than the amount accrued, the difference will be reflected in profit or loss in the year in which it is determined. l) Financial Instruments Financial assets and financial liabilities, including derivatives, are measured at fair value through the Statement of Comprehensive Income/(Loss) on initial recognition and recorded in the Statement of Financial Position. Measurement in subsequent periods depends on whether the financial instrument has been classified as fair valued through profit or loss, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities. Financial assets and liabilities at fair value through profit and loss are measured at fair value with changes in those fair values recognized in the statement of comprehensive loss. Transaction costs are expensed for assets or liabilities classified as fair value through profit or loss. Financial assets and financial liabilities considered held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. Investments in equity instruments classified as available for-sale that do not have a quoted market price in an active market are measured at cost. The Company does not currently have any available-for-sale financial assets or investments in equity instruments. Derivative instruments, including embedded derivatives, are measured at fair value with any changes in the fair values of derivative instruments being recognized in profit and loss with the exception of derivatives designated as effective cash flow hedges. The Company has no such designated hedges. The disclosure and valuation of the Company s financial instruments is further described in Notes 5, 8 and 14.

13 (Expressed in Canadian Dollars) Page 7 Note 4 Significant accounting policies (cont d) l) Financial Instruments (cont d) Financial instruments recorded at fair value on the consolidated statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs). Cash and cash equivalents and receivables are classified as loans and receivables and are measured at amortized cost. Bank indebtedness, deferred revenue, trade and other payables, short-term loans, and convertible debt payable without embedded derivatives are classified as other financial liabilities and are measured at amortized cost using the effective interest method of amortization. The convertible debt payable with embedded derivatives is measured at fair value as a single financial instrument using the fair value option for financial instruments. Embedded derivatives and instruments measured at fair value are classified as fair value through profit or loss and measured at fair value. The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price unless the fair value of these instruments is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. At the initial recognition date, no gain or loss is recognized on the difference between the fair value and the amount that would be determined at that date using an appropriate valuation technique. The Company s accounting policy on this unrecognized gain/loss is that it is recognized into income upon the maturity of the financial liabilities. At each reporting date, the Company assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

14 (Expressed in Canadian Dollars) Page 8 Note 4 Significant accounting policies (cont d) l) Financial Instruments (cont d) Derivative Financial Instruments The Company may issue compound financial instruments with embedded derivatives. An embedded derivative is separated from its host contract and accounted for as a derivative only when three criteria are satisfied: When the economic risks and characteristics of the embedded derivative are not closely related to those of the host contract; A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and The entire instrument is not measured at fair value with changes in fair value recognized in the statement of comprehensive loss. The Company has elected not to separate the embedded derivative from its host contract and has measured the entire instrument at fair value with changes in fair value recognized in the statement of comprehensive loss. m) Impairment of Non-Financial Assets The carrying amount of the Company s non-financial assets is 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 loss is recognized if the carrying amount of an asset or a cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in net income or loss. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reduced if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss has been recognized.

15 (Expressed in Canadian Dollars) Page 9 Note 4 Significant accounting policies (cont d) n) Recent and Future Accounting Changes Certain new standards, interpretations and amendments to existing standards have been issued by IASB or IFRIC that have been adopted beginning January 1, None of these pronouncements had a significant effect on the consolidated financial statements, other than what is stated below. IFRS 10 Consolidated Financial Statements: IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The Standard provides additional guidance to assist in the determination of control where this is difficult to assess. This change was adopted with no effect. IFRS 11 Joint Arrangements: IFRS 11 establishes principles to determine the type of joint arrangement, which are classified as either joint operations or joint ventures, and provides guidance for financial reporting. The adoption of IFRS 11 did not have an impact on the Company as the Company does not have any joint arrangements. IFRS 12 Disclosure of Interest in Other Entities: IFRS 12 requires enhanced disclosures about both consolidated and unconsolidated entities in which an entity has involvement. Expanded disclosure requirements include the significant judgements and assumptions an entity has made in determining whether it has control, joint control or significant influence over another entity; the nature and extent of, and changes in, the risks associated with the entity s interests in both its consolidated and unconsolidated structured entities. This change was adopted with no effect. IFRS 13 Fair Value Measurement: IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. This change was adopted with no effect. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. IFRS 9 Financial Instruments: IFRS 9 is part of the IASB s wider project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. The standard is effective for annual periods beginning on or after January 1, The Company is in the process of evaluating the impact of the new standard on its financial position.

