NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Cell MedX Corp. (the Company) was incorporated under the laws of the State of Nevada. On November 26, 2014, the Company formed a subsidiary, Avyonce Cosmedics Inc., (Avyonce) and on April 26, 2016, the Company formed an additional subsidiary, Cell MedX (Canada) Corp. (Cell MedX Canada). Both subsidiaries were formed under the laws of British Columbia.
On January 23, 2017, the Company divested of Avyonce in order to allow the Company to better concentrate on its core business. The divestiture was made effective as of December 31, 2016, at which date the Company forgave all outstanding intercompany debts (Note 8).
The Company is in an early development stage focusing on the discovery, development and commercialization of therapeutic and non-therapeutic products that promote general wellness and alleviate complications associated with medical conditions including, but not limited to, diabetes, Parkinsons disease, and high blood pressure.
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2017, the Company has not achieved profitable operations and has accumulated a deficit of $4,504,043. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America and are presented in US dollars.
Principles of consolidation
The consolidated financial statements include the accounts of Cell MedX Corp. and its subsidiaries: Avyonce, up to the date of its disposition, and Cell MedX Canada. On consolidation, all intercompany balances and transactions are eliminated.
Reclassifications
Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current periods presentation. These reclassifications had no net effect on the consolidated results of operations or financial position for any period presented.
F-6
Accounting estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of equipment, fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Foreign currency translations and transactions
The Companys functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
The functional currency of Cell MedX Canada and Avyonce is the Canadian dollar. On consolidation, the subsidiaries translate their assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translate their revenues and expenses using average exchange rates during the period. Gains and losses arising on translation are included in the other comprehensive income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Revenue recognition
Revenue is recognized when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.
Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.
Research and development costs
The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.
F-7
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.
Long-lived assets
In accordance with ASC 360, Property, Plant, and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over two years.
Fair Value Measurements
The book value of cash, accounts receivable, accounts payable, accrued liabilities, notes and advances payable and due to related parties approximate their fair values due to the short term maturity of those instruments. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1
quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2
observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3
assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended May 31, 2017 and 2016.
F-8
Stock options and other stock-based compensation
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees are recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share purchase options and the binomial option pricing model to determine the fair value of all stock based awards classified as liabilities. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2014-09 (ASU 2014-09) Revenue from Contracts with Customers. The standards core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will become effective for the Company beginning in the first quarter of 2018. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016, May 2016, and December 2016 within ASU 2016-08 Revenue from Contracts with Customers: Principal vs. Agent Considerations, ASU 2016-10 Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, ASU 2016-12 Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and ASU 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively. The Company expects to adopt the accounting standard update using the modified retrospective approach. The cumulative effect of adopting the accounting standard update will be recorded to retained earnings on January 1, 2018. We have completed our initial assessment of the effect of adoption. Based on this assessment, we expect changes in our revenue recognition policy relating to royalty revenues and certain other revenues that are currently recognized on a cash basis or sell through method. Upon adoption of the accounting standard updates, these revenues will be recognized in the periods in which the sales occur, subject to the constraint on variable consideration. The Company does not expect that these accounting standard updates will have a material impact on its consolidated financial statements.
NOTE 3 - RELATED PARTY TRANSACTIONS
Amounts due to related parties, other than notes payable to related parties (Note 7) at May 31, 2017 and 2016:
|
|
|
|
| |
|
May 31, 2017
|
|
May 31, 2016
|
Due to the Chief Executive Officer (CEO) and President
|
$
|
109,453
|
|
$
|
66,254
|
Due to the Chief Financial Officer (CFO)
|
|
9,777
|
|
|
6,419
|
Due to the Vice President (VP), Technology and Operations
|
|
55,781
|
|
|
56,596
|
Due to the Chief Medical Officer
|
|
81,059
|
|
|
81,059
|
Due to a company owned by the VP Technology and Operations
and former VP, Corporate Strategy
|
|
--
|
|
|
1,747
|
Due to the former VP, Corporate Strategy
|
|
86,777
|
|
|
95,575
|
Due to related parties
|
$
|
342,847
|
|
$
|
307,650
|
These amounts are unsecured, due on demand and bear no interest.
