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. December 31, 2017 27,860,623
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
x
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 Yes
o
No
x
Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
o
No
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of
“
accelerated filer and large accelerated filer
”
in Rule 12b-2 of the Exchange Act (check one):
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of
“
accelerated filer and large accelerated filer
”
in Rule 12b-2 of the Exchange Act (check one):
If an emerging growth company that prepares its financial statements in accordance with U.S.GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Item 17
x
Item 18
o
If this is an annual report, indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
(APPLICABLE ONLY TO ISSUES INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)
Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
o
No
o
The information set forth in this Annual Report on Form 20-F/A is as at December 31, 2017 unless an earlier or later date is indicated.
The Company was incorporated by registration of its Memorandum and Articles under the BC Companies Act on May 30, 2000 under the name “Duft Biotech Capital Ltd.”
On November 13, 2003, the Company acquired the assets of ALDA Pharmaceuticals Inc. (“API”), a private company founded in 1996.
On November 26, 2003 the Company changed its name to ALDA Pharmaceuticals Corp. (“the Company”). The Company is still a British Columbia, Canada, company.
Effective August 19, 2005, the authorized share capital of the Company was increased to an unlimited number of common shares without par value. There are no Indentures or Agreements limiting the payment of dividends and there are no conversion rights, special liquidation rights, pre-emptive rights or subscription rights.
On July 24, 2013 the Company changed its name to NUVA Pharmaceuticals Inc. (“the Company”). The Company is still a British Columbia, Canada, company.
On July 28, 2014 the Company changed its name to VANC Pharmaceuticals Inc. (“the Company”). The Company is still a British Columbia, Canada, company.
The Company is focused on the marketing and distribution of over-the-counter (“OTC”) products, behind-the-counter (“BTC”) products, generic pharmaceuticals, point-of-care devices and health technology.
The Company’s reporting currency and domestic currency is Canadian Dollars. In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (“CDN$” or “$”). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$). Comparisons of historic exchange rates between the US$ and the CDN$ are contained in Section 3.A.3.
This Annual Report on Form 20-F/A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, principally in ITEM #4, “Information on the Company” and ITEM #5, “Operating and Financial Review of Prospects”. These statements may be identified by the use of words like “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends. In particular, these include statements about the Company’s strategy for growth, future performance or results of current sales and production, interest rates, foreign exchange rates, and the outcome of contingencies, such as acquisitions and/or legal proceedings and intellectual property issues.
Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, among other things, the factors discussed in this Annual Report under ITEM #3, “Key Information, Risk Factors” and factors described in documents that the Company may furnish from time to time to the Securities and Exchange Commission. The Company undertakes no obligation to update publicly or revise any forward-looking statements because of new information.
Canada uses the metric measurement system and all of the measures used by the Company adhere to the standards of the metric system.
PART I
ITEM 1. IDENTITY OF DIRECTORS SENIOR MANAGEMENT AND ADVISERS
1.A.1. Directors and senior management
Table No. 1 lists as of December 31, 2017 and as of the date of this report the names of the Directors of the Company.
Table No. 1
Directors
|
|
|
|
Name and Residential Address
|
Age
|
Date First Elected or Appointed
|
|
Bob Rai, CEO
2257 128St. Surrey BC V4A 3V8, Canada
|
48
|
June 4, 2015
|
|
David Hall
(1)
2020 – 401 West Georgia St.
Vancouver, BC V6B 5A1, Canada
|
65
|
January 20, 2016
|
|
Alan Arnstein
(1)
5 Penn Plaza 23rd Floor
New York, NY, 10001, USA
|
50
|
April 20, 2017
|
|
Sherif Guorgui
(1)
3544 Rebecca Street
Oakville, ON L6L 5X9
|
42
|
August 15, 2017
|
|
Robert Sindelar
(2)
2405 Westbrook Mall
Vancouver, BC V6T 1Z3, Canada
|
65
|
March 27, 2018
|
(1)
Member of Audit Committee
(2)
Appointed on March 27, 2018
1.A.2. Senior Management
Table No. 2 lists the names of the Senior Management of the Company. The Senior Management serves at the pleasure of the Board of Directors.
Table No. 2
Senior Management
|
|
|
|
Name and Position
|
Age
|
Date of First Appointment
|
|
Bob Rai, CEO
|
48
|
January 27, 2017
|
|
Dong Shim, CFO
|
34
|
February 5, 2018
|
|
Mark Kunzli, Executive Vice President
|
35
|
July 5, 2017
|
|
Leanne Ratzlaff, Corporate Secretary
|
41
|
April 11, 2018
|
Mr. Rai’s business functions, as CEO of the Company, included overall supervision of all officers and consultants, as well as management of research and development, strategic planning, business development, operations, liaison with auditors, accountants, lawyers, regulatory authorities, the financial community and shareholders and reporting to the Board of Directors.
Mr. Shim’s business functions, as CFO, include financial statement preparation, accounting, liaising with auditors, accountants, lawyers and regulatory authorities and preparation, payment and organization of the expenses, taxes, and other financial activities of the Company and reporting to the Board of Directors.
Mr. Kunzli’s business functions, as Executive Vice President, include overseeing and coordinating manufacturing, product development, regulatory compliance, account management, clinical development, formulary submissions, compliance, marketing and sales of the Company.
1
Table of contents
Ms. Ratzlaff’s business functions, as Corporate Secretary, include attending and being the secretary of all meetings of the Board, shareholders and committees of the Board and entering, or causing to be entered in records kept for that purpose, minutes of all proceedings thereat; gives or causes to be given, as and when instructed, all notices to shareholders, Directors, officers, auditors and members of committees of the Board; is the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Company and of all books, records and instruments belonging to the Company.
1.B. Legal Advisors
The legal advisor for the Company is Sangra Moller LLP, 1000 Cathedral Place, 925 West Georgia Street, Vancouver, BC, V6C 3L2.
The Company’s banks are Scotiabank and TD Canada Trust. Scotiabank’s business address and telephone number are Suite 10470 – 2804 Granville Street, Vancouver, British Columbia, Canada, V6H 3J5, tel: 604-668-3771. TD Canada Trust’s business address and telephone number are 1055 Dunsmuir Street, Vancouver, British Columbia, Canada, V7X 1P3, tel: 604-659-2070.
1.C. Auditors
Davidson & Company LLP performed the audit for the year ended December 31, 2017. Adam Sung Kim Ltd. performed the audit for the year ended December 31, 2016. Smythe LLP performed the audits for the six months ended December 31, 2015 and year ended June 30, 2015.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
No disclosure necessary.
ITEM 3. KEY INFORMATION
3.A.1. Selected Financial Data
The selected financial data should be read in conjunction with the financial statements and other financial information included elsewhere in the Annual Report.
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain all available funds for use in its operations and the expansion of its business.
The Company’s year end is December 31, 2017.
Table No. 3 is derived from the audited financial statements of the Company, which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). IFRS represents standards and interpretations approved by the International Accounting Standards Board (“IASB”), and are comprised of IFRS, International Accounting Standards (“IASs”), and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRICs”) or the former Standing Interpretations Committee (“SICs”) and effective for the Company’s reporting period ended December 31, 2017.
2
Table of contents
Table No. 3
Selected Financial Data
(CDN$)
|
|
|
|
|
|
|
|
|
|
Year Ended Dec 31, 2017
|
Year Ended Dec 31, 2016
|
Stub Year
Ended
Dec 31,
2015
|
Year
Ended
Jun 30,
2015
|
Six Months
Ended
Dec 31,
2014
(unaudited)
|
Year
Ended
Jun 30,
2014
|
Year
Ended
Jun 30,
2013
|
|
IFRS
|
|
|
|
|
|
|
|
|
Gross Revenue
|
1,617,083
|
2,461,933
|
561,344
|
5,713
|
0
|
0
|
0
|
|
Net Sales
|
537,714
|
1,013,690
|
150,754
|
5.713
|
0
|
0
|
0
|
|
Net Income (Loss) for the Period
|
(2,736,717)
|
(2,613,904)
|
(1,190,414)
|
(2,200,648)
|
(571,343)
|
(733,946)
|
283,432
|
|
Basic Income (Loss) Per Share
|
(0.15)
|
(0.18)
|
(0.09)
|
(0.19)
|
(0.08)
|
(0.12)
|
0.08
|
|
Dividends Per Share
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Weighted Average Shares
|
18,393,169
|
14,907,103
|
13,961,051
|
11,818,217
|
9,047,048
|
6,526,940
|
4,705,294
|
|
Period-end Shares
|
27,860,623
|
15,001,297
|
14,276,307
|
13,804.780
|
11,131,101
|
9,191,768
|
5,404,268
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
1,272,259
|
1,886,976
|
3,207,630
|
3,305,603
|
924,174
|
156,185
|
296,132
|
|
Sponsorship Liability
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Long-Term Debt
|
0
|
0
|
0
|
0
|
0
|
0
|
29,444
|
|
Share Capital
|
18,340,491
|
16,320,006
|
15,775,145
|
15,262,357
|
11,595,326
|
10,995,282
|
7,943,874
|
|
Shareholders’ Equity (Deficit)
|
2,498,097
|
1,917,993
|
3,246,975
|
3,353,461
|
1,429,140
|
663,097
|
(436,688)
|
|
Total Assets
|
2,900,186
|
2,275,335
|
3,493,205
|
3,540,585
|
1,479,565
|
820,418
|
800,991
|
|
|
|
|
|
|
|
|
|
|
US GAAP
|
|
|
|
|
|
|
|
|
Net Loss
|
(2,736,717)
|
(2,613,904)
|
(1,190,414)
|
(2,200,648)
|
(571,343)
|
(733,946)
|
283,432
|
|
Income/(Loss) Per Share
|
(0.15)
|
(0.18)
|
(0.09)
|
(0.19)
|
(0.08)
|
(0.12)
|
0.08
|
|
Shareholders’ Equity (Deficit)
|
2,498,097
|
1,917,993
|
3,246,975
|
3,353,461
|
1,429,140
|
663,097
|
(436,688)
|
|
Total Assets
|
2,900,186
|
2,275,335
|
3,493,205
|
3,540,585
|
1,479,565
|
820,418
|
800,991
|
3.A.3. Exchange Rates
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (CDN$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).
Table No. 4 sets forth the exchange rates for the Canadian Dollar at the end of year ended December 31, 2017 and three most recent fiscal years, December 31, 2016, stub year ending December 31, 2015 and year ended June 30, 2015, the average rates for the period and the range of high and low rates for the period. The data for each month during the most recent six months is also provided.
For purposes of this table, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
The table sets forth the number of US Dollars required under that formula to buy one Canadian Dollar. For example, where the number “0.7225” is quoted in the upper left hand number in the table, it means that it took on average in December 2015, 72.25 cents US to purchase one Canadian dollar. For most periods presented, the Canadian dollar has been worth less than one US dollar.
3
Table of contents
Table No. 4
U.S. Dollar/Canadian Dollar
|
|
|
|
|
|
Period
|
Average
|
Low
|
High
|
Close
|
|
|
|
|
|
|
|
March 31, 2018
|
0.7733
|
0.7641
|
0.7794
|
0.7756
|
|
February 28, 2018
|
0.7946
|
0.7807
|
0.8138
|
0.7807
|
|
January 31, 2018
|
0.8047
|
0.7978
|
0.8135
|
0.8135
|
|
December 31, 2017
|
0.7831
|
0.7760
|
0.7971
|
0.7971
|
|
November 30, 2017
|
0.7832
|
0.7759
|
0.7885
|
0.7759
|
|
October 31, 2017
|
0.7935
|
0.7756
|
0.8018
|
0.7756
|
|
Three Months Ended December 31, 2017
|
0.7867
|
0.7756
|
0.8018
|
0.7971
|
|
Three Months Ended September 30, 2017
|
0.7984
|
0.7703
|
0.8245
|
0.8013
|
|
Three Months Ended June 30, 2017
|
0.7437
|
0.7276
|
0.7706
|
0.7706
|
|
Three Months Ended March 31, 2017
|
0.7555
|
0.7400
|
0.7683
|
0.7513
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2016
|
0.7499
|
0.7387
|
0.7624
|
0.7456
|
|
Three Months Ended September 30, 2016
|
0.7499
|
0.7387
|
0.7624
|
0.7456
|
|
Three Months Ended June 30, 2016
|
0.7760
|
0.7631
|
0.7876
|
0.7742
|
|
Three Months Ended March 31, 2016
|
0.7571
|
0.7449
|
0.7714
|
0.7701
|
|
Fiscal Year Ended December 31, 2016
|
0.7548
|
0.7377
|
0.7614
|
0.7448
|
|
Stub Year Ended December 31, 2015
|
0.7562
|
0.7148
|
0.7958
|
0.7225
|
|
Fiscal Year Ended June 30, 2015
|
0.8010
|
0.8002
|
0.8089
|
0.8006
|
(Source: www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/)
3.B. Capitalization and Indebtedness
Table No. 5 sets forth the capitalization and indebtedness of the Company as of December 31, 2017.
Table No. 5
Capitalization and Indebtedness
As of December 31, 2017
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
Share Capital
|
$18,340,491
|
|
Reserve – Warrants
|
221,388
|
|
Reserve – Options
|
4,054,494
|
|
Shares to be issued
|
973,333
|
|
Deficit
|
(21,091,609)
|
|
Net Shareholders’ Equity
|
2,498,097
|
|
TOTAL CAPITALIZATION
|
|
|
Common shares issued and outstanding
|
27,860,623
|
|
Stock Options Outstanding:
|
2,420,000
|
|
Warrants Outstanding
(1)
:
|
8,381,326
|
|
Capital Leases:
|
None
|
|
Guaranteed Debt
|
None
|
|
Secured Debt:
|
None
|
(1)
See Table 12 for exercise prices and terms of these warrants.
4
Table of contents
Year ended June 30, 2014
During the year ended June 30, 2014, the Company issued 850,000 shares for the acquisition of an asset, 2,000,000 shares for share subscriptions received in the year ended June 30, 2014, and 937,500 shares were issued through a private placement. At June 30, 2014, there were 36,767,075 shares issued and outstanding.
Private placements
On April 08, 2014 the Company closed a non-brokered private placement of 437,500 units of the Company at a price of $0.40 per unit for gross proceeds of $175,000. Each unit consists of one (1) common share and one transferrable share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share for a period of twelve months from the Closing Date of the Offering at a price of $1.20 per common share. The warrants are subject to an accelerated exercise provision in the event the shares trade more than $0.40 above the exercise price for ten consecutive days.
In addition, on April 08, 2014 the Company closed a non-brokered private placement of 500,000 units of the Company at a price of $0.40 per unit for gross proceeds of $200,000. Each unit consists of one common share and one transferrable share purchase warrant. Each warrant will entitle the holder thereof to purchase one additional common share for a period of twenty four months from the Closing Date of the Offering at a price of $0.52 per common share.
In accordance with the private placements, finder’s fees of $12,000 cash were paid in addition to the issuance of 75,000 warrants. 30,000 warrants have a life of two years and are exercisable at $0.52. The remaining 45,000 warrants have a life of one year and are exercisable at $1.20. The fair value of these warrants was measured at $47,567. Total share issue cost was $59,567.
Proceeds from the Offering were used by the Company for general ongoing corporate and working capital purposes.
The fair value of the warrants of $375,000 was estimated using the Black-Scholes option pricing model using the following parameters:
|
|
|
|
April 2014
|
|
|
|
|
Dividend yield
|
178.59 – 201.52%
|
|
Expected volatility
|
201.52%
|
|
Risk-free interest rate
|
1.07%
|
|
Expected average term
|
1 – 2 years
|
|
|
|
Year ended June 30, 2015
Private placements
On December 10, 2014, the Company closed a non-brokered private placement of 1,901,833 units at a price of $0.60 per unit for gross proceeds of $1,141,100. Each unit consists of one common share and one-half of one transferrable share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share on or before December 10, 2015 at a price of $1.00. Finder’s fees of $91,287 cash were paid in addition to the issuance of 152,146 warrants. The fair value of the warrants issued to agents was estimated using the Black-Scholes option pricing model and amounted to $67,533.
Securities are subject to a four-month hold period that expires April 11, 2015. Proceeds from the offering will be used by the Company for commercialization of the generic and OTC products and for general ongoing corporate and working capital purposes.
Additional share issue costs totaling $203,490 were incurred relating to options and warrants exercised for the year.
5
Table of contents
Stub year ended December 31, 2015
During the six months ended December 31, 2015, 37,500 shares were issued for the exercise of options, and 434,027 shares were issued for the exercise of warrants.
Year ended December 31, 2016
During the year ended December 31, 2016, 400,000 shares were issued for the exercise of options, and 325,000 shares were issued for the exercise of warrants.
On November 1, 2016, the Company consolidated all of the Company’s issued and outstanding common shares on the basis of every 4 old common shares being consolidated into 1 new common share. All figures in the consolidated financial statements and this 20-F/A are adjusted to reflect the 4:1 share consolidation.
Year ended December 31, 2017
On June 26, 2017, the Company closed a private placement and issued 4,408,659 units at a price of $0.15 per unit for gross proceeds of $661,299. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until June 26, 2022. The Company paid finder’s fees of $7,200 in cash and issued 48,000 finder’s warrants valued at $8,210. The finder’s warrants are exercisable to purchase one common share of the Company at $0.20 per share until June 26, 2022.
On August 3, 2017, the Company closed a private placement and issued 1,326,667 units at a price of $0.15 per unit for gross proceeds of $199,000. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until August 3, 2022.
On November 27, 2017, the Company closed a private placement and issued 4,850,000 units at a price of $0.15 per unit for gross proceeds of $727,500. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until November 27, 2022. The Company paid finder’s fees of $3,300 in cash and issued 22,000 finder’s warrants valued at $3,404. The finder’s warrants are exercisable to purchase one common share of the Company at $0.20 per share until November 27, 2022.
On December 8, 2017, the Company issued 1,274,000 common shares related to 1,274,000 warrants with an exercise price of $0.20 being exercised for gross proceeds of $254,800.
On December 15, 2017, the Company issued 1,000,000 common shares related to 1,000,000 warrants with an exercise price of $0.20 being exercised for gross proceeds of $200,000.
Subsequent to the year ended December 31, 2017
In January and April 2018, the Company issued 2,591,500 common shares related to 2,591,500 warrants with an exercise price of $0.20 being exercised for gross proceeds of $518,300.
In February 2018, a total of 150,000 stock options were granted to an officer of the Company. Each option can be exercised to purchase one common share of the Company at $0.35 per share for a period of 5 years.
In April 2018, a total of 200,000 stock options were granted to a director of the Company. Each option can be exercised to purchase one common share of the Company at $0.24 per share for a period of 5 years.
On April 15, 2018, the Company issued 3,030,303 share purchase warrants entitling the holder to acquire an additional common share of the Company at a price of $0.33 per share until April 15, 2020.
6
Table of contents
On April 27, 2018, the Company issued 880,000 common shares related to the acquisition of HealthTab Inc. (“HealthTab”).
Options:
The changes in share options including those granted to directors, offers and consultants during the years ended December 31, 2017, 2016 and 2015 are summarized as follows:
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
Year Ended
December 31, 2016
|
Six Months Ended
December 31, 2015
|
|
|
Number of
Shares
|
Weighted Average Exercise Price
|
Number of
Shares
|
Weighted Average Exercise Price
|
Number of
Shares
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
1,460,938
|
$1.38
|
1,303,750
|
$1.52
|
1,220,000
|
$1.08
|
|
Options granted
|
2,420,000
|
$0.24
|
672,500
|
$1.38
|
201,250
|
$1.64
|
|
Expired/Cancelled
|
(1,460,938)
|
$1.38
|
(115,312)
|
$1.51
|
(80,000)
|
$1.80
|
|
Exercised
|
-
|
-
|
(400,000)
|
$0.48
|
(37,500)
|
$0.60
|
|
Ending Balance
|
2,420,000
|
$0.24
|
1,460,938
|
$1.38
|
1,303,750
|
$1.52
|
|
Exercisable
|
1,188,750
|
$0.22
|
1,184,324
|
$1.38
|
1,035,625
|
$1.52
|
The following table summarizes information about share options outstanding and exercisable as at December 31, 2017:
|
|
|
|
|
Exercise Price
|
Expiry date
|
Options
|
|
|
|
Outstanding
|
Exercisable
|
|
|
|
|
|
|
$0.22
|
27-Jan-22
|
300,000
|
300,000
|
|
$0.15
|
20-Jul-22
|
150,000
|
150,000
|
|
$0.15
|
3-Aug-19
|
125,000
|
41,250
|
|
$0.15
|
15-Aug-22
|
150,000
|
150,000
|
|
$0.15
|
24-Aug-19
|
150,000
|
48,750
|
|
$0.28
|
20-Nov-22
|
150,000
|
150,000
|
|
$0.28
|
8-Dec-22
|
1,395,000
|
348,750
|
|
|
|
2,420,000
|
1,188,750
|
7
Table of contents
Warrants
The Company has issued warrants entitling the holders to acquire common shares of the Company. The summary of changes in warrants is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six Months ended
December 31, 2015
|
|
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
|
Beginning balance
|
-
|
-
|
1,301,250
|
1.24
|
1,748,136
|
$1.24
|
|
Warrants issued
|
10,655,326
|
$0.20
|
-
|
-
|
-
|
-
|
|
Expired/Cancelled
|
-
|
-
|
(976,250)
|
$0.50
|
(12,858)
|
$1.00
|
|
Exercised
|
(2,274,000)
|
$0.20
|
(325,000)
|
$0.52
|
(434,027)
|
$1.00
|
|
Issued and exercisable
|
8,381,326
|
-
|
-
|
-
|
1,301,250
|
$1.64
|
|
|
|
|
|
|
|
|
3.C.
