Condensed Interim Consolidated Financial Statements
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Under National Instrument 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements. The Company s independent auditor has not performed a review of these condensed interim consolidated financial statements. The accompanying condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management.
Moovly Media Inc. Condensed Interim Consolidated Statements of Financial Position (Unaudited) ASSETS June 30, September 30, 2018 2017 ($) ($) Current assets Cash 332,272 - Accounts receivable (Note 6) 298,016 136,580 Prepaid expenses 109,955 39,830 740,243 176,410 Equipment (Note 7) 45,938 15,247 Intangible assets (Note 8) 1,242,401 982,663 LIABILITIES AND SHAREHOLDERS' DEFICIENCY 2,028,582 1,174,320 Liabilities Accounts payable and accrued liabilities (Note 9) 975,493 946,226 Deferred revenue 89,725 242,493 Notes payable (Note 10) 84,714 31,473 1,149,932 1,220,192 Notes Payable (Note 10) 1,241,105 125,935 2,391,037 1,346,127 Shareholders' deficiency Share capital (Note 11) 12,678,949 11,130,721 Reserves (Note 11) 1,000,407 850,459 Deficit (14,041,811) (12,152,987) Nature of operations and going concern (Note 1) Commitments (Note 14) These consolidated financial statements were authorized for issue by the Board of Directors on August 29, 2018. They are signed on behalf of the Board of Directors by: "Brendon Grunewald" Brendon Grunewald - Director "Michelle Gahagan" Michelle Gahagan - Director (362,455) (171,807) 2,028,582 1,174,320 The accompanying notes are an integral part of these consolidated financial statements
Moovly Media Inc. Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Unaudited) Three Month Three Month Nine Month Nine Month Period Ended Period Ended Period Ended Period Ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ($) ($) ($) ($) Revenue 283,242 170,695 817,198 487,631 283,242 170,695 817,198 487,631 Expenses Advertising and promotion 41,568 63,547 150,240 154,509 Amortization 155,245 105,234 365,746 266,048 Consulting fees (Note 12) 57,095 259,615 329,564 753,418 Finance expense 29,530 26,236 84,243 51,004 Foreign exchange loss 126 (135,375) 1,352 (64,597) Management fees (Note 12) 104,228 99,968 313,311 303,040 Office and general 141,109 178,255 407,589 477,652 Professional fees (Note 12) 28,701 (3,108) 148,352 171,534 Regulatory and shareholders' services 8,895 1,271 22,919 15,854 Share-based compensation (Note 11) 51,060 84,263 214,372 283,646 Travel 9,095 38,948 80,723 96,461 Wages and benefits 208,434 277,793 629,249 746,270 (835,086) (996,647) (2,747,660) (3,254,839) Loss for the period (551,844) (825,952) (1,930,462) (2,767,208) Item that are or may be subsequently reclassified to profit or loss: Foreign exchange differences on translating foreign operations 15,345 (123,650) 22,786 (45,602) Comprehensive loss for the period (536,499) (949,602) (1,907,676) (2,812,810) Basic and diluted loss per common share (0.00) (0.01) (0.02) (0.03) Weighted average common shares outstanding: Basic 123,056,266 100,795,644 119,502,420 95,853,530 Diluted 123,056,266 100,795,644 119,502,420 95,853,530 The accompanying notes are an integral part of these consolidated financial statements
Moovly Media Inc. Condensed Interim Consolidated Statements of Changes in Shareholders' Deficiency (Unaudited) Share capital Number of Shares Reserves Amount Equity Portion of Convertible Loan Warrants and Options Foreign Currency Translation Deficit Total Shareholders' Deficiency ($) ($) ($) ($) ($) ($) Balance at September 30, 2016 91,597,083 7,435,424-633,092 (29,364) (8,242,586) (203,434) Common shares issued for cash 22,692,851 3,403,928 - - - - 3,403,928 Share issue costs - (217,392) 9,100 - - (208,292) Exercise of share purchase warrants 2,886,662 539,688 - (106,689) - - 432,999 Share-based compensation - - - 283,646 - - 283,646 Transfer of expired stock options - - - (8,068) - 8,068 - Loss and comprehensive loss - - - - (45,602) (2,767,208) (2,812,810) Balance at June 30, 2017 117,176,596 11,161,648-811,081 (74,966) (11,001,726) 896,037 Balance at September 30, 2017 117,176,596 11,130,721-904,662 (54,203) (12,152,987) (171,807) Common shares issued for cash 15,550,000 1,555,000 1,555,000 Share issuance costs - (6,772) - - - - (6,772) Transfer of expired stock options - - - (41,638) - 41,638 - Share-based compensation - - - 214,372 - - 214,372 Loss and comprehensive loss - - - - (22,786) (1,930,462) (1,953,248) Balance at June 30, 2018 132,726,596 12,678,949-1,077,396 (76,989) (14,041,811) (362,455) The accompanying notes are an integral part of these consolidated financial statements
