UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2014
Commission File Number: 000-32981
QWICK MEDIA
INC.
(Translation of registrant's name into English)
3162 Thunderbird Crescent, Burnaby, BC V5A 3G1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [X] Form
40-F [ ]
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the
submission in paper of a Form 6-K if submitted solely to provide an attached
annual report to security holders.
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the
submission in paper of a Form 6-K if submitted to furnish a report or other
document that the registrant foreign private issuer must furnish and make public
under the laws of the jurisdiction in which the registrant is incorporated,
domiciled or legally organized (the registrants home country), or under the
rules of the home country exchange on which the registrants securities are
traded, as long as the report or other document is not a press release, is not
required to be and has not been distributed to the registrants security
holders, and, if discussing a material event, has already been the subject of a
Form 6-K submission or other Commission filing on EDGAR.
- 2 -
SUBMITTED HEREWITH
Exhibits
- 3 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ROSS TOCHER |
|
(Registrant) |
|
|
Date: August 27, 2014 |
By: /s/ Ross Tocher |
|
Ross
Tocher |
|
Title: President & Chief Executive Officer
|
QWICK MEDIA INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2014 and 2013
(Unaudited)
(Stated in U.S. Dollars)
NOTICE OF NO AUDITOR REVIEW OF
INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
In accordance with National Instrument 51-102 Part 4,
subsection 4.3(3)(a), if an auditor has not performed a review of these interim
consolidated financial statements they must be accompanied by a notice
indicating that these interim consolidated financial statements have not been
reviewed by an auditor.
The accompanying unaudited interim consolidated financial
statements of the Company for the period ended June 30, 2014 have been prepared
in accordance with United States generally accepted accounting principles and
are the responsibility of the Companys management. The Companys independent
auditors have not performed an audit or review of these interim consolidated
financial statements.
QWICK MEDIA INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
|
|
JUNE 30, |
|
|
DECEMBER 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Cash |
$ |
255,910 |
|
$ |
241,327 |
|
Receivables |
|
199,119
|
|
|
182,262 |
|
Inventory |
|
217,471 |
|
|
230,593 |
|
Prepaid expenses |
|
2,154 |
|
|
2,161 |
|
Total Current Assets |
|
674,654 |
|
|
656,343 |
|
|
|
|
|
|
|
|
Property and Equipment |
|
23,516 |
|
|
37,077 |
|
|
|
|
|
|
|
|
Total Assets |
$ |
698,170 |
|
$ |
693,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
135,659 |
|
$ |
124,805 |
|
Due to related
parties |
|
5,708,319
|
|
|
4,529,913 |
|
Accrued dividends payable |
|
530,599 |
|
|
430,035 |
|
Total Liabilities |
|
6,374,577 |
|
|
5,084,753 |
|
|
|
|
|
|
|
|
Redeemable Preferred Stock |
|
2,027,945 |
|
|
2,027,945 |
|
|
|
|
|
|
|
|
STOCKHOLDERS
DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Authorized: 400,000,000
common shares, $0.001 par
value; 100,000,000
preferred shares, $0.001 par value, and series
as determined
by directors.
Issued: 71,128,456
common shares at June 30, 2014 and December 31, 2013 |
|
71,128
|
|
|
71,128 |
|
|
|
|
|
|
|
|
Additional Paid-in
Capital |
|
4,864,161
|
|
|
4,835,551 |
|
|
|
|
|
|
|
|
Deficit Accumulated During The Development Stage |
|
(12,639,641 |
) |
|
(11,325,957 |
) |
Total Stockholders Deficiency |
|
(7,704,352 |
) |
|
(6,419,278 |
) |
|
|
|
|
|
|
|
Total Liabilities and Stockholders Deficiency |
$ |
698,170 |
|
$ |
693,420 |
|
Going Concern, Commitments and Contractual Obligations (Notes 1
and 8)
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
QWICK MEDIA INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S.
Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERIOD FROM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DATE OF |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCEPTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(OCTOBER 5, |
|
|
|
THREE
MONTHS ENDED |
|
|
SIX MONTHS
ENDED |
|
|
2000) TO |
|
|
|
JUNE
30, |
|
|
JUNE
30, |
|
|
JUNE 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
8,051 |
|
$ |
49,451 |
|
$ |
42,193 |
|
$ |
87,312 |
|
$ |
392,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and
promotion |
|
2,410 |
|
|
1,061 |
|
|
2,593 |
|
|
2,483 |
|
|
260,921 |
|
Amortization |
|
5,976 |
|
|
10,843 |
|
|
13,902 |
|
|
22,038 |
|
|
127,020 |
|
Consulting fees
|
|
36,178 |
|
|
14,319 |
|
|
37,636 |
|
|
21,163 |
|
|
528,073 |
|
Filing Fees |
|
3,950 |
|
|
5,786 |
|
|
4,978 |
|
|
7,389 |
|
|
60,562 |
|
Foreign Exchange
|
|
27,669 |
|
|
51,160 |
|
|
112,085
|
|
|
75,542 |
|
|
511,507 |
|
Interest and bank charges |
|
52,037 |
|
|
51,695 |
|
|
103,865 |
|
|
103,204 |
|
|
792,484 |
|
Inventory costs
|
|
32,940 |
|
|
− |
|
|
32,940 |
|
|
− |
|
|
312,344 |
|
Management fees |
|
71,563 |
|
|
38,735 |
|
|
142,266 |
|
|
115,992 |
|
|
1,171,048 |
|
Mineral property
development expenditures |
|
− |
|
|
− |
|
|
− |
|
|
− |
|
|
8,500 |
|
Mineral property option payment
|
|
− |
|
|
− |
|
|
− |
|
|
− |
|
|
3,428 |
|
Office and
administrative |
|
79,364 |
|
|
58,370 |
|
|
137,255
|
|
|
132,709 |
|
|
1,380,041 |
|
Oil and gas property development
expenditures |
|
− |
|
|
− |
|
|
− |
|
|
− |
|
|
202,686 |
|
Professional
fees |
|
58,435 |
|
|
50,813 |
|
|
87,004 |
|
|
80,199 |
|
|
983,626 |
|
Rent |
|
51,290 |
|
|
54,892 |
|
|
116,933 |
|
|
106,880 |
|
|
760,025 |
|
Salaries, wages
and benefits |
|
252,050
|
|
|
280,680 |
|
|
531,506
|
|
|
605,821 |
|
|
4,880,011 |
|
Software development costs |
|
− |
|
|
− |
|
|
− |
|
|
− |
|
|
638,660 |
|
Travel |
|
17,545 |
|
|
26,783 |
|
|
32,914 |
|
|
54,656 |
|
|
411,084 |
|
Total Expenses |
|
691,407 |
|
|
645,137 |
|
|
1,355,877 |
|
|
1,328,076 |
|
|
13,032,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss For The Period |
$ |
(683,356 |
) |
$ |
(595,686 |
) |
$ |
(1,313,684 |
) |
$ |
(1,240,764 |
) |
$ |
(12,639,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic And Diluted Loss Per Common Share |
$ |
(0.01 |
) |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number Of Common Shares
Outstanding |
|
71,128,456 |
|
|
71,128,456 |
|
|
71,128,456 |
|
|
71,128,456 |
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
3
QWICK MEDIA INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in
U.S. Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
PERIOD FROM DATE |
|
|
|
|
|
|
|
|
|
OF INCEPTION |
|
|
|
SIX MONTHS
ENDED |
|
|
(OCTOBER 5, 2000) TO |
|
|
|
JUNE 30, |
|
|
|
|
|
JUNE 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
Cash Flows (Used
In) Provided By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities |
|
|
|
|
|
|
|
|
|
Net loss for the
period |
$ |
(1,313,684 |
) |
$ |
(1,240,763 |
) |
$ |
(12,639,641 |
) |
Adjustments to reconcile net loss
to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Amortization |
|
13,560 |
|
|
22,038 |
|
|
126,678 |
|
Foreign exchange on debt settlement |
|
−
|
|
|
− |
|
|
226,512
|
|
Stock-based compensation |
|
28,610 |
|
|
8,366 |
|
|
314,639 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Receivables |
|
(16,857 |
) |
|
(30,290 |
) |
|
(476,891 |
) |
Prepaid expenses |
|
7
|
|
|
48 |
|
|
(2,154 |
) |
Inventory |
|
13,122 |
|
|
(90,254 |
) |
|
(217,471 |
) |
Due to related parties |
|
1,178,406 |
|
|
1,406,784
|
|
|
6,719,250
|
|
Accrued dividends payable |
|
100,564 |
|
|
100,564 |
|
|
530,599 |
|
Accounts
payable and accrued liabilities |
|
10,855 |
|
|
(16,094 |
) |
|
458,278 |
|
Net cash provided by (used in) operating activities |
|
14,583 |
|
|
160,399 |
|
|
(4,960,201 |
) |
Investing
Activities |
|
|
|
|
|
|
|
|
|
Subsidiary cash upon
acquisition |
|
− |
|
|
− |
|
|
15,465 |
|
Purchase of property and equipment |
|
− |
|
|
− |
|
|
(138,434 |
) |
Net cash (used in) investing activities |
|
− |
|
|
− |
|
|
(122,969 |
) |
Financing
Activities |
|
|
|
|
|
|
|
|
|
Proceeds from share
issuances |
|
− |
|
|
− |
|
|
2,678,002 |
|
Proceeds
from notes payable |
|
−
|
|
|
− |
|
|
1,661,078
|
|
Proceeds from preferred shares |
|
− |
|
|
− |
|
|
1,000,000 |
|
Net cash provided by financing activities |
|
− |
|
|
− |
|
|
5,339,080 |
|
|
|
|
|
|
|
|
|
|
|
Net Increase In
Cash |
|
14,583 |
|
|
160,399
|
|
|
255,910
|
|
Cash, Beginning Of Period |
|
241,327 |
|
|
143,280 |
|
|
− |
|
|
|
|
|
|
|
|
|
|
|
Cash, End Of Period |
$ |
255,910 |
|
$ |
303,679 |
|
$ |
255,910 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash Financing Activities
|
|
|
|
|
|
|
|
|
|
Common stock issued to settle debt |
$ |
− |
|
$ |
− |
|
$ |
984,841 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
Interest paid |
$ |
− |
|
$ |
− |
|
$ |
− |
|
Income taxes paid |
$ |
− |
|
$ |
− |
|
$ |
− |
|
The accompanying notes are an integral part of these
consolidated financial statements.