Reasons for the Offer and Use of Proceeds
General working capital, pay down liabilities and applications for registrations with Health Canada.
3.D. Risk Factors
Risks pertaining to the Company:
The Company's limited operating history makes it difficult to evaluate the Company’s current business and forecast future results.
The Company was started as a Capital Pool Company, has been operating its current business since November, 2003 and has had limited revenues during this time. Since its inception, the Company has experienced significant operating losses each year. These losses are due to substantial expenditures on intellectual property protection, product development and product testing of commercial and consumer infection control products. The Company has also been engaged in a program of pre-clinical testing for registration of a number of therapeutic products with Health Canada and the FDA. This testing is costly and time consuming and the Company does not have sufficient funds to undertake all of the testing that is required to satisfy the requirements of these regulatory agencies. Accordingly, the Company requires outside funding to complete these tests. As funds are raised, they will be invested in the testing and the Company will continue to accumulate losses that are proportional to the funds raised and spent on testing. In addition, the Company launched a number of consumer and commercial products, described above, and established new sales and distribution agreements. Although sales of T
3
6
®
Antiseptic Hand Sanitizer products were substantial during the last quarter of 2009, sales subsequently dropped down nearly zero and were ceased. The Company has changed its direction and Company’s operations consist of the marketing and distribution of generic and over-the-counter (“OTC”) pharmaceuticals. As a result, future sales of the Company’s products are difficult to predict.
The Company has no significant source of operating cash flow and failure to generate revenues in the future could cause the Company to go out of business.
Based upon current plans to introduce its products into new markets in Canada and internationally, develop new products, maintain the Company’s public listing on the TSX-Venture Exchange (“the Exchange”) and support the continued registration of its securities in the US, the Company expects to incur operating losses in future periods. These losses will occur because there are continuing expenses associated with the marketing and production of the Company’s products, research and development, intellectual property protection, testing and registration of pharmaceutical products, legal and accounting fees, the maintenance of its public listing and other expenses associated with running an operating business. Even if the Company becomes operationally profitable from the introduction and sale of new products, the Company will need to raise significant amounts of new funding to expand these activities. Also, the Company may not be successful in generating significant revenues from pharmaceutical products in the future. Failure to generate more revenues could cause the Company to contract or go out of business. In the future, it is likely that the inventory value will be reduced to reflect selling cost which will further decrease the value of the assets compared to liabilities. Also at the time of this report, the Company has sufficient funds to continue the sales of its products but it will be unable to do so without securing further financing.
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If the Company raises further funds through equity issuances, the price of its securities could decrease due to the dilution caused by the sale of additional shares.
Additional funds raised by the Company through the issuance of equity or convertible debt securities will cause the Company’s current shareholders to experience dilution and possibly lower the trading price of its shares. Such securities may grant rights, preferences or privileges senior to those of the Company’s common shareholders. The Company is not profitable and will not be profitable for the foreseeable future under its current development plan. The Company plans to issue further equity to raise funds as necessary to continue operations and fund its program of research and development, patent protection and regulatory approvals. As a result, an indeterminate amount of dilution of the Company’s capital stock will occur.
The Company has issued a limited number of shares out of its authorized capital of an unlimited number of common shares, which could be dilutive and negatively affect the share price.
Having an unlimited number of authorized but unissued common shares could allow the Company’s Directors and Officers to issue a large number of shares without shareholder approval, leading to significant dilution of current shareholders and possible lowering of the share price.
The Company could enter into debt obligations and not have the funds to repay these obligations.
The Company does not have any contractual restrictions on its ability to incur debt and, accordingly, the Company could incur significant amounts of indebtedness to finance its operations. Any such indebtedness could contain covenants, which would restrict the Company’s operations. The Company might not be able to repay indebtedness.
The Company could enter into contractual obligations and not have the funds to pay for these obligations.
The Company does not have any contractual restrictions on its ability to enter into binding agreements and, accordingly, the Company could incur significant obligations to third parties including financial obligations. Any such obligations could restrict the Company’s operations and the Company might not be able to pay for its commitments. If the Company cannot meet its commitments, legal action could be taken against the Company. Any such actions could further restrict the Company’s ability to conduct its business or could cause the Company to go out of business.
The Company has a history of generating limited revenues
and the continuing failure to generate further revenues could cause the Company to cease operations.
The Company has no history of pre-tax profit and in the previous four years has had only limited annual revenues for each of the years it has been operating. The Company sustained operating losses for each of its fiscal years and has sustained significant accumulated operating losses. The continued operation of the Company will be dependent upon its ability to generate operating revenues and to procure additional financing. The Company may not be successful in generating revenues or raising capital in the future. Failure to generate revenues or raise capital could cause the Company to cease operations.
As the Company is a Canadian company, it may be difficult for U.S. shareholders of the Company to effect service on the Company or to realize on judgments obtained in the United States.
The Company is a Canadian corporation. All of its directors and officers are residents of Canada and a significant part of its assets are, or will be, located outside of the United States. As a result, it may be difficult for shareholders resident in the United States to effect service within the United States upon the Company, directors, officers or experts who are not residents of the United States, or to realize in the United States judgments of courts of the United States predicated upon civil liability of any of the Company, directors or officers under the United States federal securities laws. If a judgment is obtained in the U.S. courts based on civil liability provisions of the U.S. federal securities laws against the Company or its directors or officers, it will be difficult to enforce the judgment in the Canadian courts against the Company and any of the Company’s non-U.S. resident executive officers or directors. Accordingly, United States shareholders may be forced to bring actions against the Company and its respective directors and officers under Canadian law and in Canadian courts in order to enforce any claims that they may have against the Company or its directors and officers. Nevertheless, it may be difficult for United States shareholders to bring an original action in the Canadian courts to enforce liabilities based on the U.S. federal securities laws against the Company and any of the Company’s non-U.S. resident executive officers or directors.
The Company’s future performance is dependent on key personnel. The loss of the services of any of the Company’s executives or Board of Directors could have a material adverse effect on the Company.
The Company’s performance is substantially dependent on the performance and continued efforts of the Company’s executives and its Board of Directors. The loss of the services of any of the Company’s executives or Board of Directors could have a material adverse effect on the Company’s business, results of operations and financial condition. There is no assurance that key personnel can be replaced with people with similar qualifications within a
9
Table of contents
reasonable period of time. The Company currently carries key person insurance on any of the executives or members of the board of directors. If any or all Directors resign, there is no assurance that new Directors can be found to replace any directors who resign.
The Company has not declared any dividends since its inception in 2000 and has no present intention of paying any cash dividends on its common shares in the foreseeable future.
The Company has not declared any dividends since its inception in 2000, and has no present intention of paying any cash dividends on its common shares in the foreseeable future. The payment by the Company of dividends, if any, in the future, rests in the discretion of the Company's Board of Directors and will depend, among other things, upon the Company's earnings, its capital requirements and financial condition, as well as other relevant factors.
The Company’s future performance is dependent on key suppliers and manufacturers and a loss of any suppliers or manufacturers could have a material adverse effect on the Company by reducing or eliminating the ability of the Company to manufacture or sell its products.
If any of the Company’s suppliers or manufacturers were to go out of business or were unable to procure the raw materials or other supplies required by the Company to manufacture its products, the Company would have to find other suppliers or manufacturers. There is no guarantee that the Company would be able to find other suppliers or manufacturers. If the Company could not find other suppliers or manufacturers, production of the Company’s products would be delayed for an indefinite period of time and such delays would lead to delayed revenues or reduced revenues or both.
There is no assurance that the Company will be able to secure the funds needed for future development, and failure to secure such funds could lead to a lack of opportunities for growth
.
The testing is required in order to obtain required regulatory approvals from Health Canada, the EPA and FDA in the US and the EMA in the EU. A lack of funds would impair the ability of the Company to complete such tests. A lack of funds would also impair the Company’s ability to establish marketing and sales plans once the products have been approved for sale. If adequate financing is not available when required, the Company may be required to delay, scale back or eliminate various activities and may be unable to continue in operation. The Company may seek such additional financing through debt or equity offerings, but there can be no assurance that such financing will be available on terms acceptable to the Company or at all. Any equity offering will result in dilution to the ownership interests of the Company’s shareholders and may result in dilution to the value of such interests.
The Company and the Company’s products have limited brand awareness which limits the ability of the Company to gain credibility from prospective customers and to sell its products into new markets.
Market knowledge of the Company’s name is limited. The Company will need to devote considerable resources to educate new markets about the products the Company offers. In establishing new markets, the Company will be competing with companies that are potentially already entrenched in such markets or may be better funded than the Company. The ability of the Company to raise brand awareness will depend on its ability to raise the money required to undertake such an intensive marketing effort. As noted elsewhere, there is no assurance that the Company can raise funds required for such an investment in marketing.
The Company has limited sales and marketing experience and can provide no assurance that the Company can keep its current customers or gain new ones.
The Company has limited experience in marketing and selling its products and the Company has no sales or marketing staff. The Company will have to expend substantial funds to promote and develop its products. The Company’s success in this regard will depend on the quality of its products and its ability to develop and implement an effective sales and marketing strategy. Failure to achieve the marketing objectives will have a material adverse effect on the Company and on its results of operations and financial condition.
Conflicts of interest may exist for Directors and Officers which may inhibit their ability to act in the best interests of the Company and its shareholders leading to possible impairment of the Company’s ability to achieve its business objectives.
The directors and officers of the Company will not be devoting all of their time to the affairs of the Company. Some of the directors and officers of the Company are directors and officers of other companies. The directors and officers of the Company will be required by law to act in the best interests of the Company. They will have the same obligations to the other companies in respect of which they act as directors and officers. Discharge by the directors and officers of their obligations to the Company may result in a breach of their obligations to the other companies and, in certain circumstances, this could expose the Company to liability to those companies. Similarly, discharge by the directors and officers of their obligations to the other companies could result in a breach of their obligation to act
10
Table of contents
in the best interests of the Company. Such conflicting legal obligations may expose the Company to liability to others and impair its ability to achieve its business objectives.
Management of the Company can, through their stock ownership in the Company, influence all matters requiring approval by the Company’s shareholders.
Management of the Company at the time of this report, collectively own approximately 5% of the Company's issued and outstanding common shares at that date. These shareholders, if acting together, could significantly influence all matters requiring approval by the Company's shareholders, including the election of directors and the approval of mergers or other business combination transactions. Management may not make decisions that will maximize shareholder value and may make decisions that will contribute to or cause the entrenchment of management.
The value and transferability of the Company shares may be adversely impacted by the limited trading market for the Company’s common shares.
No assurance can be given that a market for the Company’s common shares will be quoted on an exchange in the U.S. or on the NASD's Over the Counter Bulletin Board. The Company’s common shares may be subject to illiquidity and investors may not be able to sell their shares in a timely manner.
The value and transferability of the Company shares may be adversely impacted by the penny stock rules.
The sale or transfer of the Company common shares by shareholders in the United States may be subject to the so-called "penny stock rules." Under Rule 15g-9 of the Exchange Act, a broker or dealer may not sell a "penny stock" (as defined in Rule 3a51-1) or effect the purchase of a penny stock by any person unless:
(a)
Such sale or purchase is exempt from Rule 15g-9;
(b)
Prior to the transaction the broker or dealer has (1) approved the person's account for transaction in penny stocks in accordance with Rule 15g-9, and (2) received from the person a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased; and
(c)
The purchaser has been provided an appropriate disclosure statement as to penny stock investment.
The SEC adopted regulations generally define a penny stock to be any equity security other than a security excluded from such definition by Rule 3a51-1. Such exemptions include, but are not limited to (1) an equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operations for at least three years, (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years; (2) except for purposes of Section 7(b) of the Exchange Act and Rule 419, any security that has a price of $5.00 or more; and (3) a security that is authorized or approved for authorization upon notice of issuance for quotation on the NASDAQ Stock Market, Inc.'s Automated Quotation System. It is likely that the Company’s common shares, assuming a market were to develop in the US, will be subject to the regulations on penny stocks. Consequently, the market liquidity for the common shares may be adversely affected by such regulations limiting the ability of broker/dealers to sell the Company’s common shares and the ability of shareholders to sell their securities in the secondary market in the US Moreover, the Company shares may only be sold or transferred by the Company shareholders in those jurisdictions in the US in which an exemption for such "secondary trading" exists or in which the shares may have been registered.
There is no guarantee that there is a market for the Company’s common shares in the United States.
Although the Company’s common shares were added to the OTC Bulletin Board System on April 20, 2009 under the symbol “APCSF”, trading of the company’s shares is very limited. The Company cannot guarantee that there will be a market for the Company’s common shares in the United States or that there will any significant amount trading in the company’s shares for the foreseeable future The Company cannot guarantee that it will continue to maintain a listing in the United States or that it will not be found in default of existing regulations or new regulations and be suspended from trading or delisted.
Risks Pertaining to the Industry
Registration of products may not occur in a timely manner which could lead to delays in product introductions, reduced revenue expectations and extra costs to conduct further tests to satisfy regulatory agencies.
Government agencies, such as the EPA and the Food and Drug Administration (“FDA”) in the United States and Health Products and Food Branch in Canada, need to provide approvals of the Company’s products prior to any sales of these products. To obtain such approvals, the Company must submit extensive amounts of information on the efficacy, toxicology, carcinogenicity, mutagenicity and other testing of the products that it is trying to register. After all of the information is provided, the agencies can request supplemental information and further testing. Once all of
11
Table of contents
the requirements for documentation are satisfied, the agencies can take an indeterminate amount of time to provide approvals for the Company to market its products. Significant delays could lead to slower revenue growth than anticipated. In addition, regulatory delays can allow time for competitors to devise strategies to prevent or reduce market penetration. There is no assurance that government agencies will accept for registration any of the Company’s products.
The Company is very dependent on the registration and sale of its commercial, retail and pharmaceutical products.
If the Company is not successful in achieving regulatory approval of its products, its ability to generate revenues will be impaired. Even if registrations are successful, there is no guarantee that the Company will be able to maintain the registrations or be able to pass inspections by the regulatory authorities that permit the sale of the Company’s products. In the event of a failed inspection, it is possible that the Company may be ordered to stop the sale of its products or undertake a recall of products that the regulatory authorities deem to be non-compliant with existing regulations. If the Company is ordered to recall or stop the sale of any of its products, the ability of the Company to generate revenues will be impaired. If such a recall or suspension of sales occurs, there is no guarantee that the Company will, at any future date, be able to resume the sale of the suspended or recalled products.
There is a risk that the Company’s intellectual property infringes upon the rights of other companies, which could lead to reduced revenues, reduced margins due to sanctions against the Company, outright withdrawal or prohibition of products or trademarks from the market and significant costs for legal defense against infringement claims, re-branding of products and revised marketing materials.
The Company is unaware of any infringement claims being made against the Company or its products or processes at the time of writing. In the future, there can be no assurances that third parties will not assert infringement claims in the future or require the Company to obtain a license for the intellectual property rights of such third parties. There can be no assurance that such a license, if required, will be available on reasonable terms or at all. If the Company does not obtain such a license, it could encounter delays in the introduction of products or could find that the development, manufacture or sale of products requiring such a license could be prohibited.
There may be limited ability to defend the patents if and when they are issued, leading to loss of sales that might otherwise be realized if the Company was in a position to defend its patents.
Litigation among pharmaceutical companies can be intense and costly. The Company might not have the financial ability to defend its patents, if issued, against larger industry players. Litigation may be necessary to enforce patents issued or assigned to the Company, or to determine the scope and validity of a third party's proprietary rights. Additionally, there can be no assurances that the Company would prevail in any such action. An adverse outcome in litigation or as part of an interference or other proceeding in a court or patent office could subject the Company to significant liabilities, require disputed rights to be licensed from other parties or require the Company to cease using certain technology or products, any of which could have a material adverse effect on the Company’s business.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Capital Pool Company
The Company was incorporated by registration of its Memorandum and Articles under the BC Companies Act on May 30, 2000 under the name “Duft Biotech Capital Ltd.” and was classified as a Capital Pool Company (“CPC”) on the TSX Venture Exchange. Under the policies of the TSX Venture Exchange, the principal business of a CPC is to identify and evaluate opportunities for acquisition. The completion of such an acquisition is referred to as a Qualifying Transaction. A CPC does not carry on any business other than the identification and evaluation of assets or businesses in connection with potential Qualifying Transactions, does not have business operations or assets other than seed capital and has no written or oral agreements for the acquisition of an asset or business at the time of formation.
A “Qualifying Transaction”, pursuant to the policies of the TSX Venture Exchange, is a transaction whereby a capital pool company:
(a)
Issues or proposes to issue, in consideration for the acquisition of significant assets or businesses, common shares or securities convertible, exchangeable or exercisable into common shares, which, if fully converted, exchanged or exercised would represent more than 25 percent of its common shares issued and outstanding immediately prior to the issuance;
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Table of contents
(b)
Enters into an arrangement, amalgamation, merger or reorganization with another issuer with significant assets, whereby the ratio of securities which are distributed to the security holders of the capital pool company and the other issuer results in the security holders of the other issuer acquiring control of the resulting entity; or
(c)
Otherwise acquires significant assets other than cash.
On December 28, 2017, the Company completed the acquisition of all the common shares of HealthTab. HealthTab’s primary asset is intellectual property and certain trademarks and web domains related to the design of the HealthTab system, being a lab-accurate, point of care testing platform.
Financings
The Company has financed its operations since inception through funds raised in a series of private placements of common shares:
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
Nature of Share Issuance
|
Number of Shares
|
Amount ($)
|
|
2001
|
Private Placement @
|
$0.34
|
294,119
|
$100,000
|
|
2002
|
Canadian Prospectus Offering (IPO) @
|
$0.68
|
300,000
|
$204,000
|
|
2003
|
Broker’s Warrant Shares on Canadian Prospectus Offering (IPO) @
|
$0.68
|
37,500
|
$25,500
|
|
2004
|
Private Placement @
|
$0.60
|
86,667
|
$52,000
|
|
|
Private Placement @
|
$0.80
|
1,550,000
|
$1,240,000
|
|
2005
|
Private Placement @
|
$0.40
|
750,000
|
$300,000
|
|
2006
|
Private Placement @
|
$0.20
|
979,000
|
$195,800
|
|
|
Private Placement @
|
$0.20
|
275,000
|
$55,000
|
|
2007
|
Private Placement @
|
$0.20
|
357,500
|
$71,500
|
|
|
Private Placement @
|
$0.40
|
2,000,000
|
$800,000
|
|
2008
|
Private Placement @
|
$0.48
|
500,000
|
$240,000
|
|
|
Private Placement @
|
$0.60
|
875,000
|
$525,000
|
|
2009
|
N/A
|
|
|
N/A
|
|
2010
|
Private Placement @
|
$1.00
|
1,500,000
|
$1,500,000
|
|
2011
|
Private Placement @
|
$0.40
|
818,750
|
$327,500
|
|
|
Private Placement @
|
$0.40
|
500,000
|
$200,000
|
|
2012
|
Private Placement @
|
$0.40
|
140,000
|
$56,000
|
|
2013
|
Private Placement @
|
$0.40
|
2,000,000
|
$800,000
|
|
2014
|
Private Placement @
|
$0.40
|
937,500
|
$375,000
|
|
2015
|
Private Placement @
|
$0.60
|
1,901,833
|
$1,141,100
|
|
Stub period ended December 31, 2015
|
N/A
|
|
|
N/A
|
|
31-Dec-16
|
N/A
|
|
|
N/A
|
|
31-Dec-17
|
Private Placement @
|
$0.15
|
10,585,326
|
$1,587,799
|
4.B. Business Overview
Operations & Principal Activities
The Company was primarily involved in the manufacturing and selling of generic pharmaceutical products in 2015 through 2017. In late 2015 and into 2016, the Company began to manufacture and sell over-the-counter (OTC) products, and continues to develop this portfolio.
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2017 was a transformative year for the Company, as it continued on its mission to become the partner of choice for forward-thinking pharmacies across Canada. Key personnel changes and strategic partnerships and acquisitions have positioned the Company to grow beyond generics to provide pharmacists with innovative, value-added products and services to support their evolving business models and expanding role as front-line healthcare providers.
The Board of Directors and Management team of the Company made the strategic decision to wind down its generic portfolio. Emerging opportunities in new healthcare sectors and the diminished ability to profit from generic sales drove this decision. The Company’s existing products and services will receive increased resources, with additional resources allocated to the development of products and services that offer unique value to pharmacists, their patients, and consumers.