Moovly Media Inc. Condensed Interim Consolidated Statements of Cash Flows (Unaudited) CASH PROVIDED BY (USED IN) Nine Month Nine Month Period Ended Period Ended June 30, June 30, 2018 2017 ($) ($) OPERATING ACTIVITIES Loss for the period (1,930,462) (2,767,208) Items not affecting cash: Amortization 365,746 266,048 Accrued interest expense 84,714 28,068 Stock-based compensation 214,372 283,646 Unrealized foreign exchange loss (gain) (73,073) (89,508) Changes in non-cash working capital items: Accounts receivable (161,436) (140,638) Prepaid expenses (70,125) (69,238) Accounts payable and accrued liabilities 29,267 139,227 Deferred revenue (152,768) 44,003 Cash used in operating activities (1,693,765) (2,305,600) INVESTING ACTIVITIES Acquisition of equipment (49,201) (5,575) Intangible asset expenditures (563,488) (461,959) Cash used in investing activities (612,689) (467,534) FINANCING ACTIVITIES Proceeds from notes payable 1,291,350 1,301,564 Proceeds from exercise of warrants - 432,999 Proceeds from private placement 1,555,000 3,403,928 Repayment of notes payable (207,653) (472,300) Share issuance costs (6,772) (208,292) Cash provided by financing activities 2,631,925 4,457,899 Change in cash during the period 325,471 1,684,765 Exchange rate changes on cash denominated in a foreign currency 6,801 (4,900) Cash - beginning of period - 101,598 Cash - end of period 332,272 1,781,463 The accompanying notes are an integral part of these consolidated financial statements
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN Moovly Media Inc. (the Company ) was incorporated on December 28, 2006 under the Business Corporations Act of British Columbia. On June 15, 2016, the Company changed its name from Pantheon Ventures Ltd. to Moovly Media Inc., and the Company currently trades on the TSX Venture Exchange ( TSX-V ) under the symbol MVY. On July 27, 2016, the Company completed a reverse takeover ( RTO ) with Moovly NV ( Moovly ), a private Belgian corporation organized under the laws of Belgium in 2012, that has developed a cloud-based digital media and content creation platform (Note 5). The Company is currently classified as a technology issuer under the policies of the TSX-V. The Company s head office, principal address and registered and records office is located at Suite 302 1620 West 8 th Avenue, Vancouver, British Columbia, Canada, V6J 1V4. These condensed interim consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. As at June 30, 2018, the Company has not achieved positive cash flow from operations and is not able to finance day to day activities through operations. The Company expects to incur further losses in the development of its business. These material uncertainties may cast substantial doubt on the Company s ability to continue as a going concern. The Company s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. These condensed interim consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These adjustments could be material. NOTE 2 - BASIS OF PRESENTATION These condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB") and the interpretations of the IFRS Interpretations committee. They do not include all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements, and, therefore, should be read in conjunction with the Company s audited consolidated financial statements for the year ended September 30, 2017, prepared in accordance with IFRS as issued by the IASB. These condensed interim consolidated financial statements were authorized for issue by the Board of Directors on August 29, 2018. Basis of Measurement These condensed interim consolidated financial statements have been prepared on the historical cost basis. Cost is the fair value of consideration given in exchange for assets. Basis of Consolidation These condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned legal subsidiary, Moovly, on a consolidated basis after the elimination of intercompany transactions and balances. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement and has the ability to affect those returns through its power to direct the relevant activities of the entity. Page 5
NOTE 2 - BASIS OF PRESENTATION (continued) Functional and Presentation Currency These condensed interim consolidated financial statements are presented in Canadian dollars, unless otherwise noted, which is the functional currency of the parent. The functional currency of Moovly is the Euro. Significant Accounting Judgments, Estimates and Assumptions In the application of the Company s accounting policies management is required to make judgments, estimates, and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, revenue and expenses and are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and management s assessment of current events and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Significant estimates and assumptions that have the most significant effect on the amounts recognized in these financial statements include: Deferred tax