Quarterly Report. For the three month period ended. April 30, 2015

Transcription

1 Quarterly Report For the three month period ended April 30, 2015 The attached unaudited interim condensed consolidated financial statements have been prepared by Management of International Datacasting Corporation, recommended for approval by the Audit Committee and approved by the Board of Directors on June 1, These unaudited interim condensed consolidated financial statements have not been audited or reviewed by the Corporation s auditor.

2 Table of Contents Unaudited Condensed Consolidated Statements of Financial Position... 3 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss... 4 Unaudited Condensed Consolidated Statements of Changes in Equity... 5 Unaudited Condensed Consolidated Statements of Cash Flows... 6 Notes to Consolidated Financial Statements Note 1 Basis of Preparation and Going Concern... 7 Note 2 Significant Accounting Policies... 8 Note 3 Segmented Information... 8 Note 4 Financial Instruments Note 5 Inventories Note 6 Secured Borrowings Note 7 Provisions Note 8 Common Shares Note 9 Share Based Compensation Note 10 Loss Per Share Note 11 Subsequent Event Page 2

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5 UNAUDITED CONDENSED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED APRIL 30, 2015 AND 2014 (Canadian dollars, except share data) NOTES Number of Common Shares Common Shares Contributed Surplus Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity Balance at February 1, ,484,642 $ 23,637,259 $ 3,401,345 $ (229,729) $ (19,437,425) $ 7,371,450 Net loss (1,566,131) (1,566,131) Stock-based compensation , ,417 Issued upon conversion of Restricted Share Units ("RSUs") 21,648 2, ,814 Balance at April 30, ,506,290 $ 23,640,073 $ 3,483,762 $ (229,729) $ (21,003,556) $ 5,890,550 Balance at February 1, ,877,752 $ 24,131,627 $ 3,901,345 $ (229,729) $ (23,767,924) $ 4,035,319 Net loss (351,096) (351,096) Stock-based compensation , ,340 Issued upon conversion of Restricted Share Units ("RSUs") 8 1,074, ,410 (116,577) - - (7,167) Balance at April 30, ,952,657 $ 24,241,037 $ 3,837,108 $ (229,729) $ (24,119,020) $ 3,729,396 The accompanying notes are an integral part of these Consolidated Financial Statements Page 5

6 OPERATING ACTIVITIES Net loss Three months ended NOTES April 30, 2015 April 30, 2014 $ (351,096) $ (1,566,131) Add items not requiring an outlay of cash: Depreciation of capital assets 59,918 38,644 Deferred tax adjustments (518) 718 Unrealized loss on derivatives - (8,945) Share based compensation 9 52,340 82,417 (239,356) (1,453,297) Net change in non-cash working capital: Accounts receivable (1,087,078) 600,975 Inventories 286, ,179 Other assets 41, ,268 Accounts payable and accrued liabilities (14,496) (890,212) Customer deposits 158,340 5,627 Deferred revenue 286, ,970 Provisions 1, ,532 Current tax liability 4,336 (2,014) Net cash applied to operating activities (561,589) (574,972) INVESTING ACTIVITIES INTERNATIONAL DATACASTING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 2015 AND 2014 (Canadian dollars) Redemption of short-term investment - 22,500 Purchase of capital assets - (10,243) Net cash provided by investing activities - 12,257 FINANCING ACTIVITIES Advances from secured lenders 6 1,293,070 - Repayments of secured borrowings (231,076) - Payments made on vested RSU's 8 (7,167) - Net cash provided by financing activities 1,054,827 - Net increase (decrease) in cash during the period 493,238 (562,715) CASH AND CASH EQUIVALENTS - Beginning of period 615,403 2,734,655 CASH AND CASH EQUIVALENTS - End of period $ 1,108,641 $ 2,171,940 Supplemental cash flow information: Interest paid $ 10,060 $ - Income taxes paid $ - $ 8,865 The accompanying notes are an integral part of these Consolidated Financial Statements Page 6

