Consolidated financial statements of

Cymax Stores Inc.

December 31, 2015

Cymax Stores Inc.

December 31, 2015
Table of contents
Independent Auditors Report ............................................................................................................................ 1-2
Consolidated statement of operations and deficit ................................................................................................. 3

Consolidated balance sheet .................................................................................................................................. 4

Consolidated statement of cash flows ................................................................................................................... 5

Notes to the consolidated financial statements ................................................................................................ 6-18

Deloitte LLP
2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 778-374-0496
www.deloitte.ca

Independent Auditors Report

To the Shareholders of
Cymax Stores Inc.
We have audited the accompanying consolidated financial statements of Cymax Stores Inc., which
comprise the consolidated balance sheet as at December 31, 2015, and the consolidated statements of
operations and deficit and cash flows for the year then ended, and the notes to the consolidated financial
statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian accounting standards for private enterprises, 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.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. 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.
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 auditors judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entitys internal control. 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.
We believe that the audit evidence we have obtained 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 Cymax Stores Inc. as at December 31, 2015, and the results of its operations and its cash flows
for the year then ended in accordance with Canadian accounting standards for private enterprises.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 2 to the consolidated financial statements which
indicates that Cymax Stores Inc. has experienced net losses for the two year period ended December 31,
2015 aggregating $17,436,761, and has an accumulated deficit of $31,192,365 at December 31, 2015.
These conditions, along with a working capital deficiency of $7,080,192 as at December 31, 2015 and
other matters as set forth in Note 2, indicate the existence of a material uncertainty that may cast doubt
about Cymax Stores Inc.s ability to continue as a going concern.

Chartered Professional Accountants

May 26, 2016
Vancouver, British Columbia

Page 2

Cymax Stores Inc.

Consolidated statement of operations and deficit
year ended December 31, 2015
(Expressed in Canadian dollars)
2015
$

2014
$

Sales
Service revenue
Total revenue

155,865,150
156,101
156,021,251

123,640,214
47,510
123,687,724

Cost of sales (Note 6)

Cost of service
Total cost

106,666,485
111,936
106,778,421

82,102,548
39,592
82,142,140

Sales - gross profit

Service - gross profit
Total - gross profit

49,198,665
44,165
49,242,830

41,537,666
7,918
41,545,584

26,768,955
16,259,790
7,313,117
2,207,776
2,121,861
785,083
751,406
749,850
452,146
223,153
186,683
57,819,820

21,778,973
13,278,055
4,191,139
2,046,318
543,905
395,292
385,173
762,077
307,262
169,356
51,667
43,909,217

(8,576,990)

(2,363,633)

166,942
321,370
805,309
2,777,375
4,070,996

85,059
253,126
426,418
1,618,395
2,382,998

Loss for the year before income tax expense

and non-controlling interest
Income tax expense (Note 19)
Net loss after income tax expense

(12,647,986)
24,111
(12,672,097)

(4,746,631)
18,033
(4,764,664)

Attributable to the non-controlling interest

Attributable to the shareholders of the parent company
Net loss for the year

(36,018)
(12,636,079)
(12,672,097)

(385,601)
(4,379,063)
(4,764,664)

Deficit, beginning of year

Loss on repurchase of Medley interest (Notes 4 and 14)
Deficit, end of year

(14,788,670)
(3,767,616)
(31,192,365)

(10,409,607)
(14,788,670)

Expenses
Freight expenses
Advertising and promotion
Wages and benefits
Credit card processing fees
Foreign exchange loss
Website hosting
Selling, general and administrative
Subcontractor and professional fees
Rent
Fulfillment fees
Bad debt expense

Loss before amortization, interest, income tax expense

and non-controlling interest
Amortization of property and equipment
Amortization of intangible assets
Amortization of deferred financing costs
Interest expense (Notes 11 and 13)

The accompanying notes to the consolidated financial statements are an integral part of
this consolidated financial statement.
Page 3

Cymax Stores Inc.