assets Deferred tax assets, including those arising from un-utilized tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted. Economic recoverability and probability of future economic benefits of intangible assets and amortization Management has determined that intangible asset costs incurred which were capitalized may have future economic benefits and may be economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefits including anticipated cash flows and estimated economic life. The amortization expense related to intangible assets is determined using estimates relating to the useful life of the intangible asset. Valuation of share-based compensation The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company s earnings and equity reserves. Page 6
NOTE 2 - BASIS OF PRESENTATION (continued) Significant Accounting Judgments, Estimates and Assumptions (continued) Significant judgements that have the most significant effect on the amounts recognized in these financial statements include: Revenue recognition and deferred revenue Revenue recognition of license sales is recorded on a monthly basis. Cash received in advance for annual licenses are recorded as deferred revenue based on the proportion of time remaining under the license as at the reporting date. Determination of functional currency The functional currency of the Company and its subsidiary is the currency of the primary economic environment in which each entity operates. The Company has determined the functional currency of the legal parent to be the Canadian dollar and the legal subsidiary to be the Euro. Determination of the functional currency may involve certain judgments to determine the primary economic environment. The functional currency may change if there is a change in events and conditions which determines the primary economic environment. NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES These condensed interim consolidated financial statements were prepared using the same accounting policies and methods of computation as in the Company s audited annual consolidated financial statements for the year ended September 30, 2017. NOTE 4 ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the Company's consolidated financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt these standards when they become effective. The pronouncements are being assessed to determine their impact on the Company's results and financial position. The following standards, amendments to standards and interpretations have been issued for annual periods beginning on or after January 1, 2018 but are not yet effective: IFRS 9, Financial Instruments Classification and Measurement IFRS 9 is a new standard on financial instruments that will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 addresses classification and measurement of financial assets and financial liabilities as well as derecognition of financial instruments. IFRS 9 has two measurement categories for financial assets: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is at fair value through profit or loss. Page 7
NOTE 4 ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) IFRS 15, Revenue from Contracts with Customers IFRS 15 is a new standard to establish principles for reporting the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity s contracts with customers. It provides a single model in order to depict the transfer of promised goods or services to customers. IFRS 15 supersedes IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programs, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers, and SIC-31, Revenue Barter Transactions involving Advertising Service. The following standards, amendments to standards and interpretations have been issued for annual periods beginning on or after January 1, 2019 but are not yet effective: IFRS 16, Leases This new standard replaces the existing leasing guidance in IAS 17, Leases. IFRS 16 distinguishes between leases and service contracts on the basis of whether the customer controls the asset being leased. For those contracts determined to meet the definition of a lease, IFRS 16 requires a lessee to recognize on the balance sheet a lease asset along with the associated lease liability which reflects future lease payments, similar to current finance lease accounting. There are limited exceptions for leases with a term of less than 12 months or leases of assets which have a very low value. As a result of the adoption of IFRS 16, operating leases which were previously only recognized on the profit or loss will be recognized on the statement of financial position. The purpose of the standard is to provide users of the financial statements with a more accurate picture of a company s leased assets and associated liabilities, while also improving the comparability of companies