Commission file number: 000-50492
| LiveReel Media Corporation |
| (Exact name of Registrant as specified in its charter) |
Canada
(Jurisdiction of incorporation or organization)
Toronto, Ontario M5H 3P5,M5J 1S9, Canada
(Address of principal executive offices)
Toronto, Ontario M5H 3P5,M5J 1S9, Canada
(Name, Telephone, Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.:Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common shares without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act :Act: None
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report
Common shares without par value – 23,521,744 as at June 30, 20142015
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).o Yes þ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | Accelerated filer | Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| US GAAP | International Financial Reporting Standards as issued by the International Accounting Standards | Board | |
| Other o |
If “Other” has been checked in response to the previous question, Indicateindicate by check mark which financial statement item the registrant has elected to follow
Item 1717: :__ oItem 1818: Xþ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes þ No
TABLE OF CONTENTS
| Page No. | ||
| Forward-Looking Statements | 3 | |
| Foreign Private Issuer Status and Currencies and Exchange Rates | 3 | |
Part I | ||
| Item 1. Identity of Directors, Senior Management and Advisors | 4 | |
| Item 2. Offer Statistics and Expected Timetable | 4 | |
| Item 3. Key Information | 4 | |
| Item 4. Information on the Company | 9 | |
| Item 5. Operating and Financial Review and Prospects | 11 | |
| Item 6. Directors, Senior Management and Employees | 15 | |
| Item 7. Major Shareholders and Related Party Transactions | 20 | |
| Item 8. Financial Information | 22 | |
| Item 9. The Offer and Listing | 23 | |
| Item 10. Additional Information | 24 | |
Item 11. Quantitative and Qualitative Disclosures About Market Risk | 37 | |
| Item 12. Description of Securities Other Than Equity Securities | 38 | |
| Part II | ||
Item 13. Defaults, Dividend Arrearages and Delinquencies | 39 | |
| Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 39 | |
Item 15. Controls and Procedures | 39 | |
| Item 16. Audit Committee, Code of Ethics, and Principal Accountant's Fees, and Services | 40 | |
| Part III | ||
| Item 17. Financial Statements | 42 | |
| Item 18. Financial Statements | 42 | |
| Item 19. Exhibits | 42 | |
| Signature | 44 |
FORWARD-LOOKING STATEMENTS
This annual report includes "forward-looking statements." All statements, other than statements of historical facts, included in this annual report that address activities, events or developments, which we expect or anticipate, will or may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
The words "believe", "intend", "expect", "anticipate", "project", "estimate", "predict" and similar expressions are also intended to identify forward-looking statements.
These forward-looking statements address, among others, such issues as:
| - |
| - |
| - |
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations, including the risks set forth in "Item 3-Key Information-Risk Factors" and the following:
| - | Fluctuations in prices of our products and services, |
| - | Potential acquisitions and other business opportunities, |
| - | General economic, market and business conditions, and |
| - | Other risks and factors beyond our control. |
Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
Unless the context indicates otherwise, the terms "LiveReel Media Corporation", “the "Company”, "LiveReel", “we”, “us”, “our” and “registrant” are used interchangeably in this Annual Report and mean LiveReel Media Corporation and its subsidiary.
FOREIGN PRIVATE ISSUER STATUS AND CURRENCIES AND EXCHANGE RATES
Foreign Private Issuer Status
LiveReel Media Corporation is a Canadian corporation incorporatedgoverned under the FederalCanada Business LawsCorporations Act of Canada. Approximately 97%90% of its common stockshares is held by substantially less than 300350 non-United States citizens and residents as of the day of its most recently completed fiscal year and our business is administered principally outside the United States. As a result, we believe that we qualify as a "foreign private issuer" for continuing to report regarding the registration of our common stockshares using this Form 20-F annual report format.
Currency
The financial information presented in this Annual Report is expressed in Canadian dollars ("CDN $") and the financial data in this Annual Report is presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board ("IASB"). Such financial data conforms in all material respects with accounting principles generally accepted in the United States ("U.S. GAAP").
All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated.
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 - KEY INFORMATION
(A) SELECTED FINANCIAL DATA
This Report includes audited consolidated financial statements of the Company for the years ended June 30, 2015, 2014 2013 and 2012.2013. These audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)IFRS as issued by the International Accounting Standards Board (“IASB”).IASB.
The following is selected financial data for the Company for each of the last three fiscal years 20122013 through 20142015 on a consolidated basis. The data is extracted from the audited consolidated financial statements of the Company for each of the said years, prepared in accordance with IFRS as issued by the IASB.years.
Summary of Financial Information in Accordance with International Financial Reporting Standards (IFRS) (Canadian $)
Operating data – Fiscal year ended June 30
| 2014 | 2013 | 2012 | ||||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Net Loss | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Net Loss per Share | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||
| Working Capital Deficit | (357,991 | ) | (232,171 | ) | (208,191 | ) | ||||||
| Total Assets | 1,250 | 4,059 | 37,217 | |||||||||
| Capital Stock | 7,880,660 | 7,880,660 | 7,880,660 | |||||||||
| Contributed Surplus | 361,196 | 347,699 | 347,699 | |||||||||
| Equity Component of Debt | - | 13,497 | 17,792 | |||||||||
| Accumulated Deficit | (8,599,847 | ) | (8,474,027 | ) | (8,454,342 | ) | ||||||
| Shareholders' Deficiency | (357,991 | ) | (232,171 | ) | (208,191 | ) | ||||||
| Weighted Average Number of Shares Outstanding | 23,521,744 | 23,521,744 | 23,521,744 | |||||||||
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Revenue | - | - | - | |||||||||
| Net loss and comprehensive loss | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss and comprehensive loss per share | (0.005 | ) | (0.005 | ) | (0.001 | ) | ||||||
| Working capital deficit | (464,359 | ) | (357,991 | ) | (232,171 | ) | ||||||
| Total assets | 963 | 1,250 | 4,059 | |||||||||
| Total liabilities | 465,322 | 359,241 | 236,230 | |||||||||
| Capital stock | 7,880,660 | 7,880,660 | 7,880,660 | |||||||||
| Contributed surplus | 361,196 | 361,196 | 347,699 | |||||||||
| Equity component of debt | - | - | 13,497 | |||||||||
| Accumulated deficit | (8,706,215 | ) | (8,599,847 | ) | (8,474,027 | ) | ||||||
| Shareholders’ deficiency | (464,359 | ) | (357,991 | ) | (232,171 | ) | ||||||
| Weighted average number of shares outstanding | 23,521,744 | 23,521,744 | 23,521,744 | |||||||||
Summary of Financial Information in Accordance with U.S. GAAP (CDN $)
Operating data – Fiscal year ended June 30
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Revenue | - | - | - | |||||||||
| Net loss and comprehensive loss | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss and comprehensive loss per share | (0.005 | ) | (0.005 | ) | (0.001 | ) | ||||||
| Total assets | 963 | 1,250 | 4,059 | |||||||||
| Accumulated deficit | (8,706,215 | ) | (8,599,847 | ) | (8,474,027 | ) | ||||||
| Shareholders’ deficiency | (464,359 | ) | (357,991 | ) | (232,171 | ) | ||||||
| 2014 | 2013 | 2012 | ||||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Net Loss | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Comprehensive Loss | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Loss per Share | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||
| Total Assets | 1,250 | 4,059 | 37,217 | |||||||||
| Accumulated Deficit | (8,599,847 | ) | (8,474,027 | ) | (8,454,342 | ) | ||||||
| Shareholders' Deficiency | (357,991 | ) | (232,171 | ) | (208,191 | ) | ||||||
The Company has not declared or paid any dividends in any of its last three fiscal years.
Exchange Rates
In this Annual Report on Form 20-F, unless otherwise specified, all monetary amounts are expressed in Canadian dollars. The exchange rates used herein were obtained from Bank of Canada; however, they cannot be guaranteed.
On September 30, 2014,2015, being the last day of September 2014,2015, the exchange rate, based on the noon buying rates, for the conversion of Canadian dollars into United States dollars (the “Noon Rate of Exchange”) was $0.8922.$0.7466.
The following table sets out the high and low exchange rates for each of the last six months.
| 2015 | September | August | July | June | May | April | ||||||||||||||||||
| High for period | $ | 0.7606 | $ | 0.7708 | $ | 0.7958 | $ | 0.8191 | $ | 0.8368 | $ | 0.8365 | ||||||||||||
| Low for period | $ | 0.7455 | $ | 0.7517 | $ | 0.7657 | $ | 0.7968 | $ | 0.8010 | $ | 0.7929 | ||||||||||||
| 2014 | September | August | July | June | May | April | |||||||||||||
| High for period | $ | 0.9202 | $ | 0.9211 | $ | 0.9404 | $ | 0.9367 | $ | 0.9228 | $ | 0.9172 | |||||||
| Low for period | $ | 0.8922 | $ | 0.9106 | $ | 0.9167 | $ | 0.9143 | $ | 0.9064 | $ | 0.9056 | |||||||
The following table sets out the average exchange rates for the five most recent financial years calculated by using the average of the Noon Rate of Exchange on the last day of each month during the period.
| Year Ended June 30, | |||||
| 2014 | 2013 | 2012 | 2011 | 2010 | |
| Average for the year | 0.9367 | 0.9735 | 0.9963 | 1.0013 | 1.0555 |
| Year Ended June 30, | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
| Average for the year | $ | 0.8466 | $ | 0.9367 | $ | 0.9735 | $ | 0.9963 | $ | 1.0013 | ||||||||||
(B) CAPITALIZATION AND INDEBTEDNESS
Not applicableapplicable.
(C) REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicableapplicable.
(D) RISK FACTORS
The following is a brief discussion of those distinctive or special characteristics of the Company’s operations and industry that may have a material adverse impact on, or constitute risk factors in respect of, the Company’s future financial performance.
THE COMPANY HAS AN UNSUCCESSFUL OPERATING HISTORY
The Company is not profitable and has had no significant revenue since its inception in March 1997. The Company has operated at a loss to date and in all likelihood will continue to sustain operating expenses in the foreseeable future. There is no assurance that the Company will ever be profitable.
The Company’s audited consolidated financial statements for the year ended June 30, 20142015 have been prepared assuming that the Company will continue as a going concern, however, there can be no assurance that the Company will be able to do so. The Company’s ability to continue as a going concern is dependent upon its ability to access sufficient capital until it has profitable operations. The Company continues to receive funding formfrom its largest shareholdershareholders and related parties to assist with the Company’s working capital requirements. The consolidatedThese financial statements do not reflect theinclude any adjustments related to the carrying valuesrecoverability and classification of assetsrecorded asset amounts or the amount and classification of liabilities and the reported expenses and balance sheet classificationsor any other adjustments that wouldmight be necessary ifshould the Company wasbe unable to realize its assets and settle its liabilitiescontinue as a going concern in the normal course of operations.concern. Such adjustments could be material.
WE MAY CHOOSE INVESTMENT STRATEGIES THAT ARE UNSUCCESSFUL
The controlling shareholdershareholders of the Company changed in March 20132015 and a new Board of Directors was appointed. The Company has focused its efforts on identifying for purchase other active business interests, both within and outside of the film industry. To date, theThe Company has not yet identified or selected any additional specific investment opportunity or business. Accordingly, there is no current basis for youthe reader to evaluate the possible merits or risks of the investment opportunity which we may ultimately decide to pursue.
THE COMPANY'S COMMON SHARES ARE CONSIDERED TO BE PENNY STOCK, WHICH MAY ADVERSELY AFFECT THE LIQUIDITY OF ITS COMMON SHARES
The common shares of the Company would be classified as “penny stock” as defined in Reg. § 240.3a51-1 promulgated under the Securities Exchange Act of 1934 (the “1934 Act”). In response to perceived abuse in the penny stock market generally, the 1934 Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker’s or dealer’s duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) define significant terms used in the disclosure document or the conduct of trading in penny stocks. In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer’s account, and the estimated market value of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for such stocks, thus limiting the ability of the holder to sell such stock.
MARKET PRICE FOR THE COMPANY'S COMMON SHARES HAS BEEN VOLATILE IN THE PAST AND MAY DECLINE IN THE FUTURE
In recent years, the securities markets in Canada and the United States have experienced a high level of price and volume volatility, and the market prices of securities of many companies, particularly small-cap companies like ours,LiveReel, have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Our shares may continue to experience significant market price and volume fluctuations in the future in response to factors, which are beyond our control.
THE COMPANY WILL NEED TO RAISE ADDITIONAL FINANCING TO MEET FUTURE OPERATING NEEDS AND IMPLEMENT ITS NEW BUSINESS STRATEGY
The Company is focusing its efforts on identifying for purchase other active business interests,continues to review different investment opportunities both withininside and outside of the film industry. To date,If the Company has not yet identifiedis unable to achieve revenue or selected any additional specific investment opportunityobtain financing and cannot pay its debts as they become due, it may be forced to solicit a buyer or business.be forced into bankruptcy by its creditors.
On December 19, 2012, the Company entered into an unsecured loan agreement with Difference Capital Financial Inc. (“Difference Capital”Difference”), an arms-length party at the time of entering into the loan,an arms’ length party, in the aggregate principal amount of $50,000. The loan hashad a term of 12twelve months accruesmaturing December 19, 2013, accrued interest at 12% per annum until maturity, and maycould be prepaid at any time without notice or penalty. By loan amending agreement datedOn May 28, 2014, the Company extended the term of this unsecuredits loan was amendedagreement with Difference to provide that the maturity date is three (3) banking days from writtensuch loans now mature on a demand from Difference Capital.basis.
On March 22, 2013, Difference, at the Companytime the Company’s largest shareholder, entered into an additional unsecured loan agreement in the aggregate principal amount of $150,000 with Difference Capital.$150,000. The loan hashad a term of 12twelve months bearsmaturing March 22, 2014, accrued interest at 12% per annum payable onuntil maturity, and would be prepaid at any time without notice or termination, as the case may be, and may be repaid in advance without penalty. By loan amending agreement datedOn May 28, 2014, the Company extended the term of this unsecuredits loan was amendedagreements with Difference to provide that such loans now mature on a demand basis.
On March 10, 2015, the maturity date is three (3) banking days from written demand fromaforementioned short-term loans payable of $200,000 and accrued interest of $49,825 (collectively the “Short-Term Loans Payable”) owing to Difference Capital.were fully settled in a transaction by entities related to the Company. On March 10, 2015, the Short-Term Loans Payable in the amount of $249,825 and other related party advances in the amount of $124,822, were fully settled with the issuance of $374,647 in related party notes payable (the “Notes Payable”) to new entities related to the Company at the time of the transaction. The Notes Payable are unsecured, accrue interest at 12% per annum and are due on demand.
During fiscal 2014, Difference Capital2015, the Company’s largest shareholders continued to advance working capital to the Company on an as needed basis to fund its working capital requirements.
The Company has significant debts mostly with its largest shareholder.shareholders. The failure of the Company to pay its debts when due may result in the creditors realizing on the assets of the Company.
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DIVIDENDS
DILUTION
The Company may in the future grant to some or all of its own and its subsidiaries' directors, officers, insiders and key consultants options to purchase the Company's Common Sharescommon shares as non-cash incentives to those people. Such options may be granted at exercise prices equal to market prices at a time when the public market is depressed or at exercise prices which may be substantially lower than the market prices. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution.
The Company is currently without a source of revenue and therefore is not able to adequately cover its operating costs. The Company will most likely be required to issue additional securities to finance its operations and may also issue substantial additional securities to finance the development of any or all of its projects. These actions will cause further dilution of the interests of the existing shareholders.
SHARES ELIGIBLE FOR FUTURE SALE MAY DEPRESS OUR STOCK PRICE
At June 30, 2014, we2015, the Company had approximately 23,521,744 shares of common stockshares outstanding of which approximately 18,767,200 are restricted securities under Rule 144 promulgated under the Securities Act.
Sales of shares of common stockshares pursuant to an effective registration statement or under Rule 144 or another exemption under the U.S.US Securities Act could have a material adverse effect on the price of our common stockshares and could impair our ability to raise additional capital through the sale of equity securities.
YOUR RIGHTS AND RESPONSIBILITIES AS A SHAREHOLDER WILL BE GOVERNED BY CANADIAN LAW AND DIFFER IN SOME RESPECTS FROM THE RIGHTS AND RESPONSIBILITIES UNDER U.S. LAW
The Company is governed under the Canadian law.Business Corporations Act (the “CBCA”). The rights and responsibilities of holders of our shares are governed by our Articles and By-Laws and by Canadian law.CBCA. These rights and responsibilities may differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations.
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CHANGING REGULATIONS OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE CAN CAUSE ADDITIONAL EXPENSES AND FAILURE TO COMPLY MAY ADVERSELY AFFECT OUR REPUTATION AND THE VALUE OF OUR SECURITIES
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, including Bill 198, are creating uncertainty because of the lack of specificity and varying interpretations of the rules. As a result, the application of the rules may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We areThe Company is committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Any failure to comply with applicable laws may materially adversely affect ourits reputation and the value of ourits securities.
ITEM 4 - INFORMATION ON THE COMPANY
(A) HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was originally incorporated under the Business Corporation Act (Ontario) on March 18, 1997 as a result of an amalgamation under the name "Biolink Corp." The Company went through several name changes and changes in its business activities. The Company changed its name from Noble House Entertainment Inc. to LiveReel Media Corporation effective October 12, 2006. The Company’s wholly-owned subsidiary changed its name from Noble House Film & Television Inc. to LiveReel Productions Corporation (“LRPC”) effective August 10, 2006. On October 26, 2006, LiveReel completed its continuance under the jurisdiction of the Business Corporation Act (Canada)CBCA from being governed by the Ontario Business Corporation Act (Ontario).