The recently announced strategic partnership with Emerald in April 2018 enables the Company to compete in the emerging medical cannabis sector with a line of endocannabinoid enhancers and with the potential to distribute medical cannabis to pharmacies if that avenue of sales is legalized as a result of current industry sector dialogue with the government of Canada. The concomitant investment in the Company by Emerald further reinforces the ongoing commitment by both companies to establish a fruitful and expanding partnership in this area.
In April 2018 the Company entered into a definitive agreement to acquire the Corozon Platform (“Platform”), which is designed to provide front line community pharmacists with the knowledge and tools to implement practice change and enhance their professional service programs. It is the first online service of its kind in Canada, addressing the lack of infrastructure to support pharmacy program and service delivery.
The Platform offers a variety of functionalities including e-learning, e-commerce and potentially promotional modules. Its capabilities ideally position it to be an educational tool and, importantly, a distribution channel for a number of the Company’s products including those the company will distribute for Emerald. These capabilities ideally position it to serve as an anchor for this pillar of the business, supporting pharmacies with information and products. Closing of the acquisition is subject to customary closing conditions, including receipt of TSX Venture Exchange approval.
The completion of the acquisition of HealthTab in December 2017 allowed the Company to enter the health technology sector. HealthTab will be the core of the other pillar of the Company, focused on point of care pharmacy screening tests for consumers and patients, with the ultimate goal of empowering pharmacists and pharmaceutical companies with innovative products, services and information to optimize patient health.
HealthTab systems have already been launched with strategic community pharmacy partners in BC and Ontario. Furthermore, commitments for additional deployments have been secured and are scheduled in Q2 2018. In addition, the Company is currently in discussions with various private and public entities regarding programs utilizing the HealthTab platform for patient health monitoring.
The Emerald investment and licensing the HealthTab acquisition and the entering into of the definitive agreement for the acquisition of the Platform represent significant first steps in repositioning the Company as it evolves to be a more dominant player in providing pharmacists with products and services which empower them to be leading providers of cognitive pharmaceutical services to patients.
Generic Pharmaceutical Products
Industry Trends
The generic pharmaceutical industry in Canada has undergone a significant shift since the first provincial generic pricing policies were implemented in 2010. While Canada was determined to have the third highest rate of generic drug use and second highest per capita spending on generics among OECD countries in 2016, there has been strong downward pressure on generic prices due to pricing regulations. Allowable generic prices as a percentage of brand name price has steadily decreased, in addition to a growing list of molecules subject to price regulation by the pan-Canadian Pharmaceutical Alliance (pCPA) since 2013. In January 2018, it was announced that as of April 1, 2018 the prices of 68 of the most commonly prescribed drugs comprising 174 dosage forms would be subject to pricing of either 10% (20 molecules, 60 dosage forms) or 18% (48 molecules, 114 dosage forms).
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In addition to government regulated pricing arrangements, pharmacy buying groups and banners, responsible for a large majority of generic purchasing decisions in Canada, offer an annual formulary submission process to generic manufacturers which is the functional equivalent of tendering. This leads to further compression of margins and, when combined with price regulation, has created a generic marketplace where opportunities for profitability by manufacturers are limited. As many pharmacy business models were built around revenue derived from these generic pricing negotiations with manufacturers, these recent developments have also had a direct impact on the bottom line at the pharmacy level. This has led to increased desire within the pharmacy profession to expand clinical service offerings and develop new revenue streams.
Product Portfolio
In Q4 2017, the Company participated in the Request for Proposal (RFP) process for two national pharmacy chains, submitting proposals comprising 89 DIN products and 2 NPN products. The goal of these submissions was to assess price competiveness, thus molecules were submitted on a low-margin, cost-recovery basis. If successful, the volumes generated by securing these formulary listings would have enabled the Company to work with manufacturing partners for better pricing and supply times, as well as supply other pharmacy partners. The Company was unsuccessful in securing formulary listings, with feedback indicating that non-competitive pricing and lack of unique generics were drawbacks to our submission, as well as general reluctance to accept new generic manufacturers to formulary given current industry instability.
Subsequent to the implementation of aforementioned pCPA pricing changes on April 1, 2018, 33 of the Company’s licensed products are now restricted to 10% of brand name pricing, with another 34 set at 18% of brand name. Combined with the feedback from the fall formulary submissions, management has concluded that there is limited opportunity to derive any significant profits from the Company’s current generic portfolio, and has commenced winding down supply of existing molecules. In addition, product development and regulatory work related to the agreement announced in June 2016 to file two new abbreviated new drug submissions has ceased.
With limited ongoing regulatory affairs work required, the Company has now eliminated the full-time position and transitioned to a regulatory consultant to assist the Company in transitioning its generic portfolio in a compliant and cost-effective manner. The Company is currently in discussions with its manufacturing partners to transition its licensed DINs to Dormant status and keep the agreements in place, potentially allowing the Company to resume production and capitalize on future opportunities that may arise in the marketplace, however some DINs may be cancelled if agreements cannot be secured. Current inventory will continue to be sold, however write downs of expired stock are expected throughout 2018.
Over-the-Counter Products
Management is currently reviewing the Company’s existing product portfolio to maximize profitability and growth potential, as well as assessing brand considerations with Lampyon Marketing and Creative Agency (“Lampyon”). Regulatory and market research has commenced for new products, with key opportunities identified and proposals being considered.
Hema-Fer
Hema-Fer, the Company’s flagship heme iron supplement, received an updated Class-III approval from Health Canada in Q3 2017 which included an indication for use in pregnancy. Subsequent to this development, management undertook the following initiatives to increase brand presence and market share:
·
Healthcare Provider Detail Aids – Materials were redeveloped and submitted to the Pharmaceutical Advertising Advisory Board for voluntary pre-approval in Q4 2017 (approved Q2 2018).
·
Hema-Fer Microsite – Completed development in Q1 2018, currently undergoing final approval and will be launched in conjunction with the Amazon webstore in Q2 2018.
·
Physician Samples – Redeveloped with new packaging that halved the production cost, allowing for substantially increased presence in physician offices. Currently in production, with distribution expected to commence in Q2 2018.
·
Amazon Webstore – Administrative work is complete, Q2 2018 launch is pending final approval of the Hema-Fer Microsite.
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With these efforts, in addition to expanding the Company’s sales coverage using broker agreements, management expects Hema-Fer sales to continue to grow in 2018.
INSTI
The Company has an ongoing distribution agreement with the Richmond-based manufacturer of INSTI® HIV-1/HIV-2 antibody tests, BioLytical Laboratories. The agreement gives the Company an exclusivity period to distribute INSTI® tests to Canadian community pharmacies. During 2017 and 2018, the Company’s focus has been on promoting INSTI®, product launches, and helping to organize support for pharmacies who wish to carry the test. The Company has accomplished the following to date:
·
The Company engaged the Platform to host a customized training module and province-specific starter kit for pharmacies offering point-of-care HIV testing;
·
INSTI® tests were launched with the United Pharma Group in Ontario and Nova Scotia in December 2017;
·
Lampyon was engaged to undertake rebranding and editing of all the INSTI® training documents which now includes conference cards, advertisements for pharmacies and a quick-start binder;
·
A draft Professional Practice Policy (PPP) on how to provide point-of-care HIV testing in community pharmacies has been submitted for discussion to the College of Pharmacists of BC; and
·
The Company is coordinating with BioLytical Laboratories for an application to have the INSTI® test covered by the federal Non-Insured Health Benefits (NIHB) Drug Benefit list.
CortiVera-H & SennAce
CortiVera-H (hydrocortisone 1%) cream and SennAce (sennosides 8.6mg) tablets are packaged in sizes designed to be sold for prescription use (454g jar and 500 tab bottle respectively). The Company continues to work towards inclusion on provincial drug formularies, with all outstanding submissions expected to be completed in Q2 2018. This is anticipated to allow for increased pharmacy sales, and the Company’s sales brokers are currently working to build sales for this product in markets where these products are currently reimbursed.
CortiVera & CortiVera Plus
The Company continues to market its CortiVera (aloe vera/hydrocortisone 0.5%) & CortiVera Plus (aloe vera hydrocortisone 1%) creams and ointments to pharmacies as premium, made in Canada products. The Company anticipates the expansion of its sales brokers agreements will result in increased sales of all 4 SKUs in 2018.
Ferrous Fumarate
The Company has received a series of Health Canada approvals for ferrous fumarate tablets and capsules, previously named Van-Fer and Hb-Plus, recently renamed in October 2017 to Van-Ferrous Fumarate tablets and FumaraFer capsules. Manufacturing was scheduled to commence in Q4 2017, with launch in Q2 2018. Upon final review prior to sign-off, it was determined that the strength of these products needed to be adjusted in order to be competitive in the marketplace. The Company engaged its regulatory consultant to file the necessary amendments in Q1 2018, and is currently awaiting a decision by Health Canada. The outcome of this decision will determine whether a product launch is viable, at which point the Company will include an update in its quarterly filings.
Endo Bliss, Endo Brain, Endo Calm, Endo Inflame, Endo Sleep
Emerald Health Bioceuticals has formulated a condition specific line based on their proprietary PhytoCann® Complex, a blend of non-cannabis phytocannabinoids, along with other proven ingredients that support the endocannabinoid system. As announced April 2018, the Company has secured a distribution agreement to market these products to Canadian pharmacies once they receive Health Canada NPNs. The submission process is underway, with expected approval in H2 2018, at which point the Company will be launching with its sales brokers.
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HealthTab
The acquisition of HealthTab was finalized in Q4 2017, and work is underway to deploy systems nationally with strategic partners. the Company’s vision for the HealthTab platform significantly expands on previous delivery models, and management has established many opportunities to derive revenue from the HealthTab platform and associated data analytics. Discussions have been initiated with potential partners for funded models, with initial feedback positive and follow-up meetings scheduled. Announcements will be forthcoming once planning is complete or partnerships are established.
Sales
The Company is continually developing the sales of its generic and OTC products in Canada. The gross revenue was in amount of $1,617,083 for the year ended December 31, 2017 (2016: $2,461,933) Net sales were in amount of $537,714 for the year ended December 31, 2017 (2016: $1,013,690) after deducting the cost of customer marketing and promotional incentives of $1,079,369 (2016: $1,448,243) for the year ended December 31, 2017. There is limited effect of seasonality on the Company’s main business.
The Company has previously employed national sales directors, marketing managers responsible for doctor detailing, and sales brokers. In 2017, the position of national sales director was eliminated, and the Company has transitioned to broker agreements. The shift in focus has allowed the Company to significantly streamline its sales force and engage with sales brokers across Canada. The Company now has 7 sales representatives in Western Canada, 12 in Ontario, 18 in Quebec, and 7 in Atlantic Canada. These agreements, predominantly commission based, come at a far lower cost and provide greater coverage than the Company’s previous model utilizing national sales directors. The Company continues to have doctor detailing agents in the Greater Vancouver Regional District and Greater Toronto Area.
Manufacturing
The Company does not have any own manufacturing facilities and it currently relies, and expects to continue to rely, on third parties for the manufacture of products. The Company finalized the agreements for its 4 prospective OTC products to manufacture, package and deliver such products. The suppliers will manufacture and the Company will market and sell these new product lines under its own label. The Company is not directly involved in the sourcing of raw materials for pharmaceutical products, which is carried out by contract manufacturing partners. Historically, the Company has experienced little to no volatility caused by raw material price deviations.
4.C. Organization structure
The Company is not part of a group and has two wholly-owned subsidiaries, VANC Marine Pharmaceuticals Inc. and HealthTab Inc., each of which are incorporated in British Columbia. VANC Marine Pharmaceuticals Inc. is currently inactive.
4.D. Property, Plant and Equipment
The Company has no facilities.
The Company uses outside manufacturers for its production needs.
ITEM 4A UNRESOLVED STAFF COMMENTS
--No disclosure necessary.--
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This discussion should be read in conjunction with the audited consolidated financial statements of the Company and related notes included therein.
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5. A. Operating Results of the Company
Overview
In December 2015, the Company commercialized its first OTC product: Cortivera
ä
and Cortivera Plus
ä
for a wide range of minor skin irritations, allergic reactions and eczema. In March 2016, the Company launched Hema-Fer™, a premium natural iron supplement. In May 2016, the Company launched Cortivera-H, a 1% hydrocortisone cream sold in large format jars for pharmacy dispensary use. In February 2017, the Company launched SennAce, a vegetable sourced laxative also targeted for pharmacy dispensary use. In May 2017, the Company entered into an agreement with bioLytical to be the exclusive distributor to Canadian pharmacies of the INSTI HIV 1/HIV 2 Rapid Antibody Test. The Company made the decision at the end of 2017 to wind down the generic portfolio and is in the process of depleting existing inventory.
•
The Company hired Mr. Mark Kunzli as Executive Vice President. Mr. Kunzli is a double alumnus of the University of British Columbia with a Bachelor of Science in Pharmacy and an Executive MBA in Health Care from the Sauder School of Business.
•
The Company appointed Mr. Sherif Guorgui to the Company’s Board of Directors. Mr. Guorgui is a third-generation pharmacist with extensive experience in various pharmacy sectors; such as retail, specialty, regulatory, industry, government and professional affairs.
•
The Company appointed Mr. Alan Arnstein to the Company’s Board of Directors. Mr. Arnstein previously worked for the Katz Group Canada where he oversaw the development of the Medicine Shoppe from 28 stores to 175 stores (corporate and franchised) before the successful sale to McKesson Canada.
•
The Company appointed Dr. Robert Sindelar to the Company’s Board of Directors. Dr. Sindelar is a Professor in the Faculty of Pharmaceutical Sciences at the University of British Columbia (UBC) and an advisor, External Relations to the Centre for Health Evaluation & Outcomes Sciences, Providence Health Care Research Institute and UBC.
•
The Company appointed Mr. Dong Shim as Chief Financial Officer of the Company. Mr. Shim is a member of the Chartered Professional Accountants of British Columbia and has served as an audit partner on numerous audit engagements with a mid-size firm located in Vancouver, British Columbia.
•
The Company appointed Ms. Leanne Ratzlaff as Corporate Secretary of the Company. Ms. Ratzlaff has over 5 years of experience working as a Corporate Secretary for publicly-traded companies, including the management of corporate and securities compliance and corporate records management. She is a member of the Governance Professionals of Canada and is a member of the British Columbia Paralegal Association.
Results of Operations for the year ended December 31, 2017
Revenue
The Company is continually developing the sales of its generic and OTC products. The gross revenue was in amount of $1,617,083 for the year ended December 31, 2017 (2016: $2,461,933). Net sales were in amount of $537,714 for the year ended December 31, 2017 (2016: $1,013,690) after deducting the cost of customer marketing and promotional incentives of $1,079,369 (2016: $1,448,243) for the year ended December 31, 2017.
Manufacturing
The Company does not have any manufacturing facilities and it currently relies, and expects to continue to rely, on third parties for the manufacture of products.
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Selling and Marketing Expenses
Selling and marketing expenses were in the amount of $696,161 for the year ended December 31, 2017 (2016: $663,822) which consist of: sales personnel payroll costs of $335,920 for the year ended December 31, 2017 (2016: $329,091); marketing and advertising costs in relation to the promotion of generics and OTC products to the market in amount of $178,058 for the year ended December 31, 2017 (2016: $105,658), logistics and distribution costs of $102,948 for the year ended December 31, 2017 (2016: $161,304) and sales force travel and customer relations expenses of $79,235 for the year ended December 31, 2017 (2016: $67,769).
The efficiencies in the Selling and Marketing expense compared to prior periods is due to restructuring and further optimization of the Sales Force department. The Company provides free samples of OTC products as a part of its market awareness strategy. The Company is providing professional use only samples of the OTC products to medical doctors as part of its market awareness strategy. The total cost of the free samples is in the amount of $14,245 for the year ended December 31, 2017 and was reported as part of marketing and advertising expense.
Results of Operations for the year ended December 31, 2016
Revenue
The Company is continually developing the sales of its generic and OTC products. The gross revenue was in amount of $2,461,933 for the year ended December 31, 2016 (six months ended December 31, 2015: $561,344) Net sales were in amount of $1,013,690 for the year ended December 31, 2016 (six months ended December 31, 2015: $150,754) after deducting the cost of customer marketing and promotional incentives of $1,448,243 (six months ended December 31, 2015: $410,590) for the year ended December 31, 2016.
Sales and Marketing Expenses
Sales and marketing expenses in the amount of $663,822 for the year ended December 31, 2016 (six months ended December 31, 2015: $103,123). Which consist of sales personnel payroll cost of $329,091 for the year ended December 31, 2016; marketing and advertising costs in relation with the promotion of generics and OTC products to the market in amount of $105,658 for the year ended December 31, 2016, logistics and distribution cost of $161,304 for the year ended December 31, 2016 and sales force travel and customer relations expenses of $67,769 for the year ended December 31, 2016.
The increase in the sales personnel related costs is due to the hiring of sales force to support the commercial activity in British Columbia and Ontario. The man power was further expanded in Alberta and Quebec in Q4. The Company provides free samples of OTC products as a part of market awareness strategy. The total cost of the free samples is in the amount of $65,536 for the year ended December 31, 2016 was reported as part of marketing and advertising expense. Marketing expenses in comparable period of 2015 were mostly in relation with attending seminars and conferences.
The Company expect to incur additional expenses associated with sales and marketing activities.
Results of Operations for the stub year ended December 31, 2015
Revenue
During six months ended December 2015 the Company commercialized its first OTC product in British Columbia: Cortivera and Cortivera Plus for a wide range of minor skin irritations, allergic reactions and eczema. The Company significantly improvement the sales of its generic products. The cost of marketing and development expense incurred in relation with the transactions with the customers was treated as customer marketing expenses and was offset against gross revenue. The gross revenue was in amount of $561,344 for the period ended December 31, 2015 (December 31, 2014: $nil), the amount of net sales was $150,754 (December 31, 2014: $nil) after deducting of cost of customer marketing incentives of $410,590 (December 31, 2014: $nil).
Sales and Marketing Expenses
Sales and marketing expenses in amount of $103,123 (December 31, 2014: $nil) consist of advertising costs, marketing and sales consultant costs in relation with the promotion of generics and OTC products to the market.
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General and administrative expenses
General and administrative expense of $551,723 for six months (stub year) ended December 31, 2015 (December 31, 2014: $259,407) consist of personnel-related costs, facility-related costs, professional fees for services, including legal, audit and accounting services mainly. Management and consulting fees of $155,084 (December 31, 2014: $142,807), payroll of $149,034 (December 31, 2014: $nil), investor relations of $58,024 (December 31, 2014: $25,000), filing and corporate fees of $13,688 (December 31, 2014: $23,787), office maintenance $33,881 (December 31, 2014: $33,123), office rent of $20,429 (December 31, 2014: $18,000), legal and audit fees off $37,587 (December 31, 2014: $4,415), travel cost of $33,961 (December 31, 2014: $8,150), insurance of $25,250 (December 31, 2014: $nil), seminars and conferences in amount of $14,582 (December 31, 2014: $nil), depreciation of $8,513 (December 31, 2014: $1,946), bank and credit card charges of $1,690 (December 31, 2014: $637), foreign exchange loss of $nil (December 31, 2014: $1,542).
Personnel-related costs consist of management fees and compensation, salaries and travel cost. The increase in travel is due to management meetings with potential customers and suppliers domestically and internationally. The increase in salaries is due to the hiring of two full-time regulatory analysts to assist in product filings process with Health Canada and other regulatory agencies to support the increased level of OTC and generic product lines.
Share-based compensation for the six months ended December 31, 2015 was in amount of $630,401 (year ended June 30, 2015: $915,211) and is a non-cash item that represents the allocation of the fair value of vested options over the vesting period.
Results of Operations for the year ended June 30, 2015
The Company recorded sales of $5,713 in 2015 compared to $nil in 2014. Cost of Goods Sold was $2,491 for 2015 and $nil for 2014. Gross Profit for the year ended June 30, 2015 was $3,222 and $nil for 2014.
Consulting and management fees for the year ended June 30, 2015 were $362,727 compared to $254,337 for the year ended June 30, 2014. The increase is due to an increase in Executive compensation as well as the addition of a full time CFO. Filing and Transfer Agent Fees amounted to $53,714 for the year ended June 30, 2015 compared to $39,567 for the same period ended June 30, 2014. This was due to significant increase in public news releases and capital transactions which resulted in filing fees with the TSX Exchange. Legal and accounting fees were $37,806 for the year ended June 30, 2015 compared to $48,862 for the year ended June 30, 2014. This decrease was due to legal fees which were charged in 2014 for due diligence on products the Company was in-licensing.
Product Registration and Development Costs for the year ended June 30, 2015 were $56,143 compared to $34,729 for the year ended June 30, 2014. Costs incurred in this category consist primarily of fees paid to maintain the Company’s trademarks as well as the costs incurred to file products with Health Canada. Stock based Compensation expenses were $915,211 for the year ended June 30, 2015, compared to $291,355 for the year ended June 30, 2014. This increase was expected due to the significant amount of share based transaction in the third quarter of 2015.
The Comprehensive (loss) from operations was $(2,200,648) for the year ended June 30, 2015 compared to a loss of $(733,946) during the same period ended June 30, 2014. This significant increase was due to non-cash transactions.