4
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
The unaudited interim consolidated
financial statements as of June 30, 2014 included herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with United
States generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. It is suggested that these consolidated
financial statements be read in conjunction with the December 31, 2013 audited
consolidated financial statements and notes thereto. The operating results for
the three months or the six months ended June 30, 2014 are not necessarily
indicative of the results that may be expected for future quarters or for the
year ending December 31, 2014.
The unaudited interim consolidated
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States (GAAP), and are
expressed in US dollars. These consolidated financial statements include the
accounts of the Company and the accounts of the Companys wholly owned
subsidiaries, Qeyos Ad Systems Inc., incorporated in Canada, and Wuxi Xun Fu
Information Technology Co., Ltd., incorporated in China. The Companys fiscal
year-end is December 31. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for a period necessarily involves the use of estimates which have
been made using careful judgement. The interim consolidated financial statements
should be read in conjunction with the annual consolidated financial statements
for the year ended December 31, 2013.
The Company uses the same accounting
policies and methods of computation as in the annual consolidated financial
statements for the year ended December 31, 2013.
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses for the reporting period.
Management evaluates estimates and judgments on an ongoing basis. Actual results
could differ from these estimates. The significant areas requiring managements
estimates and assumptions include the fair value of shares issued to settle
debt, stock based compensation, valuation of accounts receivable and inventory,
estimated life, amortization rates and impairment of long-lived assets,
valuation allowance for income tax purposes, and fair value measurement of
financial instruments.
2. |
NATURE OF OPERATIONS AND GOING CONCERN |
|
|
|
|
a) |
Organization |
Qwick Media Inc. (the Company) is
governed by the corporate laws of the Cayman Islands. It is currently a
reporting issuer in the Province of British Columbia, Canada. Principal
executive offices are located in Vancouver, British Columbia, Canada. The
registered office is in the Cayman Islands.
The Company was incorporated on
October 5, 2000 under the laws of the State of Nevada. Effective June 26, 2006,
it re-domiciled from the State of Nevada to the State of Washington. Effective
July 7, 2009, it re-domiciled from the State of Washington to the State of
Wyoming for the sole purpose of effecting a continuance to the Cayman Islands.
Effective July 28, 2009, the Company re-domiciled to the Cayman Islands and
became a foreign private issuer with the US Securities and Exchange Commission
(SEC).
On October 6, 2009, the Company
changed its name from Tuscany Mineral, Ltd. to Tuscany Minerals Ltd.. On
June 22, 2010, the Company changed its name to Qwick Media Inc.
5
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
2. |
NATURE OF OPERATIONS AND GOING CONCERN
(Continued) |
On January 28, 2011, the Company
completed the acquisition of Qeyos Ad Systems Inc. (Qeyos), pursuant to which
it acquired all of the issued and outstanding common shares of Qeyos from its
shareholders in exchange for the issuance of a total of 4,789,035 shares of the
Companys common stock on the basis of one share of common stock for each common
share of Qeyos. As a result of the acquisition of the Qeyos shares, the Company
ceased to be a shell company and is now in the business of developing
interactive proprietary software, intellectual property and hardware.
For accounting purposes, the
acquisition was accounted for at historical carrying values in a manner similar
to the pooling of interests method since the chief executive officer and
controlling shareholder of the Company was also the chief executive officer and
controlling shareholder of Qeyos. Transfers or exchanges of equity instruments
between entities under common control are recorded at the carrying amount of the
transferring entity at the date of transfer and fair value, goodwill or other
intangible asset adjustments are not recorded. Our consolidated financial
statements and reported results of operations reflect these carryover values,
and our reported results of operations and stockholders equity have been
retroactively restated for all periods presented to reflect the results of
operations of Qeyos and the Company as if the acquisition had occurred on
September 30, 2009, the date the Company and Qeyos commenced common control.
On April 19, 2011, the Company
incorporated Wuxi Xun Fu Information Technology Co., Ltd. in China, a
wholly-owned subsidiary of the Company.
For all periods presented, all
significant inter-company accounts and transactions have been eliminated in the
consolidated financial statements.
|
b) |
Development Stage Activities |
The Company had been in the
exploration stage since its formation and had not realized any revenues during
the exploration stage. The Company had previous exploration activities in the
natural gas and oil business in 2003 and in the acquisition and exploration of
mining properties prior to 2003. As at December 31, 2010, the Company was an
inactive shell company.
On January 28, 2011, the Company
acquired Qeyos Ad Systems Inc., which is in the business of developing and
customizing software and hardware for use in digital media kiosks. Accordingly,
the Company ceased to be an inactive shell company and became a development
stage company.
The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a
going concern.
As shown in the accompanying
consolidated financial statements, the Company has incurred accumulated losses
of $12,639,641 for the period from October 5, 2000 (date of inception) to June
30, 2014. The future of the Company is dependent upon its ability to obtain
adequate financing and upon future profitable operations. Management has plans
to seek additional capital financing through private placement and a public
offering of the Companys common stock and from the issuance of promissory
notes. These factors raise substantial doubt regarding the Companys ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of liabilities that might
be necessary in the event the Company cannot continue in existence.
6
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
2. |
RECENT ACCOUNTING
PRONOUNCEMENTS |
In February 2013, the FASB issued ASU
No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and
Several Liability Arrangements for Which the Total Amount of the Obligation Is
Fixed at the Reporting Date. The amendments in ASU 2013-04 provide guidance for
the recognition, measurement, and disclosure of obligations resulting from joint
and several liability arrangements for which the total amount of the obligation
within the scope of this Update is fixed at the reporting date, except for
obligations addressed within existing guidance in U.S. GAAP. The guidance
requires an entity to measure those obligations as the sum of the amount the
reporting entity agreed to pay on the basis of its arrangement among its
co-obligors and any additional amount the reporting entity expects to pay on
behalf of its co-obligors. The guidance in this Update also requires an entity
to disclose the nature and amount of the obligation as well as other information
about those obligations. The amendments in this standard are effective
retrospectively for fiscal years, and interim periods within those years,
beginning after December 15, 2013. The Companys January 1, 2014 adoption of the
updated guidance had no impact on the Companys consolidated financial position,
results of operations or cash flows.
In April 2013, the FASB issued ASU No.
2013-07, Presentation of Financial Statements (Top 205): Liquidation Basis of
Accounting. The objective of ASU No. 2013-07 is to clarify when an entity should
apply the liquidation basis of accounting and to provide principles for the
measurement of assets and liabilities under the liquidation basis of accounting,
as well as any required disclosures. The amendments in this standard is
effective prospectively for entities that determine liquidation is imminent
during annual reporting periods beginning after December 15, 2013, and interim
reporting periods therein. The Companys January 1, 2014 adoption of the updated
guidance had no impact on the Companys consolidated financial position, results
of operations or cash flows.
In March 2013, ASC guidance was issued
related to Foreign Currency Matters to clarify the treatment of cumulative
translation adjustments when a parent sells a part or all of its investment in a
foreign entity or no longer holds a controlling financial interest in a
subsidiary or group of assets that is a business within a foreign entity. The
updated guidance also resolves the diversity in practice for the treatment of
business combinations achieved in stages in a foreign entity. The update is
effective prospectively for the Companys fiscal year beginning January 1, 2014.
The Companys January 1, 2014 adoption of the updated guidance had no impact on
the Companys consolidated financial position, results of operations or cash
flows.
In July 2013, ASC guidance was issued
related to the presentation of an unrecognized tax benefit when a net operating
loss carryforward, a similar tax loss or a tax credit carryforward exists. The
updated guidance requires an entity to net its unrecognized tax benefits against
the deferred tax assets for net operating loss carryforwards, similar tax
losses, or tax credit carryforwards in the same jurisdiction. A gross
presentation will be required only if such carryforwards are not available or
would not be used by the entity to settle any additional income taxes resulting
from disallowance of the uncertain tax position. The update is effective
prospectively for the Companys fiscal year beginning January 1, 2014. The
Companys January 1, 2014 adoption of the updated guidance had no impact on the
Companys consolidated financial position, results of operations or cash flows.