The Company is a “reporting issuer” in the Province of Ontario, Canada which is governed by the Ontario Securities Commission. ItsThe Company is a fully reporting OTC Markets company and its common shares are currently listed and tradedtrade on the Over-the-Counter Bulletin Board (OTCBB) of the National Association of Securities Dealers (NASD)OTC QB under the trading symbol “LVRLF”.
The Company has had no significant revenue since its incorporation. As a resultCompany’s business plan continued to evolve. During most of fiscal 2007 and 2008, management focused on the limited successfinancing and distribution of feature films. However, in fiscal 2007, management also received board of director approval to dateutilize excess cash in our business to pursue additional investment opportunities outside the film financingindustry in order to potentially increase our return to shareholders. Management is not limited to any particular industry or type of business thewith respect to what it considers as investment opportunities.
The Company is an entertainment company focused on preserving its cash by minimizing operating expenses,the identification and looking to investment opportunitiesevaluation of other assets or businesses for purchase, both within and outside of the film industry. The Company’s registered office is 70 York Street, Suite 1610, Toronto, ON, M5J 1S9.
On September 17, 2012, the Company entered into an unsecured loan agreement with Billidan Family Trust, a related party to the Company's former largest shareholder, in the aggregate principal amount of $25,000. The loan had a term of 12 months ending September 17, 2013, accrued interest at 12% per annum until maturity, and could be prepaid at any time upon payment of a penalty of $2,000. This note and all accrued interest was repaid in connection with the change of control of the Company and additional debt financing of the Company on March 22, 2013.
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On December 19, 2012, the Company entered into an unsecured loan agreement with Difference, Capital, an arms-length party at the time of entering into the loan,an arms’ length party, in the aggregate principal amount of $50,000. The loan hashad a term of 12twelve months accruesmaturing December 19, 2013, accrued interest at 12% per annum until maturity, and maycould be prepaid at any time without notice or penalty. By loan amending agreement datedOn May 28, 2014, the Company extended the term of this unsecuredits loan was amendedagreements with Difference to provide that such loans now mature on a demand basis. On March 10, 2015, the maturity date is three (3) banking days from written demand fromloans payable owing to Difference Capital.
were fully settled in a transaction by entities related to the Company.
On March 22, 2013, Difference, at the Companytime the Company’s largest shareholder, entered into an additional unsecured loan agreement in the aggregate principal amount of $150,000 with Difference Capital, the Company’s largest shareholder and related party.$150,000. The loan hashad a term of 12twelve months bearsmaturing March 22, 2014, accrued interest at 12% per annum payable onuntil maturity, and would be prepaid at any time without notice or termination, as the case may be, and may be repaid in advance without penalty. The Company used the proceeds of this loan to pay out all of its existing indebtedness and the balance for working capital purposes. By loan amending agreement datedOn May 28, 2014, the Company extended the term of this unsecuredits loan was amendedagreements with Difference to provide that such loans now mature on a demand basis. On March 10, 2015, the maturity date is three (3) banking days from written demand fromloans payable owing to Difference Capital.
On March 22, 2013, Difference Capital entered into five separate stock purchase agreements with arms-length third parties whereby it acquired 20,648,150 common shares in the capital of the Company, representing approximately 87.8% of the issued and outstanding voting securities of the Company on a fully-diluted basis. At
Following the same time,change of control of the Company, the Company announced the appointment of Michael Wekerle and Henry Kneis who joined the board of directors following the resignation of Janice Barone and Diana van Vliet and at later date, Jason Meretsky. Jason Meretsky, the Company’s Chief Executive Officer resigned and was replaced by Michael Wekerle. Steve Wilson, the Company’s Chief Financial Officer resigned and was replaced by Henry Kneis.
On May 28, 2014, the Company extended the term of its loans with Difference to provide that such loans now mature on a demand basis.
On March 10, 2015, the then existing board consisting of Michael Wekerle, Henry Kneis and Thomas Astle resigned as members of the board of directors whichand were replaced Janice Baronewith J. Graham Simmonds, Ashish Kapoor and Diana van Vliet, both of whomHenry J. Kloepper. Mr. Wekerle resigned as of such date. The Company’s then existing Chief Executive Officer and was replaced by J. Graham Simmonds. Mr. Kneis, the Corporation's Chief Financial Officer resigned their consulting contracts were cancelled without penalty or further financial commitments, and werewas replaced by Michael Wekerle and Henry Kneis, respectively.Ashish Kapoor who was also appointed Secretary.
On JuneMarch 10, 2013,2015, the loans payable of $200,000 and accrued interest of $49,825 and other related party advances in the amount of $124,822 owing to Difference, were fully settled with the issuance of $374,647 in related party notes payable (the “Notes Payable”) to new entities related to the Company announcedat the appointment of Jeff Kehoe as a directortime of the Company following the resignation of Jason Meretsky, who was subsequently replaced by Paul Sparkestransaction. The Notes Payable are unsecured, accrue interest at 12% per annum and are due on May 28, 2014. demand.
The Board currently consists of three directors, Henry Kneis, Michael WekerleJ. Kloepper, J. Graham Simmonds and Paul Sparkes.Ashish Kapoor.
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(B) BUSINESS OVERVIEW
On March 10, 2015, the then existing board consisting of Michael Wekerle, Henry Kneis and Thomas Astle resigned as members of the board of directors and were replaced with J. Graham Simmonds, Ashish Kapoor and Henry J. Kloepper. Mr. Wekerle resigned as Chief Executive Officer and was replaced by J. Graham Simmonds. Mr. Kneis, the Corporation's Chief Financial Officer resigned and was replaced by Ashish Kapoor who was also appointed Secretary.
The Board currently consists of three directors, Henry J. Kloepper, J. Graham Simmonds and Ashish Kapoor.
Currently, the Company has not yet identified or selected any additional specificis focused on preserving its cash by minimizing operating expenses, and looking to investment opportunity or business.opportunities both within and outside of the film industry.
(C) ORGANIZATIONAL STRUCTURE
As at June 30, 2014,2015 the Company had only one wholly-owned subsidiary, LiveReel Productions Corporation, as explained above in (A).
(D) PROPERTY PLANTS AND EQUIPMENT
The Company does not own or lease any real property.
The Company’s registered office is 130 Adelaide70 York Street, West, Suite 1010,1610, Toronto, Ontario M5H 3P5,M5J 1S9, Canada. It is not charged monthly rent under this arrangement.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
(A) OPERATING RESULTS
The following discussion should be read in conjunction with the Audited Consolidated Financial Statementsaudited consolidated financial statements of the Company and notes thereto contained elsewhere in this report.
Results of operations
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Revenue | - | - | - | |||||||||
| Expenses | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss for year | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss per share | (0.005 | ) | (0.005 | ) | (0.001 | ) | ||||||
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| Year | Year | Year | ||||||||||
| Ended | Ended | Ended | ||||||||||
| June 30, | June 30, | June 30, | ||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Expenses | (125,820 | ) | (128,154 | ) | (161,139 | ) | ||||||
| Debt forgiveness | - | 75,929 | - | |||||||||
| Write-down of production advances | - | 32,540 | - | |||||||||
| Net loss for year | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Accumulated Deficit at end of period | $ | (8,599,847 | ) | $ | (8,474,027 | ) | $ | (8,454,342 | ) | |||
The following were the key events induring the year ended June 30, 2013 –2015:
During the year ended June 30, 2015, the Company expensed $11,500 (2014 - nil) in fees payable to a related entity for accounting and consulting services.
During the year ended June 30, 2015, the Company received $15,000 (2014 – nil) in advances from related entities, for working capital purposes.
The following were the key events induring the year ended June 30, 2012 –2014:
The Company had no revenue during the years ended June 30, 2015 and June 30, 2014.
Expenses
The overall analysis of the expenses is as follows:
| Year | Year | Year | ||||||||||
| Ended | Ended | Ended | ||||||||||
| June 30, | June 30, | June 30, | ||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Consulting expenses | $ | - | $ | 40,000 | $ | 52,500 | ||||||
| Professional fees | 45,981 | 33,030 | 56,395 | |||||||||
| Office and general | 13,707 | 11,289 | 16,325 | |||||||||
| Shareholder information | 41,615 | 18,834 | 18,652 | |||||||||
| Bank charges and interest | 320 | 1,095 | 860 | |||||||||
| Financing costs | 24,197 | 15,307 | - | |||||||||
| Accretion on convertible notes payable | - | 8,566 | 16,095 | |||||||||
| Foreign exchange loss | - | 33 | 312 | |||||||||
| $ | 125,820 | $ | 128,154 | $ | 161,139 | |||||||
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Legal and professional fees | 89,191 | 45,981 | 73,030 | |||||||||
| Shareholders information | 44,734 | 41,615 | 18,834 | |||||||||
| Office and general | 12,764 | 14,027 | 12,417 | |||||||||
| Financing costs | 30,424 | 24,197 | 15,307 | |||||||||
| (Gain) on settlement off of related party advances | (70,745 | ) | - | - | ||||||||
| Accretion of convertible notes payable | - | - | 8,566 | |||||||||
| (Gain) on debt forgiveness | - | - | (75,929 | ) | ||||||||
| (Gain) on write-down of production advances | - | - | (32,540 | ) | ||||||||
| 106,368 | 125,820 | (19,685 | ) | |||||||||
Shareholder Information
Office and General
Office and general costs during the year ended June 30, 2015 was $12,764 compared to $14,027 for the year ended June 30, 2014. These costs include primarilyconsulting fees, bank charges, insurance and other various small office expenses not categorized elsewhere in the financial statements.
Financing Costs
During the year ended June 30, 2014,2015, the Company incurred financing costsaccrued interest of $30,424 on loans due to related parties, see notes 8 and 9 of the financial statements, compared to $24,197 (2013 - $15,307, 2012 - $Nil) comprised of interest expense accrued on the loans from Difference Capital and interest paid on the convertible notes.
During the year ended June 30, 2013,2015, Difference forgave $70,745 of related party advances received by the Company derecognized $32,540 in production advances from two production companies that were made in 2006 asCompany. The remainder of the existence and whereaboutsrelated party payable due to Difference was settled with the issuance of these companies is unknown.new related party Notes Payable.
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(B) LIQUIDITY AND CAPITAL RESOURCES
Working Capital
As at June 30, 2014,2015, the Company had a net working capital deficit of $357,991$464,359 compared to a net working capital deficit position of $232,171$357,991 as ofat June 30, 2013.2014. Cash on hand as at June 30, 20142015 was $1,250$nil compared to $20$1,250 in cash as at June 30, 2013.
With the continued financial support offrom the Company’s largest shareholder,related parties, the Company believes it will able to meet its cash requirements in the upcoming fiscal year.
Operating cash flow
The Company’s operating cash requirements was met through working capital advances from Difference Capital.related parties.
Investment cash flows
The Company had no investment activities during the year.
Financing cash flows
(C) RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
The Company has not spent any funds on research and development during the fiscal years 2015, 2014 2013 and 2012.2013.
(D) TREND INFORMATION
There are no trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company’s business, financial condition or results of operation other than the nature of the business (Refer to the heading entitled “Risk Factors”).
(E) OFF-BALANCE SHEET ARRANGEMENTS
At June 30, 20142015 and 2013,2014, the Company did not have any off balance sheet arrangements, including any relationships with unconsolidated entities or financial partnerships to enhance perceived liquidity.
(F)CONTRACTUAL OBLIGATIONS
Other than the related party Notes Payable, there are no key contractual obligations as at June 30, 2015.
(G) SAFE HARBOR
Statements in Item 5 of this Annual Report on Form 20-F that are not statements of historical fact, constitute “forward-looking statements.” See “Forward-Looking Statements” on page 1 of this Annual Report. The Company is relying on the safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in making such forward-looking statements.
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
(A) DIRECTORS AND SENIOR MANAGEMENT
Mr. Michael WekerleJ. Graham Simmonds joined the boardBoard of Directors as Chairman on March 22, 2013. He10, 2015. Mr. Simmonds also assumed the role of Chief Executive Officer of the Company, effective the same date.March 10, 2015. Mr. WekerleSimmonds has over 2517 years of experience in public company management and business development projects within both the investment industrygaming and technology sectors. Mr. Simmonds is licensed and/or has previously been licensed/registered with a number of horse racing and gaming commissions in the United States and Canada. Mr. Simmonds developed and launched the first in-home digital video horseracing service in North America and is currentlya former director and partner in eBet Technologies Inc., a licensed ADW operator and software developer for the Executiveonline horse racing industry in the United States. He is the founder and CEO of Baymount Incorporated, a diversified investment, financial advisory and venture capital firm focused in opportunities within the horse racing, gaming and technology industries and the CEO of Gilla Inc, a designer, marketer and manufacturer e-liquids for vaporizers and related accessories. Mr. Simmonds was formerly the chairman of DealNet Capital Corp., a merchant banking company focused on Business Process Outsourcing and Consumer Financing.
We believe Mr. Simmonds is well-qualified to serve as Chairman of Difference Capital, a publicly listed merchant bank focused on creating shareholder value through strategic investments in,the Board of Directors due to his public company experience, operational experience and advisory services for, growth companies, particularly in the technology and media sectors, as well as opportunistic investments in undervalued financial assets and real property. Previously, Mr. Wekerle was a partner and co-founder of Griffiths McBurney & Partners’ (“GMP”) sales and trading operations where he served as Vice Chairman of Institutional Trading at GMP Securities until August 2011. During this period, Mr. Wekerle helped establish the firm’s hedge fund and institutional trading desk and developed a reputation for assisting clients in profiting from large-scale transactions.business contacts.
Mr. Henry Kneis Ashish Kapoor CPA, CA, CFAjoined the Board of Directors on March 22, 2013 and10, 2015. Mr. Kapoor also assumed the roleroles of chief financial officerChief Financial Officer and secretary.Corporate Secretary of the Company, effective March 10, 2015. Mr. KneisKapoor has 25over 15 years of experience specializing in alternative assets including hedge fundproviding capital markets advisory and assurance services as a finance professional. After obtaining his Chartered Accountant designation at Ernst & Young, Mr. Kapoor has gained over 10 years of experience in investment management, structured product development, equity derivativesbanking, advising client across various industries. As a senior vice president at Macquarie Capital Markets Canada Ltd., Mr. Kapoor was responsible for the Canadian telecom, media, entertainment and proprietary arbitrage trading.technology investment banking and principal investing group. During his 10 years at Macquarie, Mr. Kneis is currently Chief Operating OfficerKapoor completed in excess of $3B in successful principal investments and Chief Financial Officeradvised on a further $4B of Difference Capital. Previously, he was the Founder, CEOmergers and Chief Investment Officer of Abria Financial Group, where he managed three portfolios of hedge funds. Abria was the inaugural winner in 2004acquisitions for third party clients. Prior to Macquarie, Mr. Kapoor obtained his Chartered Accountant designation as part of the Canadian Investment Awards “Best FundErnst & Young’s Toronto practice and was awarded the Gold Medal for first place in Ontario, and the Bronze Medal for third place in Canada on the 2000 Chartered Accountancy Uniform Final Examination. Mr. Kapoor is also a CFA Charter holder and holds a Masters of Hedge Funds”. PriorAccounting and a Bachelor of Arts degree from University of Waterloo.
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We believe Mr. Kapoor is well-qualified to founding Abria, Mr. Kneis wasserve as a member of the CEOBoard of Maple Securities Ltd. (“Maple Securities”), a privately held, $100 million investment dealerDirectors due to his public company experience, financial markets knowledge and Toronto Stock Exchange member. He managed proprietary trading portfolios for Maple Securities and its affiliates with aggregate balance sheet assets of $3 billion.business contacts.
Mr. Paul SparkesHenry J. Kloepper joined the Board of Directors on May 28, 2014.March 10, 2015. Mr. SparkesKloepper is an accomplished businessa leading financier and has been involved in investment banking and corporate finance for over 30 years. He brings a rounded knowledge of the capital markets, strategic growth, and investments. Mr. Kloepper is currently CEO of Houston Lake Mining Inc., Interim CEO of NWT Uranium Corp. and a director of Avieya Communications. Mr. Kloepper was previously a director and president of Mogul Energy International Inc. and has held executive positions with more than 20 yearsAward Capital, JP Morgan, Citibank, Bank of experienceAmerica, and North American Trust in the publicUS, Canada, and private sectors.Europe.
We believe Mr. SparkesKloepper is the Executive Vice Chairman and Co-Founder of Difference Capital Financial Inc. For the past decade he was a leader in the broadcast and new media industry for Canada’s premier media company where he most recently served as CTVglobemedia’s Executive Vice President, Corporate Affairs. He also held senior positions in the public service, including with the Government of Canada as Director of Operationswell-qualified to then Prime Minister, Jean Chretien, and the Government of Newfoundland and Labradorserve as a senior aide to two Premiers; Clyde Wells and Brian Tobin. Mr. Sparkes serves on a number of boards including Thunderbird Films, the Liquor Control Board of Ontario (LCBO), the National Arts Center Foundation, and is the Chair and founding member of the Smiling Land Foundation.
Board of Directors and Chairman of the Audit Committee due to his public company experience, financial markets knowledge and business contacts.(B) COMPENSATION
The compensation payable to directors and officers of the Company and its subsidiary is summarized below:
1. General
The Company does not compensate directors for acting solely as directors. Except as described below, the Company does not have any arrangements pursuant to which directors or officers are remunerated by the Company or its subsidiary for their services in their capacity as directors or officers, except for the reimbursement of direct expenses.