Consolidated balance sheet
as at December 31, 2015
(Expressed in Canadian dollars)

Assets
Current assets
Cash
Accounts receivable
Government remittances receivable
Claims, chargebacks and rebates receivable, net (Note 5)
Inventory
Prepaid expenses

Temporary investment (Note 7)

Restricted cash (Note 8)
Property and equipment (Note 9)
Intangible assets (Note 10)
Due from related parties (Notes 11)

Liabilities
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Government remittances payable
Current portion of capital lease obligations (Note 12)
Long-term debt (Note 13)

Capital lease obligations (Note 12)

Leasehold inducement
Due to related parties (Note 11)

2015
$

2014
$

8,070,847
1,873,396
71,018
4,217,669
203,316
512,372
14,948,618

838,736
789,930
46,863
3,179,545
136,963
206,611
5,198,648

580,608
1,740,509
654,613
1,748,563
250,025
19,922,936

428,077
2,973,357
312,861
1,043,486
335,193
10,291,622

20,241,327
20,622
1,736,364
30,497
22,028,810

14,597,363
18,033
1,300,093
16,270
11,016,429
26,948,188

45,972
286,102
22,360,884

42,087
187,708
500,000
27,677,983

Going concern (Note 2)

Commitments (Note 18)
Shareholders deficiency
Non-controlling interest (Note 4)
Share capital (Note 14)
Common shares
Class A preferred shares
Share issuance costs
Class D common units
Foreign currency translation adjustment
Contributed surplus (Note 16)
Deficit

(417,913)

(1,427,366)

1,250,700
31,231,955
(853,824)
7,023
(2,499,296)
35,772
(31,192,365)
(2,437,948)
19,922,936

100
7,023
(1,177,448)
(14,788,670)
(17,386,361)
10,291,622

On behalf of the Board

___________________________________ Director

___________________________________ Director
The accompanying notes to the consolidated financial statements are an integral part of
this consolidated financial statement.
Page 4

Cymax Stores Inc.

Consolidated statement of cash flows
year ended December 31, 2015
(Expressed in Canadian dollars)
2015
$
Operating activities
Net loss for the year
Items not affecting cash
Amortization of property and equipment
Amortization of intangible assets
Amortization of deferred financing costs
Bad debt expense
Leasehold inducement
Deferred interest payment

Changes in other non-cash working capital items

Accounts receivable
Income taxes payable
Government remittances receivable
Claims, chargebacks and rebates receivable
Inventory
Prepaid expenses
Accounts payable and accrued liabilities
Government remittances payable

Investing activities
Temporary investment
Additions of property and equipment
Addition of intangible assets
Decrease (increase) in restricted cash

Financing activities
Increase (repayment) of capital lease obligations
Loan received from Frind Holdings Ltd.
Common share issuance, net of issuance costs
Preferred share issuance, net of issuance costs
Repayment to related parties
Repurchase of Medley shares
Retirement of long-term debt
Issuance of Class D common units

Increase (decrease) in cash for the year

Cash, beginning of year
Cash, end of year
Non- cash transactions:
Conversion of Frind loan and accrued interest to common shares
Preferred shares issued in lieu of preferred share issuance costs
Warrants issued in lieu of common share issuance costs

2014
$

(12,672,097)

(4,764,664)

166,942
321,370
253,258
85,193
98,394
2,497,257
(9,249,683)

85,059
253,126
426,418
187,708
1,065,268
(2,747,085)

(855,283)
(1,850)
(24,164)
(976,486)
(30,998)
(301,539)
3,504,301
181,758
(7,753,944)

(434,925)
18,033
(21,381)
(1,227,582)
75,607
5,441
5,701,170
1,151,273
2,520,551

(152,531)
(508,705)
(1,017,380)
1,059,240
(619,376)

(195,149)
(310,738)
(289,384)
(2,059,264)
(2,854,535)

18,111
17,837,550
1,133,663
10,113,424
(500,025)
(2,501,194)
(10,496,098)
15,605,431

(6,039)

7,232,111
838,736
8,070,847

20,334,807
50,206
35,772

7,023
984
(333,000)
1,171,736
838,736

The accompanying notes to the consolidated financial statements are an integral part of
this consolidated financial statement.
Page 5

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

1.