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General and administrative expenses
|
|
|
|
|
|
|
Year ended
|
Year ended
|
Six Months Ended
|
Year Ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
June 30,
2015
|
|
|
$
|
$
|
$
|
$
|
|
Management and consulting fees
|
192,621
|
242,667
|
155,084
|
362,727
|
|
Payroll
|
79,847
|
122,330
|
149,034
|
54,665
|
|
Bad debt
|
62,930
|
99,000
|
-
|
-
|
|
Investor relations
|
7,174
|
70,332
|
58,024
|
54,334
|
|
Office maintenance
|
180,984
|
55,168
|
33,881
|
51,357
|
|
Legal, audit and accounting
|
279,097
|
61,409
|
37,587
|
37,806
|
|
Travel
|
41,246
|
34,020
|
33,961
|
30,441
|
|
Insurance
|
34,573
|
34,453
|
25,250
|
18,366
|
|
Seminars and conferences
|
-
|
445
|
14,582
|
23,084
|
|
Rent
|
49,229
|
46,050
|
20,429
|
48,982
|
|
Filing and registration fees
|
74,898
|
62,130
|
13,688
|
53,714
|
|
Amortization
|
13,854
|
14,668
|
8,513
|
13,900
|
|
Bank service charges
|
2,480
|
1,330
|
1,690
|
1,061
|
|
Foreign exchange
|
3,630
|
(3,210)
|
-
|
1,337
|
|
|
1,022,563
|
840,792
|
551,723
|
751,774
|
Year ended December 31, 2017
The decrease in payroll expenses in 2017 compared to 2016 was mainly due to the turnover of employees. The Company designated one of its employees to a consultant in 2017. Also, the Company hired a new interim CFO in 2017 which resulted in a significant cost savings.
The higher cost in payroll during 2016 in comparison to 2015 was due to expansion in financial and regulatory departments.
The investor relations expenses in 2017 were $7,174 compared to $70,332 in 2016. The Company’s focus was on the overhaul of internal controls, systems and processes. Management believes that the investor relations contracts in 2016 were not highly effective and unnecessary at this time.
The legal fees increased significantly in 2017 as a result of the proxy fight at the 2017 Annual General Meeting.
The higher fee in management and consulting in prior 2015 comparable periods was due to a payment to a full-time CFO, who resigned in December 2015.
Share-based compensation
Share-based compensation for the year ended December 31, 2017 was in amount of $311,389 (2016: $922,922; six months ended December 31, 2015: $630,401; year ended June 30, 2015: $915,211) and is a non-cash item that represents the allocation of the fair value of options over the vesting period.
On May 31, 2016, the Company received TSX Venture Exchange approval to extend the term of 976,250 common share purchase warrants (the “Warrants”). The original term of the Warrants had an expiry date of June 12, 2016. The Company extended the expiry date to December 20, 2016, and amended the exercise price of the Warrants from $0.50 per share to $0.40 per share. In all other respects, the terms of the Warrants remained unchanged. The incremental fair value of warrant extension was estimated at $186,500 using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 0.61%, expected volatility of 75.25%-110.30%, expected option life of 0.03 year-0.56 year and the expected dividends of $nil. These warrants expired without exercise as of December 31, 2016.
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5. B. Liquidity and capital resources
Liquidity
The Company’s operations have been financed through the issuance of common shares. The Company commenced to commercialize its generic and OTC products during the second half of 2015 but have not been able to generate positive cash flows from its operating activity yet. Management anticipates that additional financings or capital requirements to fund the current commercial operations and working capital will be required to grow the business to the sustainable level.
Cash flows
Sources and Uses of Cash:
|
|
|
|
|
|
|
Year ended
|
Year ended
|
Six Months
(stub year) ended
|
Year ended
|
|
|
December 31, 2017
|
December 31, 2016
|
December 31, 2015
|
June 30, 2015
|
|
|
$
|
$
|
$
|
$
|
|
Cash used in operating activities
|
(1,767,296)
|
(2,064,090)
|
(1,040,392)
|
(1,484,577)
|
|
Cash used in investing activities
|
(132,552)
|
(6,340)
|
-
|
(30,846)
|
|
Cash provided by financing activities
|
2,032,099
|
362,000
|
453,527
|
3,942,823
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
559,733
|
427,482
|
2,135,912
|
2,722,777
|
|
|
|
|
|
|
There is an overall cash inflow of $132,251 for the year ended December 31, 2017 compared to cash outflow of $1,708,430 for the comparable period in 2016. This improvement has been achieved through the Company closing several private placements by issuing 10,585,326 units at $0.15 per unit for gross proceeds of $1,587,799, net of share issue costs of $10,500 and the streamlining of the Company’s operations and strategic planning.
Capital resources
Management devotes financial resources to the Company’s operations, sales and commercialization efforts, regulatory approvals and business development. The Company will require cash to support working capital.
The future funding requirements will depend on many factors including:
-
the extent to which the Company will be commercially successful in launching its new OTC products;
-
the size, cost and effectiveness of the Company’s sales and marketing program, distributions and marketing arrangements.
At December 31, 2017, the Company had working capital of $1,272,259, compared to $1,886,976 at December 31, 2016. The Company believes that its cash on hand, the expected future cash inflows from the sale of its products, net proceeds from the closing of private placements and proceeds from stock options and warrants exercised, if any, will be sufficient to finance the Company’s working capital and operational needs for at least the next 6 months. If the Company’s existing cash resources together with the cash the Company generates from the sales of its products are insufficient to fund its working capital and operational needs, the Company may need to sell additional equity or debt securities or seek additional financing through other arrangements.
Critical Accounting Policies
The consolidated financial statements of the Company present the reporting period from January 1, 2017 to December 31, 2017. They have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
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These accounting principles require the Company’s management to make estimates, judgments and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. The Company’s management reviews these estimates and underlying judgments on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the year in which the estimates are revised. Actual results may differ from these estimates under different assumptions or conditions. Significant areas requiring management estimates include accounting for amounts recorded in connection recoverability of inventory valuation, reporting of revenue recognition, useful lives of depreciable assets, intellectual property, income taxes and accounting for share-based compensation expense.
The significant accounting policies that the Company believes are the most critical in fully understanding and evaluating the Company’s reported financial results include inventory, revenue recognition, stock-based compensation and fair value measurements of financial instruments. These and other significant accounting policies are described more fully in Note 2 and 3 of the Company’s annual consolidated financial statements for the year ended December 31, 2017.
Inventory
Inventories consist of raw materials comprising the ingredients used to manufacture OTC pharmaceuticals, as well as the packaging for these products, and finished goods comprising Canadian generic pharmaceuticals. All inventories are recorded at the lower of cost on a weighted average basis and net realizable value. The stated value of all inventories includes purchase, shipping and freight, and quality control testing. A regular review is undertaken to determine the extent of any provision for obsolescence.
Revenue recognition
Revenues are recognized when the risks and rewards of ownership have passed to the customer based on the terms of the sale, collection of the relevant receivable is probable, evidence of an arrangement exists and the sales price is fixed or determinable. Risks and rewards of ownership pass to the customer upon successful completion of shipment of pharmaceuticals. Provisions for sales discounts and returns are made on a per sale basis based on contractual and historical information.
Share-based payments
The Company operates an incentive share purchase option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes option pricing model, which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.
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Significant estimates and judgments
Significant estimates used in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:
Inventory valuation
The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by regulatory changes or other market-driven changes that may reduce future selling prices. In determining net realizable value, the Company considers such factors as turnover, historical experience, expiry dates and shelf life of the products. A change to these assumptions could impact the Company’s inventory valuation and gross margin. The Company attempts to sell products with short shelf life with significant rebates. Any unsold products with short shelf life and expired products are written-off.
Revenue recognition
Revenues are recognized when the risks and rewards of ownership have passed to the customer based on the terms of the sale, collection of the relevant receivable is probable, evidence of an arrangement exists and the sales price is fixed or determinable. Risks and rewards of ownership pass to the customer upon successful completion of shipment of pharmaceuticals. Provisions for sales discounts, incentives, and rebates and returns are made based upon historical experiences.
Useful lives of depreciable assets
The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utilization of certain equipment.
Intellectual property
The recoverability of the carrying value of the intellectual property is dependent on successful development and commercial stage to the point where revenue is possible. The carrying value of these assets is reviewed by management when events or circumstances indicate that its carrying value may not be recovered. If impairment is determined to exist, an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount.
Share-based payments
The Company grants share-based awards to certain directors, officers, employees, consultants and other eligible persons. For equity-settled awards, the fair value is charged to the statement of operations and comprehensive loss and credited to the reserves over the vesting period using the graded vesting method, after adjusting for the estimated number of awards that are expected to vest.
The fair value of equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. For equity-settled awards to non-employees, the fair value is measured at each vesting date. The estimate of warrant and option valuation also requires determining the most appropriate inputs to the valuation model, including the volatility, expected life of warrants and options, risk free interest rate and dividend yield. Changes in these assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable measure of the fair value of the Company’s options and warrants issued. Management must also make significant judgments or assessments as to how financial assets and liabilities are categorized.
Income taxes
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. The determination of income tax expense and deferred tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals of deferred tax assets and liabilities, and interpretations of laws in the countries in which the Company operates. The Company is subject to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final amount of deferred taxes or the timing of tax payments.
24
Table of contents
Changes in Significant Accounting Policies
There were no changes in the Accounting Policies during the fiscal year ended December 31, 2017.
Accounting standards issued, but not yet in effective
The following is an overview of accounting standard changes that the Company will be required to adopt in future years.
IFRS 9 Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9 introduces new requirements for the classification and measurements of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities and amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. It also includes a new general hedge accounting standard which aligns hedge accounting ore closely with risk management. IFRS 9 is effective for reporting periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Management anticipates that this standard will be adopted in the Company’s consolidated financial statements for the period beginning January 1, 2018 and will have an insignificant effect on its consolidated financial statements other than increased note disclosure.
IFRS 15 Revenue from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the goods or services. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. IFRS 15 is effective for reporting periods beginning on or after January 1, 2018. Management anticipates that this standard will be adopted in the Company’s consolidated financial statements for the period beginning January 1, 2018 and will have an insignificant effect on its consolidated financial statements.
IFRS 16 Leases
On January 13, 2016, the International Accounting Standards Board published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for reporting periods beginning on or after January 1, 2019. The Company is in the process of assessing the impact of this pronouncement. The extent of the impact has not yet been determined.
Other new standards or amendments are either not applicable or not expected to have a significant impact on the Company’s consolidated financial statements.
5.C. Research and development, patents and licenses etc.
The Company won’t be devoting resources to research, development and patents going forward. The Company is now focused on the manufacture and distribution of generic and over-the-counter (“OTC”) pharmaceuticals.
5.D. Trend information
There are significant market swings away from branded pharmaceuticals towards low cost generics. The Company will attempt to integrate itself into this shift.
25
Table of contents
5.E. Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements.
5.F. Tabular disclosure of contractual obligations
The Company has entered into contracts for leased premises, which expire in 2018. In September 2017, the Company extended the lease. Total future minimum lease payments under these contracts are as follows:
|
|
|
|
December 31, 2017
|
|
|
$
|
|
Within 1 year
|
38,447
|
|
2 years
|
83,560
|
|
|
122,007
|
5.G. Safe Harbor
This Annual Report on Form 20-F/A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, principally in ITEM #4, “Information on the Company” and ITEM #5, “Operating and Financial Review and Prospects”. These statements may be identified by the use of words like “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends. In particular, these include statements about the Company’s strategy for growth, future performance or results of current sales and production, interest rates, foreign exchange rates, and the outcome of contingencies, such as acquisitions and/or legal proceedings and intellectual property issues.
Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, among other things, the factors discussed in this Annual Report under ITEM #3, “Key Information, Risk Factors” and factors described in documents that the Company may furnish from time to time to the Securities and Exchange Commission. The Company undertakes no obligation to update publicly or revise any forward-looking statements because of new information.
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Table of contents
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth certain information as of December 31, 2017 and as of the date of this report about the Company’s current directors and senior management. There have been no subsequent changes to the Company’s current directors and senior management, except as footnoted below:
Table No. 6
:
Directors and Senior Management:
|
|
|
|
|
|
Name
|
Age
|
Position
|
Other Reporting Companies in Canada
or the United States
|
|
Company
|
Position
|
|
Sukhwinder (Bob) Rai
|
48
|
CEO, Director
|
Venturi Ventures Inc.
Emerald Health Therapeutics Inc.
|
Director
Director
|
|
Dong Shim
(1)
|
34
|
CFO
|
ePlay Digital Inc.
Mission Ready Services Inc.
Canamex Gold Corp.
Arizona Silver Exploration Inc.
Alset Minerals Inc.
Tabu Equity Investments Inc.
Body and Mind Inc.
|
CFO
CFO
CFO
CFO
CFO
CFO
Director
|
|
Mark Kunzli
|
35
|
Executive Vice President
|
N/A
|
N/A
|
|
Leanne Ratzlaff
(2)
|
41
|
Corporate Secretary
|
N/A
|
N/A
|
|
David Hall
|
64
|
Director
|
RepliCel Life Sciences Inc.
|
Director
|
|
Alan Arnstein
|
50
|
Director
|
N/A
|
N/A
|
|
Sherif Guorgui
|
42
|
Director
|
N/A
|
N/A
|
|
Robert Sindelar
(3)
|
65
|
Director
|
N/A
|
N/A
|
(1)
Appointed on February 5, 2018
(2)
Appointed on April 11, 2018
(3)
Appointed on March 27, 2018
Mr. Bob Rai, CEO and Director
is a registered and practicing pharmacist and a professional member of the College of Pharmacists of British Columbia, with over fifteen years of pharmaceuticals and pharmacy management experience. In addition to operating a chain of The Medicine Shoppe Pharmacies in Greater Vancouver for the past 15 years, he has had several successful entrepreneurial and charitable endeavors. In 1998 Mr. Rai and his partners pioneered and revolutionized the online pharmacy business to the United States. The online sales and distribution of prescription medicines saw unprecedented industry growth and as other operators followed suit, the unique business concept became a billion dollar industry across Canada. Mr. Rai is also Chairman and CEO of Canada Pacific Global Pharmaceuticals and Chairman of its subsidiary, PharmaCanada Inc. (www.earlycancerdetect.com). He has served as President of the Philippines Canada Trade Council (PCTC) from 2006-2007 and held the position of Vice-President from 2004-2006. As President of PCTC, he led a successful Trade Mission to Manila with endorsements from His Excellency Canadian Prime Minister Stephen Harper, Honorable Premier Gordon Campbell of British Columbia and Minister of International Trade and Industry of Canada David Emerson.
In 2013 Mr. Rai was the recipient of the Queen’s Diamond Jubilee Medal for his over 18 years of community and volunteer work. His charitable and community volunteer activities include: Alumni UBC Advisory Council representing the Faculty of Pharmaceutical Science, Director of Tapestry Foundation for Health Care, Rotary Club of Vancouver Fraserview and cabinet member of “A Night of Miracles” for BC Children’s Hospital.
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Table of contents
Mr. Dong Shim, CFO
is a member of the Chartered Professional Accountants of British Columbia and has served as an audit partner on numerous audit engagements with a mid-size firm located in Vancouver, British Columbia, where he audited various publicly traded companies, primarily focusing on junior mining, oil and gas, pharmaceutical, and high-tech industries.
Mr. Mark Kunzli, Executive Vice President
is a double alumnus of the University of British Columbia with a Bachelor of Science in Pharmacy and an Executive MBA in Health Care from the Sauder School of Business. During his MBA, Mr. Kunzli studied how pharmacists could use DNA to select medications more accurately. This culminated in his role as Co-Investigator and Project Manager for the “Genomics for Precision Drug Therapy in Community Pharmacy” research project, in which community pharmacists throughout BC collected patient saliva samples for pharmacogenomic analysis. The project received national recognition and placed pharmacists at the forefront of this emerging field.
A recipient of the 2016 Canadian Foundation for Pharmacy Wellspring Leadership Award, Mr. Kunzli is co-creator of Innovation to Application, an annual event showcasing innovative healthcare designed to bridge the gap between research and practice. Mr. Kunzli was also recognized with the 2017 Murray Dykeman Mentorship Award from the BC Pharmacy Association for his mentorship with the Sauder School of Business’ Aboriginal Management Program, as a graduate member of the Kappa Psi pharmaceutical fraternity, and many other activities he pursues as a UBC alumnus. Mr. Kunzli is co-author of a forthcoming publication in CMAJ Open which observed rural healthcare and found a new generation of practitioners that are working hard, but differently, and how the healthcare system as a whole needs to adapt in order to thrive.
Ms. Leanne Ratzlaff, Corporate Secretary
has over 5 years of experience working as a Corporate Secretary for publicly-traded companies. This includes the management of corporate and securities compliance and corporate records management. She was previously a Corporate Secretary and compliance professional providing corporate secretarial, board administration and securities compliance services for a number of private and publicly traded companies in various industries. She is a member of the Governance Professionals of Canada and is a member of the British Columbia Paralegal Association. Leanne has completed the Public Companies and Corporate Governance course at Simon Fraser University and will also be graduating with a Paralegal Diploma in the summer of 2018.
Mr. David Hall, Director
is currently Chairman of RepliCel Life Sciences (“RepliCel”) and a consultant to the life sciences industry. Mr. Hall served as CEO and President of RepliCel from 2012 through 2015. He has been instrumental in diversifying RepliCel’s cell therapy programs from a single program focused on pattern baldness to three current clinical programs addressing chronic tendinosis and aging, sun damaged skin and pattern baldness as well as the development of a new dermal injector device for the delivery of cells, drugs, biologics and dermal fillers. Prior to RepliCel, Mr. Hall acted as a consultant to the government, pharma industry, biotech, eHealth and NGO’s for two years. For the prior 15 years, Mr. Hall was a business founder, CFO, CCO, Treasurer and Secretary of Angiotech Pharmaceuticals Inc. Mr. Hall is a Past Chair and board member of Life Sciences BC and current Chairman of Providence Health Care Research Institute. He is the author of Life Sciences BC’s position papers for the Premier’s Competition Council Report and Conversation on Health. Mr. Hall was also a member of the BC Task Force on PharmaCare and serves on the board of directors of the Advantage BC. Mr. Hall holds an Honours degree in Economics and an Honours degree in Finance from the University of Manitoba.
Mr. Alan Arnstein, Director
previously worked for the Katz Group Canada where he oversaw the development of the Medicine Shoppe from 28 stores to 175 stores (corporate and franchised) before the successful sale to McKesson Canada. Mr. Arnstein also was very involved in expanding the Rexall pharmacy brand across Canada including responsibility for acquiring and consolidating independent pharmacies under the Rexall banner. Mr. Arnstein has played and continues to play an active role in real estate projects including the leasing of the Ice District next to Rogers Place in downtown Edmonton, an estimated $5.5B project.
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Table of contents
Mr. Sherif Guorgui, Director
is a third-generation pharmacist with extensive experience in various pharmacy sectors; such as retail, specialty, regulatory, industry, government and professional affairs. Mr. Guorgui is recognized as an individual who has played a significant role in promoting the value of pharmacists and pharmacy technicians in healthcare, and advocating for the pharmacy profession at community, provincial and international levels.
Mr. Guorgui earned his pharmacy degree from the University of Cairo in 1998. After completing the University of Toronto’s International Pharmacy Graduates program, Mr. Guorgui has worked as a community pharmacist, managed and operated his own independent pharmacy, and been a franchise/Associate owner with Shoppers Drug Mart. Mr. Guorgui moved into corporate roles at Shoppers Drug Mart and Rexall/PharmaPlus before joining the Ontario Pharmacists Association (“OPA”) as Vice President of Pharmacy. In 2016, Mr. Guorgui joined United Pharma Group as CEO. United Pharma Group is the fastest growing network of independent pharmacy owners in Canada now numbering over 90 members.
Mr. Guorgui has also served as President of the Ontario College of Pharmacists in 2011-2012. In this role, he focused on promoting the adoption of the expanded scope of practice among pharmacists and initiated accordingly various outreach programs aimed at fostering and encouraging ongoing communication with members of the College.
Mr. Guorgui is a board member of the Canadian Foundation for Pharmacy, the Ontario Pharmacists Association and the Neighbourhood Pharmacy Association of Canada. He is an advisory board member of the Humber College Pharmacy Technician Program, and is a mentor at the University of Toronto Career Centre Information Interview program.
Mr. Robert Sindelar, Director
is a Professor in the Faculty of Pharmaceutical Sciences at the University of British Columbia (UBC) and an Advisor, External Relations to the Centre for Health Evaluation & Outcomes Sciences, Providence Health Care Research Institute and UBC. Dr. Sindelar is also an elected fellow International Pharmaceutical Federation, Chair of the Global Pharmacy Observatory Advisory Board of the International Pharmaceutical Federation, part-time President, Global Drug Commercialization Centre (GDCC), Chengdu, China and part time VP, GDCC Worldwide, and Member of the External Advisory Board, Trinity College Dublin, School of Pharmacy and Pharmaceutical Sciences.
Dr. Sindelar is also a past Dean of the Faculty of Pharmaceutical Sciences, UBC, President Providence Health Care Research Institute and VP Research and Academic Affairs, Providence Health Care.