16 (Expressed in Canadian Dollars) Page 10 Note 5 Critical Accounting Estimates and Judgments The preparation of financial statements in accordance with IFRS requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates and judgments are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. Significant estimates and judgments made by the Company that have the most significant risk of causing material misstatement to the carrying amounts of assets and liabilities are discussed below. a) Convertible debentures The Company has reviewed all of its notes payable with conversion features to determine whether or not the conversion feature is an equity component or whether the conversion feature is considered to be an embedded derivative. The conversion feature has been identified as equity for those agreements where the value per share is fixed and the number of common shares to be issued varies only with the amount of debt outstanding at date of conversion. Where the value per share varies based on a future IPO price the conversion feature has been identified as an embedded derivative. Where the conversion feature has been identified as equity the amount of the note payable received has been bifurcated into a debt component based on a market rate of return with the residual allocated to the equity component. Management estimates the debt component by determining the estimated timing of future debt and interest payments pursuant to the terms of the debt agreement and a discount rate equal to the estimated rate of return for a similar debt instrument but having no conversion features. The amount allocated to the debt and equity components would vary with changes in the estimated cash flows and the discount rate. Where the conversion feature has been identified as an embedded derivative, the instrument, on inception, can either be valued as two separate components, with a determination first being made to the fair value of the derivative, with the residual allocated to the debt component or as a single instrument at its estimated fair value. For these debt instruments management has chosen to record and value as a single instrument. At the time that the instrument was granted, management had determined for valuation purposes that until such time as the probability of an IPO can be determined with a high degree of certainty, the fair value of the instrument would be the same as an instrument where the conversion ratio remains fixed. Until that event occurred the fair value of the instrument at inception is equal to the proceeds received and thereafter at its amortized cost pursuant to the interest rates and maturity dates stated in the individual debt agreements. Management had determined that sufficient certainty for valuation purposes was not present until the IPO had been completed. On June 28, 2013, the Company completed its initial public offering ( Offering ) of common shares. b) Intangible Asset The Company makes estimates related to the recovery of deferred development costs based on the expectation and assumption of realizing revenues from future commercial agreements that it anticipates will develop with companies for whom these projects have been untaken. Changes in these expectations and assumptions could result in a change in the recoverable amount calculated.

17 (Expressed in Canadian Dollars) Page 11 c) Going Concern As discussed in Note 2, these financial statements have been prepared under the assumptions applicable to a going concern. If the going concern assumption were not appropriate for these financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the statement of financial position classifications used and such adjustments could be material. d) Share Based Payments Share based payments comprises compensation expense related to the granting of stock options. The Company values stock options using a fair value-based method of accounting. The fair value of stock options is estimated at the grant or issue date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of a number of assumptions, including expected dividend yield, expected stock price volatility, life of the options, forfeiture rate, and risk-free interest rates. These assumptions are determined using management's best estimates and involve inherent uncertainties relating to market conditions, forfeitures and exercise which are outside of the control of the Company. Such assumptions are reviewed quarterly and have a significant impact on the estimates of fair value produced by the Black-Scholes option pricing model. e) Deferred Taxes Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that probable that future taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax assets and unused tax losses can be utilized. In addition, the valuation of tax credits receivable requires management to make judgements on the amount and timing of recovery.