Description of business
Cymax Stores Inc. (the Company) was incorporated under the Canada Business Corporations Act.
The Company operates as an online vendor-direct retailer of furniture, and as a software services
provider to furniture manufacturers and third party furniture retailers. The Companys ecommerce sales
are primarily ready-to-assemble home, home-office, office furniture, and home decor products and are
sold mainly to consumers and businesses in the United States of America.

2.

Going concern
These consolidated financial statements have been prepared in accordance with accounting principles
that apply to a going concern. Under the going concern assumption, a company is viewed as being able
to continue its operations in the foreseeable future and realize its assets and discharge its liabilities in
the normal course of operations.
The Company has experienced losses from operations over the previous years mainly as a result of
required general, administrative and marketing expenditures made as the Company grows within the
online retail industry. The Company incurred net losses over the two-year period ended December 31,
2015 aggregating $17,436,761, with an accumulated deficit of $31,192,365 (2014 - $14,778,670) and a
working capital deficiency of $7,080,192 (2014 - $21,749,540). These conditions indicate the existence
of material uncertainty that may cast significant doubt about the Companys ability to continue as a going
concern.
The Company has existed for the past ten years by utilizing its free cash flow from sales financed by
generous terms from its vendors and some debt financing. In the past year, the Company replaced debt
with equity financing from a number of investors included among them are sophisticated e-business
investors who hold board positons with the Company.
The ability of the Company to continue as a going concern is dependent upon improving its gross
margins realized on sales, continuing to increase its sales volume and cash flows from operations, and
reducing its general and administrative expenses, and on the ability of the Company to continue to
obtain further financing to fund ongoing operations.
These consolidated financial statements do not give effect to any adjustments which would be
necessary should the Company be unable to continue as a going concern and therefore be required to
realize its assets and discharge its liabilities in other than the normal course of business and at the
amounts different from those reflected in the accompanying consolidated financial statements.

3.

Significant accounting policies

These consolidated financial statements were prepared in accordance with Canadian accounting
standards for private enterprises (ASPE) and reflect the following significant accounting policies.
(a) Principles of consolidation
The Company consolidates all subsidiaries, which are entities over which it has the continuing ability
to determine the strategic operating, investing and financing policies without the cooperation of
others. These consolidated financial statements include the accounts of Cymax Stores Inc. and the
following subsidiaries:
Name

Functional
currency

Foreign currency
translation model

Cymax Stores USA LLC

Cymax Stores USA Inc.
Cymax Services USA LLC

US$
US$
US$

Self-sustaining
Dormant
Self-sustaining

2015
%

Ownership
2014
%

94
100
100

75
100
100

All intercompany balances and transactions have been eliminated on consolidation.

Page 6

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

3.

Significant accounting policies (continued)

(b) Cash
Cash consists of cash on hand, bank balances, and balances held through e-commerce, better
known as e-wallet.
(c) Income taxes
The Company follows the taxes payable method of accounting for income taxes. Under this method,
the Company reports as an expense (income) for the period only the cost (benefit) of current income
taxes payable determined in accordance with the rules established by taxation authorities.
(d) Inventory
Inventory is comprised of products returned from customers and measured at the lower of cost and
net realizable value, with cost determined using the first-in, first-out (FIFO) method. Net realizable
value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
(e) Property and equipment
Property and equipment are recorded at cost less accumulated amortization calculated over the
estimated useful lives of the assets as follows:
Office furniture
Telephone equipment
Computer hardware
Computer software
Equipment under capital lease
Leasehold improvements

20% declining balance

20% declining balance
30%-55% declining balance
100% declining balance
Straight-line over the useful life of 3 to 5 years
Straight-line over the term of the lease

Property and equipment are amortized at one-half of the annual rate in the year of acquisition.
(f) Leasehold inducements
Cash lease inducements are recorded when received and lease inducements related to rent-free
and rent-reduced periods are accrued when they occur. Leasehold inducements are deferred and
amortized as a reduction of rent expense on a straight-line basis over the term of the related lease
agreement.
(g) Intangible assets
Finite life intangible assets are amortized on the basis of their estimated useful lives using the
straight-line method and the following durations:
Domain
Internally developed software

8 years
8 years

Indefinite life intangible assets are recorded at cost.

Internally developed software expenditures incurred during the research phase are expensed as
incurred. Expenditures during the development phase are capitalized when the following six criteria
are met:
(i)

The software is clearly identified and the related costs are itemized and reliably measured.