7 1. Basis of Preparation and Going Concern Basis of Preparation These interim condensed consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards ( IFRS ) applicable to the preparation of interim financial statements, including International Accounting Standard ( IAS ) 34, Interim Financial Reporting. Accordingly, they do not include all of the information and footnotes required under IFRS for complete financial statements. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the Corporation s financial position and results of operations for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated. The condensed consolidated statement of financial position at April 30, 2015 and, the condensed consolidated statements of operations and comprehensive loss, of changes in equity and of cash flows for the periods ended April 30, 2015 and 2014 have not been audited or reviewed by the Corporation s auditors. The consolidated statement of financial position at January 31, 2015 is derived from the Corporation s audited consolidated financial statements. These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors on June 1, The following should be read in conjunction with the Corporation s annual audited consolidated financial statements for the year ended January 31, The tabular disclosures herein are presented in thousands, except for share data. Going Concern These interim condensed consolidated financial statements have been prepared on the going concern basis, which assumes the Corporation will be able to continue its operations and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. However, there exists significant doubt regarding the validity of this assumption and, hence, the ultimate appropriateness of the use of accounting principles applicable to a going concern for the following reasons: The Corporation has incurred significant operating losses in the past three fiscal years as well as the year ended January 31, 2015, resulting in negative cash flows from operations over these respective periods; The Corporation s available liquid assets at April 30, 2015 may be insufficient to fund future required working capital; and The Corporation s long and unpredictable sales cycles result in difficulty to reliably forecast future sales and related cash flows. The Board and management are taking steps to mitigate the going concern risk. Page 7

8 On April 21, 2015, the Corporation executed a definitive agreement (the Definitive Agreement ) for the sale of its principal business assets to Pico Digital for total cash consideration of US $4.1 million (CAD $5 million), subject to certain adjustments and holdbacks of up to US $1.35 million (CAD $1.65 million) to satisfy certain performance conditions and potential indemnity claims. The Definitive Agreement also provides that Pico Digital will assume certain of IDC s liabilities and that IDC retains the intellectual property related to its issued patents. Additionally, following the closing of the acquisition, the majority of IDC s employees are expected to join Pico Digital. In conjunction with this transaction, IDC obtained a US $1.0 million (CAD $1.2 million) bridge financing facility from Pico Digital (see Note 6 Secured Borrowings ). As the Definitive Agreement is subject to shareholders approval of IDC on June 12, 2015, there is no assurance that this transaction will be consummated. In the event IDC is unable to close this transaction, the Corporation anticipates that it will need to raise capital and/or debt in order to fund its operations over the next 12 months. There is no assurance such additional capital funding will be available to the Corporation. Due to the above circumstances, there exists significant doubt regarding the Corporation s ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not reflect any adjustments to the carrying values of assets and liabilities and the reported amounts of revenues and expenses and balance sheet classifications that would be necessary if the use of the going concern assumption was not appropriate and such adjustments could be material. 2. Significant Accounting Policies The significant accounting policies are consistent with those of the previous fiscal year. Recently Issued Accounting Standards Not Yet Adopted IFRS 15, Revenue from Contracts with Customers, ( IFRS 15 ), specifies how and when companies will recognize revenue as well as requiring such entities to provide users of financial information with more informative, relevant disclosures. The standard provides a single, principles based fivestep model to be applied to all contracts with customers. IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after January 1, IDC is currently analyzing the impact, if any, this standard will have on its current revenue recognition policies. 3. Segmented Information IDC operates as a single reportable segment as the Corporation has become a product focused company. While the Corporation will continue to generate some service revenues related to maintenance and support for products sold to customers, going forward total service revenue is not expected to be a significant component of the Corporation s total revenues, and service revenue is expected to be closely linked to product sales. The above aligns with the discrete financial information reviewed by the Chief Operating Decision Maker (which is the CEO for IDC) for the purposes of allocating resources and assessing performance. Page 8

9 For the three months ended April 30, 2015, one customer accounted for 42% of the Corporation s total revenue. The Corporation had no other customers accounting for 10% or more of total revenue in the quarter (April 30, 2014 four customers accounted for 51%). Revenues by geographic market are as follows: Three months ended April 30, Americas (1) $ 1,093 $ 2,081 EMEA (2) 1, APAC (3) $ 3,015 $ 2,830 (1) The geographic region of the Americas includes North America, Central America and South America. For the three months ended April 30, 2015, revenues from Canada were $9 ( $542). Within the region, the following country had 10% or more of IDC's total revenues for the three months ended April 30, 2015: United States $830 (2014 -$431). The following countries had 10% or more of total revenues for the three months ended April 30, 2014: Chile $389, Bolivia $338, and Colombia $308. (2) EMEA consists of Europe, the Middle East and Africa. Within the region, the following country had 10% or more of total revenues for the three months ended April 30, 2015 or April 30, 2014: Luxembourg $1,276 ( $320) (3) The APAC region consists of East Asia, South Asia, Southeast Asia and Oceania. Page 9