Dr. Sindelar earned a B.A., Chemistry from Millikin University, a M.S. and Ph.D. in Medicinal Chemistry and Natural Products from the University of Iowa, College of Pharmacy.
The Directors have served in their respective capacities since their election and/or appointment and will serve until the next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles of the Company.
No Director and/or member of senior management had been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a Director and/or member of senior management, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct/practice/employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.
There are no family relationships between any two or more Directors or members of senior management.
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a Director or member of senior management.
29
Table of contents
6.B. Compensation
Cash Compensation
Total compensation accrued and/or paid (directly and/or indirectly) to all Directors/Senior Management during the year ended December 31, 2017 and previous years are detailed in Table No. 7 below:
Table No. 7
Annual Compensation of Senior Management
|
|
|
|
|
|
|
|
|
|
Annual Compensation
|
Long Term Compensation
|
|
|
|
|
|
|
Awards
|
|
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual
Compen-
sation ($)
|
Securities Under
Option/
SAR's Granted
(#)
|
FMV
(4)
Options
($)
|
|
Sukhwinder (Bob) Rai
Chief Executive Officer
|
2017
|
132,613
|
Nil
|
Nil
|
850,000
|
148,125
|
|
|
|
|
|
|
|
|
|
Dong Shim
Chief Financial Officer
|
2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
|
|
|
|
Mark Kunzli
Executive Vice President
|
2017
|
36,735
|
Nil
|
Nil
|
150,000
|
26,829
|
|
|
|
|
|
|
|
|
|
Leanne Ratzlaff
Corporate Secretary
|
2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
|
|
|
|
Rajshkumar Padhiyar
Former Chief Financial Officer
|
2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
|
|
|
|
Eugene Beukman
Former Chief Financial Officer, Former Secretary
(1)
|
2017
2016
(2)
2015
(2)
2015
(3)
|
Nil
Nil
Nil
Nil
|
Nil
Nil
Nil
Nil
|
36,010
40,950
18,000
26,380
|
Nil
Nil
25,000
100,000
|
Nil
Nil
42,890
73,200
|
|
|
|
|
|
|
|
|
|
Arun Nayyar
Former Chief Executive
Officer
(1)
|
2017
2016
(3)
2015
(4)
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
24,000
198,100
100,000
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
(1)
Consulting/management fees were paid to a consulting company owned by senior management;
(2)
Six months period (stub year) ended December 31, 2015;
(3)
Year ended June 30;
(4)
Share-based payments for options granted were measured using the Black-Sholes option pricing model.
30
Table of contents
Table No. 8
Director Stock Option at December 31, 2017
|
|
|
|
|
|
|
|
Grant date
|
FMV
(1)
- $
|
Issued
|
Vested
|
Expiry Date
|
|
Bob Rai, CEO, Director
|
Dec 6, 2017
Jan 27, 2017
|
142,159
92,857
|
550,000 @ $0.35
300,000 @ $0.22
|
137,500
300,000
|
Dec 6, 2022
Jan 20, 2019
|
|
Alan Arnstein, Director
|
Dec 6, 2017
Jul 20, 2017
|
6,462
23,018
|
25,000 @ $0.35
150,000 @ $0.15
|
6,250
150,000
|
Dec 6, 2022
Jul 20, 2022
|
|
Sherif Gourgui, Director
|
Dec 6, 2017
Aug 15, 2017
|
6,462
27,222
|
25,000 @ $0.35
150,000 @ $0.15
|
6,250
150,000
|
Dec 6, 2022
Aug 15, 2022
|
|
John Papastergiou, Former Director
|
Dec 6, 2017
Nov 15, 2017
|
6,462
18,636
|
25,000 @ $0.35
150,000 @ $0.15
|
6,250
150,000
|
Dec 6, 2022
Nov 15, 2022
|
|
David Hall, Director
|
Dec 6, 2017
|
155,082
|
600,000 @ $0.35
|
150,000
|
Dec 6, 2022
|
(1)
Share-based payments for options granted were measured using the Black-Sholes option pricing model.
The following table gives certain information concerning stock option exercises during Fiscal 2017 by the Company’s Senior Management and Directors. It also gives information concerning stock option values.
Table No. 9
Aggregated Stock Options Exercises in the year ended December 31, 2017
Fiscal Year-end Unexercised Stock Options
Fiscal Year-end Stock Option Values
Senior Management/Directors
|
|
|
|
|
Name
|
Number of Shares Acquired on Exercise
|
Aggregate Value Realized
|
Value of Unexercised In-the-Money Options at Fiscal Year-End Exercisable/Un-exercisable
|
|
Total
|
0
|
$0
|
$0
|
Director Compensation
: The Company has no formal plan for compensating its Directors for their service in their capacity as Directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. The Board of Directors may award special remuneration to any Director undertaking any special services on behalf of the Company other than services ordinarily required of a Director. Other than indicated below no Director received any compensation for his services as a Director, including committee participation and/or special assignments.
Stock Options
: The Company may grant stock options to Directors, Senior Management and employees. Refer to ITEM #6.E., "Share Ownership" and Table No. 8 for information about stock option grants.
Other Compensation:
No Senior Manager or Director received “other compensation” in excess of the lesser of US$25,000 or 10% of such officer's cash compensation, and all Senior Managers or Directors as a group did not receive other compensation which exceeded US$25,000 times the number of persons in the group or 10% of the compensation.
Bonus/Profit Sharing/Non-Cash Compensation:
Except for the stock option program discussed in ITEM #6.E., the Company had no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company's Directors or Senior Management.
Pension/Retirement Benefits:
No funds were set aside or accrued by the Company during the year ended December 31, 2016 to provide pension, retirement or similar benefits for Directors or Senior Management.
6.C. Board Practices
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Table of contents
6.C.1. Terms of Office.
At every Annual General Meeting of the Company, the Directors are elected by the shareholders and serve as Directors until the next Annual General Meeting is held.
6.C.2. Directors’ Service Contracts.
The Company retains its Officers as independent consultants. The Company will not be required to make contributions for employment insurance, Canada Pension, workers’ compensation or other similar levies in respect of the fee for services to be paid to the Officers. Each Officer agrees to pay all required contributions and deductions for income taxes, workers’ compensation and employment insurance and shall indemnify and save the Company harmless from and against all claims, actions, losses, expenses, costs or damages which the Company or its officers, employees or agents may suffer as a result of the Officer’s non-compliance with this requirement.
The Officer agrees to provide sufficient time and attention to the business and affairs of the Company, to advise and counsel the Board of Directors of the Company and to channel to the Company all knowledge, business and customer contacts and any other information that could concern or be in any way beneficial to the Company. All information communicated to the Company will be the property of the Company.
The Officers acknowledge that each is a “person in a special relationship”, as that expression is defined in the securities laws of various provinces of Canada, and may receive material information concerning the business and affairs of the Company that has not been generally disclosed, and covenant and agree that they will not purchase or sell any securities of the Company until such information has been generally disclosed.
The Company is aware that the Officers may provide services to certain other companies from time to time as disclosed above. The Officers agree that they will not provide services to any other companies without the written approval of the Company.
The Company will pay a consulting fee in the amount of (Cdn) $5,000.00 per month to Dong Shim for CFO consulting services. The fees payable will be reviewed annually, and may be adjusted by the Company in consultation with the Officers to reflect general economic conditions, changes in the duties provided under this Agreement or performance by the Officers.
The fees payable will be reviewed annually, and may be adjusted by the Company in consultation with the Officers to reflect general economic conditions, changes in the duties provided under this Agreement or performance by the Officers. The Officers are entitled to participate in the Company’s incentive stock option plan (Exhibit 4.m)
.
The Company will reimburse the Officers for all reasonable travelling and other out-of-pocket expenses incurred in connection with services provided to the Company. The Officers will be entitled to participate in any benefit programs established by the Company. To date, no such plans are in place.
Inventions of any type made by the Officers become the sole property of the Company which will hold all intellectual property rights for such inventions. If the Company chooses to patent, copyright, trademark or otherwise protect the inventions, the Officers will assign their rights to the Company. The Officers will treat all information of the company as confidential except any information that is presently in the public domain, any information that subsequently becomes part of the public domain, any information obtained by the Officers from a third party with a valid right to disclose it or any information that was independently developed by the Officers or was in their possession prior to receipt from the Company.
The Officers agree that they shall not engage in any activity that is contrary to or detracts from the performance of the business of the Company, will not receive any personal benefit from any party having business with the Company without the approval of the Board of Directors of the Company and, during the term of the agreement and for a period of one year afterwards, will not compete with the Company or solicit customers or employees of the Company.
32
Table of contents
The Officers may terminate their respective agreements with the Company by giving thirty (30) days written notice to the Company. The Company may waive such notice and, if it does so, such agreements will cease on the date the Company waives such notice.
The Company may terminate the agreements without notice or payment in lieu of notice for breach of the agreement.
The Company may terminate any agreement at its sole discretion and for any reason upon giving the Officer written notice of termination provided that the Company pays, in lieu of notice, twelve (12) months fee severance.
The Company may terminate any agreement without notice or payment in lieu of notice upon a change of control of the holding company of the Officer or the death or permanent disability of the Officer.
Upon termination of an agreement, the Officer will promptly return all property. Each agreement may be subject to the acceptance by TSX Venture Exchange and a refusal to do so shall not constitute a default of the Company.
6.C.3. Board of Director Committees.
The Company has an Audit Committee, which is governed by an Audit Committee Charter (filed as Exhibit 11 with the amended 2007 Form 20-F filed on December 3, 2008) and recommends to the Board of Directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Company’s audits, the Company’s internal accounting controls, and the professional services furnished by the independent auditors to the Company. The current members of the Audit Committee are: David Hall (Chairman), Sherif Gourgui (Director) and Alan Arnstein (Director). The
Audit Committee met four times during the year ended December 31, 2017 to discuss and approve the Company’s audited and quarterly financial statements. The Audit Committee also met subsequent to the Company’s last Annual General Meeting of shareholders.
6.D. Employees
On December 31, 2017, the Company employed 9 employees, 5 Sales Representatives, 2 Regulatory Affairs, 1 Executive Vice President and 1 Chief Executive Officer.
6.E. Share Ownership
Table No. 10 lists, as of the date of this report, Directors and Senior Management who beneficially own the Company's voting securities, consisting solely of common shares, and the amount of the Company's voting securities owned by the Directors and Senior Management as a group.
Table No. 10
Shareholdings of Directors and Senior Management
|
|
|
|
|
|
Title of Class
|
Name of Beneficial Owner
|
Number of Shares
|
Options and
Warrants exercisable in 60 days from December 31, 2017
|
Percent of
Class *
|
|
Common
|
Bob Rai, CEO
|
333,334
|
333,334 warrants
437,500 options
|
3.40%
|
|
Common
|
Dong Shim, CFO
|
-
|
150,000 options
|
0.47%
|
|
Common
|
Mark Kunzli, Executive Vice President
|
-
|
43,500 options
|
0.14%
|
|
Common
|
Alan Arnstein, Director
|
-
|
156,250 options
|
0.49%
|
|
Common
|
Sherif Guorgui, Director
|
-
|
156,250 options
|
0.49%
|
|
Common
|
David Hall, Director
|
333,333
|
333,333 warrants
150,000 options
|
2.54%
|
|
|
Total Directors/Management
|
666,667
|
666,667 warrants
1,093,500 options
|
7.25%
|
* Based on
31,716,123 shares outstanding
Stock Options:
The terms of incentive options grantable by the Company are done in accordance with the rules and policies of the TSX Venture Exchange and the British Columbia Securities Commission, including the number of common shares under option, the exercise price and expiry date of such options and any amendments thereto. The Company adopted a formal written stock option plan (the "Plan") on December 13, 2005. (A copy of the Company’s
33
Table of contents
Stock Option Plan was filed with the 2005 Form 20-F as Exhibit 4.e.) At every Annual General Meeting of the Company, the Plan is presented to and voted on by the shareholders of the Company. If approved, the terms and conditions of the Plan remain in force for the subsequent year. The Stock Option Plan was amended and passed by a majority of shareholders at the Annual General Meeting held on September 15, 2017. A copy of the amended Stock Option Plan is provided as Exhibit 4.m. It will remain in effect until the next Annual General Meeting of Shareholders.
Such “terms and conditions”, including the pricing of the options, expiry and the eligibility of personnel for such stock options, are described below. The terms of the original Stock Option Plan and the major changes in the Stock Option Plan as amended in 2017 (“the 2017 Plan”) are described below and provided as Exhibit 4.m.
The principal purposes of the Company’s stock option program are to (a) assist the Company in attracting, retaining, and motivating directors, officers and employees of the Company and, (b) to closely align the personal interests of such directors, officers and employees with the interests of the Company and its shareholders.
The Plan provides that stock options may be granted to service providers for the Company. The term “service providers” means:
(a)
Any full or part-time employee or Officer, or insider of the Company or any of its subsidiaries;
(b)
Any other person employed by a company or individual providing management services to the Company;
(c)
Any other person or company engaged to provide ongoing consulting services for the Company or any entity controlled by the Company or
(d)
Any individual engaged to provide services that promote the purchase or sale of the issued securities (any person in (a), (b), (c) or (d) hereinafter referred to as an “Eligible Person”); and
(e)
Any registered retirement savings plan established by such Eligible Person, or any corporation controlled by such Eligible Person, the issued and outstanding voting shares of which are, and will continue to be, beneficially owned, directly or indirectly, by such Eligible Person and/or spouse, children and/or grandchildren of such Eligible Person.
For stock options to Employees, Consultants or Management Company Employees, the Company must represent that the optionee is a bona fide Employee, Consultant or Management Company Employee as the case may be. The terms “insider” “Controlled” and “subsidiary” shall have the meanings ascribed thereto in the Securities Act (Ontario) from time to time. Subject to the foregoing, the board of directors or Committee, as applicable, shall have full and final authority to determine the persons who are to be granted options under the Plan and the number of shares subject to each option.
The Plan shall be administered by the Board of Directors of the Company or a committee established by the Board of Directors for that purpose. Subject to approval of the granting of options by the Board of Directors or Committee, as applicable, the Company shall grant options under the Plan.
The Plan provides that the aggregate number of shares of the Company, which may be issued and sold under the Plan, will not exceed 10% of the issued shares of the Company. The Company shall not, upon the exercise of any option, be required to issue or deliver any shares prior to (a) the admission of such shares to listing on any stock exchange on which the Company’s shares may them be listed, and (b) the completion of such registration or other qualification of such shares under any law, rules or regulation as the Company shall determine to be necessary or advisable. If any shares cannot be issued to any optionee for whatever reason, the obligation of the Company to issue such shares shall terminate and any option exercise price paid to the Company shall be returned to the optionee.
If a stock option expires or otherwise terminates for any reason without having been exercised in full, the number of common shares reserved for issuance under that expired or terminated stock option shall again be available for the purposes of the Plan. Any stock option outstanding when the Plan is terminated will remain in effect until it is exercised or it expires. The Plan provides that it is solely within the discretion of the Board to determine who should receive stock options and in what amounts, subject to the following conditions:
(a)
Options will be non-assignable and non-transferable except that they will be exercisable by the personal representative of the option holder in the event of the option holder’s death;
(b)
Under the revised 2017 Plan, options may be exercisable for a maximum of ten years from grant date;
34
Table of contents
(c)
Under the revised 2017 Plan, options to acquire more than 5% of the issued shares of the Company may be granted to any one individual in any 12-month period the approval of the disinterested shareholders of the Company;
(d)
Options to acquire no more than 2% of the issued shares of the Company may be granted to any one consultant in any 12-month period;
(e)
Options to acquire no more than an aggregate of 2% of the issued shares of the Company may be granted to an employee conducting investor relations activities (as defined in TSX Venture Exchange Policy 1.1), in any 12 month period;
(f)
Options to acquire no more than 10% of the issued shares of the Company may be granted to any insiders in any 12-month period;
(g)
Under the revised 2017 Plan, options held by an option holder who is a director, employee, consultant or management company employee are no longer required to expire within 90 days after the option holder ceases to be a director, employee, consultant or management company employee;
(h)
Under the revised 2017 Plan, options held by an option holder who is engaged in investor relations activities are no longer required expire within 30 days after the option holder ceases to be employed by the Company to provide investor relations activities; and
(i)
In the event of an option holder’s death, the option holder’s personal representative may exercise any portion of the option holder’s vested outstanding options for a period of one year following the option holder’s death.
The Plan provides that other terms and conditions may be attached to a particular stock option, such terms and conditions to be referred to in a schedule attached to the option certificate. Stock options granted to directors, senior officers, employees or consultants will vest when granted unless otherwise determined by the Board of Directors on a case by case basis, other than stock options granted to consultants performing investor relations activities, which will vest in stages over 12 months with no more than one-fourth of the options vesting in any three month period.
The price at which an option holder may purchase a common share upon the exercise of a stock option will be as set forth in the option certificate issued in respect of such option and in any event will not be less than the discounted market price of the Company’s common shares as of the date of the grant of the stock option (the “Award Date”). The market price of the Company’s common shares for a particular Award Date will typically be the closing trading price of the Company’s common shares on the day immediately preceding the Award Date, or otherwise in accordance with the terms of the Plan. Where there is no such closing price or trade on the prior trading day “market price” shall mean the average of the most recent bid and ask of the shares of the Company on any stock exchange on which the shares are listed or dealing network on which the shares of the Company trade.
In no case will a stock option be exercisable at a price less than the minimum prescribed by each of the organized trading facilities or the applicable regulatory authorities that would apply to the award of the stock option in question.
Common shares will not be issued pursuant to stock options granted under the Plan until they have been fully paid for by the option holder. The Company will not provide financial assistance or loans to option holders to assist them in exercising their stock options.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
As of December 31, 2017, all shareholders have the same voting rights attached thereto as all other common shares of the Company except that, under the terms of the Voting Agreement attached as Exhibit 3 to the amended 2007 Form 20-F filed on December 3, 2008. As of December 31, 2017, three (3) shareholders held more than 5% of the Issued and Outstanding Common Shares.
7.A.1.a. Holdings By Major Shareholders.
Refer to ITEM #6.E and Table No. 10.
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Table of contents
7.A.1.b. Significant Changes in Major Shareholders’ Holdings.
---No Disclosure Required---
7.A.1.c. Different Voting Rights.
The Company’s major shareholders do not have different voting rights except as described in the Voting Agreement (Exhibit 3 filed with the amended 2007 Form 20-F on December 3, 2008).
7.A.2. Canadian Share Ownership.
On December 31, 2017, the Company’s shareholders’ list showed 27,860,623 common shares outstanding, an estimated 60 registered shareholders. The Company’s transfer agent provides that there are 54 registered shareholders with Canadian addresses.
7.A.3. Control of the Company
The Company is a publicly owned Canadian corporation, the shares of which are owned primarily by Canadian residents and other foreign residents. The Company is not controlled by any foreign government or other person(s) except as described in ITEM #4.A., “History and Development of the Company”, and ITEM #6.E., “Share Ownership”.
7.A.4. Change of Control of Company Arrangements
---No Disclosure Necessary---
7.B. Related Party Transactions
Related party transactions are described in Note 15 to the consolidated financial statements and are shown below. The remuneration of the Company’s directors and other members of key management, being the Chief Executive Officer and Chief Financial Officer, who have the authority and responsibility for planning, directing and controlling the activities of the Company, consist of the following:
|
|
|
|
|
|
|
Year Ended
|
Year Ended
|
Six Months Ended
|
Year Ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31, 2015
|
June 30,
2015
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
Accounts payable and accrued liabilities
|
13,152
|
3,275
|
699
|
|
|
|
|
|
|
|
|
Expenditures:
|
|
|
|
|
|
Management and consulting fees
|
60,010
|
242,667
|
154,356
|
149,667
|
|
Salaries and benefits
|
132,613
|
-
|
-
|
-
|
|
Share-based compensation
|
280,864
|
-
|
261,196
|
-
|
|
Rent
|
-
|
-
|
-
|
4,500
|
Management and consulting fees are paid to Mr. Sukhwinder (Bob) Rai, the Chief Executive Officer for the month of January 2017, Mr. Arun Nayyar, the former Chief Executive Officer and Mr. Eugene Beukman, former Chief Financial Officer and Corporate Secretary.
Salaries and benefits are paid to Mr. Sukhwinder (Bob) Rai, the Chief Executive Officer.
Share-based compensation relates to 1,975,000 stock options granted to management and directors of the Company during the year ended December 31, 2017.
Rent expenses consist of fees paid to the former CEO.
All related party transactions were in the normal course of business operations.
Accounting Fees
For the annual statements dated December 31, 2017, the Company paid Davidson & Company LLP accounting fees of $35,000.
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Table of contents
Indirect Payments
---No Disclosure Required---
Shareholder Loans
---No Disclosure Required---
Amounts Owing to Senior Management/Directors
--No Disclosure Required--
7.C. Interests of Experts and Counsel
---No Disclosure Required---
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
The consolidated financial statements of the Company comply with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
Basis of preparation
The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in Canadian dollars unless otherwise noted.
Significant estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires the Company’s management to make estimates, judgments and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. The Company’s management reviews these estimates and underlying judgments on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the year in which the estimates are revised.