The Company does not have any pension plans and has not issued any stock options.
2. Statement of Executive Compensation
Each of Mr. Wekerle,Simmonds, the current Chief Executive Officer of the Company, and Mr. Kneis,Kapoor, the current Chief Financial Officer of the Company, do not receive any fees for services rendered.
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The following table and accompanying notes set forth all compensation paid by the Company to all persons who served as Company directors and senior management during the fiscal year ended June 30, 2014.2015. The information is provided for the fiscal years ended 2015, 2014 2013 and 2012.2013.
Non-equity incentive plan compensation ($) | ||||||||||||||||||
| Name and | Year | Salary ($) | Share-based awards ($) | Option- | Annual incentive plans | Long-term incentive plans | Pension value ($) | All other compensation ($) | Total compensation ($) | |||||||||
| J. Graham Simmonds, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Chief Executive Officer, Director | 2014 | - | - | - | - | - | - | - | - | |||||||||
| 2013 | - | - | - | - | - | - | - | - | ||||||||||
Ashish Kapoor, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Chief Financial Officer, Director | 2014 | - | - | - | - | - | - | - | - | |||||||||
| 2013 | - | - | - | - | - | - | - | - | ||||||||||
| Henry J. Kloepper, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Director | 2014 | - | - | - | - | - | - | - | - | |||||||||
| 2013 | - | - | - | - | - | - | - | - | ||||||||||
| Michael Wekerle, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Former Chief Executive Officer | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Henry Kneis, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Former Chief Financial Officer | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Thomas Astle, | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| Former Director | 2014 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| 2013 | - | - | - | - | - | - | - | - | ||||||||||
| Paul Sparkes, | - | - | - | - | - | - | - | - | ||||||||||
Former Director | 2014 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||
| 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Jeff Kehoe, | 2015 | - | - | - | - | - | - | - | - | |||||||||
Former | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
| 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||
Long Term Incentive Plan (LTIP) Awards
The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid or distributed to the Named Executive Officers during the most recently completed fiscal year.
Defined Benefit or Actuarial Plan Disclosure
There is no pension plan or retirement benefit plan that has been instituted by the Company and none are proposed at this time.
(C) BOARD PRACTICES
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The Company has not set aside or accrued any amount for retirement or similar benefits to the directors.
The members of the Board of Directors consist of J. Graham Simmonds, Ashish Kapoor and Henry J. Kloepper. J. Graham Simmonds serves as Chairman of the Board of Directors.
Mandate of the Board
The Board has adopted a mandate, in which it has explicitly assumed responsibility for the stewardship of LiveReel. In carrying out its mandate the Board holds at least four meetings (or consent resolutions, where applicable) annually. The frequency of meetings, as well as the nature of the matters dealt with, will vary from year to year depending on the state of our business and the opportunities or risks, which we face from time to time. The Board held a total of five meetings (or consent resolutions, where applicable) during the fiscal year ended June 30, 2014. To assist in the discharge of its responsibilities, the Board has designated an Audit Committee, as more particularly discussed below.
Corporate Governance Committee
The Company does not currently have a Corporate Governance Committee. The directors determined that, in light of the Company’s size and resources, setting up such a committee would not be practical for the Company at this time.
Audit Committee
The members of the Audit Committee consist of Henry J. Kloepper, J. Graham Simmonds and Ashish Kapoor. Henry J. Kloepper serves as the Chairman of the Audit Committee and audit committee financial expert. Mr. Michael Wekerle, Mr. Henry Kneis, and Mr. Paul Sparkes, who are not independent. Kloepper is independent of management.
While each of these individualsMr. Simmonds and Mr. Kapoor would not be considered an independent director under an objective test in that Mr. WekerleSimmonds and Mr. KneisKapoor serve as non-paid consultants, holding the roles of the Corporation’sCompany’s Chief Executive Officer and Chief Financial Officer, respectively, since March 22, 2013 and Mr. Sparkes was a senior officer of Difference Capital, the controlling shareholder of the Company;10, 2015; however, the Board of Directors has made a subjective determination that no relationships exist which would interfere with the exercise of independent judgment in Mr. Wekerle, Mr. KneisSimmonds and Mr. Sparkes,Kapoor, carrying out the responsibilities of a director. The CorporationCompany has minimal cash reserves and its debts are with its largest shareholder, Difference Capital.shareholders. The Corporation and itsCompany’s largest shareholdershareholders have taken an active approach to examining business opportunities that could enhance shareholders returns and, if consummated, the CorporationCompany will be in a position to attract independent board members.
The audit committee is charged with overseeing the Company's accounting and financial reporting policies, practices and internal controls. The committee reviews significant financial and accounting issues and the services performed by and the reports of our independent auditors and makes recommendations to our Board of Directors with respect to these and related matters.
The Company’s Audit Committee’s charter was detailed in the annual report for fiscal 2005 and became effective on August 2, 2005.
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The Audit Committee assists the Board in fulfilling its responsibilities for our accounting and financial reporting practices by:
| reviewing the quarterly and annual consolidated financial statements and management discussion and analyses; |
| meeting at least annually with our external auditor; |
| reviewing the adequacy of the system of internal controls in consultation with the chief executive and financial officer; |
| reviewing any relevant accounting and financial matters including reviewing our public disclosure of information extracted or derived from our financial statements; |
| establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; |
| pre-approving all non-audit services and recommending the appointment of external auditors; and |
| reviewing and approving our hiring policies regarding personnel of our present and former external auditor |
Compensation Committee
The Company does not currently have a Compensation Committee. The directors determined that, in light of the Company’s size and resources, setting up such a committee would be too expensive for the Company at this time. None of the current directors or officers is entitled to receive any compensation for acting in such capacity. In addition, no stock options have been granted to any director or officer of the Company.
(D) EMPLOYEES
The Company presently has no permanent employees. It uses the services of consultants from time to time.
(E) SHARE OWNERSHIP
The Corporation had the following plans as at June 30, 2014:2015:
| 1. | 2006 Stock Option Plan, as amended on July 22, 2008, which provides for the issuance of up to 4,000,000 options. |
| 2. | 2006 Consultant Stock Compensation Plan, which provides for the issuance of up to 1,000,000 shares. |
The objective of these Plans is to provide for and encourage ownership of common shares of the Company by its directors, officers, consultants and employees and those of any subsidiary companies so that such persons may increase their stake in the Company and benefit from increases in the value of the common shares. The Plans are designed to be competitive with the benefit programs of other companies in the industry. It is the view of management that the Plans are a significant incentive for the directors, officers, consultants and employees to continue and to increase their efforts in promoting the Company’s operations to the mutual benefit of both the Company and such individuals and also allow the Company to avail of the services of experienced persons with minimum cash outlay.
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The following table sets forth the share ownership of those persons listed in subsection 6.B above and includes details of all warrants held by such persons at September 30, 2014:
2015:| Option-Based Awards | Share-Based Awards | |||||||||||||
| Name | Number of Shares Held | Number of securities underlying unexercised options (#) | Option exercised price ($) | Option expiration date | Value of unexercised in-the-money options ($) | Number of shares or units of shares that have not vested (#) | Market or payout value of share based awards that have not vested ($) | |||||||
| J. Graham Simmonds, | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||
| Chief Executive Officer, Director | ||||||||||||||
| Ashish Kapoor, | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||
| Chief Financial Officer, Director | ||||||||||||||
| Henry | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||
| Director | ||||||||||||||
Note:
| (1) |
| (2) | Includes 5,895,046 common shares owned by GraySim Family Trust and 1,858,334 common shares owned by Woodham Group Inc. |
| (3) | Includes 5,895,046 common shares owned by 2364201 Ontario Corp. |
As of June 30, 2014,2015, the Company had 23,521,744 shares of common stockshares outstanding. There are no outstanding options or warrants to purchase common stockshares outstanding.
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
(A) MAJOR SHAREHOLDERS
The Company's securities are recorded on the books of its transfer agent in registered form. The majority of such shares are, however, registered in the name of intermediaries such as brokerage houses and clearing-houses on behalf of their respective clients. The Company does not have knowledge of the beneficial owners thereof.
As at September 30, 2014, Intermediaries2015, intermediaries like CDS & Co, of Toronto, Canada and Cede & Co of New York, USA held approximately 3.7%5.8% of the issued and outstanding common shares of the Company on behalf of several beneficial shareholders whose individual holdings details were not available.
20
The following table shows the record and, where known to us, the beneficial ownership of our shares by each shareholder holding at least 5% of our common shares as of September 30, 2013.2015. As used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934.
| Name of Shareholder | No. of Shares Held | % of Issued Shares | ||||||
| GraySim Family Trust | 5,895,046 | 25.1 | % | |||||
| 2364201 Ontario Corp. | 5,895,046 | 25.1 | % | |||||
| Baymount Incorporated | 4,108,982 | 17.5 | % | |||||
| Woodham Group Inc. | 1,858,334 | 7.9 | % | |||||
| Blue Thunder Holdings Corp. | 1,858,334 | 7.9 | % | |||||
| Name of shareholder | No. of shares held | % of issued shares |
| Difference Capital Financial Inc. | 20,648,150 | 87.8% |
All of the Company’s shareholders have the same voting rights.
At September 30, 2014,2015, the Company had 23,521,744 shares of common stockshares outstanding, which, as per the details provided by Equity Financial TrustTransfer Company, the Company’s registrar and transfer agent, were held by approximately 353357 record holders (excluding the beneficial shareholders held through the intermediaries) of which 89 shareholders are based in the United States (including the beneficial shareholders held through the intermediaries) and hold an aggregate of 10,8182,277,374 shares or less than 0.01%9.68% of the common stock.shares.
The Registrant is a publicly owned Canadian corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation (other than as indicated in the chart above) or any foreign government. There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change of control of the Company.
(B) RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount. Related party transactions during the year ended June 30, 20142015 are as follows:
| 1. | During the year ended June 30, 2015, the Company received $106,409 (2014 - $89,159) in advances from Difference, its former shareholder, for working capital purposes. |
| 2. | During the year ended June 30, 2015, Difference forgave $70,745 of the above advances and the remaining $124,822 due to Difference from advances was settled with Notes Payable. |
| 3. | During the year ended June 30, 2015, the Company accrued interest of $30,424 (2014 - $24,197) on loans due to related parties. |
| 4. | During the year ended June 30, 2015, the Company expensed $11,500 (2014 - nil) in fees payable to a related entity for accounting and consulting services. |
| 5. | During the year ended June 30, 2015, the Company received $15,000 (2014 – nil) in advances from related entities, for working capital purposes. |
Indebtedness to Company of Directors, Executive Officers and Senior Officers
None of the directors, consultants, executive officers and senior officers of the Company or any of its subsidiaries, proposed nominees for election or associates of such persons is or has been indebted to the Company at any time for any reason whatsoever, including the purchase of securities of the Company or any of its subsidiaries.
(C) INTERESTS OF EXPERTS AND COUNSEL
Not applicableapplicable.
ITEM 8 - FINANCIAL INFORMATION
(A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Information regarding our financial statements is contained under the caption "Item 18. Financial Statements" below.
Legal Proceedings
The Company is not currently involved in any litigation nor is it aware of any litigation pending or threatened.
Dividend Policy
Since its incorporation, the Company has not declared or paid, and has no present intention to declare or to pay in the foreseeable future, any cash dividends with respect to its Common Shares.common shares. Earnings will be retained to finance further growth and development of the business of the Company. However, if the Board of Directors declares dividends, all Common Sharescommon shares will participate equally in the dividends, and, in the event of liquidation, in the net assets, of the Company.
(B) SIGNIFICANT CHANGES
During the fiscal year ended June 30, 2014,2015, the Company entered into the following significant arrangements:
| 1. | On |
| 2. | On March 10, 2015, the loans payable of $200,000 and accrued interest of $49,825 and other related party advances in the amount of $124,822 owing to Difference, were fully settled with the issuance of $374,647 in related party Notes Payable to new entities related to the Company at the time of the transaction. The Notes Payable are unsecured, accrue interest at 12% per annum and are due on demand. |
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ITEM 9 - THE OFFER AND LISTING
(A) OFFER AND LISTING DETAILS
The Company is a fully reporting OTC Markets company and its common shares are currently listed and trade on the OTC QB under the trading symbol “LVRLF”. The Company’s common shares began trading on the OTCBB on April 27, 2005. Prior to that date, the Company’s shares were traded “Over-the Counter” on the Canadian Unlisted Board (“CUB”) for a brief while in 2000. No real-time quotes or trades were available to the public. There is no record of quotations under the CUB.
The following tables set forth the reported high and low sale prices for the common shares of the Company as quoted on OTCBB.OTC QB.
The following table outlines the annual high and low market prices for each of the fiscal years since the trading date of April 27, 2005:
| Fiscal year ended June 30 | High in US $ | Low in US$ | |||||
| 2014 | 0.14 | 0.04 | |||||
| 2013 | 0.19 | 0.04 | |||||
| 2012 | 0.08 | 0.02 | |||||
| 2011 | 0.02 | 0.01 | |||||
| 2010 | 0.02 | 0.01 | |||||
| 2009 | 0.08 | 0.01 | |||||
| 2008 | 0.06 | 0.02 | |||||
| 2007 | 1.70 | 0.06 | |||||
| 2006 | 2.15 | 0.61 | |||||
| 2005 (April 28, 2005 to June 30, 2005) | 0.65 | 0.54 | |||||
| Fiscal year ended June 30 | High in US $ | Low in US$ | ||||||
| 2015 | 0.07 | 0.004 | ||||||
| 2014 | 0.14 | 0.04 | ||||||
| 2013 | 0.19 | 0.04 | ||||||
| 2012 | 0.08 | 0.02 | ||||||
| 2011 | 0.02 | 0.01 | ||||||
| 2010 | 0.02 | 0.01 | ||||||
| 2009 | 0.08 | 0.01 | ||||||
| 2008 | 0.06 | 0.02 | ||||||
| 2007 | 1.70 | 0.06 | ||||||
| 2006 | 2.15 | 0.61 | ||||||
| 2005 (April 28, 2005 to June 30, 2005) | 0.65 | 0.54 | ||||||
The following table outlines the high and low market prices for each fiscal financial quarter for each of the quarters since April 27, 2005 and any subsequent period:
| Fiscal Quarter ended | High in US $ | Low in US$ | High in US $ | Low in US$ | |||||||||||
| September 30, 2015 | 0.01 | 0.003 | |||||||||||||
| June 30, 2015 | 0.01 | 0.004 | |||||||||||||
| March 31, 2015 | 0.05 | 0.004 | |||||||||||||
| December 31, 2014 | 0.07 | 0.05 | |||||||||||||
| September 30, 2014 | 0.07 | 0.07 | 0.07 | 0.07 | |||||||||||
| June 30, 2014 | 0.07 | 0.05 | 0.07 | 0.05 | |||||||||||
| March 31, 2014 | 0.05 | 0.04 | 0.05 | 0.04 | |||||||||||
| December 31, 2013 | 0.14 | 0.04 | 0.14 | 0.04 | |||||||||||
| September 30, 2013 | 0.19 | 0.14 | 0.19 | 0.14 | |||||||||||
| June 30, 2013 | 0.19 | 0.04 | 0.19 | 0.04 | |||||||||||
| March 31, 2013 | 0.05 | 0.04 | 0.05 | 0.04 | |||||||||||
| December 31, 2012 | 0.06 | 0.05 | 0.06 | 0.05 | |||||||||||
| September 30, 2012 | 0.18 | 0.08 | 0.18 | 0.08 | |||||||||||
| June 30, 2012 | 0.08 | 0.062 | 0.08 | 0.062 | |||||||||||
| March 31, 2012 | 0.06 | 0.06 | 0.06 | 0.06 | |||||||||||
| December 31, 2011 | 0.08 | 0.02 | 0.08 | 0.02 | |||||||||||
| September 30, 2011 | 0.18 | 0.11 | 0.18 | 0.11 | |||||||||||
| June 30, 2011 | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
| March 31, 2011 | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
| December 31, 2010 | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
| September 30, 2010 | 0.0275 | 0.01 | 0.0275 | 0.01 | |||||||||||
| June 30, 2010 | 0.006 | 0.006 | 0.006 | 0.006 | |||||||||||
| March 31, 2010 | 0.015 | 0.006 | 0.015 | 0.006 | |||||||||||
| December 31, 2009 | 0.08 | 0.08 | 0.08 | 0.08 | |||||||||||
| September 30, 2009 | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
| June 30, 2009 | .015 | 0.015 | 0.015 | 0.015 | |||||||||||
| March 31, 2009 | 0.08 | 0.012 | 0.08 | 0.012 | |||||||||||
| December 31, 2008 | 0.08 | 0.012 | 0.08 | 0.012 | |||||||||||
| September 30, 2008 | 0.02 | 0.01 | 0.02 | 0.01 | |||||||||||
| June 30, 2008 | 0.03 | 0.02 | 0.03 | 0.02 | |||||||||||
| March 31, 2008 | 0.04 | 0.03 | 0.04 | 0.03 | |||||||||||
| December 31, 2007 | 0.06 | 0.04 | 0.06 | 0.04 | |||||||||||
| September 30, 2007 | 0.06 | 0.06 | 0.06 | 0.06 | |||||||||||
| June 30, 2007 | 0.11 | 0.10 | 0.11 | 0.10 | |||||||||||
| March 31, 2007 | 0.15 | 0.10 | 0.15 | 0.10 | |||||||||||
| December 31, 2006 | 0.50 | 0.12 | 0.50 | 0.12 | |||||||||||
| September 30, 2006 | 1.70 | 0.30 | 1.70 | 0.30 | |||||||||||
| June 30, 2006 | 0.85 | 2.15 | 0.85 | 2.15 | |||||||||||
| March 31, 2006 | 1.20 | 0.20 | 1.20 | 0.20 | |||||||||||
| December 31, 2005 | 0.65 | 0.35 | 0.65 | 0.35 | |||||||||||
| September 30, 2005 | 0.61 | 0.56 | 0.61 | 0.56 | |||||||||||
The following table outlines the high and low market prices for each of the most recent six months:
| Month | High in US $ | Low in US $ | |||
| September 2014 | 0.07 | 0.07 | |||
| August 2014 | 0.07 | 0.07 | |||
| July 2014 | 0.07 | 0.07 | |||
| June 2014 | 0.07 | 0.05 | |||
| May 2014 | 0.05 | 0.05 | |||
| April 2014 | 0.05 | 0.05 |
| Month | High in US $ | Low in US $ | ||||||
| September 2015 | 0.010 | 0.003 | ||||||
| August 2015 | 0.003 | 0.003 | ||||||
| July 2015 | 0.004 | 0.003 | ||||||
| June 2015 | 0.010 | 0.004 | ||||||
| May 2015 | 0.008 | 0.007 | ||||||
| April 2015 | 0.008 | 0.004 | ||||||
(B) PLAN OF DISTRIBUTION
Not applicableapplicable.