18 (Expressed in Canadian Dollars) Page 12 Note 6 Property & equipment Furniture and equipment Leaseholds Total Cost Balance at January 1, 2013 $ 14,095 $ 33,811 $ 47,906 Additions Balance at December 31, ,095 $ 34,218 $ 48,313 Additions Balance December 31, 2014 $ 14,095 $ 34,218 $ 48,313 Accumulated Depreciation Balance at January 1, 2013 $ 8,780 $ 4,142 $ 12,922 Depreciation 4,515 29,789 34,304 Balance December 31, ,295 $ 33,931 $ 47,226 Depreciation ,087 Balance at December 31, 2014 $ 14,095 $ 34,218 $ 48,313 Carrying amounts At December 31, 2013 $ 800 $ 287 $ 1,087 At December 31, 2014 $ - $ - $ - Deferred development costs Balance at December 31, 2013 $ 234,594 Added in period 236,057 Impairment in period (234,594) Balance at December 31, 2014 $ 236,057 Deferred development costs refer to staffing costs related to the development of the Company s Direct Video, Integration and Newsmatic.ly products. During the year ended December 31, 2014, the Company recognized impairment expense of $234,594 related to the capitalized costs from the Automated Video product. Impairment has been recognized as the Company s focus has shifted to the development of alternative products.

19 (Expressed in Canadian Dollars) Page 13 Note 7 Short-term loans December December Loan payable, secured with a first claim against receipts of the companies 2011 and subsequent SR&ED claims and a general security agreement, with interest at 2% per month compounding monthly. $ $ 76,420 $ Promissory Note payable, unsecured, with interest at 12% per annum, payable upon demand. 407, ,024 Promissory Note payable, unsecured, with interest at 12% per annum, payable over a schedule which completes as of June 30, ,564 Promissory Note payable, secured with a second charge against the Company s personal property, with interest at 12% per annum, calculated semi-annually and not in advance, maturing on June 24, An amendment was made in April, 2015, which allows for the loan to convert into common shares of the company at a rate of $0.205 per share. 205,000 Loan payable, unsecured, with no interest payable, payable on demand. This loan was later converted into a convertible security (see Note 19) 30,000 Loan payable, unsecured, with no interest payable, payable on demand. This loan was later converted into a convertible security (see Note 19) 47,500 Total $ 740,232 $ 442,444 $

20 Note 8 SoMedia Networks Inc. (Expressed in Canadian Dollars) Page 14 Long term debt December December Non-bifurcated convertible debt (a) Principal $ 1,351,800 $ 600,000 Accrued interest payable 84,398 10,000 Changes in fair value 30,784-1,466, ,000 Less: current portion 903, ,000 Non-bifurcated convertible debt $ 563,508 $ - Convertible debt at amortized cost (b) Principal $ 60,000 $ 90,000 Accrued interest payable 59,275 44,571 $ 119,275 $ 134,571 Less: current portion 119, ,571 Convertible debt at amortized cost $ - $ - Bifurcated convertible debt (c) Principal $ - $ 245,000 Accrued interest payable - 264, ,633 Less: current portion - 509,633 Bifurcated Convertible debt $ - $ - Total debt $ 1,586,258 $ 1,254,205 Less: total current portion 1,022,750 1,254,205 $ 563,508 $ -