8.A.7. Legal/Arbitration Proceedings
There are no legal proceedings against the Company.
8.B. Significant Changes
The Company is now focused on the manufacture and distribution of generic and over-the-counter (“OTC”) pharmaceuticals.
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Table of contents
ITEM 9. THE OFFER AND LISTING
9.A. Common Share Trading Information
The Company's common shares trade on the TSX Venture Exchange in Toronto, Ontario, Canada, under the symbol "VANC". The Company also trades on the OTCQB under the symbol “NUVPF”.
Table No. 11 lists the high, low and closing sales prices on the TSX Venture Exchange for the last five months, last seven fiscal quarters, and last five fiscal years.
Table No. 11
TSX Venture Exchange
Common Shares Trading Activity
Canadian Dollars
|
|
|
|
|
|
High
|
Low
|
Closing
|
|
Month ended March 31, 2018
|
0.350
|
0.175
|
0.175
|
|
Month ended February 29, 2018
|
0.400
|
0.270
|
0.315
|
|
Month ended January 31, 2018
|
0.750
|
0.320
|
0.390
|
|
Month ended December 31, 2017
|
0.415
|
0.220
|
0.320
|
|
Month ended November 30, 2017
|
0.350
|
0.120
|
0.245
|
|
|
|
|
|
|
Fiscal Quarter Ended December 31, 2017
|
0.415
|
0.120
|
0.320
|
|
Fiscal Quarter Ended September 30, 2017
|
0.220
|
0.140
|
0.195
|
|
Fiscal Quarter Ended June 30, 2017
|
0.265
|
0.175
|
0.195
|
|
Fiscal Quarter Ended March 31, 2017
|
0.490
|
0.185
|
0.255
|
|
Fiscal Quarter Ended December 31, 2016
|
0.240
|
0.220
|
0.220
|
|
Fiscal Quarter Ended September 30, 2016
|
0.330
|
0.280
|
0.260
|
|
Fiscal Quarter Ended June 30, 2016
|
0.560
|
0.400
|
0.380
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2017
|
0.490
|
0.120
|
0.320
|
|
Fiscal Year Ended December 31, 2016
|
0.231
|
0.214
|
0.220
|
|
Stub year Ended December 31, 2015
|
0.485
|
0.250
|
0.470
|
|
Fiscal Year Ended June 30, 2015
|
0.940
|
0.070
|
0.440
|
|
Fiscal Year Ended June 30, 2014
|
0.230
|
0.060
|
0.140
|
|
Fiscal Year Ended June 30, 2013
|
n/a
|
n/a
|
0.080
|
|
|
|
|
|
9.A.5. Common Share Description
Registrar/Common Shares Outstanding/Shareholders
Effective August 19, 2005, the authorized share capital of the Company was increased to an unlimited number of common shares without par value due to changes in the British Columbia Company Act which permitted this action.
There are no Indentures or Agreements limiting the payment of dividends and there are no conversion rights, special liquidation rights, pre-emptive rights or subscription rights.
Computershare Trust Company of Canada (located at 2nd Floor, 510 Burrard Street, Vancouver, British Columbia Canada V6C 3B9) is the registrar and transfer agent for the common shares.
38
Table of contents
Stock Options
Refer to ITEM 6.E., Table No. 10 (Aggregate Option Exercises)
Table No. 12 lists, as of December 31, 2017, share purchase warrants (options to purchase common shares) outstanding, the date the share purchase warrants were issued, the exercise price, and the expiration date of the share purchase warrants. These warrants were issued in conjunction with private placements of the Company’s securities and all holders of the Company’s warrants are resident in Canada.
Table No. 12
Share Purchase Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
Year Ended
December 31, 2016
|
Six Months Ended
December 31, 2015
|
Year Ended
June 30, 2015
|
|
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
|
Beginning balance
|
-
|
-
|
1,301,250
|
$1.24
|
1,748,136
|
$1.24
|
2,950,000
|
$1.32
|
|
Warrants issued
|
10,655,326
|
$0.20
|
-
|
-
|
-
|
-
|
1,103,063
|
$1.00
|
|
Expired/Cancelled
|
-
|
-
|
(976,250)
|
$0.50
|
(12,858)
|
$1.00
|
-
|
-
|
|
Exercised
|
(2,274,000)
|
$0.20
|
(325,000)
|
$0.52
|
(434,027)
|
$1.00
|
(2,304,928)
|
$1.24
|
|
Issued and exercisable
|
8,381,326
|
$0.20
|
-
|
-
|
1,301,250
|
$1.64
|
1,748,136
|
$1.24
|
9.A.6. Differing Rights
---No Disclosure Necessary---
9.A.7.a. Subscription Warrants/Right
---No Disclosure Necessary---
9.A.7.b. Convertible Securities/Warrants
---No Disclosure Necessary---
9.C. Stock Exchanges Identified
The common shares trade on the TSX Venture Exchange which is headquartered in Toronto, Ontario.
Refer to ITEM #9.A.4 for trading information and history. At this time, the Company is not seeking a listing on any other stock exchange.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
10.A.1. Authorized/Issued Capital.
At December 31, 2017, there were an unlimited number of common shares authorized and 27,860,623 common shares issued and outstanding.
At December 31, 2016, there were an unlimited number of common shares authorized and 15,001,297 common shares issued and outstanding.
At December 31, 2015, there were an unlimited number of common shares authorized and 14,276,297 common shares issued and outstanding.
At June 30, 2015, there were an unlimited number of common shares authorized and 13,804,770 common shares issued and outstanding.
At June 30, 2014, there were an unlimited number of common shares authorized and 9,191,768 common shares issued and outstanding.
39
Table of contents
At June 30, 2013, there were an unlimited number of common shares authorized and 5,404,268 common shares issued and outstanding.
At June 30, 2012, there were an unlimited number of common shares authorized and 1,739,920 common shares issued and outstanding. On March 08, 2012 the Company consolidated its shares on a 10 to 1 basis
At June 30, 2011, there were an unlimited number of common shares authorized and 15,999,200 common shares issued and outstanding.
At June 30, 2010, there were an unlimited number of common shares authorized and 14,680,449 common shares issued and outstanding.
At June 30, 2009, there were an unlimited number of common shares authorized and 12,835,449 common shares issued and outstanding.
At June 30, 2008, there were an unlimited number of common shares authorized and there were 12,377,949 common shares issued and outstanding.
At June 30, 2007, there were an unlimited number of common shares authorized and there were 8,048,101 common shares issued and outstanding.
At June 30, 2006, there were an unlimited number of common shares authorized and there were 5,200,101 common shares issued and outstanding.
Effective August 19, 2005, the authorized share capital of the Company was increased to an unlimited number of common shares without par value due to changes in the British Columbia Company Act which permitted this action.
As of June 30, 2005, there were 25,000,000 common shares authorized and 3,946,101 common shares issued.
As of June 30, 2004, there were 25,000,000 common shares authorized and 3,196,101 common shares issued.
As of June 30, 2003, there were 25,000,000 common shares authorized and 612,868 common shares issued.
As of June 30, 2002, there were 25,000,000 common shares authorized and 594,118 common shares issued.
As of June 30, 2001, there were 25,000,000 common shares authorized and 294,118 common shares issued.
During the last five years, less than 1% of the capital has been “paid for” with assets other than cash.
10.A.2. Shares Not Representing Capital.
---No Disclosure Necessary---
10.A.3. Shares Held By Company.
---No Disclosure Necessary---
10.A.4. Stock Options/Share Purchase Warrants
---Refer to Tables No. 8, No. 11 No. 13.---
10.A.5. Stock Options/Share Purchase Warrants
---Refer to Tables No. 8, No. 11 No. 13.---
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Table of contents
10.A.6. History of Share Capital
The Company has financed its operations through funds raised in public and private placements of common shares and warrants and from revenues from the sale of its products:
|
|
|
|
|
Fiscal Year
|
Nature of Share Issuance
|
Number of Shares
|
Amount ($)
|
|
Fiscal 2001
|
Private Placement @ $3.40
|
29,411
|
$100,000
|
|
Fiscal 2002
|
Canadian Prospectus Offering (IPO) @$6.80
|
30,000
|
$204,000
|
|
Fiscal 2003
|
Broker’s Warrant Shares on Canadian Prospectus Offering (IPO) @ $6.80
|
3,750
|
$25,500
|
|
Fiscal 2004
|
Private Placement @$6.00
|
8,666
|
$52,000
|
|
|
Private Placement @$8.00
|
155,000
|
$1,240,000
|
|
Fiscal 2005
|
Private Placement @ $4.00
|
75,000
|
$300,000
|
|
Fiscal 2006
|
Private Placement @$2.00
Private Placement @$2.00
|
97,900
27,500
|
$195,800
$55,000
|
|
Fiscal 2007
|
Private Placement @$6.00
Private Placement @$4.00
|
35,750
200,000
|
$71,500
$800,000
|
|
Fiscal 2008
|
Private placement @ $4.80
|
50,000
|
$240,000
|
|
|
Private placement @ $6.00
|
87,500
|
$525,000
|
|
Fiscal 2009
|
N/A
|
N/A
|
N/A
|
|
Fiscal 2010
|
Private placement @$10.00
|
150,000
|
$1,500,000
|
|
Fiscal 2011
|
Private placement @$4.00
Private placement @$4.00
|
81,875
50,000
|
$327,500
$200,000
|
|
Fiscal 2012
|
Private placement @$0.40
|
140,000
|
$56,000
|
|
Fiscal 2013
|
Private placement @$0.40
|
2,000,000
|
$800,000
|
|
Fiscal 2014
|
Private placement @$0.40
|
937,500
|
$375,000
|
|
Fiscal 2015
|
Private placement @$0.60
|
1,901,833
|
$1,141,000
|
|
Fiscal 2016
|
N/A
|
N/A
|
N/A
|
|
Fiscal 2017
|
Private placement @$0.15
|
10,585,326
|
$1,587,799
|
10.A.7. Resolutions/Authorizations/Approvals
---No Disclosure Necessary---
10.B. Memorandum and Articles of Association
The Company’s corporate constituting documents comprising the Notice of Articles and Articles are registered with the British Columbia Registrar of Companies under Incorporation No. BC0607937. A copy of the Articles was filed as an Exhibit 1 with the Company’s initial registration statement on Form 20-F.
The following is a summary of certain provisions of the Company's Notice of Articles and Articles and certain provisions of the British Columbia Business Corporations Act (the “BCA”), applicable to the Company:
Objects and Purposes
The Articles do not specify objects or purposes. Under both the BCA, a British Columbia corporation generally has all the legal powers of a natural person. British Columbia corporations may not undertake certain limited business activities such as operating as a trust company or railroad without alterations to its form of articles and specific government consent.
41
Table of contents
Share Capital
The authorized capital of the Company consists of an unlimited number of common shares without par value. All of the common shares must be fully paid and are not subject to any future call or assessment. All of the common shares of the Company rank equally as to voting rights, participation in a distribution of the assets of the Company on a liquidation, dissolution or winding-up of the Company and the entitlement to dividends. The holders of the common shares are entitled to receive notice of all shareholder meetings and to attend and vote at such meetings. Shareholders are not entitled to cumulative voting. Each common share carries with it the right to one vote. The common shares do not have preemptive or conversion rights. In addition, there are no sinking fund or redemption provisions applicable to the common shares or any provisions discriminating against any existing or prospective holders of such securities as a result of a shareholder owning a substantial number of shares.
Share Certificates
Under the Articles, a shareholder is entitled to a share certificate representing the number of shares of the Company held or a written acknowledgement of the shareholder’s right to obtain such a share certificate.
No Limitation on Foreign Ownership
There are no limitations under the Company’s Articles or in the BCA on the right of persons who are not citizens of Canada to hold or vote common shares.
Dividends
Dividends may be declared by the Board out of available assets and are paid ratably to holders of common shares. No dividend may be paid if the Company is, or would thereby become, insolvent.
Voting Rights
Each of the Company’s common share is entitled to one vote on matters to which common shares ordinarily vote including the annual election of directors, appointment of auditors and approval of corporate changes. There are no cumulative voting rights applicable to the Company.
Borrowing Powers
The Company, if authorized by the directors, may: (a) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; (b) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; (c) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (d)mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.
Indemnity Provisions
Under the Articles and the BCA, the Company is now permitted (and is, in some circumstances, required) to indemnify a past or present director or officer of the Company or an associated corporation without obtaining prior court approval in respect of an “eligible proceeding”. An “eligible proceeding” includes any legal proceeding relating to the activities of the individual as a director or officer of the Company. However, under the BCA, the Company will be prohibited from paying an indemnity if: (a) the party did not act honestly and in good faith with a view to the best interests of the Company; (b) the proceeding was not a civil proceeding and the party did not have reasonable grounds for believing that his or her conduct was lawful; and (c) the proceeding is brought against the party by the Company or an associated corporation.
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Directors – Number and Qualification
The Company’s Articles do not specify a maximum number of directors. The minimum under British Columbia law for a public company is three. The number of directors shall be the number of directors fixed by the directors annually or the number that are actually elected at a general shareholders meeting under the Existing Articles. The number of directors is determined, annually, by shareholders at the annual shareholders meeting and all directors are elected at that time. Under the Articles the directors are entitled between successive annual general meetings to appoint one or more additional directors but not more than one-third of the number of directors fixed at a shareholders’ or actually elected at the preceding annual shareholders’ meeting. Directors automatically retire at the commencement of each annual meeting but may be re-elected thereat.
Directors must be of the age of majority (18), and meet eligibility criteria including being mentally competent, not an un-discharged bankrupt, no fraud related convictions in the previous five years. There are residency requirements and there is no mandatory retirement age either under the Articles or under the BCA. Directors need not own any shares of the Company in order to qualify as directors.
Directors - Powers and Limitations
Directors must manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers which are not required to be exercised by the shareholders as governed by the BCA. Directors may, by resolution, create and appoint an executive committee consisting of the director or directors that they deem appropriate. This executive committee has, during the intervals between meetings of the Board, all of the directors’ powers, except the power to fill vacancies in the Board, the power to remove a Director, the power to change the membership of, or fill vacancies in, any committee of the Board and any such other powers as may be set out in the resolution or any subsequent directors’ resolution. Directors may also by resolution appoint one or more committees other than the executive committee. These committees may be delegated any of the directors’ powers except the power to fill vacancies on the board of directors, the power to remove a director, the power to change the membership or fill vacancies on any committee of the directors, and the power to appoint or remove officers appointed by the directors.
Under the BCA, directors are obligated to abstain from voting on matters in which they may be financially interested after disclosing in writing such interest. Directors’ compensation is not a matter on which they must abstain. Directors’ borrowing powers are not generally restricted where the borrowing is in the Company’s best interests, but the directors may not authorize the Company to provide financial assistance for any reason where the Company is insolvent or the providing of the guarantee would render it insolvent.
Amendment of Articles and Notice of Articles; Special Transactions
The Articles provide that the general authority required to amend all provisions of the Company’s Articles and the Notice of Articles relating to the authorized share structure is a resolution of the directors and the attachment of special rights and restrictions thereto, including any changes therein, an ordinary resolution. If the amendment prejudices or interferes with the rights or special rights attached to any class of issued shares, by the provisions of the BCA, the consent of the holders of that class of shares by a special separate resolution is also required.
Certain corporate changes or proposed transactions including amalgamation with another company, sale of substantially all of the Company’s assets, re-domiciling out of the jurisdiction of British Columbia, creation of new classes of shares not only require the consent of the holders of common shares by a special separate resolution but generally also give rise to a dissent right which is the right to be paid the fair value of the stockholder’s shares in cash if the required special resolution is actually passed and the Company elects to proceed with the matter notwithstanding receipt of dissent notices. A notice of a shareholders meeting at which such a change or proposed transaction is intended to be considered must include a prominent notice of the dissent right. Dissent provisions are governed by the BCA and not by the Articles of the Company.
Under the Articles, a special separate resolution requires a majority of three-quarters of the votes cast.
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Shareholders’ Meetings
In addition to reflecting the present notice and other provisions of the BCA relating to shareholders’ meetings, the Articles provide that shareholders’ meetings may be held at such place as is determined by the directors. Shareholders meetings are governed by the Articles of the Company but many important protections and procedures are contained within the BCA and the Securities Act (British Columbia) and the Securities Act (Alberta) and the respective regulations and rules thereto and the policy statements, notices and blanket orders of the respective commissions of each of British Columbia and Alberta, together with the national policy statements, and national instruments applied by the such commissions (collectively, “Applicable Canadian Securities Law”). The Articles provide that the Company will hold an annual shareholders’ meeting, will provide at least 21 days’ notice and will provide for certain procedural matters and rules of order with respect to conduct of the meeting. The BCA and Applicable Canadian Securities Law superimpose requirements that generally provide that shareholders meetings require not less than a 60 day notice period from initial public notice and that the Company makes a thorough advanced search of intermediary and brokerage registered shareholdings to facilitate communication with beneficial shareholders so that meeting proxy and information materials can be sent via the brokerages to unregistered but beneficial shareholders. The form and content of information circulars and proxies and like matters are governed by Applicable Canadian Securities Law and includes the specifics relating to disclosure requirements for the proxy materials and various corporate actions, background information on the nominees for election for director, executive compensation paid in the previous year and full details of any unusual matters or related party transactions.
The Company must hold an annual shareholders meeting open to all shareholders for personal attendance or by proxy at each shareholder’s determination. The meeting must be held within 13 months of the previous annual shareholders meeting and must present audited statements which are dated no more than six months prior to such meeting.
Change in Control
The Company has not implemented any shareholders’ rights or other “poison pill” protection against possible take-overs. The Company does not have any agreements which are triggered by a take-over or other change of control. There are no provisions in its articles triggered by or affected by a change in outstanding shares which gives rise to a change in control. There are no provisions in the Company’s material agreements giving special rights to any person on a change in control.
Insider Share Ownership Reporting
The Articles of the Company do not require disclosure of share ownership. Share ownership of director nominees must be reported annually in proxy materials sent to the Company’s shareholders. There are no requirements under the BCA to report ownership of shares of the Company but Applicable Canadian Securities Law requires disclosure of trading by insiders (generally officers, directors and holders of 10% of voting shares) within 10 days of the trade. Controlling shareholders (generally those in excess of 20% of outstanding shares) must provide seven days advance notice of share sales.
Applicable Canadian Securities Law
Applicable Canadian Securities Law governs matters typically pertaining to public companies such as continuous quarterly financial reporting, immediate disclosure of material changes, insider trade reporting, take-over protections to ensure fair and equal treatment of all shareholders, exemption and resale rules pertaining to non-prospectus securities issuances as well as civil liability for certain misrepresentations, disciplinary, appeal and discretionary ruling matters. All of the Company’s shareholders regardless of residence have equal rights under this legislation except as provided for in the Voting Agreement (Exhibit 3.a.).
10.C. Material Contracts
There are currently no material contracts.
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10.D. Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company’s securities, except as discussed in ITEM 10, ”Taxation" below.
Restrictions on Share Ownership by Non-Canadians: There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians. If a “non-Canadian” (for example, a US resident acquirer) were to acquire such a control position, they would not be required to do any filings or provide any notices to the Ministry of Industry (Canada) unless notified first by that Ministry that their acquisition of control was under review.
Canada has, as does the United States, competition laws designed to promote competition in industry and markets. The Competition Act (Canada) provides Canada’s federal government with the power to review or prevent business transactions, such as acquiring a controlling interest in a company similar to the Company , if it is found that the acquisition of control would reduce competition in a given market or industry. Since the market that the Company competes in is extremely competitive, no single company, including the Company, seems to have significant market power. Acquisition of the Company, therefore, would not lead to reduced competition.
10.E. Taxation
Canadian Federal Income Tax Considerations:
The following is a brief summary of some of the principal Canadian federal income tax consequences to a holder of common shares of the Company (a "U.S. Holder") who deals at arm's length with the Company, holds the shares as capital property and who, for the purposes of the Income Tax Act (Canada) (the "Act") and the Canada – United States Income Tax Convention (the "Treaty"), is at all relevant times resident in the United States, is not and is not deemed to be resident in Canada and does not use or hold and is not deemed to use or hold the shares in carrying on a business in Canada. Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer that carries on business in Canada and elsewhere.
Under the Act and the Treaty, a U.S. Holder of common shares will generally be subject to a 5% withholding tax on dividends paid or credited or deemed by the Act to have been paid or credited on such shares. The withholding tax rate is 5% where the U.S. Holder is a corporation that beneficially owns at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some U.S. Holders such as qualifying pension funds and charities.
In general, a U.S. Holder will not be subject to Canadian income tax on capital gains arising on the disposition of shares of the Company unless (i) at any time in the five-year period immediately preceding the disposition, 25% or more of the shares of any class or series of the capital stock of the Company was owned by (or was under option of or subject to an interest of) the U.S. holder or persons with whom the U.S. holder did not deal at arm's length, and (ii) the value of the common shares of the Company at the time of the disposition derives principally from real property (as defined in the Treaty) situated in Canada. For this purpose, the Treaty defines real property situated in Canada to include rights to explore for or exploit mineral deposits and other natural resources situated in Canada, rights to amounts computed by reference to the amount or value of production from such resources, certain other rights in respect of natural resources situated in Canada and shares of a corporation the value of whose shares is derived principally from real property situated in Canada.