that lease assets to those that purchase them. The Company has not yet assessed the potential impact of the application of these standards, nor determined whether it will early adopt these standards. NOTE 5 REVERSE TAKEOVER On July 27, 2016, the Company completed a RTO transaction with Moovly pursuant to which the Company acquired all of the issued and outstanding shares of Moovly in exchange for 53,304,918 common shares of the Company. Immediately prior to the closing of the transaction and prior to completion of the Transaction Financing (as defined hereinafter), the Company completed a share consolidation on the basis of two new common shares for three old common shares. In conjunction with the closing of the transaction, the Company also completed a private placement on a postconsolidation basis wherein it issued 14,850,000 units at $0.15 per unit for gross proceeds of $2,227,500 (the Transaction Financing ). Each unit was comprised of a common share of the Company and a common share purchase warrant ( Unit Warrant ) that entitles the holder to acquire an additional common share at a price of $0.25 until July 27, 2017. In connection with the Transaction Financing, the Company paid cash finders fees totaling $12,185 and issued 81,233 finders warrants with a fair value of $2,889 that bear the same terms as the Unit Warrants. Upon closing of the transaction, Moovly s unsecured convertible debentures (the Debentures ) dated June 23, 2015 in the aggregate principal amount of $500,000 ( 361,193) were settled in full through the issuance of 3,333,333 units of the Company at a price of $0.15 per unit. The terms of the unit are the same as those issued under the Transaction Financing. Page 8
NOTE 5 REVERSE TAKEOVER (continued) Because the former shareholders of Moovly obtained control of the resulting issuer, the transaction is considered to be a purchase of Pantheon Ventures Ltd. by the Company and is accounted for as a reverse acquisition. Accordingly, Moovly is considered to the acquirer for accounting purposes, and therefore is considered to be the continuing company. Additionally, the transaction was not considered to be a business acquisition as the primary item acquired was the public listing. The Company issued 2,881,910 common shares with a fair value of $432,287 as a finder s fee in connection with the transaction. A breakdown of listing expense in the statement of loss and comprehensive loss is as follows: Fair value of the Company shares (17,004,700 post-consolidation common shares at $0.15 per share) Amount ($) 2,550,707 Fair value of share purchase warrants 577,000 Finder s fee 432,287 3,559,994 Less: Net assets of the Company Cash 45,023 GST receivable 7,697 Advances to Moovly NV 611,787 Accounts payable and accrued liabilities (1,009,580) Loan payable (9,478) (354,551) Listing expense 3,914,545 NOTE 6 ACCOUNTS RECEIVABLE The components of accounts receivable consists of the following: June 30, 2018 September 30, 2017 ($) ($) Trade receivables 241,499 38,054 VAT recoverable 56,517 98,526 298,016 136,580 Page 9
NOTE 7 - EQUIPMENT Computers and Office Furniture Cost: At September 30, 2016 34,385 Additions 13,244 Foreign exchange 128 At September 30, 2017 47,757 Additions 49,201 Foreign exchange 1,028 At June 30, 2018 97,986 ($) Accumulated depreciation: At September 30, 2016 21,621 Charge for the year 10,787 Foreign exchange 102 At September 30, 2017 32,510 Charge for the year 18,293 Foreign exchange 1,245 At June 30, 2018 52,048 Net book value: At September 30, 2017 15,247 At June 30, 2018 45,938 Page 10
NOTE 8 INTANGIBLE ASSETS Intangible assets consist of costs incurred to develop and upgrade the Company s operating platform. Developed Software ($) Cost: At September 30, 2016 816,711 Additions 778,584 Foreign exchange 7,091 At September 30, 2017 1,602,386 Additions 563,488 Foreign exchange 72,362 At June 30, 2018 2,238,236 Amortization: At September 30, 2016 329,015 Charge for the period 288,075 Foreign exchange 2,633 At September 30, 2017 619,723 Charge for the period 347,453 Foreign exchange 28,659 At June 30, 2018 995,835 Net book value: At September 30, 2017 982,663 At June 30, 2018 1,242,401 NOTE 9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES June 30, September 30, 2018 2017 ($) ($) Bank indebtedness 142,930 69,378 Trade payables 450,009 485,452 Due to related parties 108,957 188,514 Accrued liabilities 273,597 202,882 975,493 946,226 Page 11