(C) MARKETS
The Company's common shares were traded briefly during the fiscal 2000 "over-the-counter" on the Canadian Unlisted Board ("CUB") with the trading symbol "FEPR" and CUSIP #32008X 10 2. The CUB system was implemented in November 2000 but has currently been discontinued. It was only available to traders and brokers for reporting trades that they had arranged in unlisted and unquoted equity securities in Ontario. No real-time quotes or trades were available to the public. There is no record of quotations under the CUB.
Since April 27, 2005, the Company’s common shares began trading on OTCBB of the NASD under a trading symbol “NHSEF”.
The Company received a new CUSIP number and changed its trading and listing symbol to “LVRLF” effective December 1, 2006. The Company is a fully reporting OTC Markets company and its common shares are currently tradedlisted and trade on the OTCQB.OTC QB under the trading symbol “LVRLF”.
(D) SELLING SHAREHOLDERS
Not applicable.
(E) DILUTION
Not applicableapplicable.
(F) EXPENSES OF THE ISSUE
Not applicableapplicable.
ITEM 10 - ADDITIONAL INFORMATION
(A) SHARE CAPITAL
This Form 20F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
(B) MEMORANDUM AND ARTICLES OF ASSOCIATION
Following approval by the shareholders in a special meeting held on October 4, 2006 as explained in item 8(B) above, the Company applied for authorization to continue from being governed by the Business Corporations Act (Ontario) and was granted approval on October 26, 2006 to continue under the jurisdiction of the Business Corporation Act (Canada).CBCA. An application for authorization to continue is included in Exhibits 1.1 and 1.2 hereof, which exhibits have been incorporated by reference into this report.
New by-laws were adopted in the special meeting of shareholders on October 4, 2006 in compliance with the requirements of the Business Corporation Act (Canada).CBCA. The new by-laws were included in Exhibit 1.3 thereof, which exhibit has been incorporated by reference into this report.
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(C) MATERIAL CONTRACTS
Except as set forth herein, under “Item 5(A) – Operating and Financial Review Prospects – Operating Results – Overview” or “Item 7(B) – Major Shareholders and Related Party Transactions – Related Party Transactions”, all material contracts entered into in last two fiscal years were in the ordinary course of its business.
(D) EXCHANGE CONTROLS
Limitations on the ability to acquire and hold shares of the Company may be imposed by the Competition Act (Canada) (the “Competition Act”). This legislation permits the Commissioner of Competition to review any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction, for up to three years, to challenge this type of acquisition before the Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada.
The Competition Act requires that any person proposing to acquire any of the assets in Canada of an operating business file a notification with the Competition Bureau where (a) "size"size of the parties" threshold - the parties to the transaction, together with their respective affiliates, have (i) assets in Canada the value of which exceeds $400 million in the aggregate, or (ii) annual gross revenues from sales in, from or into Canada that exceed $400 million in the aggregate; and (b) "size"size of the transaction" threshold - the aggregate value of those assets, or the gross revenues from sales in or from Canada generated from those assets, would exceed an annually established threshold (2014 - $82 million), based on the book value of the subject assets or Company in Canada, or gross revenues from sales in or from Canada generated from those assets or by the Company). For the purposes of the Competition Act, asset values and gross revenues are to be determined as of the last day of the period covered by the most recent audited financial statements in which the assets or gross revenues are accounted for.
In the case of share acquisitions, an additional "shareholding threshold" must be exceeded. This legislation requires any person who intends to acquire shares to file a notification with the Competition Bureau if certain financial thresholds are exceeded, and that person would hold more than 20% of our voting shares as a result of the acquisition. If a person already owns 20% or more of our voting shares, a notification must be filed when the acquisition would bring that person’s holdings over 50%. Where a notification is required, the legislation prohibits completion of the acquisition until the expiration of a statutory waiting period, unless the Commissioner provides written notice that he does not intend to challenge the acquisition.
There are no governmental laws, decrees or regulations in Canada that restrict the export or import of capital or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities. However, any such remittance to a resident of the United States may be subject to a withholding tax pursuant to the Income Tax Act (Canada). For further information concerning such withholding tax, see “Taxation" below.
Except as may be provided under the Investment Canada Act (the "ICA"), there are no specific limitations under the laws of Canada or in the Articles of the Company with respect to the rights of non-residents of Canada to hold and/or vote securities of the Company.
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The ICA requires each individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian” as defined in the ICA (a “non-Canadian”) making an investment to acquire control of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with the Investment Review Division of Industry Canada. The threshold level for non-Canadians who are private sector World Trade Organization investors (as defined in the ICA) is in excess of $250$600 million in enterprise value and from non-Canadians who are state-owned World Trade Organization investors is in excess of $369 million in asset value, subject to an annual adjustment on the basis of a prescribed formula in the ICA to reflect inflation and real growth within Canada.
In the context of the Company, in essence, three methods of acquiring control of a Canadian business are regulated by the ICA: (i) the acquisition of all or substantially all of the assets used in carrying on business in Canada; (ii) the acquisition, directly or indirectly, of voting shares of a Canadian corporation carrying on business in Canada; (iii) the acquisition of voting shares of an entity which controls, directly or indirectly, another entity carrying on business in Canada. An acquisition of a majority of the voting interests of an entity, including a corporation, is deemed to be an acquisition of control under the ICA. However, under the ICA, there is a rebuttable presumption that control is acquired if one-third of the voting shares of a Canadian corporation or an equivalent undivided interest in the voting shares of such corporation are held by a non-Canadian person or entity. An acquisition of less than one-third of the voting shares of a Canadian corporation is deemed not to be an acquisition of control. An acquisition of less than a majority, but one-third or more, of the voting shares of a Canadian corporation is presumed to be an acquisition of control unless it can be established that on the acquisition the Canadian corporation is not, in fact, controlled by the acquirer through the ownership of voting shares. Certain transactions relating to the acquisition of common shares would be exempt from review from the ICA, including:
| (a) | acquisition of common shares by a person in the ordinary course of a person’s business as a trader or dealer in securities; |
| (b) | acquisition of control of a Canadian corporation in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the ICA; and |
| (c) | acquisition of control of a Canadian corporation by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the corporation, through the ownership of voting interests, remains unchanged. |
In addition, if less than a majority of voting interests of a Canadian corporation are owned by Canadians, the acquisition of control of any other Canadian corporation by such corporation may be subject to review unless it can be established that the corporation is not in fact controlled through the ownership of voting interests and that two-thirds of the members of the board of directors of the corporation are Canadians.
Where an investment is reviewable under the ICA, it may not be implemented unless it is likely to be of net benefit to Canada. If an applicant is unable to satisfy the Minister responsible for Industry Canada that the investment is likely to be of net benefit to Canada, the applicant may not proceed with the investment. Alternatively, an acquiror may be required to divest control of the Canadian business that is the subject of the investment.
In addition to the foregoing, the ICA requires formal notification to the Canadian government of all other acquisitions of control of Canadian businesses by non-Canadians. These provisions require a foreign investor to give notice in the required form, which notices are for information, as opposed to review purposes.
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(E) TAXATION
Canadian Federal Income Tax Consequences
We consider that the following general summary fairly describes the principal Canadian federal income tax considerations applicable to holders of our common shares who, for purposes of the
Income Tax Act (Canada) (the “ITA”), deal at arm’s length with the Company, hold such shares as capital property, do not carry on business in Canada, have not been at any time residents of Canada for purposes of the ITA and are residents of the United States (“U.S. Residents”) under the Canada-United States Income Tax Convention (1980) (the “Convention”).
This summary is based upon the current provisions of the ITA, the Income Tax Regulations (the “Regulations”), the current publicly announced administrative and assessing policies of the Canada Revenue Agency (formerly Canada Customs and Revenue Agency), and all specific proposals (the “Tax Proposals”) to amend the ITA and Regulations publicly announced prior to the date hereof by the Minister of Finance (Canada). This description is not exhaustive of all possible Canadian federal income tax consequences and, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action, nor does it take into account provincial or foreign tax considerations which may differ significantly from those discussed herein.
The following discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of our common shares and no opinion or representation with respect to any Canadian federal, provincial or foreign tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors about the Canadian federal, provincial and foreign tax consequences of purchasing, owning and disposing of our common shares.
Dividends
Dividends, including stock dividends, paid or credited or deemed to be paid or credited on our common shares to a U.S. Resident will be subject to withholding tax at a rate of 25%. The Convention provides that the normal 25% withholding tax rate will generally be reduced to 15% on dividends paid on shares of a corporation resident in Canada for federal income tax purposes (such as the Company) to U.S. Residents, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation which is a resident of the United States and owns at least 10% of the voting shares of the corporation paying the dividend. These Convention reductions are not available to beneficial owners who are a U.S. LLC corporation.
Capital Gains
The Convention provides that a U.S. Resident will not be subject to tax under the ITA in respect of any capital gain on the disposition of our common shares unless such shares constitute taxable Canadian property of the U.S. Resident and the U.S. Resident is not entitled to the benefits of the Convention with regards to capital gains. Our common shares will constitute taxable Canadian property if at any time during the five year period immediately preceding the disposition of our common shares, the U.S. Resident, or persons with whom the U.S. Resident did not deal at arm’s length, or the U.S. Resident together with persons with whom the U.S. resident did not deal at arm’s length owned 25% or more of the issued shares of any class of our capital stock.
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Where a U.S. Resident realizes a capital gain on a disposition of shares that constitute “taxable Canadian property”, the Convention relieves the U.S. Resident from liability for Canadian tax on such capital gains unless:
| (a) | the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production, |
| (b) | the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding the disposition, was resident in Canada at any time during the 10 years immediately preceding the disposition and the shares were owned by him when he ceased to be resident in Canada, or |
| (c) | the shares formed part of the business property of a “permanent establishment” or pertained to a fixed base used for the purpose of performing independent personal services that the shareholder has or had in Canada within the 12 months preceding the disposition. |
These Convention benefits are generally not available to beneficial owners who are a U.S. LLC corporation.
U.S. Federal Income Tax Consequences
The following is a summary of the anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our common shares (“Common Shares”).
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.
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Scope of this Disclosure
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (“IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Annual Report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.
U.S. Holders
For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code; or (i) U.S. Holders that own, directly or indirectly, 10% or more, by voting power or value, of our outstanding shares. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.
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If an entity that is classified as partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Consequences” above).
U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
General Taxation of Distributions
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current or accumulated “earnings and profits”. To the extent that a distribution exceeds our current and accumulated “earnings and profits”, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).
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Reduced Tax Rates for Certain Dividends
For taxable years beginning after December 31, 2002 and before January 1, 2011, a dividend paid by us generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) we are a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date” (i.e., the first date that a purchaser of such Common Shares will not be entitled to receive such dividend).
We generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) we are incorporated in a possession of the U.S., (b) we are eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the Common Shares are readily tradable on an established securities market in the U.S. However, even if we satisfy one or more of such requirements, we will not be treated as a QFC if we are a “passive foreign investment company” (as defined below) for the taxable year during which we pay a dividend or for the preceding taxable year. In 2003, the U.S. Department of the Treasury (the “Treasury”) and the IRS announced that they intended to issue Treasury Regulations providing procedures for a foreign corporation to certify that it is a QFC. Although these Treasury Regulations were not issued in 2004, the Treasury and the IRS have confirmed their intention to issue these Treasury Regulations. It is expected that these Treasury Regulations will obligate persons required to file information returns to report a distribution with respect to a foreign security issued by a foreign corporation as a dividend from a QFC if the foreign corporation has, among other things, certified under penalties of perjury that the foreign corporation was not a “passive foreign investment company” for the taxable year during which the foreign corporation paid the dividend or for the preceding taxable year.
We do not believe that we were a “passive foreign investment company” for the taxable year ended June 30, 2008. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). There can be no assurance that the IRS will not challenge the determination made by us concerning our “passive foreign investment company” status or that we will not be a “passive foreign investment company” for the current or any future taxable year. Accordingly, there can be no assurances that we will be a QFC for the current or any future taxable year, or that we will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.
If we are not a QFC, a dividend paid by us to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.
Distributions Paid in Foreign Currency
The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).
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Dividends Received Deduction
Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financial advisor, legal counsel, or accountant regarding the dividends received deduction.
Disposition of Common Shares
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules. (See more detailed discussion at “Foreign Tax Credit” below).
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses and net capital losses are subject to complex limitations. For a U.S. Holder that is an individual, estate, or trust, capital losses may be used to offset capital gains and up to US$3,000 of ordinary income. An unused capital loss of a U.S. Holder that is an individual, estate, or trust generally may be carried forward to subsequent taxable years, until such net capital loss is exhausted.
For a U.S. Holder that is a corporation, capital losses may be used to offset capital gains, and an unused capital loss generally may be carried back three years and carried forward five years from the year in which such net capital loss is recognized.
Foreign Tax Credit
A U.S. Holder who pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income (including “passive income,” “high withholding tax interest,” “financial services income,” “general income,” and certain other categories of income). Dividends paid by us generally will constitute “foreign source” income and generally will be categorized as “passive income” or, in the case of certain U.S. Holders, “financial services income.” However, for taxable years beginning after December 31, 2006, the foreign tax credit limitation categories are reduced to “passive income” and “general income” (and the other categories of income, including “financial services income,” are eliminated). The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.
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Information Reporting; Backup Withholding Tax
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from certain sales or other taxable dispositions of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.
Additional Rules that May Apply to U.S. Holders
If we are a “controlled foreign corporation,” or a “passive foreign investment company” (each as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.
Controlled Foreign Corporation
We generally will be a “controlled foreign corporation” under Section 957 of the Code (a “CFC”) if more than 50% of the total voting power or the total value of our outstanding shares are owned, directly or indirectly, by citizens or residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts (each as defined in Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or more of the total voting power of our outstanding shares (a “10% Shareholder”).
If we are a CFC, a 10% Shareholder generally will be subject to current U.S. federal income tax with respect to (a) such 10% Shareholder’s pro rata share of the “subpart F income” (as defined in Section 952 of the Code) of the Company and (b) such 10% Shareholder’s pro rata share of our earnings invested in “United States property” (as defined in Section 956 of the Code). In addition, under Section 1248 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares by a U.S. Holder that was a 10% Shareholder at any time during the five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of the “earnings and profits” of the Company that are attributable to such Common Shares. If we are both a CFC and a “passive foreign investment company” (as defined below), we generally will be treated as a CFC (and not as a “passive foreign investment company”) with respect to any 10% Shareholder.
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We do not believe that LiveReel has previously been, or currently is a CFC. However, there can be no assurance that we will not be a CFC for the current or any future taxable year.
Passive Foreign Investment Company
We generally will be a “passive foreign investment company” under Section 1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of our gross income for such taxable year is passive income or (b) 50% or more of the assets held by us either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if we are not publicly traded and either is a “controlled foreign corporation” or makes an election). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
For purposes of the PFIC income test and asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, we will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
We do not believe that LiveReel has previously been, or currently are a PFIC. However, there can be no assurance that the IRS will not challenge our determination concerning our PFIC status or that we will not be a PFIC for the current or any future taxable year.
Default PFIC Rules Under Section 1291 of the Code
If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Common Shares and (b) any excess distribution paid on the Common Shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current taxable year) exceeds 125% of the average distributions received during the three preceding taxable years (or during a U.S. Holder’s holding period for the Common Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any excess distribution paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Class Common Shares (other than years prior to the first taxable year of the Company during such Non-Electing U.S. Holder’s holding period and beginning after December 31, 1986 for which we was not a PFIC) will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year. A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year. Such a Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible. The amount of any such gain or excess distribution allocated to the current year of such Non-Electing U.S. Holder’s holding period for the Common Shares will be treated as ordinary income in the current year, and no interest charge will be incurred with respect to the resulting tax liability for the current year.
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If we are a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Common Shares, we will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether we cease to be a PFIC in one or more subsequent years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold on the last day of the last taxable year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us.