(ii) The Company demonstrates technical and industrial feasibility of completing the intangible
asset.
(iii) The Company indicates clear intention to complete the intangible asset and use or sell it.
(iv) The Company has the ability to use or sell the software.
(v) The software will generate probable future economic benefits.
Page 7

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

3.

Significant accounting policies (continued)

(g) Intangible assets (continued)
(vi) The Company demonstrates availability of adequate technical, financial and other resources to
complete the development and to use or sell the software.
The trademark is considered to have an indefinite life and is not amortized.
(h) Impairment of long-lived assets
Long-lived assets are tested for recoverability whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. An impairment loss is recognized when
their carrying value exceeds the total undiscounted future cash flows expected from their use and
eventual disposition. The amount of the impairment loss is determined as the excess of the carrying
value of the asset over its fair value.
(i)

Financial instruments
Financial assets and financial liabilities are initially recognized at fair value when the Company
becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial
instruments are measured at amortized cost.
Transaction costs related to financial instruments measured at fair value are expensed as incurred.
Transaction costs related to the other financial instruments are added to the carrying value of the
asset or netted against the carrying value of the liability and are then recognized over the expected
life of the instrument using the straight-line method. Any premium or discount related to an
instrument measured at amortized cost is amortized over the expected life of the item using the
straight-line method and recognized in statement of operations as interest income or expense.
With respect to financial assets measured at cost or amortized cost, the Company recognizes in the
statement of operations an impairment loss, if any, when it determines that a significant adverse
change has occurred during the period in the expected timing or amount of future cash flows. When
the extent of impairment of a previously written-down asset decreases and the decrease can be
related to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed in statement of operations in the period the reversal occurs.

(j)

Revenue recognition
The Company recognizes revenue from product sales when the following four criteria are met:
(i)

Product delivery has occurred, which is concurrent with shipment as the e-commerce customer
is the consignee of shipments made by the Company, or the service has been rendered.

(ii) The sale amount is fixed or determinable.

(iii) Collectability is reasonably assured.
(iv) There is clear evidence that an arrangement exists.
Revenue is measured at the fair value of the consideration received. Revenue recorded on the
consolidated statement of operations is net of discounts, returns and sales taxes.
Revenue from services is recognized when work is completed and final product application is
launched, the consideration is fixed or determinable and collectability is reasonably assured.
Revenue from Freight Club is recognized when the goods are received by the customers. The
Freight Club is the Companys freight services business that provides logistics services and freight
analytics to businesses and consumers through an online system that provides competitive realtime pricing and detailed touch point tracking while utilizing a broad carrier network.

Page 8

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

3.

Significant accounting policies (continued)

(k) Translation of foreign currencies
Monetary items denominated in foreign currency are translated to the functional currency of the
Company at exchange rates in effect at the balance sheet date, and revenues and expenses are
translated at rates in effect at the time of the transaction. Foreign exchange gains and losses are
included in the consolidated statement of operations.
In the case of the Companys foreign operation, Cymax Stores USA LLC and Cymax Services
USA LLC, which are self-sustaining in terms of financial and operational management, accounts
stated in foreign currencies are translated according to the current rate method. Under this method,
assets and liabilities are translated into Canadian dollars at the exchange rate prevailing at the
consolidated balance sheet date. Revenue and expenses arising from foreign currency transactions
are translated into Canadian dollars at the average rates of exchange during the year. Exchange
gains and losses arising from the translation of the financial statements of the self-sustaining
operations are deferred and included in the foreign currency adjustment account.
(l)

Use of estimates
The preparation of financial statements in conformity with ASPE requires management to make
estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Significant management estimates include estimate of
the useful lives of the Companys intangible assets, accrual for foreign sales and use tax, and
assessment of the Companys ability to continue as a going concern.