F-9
During the years ended May 31, 2017 and 2016, the Company had the following transactions with related parties:
|
|
|
|
| |
|
May 31, 2017
|
|
May 31, 2016
|
Management fees incurred to the CEO and President
|
$
|
43,200
|
|
$
|
43,200
|
Stock-based compensation incurred to the CEO and President (Note 9)
|
|
11,600
|
|
|
605,286
|
Management fees incurred to the CFO
|
|
12,000
|
|
|
12,000
|
Consulting fees incurred to the former VP, Corporate Strategy
|
|
32,649
|
|
|
85,669
|
Consulting fees incurred to the VP, Technology and Operations
|
|
47,614
|
|
|
73,768
|
Net payments made (received) for equipment acquired from (sold to) the
VP, Technology and Operations and VP, Corporate Strategy
|
|
--
|
|
|
(8,911)
|
Value of options issued and vested for Technology acquired from the VP,
Technology and Operations and VP, Corporate Strategy, and recorded as
part of research and development costs (Note 9)
|
|
--
|
|
|
496,345
|
Consulting fees incurred to the Chief Medical Officer and recorded as part
of research and development costs
|
|
--
|
|
|
50,000
|
Stock-based compensation incurred to the Chief Medical Officer
(Note 9)
|
|
105,883
|
|
|
262,874
|
Research and development costs incurred to a company controlled by the
Chief Medical Officer
|
|
--
|
|
|
26,700
|
Accrued interest expense incurred to a significant shareholder (Note 7)
|
|
7,919
|
|
|
7,620
|
Accretion expense associated with a loan agreement entered into with
significant shareholder (Note 7)
|
|
22,972
|
|
|
5,028
|
Total transactions with related parties
|
$
|
283,837
|
|
$
|
1,659,579
|
On September 26, 2016, the Company entered into a letter agreement (the Letter Agreement) with Jean Arnett and Brad Hargreaves to cancel the unvested portion of the options granted to Ms. Arnett and Mr. Hargreaves by the Company (Note 9). In addition, the Company renegotiated its consulting arrangements with Ms. Arnett and Mr. Hargreaves. Based on the Letter Agreement, the Company has agreed to pay each of Ms. Arnett and Mr. Hargreaves CAD$5,000 per month, beginning effective August 1, 2016, for duration of six months.
On January 23, 2017, Ms. Jean Arnett resigned as the Vice President, Corporate Development and as a director of the Company.
The Company continues to pay Mr. Hargreaves CAD$5,000 per month for his consulting services based on a verbal agreement, which automatically renews on a monthly basis.
NOTE 4 - EQUIPMENT
During the year ended May 31, 2017, the Company received 20 eBalance Pro wellness devices. The Company paid the developer $96,217 (
89,040) for the devices.
Amortization schedule for the equipment at May 31, 2017 and 2016:
|
|
|
|
| |
|
May 31, 2017
|
|
May 31, 2016
|
Book value, beginning of the period
|
$
|
207,083
|
|
$
|
25,846
|
Changes during the period
|
|
109,534
|
|
|
201,840
|
Amortization
|
|
(123,046)
|
|
|
(20,603)
|
Book value, end of the period
|
$
|
193,571
|
|
$
|
207,083
|
During the year ended May 31, 2017, the Company determined that due to rapid changes in the information technology and bio-med industries the estimated useful life of its equipment is two (2) years. The effect of reduction in the estimated useful life of equipment from three to two years was implemented progressively.
F-10
NOTE 5 - INVENTORY
As at May 31, 2017, the inventory consisted of supplies held for resale, and was valued at $8,161 (May 31, 2016 - $4,599). The Company uses lower of cost or net realizable value to determine the book value of the inventory at reporting date.
NOTE 6 - UNEARNED REVENUE
As at May 31, 2017, the Company had accepted $51,110 in deposits on its eBalance Pro devices.