However, a U.S. Holder that makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a QEF Election generally also (a) may receive a tax-free distribution from us to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the Common Shares in which we were a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such first year. However, if we were a PFIC in a prior year, then in addition to filing the QEF Election documents, a U.S. Holder must elect to recognize (a) a gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if the Common Shares were sold on the qualification date or (b) if we were also a CFC, such U.S. Holder’s pro rata share of the post-1986 “earnings and profits” of the Company as of the qualification date. The “qualification date” is the first day of the first taxable year in which we were a QEF with respect to such U.S. Holder. The election to recognize such gain or “earnings and profits” can only be made if such U.S. Holder’s holding period for the Common Shares includes the qualification date. By electing to recognize such gain or “earnings and profits,” such U.S. Holder will be deemed to have made a timely QEF Election. In addition, under very limited circumstances, a U.S. Holder may make a retroactive QEF Election if such U.S. Holder failed to file the QEF Election documents in a timely manner.
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A QEF Election will apply to the taxable year for which such QEF Election is made and to all subsequent taxable years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent taxable year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those taxable years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent taxable year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any such subsequent taxable year in which we qualify as a PFIC. In addition, the QEF Election will remain in effect (although it will not be applicable) with respect to a U.S. Holder even after such U.S. Holder disposes of all of such U.S. Holder’s direct and indirect interest in the Common Shares. Accordingly, if such U.S. Holder reacquires an interest in the Company, such U.S. Holder will be subject to the QEF rules described above for each taxable year in which we are a PFIC.
Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the availability of, and procedure for making, a QEF Election. U.S. Holders should be aware that there can be no assurance that we will satisfy record keeping requirements that apply to a QEF, or that we will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that we are a PFIC and a U.S. Holder wishes to make a QEF Election.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. The Common Shares generally will be “marketable stock” if the Common Shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks.
A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, if a U.S. Holder makes a Mark-to-Market Election after the beginning of such U.S. Holder’s holding period for the Common Shares and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the lesser of (a) the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the Common Shares over (ii) the fair market value of such Common Shares as of the close of such taxable year or (b) the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years.
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years).
A Mark-to-Market Election applies to the taxable year in which such Mark-to-Market Election is made and to each subsequent taxable year, unless the Common Shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the availability of, and procedure for making, a Mark-to-Market Election.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares.
The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
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This summary is of a general nature only and is not intended to be relied on as legal or tax advice or representations to any particular investor. Consequently, potential investors are urged to seek independent tax advice in respect of the consequences to them of the acquisition of common stock having regard to their particular circumstances.
(F) DIVIDEND AND PAYING AGENTS
Not applicableapplicable.
(G) STATEMENT BY EXPERTS
Not applicableapplicable.
(H) DOCUMENTS ON DISPLAY
The documents concerning the Company referred to in this Annual Report may be inspected at the Company's office at 130 Adelaide70 York Street, West, Suite 1010,1610, Toronto, Ontario, Canada, M5H 3P5.M5J 1S9. The Company may be reached at (416) 649-5085.843-2881. Documents filed with the Securities and Exchange Commission ("SEC") may also be read and copied at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
The Company is subject to reporting requirements as a “reporting issuer” under applicable securities legislation in Canada and as a “foreign private issuer” under the Securities Exchange Act of 1934 (the “Exchange Act”). As a result, we must file periodic reports and other information with the Canadian securities regulatory authorities and the Securities and Exchange Commission.
A copy of this Form 20-F Annual Report and certain other documents referred to in this Annual Report and other documents filed by us may be retrieved from the system for electronic document analysis and retrieval (“SEDAR”) system maintained by the Canadian securities regulatory authorities at www.sedar.ca or from the Securities and Exchange Commission electronic data gathering, analysis and retrieval system (“EDGAR”) at www.sec.gov/edgar.
(I) SUBSIDIARY INFORMATION
The documents concerning the Company’s subsidiaries referred to in this Annual Report may be inspected at the Company's office at 130 Adelaide70 York Street, West, Suite 1010,1610, Toronto, Ontario, Canada, M5H 3P5.M5J 1S9.
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to foreign currency exchange rates. The Company’s excess cash, if any, is held at a Canadian chartered bank in U.S. and Canadian currencies and bears interest at various rates on monthly balances as at June 30, 2014.2015.
The carrying value of cash, accounts payable and accrued liabilities, due to related party and short-term loans payable approximate fair values due to the relatively short-term maturities of these instruments.
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The Company never entered into and did not have at the end of the years ended June 30, 2015, 2014 2013 and 2012,2013, any foreign currency hedge contracts or commodity contracts, and the Company does not trade in such instruments. The Company does not use derivative financial instruments.
The Company has no sales contracts, swaps, derivatives, or forward agreements or contracts, or inventory.
The Company periodically accesses the capital markets with the issuance of new debt and/or new shares to fund operating expenses.
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not required since this is an annual report.
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PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
No modifications or qualifications have been made to the instruments defining the rights of the holders of our Common Shares and no material amount of assets securing our securities has been withdrawn or substituted by us or anyone else (other than in the ordinary course of business).
As explained earlier, we have moved the jurisdiction of our company from Ontario Business Corporation Act(Ontario) to Canada Business Corporation Actthe CBCA and have revised the by-laws which govern rights of the security holders. We do not believe that these changes have materially affected or modified the said rights.
ITEM 15 - CONTROLS AND PROCEDURES
A. Evaluation of Our Disclosure Controls and Internal Controls
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this annual report (the “Evaluation Date”).
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Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiary, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
B. Management’s Annual Report on Internal Control over Financial Reporting
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in Canada. It is our management’s responsibility to establish and maintain adequate internal control over financial reporting for the Company. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set for the by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.
C. Changes in Internal Controls
There have been no changes in the Company's internal controls over financial reporting that occurred during the year ended June 30, 20142015 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 16 - [RESERVED]
ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERTS
As at the Company’s financial year ended June 30, 2014,2015, the audit committee consisted of three directors, all of whom would be qualified as an audit committee financial expert, as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002. The background of the directors is described under Item 6(A) Directors and senior management.
The members of the Audit Committee consist of Henry J. Kloepper, J. Graham Simmonds and Ashish Kapoor. Henry J. Kloepper serves as the Chairman of the Audit Committee and audit committee financial expert. Mr. Michael Wekerle,Kloepper is independent of management.
While each of Mr. Henry Kneis,Simmonds and Mr. Paul Sparkes, each of whom are not independent. While Mr. Wekerle and Mr. KneisKapoor would not be considered an independent director under an objective test in that theyMr. Simmonds and Mr. Kapoor serve as non-paid consultants, holding the roles of the Corporation’sCompany’s Chief Executive Officer and Chief Financial Officer, respectively, since March 22, 2013 and Mr. Sparkes is not be considered independent as he was a senior officer of Difference Capital, a significant shareholder of the Company;10, 2015; however, the Board of Directors has made a subjective determination that no relationships exist which would interfere with the exercise of independent judgment in Mr. Wekerle, Mr. KneisSimmonds and Mr. SparkesKapoor, carrying out the responsibilities of a director. The CorporationCompany has minimal cash reserves and its debts are with its largest shareholder, Difference Capital.shareholders. The Corporation and itsCompany’s largest shareholdershareholders have taken an active approach to examining business opportunities that could enhance shareholders returns and, if consummated, the CorporationCompany will be in a position to attract independent board members.
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ITEM 16B CODE OF ETHICS
On February 9, 2007, the Company adopted a Code of Ethics that applies to its principal executive officer and principal financial officer, or persons performing similar functions. A copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics, please make a written request to our chief financial officer, Live Reel Media Corporation, 130 Adelaide70 York Street, West, Suite 1010,1610, Toronto, Ontario, Canada, M5H 3P5.M5J 1S9.
ITEM 16C PRINCIPAL ACCOUNTANT’S FEES AND SERVICES
The following outlines the expenditures for accounting fees for the last two fiscal years ended:
June 30, 2014 | June 30, 2013 | June 30, 2015 | June 30, 2014 | |||||||||||||
| Audit Fees | 13,000 | 15,000 | 12,995 | 14,690 | ||||||||||||
| Audit Related Fees | - | - | - | - | ||||||||||||
| Tax Fees | - | - | 1,130 | 5,085 | ||||||||||||
| All Other Fees | - | - | - | - | ||||||||||||
Under our existing policies, the audit committee must pre-approve all audit and non-audit related services provided by the auditors.
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicableapplicable.
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable
applicable.
ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicableapplicable.
ITEM 16G CORPORATE GOVERNANCE
Our securities are listed with the OTC Markets Group and trade on the Over The Counter Bulletin Board of NASDAQ.OTC QB marketplace. There are no significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of that exchange except for proxy delivery requirements. The OTC Bulletin Board, administered by NASDAQmarketplace requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to the proxy rules of the U.S. Securities and Exchange Commission. As a foreign private issuer, the Company is exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
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PART III
ITEM 17 - FINANCIAL STATEMENTS
Not applicable
applicable.
ITEM 18 - FINANCIAL STATEMENTS
See the Consolidated Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Annual Report. These consolidated financial statements were prepared in accordance with International Reporting Financial Standards as issued by the International Accounting Standards Board and are expressed in Canadian dollars. For a history of exchange rates in effect for Canadian dollars as against U.S. dollars, see Item 3(A) Exchange Rates of this Annual Report.
ITEM 19 --- EXHIBITS
(a) Financial Statements -
| Description of Document | Page No. | |
| Cover Sheet | F-1 | |
| Index | F-2 | |
| F-3 - F-4 | ||
| Consolidated Statements of Financial Position as at June 30, | F-5 | |
| Consolidated Statements of Operations and Comprehensive Loss for the | ||
| F-6 | ||
| Consolidated Statements of Changes in Equity for the | F-7 | |
| Consolidated Statements of Cash Flows for the Years Ended June 30, 2015 and 2014 | F-8 | |
| Notes to the Consolidated Financial Statements | F-9-F-18 |
b) Exhibits
The following documents are filed as part of this Annual Report on Form 20-F.20-F
| 1.1 | Application for Authorization to continue in another jurisdiction dated October 20, 2006.- Incorporated herein by reference to Exhibit 1.1 to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. | |
| 1.2 | Articles of Incorporation of the Company - Incorporated herein by reference to Exhibit 1.1 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.3 | By-Laws of the Company - Incorporated herein by reference to Exhibit 1.3 to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. | |
| 1.4 | Certificate of name change from Minedel Mining & Development Company Limited to Minedel Mines Limited - Incorporated herein by reference to Exhibit 1.3 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.5 | Certificate of name change from Minedel Mines Limited to Havelock Energy & Resources Inc. - Incorporated herein by reference to Exhibit 1.4 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.6 | Certificate of name change from Havelock energy & Resources Inc. to Municipal Ticket Corporation - Incorporated herein by reference to Exhibit 1.5 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.7 | Certificate of name change from Municipal Ticket Corporation to I.D. Investment Inc. - Incorporated herein by reference to Exhibit 1.6 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.8 | Certificate of Amalgamation. to Biolink Corporation - Incorporated herein by reference to Exhibit 1.7 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.9 | Certificate of name change from Biolink Corp. to First Empire Entertainment.com Inc. - Incorporated herein by reference to Exhibit 1.8 to the Company’s Registration Statement on Form 20-F filed on March 12, 2004. | |
| 1.10 | Certificate of name change from First Empire Entertainment.com Inc. to First Empire Corporation Inc. - Incorporated herein by reference to Exhibit 19 to the Company’s Annual Report on Form 20-F filed on March 12, 2004. |
| 1.11 | Certificate of name change from First Empire Corporation Inc. to Noble House Entertainment Inc. dated November 4, 2004 - Incorporated herein by reference to Exhibit 1.10 to the Company’s Annual Report on Form 20-F filed on December 1, 2005. | |
| 1.12 | Articles of Amendment dated November 19, 2004 consolidating the common shares of the Company on the basis of one new common share in exchange for every two old common shares - Incorporated herein by reference to Exhibit 1.11 to the Company’s Annual Report on Form 20-F filed on December 1, 2005. | |
| 1.13 | Certificate of name change from First Empire Music Corp. to Noble house Film & Television Inc. dated January 21, 2005 - Incorporated herein by reference to Exhibit 1.12 to the Company’s Annual Report on Form 20-F filed on December 1, 2005. | |
| 1.14 | Certificate of name change from Noble House Film & Television Inc. to LiveReel Productions Corporation dated August 10, 2006 - Incorporated herein by reference to Exhibit 1.14 to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. | |
| 1.15 | Certificate of name change from Noble House Entertainment Inc. to LiveReel Media Corporation dated October 12, 2006 - Incorporated herein by reference to Exhibit 1.15 to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. | |
| 2.(a) | Specimen Common Share certificate - Incorporated herein by reference to Exhibit 2(a) to the Company’s Annual Report on Form 20-F filed on December 1, 2005. | |
| 2.(b)(i) | Unsecured loan agreement with Mad Hatter Investments Inc. dated July 21, 2011 - Incorporated herein by reference to Exhibit 2(b)(i) to the Company’s Registration Statement on Form 20-F filed on November 25, 2011. | |
| 2.(b)(ii) | Unsecured loan agreement with 1057111 Ontario Limited dated July 21, 2011 - Incorporated herein by reference to Exhibit 2(b)(ii) to the Company’s Registration Statement on Form 20-F filed on November 25, 2011. | |
| 2.(b)(iii) | Secured loan agreement with Enthrive Inc. dated | |
| 2.(b)(iv) | Unsecured loan agreement with Billidan Family Trust dated September 17, | |
| 2.(b)(v) | Unsecured loan agreement with Difference Capital Funding Inc. (now Difference Capital Financing Inc.) dated December 19, 2012 - Incorporated herein by reference | |
| 2.(b)(vi) | Unsecured loan agreement with Difference Capital Funding Inc. (now Difference Capital Financing Inc.) dated March 22, 2013 - Incorporated herein by reference | |
| 2.(b)(vii) | Loan amending agreement with Difference Capital Financing Inc. dated May 29, 2014 with respect to the unsecured loan entered into on December 19, | |
| 2.(b)(viii) | Loan amending agreement with Difference Capital Financing Inc. dated May 29, 2014 with respect to the unsecured loan entered into on March 22, | |
| Unsecured note payable with Baymount Incorporated dated March 10, 2015. | ||
| Unsecured note payable with SimKap Advisory Corp. dated March 10, 2015. | ||
| 4.(b) | Offer to Purchase dated November 30, 2004 regarding acquisition of film properties from Noble House Production Inc. - Incorporated herein by reference to Exhibit 1.12 to the Company’s Annual Report on Form 20-F filed on December 1, 2005. | |
| 4.(c) | 2006 Consultant Stock Compensation Plan and 2006 Stock Option Plan - Incorporated | |
| Code of Ethics. | ||
| The certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)). | ||
| The Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 14(a)(i) | Corporate Governance Charter - Incorporated herein by reference to Exhibit 14 (a)(i) to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. | |
Audit Committee Charter - Incorporated herein by reference to Exhibit 14 (a)(ii) to the Company’s Registration Statement on Form 20-F filed on December 26, 2006. |
SIGNATURE
The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Dated at Toronto, Ontario, Canada, this October 22, 2014.28, 2015.
LIVEREEL MEDIA CORPORATION
Per: /s/ “Henry KneisAshish Kapoor”
Chief Financial Officer
44
LIVEREEL MEDIA CORPORATION
Consolidated Financial Statements
For the Years Ended June 30, 2015 and 2014
(Expressed in Canadian Dollars)
INDEX
| Page | ||||
| Independent | ||||
| 3-4 | ||||
| Consolidated Statements of Financial Position | ||||
| 5 | ||||
| Consolidated Statements of Operations and Comprehensive Loss | ||||
| 6 | ||||
| Consolidated Statements of Changes in Equity | 7 | |||
| Consolidated Statements of Cash Flows | 8 | |||
| Notes to the Consolidated Financial Statements | 9 - 18 | |||
F-2
| Schwartz Levitsky Feldman llp CHARTERED ACCOUNTANTS LICENSED PUBLIC ACCOUNTANTS TORONTO · MONTREAL | |
 |
INDEPENDENT AUDITOR'SAUDITOR’S REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
LiveReel Media Corporation:
We have audited the accompanying consolidated financial statementsbalance sheets of LiveReel Media Corporation, (the “Company”) which comprise the consolidated statements of financial position as at June 30, 20142015 and June 30, 2013 and2014, the consolidated statements of operations and comprehensive loss, changes in statements of changes in equity and statements of cash flows for the years ended June 30, 2015 and 2014, and 2013 and a summary of significant accounting policies and other explanatory information.information.