10 4. Financial Instruments Categories The following table presents the Corporation s total financial assets and liabilities by category: Fair value estimation The following table presents the Corporation s financial assets and liabilities that are measured at estimated fair value: Page 10

11 There were no movements between Level 1 and Level 2 throughout the period. Additionally, there was no change in valuation techniques and assumptions used to estimate fair value for the above financial instruments since January 31, Management believes that the carrying values of the Corporation s remaining financial instruments approximate fair values because of their short terms to maturity. Foreign currency risk At April 30, 2015, the Corporation did not hold any foreign currency forward contracts. Credit risk relating to trade receivables The aging for trade receivables, net of the allowance for doubtful accounts, was as follows: At April 30, 2015, one customer accounted for 63% of the total trade receivables (April 30, 2014 five customers accounted for 58%). The Corporation has purchased credit insurance from Export Development Canada ( EDC ) for certain of the outstanding foreign trade receivables to mitigate credit risk. However, EDC insurance does not apply in the event of a dispute or settlement with a customer. Since April 30, 2015 and through May 28, 2015, the Corporation has collected approximately $1,032 thousand from the above outstanding receivable balance. At April 30, 2015 and January 31, 2015, the Corporation s allowance for doubtful accounts was $3 thousand and nil, respectively. Management believes that the amounts receivable not provided for are fully collectible at April 30, Page 11

12 5. Inventories The composition of inventory was as follows: For the three months ended April 30, 2015, the cost of inventories charged to cost of sales was $700 thousand (April, 30, $821 thousand), including an impairment charge of $6 thousand (April 30, nil). 6. Secured Borrowings a) Accounts Receivable Factoring Facility ( AR Factoring Facility ) During the first quarter of Fiscal 2016 the Corporation terminated its AR Factoring Facility with a lender. All debt was repaid to the lender at the time of termination. b) Bridge Financing with Pico Digital On April 30, 2015, the Corporation entered into a $1.2 million bridge financing facility with Pico Digital. The bridge loan was evidenced by a promissory note and is subject to a security agreement in favor of Pico Digital. The interest rate on the bridge loan is 5% per annum. The bridge loan will become payable and due within five business days if the Definitive Agreement is terminated. Page 12

13 7. Provisions The following table shows the movement in the provisions for the three months ended April 30, 2015 and April 30, 2014: 8. Common Shares During the first quarter of fiscal 2016, 1,074,905 Common Shares with a value of $109 thousand were issued in a non cash transaction upon the conversion of vested RSUs (first quarter of fiscal ,648 Common Shares with a value of $3 thousand). 9. Share Based Compensation Summary of Stock Option Activity The following table provides the movement in the Corporation s outstanding stock options for all plans for the three month period ended: Page 13

14 Summary of RSU Activity The following table provides the movement in the Corporation s outstanding RSUs and the weighted average grant date fair value ( Fair Value ) for the three month period ended: In accordance with the RSU Plan and at the Corporation s discretion, settlement of vested RSUs may be made via cash or issuance of common shares from the Corporation s treasury subject to no more than 50% of the total RSUs outstanding. 10. Loss Per Share As the Corporation incurred a net loss for the three months ended April 30, 2015 and 2014, there were no dilutive stock options for these periods. The total outstanding stock options and restricted share units that could potentially dilute earnings per share in the future by being converted to common shares were as follows: Additionally, vested RSUs may be settled either in cash, Common Shares, or a combination of both at the Corporation s discretion. However, the issuance of Common Shares from IDC s treasury shares is subject to restriction as provided under the RSU Plan to mitigate dilution to existing shareholders in that no more than 50% of the vested RSUs at any time may be paid out in treasury shares. This is also subject to the maximum dilution of 15% of the Corporation s issued and outstanding Common shares. Page 14

15 11. Subsequent Event During May 2015, the Corporation s credit facilities with a financial institution were terminated and all debt under the facilities was repaid. As a result of the termination, $55 thousand of short-term investments which had been specifically assigned to the financial institution as security was released to the Corporation. Page 15