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The US Internal Revenue Code provides special anti-deferral rules regarding certain distributions received by US persons with respect to, and sales and other dispositions (including pledges) of stock of, a passive foreign investment company. A foreign corporation, such as the Company, will be treated as a passive foreign investment company if 75% or more of its gross income is passive income for a taxable year or if the average percentage of its assets (by value) that produce, or are held for the production of, passive income is at least 50% for a taxable year. The Company believes that it was not a passive foreign investment company for the taxable year ended December 31, 2009 and, furthermore, expects to conduct its affairs in such a manner so that it will not meet the criteria to be considered passive foreign investment company in the foreseeable future.
Dividends:
A Holder will be subject to Canadian withholding tax ("Part XIII Tax") equal to 25%, or such lower rate as may be available under an applicable tax treaty, of the gross amount of any dividend paid or deemed to be paid on common shares. Under the Canada-U.S. Income Tax Convention (1980) as amended by the Protocols signed on 6/14/1983, 3/28/1984, 3/17/1995, and 7/29/1997 (the "Treaty"), the rate of Part XIII Tax applicable to a dividend on common shares paid to a Holder who is a resident of the United States and who is the beneficial owner of the dividend, is 5%. If the Holder is a company that owns at least 10% of the voting stock of the Company paying the dividend, and, in all other cases, the tax rate is 15% of the gross amount of the dividend. The Company will be required to withhold the applicable amount of Part XIII Tax from each dividend so paid and remit the withheld amount directly to the Receiver General for Canada for the account of the Holder.
Disposition of Common Shares:
A Holder who disposes of a common share, including by deemed disposition on death, will not normally be subject to Canadian tax on any capital gain (or capital loss) thereby realized unless the common share constituted "taxable Canadian property" as defined by the
Act
. Generally, a common share of a public corporation will not constitute taxable Canadian property of a Holder if the share is listed on a prescribed stock exchange unless the Holder or persons with whom the Holder did not deal at arm's length alone or together held or held options to acquire, at any time within the five years preceding the disposition, 25% or more of the shares of any class of the capital stock of the Company. The TSX Venture Exchange is a prescribed stock exchange under the
Act
. A Holder who is a resident of the United States and realizes a capital gain on a disposition of a common share that was taxable Canadian property will nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax thereon unless:
(a) More than 50% of the value of the common shares is derived from, or from an interest in, Canadian real estate, including Canadian mineral resource properties,
(b)
The common share formed part of the business property of a permanent establishment that the Holder has or had in Canada within the 12 month period preceding the disposition, or
(c)
The Holder is an individual who (i) was a resident of Canada at any time during the 10 years immediately preceding the disposition, and for a total of 120 months during any period of 20 consecutive years, preceding the disposition, and (ii) owned the common share when he ceased to be resident in Canada.
A Holder who is subject to Canadian tax in respect of a capital gain realized on a disposition of a common share must include three quarters of the capital gain (taxable capital gain) in computing the Holder's taxable income earned in Canada. The Holder may, subject to certain limitations, deduct three-quarters of any capital loss (allowable capital loss) arising on a disposition of taxable Canadian property from taxable capital gains realized in the year of disposition in respect to taxable Canadian property and, to the extent not so deductible, from such taxable capital gains realized in any of the three preceding years or any subsequent year.
United States Taxation:
For federal income tax purposes, an individual who is a citizen or resident of the United States or a domestic corporation ("U.S. Taxpayer") will recognize a gain or loss on the sale of the Company's common shares equal to the difference between the proceeds from such sale and the adjusted tax basis of the common shares. The gain or loss will be a capital gain or capital loss if the Company's common shares are a capital asset in U.S. Taxpayer's hands.
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For federal income tax purposes, a U.S. Taxpayer will be required to include in gross income dividends received on the Company's common shares. A U.S. Taxpayer who pays Canadian tax on a dividend on common shares will be entitled, subject to certain limitations, to a credit (or alternatively, a deduction) against federal income tax liability. A domestic corporation that owns at least 10% of the voting shares should consult its tax advisor as to applicability of the deemed paid foreign tax credit with respect to dividends paid on the Company's common shares.
Under a number of circumstances, United States Investor acquiring shares of the Company may be required to file an information return with the Internal Revenue Service Center where they are required to file their tax returns with a duplicate copy to the Internal Revenue Service Center, Philadelphia, PA 19255. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply. United States Investors should consult their own tax advisors concerning these requirements.
The US Internal Revenue Code provides special anti-deferral rules regarding certain distributions received by US persons with respect to, and sales and other dispositions (including pledges) of stock of, a passive foreign investment company. A foreign corporation, such as the Company, will be treated as a passive foreign investment company if 75% or more of its gross income is passive income for a taxable year or if the average percentage of its assets (by value) that produce, or are held for the production of, passive income is at least 50% for a taxable year. The Company believes that it was not a passive foreign investment company for the taxable year ended December 31, 2009 and, furthermore, expects to conduct its affairs in such a manner so that it will not meet the criteria to be considered passive foreign investment company in the foreseeable future.
10.F. Dividends and Paying Agents
The Company has not declared any dividends on its common shares for the last five years and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.
Notwithstanding the aforementioned: the Company is unaware of any dividend restrictions; has no specific procedure for the setting of the date of dividend entitlement; but might expect to set a record date for stock ownership to determine entitlement; has no specific procedures for non-resident holders to claim dividends, but might expect to mail their dividends in the same manner as resident holders. The Company has not nominated any financial institutions to be the potential paying agents for dividends in the United States.
10.G. Statement by Experts
The Company’s auditor for its consolidated financial statements for the year ended December 31, 2017, 2016, and six months ended December 31, 2015 and year ended June 30, 2015 was Davidson & Company LLP, Adam Sung Kim Ltd. and Smythe LLP, respectively. Their audit report for the year ended December 31, 2017, 2016, and six months ended December 31, 2015 and year ended June 30, 2015 is included with the related consolidated financial statements in this Annual Report.
10.H. Document on Display
--- No Disclosure Necessary ---
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--- No Disclosure Necessary ---
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
--- No Disclosure Necessary ---
12.B. Warrants and Rights
--- No Disclosure Necessary ---
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12.C. Other Securities
--- No Disclosure Necessary ---
12.D. American Depository Shares
-- No Disclosure Necessary ---
These consolidated financial statements are authorized for issuance by the Board of Directors on May 15, 2018
Bob Sukhwinder Rai, Director David Hall, Chairman
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
VANC Pharmaceuticals Inc. (the “Company”) was incorporated under the
Company Act
of British Columbia on May 30, 2000. The Company’s common shares trade on the TSX Venture Exchange (the “Exchange”) under symbol “NPH” and are quoted on the OTCIQ Market as “NUVPF”. The Company’s registered office is at 810 – 789 West Pender Street, Vancouver, British Columbia, V6C 1H2.
The Company’s operations consist of the marketing and distribution of generic and over-the-counter (“OTC”) pharmaceuticals.
The consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operations for the foreseeable future and be able to realize assets and satisfy liabilities in the normal course of business. The Company has always experienced net losses (2017 - $2,736,717) and negative operating cash flows. Operations have been funded by the issuance of share capital. This material uncertainty casts substantial doubt on the Company’s ability to continue as a going concern.
The continuation of the Company as a going concern is dependent upon its ability to generate profitable operations or raise additional financing to cover ongoing cash requirements.
The consolidated financial statements do not reflect any adjustments, which could be material, to the carrying values of assets and liabilities, which may be required should the Company be unable to continue as a going concern.
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six months ended
December 31, 2015
|
Year ended
June 30, 2015
|
|
|
$
|
$
|
$
|
$
|
|
Comprehensive loss
|
(2,736,717)
|
(2,613,904)
|
(1,190,414)
|
(2,200,648)
|
|
Deficit
|
(21,091,609)
|
(18,354,892)
|
(15,740,988)
|
(14,550,574)
|
|
Working capital
|
1,272,259
|
1,886,976
|
3,207,630
|
3,305,603
|
|
|
|
|
|
|
Economic dependence
The Company currently has licensing arrangements with three manufacturers to purchase, distribute and commercialize their drug molecules in Canada. The Company derives over 85% of its gross sales from four distributors for the year ended December 31, 2017 (2016 - 70%, six months ended December 31, 2015 – 95%). The ability of the Company to sustain operations is partially dependent on the continued operation of these distributors. The launch of new OTC products diversifies the Company’s portfolio and reduces the risk of the economic dependence.
2. BASIS OF PRESENTATION
a) Statement of Compliance and basis of presentation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were approved by the Board of Directors on May 15, 2018.
b) Basis of presentation
The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The significant accounting policies are presented in Note 3 and have been consistently applied in each of the period presented.
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
The consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency, unless other indicated.
The preparation of consolidated financial statements in accordance with IFRS requires the Company’s management to make estimates, judgments and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3(k). Actual results might differ from these estimates. The Company’s management reviews these estimates and underlying judgments on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the year in which the estimates are revised.
c) Basis of consolidation
Consolidated financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of comprehensive loss from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control exists.
These consolidated financial statements include the accounts of the Company and its controlled wholly owned subsidiaries, Vanc Marine Pharmaceuticals Inc. and HealthTab Inc.
d) Accounting standards issued, but not yet in effective
The following is an overview of accounting standard changes that the Company will be required to adopt in future years.
IFRS 9 Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9 introduces new requirements for the classification and measurements of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities and amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. It also includes a new general hedge accounting standard which aligns hedge accounting ore closely with risk management. IFRS 9 is effective for reporting periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Management anticipates that this standard will be adopted in the Company’s consolidated financial statements for the period beginning January 1, 2018 and will have an insignificant effect on its consolidated financial statements other than increased note disclosure.
IFRS 15 Revenue from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the goods or services. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. IFRS 15 is effective for reporting periods beginning on or after January 1, 2018. Management anticipates that this standard will be adopted in the Company’s consolidated financial statements for the period beginning January 1, 2018 and will have an insignificant effect on its consolidated financial statements.
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
IFRS 16 Leases
On January 13, 2016, the International Accounting Standards Board published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for reporting periods beginning on or after January 1, 2019. The Company is in the process of assessing the impact of this pronouncement. The extent of the impact has not yet been determined.
Other new standards or amendments are either not applicable or not expected to have a significant impact on the Company’s consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Revenue recognition
Revenues are recognized when the risks and rewards of ownership have passed to the customer based on the terms of the sale, collection of the relevant receivable is probable, evidence of an arrangement exists and the sales price is fixed or determinable. Risks and rewards of ownership pass to the customer upon successful completion of shipment of pharmaceuticals. Provisions for sales discounts and returns are made on a per sale basis based on contractual and historical information.
b) Foreign currency
These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the Company and its subsidiaries.
Foreign currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in profit or loss.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.
c) Cash equivalents
Cash equivalents include short-term guaranteed investment certificates readily convertible into a known amount of cash, which is subject to insignificant change in value.
d) Inventory
Inventories consist of raw materials comprising the ingredients used to manufacture OTC pharmaceuticals, as well as the packaging for these products, and finished goods comprising Canadian generic pharmaceuticals. All inventories are recorded at the lower of cost on a weighted average basis and net realizable value. The stated value of all inventories includes purchase, shipping and freight, and quality control testing. A regular review is undertaken to determine the extent of any provision for obsolescence.
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
e) Equipment
Equipment is stated at historical cost less accumulated amortization and accumulated impairment losses. Amortization is calculated on a declining balance method over their estimated useful lives. The Company’s equipment, which consists of computer, furniture, equipment and computer systems are amortized at 30%, and the straight-line method for leasehold improvements over the term of the lease.
f) Intangible assets
All intangible assets acquired separately by the Company are recorded at cost on the date of acquisition. Intangible assets that have indefinite lives are measured at cost less accumulated impairment losses. Intangible assets that have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Intangible assets comprise of intellectual property, trademarks and web domains, which are amortized on a straight-line basis over 3 years. Amortization rates are reviewed annually to ensure they are aligned with estimates of remaining economic useful lives of the associated intangible assets.
g) Share-based payments
The Company operates an incentive share purchase option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes option pricing model, which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.
h) Share capital
Proceeds from the exercise of stock options and warrants are recorded as share capital in the amount for which the option or warrant enabled the holder to purchase a share in the Company. Any previously recorded share-based payment included in the reserves account is transferred to share capital on exercise of options. Share capital issued for non-monetary consideration is valued at the closing market price at the date of issuance. The proceeds from issuance of units are allocated between common shares and warrants based on the residual method. Under this method, the proceeds are allocated first to share capital based on the fair value of the common shares at the time the units are priced and any residual value is allocated to the warrants reserve. Consideration received for the exercise of warrants is recorded in share capital, and any related amount recorded in warrants reserve is transferred to share capital.
i) Loss per share
Basic loss per share is calculated by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive. Basic and diluted loss per share are the same for the periods presented.
j) Income taxes
Income tax expense, consisting of current and deferred tax expense, is recognized in the statements of operations. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at period-end, adjusted for amendments to tax payable with regard to previous years.
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
Deferred tax assets and liabilities and the related deferred income tax expense or recovery are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that substantive enactment occurs.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
k) Financial Instruments
The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and other financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. All financial assets and liabilities are recorded at fair value at initial recognition.
The Company classifies its financial instruments as follows:
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|
|
Cash and equivalents
|
Fair value through profit or loss
|
|
Accounts receivable
|
Loans and receivables
|
|
Accounts payable and accrued liabilities
|
Other financial liability
|
|
Asset acquisition liability
|
Other financial liability
|
Financial assets are classified at fair value through profit or loss when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than twelve months after the end of the reporting period. These are classified as non-current assets.
Other financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost.
At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant and prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen.
l) Impairment of equipment and intangible assets
At the end of each reporting period, the Company reviews the carrying amounts of its equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. Individual assets are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are independent from other group assets
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Where the carrying amount of a cash generating unit exceeds its recoverable amount, the cash generating unit is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount rate that reflects the current market indicators.
Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the cash generating unit in prior years. A reversal of an impairment loss is recognized as income immediately.
m) Significant accounting estimates and judgments
Significant estimates used in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as follows:
Inventory valuation
The Company estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by regulatory changes or other market-driven changes that may reduce future selling prices. In determining net realizable value, the Company considers such factors as turnover, historical experience, expiry dates and shelf life of the products. A change to these assumptions could impact the Company’s inventory valuation and gross margin.
The Company attempts to sell products with short shelf life with significant rebates. Any unsold products with short shelf life and expired products are written-off.
Revenue recognition
Revenues are recognized when the risks and rewards of ownership have passed to the customer based on the terms of the sale, collection of the relevant receivable is probable, evidence of an arrangement exists and the sales price is fixed or determinable. Risks and rewards of ownership pass to the customer upon successful completion of shipment of pharmaceuticals. Provisions for sales discounts, incentives, and rebates and returns are made based upon historical experiences.
Useful lives of depreciable assets
The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utilization of certain equipment.
Intellectual property
The recoverability of the carrying value of the intellectual property is dependent on successful development and commercial stage to the point where revenue is possible. The carrying value of these assets is reviewed by management when events or circumstances indicate that its carrying value may not be recovered. If impairment is determined to exist, an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount.
Share-based payments
The Company grants share-based awards to certain directors, officers, employees, consultants and other eligible persons. For equity-settled awards, the fair value is charged to the statement of operations and comprehensive loss and credited to the reserves over the vesting period using the graded vesting method, after adjusting for the estimated number of awards that are expected to vest.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
The fair value of equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. For equity-settled awards to non-employees, the fair value is measured at each vesting date. The estimate of warrant and option valuation also requires determining the most appropriate inputs to the valuation model, including the volatility, expected life of warrants and options, risk free interest rate and dividend yield. Changes in these assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable measure of the fair value of the Company’s options and warrants issued. Management must also make significant judgments or assessments as to how financial assets and liabilities are categorized.
Significant judgements
Significant judgments used in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as follows:
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. The determination of income tax expense and deferred tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals of deferred tax assets and liabilities, and interpretations of laws in the countries in which the Company operates. The Company is subject to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final amount of deferred taxes or the timing of tax payments.
4. ACQUISITION
On December 28, 2017, the Company completed the acquisition of all the common shares of HealthTab Inc. (“HealthTab”). HealthTab’s primary asset is intellectual property and certain trademarks and web domains related to the design of the HealthTab system, being a lab-accurate, point of care testing platform. Under the share purchase agreement, the consideration paid by the Company is as follows:
·
Cash payment of $100,000 upon signing of the share purchase agreement (paid);
·
Cash payment of $100,000 in six equal monthly instalments after the closing date ($66,667 paid subsequent to December 31, 2017);
·
Issue 880,000 common shares no later than 125 days after the closing date (issued);
·
Issue 880,000 common shares no later than 245 days after the closing date;
·
Issue 906,667 common shares no later than 365 days after the closing date;
·
Issue common shares equal to the higher of $100,000 or 5% of net sales related to HealthTab for the year ended December 2018 by January 31, 2019; and
·
Issue common shares equal to the higher of $100,000 or 5% of net sales related to HealthTab for the year ended December 2019 by January 31, 2020
This acquisition has been accounted for as an acquisition of assets and liabilities as HealthTab did not meet the definition of a business under IFRS 3, Business Combinations.
The shares to be issued have been valued based on the Company’s share price on the acquisition. Due to the uncertainty associated with future revenue derived from HealthTab, the Company has estimated the 2019 and 2020 share issuances to be $100,000 each.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
The aggregate fair values of assets acquired and liabilities assumed were as follows on the acquisition date, December 28, 2017:
|
|
|
|
|
|
$
|
|
Purchase consideration:
|
|
|
|
Cash
|
|
100,000
|
|
Asset acquisition liability
|
|
100,000
|
|
Shares to be issued
|
|
973,333
|
|
Acquisition costs
|
|
28,806
|
|
|
|
1,202,139
|
|
Net assets acquired:
|
|
|
|
Cash
|
|
38
|
|
Equipment
|
|
64,608
|
|
Intangible assets
|
|
1,140,283
|
|
Accounts payable and accrued liabilities
|
|
(2,790)
|
|
Total net assets acquired
|
|
1,202,139
|
5. ACCOUNTS RECEIVABLE
The Company’s accounts receivable consists of the following:
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
|
|
$
|
$
|
|
Trade receivables
|
425,284
|
668,917
|
|
GST receivable
|
24,995
|
48,242
|
|
Employee advances
|
158
|
2,246
|
|
|
450,437
|
719,405
|
6. PREPAID EXPENSES AND DEPOSITS
The closing balance consists of the deposits for inventory purchases and prepaid expense to vendors of $437,137 (2016 – 26,198), office rent of $8,420 (2016 - $8,420) and prepaid business insurance of $7,396 (2016 - $6,526).
7. INVENTORIES
At December 31, 2017, the Company’s inventory consists of the following:
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
|
|
$
|
$
|
|
Work in process
|
39,845
|
5,987
|
|
Finished goods
|
171,380
|
1,050,300
|
|
|
211,225
|
1,056,287
|
Inventories expensed to cost of sales during the year ended December 31, 2017 are $255,253 (2016 - $688,624). During the year ended December 31, 2017, the Company recorded a write-down of inventory of $745,977 (2016 - $291,794).
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Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
8. EQUIPMENT
|
|
|
|
|
|
|
|
Office Furniture and Equipment
|
Computer equipment and Systems
|
Laboratory Equipment
|
Leasehold Improvements
|
Total
|
|
Cost
|
$
|
$
|
$
|
$
|
$
|
|
Balance, December 31, 2015
|
1,702
|
-
|
36,822
|
24,182
|
62,706
|
|
Additions
|
369
|
3,898
|
2,074
|
-
|
6,341
|
|
Balance, December 31, 2016
|
2,071
|
3,898
|
38,896
|
24,182
|
69,047
|
|
Acquired assets
|
1,636
|
62,972
|
-
|
-
|
64,608
|
|
Additions
|
3,784
|
-
|
-
|
-
|
3,784
|
|
Balance, December 31, 2017
|
7,491
|
66,870
|
38,896
|
24,182
|
137,439
|
|
Accumulated Amortization
|
|
|
|
|
|
|
Balance, December 31, 2015
|
759
|
-
|
12,449
|
10,153
|
23,361
|
|
Amortization
|
330
|
1,151
|
7,085
|
6,103
|
14,669
|
|
Balance, December 31, 2016
|
1,089
|
1,151
|
19,534
|
16,256
|
38,030
|
|
Amortization
|
523
|
979
|
5,808
|
2,378
|
9,688
|
|
Balance, December 31, 2017
|
1,612
|
2,130
|
25,342
|
18,634
|
47,718
|
|
Carrying value
|
|
|
|
|
|
|
As at December 31, 2016
|
982
|
2,747
|
19,362
|
7,926
|
31,017
|
|
As at December 31, 2017
|
5,879
|
64,740
|
13,554
|
5,548
|
89,721
|
9. INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
$
|
|
Balance, December 31, 2016
|
|
|
-
|
|
Acquired assets
|
|
|
1,140,283
|
|
Balance, December 31, 2017
|
|
|
1,140,283
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
Balance, December 31, 2016
|
|
|
-
|
|
Amortization
|
|
|
4,166
|
|
Balance, December 31, 2017
|
|
|
4,166
|
|
|
|
|
|
|
Carrying value
|
|
|
|
|
As at December 31, 2016
|
|
|
-
|
|
As at December 31, 2017
|
|
|
1,136,117
|
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company’s accounts payable and accrued costs consists of the following:
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
|
|
$
|
$
|
|
Trade accounts payable
|
160,249
|
100,342
|
|
Accrued liabilities
|
141,840
|
257,000
|
|
|
302,089
|
357,342
|
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
11. SHAREHOLDERS’ EQUITY
Authorized share capital
Authorized: Unlimited number of common shares without par value.