Management'sResponsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board,, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
2300 Yonge Street, Suite 1500, Box 2434 Toronto, Ontario M4P 1E4 Tel: 416 785 5353 Fax: 416 785 5663 | |
F-3
| Schwartz Levitsky Feldman llp CHARTERED ACCOUNTANTS LICENSED PUBLIC ACCOUNTANTS TORONTO · MONTREAL | |
|
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of LiveReel Media Corporation as atof June 30, 20142015 and June 30, 20132014, and its financial performance and its cash flows for the years ended June 30, 20142015 and 20132014, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.Board
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that the Company incurred a net loss of $125,820$106,368 during the year ended June 30, 20142015 and as of that date had an accumulated deficit of $8,599,847.$8,706,215. These conditions, along with other matters as set forth in Note 1 indicate the existence of a material uncertainty that raisesraise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/SCHWARTZ LEVITSKY FELDMAN LLP”LLP
| Toronto, Ontario | Chartered Accountants |
| October | Licensed Public Accountants |
2300 Yonge Street, Suite 1500, Box 2434 Toronto, Ontario M4P 1E4 Tel: 416 785 5353 Fax: 416 785 5663 | |
LiveReel Media Corporation
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
June 30, 2015 | June 30, 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | - | $ | 1,250 | ||||
| HST receivable | 963 | - | ||||||
| Total assets | $ | 963 | $ | 1,250 | ||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities (note 6) | $ | 54,343 | $ | 36,696 | ||||
| Due to related parties (note 7) | 36,332 | 89,159 | ||||||
| Short-term loans payable (note 8) | - | 233,386 | ||||||
| Related party notes payable (note 9) | 374,647 | - | ||||||
| Total liabilities | 465,322 | 359,241 | ||||||
| Going concern (note 1) | ||||||||
| Related party transactions (note 11) | ||||||||
| Income taxes (note 12) | ||||||||
| SHAREHOLDERS’ DEFICIENCY | ||||||||
| Capital stock (note 10) | 7,880,660 | 7,880,660 | ||||||
| Contributed surplus | 361,196 | 361,196 | ||||||
| Accumulated deficit | (8,706,215 | ) | (8,599,847 | ) | ||||
| Total shareholders’ deficiency | (464,359 | ) | (357,991 | ) | ||||
| Total liabilities and shareholders’ deficiency | $ | 963 | $ | 1,250 | ||||
| As at | Note | June 30, 2014 | June 30, 2013 | |||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash | $ | 1,250 | $ | 20 | ||||||||
| Other assets | - | 4,039 | ||||||||||
| Total Assets | 1,250 | 4,059 | ||||||||||
| Liabilities | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 6 | $ | 36,696 | $ | 27,041 | |||||||
| Due to related party | 10 | 89,159 | - | |||||||||
| Short-term loans payable | 7 | 233,386 | 209,189 | |||||||||
| Total Liabilities | 359,241 | 236,230 | ||||||||||
| Shareholders’ Deficiency | ||||||||||||
| Capital stock | 8 | 7,880,660 | 7,880,660 | |||||||||
| Contributed surplus | 361,196 | 347,699 | ||||||||||
| Equity component of debt | - | 13,497 | ||||||||||
| Accumulated deficit | (8,599,847 | ) | (8,474,027 | ) | ||||||||
| Total Shareholders’ Deficiency | (357,991 | ) | (232,171 | ) | ||||||||
| Total Liabilities and Shareholders’ Deficiency | $ | 1,250 | $ | 4,059 | ||||||||
| Going Concern (Note 1) | ||||||||||||
| Related Party Transactions (Note 10) | ||||||||||||
| Approved on behalf of the Board: | |||
“Henry J. Kloepper”, Director | “J. Graham Simmonds”, Director | ||
| (signed) | (signed) | ||
The accompanying notes formare an integral part of these consolidated financial statements.statements
LiveReel Media Corporation
Consolidated Statements of Operations and Comprehensive Loss
Years Ended June 30, 2015 and June 30, 2014
(Expressed in Canadian Dollars)
| 2015 | 2014 | |||||||
| Revenue | $ | - | $ | - | ||||
| Expenses | ||||||||
| Legal and professional fees | 89,191 | 42,206 | ||||||
| Shareholders information | 44,734 | 41,615 | ||||||
| Office and general | 12,764 | 17,802 | ||||||
| Financing costs | 30,424 | 24,197 | ||||||
| Gain on settlement of related party advances (note 11b) | (70,745 | ) | - | |||||
| Net loss and comprehensive loss | $ | 106,368 | $ | 125,820 | ||||
| Net loss per share – basic and diluted | $ | (0.005 | ) | $ | (0.005 | ) | ||
| Weighted average number of shares outstanding | 23,521,744 | 23,521,744 | ||||||
For the years ended | Note | June 30, 2014 | June 30, 2013 | |||||||||
| Revenue | $ | - | $ | - | ||||||||
| Expenses | ||||||||||||
| Consulting | 10 | - | 40,000 | |||||||||
| Professional fees | 10 | 45,981 | 33,030 | |||||||||
| Shareholders information | 41,615 | 18,834 | ||||||||||
| Office and general | 13,707 | 11,289 | ||||||||||
| Financing costs | 10 | 24,197 | 15,307 | |||||||||
| Accretion on convertible notes payable | - | 8,566 | ||||||||||
| Bank charges | 320 | 1,095 | ||||||||||
| Foreign exchange loss | - | 33 | ||||||||||
| 125,820 | 128,154 | |||||||||||
| Other income | ||||||||||||
| Debt forgiveness | - | (75,929 | ) | |||||||||
| Write-down of production advances | - | (32,540 | ) | |||||||||
| - | (108,469 | ) | ||||||||||
| Net loss and comprehensive loss | $ | (125,820 | ) | $ | (19,685 | ) | ||||||
| Net loss per share – basic and diluted | 9 | $ | (0.01 | ) | $ | (0.00 | ) | |||||
| Weighted average number of shares outstanding | 23,521,744 | 23,521,744 | ||||||||||
The accompanying notes formare an integral part of these consolidated financial statements.
For the years ended | Note | June 30, 2014 | June 30, 2013 | ||||||
| Cash flows from operating activities | |||||||||
| Net loss for the year | $ | (125,820 | ) | $ | (19,685 | ) | |||
| Adjustment for non-cash items: | |||||||||
| Accrued interest | 24,197 | 9,189 | |||||||
| Accretion on convertible notes payable | 8,566 | ||||||||
| Forgiveness of debt | (75,929 | ) | |||||||
| Write-down of production advances | (32,540 | ) | |||||||
| Changes in working capital items: | |||||||||
| Other assets | 4,039 | 19,407 | |||||||
| Accounts payable and accrued liabilities | 9,655 | (11,595 | ) | ||||||
| (87,929 | ) | (102,587 | ) | ||||||
| Cash flows from financing activities | |||||||||
| Due to related party | 89,159 | - | |||||||
| Proceeds from short-term loans | - | 225,000 | |||||||
| Repayment of short-term loans | - | (25,000 | ) | ||||||
| Repayment of notes payable | - | (111,164 | ) | ||||||
| 89,159 | 88,836 | ||||||||
| Increase (decrease) in cash | 1,230 | (13,751 | ) | ||||||
| Cash, beginning of year | 20 | 13,771 | |||||||
| Cash, end of year | $ | 1,250 | $ | 20 | |||||
LiveReel Media Corporation
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
| Number of Shares | Share Capital | Contributed Surplus | Equity Component of Debt | Accumulated Deficit | Shareholders’ Deficiency | |||||||||||||||||||
| Balance, July 1, 2013 | 23,521,744 | $ | 7,880,660 | $ | 347,699 | $ | 13,497 | $ | (8,474,027 | ) | $ | (232,171 | ) | |||||||||||
| Change in equity component of debt | - | - | 13,497 | (13,497 | ) | - | - | |||||||||||||||||
| Net loss for the year | - | - | - | - | (125,820 | ) | (125,820 | ) | ||||||||||||||||
| Balance, June 30, 2014 | 23,521,744 | $ | 7,880,660 | $ | 361,196 | $ | - | $ | (8,599,847 | ) | $ | (357,991 | ) | |||||||||||
| Net loss for the year | - | - | - | - | (106,368 | ) | (106,368 | ) | ||||||||||||||||
| Balance, June 30, 2015 | 23,521,744 | $ | 7,880,660 | $ | 361,196 | $ | - | $ | (8,706,215 | ) | $ | (464,359 | ) | |||||||||||
Number of Shares | Share Capital | Contributed Surplus | Equity Component of Debt | Accumulated Deficit | Shareholders’ Equity (Deficit) | |||||||||||||||||||
| Balance, July 1, 2012 | 23,521,744 | $ | 7,880,660 | $ | 347,699 | $ | 17,792 | $ | (8,454,342 | ) | $ | (208,191 | ) | |||||||||||
| Change in equity component of debt | - | - | - | (4,295 | ) | - | (4,295 | ) | ||||||||||||||||
| Net loss for the year | - | - | - | - | (19,685 | ) | (19,685 | ) | ||||||||||||||||
| Balance, June 30, 2013 | 23,521,744 | $ | 7,880,660 | $ | 347,699 | $ | 13,497 | $ | (8,474,027 | ) | $ | (232,171 | ) | |||||||||||
| Change in equity component of debt | - | - | 13,497 | (13,497 | ) | - | - | |||||||||||||||||
| Net loss for the year | - | - | - | - | (125,820 | ) | (125,820 | ) | ||||||||||||||||
| Balance, June 30, 2014 | 23,521,744 | $ | 7,880,660 | $ | 361,196 | $ | - | $ | (8,599,847 | ) | $ | (357,991 | ) | |||||||||||
The accompanying notes formare an integral part of these consolidated financial statements.statements
LiveReel Media Corporation
Consolidated Statements of Cash Flows
Years Ended June 30, 2015 and June 30, 2014
(Expressed in Canadian Dollars)
| 2015 | 2014 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss for the year | $ | (106,368 | ) | $ | (125,820 | ) | ||
| Adjustment for non-cash items: | ||||||||
| Accrued interest | 30,424 | 24,197 | ||||||
| Gain on settlement of related party advances (note 11b) | (70,745 | ) | - | |||||
| Changes in working capital items: | ||||||||
| HST receivable | (963 | ) | - | |||||
| Other assets | - | 4,039 | ||||||
| Accounts payable and accrued liabilities | 17,647 | 9,655 | ||||||
| Due to related parties | 7,346 | - | ||||||
| Cash used in operating activities | (122,659 | ) | (87,929 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Advances from related parties | 121,409 | 89,159 | ||||||
| Proceeds from financing activities | 121,409 | 89,159 | ||||||
| Increase (decrease) in cash during the period | (1,250 | ) | 1,230 | |||||
| Cash, beginning of period | 1,250 | 20 | ||||||
| Cash, end of period | $ | - | $ | 1,250 | ||||
| Supplemental Information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | - | ||||
| Non cash activities: | ||||||||
| Issuance of related party notes payable | $ | 374,647 | $ | - | ||||
| Settlement of short term loans payable | $ | 233,386 | - | |||||
The accompanying notes are an integral part of these consolidated financial statements
F-8
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 20142015 and 20132014
| 1. | NATURE OF OPERATIONS AND GOING CONCERN |
LiveReel Media Corporation (the “Company”) is an entertainment company focused on the identification and evaluation of other assets or businesses for purchase, both within and outside of the film industry. The Company’s registered office is 130 Adelaide70 York Street, West, Suite 1010,1610, Toronto, ON, M5H 3P5M5J 1S9.
Currently, the Company is focused on preserving its cash by minimizing operating expenses, and looking to investment opportunities both within and outside of the film industry. It will continue to look to its largest shareholdershareholders and other related parties for continued financial support if necessary.
2. SIGNIFICANT ACCOUNTING POLICIESBASIS OF PREPARATION
| (a) | Statement of Compliance |
These annual consolidated financial statements have beenof the Company and its subsidiaries were prepared in accordanceusing accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting InterpretationsInterpretation Committee (“IFRIC”).
| (b) | Basis of Presentation |
These consolidated financial statements have been prepared on thea historical cost basis. Historical cost is based on the fair value of the consideration given in exchange for assets. In addition, these annual consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 20142015 and 20132014
Certain amounts in the comparative periods have been reclassified for presentations purposes. These reclassifications have no effect on the Company’s previously reported results of operations and financial position.
| (c) | Functional and Presentation Currency |
These consolidated financial statements have been presented in Canadian dollars, which is the Company’s functional and presentation currency.
| (d) | Use of Estimates and Judgements |
The preparation of these consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences.
The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
The key assumptions concerning the future, and other key sources of estimation uncertainty as of the date of the statement of financial position that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next fiscal year arise in connection with the valuation of financial instruments and income tax assets.
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
The significant accounting policies used in the preparation of these annual consolidated financial statements are described below.
Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary – LiveReel Productions Corporation (“LRPC”). The subsidiary changed its name from Noble House Film & Television Inc. to LiveReel Productions Corporation effective August 10, 2006.
LRPC holds titles to the film properties and distribution rights acquired and is in the business of licensing, developing, producing and distributing films and television programs.
All intercompany balances and transactions have been eliminated on consolidation.
Financial assets:
All financial assets are recognized and derecognized on the trade date where the purchase or sale of a financial
F-10
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
asset is under contract whose terms require delivery of the financial asset within the time frame established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified at fair value through profit or loss which are initially measured at fair value.
Financial assets are classified into the following categories: financial assets ‘at fair value through profit or loss’ (“FVTPL”), ‘held-to-maturity investments’, ‘available-for-sale’ financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
The Company’s financial assets consist of the following:
| Financial asset: | Classification: |
| Cash | FVTPL |
| HST receivable | Loans and receivables |
Financial liabilities:
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or (where appropriate) to the net carrying amount on initial recognition.
The Company derecognizes financial liabilities when the obligations are discharged, cancelled or expire.
The Company’s financial instrumentsliabilities consist of the following:
| Financial | Classification: | |
| Other financial liabilities | ||
| Due to related | Other financial liabilities | |
| Short-term loans payable | Other financial liabilities | |
| Related party notes payable | Other financial liabilities |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment. Change in assumptions could significantly affect the estimates. The Company provides disclosure of
F-11
LiveReel Media Corporation
Notes to the three-level hierarchy that reflects the significance of the inputs usedConsolidated Financial Statements
(Expressed in making the fair value measurements. Fair value of financial assetsCanadian Dollars)
Years Ended June 30, 2015 and financial liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Financial assets and financial liabilities in Level 2 include valuations using inputs based on observable market data, either directly or indirectly, other than the quoted prices. Level 3 valuations are based on inputs that are not based on observable market data.2014
Impairment of financial assets:assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been negatively impacted. Evidence of impairment could include: significant financial difficulty of the issuer or the counterparty; or default or delinquency in interest or principal payments; or the likelihood that the borrower will enter bankruptcy or financial reorganization.
The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets with the exception of amounts receivable, where the carrying value is reduced through the use of an allowance account. When an amounts receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Basic loss per share is calculated by dividing net loss (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Diluted loss per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method and are calculated by dividing net loss applicable to common shares by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share.
| Income taxes |
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized in equity, in which case it is recognized in equity.
Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax liabilities or assets are recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination.
In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition
F-12
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
On July 24, 2014, the IASB and considersissued the impact changes in the standards would have on the Company’s operations.
complete IFRS 9 - The(IFRS 9 (2014). In November 2009, the IASB is currently developingissued the first version of IFRS 9, “Financial Instruments” which will replace IAS 39 “Financial Instruments: RecognitionFinancial Instruments (IFRS 9 (2009) and Measurement”, the current standard for financial instrument. IFRSsubsequently issued various amendments in October 2010, (IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value through profitFinancial Instruments (2010) and loss, replacing the multiple category and measurement models in IAS 39.November 2013 (IFRS 9 Financial Instruments (2013). The approach inmandatory effective date of IFRS 9 is based on the entity’s business model for managing the financial assets and the contractual cash flow characteristic of the financial assets. IFRS 9 is required to be applied for accountingannual periods beginning on or after January 1, 2015,2018 and must be applied retrospectively with earlysome exemptions. Early adoption is permitted. The restatement of prior periods is not required and is only permitted if information is available without the use of hindsight. The Company does not intend to adopt the new standard prior to its effective date and has not yet determined the potential impact of this new standard on the amendments to IFRS 9 on itsconsolidated financial statements.
The Company includes equity, comprised of issued share capital, reserves and deficit, in the definition of capital.
The Company’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund its activities relating to identifying and evaluating qualifying transactions. To secure the additional capital necessary to pursue these plans, the Company may attempt to raise additional funds through the issuance of equity or debt.
F-13
LiveReel Media Corporation
Notes to the overall risk management objectives during the year endedConsolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2014.2015 and 2014
The fair value hierarchy that reflects the significance of inputs used in making fair value measurements is as follows:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3: inputs for the asset or liability that are not based upon observable market data.
Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The fair values of the Company’s financial instruments consisting of cash, HST receivable, accounts payable and other accrued liabilities, due to related party, andparties, short-term loans payable and related party notes payable, approximate fairtheir carrying value due to the relatively short term maturities of these instruments. It
Risk Management Policies
The Company, through its financial assets and liabilities, is management’s opinionexposed to various risks. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on the consolidated financial statements. The following analysis provides a measurement of risks as at June 30, 2015.
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is not exposed to any significant interest, currency or credit risks arising from these financial instruments. Cash is identified as Level 1.risk.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated withnot be able to meet its financial liabilities that are settled by delivering cash or another financial asset. As at June 30, 2014, the Company had a working capital deficit of $357,991, including $322,545 loans payable to and advances from its largest shareholder. As a result, the Company has exposure to liquidity risk. obligations as they fall due within one year. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company willAt June 30, 2015, there is substantial doubt about the Company’s ability to continue to lookas a going concern primarily due to its largest shareholder for continuedhistory of losses and a $464,359 (June 30, 2014 - $357,991) working capital deficit. Liquidity risk continues to be a key concern in the development of future operations.
Market Risk
(i) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial support if necessary.instrument will fluctuate because of changes in market interest rates. The interest rates on all of the Company’s existing debt are fixed, and therefore it is not currently subject to any significant cash flow interest rate risk.