NOTE 7 - NOTES AND ADVANCES PAYABLE
The tables below summarize the short-term loans and advances outstanding as at May 31, 2017 and 2016:
|
|
|
|
|
|
| |
As at May 31, 2017
|
Principal
Outstanding
|
Interest Rate
per Annum
|
|
Accrued
Interest / Accretion
|
Total Book
Value
|
$
|
382,484
|
6%
|
Non-convertible
|
$
|
6,727
|
$
|
389,211
|
|
61,748
|
6%
|
Related Party
|
|
2,241
|
|
63,989
|
|
50,000
|
6%
|
Term Loan - Related Party
|
|
3,775
|
|
53,775
|
|
34,324
|
0%
|
Advances
|
|
--
|
|
34,324
|
$
|
528,556
|
|
|
$
|
12,743
|
$
|
541,299
|
|
|
As at May 31, 2016
|
Principal
outstanding
|
Interest rate
per annum
|
Additional
description
|
Accrued
Interest / Accretion
|
Total Book
Value
|
$
|
195,000
|
6%
|
Convertible
|
$
|
18,588
|
$
|
213,588
|
|
490,000
|
6%
|
Non-convertible
|
|
12,842
|
|
502,842
|
|
197,000
|
6%
|
Related Party
|
|
7,620
|
|
204,620
|
|
50,000
|
6%
|
Related Party Term Loan
|
|
5,028
|
|
30,028
|
|
638
|
0%
|
Advances
|
|
--
|
|
638
|
$
|
932,638
|
|
|
$
|
44,078
|
$
|
951,716
|
Loan Agreements
During the year ended May 31, 2017, the Company entered into a number of loan agreements for $408,696 (May 31, 2016 - $480,000). These loans bare interest at 6% per annum, are unsecured and payable on demand. During the same period, the Company entered into a number of loan agreements with Mr. Richard Jeffs (Mr. Jeffs), a major shareholder, for a total of $104,209 (CAD$136,500) (May 31, 2016 - $247,000) (the Jeffs Loans). The Jeffs Loans bear interest at 6% per annum, are unsecured and are payable on demand.
On September 30, 2016, Mr. Jeffs notified the Company that he had assigned the rights to $250,000 Mr. Jeffs lent to the Company during its fiscal 2016 to two unaffiliated parties. The assignees notified the Company of their intention to convert the debt acquired by them from Mr. Jeffs into the units of the Companys common stock as part of the non-brokered private placement offering (the Offering), which the Company closed on October 12, 2016 (Note 9).
On October 12, 2016, as part of its Offering, the Company settled a total of $1,006,691 owed under the notes payable (the Debt), which consisted of $949,001 in principal and $57,690 in accrued interest. The Debt was converted to 6,711,272 units of the Companys common stock at $0.15 per unit. Each unit consisted of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of five years after closing at an exercise price of $0.50 per share if exercised during the first year, $0.75 per share if exercised during the second year, $1.00 per share if exercised during the third year, $1.25 per share if exercised during the fourth year, and at $1.50 per share if exercised during the fifth year.
F-11
Term Loan with Richard Jeffs
On March 3, 2016, the Company entered into a loan agreement (the Term Loan Agreement) with Richard Jeffs for a loan in the principal amount of $50,000 maturing March 3, 2017, with interest payable at a rate of 6% per annum (the Term Loan). As additional consideration for the Term Loan, the Company issued to Mr. Jeffs share purchase warrants (the Warrants) for the purchase of up to 2,000,000 shares of the Companys common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share during the fifth year. The Warrants were determined to be detachable from the debt instrument, as the debt instrument did not have to be surrendered to exercise the Warrants. Under the guidance provided by ASC 470-20-25-2, proceeds from the sale of debt instrument with stock purchase warrants must be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the Warrants was $25,000 and was recorded to additional paid-in capital.
The Term Loan had an effective interest rate of 77.51%, which was due primarily to the recording of non-cash accretion interest. During the year ended May 31, 2017, the Company recognized accretion expense of $22,972 (2016 - $5,028).