7
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Computers |
$ |
38,857 |
|
$ |
45,382 |
|
|
Monitors |
|
97,538 |
|
|
114,126 |
|
|
Printers |
|
13,597
|
|
|
15,880 |
|
|
Parts and enclosures |
|
27,506 |
|
|
31,426 |
|
|
General |
|
39,973 |
|
|
23,779 |
|
|
|
$ |
217,471 |
|
$ |
230,593 |
|
4. |
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer hardware |
$ |
38,713 |
|
$ |
34,816 |
|
$ |
3,897 |
|
|
Computer software |
|
1,324 |
|
|
1,324 |
|
|
− |
|
|
Office furniture |
|
21,012 |
|
|
15,778 |
|
|
5,234 |
|
|
Equipment |
|
41,882 |
|
|
29,363 |
|
|
12,519 |
|
|
Leasehold improvements |
|
47,628 |
|
|
45,762 |
|
|
1,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150,559 |
|
$ |
127,043 |
|
$ |
23,516 |
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net Book |
|
|
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer hardware |
$ |
38,713 |
|
$ |
30,524 |
|
$ |
8,189 |
|
|
Computer software |
|
1,324 |
|
|
1,286 |
|
|
38 |
|
|
Office furniture |
|
21,012 |
|
|
12,875 |
|
|
8,137 |
|
|
Equipment |
|
41,882 |
|
|
24,610 |
|
|
17,272 |
|
|
Leasehold improvements |
|
47,628 |
|
|
44,187 |
|
|
3,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150,559 |
|
$ |
113,482 |
|
$ |
37,077 |
|
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
5. |
RELATED PARTY TRANSACTIONS AND AMOUNTS
OWING |
For the period ended June 30, 2014, the
Company carried out a number of transactions with related parties in the normal
course of business. These transactions were recorded at their exchange amount,
which is the amount of consideration established and agreed to by the related
parties.
The following are related party
transactions and amounts owing at June 30, 2014 that are not otherwise disclosed
elsewhere:
|
a) |
The Company paid management fees of $142,266 (2013 -
$115,992) to companies controlled by officers for the six months ended
June 30, 2014. |
|
|
|
|
b) |
The Company recorded stock-based compensation of $28,602
(2013 - $3,972) as consulting fees incurred to directors and officers for
the six months ended June 30, 2014. |
|
|
|
|
c) |
As of, June 30, 2014, amounts owing to related parties
consists of $5,708,319 (December 31, 2013 - $4,534,392) owed to a director
and companies controlled by a director. At June 30, 2014, $9,840 (December
31, 2013 - $12,889) owed to a company controlled by an officer and $5,904
payable to a company controlled by the managing director (December 31,
2013 - $0) was included in accounts payable and accrued liabilities. The
amounts owed are unsecured, non-interest bearing and due on
demand. |
The Company adopted a Stock Option Plan
under which the Company can grant up to 6,620,230 shares of its common stock to
the officers, directors, employees and consultants.
On April 29, 2014, the Company granted
options to purchase 600,000 common shares of common stock to two directors.. The
stock options will vest over a two year period: with one third vesting on the
date of grant, one-third on the first anniversary date and one-third on the
second anniversary date. The stock options have a five year term and allow the
holder to purchase one common share of the Company at a price of $0.20 per share
until April 30, 2019.
During the six months ended June 30,
2014, the Company recorded stock-based compensation of $28,610 (2013 - $8,366)
as consulting expense related to the vesting of stock options. The Company did
not grant any stock options during the six months ended June 30, 2013.
The weighted average assumptions used
for each of the six months ended June 30, are as follows:
|
2014 |
2013 |
Expected dividend yield |
0% |
|
Risk-free interest rate |
1.74% |
|
Expected volatility |
68% |
|
Expected option life (in years) |
5.00 |
|
The following table summarizes the continuity of the Companys
stock options:
|
|
|
|
|
|
Weighted |
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual Term |
|
|
Intrinsic |
|
|
|
|
Options |
|
|
Price |
|
|
(years) |
|
|
Value |
|
|
Outstanding, December 31, 2013 |
|
2,460,000 |
|
$ |
0.26 |
|
|
1.86 |
|
$ |
− |
|
|
Granted |
|
600,000 |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
Expired |
|
(435,000 |
) |
$ |
0.32 |
|
|
|
|
|
|
|
|
Outstanding,
June 30, 2014 |
|
2,625,000 |
|
$ |
0.23 |
|
|
2.39 |
|
$ |
− |
|
|
Exercisable, June 30, 2014 |
|
2,225,000 |
|
$ |
0.24 |
|
|
1.73 |
|
$ |
− |
|
9
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
6. |
STOCK OPTIONS (Continued) |
A summary of the status of the
Companys non-vested options and changes are presented below:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
Number of |
|
|
Grant Date |
|
|
|
|
Options |
|
|
Fair Value |
|
|
Non-vested at December 31, 2013 |
|
75,000 |
|
$ |
0.001 |
|
|
Granted |
|
600,000 |
|
$ |
0.11 |
|
|
Vested |
|
(275,000 |
) |
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2014 |
|
400,000 |
|
$ |
0.11 |
|
As at June 30, 2014, the following
stock options were outstanding:
|
Number of
Options |
|
Exercise Price |
|
|
Expiry Date |
|
|
75,000 |
$ |
0.60 |
|
|
November 30, 2014 |
|
|
75,000 |
$ |
0.60 |
|
|
February 28, 2015 |
|
|
75,000 |
$ |
0.60 |
|
|
November 30, 2015 |
|
|
1,800,000 |
$ |
0.20 |
|
|
December 29, 2015 |
|
|
600,000 |
$ |
0.20 |
|
|
April 29, 2019 |
|
|
2,625,000 |
|
|
|
|
|
|
As at June 30, 2014, there was $39,786
in total unrecognized compensation cost related to non-vested stock options.
This cost is expected to be recognized over a weighted average period of 1.83
years.
7. |
REDEEMABLE PREFERRED STOCK |
On November 15, 2011, the Company
created one series of the 100,000,000 preferred shares it is authorized to
issue, consisting of 25,000,000 shares, to be designated as Class A Preferred
Shares. The principal terms of the Class A Preferred Shares are as follows:
Voting rights The Class A
Preferred Shares have voting rights (one vote per share) equal to those of the
Companys common stock.
Dividend rights The Class A
Preferred Shares carry a cumulative cash dividend of 10% per annum. The accrued
dividends payable are classified as interest expense in the statements of
operations.
Conversion rights The holders
of the Class A Preferred Shares have the right to convert the Class A Preferred
Shares, from time to time, at the option of the holder, into one common share
until July 31, 2015 at the following conversion prices:
i) $0.60 per Common Share
if converted at any time up to and including July 31, 2012;
ii) $1.00 per Common Share
if converted at any time between August 1, 2012 and July 31, 2013; and
iii) $1.50 per Common Share
if converted at any time between August 1, 2013 and July 31, 2015.
Redemption rights At any time,
the holders of the Class A Preferred Shares may elect to have the Company redeem
the Class A Preferred Shares for an amount equal to $1.00 per share. At any
time, the Company may redeem the Class A Preferred Shares for an amount equal to
$1.00 per share.
The Company has classified the Class A
Preferred Shares as liability because they are redeemable beyond the control of
the issuer.
10
QWICK MEDIA INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
(Stated in U.S. Dollars)
7. |
REDEEMABLE PREFERRED STOCK
(Continued) |
During the year ended December 31,
2011, the Company completed a private placement with a company owned by the
Company's President and Chief Executive Officer, consisting of the issuance of
1,000,000 Class A Preferred Shares at a price of $1.00 per Class A Share for
gross proceeds of $1,000,000, and converted the principal amount of a debenture
and accrued interest thereon to the related party, into an aggregate of
1,027,945 Class A Preferred Shares, at a conversion price of $1.00 per Class A
Preferred Share. As at December 31, 2013, the holder of the Class A Preferred
Shares had agreed to not exercise the retractable rights, to have the Company
redeem the Class A Preferred Shares, for the next 2 years.
8. |
COMMITMENTS AND CONTRACTUAL OBLIGATIONS |
|
|
|
The Company had no significant commitments or contractual
obligations with any parties respecting executive compensation, consulting
arrangements, or other matters. Management services provided are on a
month-to- month basis. |
|
|
9. |
FINANCIAL INSTRUMENTS AND RISK
MANAGEMENT |
|
|
|
The following table presents information about the
Companys financial instruments that have been measured at fair value as
of June 30, 2014, and indicates the fair value hierarchy of the valuation
inputs utilized to determine such fair values: |
|
JUNE 30, 2014 |
|
FAIR |
|
|
|
|
|
|
|
|
|
|
|
|
|
VALUE |
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
|
INPUT |
|
|
HELD-FOR- |
|
|
CARRYING |
|
|
FAIR |
|
|
|
|
LEVEL |
|
|
TRADING |
|
|
VALUE |
|
|
VALUE |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
1 |
|
$ |
255,910 |
|
$ |
255,910 |
|
$ |
255,910 |
|
|
DECEMBER 31, 2013 |
|
FAIR |
|
|
|
|
|
|
|
|
|
|
|
|
|
VALUE |
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
|
INPUT |
|
|
HELD-FOR- |
|
|
CARRYING |
|
|
FAIR |
|
|
|
|
LEVEL |
|
|
TRADING |
|
|
VALUE |
|
|
VALUE |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
1 |
|
$ |
241,327 |
|
$ |
241,327 |
|
$ |
241,327 |
|
|
Due to the nature of cash, accounts payable and
redeemable preferred stock, the fair value of these instruments
approximated their carrying value. |
|
|
10. |
SEGMENTED INFORMATION |
|
|
|
The Companys business is considered as operating in one
segment being the development of software and hardware for use in digital
media kiosks. |
11
QWICK MEDIA INC.