(ii) Foreign Currency Risk
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 20142015 and 20132014
The Company’s functional currency is the Canadian dollar. The majority of the Company’s purchases are transacted in Canadian dollars, therefore, the Company is not exposed to any significant foreign currency risk.
June 30, 2014 | June 30, 2013 | |||||||
| Financial assets: | ||||||||
| FVTPL | ||||||||
| Cash | $ | 1,250 | $ | 20 | ||||
| Other assets | - | 4,039 | ||||||
| Total | $ | 1,250 | $ | 4,059 | ||||
| Financial liabilities: | ||||||||
| Other financial liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 36,696 | $ | 27,041 | ||||
| Due to related party | 89,159 | - | ||||||
| Short-term loans payable | 233,386 | 209,189 | ||||||
| Total | $ | 359,241 | $ | 236,230 | ||||
Sensitivity Analysis
Based on management’s knowledge and experiences of the financial markets, the Company’s management believes the following movements are “reasonably possible”. The interest rates on all of the Company’s existing interest bearing debt are fixed. Sensitivity to a plus or minus 25 basis points change in rates would not significantly affect the fair value of this debt. The Company does not have any financial instrument balances denominated in foreign currencies to give rise to exposure to foreign exchange risk.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following:
June 30, 2015 | June 30, 2014 | |||||||
| Accounts payable | $ | 5,848 | $ | 1,696 | ||||
| Accrued liabilities | 48,495 | 35,000 | ||||||
| Total | $ | 54,343 | $ | 36,696 | ||||
7. DUE TO RELATED PARTIES
Amounts due to related parties consist of the following:
June 30, 2015 | June 30, 2014 | |||||||
| Advances from related parties | $ | - | $ | 89,159 | ||||
| Amounts owing to entities related by virtue of common officers | 22,346 | - | ||||||
| Interest accrued on related party notes payable | 13,986 | - | ||||||
| $ | 36,332 | $ | 89,159 | |||||
Amounts due to related parties are unsecured, non-interest bearing with no specific terms of repayment.
8. SHORT-TERM LOANS PAYABLE
June 30, 2014 | June 30, 2013 | |||||||
| Accounts payable | $ | - | $ | 10,091 | ||||
| Accrued liabilities | 36,696 | 16,950 | ||||||
| Total | $ | 36,696 | $ | 27,041 | ||||
F-15
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
On December 19, 2012, the Company entered into an unsecured loan agreement with Difference Capital Financial Inc. (“Difference”), at the time an arms’ length party, in the aggregate principal amount of $50,000. The loan had a term of twelve months maturing December 19, 2013, accrued interest at 12% per annum until maturity, and could be prepaid at any time without notice or penalty.
On March 22, 2013, Difference, at the time the Company’s largest shareholder, entered into an unsecured loan agreement in the aggregate principal amount of $150,000. The loan had a term of twelve months maturing March 22, 2014, accrued interest at 12% per annum until maturity, and would be prepaid at any time without notice or penalty.
On May 28, 2014, the Company extended the term of its loan agreements with Difference to provide that such loans now mature on a demand basis.
During the years ended June 30, 2015 and 2014, the Company accrued interest expenses of $16,438 and $24,197, respectively, on these loans.
On March 10, 2015, the short-term loans payable of $200,000 and accrued interest of $49,825 (collectively the “Short-Term Loans Payable”) owing to Difference were fully settled in a transaction by entities related to the Company, see note 9.
| 9. | RELATED PARTY NOTES PAYABLE |
On March 10, 2015, the Short-Term Loans Payable in the amount of $249,825 (see note 8) and other related party advances in the amount of $124,822 (see note 11), were fully settled with the issuance of $374,647 in related party notes payable (the “Notes Payable”) to new entities related to the Company at the time of the transaction. The Notes Payable are unsecured, accrue interest at 12% per annum and are due on demand.
During the years ended June 30, 2015 and 2014, the Company accrued interest expense of $13,986 and nil, respectively, on the Notes Payable. The interest payable has been included in amounts due to related parties, see note 7. SHORT-TERM LOANS PAYABLE
10. CAPITAL STOCK
| a) | Authorized: Unlimited number of common shares |
| b) | Issued: |
June 30, 2015 | June 30, 2014 | |||||||||||||||
| Common Shares | Amount | Common Shares | Amount | |||||||||||||
| Beginning of year | 23,521,744 | $ | 7,880,660 | 23,521,744 | $ | 7,880,660 | ||||||||||
| Issued | - | - | - | - | ||||||||||||
| End of year | 23,521,744 | $ | 7,880,660 | 23,521,744 | $ | 7,880,660 | ||||||||||
F-16
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
11. RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount which is the amount of consideration established by and agreed to by the related parties. Related party transactions for the years ended June 30, 2015 and 2014 and balances as at those dates, not disclosed elsewhere in the consolidated financial statements are:
| a) | During the year ended June 30, 2015, the Company received $106,409 (2014 - $89,159) in advances from Difference, its former shareholder, for working capital purposes. |
| b) | During the year ended June 30, 2015, Difference forgave $70,745 of the above advances and the remaining $124,822 due to Difference from advances was settled with Notes Payable, see note 9. |
| c) | During the year ended June 30, 2015, the Company accrued interest of $30,424 (2014 - $24,197) on loans due to related parties, see notes 8 and 9. |
| d) | During the year ended June 30, 2015, the Company expensed $11,500 (2014 - nil) in fees payable to a related entity for accounting and consulting services, $5,000 of this amount has been included in accrued liabilities. |
| e) | During the year ended June 30, 2015, the Company received $15,000 (2014 – nil) in advances from related entities, for working capital purposes. |
12. INCOME TAXES
Current Income Taxes
The major factors that cause variations from the Company’s combined federal and provincial statutory Canadian income tax rates were the following:
June 30, 2015 | June 30, 2014 | |||||||
| Combined Canadian statutory income tax rates | 26.50 | % | 26.50 | % | ||||
| Income tax recovery at statutory income tax rates | $ | (28,134 | ) | $ | (33,342 | ) | ||
| Increase (decrease) in taxes resulting from: | ||||||||
| Temporary difference | - | (1,265 | ) | |||||
| Forgiveness of debt | (18,750 | ) | - | |||||
| Benefit of tax losses not recognized | 46,884 | 34,607 | ||||||
| Provision for income taxes | $ | - | $ | - | ||||
Deferred Income Taxes
Net deferred income tax balances are summarized as follows:
F-17
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
June 30, 2015 | June 30, 2014 | |||||||
| Amounts related to tax loss carry forwards | $ | 977,564 | $ | 989,510 | ||||
| Share issuance costs | - | 2,531 | ||||||
| Deferred tax assets not recognized | (977,564 | ) | (992,041 | ) | ||||
| $ | - | $ | - | |||||
No deferred tax asset has been recognized in respect of the above because the amount of future taxable profit that will be available to realize such assets is not probable.
F-18
LiveReel Media Corporation
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended June 30, 2015 and 2014
Non-capital Losses
The Company has non-capital tax losses available for carry-forward of approximately $3,689,000, which may be applied against future taxable income and expire as detailed below. The benefit arising from these losses has not been recorded in these consolidated financial statements.
| 2016 | 377,000 | |||
| 2027 | 536,000 | |||
| 2028 | 868,000 | |||
| 2029 | 911,000 | |||
| 2030 | 260,000 | |||
| 2031 | 251,000 | |||
| 2032 | 153,000 | |||
| 2033 | 25,000 | |||
| 2034 | 131,000 | |||
| 2035 | 177,000 | |||
| $ | 3,689,000 |
13. SEGMENTED INFORMATION
The Company does not have any reportable segments at this time and all operations take place in Canada.
F-19
LIVEREEL MEDIA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2015
Prepared as at October 28, 2015
Index
| Overview | 3 | |
| Summary of Results | 3 | |
| Number of Common Shares | 5 | |
| Business Environment | 5 | |
| Risk Factors | 5 | |
| Forward Looking Statements | 7 | |
| Business Plan and Strategy | 8 | |
| Results of Operations | 9 | |
| Liquidity and Capital Resources | 11 | |
| Working Capital | 11 | |
| Key Contractual Obligations | 11 | |
| Off Balance Sheet Arrangements | 11 | |
| Transactions with Related Parties | 12 | |
| Financial and Derivative Instruments | 12 | |
| Critical Accounting Estimates | 12 | |
| Evaluation of Disclosure Controls and Procedures | 13 | |
| Outlook | 13 | |
| Current Outlook | 13 | |
| Public Securities Filings | 13 | |
2
Management Discussion and Analysis
The following discussion and analysis by management of the financial results and condition of LiveReel Media Corporation for the year ended June 30, 2015 should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2015. The financial statements and the financial information herein have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The management discussion and analysis is prepared by management as at October 28, 2015.
In this report, the words “us”, “we” “our”, the “Company” and “LiveReel” have the same meaning unless otherwise stated and refer to LiveReel Media Corporation and its subsidiaries.
Overview
Summary of Results
LiveReel Media Corporation (the “Company”) is an entertainment company focused on the identification and evaluation of other assets or businesses for purchase, both within and outside of the film industry. The Company’s registered office is 70 York Street, Suite 1610, Toronto, ON, M5J 1S9.
On September 17, 2012, the Company entered into an unsecured loan agreement with Billidan Family Trust, a related party to the Company's former largest shareholder, in the aggregate principal amount of $25,000. The loan had a term of 12 months ending September 17, 2013, accrued interest at 12% per annum until maturity, and could be prepaid at any time upon payment of a penalty of $2,000. This note and all accrued interest was repaid in connection with the change of control of the Company and additional debt financing of the Company on March 22, 2013.
On December 19, 2012, the Company entered into an unsecured loan agreement with Difference Capital Financial Inc. (“Difference”), at the time an arms’ length party, in the aggregate principal amount of $50,000. The loan had a term of twelve months maturing December 19, 2013, accrued interest at 12% per annum until maturity, and wouldcould be prepaid at any time without notice or penalty. On May 28, 2014, the Company extended the term of its loan agreements with Difference to provide that such loans now mature on a demand basis. On March 10, 2015, the loans payable owing to Difference were fully settled in a transaction by entities related to the Company.
On March 22, 2013, Difference, acquired control ofat the Company bytime the acquisition of a majority of common shares of the Company, andCompany’s largest shareholder, entered into an unsecured loan agreement in the aggregate principal amount of $150,000. The loan had a term of twelve months maturing March 22, 2014, accrued interest at 12% per annum until maturity, and would be prepaid at any time without notice or penalty.
On May 28, 2014, the Company extended the term of its loan agreements with Difference to provide that such loans now mature on a demand basis.
| June 30, 2014 | June 30, 2013 | ||||||||||||||||
| Common | Common | ||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||
| Beginning of year | 23,521,744 | $ | 7,880,660 | 23,521,744 | $ | 7,880,660 | |||||||||||
| End of year | 23,521,744 | $ | 7,880,660 | 23,521,744 | $ | 7,880,660 | |||||||||||
June 30, 2014 | June 30, 2013 | |||||||
| Canadian statutory income tax rates | 26.50% | 26.50% | ||||||
| Income tax recovery at statutory income tax rates | $ | (33,342 | ) | $ | (5,217 | ) | ||
| Increase (decrease) in taxes resulting from: | ||||||||
| Temporary difference | (1,265 | ) | (1,265 | ) | ||||
| Other permanent differences | - | (28,735 | ) | |||||
| Benefit of tax losses not recognized | 34,607 | 35,217 | ||||||
| Provision for income taxes | $ | - | $ | - | ||||
June 30, 2014 | June 30, 2013 | |||||||
| Amounts related to tax loss carry forwards | $ | 989,510 | $ | 954,795 | ||||
| Share issuance costs | 2,531 | 3,796 | ||||||
| Deferred tax assets not recognized | (922,041 | ) | (958,591 | ) | ||||
| $ | - | $ | - | |||||
| 2015 | 151,000 | |||||
| 2016 | 448,000 | |||||
| 2027 | 536,000 | |||||
| 2028 | 868,000 | |||||
| 2029 | 911,000 | |||||
| 2030 | 260,000 | |||||
| 2031 | 251,000 | |||||
| 2032 | 153,000 | |||||
| 2033 | 25,000 | |||||
| 2034 | 131,000 | |||||
| $ | 3,734,000 |
Following the change of control of the Company, the Company announced the appointment of Michael Wekerle and Henry Kneis who joined the board of directors following the resignation of Janice Barone and Diana van Vliet.Vliet and at later date, Jason Meretsky. Jason Meretsky, the Company’s Chief Executive Officer resigned and was replaced by Michael Wekerle. Steve Wilson, the Company’s Chief Financial Officer resigned and was replaced by Henry Kneis.
3
On March 22, 2013, Difference Capital entered into five separate stock purchase agreements with arms-length third parties whereby it acquired 20,648,150 common shares in the capital of the Company, representing approximately 87.8% of the issued and outstanding voting securities of the Company on a fully-diluted basis.
On May 28, 2014, the Company extended the term of its loans with Difference Capital to provide that such loans now mature on a demand basis.
On March 10, 2015, the existing board consisting of Michael Wekerle, Henry Kneis and Thomas Astle resigned as members of the board of directors and were replaced with J. Graham Simmonds, Ashish Kapoor and Henry J. Kloepper. Mr. Wekerle resigned as Chief Executive Officer and was replaced by J. Graham Simmonds. Mr. Kneis, the Corporation's Chief Financial Officer resigned and was replaced by Ashish Kapoor who was also appointed Secretary.
The Board currently consists of three directors, Henry J. Kloepper, J. Graham Simmonds and Ashish Kapoor.
The following table summarizes financial information for the past three years:
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Revenue | - | - | - | |||||||||
| Net loss for year | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss per share | (0.005 | ) | (0.005 | ) | (0.001 | ) | ||||||
| Working capital deficit | (464,359 | ) | (357,991 | ) | (232,171 | ) | ||||||
| Total assets | 963 | 1,250 | 4,059 | |||||||||
| Total liabilities | 465,322 | 359,241 | 236,230 | |||||||||
| Capital stock | 7,880,660 | 7,880,660 | 7,880,660 | |||||||||
| Contributed surplus | 361,196 | 361,196 | 347,699 | |||||||||
| Equity component of debt | - | - | 13,497 | |||||||||
| Accumulated deficit | (8,706,215 | ) | (8,599,847 | ) | (8,474,027 | ) | ||||||
| Shareholders’ deficiency | (464,359 | ) | (357,991 | ) | (232,171 | ) | ||||||
4
| Selected consolidated data | ||||||||||||
| Year ended June 30 ($) | 2014 | 2013 | 2012 | |||||||||
| Revenue | - | - | - | |||||||||
| Net loss for year | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Loss per share | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | |||
| Working capital deficit | (357,991 | ) | (232,171 | ) | (208,191 | ) | ||||||
| Total assets | 1,250 | 4,059 | 37,217 | |||||||||
| Capital stock | 7,880,660 | 7,880,660 | 7,880,660 | |||||||||
| Contributed surplus | 361,196 | 347,699 | 347,699 | |||||||||
| Equity component of debt | - | 13,497 | 17,792 | |||||||||
| Accumulated deficit | (8,599,847 | ) | (8,474,027 | ) | (8,454,342 | ) | ||||||
| Shareholders' deficiency | (357,991 | ) | (232,171 | ) | (208,191 | ) | ||||||
The following table summarizes financial information for the 4thrd quarter of fiscal 20142015 and the preceding seven quarters:
| Quarter Ended | June 30, | Mar 31, | Dec 31, | Sept 30, | June 30, | Mar 31, | Dec 31, | Sept 30, | ||||||||||||||||||||||||
| Fiscal Year | 2015 | 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Revenue | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Earnings (Loss) from continuing operations | (36,056 | ) | (15,210 | ) | (22,610 | ) | (32,492 | ) | (25,659 | ) | (25,606 | ) | (28,492 | ) | (46,063 | ) | ||||||||||||||||
| Net loss per share – basic and diluted | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||||||||
| Quarters ended | June 30, 2014 | Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | June 30, 2013 | March 31, 2013 | Dec. 31, 2012 | Sept. 30, 2012 | ||||||||
| Total Revenue | - | - | - | - | - | - | - | - | ||||||||
| Earnings (Loss) from continuing operations | (25,659) | (25,606) | (28,492) | (46,063) | 6,466 | 52,170 | (56,073) | (22,248) | ||||||||
| Net loss per share - basic and diluted | 0.00 | 0.00 | 0.00 | 0.01 | 0.00 | 0.00 | 0.00 | 0.00 |
Refer to the Results of Operations section for further analysis of income and expenses during the year ended June 30, 2014.2015.
Number of Common Shares
There arewere 23,521,744 common shares issued and outstanding as of June 30, 20142015 and October 22, 2014,28, 2015, being the date of this report. There arewere no options or warrants outstanding as of June 30, 20142015 and October 22, 2014,28, 2015, the date of this reportreport.
A total of 18,767,200 shares issued are subject to resale restrictions under U.S securities laws.
Business Environment
Risk factorsFactors
The following is a brief discussion of those distinctive or special characteristics of our operations and industry that may have a material impact on, or constitute risk factors in respect of, the Company’s future financial performance.
THE COMPANY HAS AN UNSUCCESSFUL OPERATING HISTORY
Since March 1997, when it was incorporated in Ontario, Canada by amalgamating with two other Ontario entities, the Company has no significant revenues or earnings from operations since its incorporation. While one of the film properties acquired by the Company in fiscal 2005 and the film that was financed in fiscal 2007 have now been developed into feature films for which the Company holds certain distribution rights, it is not clear whether this will generate any revenue for the Company. The Company has operated at a loss to date and in all likelihood will continue to sustain operating losses in the foreseeable future. There is no assurance that the Company will ever be profitable.