(m) Stock-based compensation

The Company has established a stock option plan for employees and directors from which options
to purchase common shares are issued. Stock-based compensation costs are accounted for on a
fair value basis, as measured at the grant date. The fair value is measured using the Black-Scholes
option pricing model. Volatility is based on historical volatility of similar industry sector businesses of
public companies whose share option pricing information is published. The vesting requirements are
service based and have a contractual life of ten years. The compensation expense is based on the
number of awards that are expected to eventually vest, with an offsetting credit to contributed
surplus. Adjustments for forfeitures are made as they occur. The awards have no cash settlement
alternatives. The consideration paid by employees and directors upon exercise of the options and
the stock-based compensation costs previously recognized for the options exercised and included in
the contributed surplus are added to share capital.
The Company has issued payments to service providers in the form of warrants in lieu of or in
addition to cash. The Company has also issued common shares to service providers in lieu of
financing fees. This method of payment may be used in future transactions particularly relating to
investment brokers associated with financing of the Company. The fair value is measured using the
current share price, and the offsetting credit is to contributed surplus or share capital.

Page 9

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

4.

Non-controlling interest
Non-controlling interests (NCI), including Canopy Capital III Investments (6% or 60 Class C common
units held in Cymax Stores USA LLC) and a minority unitholder (0.125% or 1.25 Class D common units
held in Cymax Stores USA LLC), have been included as a separate component of total equity. In
addition, the net loss on the consolidated statement of operations includes the net loss attributable to
non-controlling interests. Medley Capital Corporation (Medley) previously held a 19% interest in the
Cymax Stores USA LLC, until all 190 of the outstanding shares issued to Medley were repurchased in
2015, eliminating any related non-controlling interest at year-end.

Non-controlling interest

Medley Capital Corporation (19%)

Canopy Capital II Investments (6%)
Minority shareholder (1.25%)
Ending balance
5.

2015
$
(413,170)
(4,743)
(417,913)

(1,084,797)
(342,569)
(1,427,366)

Claims, chargebacks and rebates receivable

2015
$
Freight claims
Vendor claims
Chargebacks
Rebates
Allowance for doubtful accounts

6.

2014
$

1,296,633
331,955
166,276
3,055,183
4,850,047
(632,378)
4,217,669

2014
$
1,577,834
225,017
298,951
1,878,833
3,980,635
(801,090)
3,179,545

Inventory
Inventory expensed during the year ended December 31, 2015 was $111,035,676 (2014 - $84,939,222)
and is included in cost of sales.

7.

Temporary investment

Funds deposited (US$419,000 (2014 - US$369,000)) into a bank

term deposit to support letter of credit to CIT Group Inc.,
renewed annually on April 30, 2016
8.

2015
$

2014
$

580,608

428,077

2015
$

2014
$

1,740,509

2,973,357

Restricted cash

Funds withheld by American Express, Litle & Company,

Braintree and Psigate to cover risks against product returns

Page 10

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

9.

Property and equipment

Office furniture
Telephone equipment
Computer hardware
Computer software
Equipment under capital lease
Leasehold improvements

Cost
$

Accumulated
amortization
$

2015
Net book
value
$

2014
Net book
value
$

64,397
176,022
330,502
159,288
129,469
499,663
1,359,341

10,058
132,420
227,496
141,765
56,579
136,410
704,728

54,339
43,602
103,006
17,523
72,890
363,253
654,613

4,803
43,763
2,077
57,084
205,134
312,861

As at December 31, 2015, the cost of the leased assets was $129,469 (2014 - $105,759), with an
accumulated amortization of $56,579 (2014 - $71,184).
10.

Intangible assets

Domain
Internally developed software
Intangible assets not subject
to amortization
Trademark

Cost
$

Accumulated
amortization
$

2015
Net book
value
$

2014
Net book
value
$

117,634
3,000,707
3,118,341

15,873
1,434,073
1,449,946

101,761
1,566,634
1,668,395

5,965
991,118
997,082

80,168
3,198,509

1,449,946

80,168
1,748,563

46,404
1,043,486

During the year ended December 31, 2015, investment tax credits totaling $ NIL (2014 - $155,519) were
recorded against the intangible assets. The investment tax credits consist of Scientific Research and
Experimental Development tax credits earned on expenditures incurred under the Companys internal
software development program.
11.

Related party transactions

Due from related parties

Due from Fasihi Holdings Inc., a company controlled by a

related party and majority shareholder of the Company,
without interest or fixed terms of repayment

2015
$

2014
$

250,025

335,193

Page 11

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

11.