At March 3, 2016, the fair value of Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:
| |
|
At March 3, 2016
|
Expected Warrant Life
|
5 years
|
Risk-Free Interest Rate
|
1.33%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
16%
|
As of the date of the filing of these financial statements, the Term Loan is in default, however, the Company has not been served with a default notice by Mr. Jeffs.
Advances payable
During the year ended May 31, 2017, the Company borrowed $33,901 as non-interest bearing advances. During the year ended May 31, 2016, the Company repaid $60,212, net of additions, in non-interest bearing advances. The advances are unsecured and payable on demand.
During the year ended May 31, 2017, the Company recorded $29,062 (2016 - $32,836) in interest expense associated with above loans.
NOTE 8 - DIVESTITURE OF AVYONCE
On January 23, 2017, the Company divested one of its subsidiaries, Avyonce, in order to allow the Company to better concentrate on its core business. The divestiture was made effective as of December 31, 2016.
As part of the transaction, the Company forgave a total of $63,503 in intercompany advances, and recorded a gain on divestiture of $12,297, which was recorded through additional paid-in capital as a result of this transaction being undertaken with a related party.
NOTE 9 - SHARE CAPITAL
In January 2015 the Company received a subscription to 150,000 units (each a Unit) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consisted of one share of the Companys common stock and one warrant for the purchase of one additional share of the Companys common stock, exercisable at a price of $1.00 per share, expiring on December 31, 2015. The Company issued the shares on September 20, 2016. Since the expiration date of the warrants had passed, the warrants were not issued.
F-12
On October 12, 2016, the Company closed its Offering at a price of $0.15 per unit, by issuing 2,383,333 units for cash proceeds of $357,500 and 6,711,272 units to the holders of the Companys notes payable (Note 7) for debt settlement of $1,006,691. Each unit sold under the Offering consisted of one common share of the Company and one share purchase warrant expiring on October 12, 2021, and entitling the holder to purchase one additional common share for a period of five years after closing at an exercise price of $0.50 per share if exercised during the first year, $0.75 per share if exercised during the second year, $1.00 per share if exercised during the third year, $1.25 per share if exercised during the fourth year, and at $1.50 per share if exercised during the fifth year.
Options
On November 25, 2014, the Company acquired a proprietary technology for the use of micro currents for the treatment of diabetes and related ailments (the Technology) from Jean Arnett, the Companys former VP, Corporate Strategy, and Brad Hargreaves, the Companys VP, Technology and Operations, (the Vendors). As part of the Technology purchase agreement, the Company issued to the Vendors of the Technology options for the purchase of up to 20,000,000 shares of the Companys common stock at an exercise price of $0.05 per share and expiring on the 5th year anniversary of the applicable vesting date, or on December 31, 2019, for those options that have not vested.
On August 26, 2015, the board of directors of the Company determined that the options to purchase up to 2,500,000 common shares of the Companys common stock granted to the Vendors for the Technology, which were to vest upon the design and commencement of the first clinical trial, have vested. The total fair value of the vested options was calculated to be $496,345 (Note 3) and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
| |
|
At August 26, 2015
|
Expected Life of Options
|
5 years
|
Risk-Free Interest Rate
|
1.49%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
216%
|
On September 26, 2016, the Company entered into a letter agreement with the Vendors to cancel remaining 17,500,000 options (Note 3).
On January 13, 2015, the Company issued 2,400,000 non-transferrable options to its Chief Medical Officer. The options are exercisable at $0.67 per share and vest quarterly starting on March 31, 2015, in equal portions of 200,000 shares per vesting period, and expire on the 5th year anniversary of the applicable vesting date, subject to certain early termination provisions, upon the death of the optionee, or if the optionee ceases to act for the Company in any capacity either voluntarily or as a result of a termination or removal for cause.
The total fair value of the options was calculated to be $591,503 and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
| |
|
At January 13, 2015
|
Expected Life of Options
|
5 years from vesting
|
Risk-Free Interest Rate
|
1.37%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
27%
|
As of May 31, 2017, options to acquire up to 1,800,000 shares of the Companys common stock have vested, and the Company recognized $105,883 (2016 - $262,874) (Note 3) as stock-based compensation expense for the year ended May 31, 2017. Further $18,916 will be recognized in the future periods.
