(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)
Securities registered pursuant to Section
12(g) of the Act: Common Shares, no par value
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares
of each of the Registrant’s classes of capital or common stock as of the close of the period covered by the annual report:
71,304,035 common shares as at December 31, 2017
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth
company. See definition of “accelerated filer and large accelerated filer,” and "emerging growth
company" in Rule 12b-2 of the Exchange Act. (Check one)
† The term “new or revised
financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
All references in this annual report on
Form 20-F to the terms “we”, “our”, “us”, “the Company” and “Ehave”
refer to Ehave, Inc
Unless otherwise indicated, all references to “dollars” or the use of the symbol “$”
are to U.S. dollars, and all references to “CDN$” are to Canadian dollars. See “Exchange Rate Data” under
Item 1 for relevant information about the rates of exchange between Canadian dollars and U.S. dollars. Our presentation currency is the U.S. dollar.
The following table sets forth, for the periods indicated, information concerning exchange rates between
the CDN$ and the U.S. dollar based on the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board.
This annual report contains “forward-looking
statements”. Forward-looking statements reflect the current view about future events. When used in this annual report, the
words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,”
“plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking
statements. Such statements, include, but are not limited to, statements contained in this annual report relating to our business
strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our
current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking
statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult
to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither
statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any
of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking
statements include, without limitation, our ability to develop and commercialize new and improved products and services; our ability
to raise capital to fund continuing operations; a continued decline in general economic conditions nationally and internationally;
decreased demand for our products and services; market acceptance of our products and services; our ability to protect our intellectual
property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers
and products; changes in government regulation; our ability to complete customer transactions and capital raising transactions;
and other factors (including the risks contained in the section of this annual report entitled “Risk Factors”) relating
to our industry, our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated,
expected, intended or planned.
Factors or events that could cause our
actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee
future results, levels of activity, performance or achievements. Except as required by applicable law we do not intend to update
any of the forward-looking statements to conform these statements to actual results.
The forward-looking statements in this annual report are subject
to various risks and uncertainties, most of which are difficult to predict and generally beyond our control, including without
limitation:
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
ITEM 3. KEY INFORMATION
|
A.
|
Selected
Financial Data
|
The selected financial data presented
below for the four years ended December 31, 2017, is presented in U.S. dollars and is derived from our financial statements
prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). We have
derived the selected financial data as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2017, 2016
and 2015 from our audited financial statements included elsewhere in this Annual Report on Form 20-F. We have derived the
selected financial data as of December 31, 2014, and for the year ended December 31, 2014, from our audited financial
statements not included in this annual report. The information set forth below should be read in conjunction with our
financial statements (including notes thereto) included under Item 18 and “Operating and Financial Review and
Prospects” included under Item 5 and other information provided elsewhere in this annual report on Form 20-F and our
financial statements and related notes. The selected financial data in this section is not intended to replace the financial
statements and is qualified in its entirety thereby.
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
|
78,260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(4,141,613
|
)
|
|
|
(1,502,204
|
)
|
|
|
(600,835
|
)
|
|
|
(380,088
|
)
|
Net comprehensive loss
|
|
|
(4,208,936
|
)
|
|
|
(1,466,776
|
)
|
|
|
(573,461
|
)
|
|
|
(302,296
|
)
|
Basic and diluted loss
per share
(1)
|
|
|
(0.06
|
)
|
|
|
(0.05
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
Total assets
(1)
|
|
|
59,275
|
|
|
|
48,380
|
|
|
|
138,995
|
|
|
|
211,830
|
|
Shareholders’ deficit
(1)
|
|
|
(2,009,266
|
)
|
|
|
(1,191,960
|
)
|
|
|
(446,680
|
)
|
|
|
(626,401
|
)
|
Cash dividends declared
per share
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average number of common shares outstanding
|
|
|
69,030,618
|
|
|
|
32,144,065
|
|
|
|
22,433,195
|
|
|
|
13,538,785
|
|
Notes:
|
1)
|
We issued 26,914,315 common shares in 2017. We issued 16,286,796 common shares for net cash proceeds of
$366,455 in 2016. We did not issue any common shares in 2014 or 2015.
|
|
2)
|
We have not declared or paid any dividends since incorporation.
|
Exchange Rate Data
The following table sets forth the exchange rates for Canadian
dollars expressed in U.S. dollars that have been used in the audited financial statements included elsewhere in this Annual Report
on Form 20-F.