Related party transactions (continued)

Due to related parties

2015
$

2014
$

500,000

$500,000 loan payable, bearing interest at 7% per annum, without

fixed terms of repayment

During the year ended December 31, 2015 the loan with an immediate family member of the controlling
shareholder was paid off along with interest of $22,822 (2014 - $35,000).
Transactions with related parties, other than inter-corporate and shareholder loans, occur in the normal
course of operations and are measured at the exchange amount, which is the amount of consideration
established and agreed by to the related parties.
12.

Capital lease obligations

The Company has leased equipment under lease agreements which are required to be accounted for as
capital leases. The following is a schedule of the future minimum lease payments of the capital leases:

$
2016
2017
2018
2019
Total minium lease payments
Less amount representing interest (at rates ranging from 2.3% to 11.5% per annum)
Present value of net minimum capital lease payments
Less: current portion

35,357
32,004
16,941
84,302
7,833
76,469
30,497
45,972

Page 12

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

13.

Long-term debt

2014
$

2015
$
Loan from Medley Capital Corporation (Medley)
$6,000,000 USD, bearing interest at 15% per annum,
commencing August 1, 2011. Additional $250,000 USD
debt on January 30, 2012 and $2,100,000 USD debt on
June 18, 2012. Cash interest of 11% per annum and 4%
per annum deferred interest until February 1, 2012;
after February 1, 2012 to June 18, 2012, 15% per annum
cash interest payment; thereafter, cash interest payment of 10%
per annum and 5% per annum deferred interest until maturity on
August 1, 2015. Principal and deferred interest is due and payable
at maturity. Collateralized by all assets of the consolidated
Company except first $300,000 CAD, which is security
.
Less: unamortized financing fees and transaction costs

11,265,172
(248,743)
11,016,429

During the year, the loan and the interest expense on long-term debt of $251,675 (2014 - $1,575,685)
was paid off on February 20, 2015. The remainder of the interest expense is comprised of interest
expense to Frind Holdings Ltd. of $2,497,257 and capital lease obligations of $5,621. The interest
related to Frind Holdings Ltd. relates to a long-term loan received and subsequently converted to
preferred shares during the fiscal year.
14.

Share capital
Cymax Stores USA LLC
The equity structure has changed as a result of the Class B Unit Purchase Agreement (February 20,
2015), and the Replacement Grant Agreement for the exchange of options signed with employees on
November 10, 2015 which replaced the Cymax Stores USA LLC grants, provided to all Canadian
employees, with equivalent holdings of Cymax Stores Inc. The aforementioned agreements resulted in
the following ownership of Cymax Stores USA LLC:
(a) The Company now holds 933.75 units of which 743.75 are Class A common units and 190 are
Class B common units which were repurchased by the Company from Medley Capital Corporation.
The Class B common units were repurchased for $2,501,194 plus a reduction in the deficiency
attributable to NCI of $1,266,422 resulting in a loss on repurchase of $3,767,616.
(b) The Company has outstanding 60 Class C common units held by Canopy Capital III Investments.
(c) The Company has outstanding 1.25 Class D common units as well as options to purchase 5
Class D common units held by minority unitholders.

Page 13

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

14.

Share capital (continued)

Cymax Stores Inc.
Authorized
8,951,845 common shares without par value
Issued
The following common shares were issued by the Company in association with the Frind Holdings Ltd.
(Frind) debt financing transaction on February 20, 2015:

The Company issued 2,251,745 common shares to Frind for cash.

The following common shares were converted from Cymax Stores USA LLC to the Company at
1:10,000 in 2015:

The Company converted 670 Class B common units held by Arash Fasihi from Cymax Stores USA
LLC to 6,700,000 common shares in the Company.

Number of
common shares/
options

Number of common shares/options - Cymax Stores Inc.