(the Company)
Managements Discussion and Analysis of Operations
for
the three and six months ended June 30, 2014
August 27, 2014
INTRODUCTION
The following managements discussion and analysis
(MD&A) is a review of operations, current financial position and
outlook for the Company and should be read in conjunction with the Companys
unaudited consolidated financial statements for the three and six months ended
June 30, 2014 and the Companys audited consolidated financial statements for
the year ended December 31, 2013. Readers are encouraged to review the Companys
financial statements in conjunction with this document, copies of which are
filed on the SEDAR website at www.sedar.com. The Company prepares its financial
statements in accordance with generally accepted accounting principles in the
United States. All dollar figures included herein are quoted in U.S. dollars
unless otherwise noted. This discussion and analysis is prepared as of August
27, 2014.
FORWARD-LOOKING INFORMATION
Certain statements in this MD&A are forward-looking
statements, which reflect managements expectations regarding the Companys
future growth, results of operations, performance and business prospects and
opportunities. Forward-looking statements consist of statements that are not
purely historical, including any statements regarding beliefs, plans,
expectations or intentions regarding the future. Such statements are subject to
risks and uncertainties that may cause actual results, performance or
developments to differ materially from those contained in the statements. No
assurance can be given that any of the events anticipated by the forward-
looking statements will occur or, if they do occur, what benefits the Company
will obtain from them. These forward-looking statements reflect managements
current views and are based on certain assumptions and speak only as of August
27, 2014. These assumptions, which include, managements current expectations,
estimates and assumptions about the global economic environment may prove to be
incorrect. A number of risks and uncertainties could cause the Companys actual
results to differ materially from those expressed or implied by the
forward-looking statements, including a renewed downturn in international
economic conditions; any adverse occurrence with respect to the development or
marketing of the Companys technology; any adverse occurrence with respect to
any of the Companys licensing agreements; an inability to successfully bring
products to market; product development or other initiatives by the Companys
competitors; fluctuations in the availability and cost of materials required to
produce the Companys products; any adverse occurrence with respect to
distribution of the Companys products; potential negative financial impact from
claims, lawsuits and other legal proceedings or challenges; and other factors
beyond the Companys control. There is a significant risk that such
forward-looking statements will not prove to be accurate. Investors are
cautioned not to place undue reliance on these forward-looking statements. No
forward-looking statement is a guarantee of future results. Except as required
by law, the Company disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. There is a significant risk that such forward-looking
statements will not prove to be accurate. Investors are cautioned not to place
undue reliance on these forward-looking statements. No forward-looking statement
is a guarantee of future results.
BUSINESS OF THE COMPANY
The Company is a development stage company engaged in the
business of developing and customizing software and hardware for use in digital
media kiosks. It was incorporated on October 5, 2000 under the laws of the state
of Nevada. Effective June 26, 2006, the Company re-domiciled from the State of
Nevada to the State of Washington. Effective July 7, 2009, the Company
re-domiciled from the State of Washington to the State of Wyoming for the sole
purpose of affecting a continuance to the Cayman Islands. Effective July 28,
2009, the Company re-domiciled to the Cayman Islands.
- 2 -
On January 28, 2011, the Company completed the acquisition of
Qeyos Ad Systems Inc. (Qeyos), pursuant to which the Company acquired
all of the issued and outstanding common shares of Qeyos from its shareholders
in exchange for the issuance of a total of 4,789,035 common shares of the
Company (each, a Share) on the basis of one Share for each share of
Qeyos.
On April 19, 2011, Qeyos incorporated Wuxi Xun Fu Information
Technology Co., Ltd. (Wuxi) under the laws of the Peoples Republic of
China (the PRC) as a wholly-owned foreign subsidiary of Qeyos, in order
to facilitate the conduct of the Companys operations in the PRC. Wuxi currently
employees 10 people at an aggregate cost of approximately $20,000 per month, who
provide the Company with software development services. The Company develops
interactive proprietary software, know-how and hardware. Our content management
touch screen software is built in C# programming language on a Windows®
multi-touch platform. The software development architecture team in Burnaby,
British Columbia, Canada provides technical and creative guidance for coders in
Wuxi, China. This strategy leverages production outsourcing and high execution
speed. We integrate hardware into custom designed enclosures to produce the
physical product that acts as a point of service terminal for end users.
Hardware manufacturing and development is managed from Nevada, Taiwan and also
Shenzhen, China, thirty minutes west of Hong Kong.
The Companys software and hardware is used in the interactive
segment of the digital out-of-home (DOOH) advertising industry. Its
principal business is to provide clients with advertising opportunities through
self-service interactive smart boards and digital kiosks, interactive window
displays, interactive transit displays and other interactive out-of-home
advertising displays, such as digital wallscapes, spectaculars and mall displays
that the Company offers in North American advertising markets. The Companys
business in China has been consolidated to software development via Wuxi.
OVERALL PERFORMANCE
As a development stage company, although the Company has had
limited but increased revenue over the past two fiscal years, it has also
incurred increased expenses over the past two fiscal years to fund final
development of its proprietary software, and deployment of the results of that
work on certain on-going U.S. and Canadian based proof of technology pilot
projects commenced at the end of August 2012. These pilot projects were
undertaken in lieu of pursuing other smaller scaled sales opportunities.
Management expects the Companys revenue to increase and its expenses to
decrease while the Company commences the full scale market release of its
product offering into established third party sales distribution channels using
the Internet as an alternative to the past costs incurred to employ an internal
sales staff in Burnaby, British Columbia. In addition, the Company is nearing
the successful completion of its confidential technology pilot projects in the
U.S. with the expectation of an opportunity to enter negotiations for definitive
agreements that are expected to enable the Company to monetize new opportunities
for advertisers to utilize the Companys proprietary interactive touch screen
technologies in the large retailer arena. While we have taken steps to reduce
the size of our internal sales staff, we will maintain our current level of
programming employees to oversee sales deployment of our completed software
products. See Business of the Company for additional details regarding the
Companys business.
The Companys future performance is largely tied to completing
definitive agreements with end-users of its software product offering, and the
overall financial markets. The Companys future is also dependent upon its
ability to obtain adequate financing and upon future profitable operations.
Management has plans to seek additional capital financing through private
placements and public offerings of the Companys common stock and from the
issuance of promissory notes. Uncertainty in credit markets has led to increased
difficulties in raising and borrowing funds. As a result, the Company may have
difficulties in completing equity or debt financings for the purposes of
maintaining its current level of operations, and marketing its completed
software products, without diluting the interests of current shareholders of the
Company.
As at June 30, 2014, the Company had a working capital
deficiency of $5,667,667 (December 31, 2013: working capital deficiency of
$4,428,410), cash of $254,305 (December 31, 2013: $241,327) and accumulated
losses of $12,578,783 for the period from inception on October 5, 2000 to June
30, 2014 (inception to December 31, 2013: $11,325,957). Management expects the
Company to incur further losses in the development of the Companys business,
all of which casts substantial doubt on the Companys ability to continue as a
going concern.
- 3 -
The Companys total revenue decreased by $41,400 to $8,051 for
the three months ended June 30, 2014 (Q2 2014) compared to $49,451 for
the three months ended June 30, 2013 (Q2 2013) and the Companys total
expenses increased by $46,270 to $691,407 for Q2 2014 from $645,137 for Q2 2013.
This resulted in an increased net loss of $683,356 for Q2 2014 compared to a net
loss of $595,686 for Q2 2013. The decreased revenue during Q2 2014 was mainly
due to the Company pursing certain smaller deployments of its software products
undertaken prior to commencing its U.S. and Canadian technology pilot projects.
The expenses incurred during Q2 2014 were mainly attributable to salaries, wages
and benefits, as well as office and administrative expenses, management fees,
professional fees, interest and bank charges and rent. Management anticipates
that expenses will continue to be high until the Company achieves profitable
operations. Expenses incurred during Q2 2014 were higher than those during Q2
2013 primarily due to increases in: consulting fees (Q2 2014: $36,178; Q2 2013:
$14,319); inventory costs (Q2 2014: 32,940; Q2 2013: nil); management fees (Q2
2014: $71,563; Q2 2013: $38,735); and office and administrative (Q2 2014:
$79,364; Q2 2013: $58,370).
Management anticipates that the Companys cash and cash
equivalents will not be sufficient to meet its working capital requirements for
the next twelve month period and that additional funds will need to be raised
through equity or debt financings to fund product development and ongoing
operations. Although the Company has secured financings in the past, there is no
assurance that the Company will be able to do so in the future on terms that are
favourable to the Company or at all. The Company may have difficulty raising
additional funds as necessary due to a number of uncertainties and risk factors,
including uncertainty in credit markets and general economic downturns. See
Results of Operations, Liquidity and Capital Resources and Risk
Factors.