Issued share capital
On June 26, 2017, the Company closed a private placement and issued 4,408,659 units at a price of $0.15 per unit for gross proceeds of $661,299. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until June 26, 2022. The Company paid finder’s fees of $7,200 in cash and issued 48,000 finder’s warrants valued at $8,210. The finder’s warrants are exercisable to purchase one common share of the Company at $0.20 per share until June 26, 2022.
On August 3, 2017, the Company closed a private placement and issued 1,326,667 units at a price of $0.15 per unit for gross proceeds of $199,000. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until August 3, 2022.
On November 27, 2017, the Company closed a private placement and issued 4,850,000 units at a price of $0.15 per unit for gross proceeds of $727,500. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.20 per share until November 27, 2022. The Company paid finder’s fees of $3,300 in cash and issued 22,000 finder’s warrants valued at $3,404. The finder’s warrants are exercisable to purchase one common share of the Company at $0.20 per share until November 27, 2022.
On December 8, 2017, the Company issued 2,274,000 common shares related to 2,274,000 warrants with an exercise price of $0.20 being exercised for gross proceeds of $454,800.
During the year ended December 31, 2016, the Company issued 400,000 common shares related to the exercise of options for gross proceeds of $193,000 and 325,000 common shares were issued related to the exercise of warrants for gross proceeds of $169,000.
During the six months ended December 31, 2015, 37,500 shares were issued for the exercise of options, and 434,027 shares were issued for the exercise of warrants.
On December 10, 2014, the Company closed a non-brokered private placement of 1,901,833 units at price of $0.60 per unit for gross proceeds of $1,141,100. Each unit consists of one common share and one-half of one transferrable share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share on or before December 10, 2015 at a price of $1.00. Finder’s fees of $91,287 cash were paid in addition to the issuance of 152,147 warrants. The fair value of the warrants issued to agents was estimated using the Black-Scholes option pricing model and amounted to $67,533.
Additional share issue costs totaling $203,490 were incurred relating to options and warrants exercised for the year ended June 30, 2015.
Stock options
The Company has adopted an incentive share purchase option plan under the rules of the Exchange pursuant to which it is authorized to grant options to executive officers, directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The options can be granted for a maximum term of ten years and generally vest either immediately or in specified increments of up to 25% in any three month period.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
The changes in share options including those granted to directors, officers, employees and consultants during year ended December 31, 2017 and 2016 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six months ended
December 31, 2015
|
Year ended
June 30, 2015
|
|
|
Number
of
Options
|
Weighted Average Exercise Price
|
Number
of
Options
|
Weighted Average Exercise Price
|
Number
of
Options
|
Weighted Average Exercise Price
|
Number
of
Options
|
Weighted Average Exercise Price
|
|
Beginning balance
|
1,460,938
|
$1.38
|
1,303,750
|
$1.52
|
1,220,000
|
$1.08
|
562,500
|
$0.44
|
|
Options granted
|
2,420,000
|
$0.24
|
672,500
|
$1.38
|
201,250
|
$1.64
|
1,063,750
|
$1.24
|
|
Expired/Cancelled
|
(1,460,938)
|
$1.38
|
(115,312)
|
$1.51
|
(80,000)
|
$1.80
|
-
|
-
|
|
Exercised
|
-
|
-
|
(400,000)
|
$0.48
|
(37,500)
|
$0.60
|
(406,250)
|
$0.64
|
|
Ending balance
|
2,420,000
|
$0.24
|
1,460,938
|
$1.38
|
1,303,750
|
$1.52
|
1,220,000
|
$1.08
|
|
Exercisable
|
1,188,750
|
$0.22
|
1,184,324
|
$1.38
|
1,035,625
|
$1.52
|
774,375
|
$0.76
|
The following table summarizes information about share options outstanding and exercisable as at December 31, 2017:
|
|
|
|
|
Exercise Price
|
Expiry date
|
Options
|
|
|
|
Outstanding
|
Exercisable
|
|
$0.22
|
January 27, 2022
|
300,000
|
300,000
|
|
$0.15
|
July 20, 2022
|
150,000
|
150,000
|
|
$0.15
|
August 3, 2019
|
125,000
|
41,250
|
|
$0.15
|
August 15, 2022
|
150,000
|
150,000
|
|
$0.15
|
August 24, 2019
|
150,000
|
48,750
|
|
$0.28
|
November 20, 2022
|
150,000
|
150,000
|
|
$0.28
|
December 8, 2022
|
1,395,000
|
348,750
|
|
|
|
2,420,000
|
1,188,750
|
Share-based compensation
Share-based compensation of $311,389 were recognized during the year ended December 31, 2017 (2016 - $736,422, six months ended December 31, 2015 - $630,401, year ended June 30, 2015 – 915,211) for stock options vested during the current period. Options issued to directors and officers of the Company vested immediately, while those issued to consultants vest over one year, however, the Board may change such provisions at its discretion or as required on a grant-by-grant basis.
Share-based payments for options granted was measured using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six months ended December 31, 2015
|
Year ended
June 30, 2015
|
|
Expected life
|
2.0 – 5.0 years
|
2.0 – 5.0 years
|
4.1 years
|
4.1 years
|
|
Volatility
|
148% - 164%
|
100% - 155%
|
172%
|
169%
|
|
Dividend yield
|
0%
|
0%
|
0%
|
1%
|
|
Risk-free interest rate
|
1.23% - 1.69%
|
0.47% - 0.58%
|
0.44%
|
1.03%
|
Option pricing models require the use of highly subjective estimates and assumptions, including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
Warrants
The Company has issued warrants entitling the holders to acquire common shares of the Company. The summary of changes in warrants is presented below.
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six months ended
December 31, 2015
|
Year ended
June 30, 2015
|
|
|
Number
of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number
of Warrants
|
Weighted Average Exercise Price
|
|
Beginning balance
|
-
|
-
|
1,301,250
|
$1.24
|
1,748,135
|
$1.24
|
2,950,000
|
$1.32
|
|
Warrants issued
|
10,655,326
|
$0.20
|
-
|
-
|
-
|
-
|
1,103,063
|
$1.00
|
|
Expired/Cancelled
|
-
|
-
|
(976,250)
|
$0.50
|
(12,858)
|
$1.00
|
-
|
-
|
|
Exercised
|
(2,274,000)
|
$0.20
|
(325,000)
|
$0.52
|
(434,027)
|
$1.00
|
(2,304,928)
|
$1.24
|
|
Outstanding
|
8,381,326
|
$0.20
|
-
|
-
|
1,301,250
|
$1.64
|
1,748,135
|
$1.24
|
The following table summarizes information about warrants outstanding and exercisable as at December 31, 2017:
|
|
|
|
Exercise Price
|
Expiry date
|
Warrants Outstanding
|
|
$0.20
|
June 26, 2022
|
2,182,659
|
|
$0.20
|
August 3, 2022
|
1,326,667
|
|
$0.20
|
November 27, 2022
|
4,872,000
|
|
|
|
8,381,326
|
The fair value of the 70,000 finder’s warrants was calculated using the Black-Scholes Option Pricing Model using the following assumptions:
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
Year ended
December 31, 2016
|
Six months ended
December 31, 2015
|
Year ended
June 30, 2015
|
|
Expected life
|
5.0 years
|
-
|
-
|
1.0 years
|
|
Volatility
|
154% - 159%
|
-
|
-
|
179%
|
|
Dividend yield
|
0%
|
-
|
-
|
0%
|
|
Risk-free interest rate
|
1.15% - 1.62%
|
-
|
-
|
1.07%
|
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
On May 31, 2016, the Company received approval to extend the term of 976,250 common share purchase warrants. The warrants had an expiry date of June 12, 2016. The Company extended the expiry date to December 20, 2016, and amended the exercise price of the warrants from $2.00 per share to $1.60 per share. The incremental fair value of warrant extension was estimated at $186,500. The fair value of each warrant was estimated as at the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions:
|
|
|
|
Year ended
December 31, 2016
|
|
Expected life
|
0.03 – 0.56 years
|
|
Volatility
|
75% - 110%
|
|
Dividend yield
|
0%
|
|
Risk-free interest rate
|
0.61%
|
12. PRODUCT REGISTRATION AND DEVELOPMENT
|
|
|
|
|
|
|
Year ended December 31,
|
Six months ended December 31,
|
Year ended June 30,
|
|
|
2017
|
2016
|
2015
|
2015
|
|
|
$
|
$
|
$
|
$
|
|
Payroll
|
126,859
|
168,964
|
-
|
-
|
|
Product registration and licensing fees
|
115,444
|
39,820
|
930
|
56,143
|
|
|
242,303
|
208,784
|
930
|
56,143
|
13. SELLING AND MARKETING EXPENSES
|
|
|
|
|
|
|
Year ended December 31,
|
Six months ended December 31,
|
Year ended June 30,
|
|
|
2017
|
2016
|
2015
|
2015
|
|
|
$
|
$
|
$
|
$
|
|
Payroll (sales personnel)
|
335,920
|
329,091
|
-
|
-
|
|
Marketing and advertising
|
178,058
|
105,658
|
103,123
|
9,858
|
|
Distribution
|
102,948
|
161,304
|
-
|
-
|
|
Travel
|
79,235
|
67,769
|
-
|
-
|
|
|
696,161
|
663,822
|
103,123
|
9,858
|
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
14. GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
Year ended December 31,
|
Six months ended December 31,
|
Year ended June 30,
|
|
|
2017
|
2016
|
2015
|
2015
|
|
|
$
|
$
|
$
|
$
|
|
Management and consulting fees (Note 15)
|
192,621
|
242,667
|
155,084
|
362,727
|
|
Payroll
|
79,847
|
122,330
|
149,034
|
54,665
|
|
Bad debt
|
62,930
|
99,000
|
-
|
-
|
|
Investor relations
|
7,174
|
70,332
|
58,024
|
54,334
|
|
Office maintenance
|
180,984
|
55,168
|
33,881
|
51,357
|
|
Legal, audit and accounting
|
279,097
|
61,409
|
37,587
|
37,806
|
|
Travel
|
41,246
|
34,020
|
33,961
|
30,441
|
|
Insurance
|
34,573
|
34,453
|
25,250
|
18,366
|
|
Seminars and conferences
|
-
|
445
|
14,582
|
23,084
|
|
Rent
|
49,229
|
46,050
|
20,429
|
48,982
|
|
Filing and registration fees
|
74,898
|
62,130
|
13,688
|
53,714
|
|
Amortization
|
13,854
|
14,668
|
8,513
|
13,900
|
|
Bank service charges
|
2,480
|
1,330
|
1,690
|
1,061
|
|
Foreign exchange
|
3,630
|
(3,210)
|
-
|
1,337
|
|
|
1,022,563
|
840,792
|
551,723
|
751,774
|
15. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise described in the consolidated financial statements are shown below. The remuneration of the Company’s directors and other members of key management, who have the authority and responsibility for planning, directing and controlling the activities of the Company, consist of the following:
|
|
|
|
|
|
|
Year ended December 31, 2017
|
Year ended December 31, 2016
|
Six months ended December 31, 2015
|
Year ended
June 30, 2015
|
|
|
$
|
$
|
$
|
$
|
|
Management and consulting fees
|
60,010
|
242,667
|
154,356
|
149,667
|
|
Rent
|
-
|
-
|
-
|
4,500
|
|
Salaries and benefits
|
132,613
|
-
|
-
|
-
|
|
Share-based compensation
|
280,864
|
-
|
-
|
-
|
|
|
473,487
|
242,667
|
154,356
|
154,167
|
As at December 31, 2017, there was $13,152 (2016 - $3,275) due to related parties included in accounts payable and accrued liabilities.
16. CAPITAL DISCLOSURES
The Company includes shareholders’ equity in the definition of capital. The Company’s objective when managing capital is to maintain sufficient cash resources to support its day-to-day operations. The availability of capital is solely through the issuance of the Company’s common shares. The Company will not issue additional equity until such time when funds are needed and the market conditions become favorable to the Company. There are no assurances that funds will be made available to the Company when required. The Company makes every effort to safeguard its capital and minimize its dilution to its shareholders.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
The Company is not subject to any externally imposed capital requirements. There were no changes in the Company’s approach to capital management during the year ended December 31, 2017.
17. COMMITMENTS
Leased premises
The Company has entered into contracts for leased premises, which expire in 2018. In September 2017, the Company extended the lease. Total future minimum lease payments under these contracts are as follows:
|
|
|
|
December 31, 2017
|
|
|
$
|
|
Within 1 year
|
38,447
|
|
2 years
|
83,560
|
|
|
122,007
|
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and asset acquisition liability. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities. The Company has exposure to credit risk, liquidity risk and market risk as a result of its use of financial instruments.
This note presents information about the Company’s exposure to each of the above risks and the Company’s objectives, policies and processes for measuring and managing these risks. Further quantitative disclosures are included throughout the consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has implemented and monitors compliance with risk management policies.
a) 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 and arises primarily from the Company’s cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are held through a large Canadian financial institution. The cash equivalent is composed of a guaranteed investment certificate and is issued by a Canadian bank with high investment-grade ratings. The Company does not have financial assets that are invested in asset-backed commercial paper.
The Company performs ongoing credit evaluations of its accounts receivable, but does not require collateral. The Company establishes an allowance for doubtful accounts based on the credit risk applicable to particular customers and historical data.
Approximately 35% of trade receivables are due from one customer at December 31, 2017 (2016 – 35% from one customer).
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
Pursuant to their collective terms, accounts receivable were aged as follows:
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
|
|
$
|
$
|
|
Current
|
251,693
|
245,071
|
|
0 – 30 days past due
|
23,062
|
242,250
|
|
31 – 60 days past due
|
7,055
|
25,119
|
|
61 – 90 days past due
|
15,387
|
31,837
|
|
Over 90 days past due
|
128,087
|
124,640
|
|
|
425,284
|
668,917
|
As at December 31, 2017, the allowance for doubtful accounts receivable was $59,045 (2016 – $99,000).
b) Liquidity risk
Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation.
The Company monitors its spending plans, repayment obligations and cash resources, and takes actions with the objective of ensuring that there is sufficient capital in order to meet short-term business requirements. To facilitate its expenditure program, the Company raises funds primarily through public equity financing. The Company anticipates it will have adequate liquidity to fund its financial liabilities through future equity contributions.
As at December 31, 2017, the Company’s financial liabilities were comprised of accounts payable and accrued liabilities of $302,089 (2016 - $357,342) and asset acquisition liability of $100,000 (2016 - $Nil).
c) Market risk
Market risk for the Company consists of currency risk and interest rate risk. The objective of market risk management is to manage and control market risk exposure within acceptable limits, while maximizing returns.
Currency risk
Foreign currency risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. As all of the Company’s purchases and sales are denominated in Canadian dollars, and it has no significant cash balances denominated in foreign currencies, the Company is not exposed to foreign currency risk at this time.
Interest rate risk
Interest rate risk is the risk that fair values or future cash flows will fluctuate as a result of changes in market interest rates. In respect of financial assets, the Company’s policy is to invest cash at floating interest rates and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders.
The Company is not exposed to significant interest rate risk.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
d) Fair value of financials instruments
The fair values of financial assets and financial liabilities are determined as follows:
Cash and cash equivalents are measured at fair value. For accounts receivable, accounts payable, accrued liabilities and asset acquisition liability carrying amounts approximate fair value due to their short-term maturity;
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities and amounts resulting from direct arm’s length transactions.
Cash and cash equivalents are valued using quoted market prices or from amounts resulting from direct arm’s length transactions. As a result, these financial assets have been included in Level 1 of the fair value hierarchy.
Level 2:
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full contractual term. Derivatives are included in Level 2 of the fair value hierarchy as they are valued using price models. These models require a variety of inputs, including, but not limited to, contractual terms, market prices, forward price curves, yield curves and credit spreads. The Company has no financial instruments at this level.
Level 3:
Inputs for the asset or liability are not based on observable market data. Currently, the Company has no financial instruments at this level.
19. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
Year ended December 31,
|
Six months ended December 31,
|
Year ended June 30,
|
|
|
2017
|
2016
|
2015
|
2015
|
|
|
$
|
$
|
$
|
$
|
|
Cash paid for interest
|
-
|
-
|
-
|
-
|
|
Cash paid for income taxes
|
-
|
-
|
-
|
-
|
|
|
-
|
-
|
-
|
-
|
On April 26, 2017, the Company issued a total of 70,000 finder’s warrants with a fair value of $11,614 (Note 11).
On December 28, 2017, the Company completed the acquisition of all the common shares of HealthTab through shares to be issued of $973,333 and an asset acquisition liability of $100,000 (Note 4).
During the year ended December 31, 2017, the Company wrote-off inventory in the amount of $745,977 (2016 - $291,794, six months ended December 31, 2015 - $Nil, year ended June 30, 2015 - $Nil).
On December 10, 2014, the Company issued a total of 152,147 finder’s warrants with a fair value of $67,533 (Note 11).
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Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
During the year ended June 30, 2015, the Company recognized an impairment of intellectual property in the amount of $476,000.
20. INCOME TAXES
The following table reconciles the expected income tax expense (recovery) at the Canadian statutory income tax rates to the amounts recognized in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2017 and 2016, six months ended December 31, 2015 and year ended June 30, 2015:
|
|
|
|
|
|
|
Year ended December 31,
|
Six months ended December 31,
|
Year ended June 30,
|
|
|
2017
|
2016
|
2015
|
2015
|
|
|
$
|
$
|
$
|
$
|
|
Net loss before taxes
|
(2,736,717)
|
(2,613,904)
|
(1,190,414)
|
(2,200,648)
|
|
Statutory tax rate
|
26.0%
|
26.0%
|
26.0%
|
26.0%
|
|
Expected income tax (recovery)
|
(711,546)
|
(679,615)
|
(309,508)
|
(572,169)
|
|
Non-deductible items
|
84,637
|
241,475
|
166,482
|
237,955
|
|
Change in estimates
|
(768)
|
(11,699)
|
-
|
-
|
|
Share issue costs
|
(2,730)
|
-
|
(19,205)
|
(2,771)
|
|
Loss expired
|
-
|
-
|
166,689
|
84,778
|
|
Change in statutory rates and other
|
(155,379)
|
-
|
-
|
-
|
|
Change in deferred tax asset not recognized
|
785,786
|
449,839
|
(4,458)
|
252,207
|
|
|
-
|
-
|
-
|
-
|
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their corresponding values for tax purposes. Unrecognized deductible temporary differences as at December 31, 2017 and 2016 are comprised of the following:
|
|
|
|
|
Year ended December 31,
|
|
|
2017
|
2016
|
|
|
$
|
$
|
|
Non-capital loss carry-forwards
|
3,959,367
|
3,170,690
|
|
Property and equipment
|
147,189
|
139,259
|
|
Intangible asset
|
94,126
|
90,639
|
|
Financing costs
|
26,469
|
40,777
|
|
|
4,227,151
|
3,441,365
|
|
Deferred tax asset not recognized
|
4,227,151
|
3,441,365
|
|
Net deferred tax asset (liability)
|
-
|
-
|
21. SUBSEQUENT EVENTS
In January and April 2018, the Company issued 2,591,500 common shares related to 2,591,500 warrants with an exercise price of $0.20 being exercised for gross proceeds of $518,300.
In February 2018, a total of 150,000 stock options were granted to an officer of the Company. Each option can be exercised to purchase one common share of the Company at $0.35 per share for a period of 5 years.
In April 2018, a total of 200,000 stock options were granted to a director of the Company. Each option can be exercised to purchase one common share of the Company at $0.24 per share for a period of 5 years.
On April 15, 2018, the Company issued 3,030,303 share purchase warrants entitling the holder to acquire an additional common share of the Company at a price of $0.33 per share until April 15, 2020.
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VANC Pharmaceuticals Inc.
Table of contents
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017, year ended December 31, 2016, six months ended December 31, 2015 and year ended June 30, 2015
(Expressed in Canadian Dollars)
On April 27, 2018, the Company issued 880,000 common shares related to the acquisition of HealthTab (Note 4).
In April 2018, the Company entered into an agreement with Corozon Consulting Corporation to acquire the Corozon Platform. The purchase price consists of $50,000 and issuance of 909,090 common shares. This acquisition is subject to approval from the Exchange.
In May 2018, the Company issued 384,000 common shares related to 384,000 warrants with an exercise price of $0.20 being exercised for gross proceeds of $76,800.
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