Balance as at January 1, 2015
Arash Fasihi
Frind Holdings Ltd.
Balance as at December 31, 2015

100
6,700,000
2,251,745
8,951,845

Amount
$

100
1,250,600
1,250,700

Preferred shares
Authorized, unlimited number preferred shares without par value
Class A preferred shares accumulate a dividend at a rate of 9.25% of the issue price of $5.73 per
annum, compounded annually as and from their date of issuance. The accumulated dividend is to be
paid upon the occurrence of a liquidation event, unless the Board elects to declare and pay the dividend
prior to such an event. Unpaid dividends can be converted to common shares either on a discretionary
basis or automatically in connection with an IPO approved by the preferred A shareholders. A 15 %
increase in conversion ratio occurs upon a liquidation event or an IPO with a valuation of less than
$130,000,000.
Issued
The following preferred shares were issued in relation to the Series A investment round occurring on
August 26, 2015 with follow-on subscriptions on September 25, 2015 which in aggregate was 5,450,601
shares with no par value:
(a) The Company issued 523,560 Class A preferred shares to Frind, in addition to 3,548,830 Class A
preferred shares to convert pre-existing debt, incurred from Frind on February 20, 2015, to equity
(4,072,390 total shares issued).
(b) The Company issued 785,340 Class A preferred shares to BDC Capital Inc.
(c) The Company issued 584,109 Class A preferred shares to minority shareholders; plus, 8,274 and
488 Class A preferred shares to Salman Partners and Prodigy Capital Corporation in lieu of cash
fees for investment.

Page 14

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

14.

Share capital (continued)

Cymax Stores Inc. (continued)
Preferred shares (continued)
Number of
preferred
shares issued

Number of preferred shares issued

Balance as at January 1, 2015
Share issuance on conversion of Frind Holdings Ltd. debt
Frind Holdings Ltd.
BDC Capital Inc.
Other Private Placement
Share issuance in lieu of fees incurred
Balance as at December 31, 2015

3,548,830
523,560
785,340
584,109
8,762
5,450,601

Amount
$

20,334,807
2,999,999
4,499,998
3,346,945
50,206
31,231,955

In 2015, expenses of $853,824(2014 - $Nil) were recorded as share issuance costs, a portion of which
related to the above issuance of common and preferred shares.
15.

Stock options
In 2012, the Company created a stock option plan (the Plan) whereby the subsidiary may grant stock
options to minority shareholders. The stock option plan was revised during 2015 whereby the parent
company could grant stock options to employees, minority shareholders, and board members. The
exercise price of the stock options is determined by the board of directors of the Company, but generally
will be at least equal to the market price of the share at the grant date. The stock options generally vest
over a period of four years from the date of grant and immediately become exercisable once vested. Any
stock options that do not vest as the result of a grantee leaving the Company are forfeited and the
common shares underlying them are returned to the reserve. Stock options granted generally have a
maximum contractual term of 10 years.
Canadian employee stock options granted prior to 2015 were issued by Cymax Stores USA LLC, and on
November 10, 2015, 68 of the options were exchanged for employee stock options in the Company at
1:10,000, for a total of 680,000. During the year ended December 31, 2015, the Company issued an
additional 199,640 stock options to Canadian employees and the board of directors, with an exercise
price of $3.40. Further, an employee holding stock options resigned from the Company on
December 30, 2015, forfeiting 25,000 options 30 days later on January 29, 2016. Canadian employee
stock options outstanding as at December 31, 2015 total 879,640 with a weighted average exercise
price of $1.33 (and a range between $0.55 and $3.40), and with 70,360 options remaining available to
be granted. The weighted average remaining contractual life for total outstanding options as at
December 31, 2015 and issued options during 2015 are 7.93, and 9.58 years, respectively.

Page 15

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

15.

Stock options (continued)

The following stock options have been issued and are outstanding:
Stock options - Cymax Stores Inc.

Year issued

Number
issued

2012
2013
2014
2015

580,000
50,000
180,000
199,640

Average
fair value
at grant date
(per option)

Outstanding
as at
December 31,
2015
$
(i)
(i)
(i)
(i)

450,000
50,000
180,000
199,640

Stock Option - Cymax Stores USA LLC

Year issued

2012

Number
issued

5.00

Weighted
average
fair value
at grant date
(per option)

Number
outstanding
as at
December 31,
2015
$
(i)

5.00

Total compensation cost recognized in net loss for stock-based compensation awards relating to the
options is $Nil (2014 - $Nil). The average vesting period for options granted is four years.
Key inputs into the determination of the calculated value of the stock options include the following
weighted average assumptions:

2015
Expected volatility (i)
Option life
Dividend yield
Risk free rate
(i)
16.

46.60%
3 years
1.30

2014
39.42%
4 years
1.25

The Company has determined historical volatility based comparative companies in the industry.