As the Company has successfully concluded its software
technology pilots in the U.S. on April 15, 2014, it will need to conclude
definitive agreements with the potential end-users of its software previously
engaged in such pilots. If the Company is unable to complete such definitive
agreements on favourable terms, or at all, the Company will need to pursue
alternate end-users and perhaps engage in further proof of technology pilot
programs in such retailer markets. Therefore, until the Company concludes such
definitive agreements its outlook for deriving revenue from its current product
offering could be delayed by an estimated nine months from the commencement of
its next fiscal year. Such delay could result in a reduction in enterprise value
leading to increased dilution of its shareholders holding common shares in its
capital stock in consequence of raising additional funds as discussed though
equity or convertible debt financings.
SUMMARY OF QUARTERLY RESULTS
The following table sets out selected financial information for
the Company for its eight most recent quarters:
|
June 30, 2014
($) |
March 31, 2014
($) |
December 31, 2013
($) |
September 30,
2013 ($) |
Revenues |
8,051 |
34,142 |
(1,128)(1) |
24,368 |
Operating Expenses |
691,407 |
664,470 |
880,209 |
549,096 |
Net Loss |
683,356 |
630,328 |
881,337 |
524,728 |
Loss per Share (Basic and Diluted) |
0.01 |
0.01 |
0.01 |
0.01 |
|
June 30, 2013 ($)
|
March 31, 2013 ($)
|
December 31, 2012
($) |
September 30, 2012
($) |
Revenue |
49,451 |
37,862 |
(1,464)(2) |
987
|
Operating Expenses
|
645,137 |
682,939 |
734,797 |
812,833 |
Net Loss |
595,686 |
645,077 |
736,261 |
811,846 |
Loss per Share (Basic and Diluted) |
0.01 |
0.01 |
0.01 |
0.01 |
(1) |
The Company incurred negative revenue in the fourth
quarter of 2013 due to adjustments and write-offs of previously invoiced
revenues. |
(2) |
The Company incurred negative revenue in the fourth
quarter of 2012 due to adjustments and write-offs of previously invoiced
revenues. |
- 4 -
DISCUSSION OF OPERATIONS
Three Months Ended June 30, 2014 Compared to the Three
Months Ended June 30, 2013
The Company generated $8,051 in revenue during Q2 2014
compared to $49,451 during Q2 2013. The reason for the decrease in revenue
was a decrease in fees earned for custom programming of kiosk applications.
The Companys expenses increased from $645,137 during Q2 2013
to $691,407 during Q2 2014. The increase from Q2 2013 to Q2 2014 was mainly
attributable to increases in consulting fees (Q2 2014: $36,178; Q2 2013:
$14,319); inventory costs (Q2 2014: 32,940; Q2 2013: nil); management fees (Q2
2014: $71,563; Q2 2013: $38,735); and office and administrative (Q2 2014:
$79,364; Q2 2013: $58,370), which were offset in part by decreases in salaries,
wages and benefits (Q2 2014: $252,050; Q2 2013: $280,680), foreign exchange
expenses (Q2 2014: $27,669; Q2 2013: $51,160); and travel expenses (Q2 2014:
$17,545; Q2 2013: $26,783).
Net loss increased by $87,670 from $595,686 during Q2 2013 to
$683,356 during Q2 2014. The increased net loss is due to decreases in revenue
and an increase in expenses.
The Companys total assets increased by $4,750 from $693,420 as
at December 31, 2013 to $698,170 as at June 30, 2014. The increase in total
assets is mainly due to an increase of $18,311 in total current assets from
$656,343 as at December 31, 2013 to $674,654 as at June 30, 2014 due to
increased cash (June 30, 2014: $255,910; December 31, 2013: $241,327), and
accounts receivable (June 30, 2014: $199,119; December 31, 2013: $182,262) ,
offset by decreases in inventory (June 30, 2014: $217,471; December 31, 2013:
$230,593), prepaid expenses (June 30, 2014: $2,154; December 31, 2013: $2,161)
and property and equipment (June 30, 2014: $23,516; December 31, 2013:
$37,077).
The Companys increase in total assets was offset by the
Companys increase in total liabilities of $1,289,824 from $5,084,753 as at
December 31, 2013 to $6,374,577 as at June 30, 2014. The increase in total
liabilities was mainly due to an increase of $1,178,406 in amounts due to
related parties from $4,529,913 as at December 31, 2013 to $5,708,319 as at June
30, 2014.
The tables set out under the heading Additional Disclosure for
Venture Issuers without Significant Revenue set out the components of the
Companys expenses for the six months ended June 30, 2014.
Six Months Ended June 30, 2014 Compared to the Six Months
Ended June 30, 2013
The Company generated $42,193 in revenue during the six months
ended June 30, 2014 compared to $87,312 during the six months ended June
30, 2013. The reason for the decrease in revenue was a decrease in fees earned
for custom programming of kiosk applications.
The Companys expenses increased from $1,328,076 during the six
months ended June 30, 2013 to $1,355,877 during the six months ended June 30,
2014. The increase from the six months ended June 30, 2013 to the six months
ended June 30, 2014 was mainly due to increased expenses attributable to:
consulting fees (2014: $37,636; 2013: $21,163); foreign exchange (2014:
$112,085; 2013: $75,542); inventory costs (2014: $32,940; 2013: nil); management
fees (2014: $142,266; 2013: $115,992); and rent (2014: $116,933; 2013:
$106,880). These decreased expenses were offset in part by the following
decreased expenses: salaries, wages and benefits (2014: $531,506; 2013:
$605,821); travel expenses (2014: $32,914; 2013: $54,656); and amortization
(2014: $13,902; 2013: $22,038).
Net loss increased by $72,920 from $1,240,764 during the six
months ended June 30, 2013 to $1,313,684 during the six months ended June 30,
2014. The increased net loss is mainly due to decreased revenue during the six
months ended June 30, 2014 compared to the six months ended June 30, 2013.
- 5 -
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT
SIGNIFICANT REVENUE
The Company has generated minimal revenues since incorporation
and it does not have any real property interests. The following table sets out
the components of the Companys general and administrative expenses for the six
months ended June 30, 2014 as compared to the six months ended June 30, 2013:
|
Six months ended June 30/14
(unaudited) ($) |
Six months ended June 30/13
(unaudited) ($) |
Advertising and
promotion |
2,593 |
2,483 |
Amortization |
13,902 |
22,038 |
Consulting fees |
37,636 |
21,163 |
Filing fees |
4,978 |
7,389 |
Foreign exchange |
112,085 |
75,542 |
Interest and bank
charges |
103,865 |
103,204 |
Inventory costs |
32,940 |
− |
Management fees |
142,266 |
115,992 |
Office and
administrative |
137,255 |
132,709 |
Professional fees |
87,004 |
80,199 |
Rent |
116,933 |
106,880 |
Salaries, wages
and benefits |
531,506 |
605,821 |
Software
development costs |
− |
− |
Travel |
32,914 |
54,656 |
Total
Expenses |
1,355,877 |
1,328,076 |
LIQUIDITY AND CAPITAL RESOURCES
The following table sets out the components of the Companys
liquidity and capital resources at June 30, 2014 as compared to December 31,
2013:
|
As at June 30, 2014
(unaudited) ($) |
December 31, 2013
(audited) ($) |
Cash |
255,910 |
241,327 |
Working capital
(deficit) |
(5,699,923) |
(4,428,410) |
Total assets |
698,170 |
693,420 |
Total liabilities |
6,374,577 |
5,084,753 |
The Companys working capital decreased from a deficit of
$4,428,410 at December 31, 2013 to a deficit of $5,699,923 at June 30, 2014 as a
result of an increase in amounts due to related parties and accrued dividends
payable.
Anticipated Cash Requirements
The Company anticipates that it will incur the following
expenses over the next twelve months:
1. |
$200,000 in connection with expansion of further or
alternative technology pilots in the U.S. |
|
|
2. |
$100,000 in connection with locating, evaluating and
negotiating potential business opportunities; and |
|
|
3. |
$1,700,000 for operating
expenses. |
The Company requires a minimum of approximately $2,000,000 to
proceed with its plan of operation over the next twelve months, exclusive of any
acquisition or development costs. This amount may also increase if the Company
is required to carry out due diligence investigations in regards to any
prospective investment or business opportunity or if the costs of negotiating an applicable transaction are
greater than anticipated. The Company does not have sufficient working capital
to enable it to carry out its stated plan of expanding operation over the next
twelve months. As a result, the Company plans to complete private placement
sales of its common stock in order to raise the funds necessary to pursue its
plan of operation and to fund its working capital in order to enable it to carry
out expansion of its operation. There is no assurance that we will be successful
in completing any private placement financings.
- 6 -
Operating Activities
Operating activities provided cash of $14,583 during the six
months ended June 30, 2014 as compared to $160,399 during the six months ended
June 30, 2013. This decrease was primarily due to cash due to related parties of
$1,406,784 during the six months ended June 30, 2013 compared to $1,178,406
during the six months ended June 30, 2014.
Investing Activities
During the six months ended June 30, 2014 and 2013, the Company
did not use any cash in investing activities nor was it provided any cash from
investing activities.
