QWIKF Qwick Media Inc (CE)

QWICK MEDIA INC.

(A Development Stage Company)

 

CONSOLIDATED BALANCE SHEETS

 

(Stated in U.S. Dollars)

 

		SEPTEMBER 30,				DECEMBER 31,
		2012				2011
		(Unaudited)
ASSETS
Current
Cash		$	110,243			$	728,575
Accounts receivable			137,185				103,242
Due from related parties			−				169,404
Inventory			331,475				296,382
Prepaid expenses			−				49,510
Total Current Assets			578,903				1,347,113
Property and Equipment			90,100				86,426
Total Assets		$	669,003			$	1,433,539
LIABILITIES
Current
Accounts payable and accrued liabilities		$	164,915			$	111,831
Due to related parties			1,361,204				−
Accrued dividends payable			176,126				23,891
Total Liabilities			1,702,245				135,722
Redeemable Preferred Stock			2,027,945				2,027,945
STOCKHOLDERS’ DEFICIENCY
Common Stock			71,128				71,128
Additional Paid-in Capital			4,810,553				4,744,921
Deficit Accumulated During The Development Stage			(7,942,868	)			(5,546,177	)
Total Stockholders’ Deficiency			(3,061,187	)			(730,128	)
Total Liabilities and Stockholders’ Deficiency		$	669,003			$	1,433,539

 

Commitments and Contractual Obligations (Notes 1 and 13)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

QWICK MEDIA INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Stated in U.S. Dollars)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

 

1.      BASIS OF PRESENTATION

 

The unaudited interim consolidated financial statements as of September 30, 2012 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, 2011 audited consolidated financial statements and notes thereto. The operating results for the three months and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

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.”

 

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 Company’s 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 is being 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 is 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.

 

2.        NATURE OF OPERATIONS AND GOING CONCERN (Continued)

 

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.

 

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.

 

c)      Going Concern

 

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 $7,942,868 for the period from October 5, 2000 (inception) to September 30, 2012. 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 Company’s common stock and from the issuance of promissory notes. These factors raise substantial doubt regarding the Company’s 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.

3.      BASIS OF PRESENTATION

 

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”), and are expressed in US dollars. These consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly owned subsidiaries, Qeyos Ad Systems Inc., and Wuxi Xun Fu Information Technology Co., Ltd.  The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2011.

 

The Company uses the same accounting policies and methods of computation as in the annual consolidated financial statements for the year ended December 31, 2011.

 

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 management’s 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.

 

Certain reclassifications have been made to the prior period’s consolidated financial statements to conform to the current period’s presentation.

 

4.	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 Company's consolidated financial position or results of operations.

 

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 Company's consolidated financial position or results of operations.

 

 

7.	NOTES AND ACCRUED INTEREST PAYABLE

 

On January 28, 2011, the Company issued 637,140 common shares at a price of $0.20 per share in settlement of $127,428 notes and accrued interest payable outstanding at December 31, 2010.  These amounts were due to a company with a common director.

8.	PROMISSORY NOTE AND ACCRUED INTEREST PAYABLE

 

At December 31, 2010, the promissory note of $196,050 bore interest at 8% per annum and was repayable in full on January 28, 2004. The Company had entered into various loan extension agreements since the initial due date, including a required balloon payout amount of $25,000.  On May 30, 2011, the Company settled the outstanding principal and interest of $275,783 by issuing 1,378,915 common shares.

 

9.	RELATED PARTY TRANSACTIONS AND AMOUNTS OWING

 

For the nine months ended September 30, 2012, 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 September 30, 2012 that are not otherwise disclosed elsewhere:

 

As of September 30, 2012, amounts owing to related parties consists of $1,361,204 owed to a director and companies controlled by a director. The amounts owed are unsecured, non-interest bearing and due on demand.

 

At December 31, 2011, amounts owing to related parties consisted of $169,404 owed from a director and companies controlled by a director.

 

10.    CAPITAL STOCK

 

a)

Authorized

 

At September 30, 2012, the Company was authorized to issue the following number and classes of shares:

 

400,000,000 common shares, $0.001 par value;

 

100,000,000 preferred shares, $0.001 par value, and series as determined by directors.

 

b)

Common Stock

 

On January 28, 2011, the Company issued 10,000,000 common shares at $0.20 per share pursuant to a private placement for proceeds of $2,000,000, of which $1,385,000 was included in share subscriptions at December 31, 2010.

 

On January 28, 2011, the Board of Directors of the Company authorized the issuance of 637,140 common shares at a price of $0.20 per share in settlement of $127,428 notes and accrued interest payable.

 

On January 28, 2011, the Company completed the acquisition of 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 Company’s common stock on the basis of one share of common stock for each common share of Qeyos.

 

On May 30, 2011, the Board of Directors of the Company authorized the issuance of 1,378,915 common shares at a price of $0.20 per share in settlement of $275,783 notes and accrued interest payable.