On August 5, 2015, the Company issued to its CEO, President and a member of the board of directors options to purchase up to 2,500,000 shares of the Companys common stock (the CEO Options). The CEO Options are exercisable at $0.35 per share. As of May 31, 2017, all CEO Options have vested.
F-13
The CEO Options expire on the 5th year anniversary of the particular vesting date, subject to certain early termination provisions, upon the death of the optionee, or if the optionee ceases to act for the Company in any capacity either voluntarily or as a result of a termination or removal for cause.
The total fair value of the options was calculated to be $616,886 and was determined using the Black-Scholes option pricing model at the grant date using the following assumptions:
| |
|
At August 5, 2015
|
Expected Life of Options
|
5 years from vesting
|
Risk-Free Interest Rate
|
1.65%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
218%
|
During the year ended May 31, 2017, the Company recognized $11,600 as share-based compensation expense (2016 - $605,286) (Note 3).
The changes in the number of stock options outstanding during the years ended May 31, 2017 and 2016 are as follows:
|
|
|
|
|
|
| |
|
Year ended
May 31, 2017
|
|
Year ended
May 31, 2016
|
|
Number of
options
|
Weighted
average
exercise
price
|
|
Number of
options
|
Weighted
average
exercise
price
|
Options outstanding, beginning
|
25,050,000
|
$
|
0.14
|
|
22,400,000
|
$
|
0.12
|
Options granted
|
--
|
|
n/a
|
|
2,650,000
|
$
|
0.34
|
Options cancelled
|
(17,500,000)
|
$
|
0.05
|
|
--
|
$
|
--
|
Options outstanding, ending
|
7,550,000
|
$
|
0.35
|
|
25,050,000
|
$
|
0.14
|
Options exercisable, ending
|
6,950,000
|
$
|
0.32
|
|
5,650,000
|
$
|
0.27
|
Details of options outstanding and exercisable as at May 31, 2017, are as follows:
|
|
| |
Exercise price
|
Grant date
|
Number of options
granted
|
Number of options
exercisable
|
$0.05
|
November 25, 2014
|
2,500,000
|
2,500,000
|
$0.67
|
January 13, 2015
|
2,400,000
|
1,800,000
|
$0.35
|
August 5, 2015
|
2,500,000
|
2,500,000
|
$0.20
|
September 23, 2015
|
150,000
|
150,000
|
|
|
7,550,000
|
6,950,000
|
At May 31, 2017, the weighted average remaining contractual life of the stock options outstanding and exercisable was 3.46 years.
Warrants
On March 3, 2016, the Company issued non-transferrable share purchase warrants to acquire up to 2,000,000 shares of the Companys common stock expiring on March 3, 2021, to Mr. Jeffs as additional consideration for the Term Loan (Note 7).
F-14
The exercise price of these warrants is as follows:
| |
Period expiring on:
|
Exercise Price
|
March 3, 2017
|
$0.15
|
March 3, 2018
|
$0.25
|
March 3, 2019
|
$0.40
|
March 3, 2020
|
$0.60
|
March 3, 2021
|
$0.75
|
On October 12, 2016, as part of the Offering, the Company issued warrants to acquire up to 9,094,605 of the Companys common stock expiring on October 12, 2021. The exercise price of these warrants is as follows:
| |
Period expiring on:
|
Exercise Price
|
October 12, 2017
|
$0.50
|
October 12, 2018
|
$0.75
|
October 12, 2019
|
$1.00
|
October 12, 2020
|
$1.25
|
October 12, 2021
|
$1.50
|
The changes in the number of warrants outstanding during the year ended May 31, 2017, and 2016, are as follows:
|
|
| |
|
Year ended
May 31, 2017
|
|
Year ended
May 31, 2016
|
Warrants outstanding, beginning
|
2,000,000
|
|
--
|
Warrants issued
|
9,094,605
|
|
2,000,000
|
Warrants outstanding, ending
|
11,094,605
|
|
2,000,000
|
Details of warrants outstanding as at May 31, 2017, are as follows:
|
| |
Exercise price
|
Expiry Date
|
Number of warrants
exercisable
|
$0.15 1st year; $0.25 2nd year; $0.40 3rd year;
$0.60 4th year; $0.75 5th year
|
March 3, 2021
|
2,000,000
|
$0.50 1st year; $0.75 2nd year; $1.00 3rd year;
$1.25 4th year; $1.50 5th year
|
October 12, 2021
|
9,094,605
|
|
|
11,094,605
|
At May 31, 2017, the weighted average remaining contractual life of the share purchase warrants was 4.26 years.