Warrants
Warrants issued as options in lieu of a cash fee include 4,289 to Haywood Securities Inc. and 1,954
options issues to Prodigy Capital Corp., at a value of $5.73 per option. The amount has been included
in share issuance costs and contributed surplus.

Page 16

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

17.

Financial instruments
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party
by failing to discharge an obligation. The Companys main credit risk relates to its accounts receivable
and claims, chargebacks and rebates receivable. The amounts disclosed in the consolidated balance
sheet are net of provision for uncollectible amounts, estimated by management based on prior
experience and their assessment of the current economic environment. As at December 31, 2015, the
balance of the Companys provision for doubtful accounts is $632,378 (2014 - $801,090). Management
reviews the receivables and provision on a monthly basis.
The Companys cash, temporary investment and restricted cash are exposed to credit risk. Cash and
temporary investment are held with a major financial institution. Restricted cash is held with reputable
credit card processors.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. The Company conducts its business primarily in U.S.
dollars and is exposed to foreign currency risk as the functional currency of its subsidiaries is other than
the reporting currency, the Canadian dollar. Approximately 99% of the Companys sales and purchases
are denominated in U.S. dollars. The Company is not engaged in any agreements or financial
instruments to mitigate its foreign currency risk. The following are the amounts in Canadian dollars for
which the functional currency is in U.S. dollars:

Cash
Restricted cash
Claims, chargebacks, and rebates receivable
Accounts receivable
Accounts payable and accrued liabilities

2015
$

2014
$

968,355
1,488,253
4,217,669
1,250,700
13,324,040

722,076
2,826,455
3,179,545
668,037
12,760,877

Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated
with financial liabilities. The Company is exposed to this risk mainly in respect of its accounts payable
and accrued liabilities, obligations under capital leases, and operating lease commitments. Management
monitors its cash balance, and cash flows generated from operations and its free cash flow associated
with sales growth supported by generous vendor terms on a regular basis. As at December 31, 2015,
the Company has a working capital deficiency casting significant doubt on the ability to continue as a
going concern (Note 2).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Companys interest rates of its capital lease
obligations and temporary investments are secured and fixed. Management monitors its interest rates
compared to market rates on a regular basis. The Company does not use derivative instruments to
reduce its exposure to interest rate risk.

Page 17

Cymax Stores Inc.

Notes to the consolidated financial statements
December 31, 2015
(Expressed in Canadian dollars)

18.

Commitments
The Company has various operating leases for its premises and vehicle expiring in 2015 and thereafter.
The annual minimum lease payments are as follows:

$
2016
2017
2018

19.

1,349,732
1,296,237
1,024,872
3,670,841

Income taxes
The Company has non-capital losses totaling $23,674,374 available for carryforward for Canadian and
US income tax purposes that expire as follows:

$
2029
2030
2031
2032
2033
2034
2035

1,096,050
2,665,910
1,823,307
642,057
1,566,996
3,930,471
11,949,583
23,674,374

The Company accounts for income taxes using the taxes payable method. As a result, the Companys
income tax expense varies from the amount that would otherwise result from the application of the
statutory income tax rates as set out below.
2015
$
Loss before income taxes
Combined tax rate
Tax recovery at the applicable statutory rate
Temporary differences
Excess of amortization for accounting purposes over capital cost
allowance for income tax purposes
Non-capital losses available for future years
Permanent differences
Taxable losses available for future years
Income tax expense on unrealized intercompany profits
Income tax expense

20.

2014
$

(12,647,986)
25.92%
(3,278,358)
(98,787)

(4,746,631)
27.20%
(1,291,084)
(76,265)

82,211
3,025,877
149,425
124,079
19,664
24,111

67,755
1,047,643
269,028
956
18,033

Comparative figures
Certain comparative figures have been reclassified to conform with current years presentation. Freight
expenses for fiscal 2014 totalling $21,778,973 previously recognized in cost of sales have now been
classified as expenses.

Page 18