Financing Activities
During the six months ended June 30, 2014 and 2013, the Company
did not use any cash in financing activities nor was it provided any cash from
financing activities.
Commitments
The Company did not have any significant commitments or
contractual obligations with any parties respecting executive compensation,
consulting agreements, or other matters, other than as disclosed below, as at
June 30, 2014. Management services are provided on a month-to-month basis. The
Companys future minimum payments under two month-to-month office leases are
$10,835 during the year ended December 31, 2014. The Company expects to satisfy
these commitments from working capital available to the Company. If the working
capital is not sufficient for these purposes, the Company intends to raise
additional funds through equity or debt financings. See Going Concern and
Risk Factors.
The Company has received monthly funding of its working capital
requirements from its largest shareholder and Chief Executive Officer, Mr. Ross
J. Tocher, who has continued his commitment to support the development of the
Companys software product offering until it can be successfully brought to
market. As of June 30, 2014, amounts owing to related parties consists of
$5,708,319 (December 31, 2013: $4,534,392) owed to a director, Mr. Tocher, and
companies controlled by him, $9,840 (December 31, 2013 - $12,889) owed to a
company controlled by an officer, Mr. Kevin Kortje, and $5,904 payable to a
company controlled by the managing director, Mr. Brian Petersen (December 31,
2013: nil). The amounts owed are unsecured, non-interest bearing and due on
demand. Mr. Tocher has however subsequently agreed to not make demand on such
indebtedness for a period of two years commencing January 1, 2014.
Going Concern
Due to the uncertainty of the Companys ability to meet its
current operating and capital expenses, in its report on the Companys annual
financial statements for the year ended December 31, 2013, the Companys
independent auditors included an explanatory paragraph regarding concerns about
its ability to continue as a going concern.
The Company has incurred an accumulated deficit of $12,639,641
for the period from inception on October 5, 2000 to June 30, 2014, has a
stockholders deficiency and has minimal revenues. The Company owed $5,708,319
to related parties as of June 30, 2014 which amount is unsecured, non-interest
bearing and due on demand. There is a risk that the Company will not have the
financial resources to satisfy this debt if and when payment is demanded. See
Related Party Transactions. The future of the Company is dependent upon its
ability to obtain adequate financing and upon future profitable operations from
advertising sales. Management has plans to seek additional capital through
private placements, public offering of any common stock, convertible debt and
credit facilities.
- 7 -
There is substantial doubt about the Companys ability to
continue as a going concern, as the continuation of its business is dependent on
the development of proprietary software, know-how and hardware. The issuance of
additional equity securities by the Company could result in a significant
dilution in the equity interests of its current shareholders. Obtaining
commercial loans, assuming those loans would be available, will increase the
Companys liabilities and future cash commitments.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no significant off-balance sheet arrangements
that have, or are reasonably likely to have, a current or future effect on its
financial condition, changes in financial position, revenues and expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to shareholders.
RELATED PARTY TRANSACTIONS
As of June, 2014, amounts owing to related parties consists of
$5,708,319 owed to Ross J. Tocher, a director of the Company, and companies
controlled by Mr. Tocher, namely R.J. Tocher Holdings Ltd., $9,840 (December 31,
2013 - $12,889) owed to KII Management Inc., a company controlled by Kevin
Kortje, the Chief Financial Officer of the Company, and $5,904 owed to BK
Petersen Holdings Ltd., a company controlled by Brian Petersen, the managing
director of the Company. The amounts owed are unsecured, non-interest bearing
and due on demand. Mr. Tocher has however subsequently agreed to not make demand
on the amount owing to R.J. Tocher Holdings Ltd. for a period of two years
commencing January 1, 2014.
During the six months ended June 30, 2014, the Company carried
out a number of transactions with related parties in the normal course of
business. These transactions were recorded at their exchange amount, which is
the amount of consideration established and agreed to by the related parties. In
particular, the Company paid management fees of $142,266 (2013: $115,992) as
follows: CDN$60,000 to Greg Dureault Personal Law Corporation, a company
controlled by Greg Dureault, Vice President of the Company, CDN$30,000 to Lizete
Dureault and CDN$30,000 to KII Management Inc. a company controlled by Kevin
Kortje, the Chief Financial Officer of the Company. The Company recorded
stock-based compensation of $28,610 as consulting fees paid to directors and
officers during the six months ended June 30, 2014 (2013: $8,366),
PROPOSED TRANSACTIONS
The Company has no proposed transaction as of the date of this
MD&A.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued Accounting Standards Update No.
2011-05, Presentation of Comprehensive Income (ASU No. 2011-05),
which improves the comparability, consistency, and transparency of financial
reporting and increases the prominence of items reported in Other Comprehensive
Income (OCI) by eliminating the option to present components of OCI as
part of the statement of changes in stockholders equity. The amendments in this
standard require that all nonowner changes in stockholders equity be presented
either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. Subsequently in December 2011, the FASB
issued Accounting Standards Update No. 2011-12, Deferral of the Effective Date
for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income (ASU No. 2011-12), which
indefinitely defers the requirement in ASU No. 2011-05 to present on the face of
the financial statements reclassification adjustments for items that are
reclassified from OCI to net income in the statement(s) where the components of
net income and the components of OCI are presented. The amendments in these
standards do not change the items that must be reported in OCI, when an item of
OCI must be reclassified to net income, or change the option for an entity to
present components of OCI gross or net of the effect of income taxes. The
amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and
annual periods beginning after December 15, 2011 and are to be applied
retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 did not have a material impact on
the Companys consolidated financial position or results of operations.
- 8 -
In September 2011, the FASB issued Accounting Standards Update
No. 2011-08, Testing Goodwill for Impairment (ASU No. 2011-08), which
allows entities to use a qualitative approach to test goodwill for impairment.
ASU No. 2011-08 permits an entity to first perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying value. If it is concluded that this is the case,
it is necessary to perform the currently prescribed two-step goodwill impairment
test. Otherwise, the two-step goodwill impairment test is not required. ASU No.
2011-08 is effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. The adoption of the
provisions of ASU No. 2011-08 did not have a material impact on the Companys
consolidated financial position or results of operations.
RISK FACTORS
Much of the information included in this Management Discussion
& Analysis includes or is based upon estimates, projections or other forward
looking statements. Such forward looking statements include any projections and
estimates made by the Company and its management in connection with its business
operations. Such estimates, projections or other forward looking statements
involve various risks and uncertainties as outlined below. The Company cautions
the reader that important factors in some cases have affected and, in the
future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such estimates, projections
or other forward looking statements. For a discussion of additional risks that
may affect the Companys business or results of operations, please see the
Companys annual report on Form 20-F for the year ended December 31, 2013. In
this section, references to we, our or us refers to the Company.
Our company currently does not generate revenue from its
planned operations, and as a result, we face a high risk of business failure.
We have generated minimal revenues from our planned operations
to date. As of June 30, 2014, we had accumulated $12,578,783 in losses since
inception. Our ability to generate revenues from planned advertising sales
depends largely on our ability to provide a large interactive network of digital
kiosks and digital TV screens that show our programs in high traffic locations
at trade-show exhibitions and large retail stores and shopping malls. This, in
turn, requires that we obtain specialized broadcast interactive television
(micro-broadcast) contracts or concession rights contracts in order to
operate our business. As such, in order to generate significant revenues, we
will incur substantial expenses in the development of our business. We therefore
expect to incur significant losses in the foreseeable future. We recognize that
if we are unable to generate significant revenues from our activities, our
entire business may fail. There is no history upon which to base any assumption
as to the likelihood that we will be successful in our plan of operation, and we
can provide no assurance to investors that we will generate operating revenues
or achieve profitable operations in the future.
If we are not able to effectively protect our intellectual
property, our business may suffer a material negative impact and may fail.
The success of our company will be dependent on our ability to
protect and develop our technology; however, we have not yet obtained any
patents or trademarks other than our U.S. trade name Qwick Media. We completed
our registration of the U.S. trade-name Qwick Media, which was issued on
September 20, 2011 under number 4,029,739. In addition, on March 30, 2012, we
applied under reference number 2065-100 for the Canadian trade name Qwick
Deal, which application is still pending. If we are unable to secure trademark
and patent protection for our intellectual property in the future or that
protection is inadequate for future products, our business may be materially
adversely affected. Further, there is no assurance that our interactive kiosks
and displays or other aspects of our business do not or will not infringe upon
patents, copyrights or other intellectual property rights held by third parties.
Although we are not aware of any such claims, we may become subject to legal
proceedings and claims from time to time relating to the intellectual property
of others in the ordinary course of our business. If we are found to have
violated the intellectual property rights of others, we may be enjoined from
using such intellectual property, and we may incur licensing fees or be forced
to develop alternatives. In addition, we may incur substantial expenses and
diversion of management time in defending against these third-party infringement
claims, regardless of their merit. Successful infringement or licensing claims
against us may result in substantial monetary liabilities, which may materially
and adversely disrupt our business.
- 9 -
We have had negative cash flows from operations and if we
are not able to obtain further financing, our business operations may fail.