NOTE 10 NOTES PAYABLE During the nine month period ended June 30, 2018, the Company received unsecured loans for $1,267,524 (September 30, 2017 - $471,600) from a non-related party. The loans bear interest at 10% per annum, payable quarterly, and must be repaid within one year of the date of issuance. During the nine month period ended June 30, 2018, the Company repaid loans of $Nil (September 30, 2017 - $472,300). During the nine month period ended June 30, 2018, the Company received unsecured loans for $23,826 ( 15,000) from a director of the Company. These loans bears interest at 7% per annum, payable monthly, and must be repaid within three years of the date of issuance. During the nine month period ended June 30, 2018, the Company repaid loans of $47,653 ( 30,000) to this director. During the nine month period ended June 30, 2018, the Company recorded $53,164 (2017 - $24,768) as interest expense. As at June 30, 2018, there was $1,325,819 (September 30, 2017 - $157,408) of loan principal and accrued interest outstanding, of which $84,714 (September 30, 2017 - $31,473) was considered to be due within one year. During the year ended September 30, 2017, the Company received unsecured loans for $189,410 ( 130,000) from a director of the Company. These loans bears interest at 7% per annum, payable monthly, and must be repaid within three years of the date of issuance. During the year ended September 30, 2017, the Company repaid loans of $72,850 ( 50,000) to this director. During the year ended September 30, 2017, the Company received an unsecured short-term loan for $444,852 ( 300,000). In addition, the Company received $253,186 ( 166,000) through a series of advances from a corporation controlled by an officer of the Company. Both of these loans are interest-free and due on demand, and both were repaid during the year. NOTE 11 SHARE CAPITAL AND RESERVES Authorized share capital Unlimited number of common shares without par value. Issued share capital Nine month period ended June 30, 2018 In March, 2018, the Company issued 5,550,000 units at $0.10 per unit for gross proceeds of $555,000. Each unit is comprised of a common share and a share purchase warrant wherein each warrant will entitle the holder to purchase an additional common share at a price of $0.15 until March 14, 2019. The Company paid financing fees of $3,525. In June, 2018, the Company issued 10,000,000 units at $0.10 per unit for gross proceeds of $1,000,000. Each unit is comprised of a common share and one-half share purchase warrant wherein each whole warrant will entitle the holder to purchase an additional common share at a price of $0.15 until June 28, 2019. The Company paid financing fees of $5,750. During the period ended June 30, 2018, a financing fees refund was received and deposited to share issue costs. Year ended September 30, 2017 In March, 2017, the Company issued 5,359,518 units at $0.15 per unit for gross proceeds of $803,928. Each unit is comprised of a common share and a share purchase warrant wherein each warrant will entitle the holder to purchase an additional common share at a price of $0.25 until March 21, 2018. The Company paid agent fees of $38,880 in cash and issued 259,200 agent s options, with a fair value of $9,100, as a commission in connection with the financing. The agent s warrants are exercisable at $0.25 per share until March 21, 2019. Page 12
NOTE 11 SHARE CAPITAL AND RESERVES (continued) In June, 2017, the Company issued 17,333,333 units at $0.15 per unit for gross proceeds of $2,600,000. Each unit is comprised of a common share and a share purchase warrant wherein each warrant will entitle the holder to purchase an additional common share at a price of $0.25 until June 26, 2018. The Company issued 2,886,662 common shares due to the exercise of share purchase warrants at $0.15 per share. Accordingly, the Company has reclassified $106,689 from warrant reserve to share capital. Escrow Pursuant to an escrow agreement dated July 26, 2016, 35,754,570 common shares will be held in escrow. A total of 55% of the escrow shares have been released as at June 30, 2018, and the remainder will be released in equal tranches of 15% every six months thereafter. Pursuant to an escrow agreement dated July 26, 2016, 1,027,402 common shares will be held in escrow. A total of 100% of the escrow shares have been released as at June 30, 2018. As at June 30, 2018, there were 16,089,557 (September 30, 2017: 21,709,593) common shares remaining in escrow. Share purchase warrants A summary of share purchase warrant activity is as follows: Number of warrants Weighted average exercise price ($) Outstanding at September 30, 2016 33,747,900 0.20 Exercised (2,886,662) 0.15 Expired (30,861,238) 0.21 Issued 22,952,051 0.25 Outstanding at September 30, 2017 22,952,051 0.25 Exercised - - Expired (22,692,851) 0.25 Issued 10,550,000 0.15 Outstanding at June 30, 2018 10,809,200 0.15 A summary of share purchase warrants outstanding as at June 30, 2018 is as follows: Expiry Date Warrants Outstanding Exercise Price Remaining Life ($) (years) March 14, 2019 5,550,000 0.15 0.70 March 21, 2019 259,200 0.25 0.72 June 28, 2019 5,000,000 0.15 0.99 10,809,200 0.15 0.84 Page 13