 

On May 30, 2011, the Company issued 3,010,000 common shares at $0.20 per share pursuant to a private placement for proceeds of $602,002.

11.      STOCK OPTIONS

During the year ended December 31, 2011, 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 March 1, 2012, the Company granted 300,000 stock options to a consultant exercisable at $0.60 per share.  50% of the options vest on the date of grant and expire on February 28, 2013. Another 25% vest on the first anniversary and expire on February 28, 2014. The last 25% vest on the second anniversary and expire on February 28, 2015.

On January 28, 2011, the Company granted 2,400,000 stock options to directors, officers, and employees exercisable at $0.20 per share to December 29, 2015. The options vest 50% on the date of grant, 25% on the first anniversary and 25% on the second anniversary.

The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average grant date fair value of stock options granted during the nine months ended September 30, 2012 and 2011 was $0.001 and $0.11, respectively.  During the nine months ended September 30, 2012, the Company recorded stock-based compensation of $65,632 (2011 - $178,551) as consulting expense related to the vesting of stock options.

The fair value assumptions used were as follows:

	2012	2011
Expected dividend yield	0%	0%
Risk-free interest rate	0.43%	1.92%
Expected volatility	54%	66%
Expected option life (in years)	1.00	4.92

 

The following table summarizes the continuity of the Company’s stock options:

 

	Number of Options	Weighted Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding, December 31, 2011	2,720,000	$0.26	4.98	$         −
Granted	300,000	$0.60
Expired	(200,000)	$0.20
Outstanding, September 30, 2012	2,820,000	$0.30	2.81	$         −
Exercisable, September 30, 2012	1,950,000	$0.28	2.78	$         −

 

11.        STOCK OPTIONS (Continued)

A summary of the status of the Company’s non-vested options at September 30, 2012, and changes during the nine months ended September 30, 2012 are presented below:

			Number of Options	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2011			1,360,000	$0.10
Granted			300,000	$0.001
Expired			(50,000)	$0.11
Vested			(740,000)	$0.09
Non-vested at September 30, 2012			870,000	$0.07

 

As at September 30, 2012, there was $25,007 in total unrecognized compensation cost related to non-vested stock options.

12.      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 Company’s common stock.

 

Dividend rights – The Class A Preferred Shares carry a cumulative cash dividend of 10% per annum.

 

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 temporary equity because they are redeemable beyond the control of the issuer.

 

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.

The Company converted the principal amount of a Debenture and accrued interest thereon, into an aggregate of 1,027,945 Class A Preferred Shares, at a conversion price of $1.00 per Class A Preferred Share.

 

13.      COMMITMENTS AND CONTRACTUAL OBLIGATIONS

 

The Company had no significant commitments or contractual obligations with any parties respecting executive compensation, consulting arrangements, or other matters other than disclosed below.  Management services provided are on a month to month basis.

 

On February 21, 2012, the Company entered into a consulting agreement.  Pursuant to the agreement the Company will pay the consultant $6,000 per month for a period of three years commencing March 1, 2012.

 

The Company has entered into two leases for the provision of office space until January 31, 2014.   The Company’s future minimum lease payments for the two leases are as follows:

 

 

 

Due to the nature of cash, accounts receivable, accounts payable, and redeemable preferred stock, the fair value of these instruments approximated their carrying value.

 

	September 30, 2012 ($)	June 30, 2012 ($)	March 31, 2012 ($)	December 31, 2011 ($)
Revenues	987	119,966	27,130	(32,819) (1)
Operating Expenses	812,833	875,117	856,824	716,433
Net Loss	811,846	755,151	829,694	739,232
Loss per Share (Basic and Diluted)	0.01	0.01	0.01	0.01
	September 30, 2011 ($)	June 30, 2011 ($)	March 31, 2010 ($)	December 31, 2010 ($)
Revenue	48,431	58,513	10,020	-
Operating Expenses	723,960	1,037,440	792,331	45,419
Net Loss	675,529	978,927	782,311	45,419
Loss per Share (Basic and Diluted)	0.01	0.01	0.01	-

LIQUIDITY AND CAPITAL RESOURCES

 

The following table sets out the components of the Company’s liquidity and capital resources at September 30, 2012 as compared to the year ended December 31, 2011:

 

	September 30, 2011 (unaudited) ($)	December 31, 2011 (audited) ($)
Cash	110,000	728,575
Working capital (deficit)	(1,123,342)	1,211,391
Total assets	669,003	1,433,539
Total liabilities	1,702,245	135,722

Stock Option Plan

 

As at November 28, 2012, the following stock options were outstanding:

Number Outstanding	Exercise Price	Expiry Date
2,100,000	$0.20	December 29, 2015
60,000	$0.60	July 30, 2015
360,000	$0.60	July 30, 2015
300,000	$0.60	February 28, 2014
2,820,000