NOTE 10 - INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
|
|
| |
|
May 31, 2017
|
|
May 31, 2016
|
Net loss
|
$
|
(1,249,446)
|
|
$
|
(2,139,137)
|
Statutory tax rate
|
|
34%
|
|
|
34%
|
Expected income tax recovery
|
|
(425,000)
|
|
|
(727,000)
|
Permanent differences and other
|
|
40,000
|
|
|
305,000
|
Effect of foreign exchange
|
|
(1,000)
|
|
|
-
|
Change in valuation allowance
|
|
386,000
|
|
|
422,000
|
Income tax recovery
|
$
|
--
|
|
$
|
--
|
F-15
The Companys tax-effected future income tax assets and liabilities are estimated as follows:
|
|
|
|
| |
|
May 31, 2017
|
|
May 31, 2016
|
Deferred income tax assets (liabilities)
|
|
|
|
|
|
Losses carried forward
|
$
|
1,035,000
|
|
$
|
693,000
|
Equipment
|
|
50,000
|
|
|
8,000
|
Less: Valuation allowance
|
|
(1,085,000)
|
|
|
(701,000)
|
Net deferred income tax assets
|
$
|
--
|
|
$
|
--
|
At May 31, 2017 and 2016, the Company has recorded a valuation allowance for the aggregate of its tax assets as management believes it is more likely than not that the deferred tax asset will not be realized.
As at May 31, 2017, the Company had net operating loss carry forwards in the United States of approximately $2,042,000 to reduce future federal and state taxable income. These losses expire commencing in 2030 and until 2037.
As at May 31, 2017, the Company also had non-capital loss carry forwards of approximately $8,000 to reduce future Canadian taxable income. These losses expire in 2037.
The Company is not currently subject to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax adjustments, if accepted, that would result in a material change to its financial position.
NOTE 11 - SUBSEQUENT EVENTS
Loan Agreements
Subsequent to the year ended May 31, 2017, the Company received $19,318 (CAD$25,000) under a loan agreement with Mr. Jeffs. The loan bears interest at 6% per annum, is unsecured, non-convertible and payable on demand. In addition, the Company borrowed $9,936 (CAD$13,000) from a non-related party as a non-interest bearing advance, to be repaid on demand.
Private Placement
Subsequent to the year ended May 31, 2017, the Companys board of directors approved a private placement offering (the Offering) of up to 8,000,000 units at a price of USD$0.25 per unit (the Unit) for gross proceeds of up to $2,000,000. Each Unit sold under the Offering will consist of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
As of the date of the filing of these financial statements the Company received a subscription to 1,000,000 Units for gross proceeds of $250,000.
Proposed Debt Settlement
Subsequent to May 31, 2017, the Company entered into negotiations with its debt holders to convert up to $784,059 owed by the Company pursuant to its notes payable and for services owed into the Companys shares of the common stock at $0.25 per share. As part of the debt settlement Frank McEnulty, the Companys director, CEO and President, agreed to convert $120,254 owed to him on account of unpaid consulting fees and reimbursable expenses into 481,016 shares.
Grant of Stock Options
On August 24, 2017, the board of directors of the Company granted options to purchase up to 2,050,000 common shares to its CFO and consultants. The options vested immediately and may be exercised at a price of $0.25 per share for a period of five years expiring on August 24, 2022.
F-16