21 (Expressed in Canadian Dollars) Page 15 Note 8 Long term debt (cont d) a) Non-bifurcated debt Notes payable, bearing interest at rates of 10-12% per annum compounded monthly and maturity dates from six months to five years from date of issue. Interest continues to accrue past maturity. On June 28, 2013, the Company, upon its successful completion of an Initial Public Offering ( IPO ), converted $6,248,662 of total debt (including interest) into 7,099,711 of common shares. The Company recognized a loss of $1,109,933 related to the change in fair value of the instruments from December 31, 2012 to the date of their conversion on June 28, On September 19, 2014, the Company agreed to convert the outstanding Bifurcated debt to a new debt instrument which is non-bifurcated. This principal on this debenture is not convertible, but the interest, at 10%, is. An inducement of $55,161 was provided to the Debentureholder to complete the transaction, and is to be paid out over 9 installments. On November 10, the company issued a further $200,000 in convertible notes. Each note is convertible at a rate based on the average of the prior 10-day closing prices of the Company s common shares into Units. Each Unit is comprised of one common share and one-half share purchase warrant, with each warrant exercisable for 36 months after the date of conversion at a 50% premium to the conversion share price. These instruments have been designated at fair value through profit and loss in their entirety. The fair value of the debt component has been estimated using a fair market interest of 16%. The fair value of the conversion feature has been estimated using a Black- Scholes option pricing model incorporating the following assumptions: Share Price at Grant Date Black Scholes Value Valuation Date Expiry Date Exercise Price Risk Free Interest Expected Life Volatility Dividend Yield 31-Dec Jun % % 0% $ Dec Nov % % 0% $0.03 b) Convertible debt at amortized cost Convertible debt, bearing interest at rates of 12% per annum compounded monthly and maturity dates that had passed during the year ended December 31, These instruments have been designated at amortized cost as the conversion features are no longer in effect since the maturity dates have passed. c) Bifurcated Convertible debt Notes payable, bearing interest at rates of 10-12% per annum compounded monthly and maturity dates from six months to five years from date of issue. Interest continues to accrue past maturity. On June 28, 2013, the Company, upon its successful completion of an IPO, converted $2,294,209 of total debt (including interest) into 2,980,654 of common shares. With the exception of $509,633 of debt, the total sum of bifurcated debt was extinguished through the conversion from debt to equity. On September 19, 2014, the Company agreed to convert the outstanding Bifurcated debt to a new debt instrument which is non-bifurcated. This principal on this debenture is not convertible, but the interest, at 10%, is. An inducement of $55,161 was provided to the Debentureholder to complete the transaction, and is to be paid out over 9 installments.

22 (Expressed in Canadian Dollars) Page 16 Note 9 Share capital a) Authorized In 2013, the Company amended its authorized share structure to replace all share classes, with common shares and preferred shares. Class A shares were re-designated as unlimited common shares without nominal or par value. All previous commitments to issue Class A shares have been replaced with a commitment to issue an equal number of common shares. The Company is also authorized to issue an unlimited number of preferred shares, without nominal or par value, issuable in series. b) Issued and fully paid: During the year ended December 31, 2013, the Company consolidated its issued share capital at the ratio of one new share for four old shares. Unless otherwise stated all amounts regarding the number of outstanding shares, warrants or options are post consolidation. Number of Class A Common Shares Share Capital Contributed Surplus Balance at December 31, ,260,202 $ 5,924,329 $ 142,750 Debt conversion into equity prior to IPO 139,399 53,416 - Shares issued at IPO (Note 9d) 3,823,529 3,250,000 - Conversion of convertible debt to equity at IPO 10,080,424 8,542,871 - Conversion of equity portion of convertible debt at IPO (Notes 8a and 8b and 9j) - 301,697 - Shares issued for cash (Note 9(c)(ii) 1,675, ,000 - Shares issued as payment for services (Note 9d, 9f) 453, ,093 - Shares issued as payment for services (Difference Capital Note 9e) - 238,750 - Agent warrants issued for services (Note 9d) - (121,781) 121,781 Share based payments stock option ,546 Shares issued on over-allotment of IPO (Note 9d) 131, ,148 - Share issuance costs - (526,579) - Balance December 31, ,564,131 $ 18,512,944 $ 668,077 Shares issued for cash 13,697,917 2,528,000 Shares issued as payment for services (Note 9e) 355, ,799 Agent warrants issued for services - (34,838) 34,838 Share based payments stock option ,917 Share issuance costs - (155,190) - 41,617,222 20,952,715 1,095,832