NOTE 11 SHARE CAPITAL AND RESERVES (continued) Stock options The Company has a stock option plan in place under which it is authorized to grant options to executive officers, directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. Under the plan, the exercise price of each option shall not be less than the discounted market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of 10 years and vest as determined by the board of directors. A summary of stock option activity is as follows: Number of options Weighted average exercise price ($) Outstanding at September 30, 2016 1,225,000 0.24 Expired (200,000) 0.24 Granted 4,725,000 0.24 Outstanding at September 30, 2017 and June 30, 2018 5,750,000 0.24 Exercisable at June 30, 2018 2,662,500 0.24 A summary of stock options outstanding as at June 30, 2018 is as follows: Expiry Date Options Outstanding Options Exercisable Exercise Price Remaining Life ($) (years) August 4, 2021 1,025,000 562,500 0.24 3.10 November 29, 2021 200,000 100,000 0.24 3.42 March 10, 2022 3,475,000 1,737,500 0.24 3.70 September 27, 2022 1,050,000 262,500 0.24 4.25 5,750,000 2,662,500 0.24 3.68 The stock option reserve records items recognized as share-based compensation expense until such time that the stock options are exercised, at which time the corresponding amount will be transferred to share capital. If vested options expire unexercised or are forfeited, the amount recorded is transferred to deficit. Nine month period ended June 30, 2018 During the nine month period ended June 30, 2018, no stock options were issued or exercised. Year ended September 30, 2017 During the year ended September 30, 2017, the Company granted 4,725,000 stock options. The options vest 25% on the grant date and an additional 25% on each anniversary for a period of three years. The fair value of the options granted was $683,820 or $0.14 per option. During the year ended September 30, 2017, 200,000 (2016 Nil) partially vested stock options with a fair value of $8,068 (2016 - $Nil) expired unexercised, and accordingly, their fair value was transferred from share based reserves to deficit. Page 14
The fair value of the options granted above were determined using the Black Scholes option pricing model with the following assumptions: 2018 2017 Risk-free interest rate - 1.08% Expected volatility - 129% Expected forfeiture rate - Nil Expected dividend yield - Nil Expected life of option - 5 years During the nine month period ended June 30, 2018, the Company recorded $214,372 (2017 - $199,383) as share-based compensation expense in connection with the vesting of stock options. NOTE 12 RELATED PARTY TRANSACTIONS The Company s key management personnel consist of directors, officers and companies owned or controlled in whole or in part by officers and directors. The following summarizes the Company s related party transactions, not disclosed elsewhere in these consolidated financial statements, during the six month period ended June 30, 2018 and 2017: Key Management Compensation 2018 2017 ($) ($) Management fees paid or accrued to a corporation controlled by the Chief Executive Officer ( CEO ) of the Company. 137,291 140,676 Professional fees paid or accrued to a corporation controlled by the Chief Financial Officer ( CFO ) of the Company. 57,500 31,500 Management fees paid or accrued to a corporation controlled by the Chief Technology Officer ( CTO ) of the Company. 171,613 162,364 Share-based compensation vested for certain directors and officers of the Company. 84,533 73,754 Total 450,937 408,294 a) As at June 30, 2018, $Nil (September 30, 2017 - $6,453) was included in accounts payable and accrued liabilities owing to the CEO of the Company for management fees. b) As at June 30, 2018, $69,582 (September 30, 2017 - $182,061) was included in accounts payable and accrued liabilities owing to the CTO of the Company for management fees. c) As at June 30, 2018 a total of $39,375 (September 30, 2017 - $Nil) was included in accounts payable and accrued liabilities owing to the CFO of the Company for consulting fees. d) As at June 30, 2018, $112,282 (September 30, 2017- $125,935) was owing to a director of the Company consisting of principal loan and accrued interest. Page 15