We had cash in the amount of $254,305 and working capital
deficiency of $5,667,667 as of June 30, 2014. If our current resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain a credit facility. The sale of convertible
debt securities or additional equity securities could result in additional
dilution to our shareholders. The incurrence of indebtedness would result in
increased debt service obligations and could result in operating and financing
covenants that would restrict our operations and liquidity. We cannot assure you
that financing will be available in amounts or on terms acceptable to us, if at
all. Any failure to raise additional funds on favorable terms could have a
material adverse effect on our liquidity and financial condition and could cause
our business to fail.
Our limited operating history may not provide an adequate
basis to judge our future prospects and results of operations.
Prior to our acquisition of Qeyos, we were a shell company. As
such, our limited operating history may not provide a meaningful basis for
readers to evaluate our business, financial performance and prospects. It is
also difficult to evaluate the viability of our plan to implement an interactive
digital media micro-broadcast network and other advertising media dedicated to
the DOOH sector because we do not have sufficient experience to address the
risks frequently encountered by early stage companies using new forms of
advertising media and entering new and rapidly evolving markets. It may be
difficult for readers to evaluate our senior management team and their
effectiveness, on an individual or collective basis, and their ability to
address future challenges to our business.
If advertisers or the viewing public do not accept, or lose
interest in, our interactive digital media network, we may be unable to generate
sufficient cash flow from our operating activities and our prospects and results
of operations could be negatively affected.
The market for interactive digital media networks in North
America is relatively new and its potential is uncertain. Our success depends on
the acceptance of our interactive digital media network by advertising clients
and agencies and their continuing and increased interest in this medium as a
component of their advertising strategies. Interactive DOOH advertising is a new
concept in North America. If we are not able to adequately track consumer
responses to our programs, in particular tracking the demographics of consumers
most receptive to interactive advertising, we will not be able to provide
sufficient feedback and data to existing and potential advertising clients to
help us generate demand and determine pricing. Without improved market research,
advertising clients may reduce their use of interactive advertising and instead
turn to more traditional forms of advertising that have more established and
proven analytical methods of tracking effectiveness. If a substantial number of
advertisers lose interest in advertising on our planned micro-broadcast digital
media networks for these or other reasons, or become unwilling to purchase
advertising time slots on our planned network, we will be unable to generate
sufficient revenues and cash flow to operate our business, and our revenues,
prospects and results of operations could be negatively affected.
We may depend on third-party program producers to provide
the non-advertising content that we include in our interactive programs. Failure
to obtain high-quality content on commercially reasonable terms could materially
reduce the attractiveness of our Micro-broadcast network, harm our reputation
and cause our planned revenues to be unrealized or to decline.
We are planning for the majority of our interactive digital
kiosks and TV screens to mix advertising and non- advertising content. We do not
produce or create any of the non-advertising content included in our programs.
The advertisers will provide us with the advertising content that they do not
retain us to produce. All of the non- advertising content is provided by
third-party content providers such as various local television stations and
television production companies. There is no assurance that we will be able to
secure these contracts or obtain non-advertising content on satisfactory terms,
or at all. If we fail to obtain a sufficient amount of high-quality content on a
cost-effective basis, advertisers may find advertising on our Micro-broadcast
networks unattractive and may not wish to purchase advertising time slots on our
network, which would materially and adversely affect our ability to generate revenues from our advertising time slots and cause our
revenues to decline and our business and prospects to deteriorate.
- 10 -
Because we may rely on third-party agencies to help source
advertising clients, our failure to retain key third- party agencies or attract
additional agencies on favorable terms could materially and adversely affect our
revenue growth.
We plan to engage third-party agencies to assist us in sourcing
advertising clients from time to time. We do not have any long-term or exclusive
agreements with these agencies, including our key third-party agencies, and
cannot assure that we will obtain or continue to maintain favorable
relationships with them. If we fail to obtain and retain key third-party
agencies or attract additional agencies, we may not be able to secure or retain
advertising clients or attract new advertisers or advertising agency clients and
our business and results of operations could be materially adversely affected.
Because we may be dependent on a limited number of customers
for a significant portion of our revenues and this dependence may continue or
reoccur in the future, we may be vulnerable to the loss of major customers or
delays in payments from these customers.
Given our limited operating history and the rapid growth of our
industry, we cannot assure that we will not be dependent on a small number of
customers in the future. If we fail to sell our services to one or more key
customers in any particular period, or if a large customer purchases less of our
services or fails to purchase additional advertising time on our micro-broadcast
networks, our revenues could be unrealized or could decline and our operating
results could be adversely affected. In addition, the dependence on a small
number of customers could leave us more vulnerable to delays in payments from
these customers. If one of our larger customers is significantly delinquent with
their payments, our financial condition may be materially and adversely
affected.
We face significant competition in the global advertising
industry, and if we do not compete successfully against new and existing
competitors in North America and China, we may not realize or may lose our
future market share, and our intended profitability may be adversely affected.
We face significant competition in the global advertising
industry. We compete for advertising clients primarily on the basis of network
size and coverage, location, price, the quality of our programs, the range of
services that we offer and brand recognition. Significant competition could
reduce our planned operating margins and profitability and result in a loss of
intended market share. Some of our existing and potential competitors may have
competitive advantages, such as significantly greater brand recognition,
financial, marketing or other resources and may be able to mimic and adopt our
business model. In addition, several of our competitors have significantly
larger advertising networks than we do, which gives them an ability to reach a
larger number of overall potential consumers and which make them less
susceptible to downturns in particular sectors, such as the interactive sector.
Moreover, significant competition will provide advertisers with a wider range of
media and advertising service alternatives, which could lead to lower prices and
decreased revenues, gross margins and profits. We cannot assure you that we will
be able to successfully compete against new or existing competitors.
Future acquisitions may have an adverse effect on our
ability to manage our business.
We may acquire businesses, technologies, services or products
which are complementary to our core interactive digital media network business.
Future acquisitions may expose us to potential risks, which could have a
material and adverse effect on our ability to manage our business, our revenues
and net income. Further, we may need to raise additional debt funding or sell
additional equity securities to make such acquisitions. The raising of
additional debt funding by us, if required, would result in increased debt
service obligations and could result in additional operating and financing
covenants, or liens on our assets, that would restrict our operations, and the
sale of additional equity securities could result in additional dilution to our
shareholders.
- 11 -
Our quarterly and annual operating results are difficult to
predict and may fluctuate significantly from period to period in the future.
Our future plans for quarterly and annual operating results are
difficult to predict and may fluctuate significantly, if realized, from period
to period based on the seasonality of consumer spending and corresponding
advertising trends in North America. In addition, DOOH and advertising spending
in North America generally tends to increase during holidays and tends to
decrease during the fourth quarter. DOOH and advertising spending in North
America is also affected by certain special events and related government
measures. As a result, period-to-period comparisons of our operating results may
be unreliable as an indication of our future performance.
We may be subject to, and may expend significant resources
in defending against, government actions and civil suits based on the content we
provide through our interactive digital media network.
Civil claims may be filed against us for fraud, defamation,
subversion, negligence, copyright or trademark infringement or other violations
due to the nature and content of the information displayed on our network. If
consumers find the content displayed on our network to be offensive, clientele
may seek to hold us responsible for any consumer claims or may terminate their
relationships with us. Offensive and objectionable content and legal standards
for defamation and fraud are defined in North America, but we may not be able to
properly screen out unlawful content. In addition, if the security of our
content management system is breached and unauthorized images, text or audio
sounds are displayed on our network, viewers or the government may find these
images, text or audio sounds to be offensive, which may subject us to civil
liability or government censure despite our efforts to ensure the security of
our content management system. Any such event may also damage our reputation. If
our advertising viewers do not believe our content is reliable or accurate, our
business model may become less appealing to viewers in North America and our
advertising clients may be less willing to place advertisements on our planned
network.
We do not have any business liability, disruption or
litigation insurance, and any business disruption or litigation we experience
might result in our incurring substantial costs and the diversion of resources.
Insurance companies offer limited business insurance products
and do not, to our knowledge, offer business liability insurance suitable to
management. While business disruption insurance is available, we have determined
that the risks of disruption, cost of such insurance and the difficulties
associated with acquiring such insurance on commercially reasonable terms make
it impractical for us to have such insurance. As a result, except for directors
and fire insurance, we do not have any business liability, disruption or
litigation insurance coverage for our development operations. Any business
disruption or litigation may result in our incurring substantial costs and the
diversion of resources.
Compliance with advertising laws and regulations may be
difficult and could be costly, and failure to comply could subject us to
government sanctions.
Advertising laws and regulations require advertisers,
advertising operators and advertising distributors, including businesses such as
ours, to ensure that the content of the advertisements they prepare or
distribute are fair and accurate and are in full compliance with applicable
laws. Violation of these laws or regulations may result in penalties, including
fines, confiscation of advertising fees, orders to cease dissemination of the
advertisements and orders to publish an advertisement correcting the misleading
information. In circumstances involving serious violations, government may
revoke a violators license for advertising business operations.
We endeavor to comply with applicable laws, including by
requesting relevant documents from the advertisers. However, we cannot assure
the reader that each advertisement that an advertiser or advertising agency
client provides to us and which we include in our micro-broadcast network
programs is in compliance with relevant advertising laws and regulations or that
the supporting documentation and government approvals provided to us by our
advertising clients in connection with certain advertising content are complete.