INVESTMENT STRATEGY
The controlling shareholdershareholders of the Company changed in March 20132015 and a new Board of Directors were appointed. The Company has focused its efforts on identifying for purchase other active business interests, both within and outside of the film industry. The Company has not yet identified or selected any additional specific investment opportunity or business. Accordingly, there is no current basis for the reader to evaluate the possible merits or risks of the investment opportunity which we may ultimately decide to pursue.
THE COMPANY'S COMMON SHARES ARE CONSIDERED TO BE PENNY STOCK, WHICH MAY ADVERSELY AFFECT THE LIQUIDITY OF ITS COMMON SHARES
5
The capital stock of the Company would be classified as “penny stock” as defined in Reg. § 240.3a51-1 promulgated under the Securities Exchange Act of 1934 (the “1934 Act”). In response to perceived abuse in the penny stock market generally, the 1934 Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker’s or dealer’s duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) define significant terms used in the disclosure document or the conduct of trading in penny stocks. In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer’s account, and the estimated market value of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for such stocks, thus limiting the ability of the holder to sell such stock.
MARKET PRICE FOR THE COMPANY'S COMMON SHARES HAS BEEN VOLATILE IN THE PAST AND MAY DECLINE IN THE FUTURE
In recent years, the securities markets in Canada and the United States have experienced a high level of price and volume volatility, and the market prices of securities of many companies, particularly small-cap companies like ours, have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Our shares may continue to experience significant market price and volume fluctuations in the future in response to factors, which are beyond our control.
THE COMPANY MAY NOT BE ABLE TO RAISE ADDITIONAL FINANCING TO MEET CURRENT OPERATING NEEDS AND IMPLEMENT ITS NEW BUSINESS STRATEGY.STRATEGY
The Company continues to review different investment opportunities both inside and outside of the film industry. If the Company is unable to achieve revenue or obtain financing and cannot pay its debts as they become due, it may be forced to solicit a buyer or be forced into bankruptcy by its creditors.
DIVIDENDS
All of the Company's available funds will be invested to finance the growth of the Company's business and therefore investors cannot expect and should not anticipate receiving a dividend on the Company's common shares in the foreseeable future.
DILUTION
The Company may in the future grant to some or all of its own and its subsidiaries' directors, officers, insiders and key consultants options to purchase the Company's Common Shares as non-cash incentives to those people. Such options may be granted at exercise prices equal to market prices at a time when the public market is depressed or at exercise prices which may be substantially lower than the market prices. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution.
The Company is currently without a source of revenue and therefore is not able to adequately cover its operating costs. The Company will most likely be required to issue additional securities to finance its operations and may also issue substantial additional securities to finance the
6
development of any or all of its projects. These actions will cause further dilution of the interests of the existing shareholders.
SHARES ELIGIBLE FOR FUTURE SALE MAY DEPRESS OUR STOCK PRICE
At June 30, 2014,2015, the Company had 23,521,744 shares of common stock outstanding of which approximately 18,767,200 are restricted securities under Rule 144 promulgated under the Securities Act.
Sales of shares of common stock pursuant to an effective registration statement or under Rule 144 or another exemption under the US Securities Act could have a material adverse effect on the price of our common stock and could impair our ability to raise additional capital through the sale of equity securities.
YOUR RIGHTS AND RESPONSIBILITIES AS A SHAREHOLDER WILL BE GOVERNED BY CANADIAN LAW AND DIFFER IN SOME RESPECTS FROM THE RIGHTS AND RESPONSIBILITIES UNDER U.S. LAW
The Company is incorporated under Canadian law. The rights and responsibilities of holders of our shares are governed by our Articles and By-Laws and by Canadian law. These rights and responsibilities may differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations.
CHANGING REGULATIONS OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE CAN CAUSE ADDITIONAL EXPENSES AND FAILURE TO COMPLY MAY ADVERSELY AFFECT OUR REPUTATION AND THE VALUE OF OUR SECURITIES
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, are creating uncertainty because of the lack of specificity and varying interpretations of the rules. As a result, the application of the rules may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. The Company is committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Any failure to comply with applicable laws may materially adversely affect its reputation and the value of its securities.
Forward Looking Statements
Certain statements contained in this report are forward-looking statements as defined in the U.S. federal securities laws. All statements, other than statements of historical facts, included herein or incorporated by reference herein, including without limitation, statements regarding our business strategy, plans and objectives of management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that such forward-looking statements will prove to be correct.
Each forward-looking statement reflects our current view of future events and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from any results expressed or implied by our forward-looking statements.
7
Risks and uncertainties include, but are not limited to:
| our lack of substantial operating history; |
| the impact of competition; and |
| the enforceability of legal |
Important factors that could cause the actual results to differ from materially from our expectations are disclosed in more detail set forth under the heading “Risk Factors” in the Management Discussion and Analysis for the fiscal 2014 year, a copy of which has been filed on EDGAR and SEDAR.SEDAR. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement.
Business Plan and Strategy
The Company’s business plan continued to evolve. During most of fiscal 2007 and 2008, management focused on the financing and distribution of feature films.
However, in fiscal 2007, management also received board of director approval to utilize excess cash in our business to pursue additional investment opportunities outside the film industry in order to potentially increase our return to shareholders. Management is not limited to any particular industry or type of business with respect to what it considers as investment opportunities.
| Year | Year | Year | ||||||||||
| Ended | Ended | Ended | ||||||||||
| June 30, | June 30, | June 30, | ||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Revenue | $ | - | $ | - | $ | - | ||||||
| Expenses | (125,820 | ) | (128,154 | ) | (161,139 | ) | ||||||
| Debt forgiveness | - | 75,929 | - | |||||||||
| Write-down of production advances | - | 32,540 | - | |||||||||
| Net loss for the year | (125,820 | ) | (19,685 | ) | (161,139 | ) | ||||||
| Accumulated deficit | $ | (8,599,847 | ) | $ | (8,474,027 | ) | $ | (8,454,342 | ) | |||
On September 17, 2012, the Company entered into an unsecured loan agreement with Billidan Family Trust, a related party to the Company's former largest shareholder, in the aggregate principal amount of $25,000. The loan had a term of 12 months ending September 17, 2013, accrued interest at 12% per annum until maturity, and maycould be prepaid at any time upon payment of a penalty of $2,000. This note and all accrued interest was repaid in connection with the change of control of the Company and additional debt financing of the Company on March 22, 2013.
On December 19, 2012, the Company entered into an unsecured loan agreement with Difference Capital Financial Inc. (“Difference”), at the time an arms’ length party, in the aggregate principal amount of $50,000. The loan hashad a term of 12twelve months accruesmaturing December 19, 2013, accrued interest at 12% per annum until maturity, and maycould be prepaid at any time without notice or penalty. On May 28, 2014, the Company extended the term of its loan agreements with Difference to provide that such loans now mature on a demand basis. On March 10, 2015, the loans payable owing to Difference were fully settled in a transaction by entities related to the Company.
On March 22, 2013, Difference, at the time the Company’s largest shareholder, entered into an unsecured loan agreement in the aggregate principal amount of $150,000. The loan had a term of twelve months maturing March 22, 2014, accrued interest at 12% per annum until maturity, and would be prepaid at any time without notice or penalty. On May 28, 2014, the Company extended the term of its loan agreements with Difference to provide that such loans now mature on a demand basis. On March 10, 2015, the loans payable owing to Difference were fully settled in a transaction by entities related to the Company.
Following the change of control of the Company, the Company announced the appointment of Michael Wekerle and Henry Kneis who joined the board of directors following the resignation of Janice Barone and Diana van Vliet and at later date, Jason Meretsky. Jason Meretsky, the Company’s Chief Executive Officer resigned and was replaced by Michael Wekerle. Steve Wilson, the Company’s Chief Financial Officer resigned and was replaced by Henry Kneis.
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On March 22, 2013, Difference Capital entered into five separate stock purchase agreements with arms-length third parties whereby it acquired 20,648,150 common shares in the capital of the Company, entered into an additional unsecured loan agreementrepresenting approximately 87.8% of the issued and outstanding voting securities of the Company on a fully-diluted basis.
On May 28, 2014, the Company extended the term of its loans with Difference Capital to provide that such loans now mature on a demand basis.
On March 10, 2015, the existing board consisting of Michael Wekerle, Henry Kneis and Thomas Astle resigned as members of the board of directors and were replaced with J. Graham Simmonds, Ashish Kapoor and Henry J. Kloepper. Mr. Wekerle resigned as Chief Executive Officer and was replaced by J. Graham Simmonds. Mr. Kneis, the Corporation's Chief Financial Officer resigned and was replaced by Ashish Kapoor who was also appointed Secretary.
On March 10, 2015, the loans payable of $200,000 and accrued interest of $49,825 and other related party advances in the principal amount of $150,000$124,822 owing to Difference, were fully settled with Difference Capital.the issuance of $374,647 in related party notes payable (the “Notes Payable”) to new entities related to the Company at the time of the transaction. The loan has a term of 12 months, bearsNotes Payable are unsecured, accrue interest at 12% per annum payableand are due on maturity or termination, asdemand.
The Board currently consists of three directors, Henry J. Kloepper, J. Graham Simmonds and Ashish Kapoor.
Currently, the case may be,Company is focused on preserving its cash by minimizing operating expenses, and may be repaid in advance without penalty.looking to investment opportunities both within and outside of the film industry.
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Revenue | - | - | - | |||||||||
| Expenses | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss for year | (106,368 | ) | (125,820 | ) | (19,685 | ) | ||||||
| Net loss per share | (0.005 | ) | (0.005 | ) | (0.001 | ) | ||||||
Overview
The following were the key events induring the year ended June 30, 2012:2015:
During the year ended June 30, 2015, the Company received $106,409 (2014 - $89,159) in advances from Difference, its former shareholder, for working capital purposes. During the year ended June 30, 2015, Difference forgave $70,745 of the Companyabove advances and additional debt financing of the Company on March 22, 2013.
remainingOn March 10, 2015, the loans payable of having certain common controlling shareholders,$200,000 and accrued interest of $49,825 and other related party advances in the principal amount of $50,000. The loan has a term$124,822 owing to Difference, were fully settled with the issuance of 18 months or upon the sale or change of control of the Company, accrues interest at 10% per annum until maturity, and is convertible at the option of the holder into common shares of$374,647 in Notes Payable to new entities related to the Company at $0.10 per share. The loan is secured against the assetstime of the Company. This notetransaction. The Notes Payable are unsecured, accrue interest at 12% per annum and allare due on demand.
During the year ended June 30, 2015, the Company accrued interest of $30,424 (2014: - $24,197) on loans due to related parties.
During the year ended June 30, 2015, the Company expensed $11,500 (2014 - nil) in fees payable to a related entity for accounting and consulting services.
During the year ended June 30, 2015, the Company received $15,000 (2014 – nil) in advances from related entities, for working capital purposes.
The following were the key events during the year ended June 30, 2014:
The Company was repaidfocused on preserving its cash by minimizing operating expenses, and looking to investment opportunities both within and outside of the film industry. Operating expenses incurred during the quarter were primarily from professional fees, shareholder information costs in connection with the change of control ofCompany’s public filings, annual general meeting preparation and other corporate matters and financing costs related to the Company and additional debt financing of the Company on March 22, 2013.short term loan.
Revenue
The Company had no revenue during the years ended June 30, 2014, 20132015 and 2012.
Expenses
The overall analysis of the expenses is as follows:
| Year | Year | Year | ||||||||||
| Ended | Ended | Ended | ||||||||||
| June 30, | June 30, | June 30, | ||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Consulting expenses | $ | - | $ | 40,000 | $ | 52,500 | ||||||
| Professional fees | 45,981 | 33,030 | 56,395 | |||||||||
| Shareholders information | 41,615 | 18,834 | 18,652 | |||||||||
| Office and general | 13,707 | 11,289 | 16,325 | |||||||||
| Financing costs | 24,197 | 15,307 | - | |||||||||
| Accretion on convertible notes payable | - | 8,566 | 16,095 | |||||||||
| Bank charges and interest | 320 | 1,095 | 860 | |||||||||
| Foreign exchange loss | - | 33 | 312 | |||||||||
| $ | 125,820 | $ | 128,154 | $ | 161,139 | |||||||
| For the Years Ending June 30, | 2015 | 2014 | 2013 | |||||||||
| $ | $ | $ | ||||||||||
| Legal and professional fees | 89,191 | 45,981 | 73,030 | |||||||||
| Shareholders information | 44,734 | 41,615 | 18,834 | |||||||||
| Office and general | 12,764 | 14,027 | 12,417 | |||||||||
| Financing costs | 30,424 | 24,197 | 15,307 | |||||||||
| (Gain) on settlement of related party advances | (70,745 | ) | - | - | ||||||||
| Accretion of convertible notes payable | - | - | 8,566 | |||||||||
| (Gain) on debt forgiveness | - | - | (75,929 | ) | ||||||||
| (Gain) on write-down of production advances | - | - | (32,540 | ) | ||||||||
| 106,368 | 125,820 | (19,685 | ) | |||||||||
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fees during the year ended June 30, 2015 was due to the costs associated with the Company’s special meeting, proposed wind-up and the change in control in March 2015.
Shareholder Information
Shareholder information costs during the year ended June 30, 2015 was $44,734 compared to $41,615 for the year ended June 30, 2014. Shareholder information costs for yearthe years ended June 30, 2015 and 2014 were $41,615 (2013 – $18,834, 2012 - $18,652). Shareholder information costs comprised of annual general meeting fees, transfer agent fees and related filing fees.
Office and General
| Office and general costs during the year ended June 30, 2015 was $12,764 compared to $14,027 for the year ended June 30, 2014. These costs include consulting fees, bank charges, insurance and other various small office expenses not categorized elsewhere in the financial statements. |
Financing Costs
During the year ended June 30, 2015, the Company accrued interest of $30,424 on loans due to related parties, see notes 8 and 9 of the financial statements.
statements, compared to $24,197 for the year ended June 30, 2014.
Settlement Of Related Party Advances
During the year ended June 30, 2014,2015, Difference forgave $70,745 of related party advances received by the Company incurred financing costsCompany. The remainder of $24,197 (2013 - $15,307, 2012 - nil). Financing costs comprisedthe related party payable due to Difference was settled with the issuance of interest expense accrued on the loans from Difference Capital and interest paid on the convertible notes during 2013 and 2012.new related party Notes Payable.
Liquidity and Capital Resources
Working Capital
As at June 30, 2014,2015, the Company had a net working capital deficit of $357,991$464,359 compared to a working capital deficit position of $232,171$357,991 as at June 30, 2013.2014. Cash on hand as at June 30, 20142015 was $1,250$nil compared to $20$1,250 in cash as at June 30, 2013.
With the continued financial support from the Company’s largest shareholder,related parties, the Company believes it will able to meet its cash requirements in the upcoming fiscal year.
Key Contractual Obligations
Other than the loans payable to Difference Capital,related party Notes Payable, there are no key contractual obligations as at June 30, 2014.2015.
Off Balance Sheet Arrangements
As at June 30, 2014,2015, the Company did not have any off balance sheet arrangements, including any relationships with unconsolidated entities or financial partnerships to enhance perceived liquidity.
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Transactions with Related Parties
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount which is the amount of consideration established by and agreed to by the related parties. Related party transactions for the yearyears ended June 30, 2015 and 2014 and balances as at that date,those dates, not disclosed elsewhere in the consolidated financial statements are:
| During the year ended June 30, |
| d) | During the year ended June 30, 2015, the Company expensed $11,500 (2014 - nil) in fees payable to a related entity for accounting and consulting services. |
| e) | During the year ended June 30, 2015, the Company received $15,000 (2014 - nil) in advances from related entities, for working capital purposes. |
Financial and Derivative Instruments
The Company’s excess cash, if any, is held at a Canadian chartered bank and bears interest at various rates on monthly balances.
Credit risk is minimized as all cash amounts are held with a large bank, which have acceptable credit ratings determined by a recognized rating agency.
The carrying value of cash, accounts payable and accrued liabilities, and amounts due to related parties approximate their fair values due to the short-term maturities of these instruments.
The Company never entered into and did not have at the end of the years ended June 30, 20142015 and 2013,2014, any foreign currency hedge contracts.
Critical Accounting Estimates
The Company’s audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The significant accounting policies used by the Company are the same as those disclosed in Note 2 to the Consolidated Financial Statements for the year ended June 30, 2014.2015. Certain accounting policies require that management make appropriate decisions with respect to estimates and assumptions that affect the assets, liabilities, revenue and expenses reported by the Company. The Company’s management continually reviews its estimates based on new information, which may result in changes to current estimated amounts.
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Evaluation of Disclosure Control and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Our management, including our Chief Executive Officer and Chief Financial Officer, together with the members of our Audit Committee have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no changes to our internal control over financial reporting since June 30, 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Outlook
Current Outlook
The Company currently has no cash. Its significant debts are with its largest shareholder, Difference Capital.related parties. The Company is relying on its largest shareholderrelated parties for continued financial support if necessary. The Company and its largest shareholder have takenManagement is taking an active approach to examining business opportunities within and outside of the entertainment industry that could enhance shareholder returns.
Public Securities Filings
Additional information, including the Company’s annual information form in the Form 20-F annual report is filed with the Canadian Securities Administrators at www.sedar.com and with the United States Securities and Exchange Commission and can be viewed at www.edgar.gov.
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