NOTE 13 CAPITAL DISCLOSURE AND MANAGEMENT The Company considers its capital structure to include the components of shareholders equity (deficiency). Management s objective is to ensure that there is sufficient capital to minimize liquidity risk and to continue as a going concern. The Company is currently unable to self-finance its operations. Although the Company has been successful in the past in obtaining financing through the issuance of debt and/or equity securities, there can be no assurance that the Company will be able to obtain adequate financing in the future, or that the terms of such financings will be favourable. The Company s share capital is not subject to any external restrictions and the Company did not change its approach to capital management during the nine month period ended June 30, 2018. NOTE 14 COMMITMENTS The Company entered into a cost sharing arrangement agreement for the provision of office space and various administrative services. Under the terms of the agreement, the Company will pay $5,000 plus GST per month commencing on September 1, 2015 and continuing until the expiration of the underlying head lease. Effective December 1, 2017, the cost sharing arrangement was amended such that the Company will pay $7,000 plus GST per month until the expiration of the underlying head lease on July 31, 2021. Fiscal Year Amount ($) 2018 21,000 2019 84,000 2020 84,000 2021 70,000 The Company entered into a rental agreement for office space. Under the terms of the agreement, the Company will pay $2,500 ( 1,695) plus VAT per month for a term of three years. Fiscal Year Amount ($) 2018 7,500 ( 5,085) NOTE 15 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Financial risk management Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are: Level 1 Level 2 Level 3 Unadjusted quoted prices in active markets for identical assets or liabilities; Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Inputs that are not based on observable market data. The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework. The Company s financial instruments consist of cash, accounts receivable, accounts payable and accrued liabilities and notes payable. Page 16
NOTE 15 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) The fair value of cash is measured on the statement of financial position using level 1 of the fair value hierarchy. The fair values of accounts receivable, accounts payable and accrued liabilities and notes payable approximate their book values because of the short-term nature of these instruments. Financial instrument risk exposure The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes. Credit risk Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its payment obligations. The Company manages this credit risk by ensuring that cash is placed with a major financial institution with strong investment grade ratings by a primary ratings agency. The Company s receivables consist of amounts due from government agencies and receivables from corporate customers of Moovly. Management believes that the credit risk with respect to these receivables is remote. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company endeavors to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company s holdings of cash. The Company s cash is invested in business accounts which are available on demand. The Company is exposed to liquidity risk. Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is nominally exposed to interest rate risk. Foreign exchange risk Foreign currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company operates in Canada and Belgium. The majority of the Company s sales are denominated in United States dollars, and are immediately converted to Euros upon receipt. The majority of the Company s costs are denominated in Euros. The Company was exposed to the following foreign currency risk as at June 30, 2018 and September 30, 2017: June 30, 2018 September 30, 2017 ( ) ( ) Cash - - Accounts receivable 187,605 73,337 Accounts payable and accrued liabilities (295,280) (511,102) Deferred revenue (58,514) (164,995) Loans payable (269,020) (85,687) (435,209) (688,447) Page 17
NOTE 15 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) The Company s reported results will be affected by changes in the Euro to the Canadian dollar. As at June 30, 2018, a 10% fluctuation to the Euro relative to the Canadian dollar would cause a $43,521 change to net financial assets. The following foreign exchange rates applied for the periods ended June 30, 2018 and 2017: June 30, 2018 June 30, 2017 Average EUR to CAD 1.5255 1.4432 As at 1.5334 1.4859 NOTE 16 GEOGRAPHICAL SEGMENTED INFORMATION As at June 30, 2018, the Company is engaged in one business activity, being the development of a cloud-based digital media and content creation platform. The Company s two geographical segments are Canada and Belgium. All of the Company s intangible assets are located in Belgium. All sales, which include software licenses and professional services consulting are generated out of Belgium. NOTE 17 SUPPLEMENTAL CASH FLOW INFORMATION June 30, 2018 June 30, 2017 ($) ($) Non-cash investing and financing activities: Agent s warrants issued as commissions - 9,100 Transfer of expired stock options to deficit 41,638 8,068 Transfer of exercised share purchase warrants - 106,689 Interest paid during the period - - Income taxes paid during the period - - Page 18