Although we review advertising content for compliance with relevant laws and
regulations, we cannot assure the reader that we will be able to properly review
the content to comply with the standards imposed on us with certainty.
- 12 -
Fluctuations in exchange rates may have a material adverse
effect on your investment.
The reporting and functional currency of our company is the
U.S. dollar. However, a substantial portion of the expected revenues and
expenses of our consolidated operating subsidiaries and affiliate entities may
be denominated in CAD and RMB. The value of these currencies against the U.S.
dollar may fluctuate and is affected by, among other things, changes in the
political and economic conditions in Canada and China where our software is
developed in Wuxi. Fluctuations in exchange rates, primarily those involving the
U.S. dollar, may affect the relative purchasing power of our working capital and
our balance sheet and earnings per share in U.S. dollars. In addition,
appreciation or depreciation in the value of the foreign currencies relative to
the U.S. dollar would affect our financial results reported in U.S. dollar terms
without giving effect to any underlying change in our business or results of
operations. Fluctuations in the exchange rate will also affect the relative
value of any dividend we may issue which will be exchanged into U.S. dollars,
and earnings from, and the value of, any U.S. dollar-denominated investments we
make in the future. As a result, fluctuations in exchange rates may have a
material adverse effect on your investment.
Because our officers, directors and principal shareholders
control a large percentage of our common stock, such insiders have the ability
to influence matters affecting our shareholders.
Our officers and directors, in the aggregate, beneficially own
45% of the issued and outstanding common shares. As a result, they have the
ability to influence matters affecting our shareholders, including the election
of our directors, the acquisition or disposition of our assets, and the future
issuance of our shares. Because our officers, directors and principal
shareholders control such shares, investors may find it difficult to replace our
management if they disagree with the way our business is being operated. Because
the influence by these insiders could result in management making decisions that
are in the best interest of those insiders and not in the best interest of the
investors, you may lose some or all of the value of your investment in our
common shares.
Our business depends substantially on the continuing efforts
of our senior executives, and our business may be severely disrupted if we lose
their services.
Our future success heavily depends upon the continued services
of our senior executives and other key employees. In particular, we rely on the
expertise, financial assistance and experience of our chief executive officer,
Ross J. Tocher. We rely on the industry expertise, experience in our business
operations and sales and marketing, of our Vice-President of Operations, Alan
Husejnagic, and Vice-President of Sales, Ted Cowie, and their working
relationships with our employees, other major shareholders, advertising clients,
micro-broadcast network sponsors and advertisers, and relevant government
authorities. If one or more of our senior executives were unable or unwilling to
continue in their present positions, we might not be able to replace them easily
or at all. If any of our senior executives joins a competitor or forms a
competing company, we may lose clients, suppliers, key professionals and staff
members. Each of our executive officers has entered into an employment agreement
with us, which contains non-competition provisions. However, if any dispute
arises between our executive officers and us, we cannot assure you the extent to
which any of these agreements could be enforced.
If our business is unsuccessful, our shareholders may lose
their entire investment.
Although shareholders will not be bound by or be personally
liable for our expenses, liabilities or obligations beyond their total original
capital contributions, should we suffer a deficiency in funds with which to meet
our obligations, the shareholders as a whole may lose their entire investment in
our company.
Our common stock is illiquid and shareholders may be unable
to sell their shares.
There is currently a limited market for our common stock and we
can provide no assurance to investors that a market will develop. If a market
for our common stock does not develop, our shareholders may not be able to re-
sell the shares of our common stock that they have purchased and they may lose
all of their investment. Public announcements regarding our company, changes in
government regulations, conditions in our market segment and changes in earnings
estimates by analysts may cause the price of our common shares to fluctuate
substantially. In addition, the Pink Sheets and/or OTC Bulletin Board are not
exchanges and, because trading of securities on the Pink Sheets or OTC Bulletin Board is often more sporadic than
the trading of securities listed on an exchange, you may have difficulty
reselling any of the shares you purchase from our shareholders.
- 13 -
Investors interests in our company will be diluted and
investors may suffer dilution in their net book value per share if we issue
additional shares or raise funds through the sale of equity securities.
Our constating documents currently authorize the issuance of
400,000,000 shares of common stock with a par value of $0.001 and 100,000,000
preferred shares with a par value of $0.001. If we are required to issue any
additional shares or enter into private placements to raise financing through
the sale of equity securities, investors interests in our company will be
diluted and investors may suffer dilution in their net book value per share
depending on the price at which such securities are sold. If we issue any such
additional shares, such issuances also will cause a reduction in the
proportionate ownership and voting power of all other shareholders. Further, any
such issuance may result in a change in our control.
DISCLOSURE OF OUTSTANDING SHARE DATA
The Companys shares are quoted for trading on the OTC Bulletin
Board under the symbol QWIKF. As of August 27, 2014, the share capital of the
Company was as follows:
Class of
Shares |
Par Value |
Number Authorized |
Number Issued |
Common |
$0.001 |
400,000,000 |
71,128,456 |
Preferred Shares |
$0.001 |
100,000,000(1) |
2,027,945 |
(1) |
25,000,000 preferred shares have been designated as Class
A Preferred Shares. The holder of the outstanding Class A Preferred Shares
has agreed not to exercise the retraction rights attached thereto for a
period of two years commencing January 1, 2014. |
Stock Option Plan
As at August 27, 2014, the following stock options were
outstanding:
Number
Outstanding |
Exercise Price |
Expiry Date |
75,000 |
$0.60 |
November 30, 2014 |
75,000 |
$0.60 |
February 28, 2015 |
75,000 |
$0.60 |
November 30, 2015 |
1,800,000 |
$0.20 |
December 29, 2015 |
600,000*1 |
$0.20 |
April 30, 2019 |
2,625,000 |
|
|
Note *1: On April 29, 2014 the Company announced the
appointment of Messrs. William R. LeClair and Steven Koles to the Companys
Board of Directors and issued to them options to purchase 300,000 common shares
each, subject to the terms of the Companys stock option plan. The stock options
will vest over a two year period: with one third vesting on the date of grant,
one-third on the first anniversary date and one-third on the second anniversary
date. The stock options have a five year term and allow the holder to purchase
one common share of the Company at a price of $0.20 per share until April 30,
2019.
The Company has no outstanding warrants or other securities
that are convertible into Shares, other than the Class A Preferred Shares.
ADDITIONAL INFORMATION
The Company files annual and other reports and other
information with Canadian securities regulatory authorities and with the SEC in
the United States. The documents filed with the SEC are available to the public
from the SECs website at http://www.sec.gov. The documents filed with Canadian
securities regulatory authorities are available to the public at
http://www.sedar.com.
- 14 -
APPROVAL
The Board of Directors of Qwick Media Inc. has approved the
disclosure contained in this interim Management Discussion and Analysis.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Ross Tocher, President and Chief Executive Officer,
of Qwick Media Inc., certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
Qwick Media Inc. (the issuer) for the interim period ended June 30,
2014. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim
filings. |
Date: August 27, 2014 |
|
|
|
|
|
/s/ Ross
Tocher |
|
Ross Tocher |
|
President and Chief Executive Officer |
|
NOTE TO READER |
|
In contrast to the certificate required for non-venture
issuers under National Instrument 52-109 Certification of
Disclosure in Issuers Annual and Interim Filings (NI 52-109), this
Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
defined in NI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the
establishment and maintenance of |
|
|
i) |
controls and other procedures designed to provide
reasonable assurance that information required to be disclosed by the
issuer in its annual filings, interim filings or other reports filed or
submitted under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation;
and |
|
|
ii) |
a process to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuers GAAP.
|
|
|
The issuers certifying officers are responsible for
ensuring that processes are in place to provide them with sufficient
knowledge to support the representations they are making in this
certificate. Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement
on a cost effective basis DC&P and ICFR as defined in NI 52-109 may
result in additional risks to the quality, reliability, transparency and
timeliness of interim and annual filings and other reports provided under
securities legislation. |
1
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Kevin R. Kortje, Chief Financial Officer, of Qwick
Media Inc., certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
Qwick Media Inc. (the issuer) for the interim period ended June 30,
2014. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim
filings. |
Date: August 27, 2014 |
|
|
|
|
|
/s/ Kevin
Kortje |
|
Kevin R. Kortje |
|
Chief Financial Officer |
|
NOTE TO READER |
|
In contrast to the certificate required for non-venture
issuers under National Instrument 52-109 Certification of
Disclosure in Issuers Annual and Interim Filings (NI 52-109), this
Venture Issuer Basic Certificate does not include representations relating
to the establishment and maintenance of disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
defined in NI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the
establishment and maintenance of |
|
|
|
i) |
controls and other procedures designed to provide
reasonable assurance that information required to be disclosed by the
issuer in its annual filings, interim filings or other reports filed or
submitted under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation;
and |
|
|
|
|
ii) |
a process to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuers GAAP.
|
|
|
|
|
The issuers certifying officers are responsible for
ensuring that processes are in place to provide them with sufficient
knowledge to support the representations they are making in this
certificate. Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement
on a cost effective basis DC&P and ICFR as defined in NI 52-109 may
result in additional risks to the quality, reliability, transparency and
timeliness of interim and annual filings and other reports provided under
securities legislation. |
1
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