$1 Canadian dollar equivalent in U.S. dollars
|
|
|
|
At December 31, 2016
|
|
|
0.7449
|
|
At December 31, 2017
|
|
|
0.7955
|
|
Average for the year ended December 31, 2017
|
|
|
0.7711
|
|
|
B.
|
Capitalization and Indebtedness
|
Not applicable
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable
Investment in our common shares involves a high degree of risk. You should carefully consider, among other matters, the following risk factors in
addition to the other information in this Annual Report on Form 20-F when evaluating our business because these risk factors may
have a significant impact on our business, financial condition, operating results or cash flow. If any of the material risks described
below or in subsequent reports we file with the Securities and Exchange Commission (“SEC”) actually occur, they may
materially harm our business, financial condition, operating results or cash flow. Additional risks and uncertainties that we have
not yet identified or that we presently consider to be immaterial may also materially harm our business, financial condition, operating
results or cash flow.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our limited operating history makes
evaluating our business and future prospects difficult, and may increase the risk of your investment.
We have a very limited operating history
on which investors can base an evaluation of our business, operating results and prospects. We have no operating history with respect
to commercializing our software applications and products. Consequently, it is difficult to predict our future revenues, if any,
and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business.
We began processes
to develop relationships with potential customers and distribution partners in November 2016. Completion of our cognitive assessment
and remediation tools and the further development and commercialization of our products is dependent upon the availability of sufficient
funds. This limits our ability to accurately forecast the cost of the development of our products. If the markets and applications
of our products do not develop as we expect or develop more slowly than we expect, our business, prospects, financial condition
and operating results will be harmed.
We have a history of operating losses
and expect to continue incurring losses for the foreseeable future.
We were incorporated in 2011. We reported a net loss of $4,141,613 for the fiscal year ended December
31, 2017 and had a net loss of approximately $1,502,204 during the fiscal year ended December 31, 2016. As of December 31, 2017,
we had an accumulated deficit of $6,989,124. We cannot anticipate when, if ever, our operations will become profitable.
We expect to incur significant net losses as we develop and commercialize our products and pursue our business strategy. We intend
to invest significantly in our business before we expect cash flow from operations to be adequate to cover our operating expenses.
If we are unable to execute our business strategy and grow our business, for any reason, our business, prospects, financial condition
and results of operations will be adversely affected.
As reflected in the financial statements
for the years ended December 31, 2017, and December 31, 2016, included elsewhere in this Annual Report on Form 20-F, we had limited
revenues in 2017 and had no revenues in 2016 and needs additional cash resources to maintain its operations. These factors raise
substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on
our ability to raise additional capital. We cannot predict when, if ever, we will be successful in raising additional capital and,
accordingly, we may be required to cease operations at any time, if we do not have sufficient working capital to pay our operating
costs.
If we are unable to obtain additional
funding, our business operations will be harmed.
We raised an aggregate of $1,927,899 through
public offerings of convertible debentures and warrants closed in 2018 to date. We raised an aggregate of $330,750 through a public
offering of common shares and warrants closed in June 2016. The note and warrant purchase agreement dated November 14, 2016, entered
in the private placement provided for additional proceeds of $869,183. We anticipate that we will continue to incur losses and
negative cash flows from operations, and that such losses will increase over the next several years due to development costs associated
with our MegaTeam, Ninja Reflex and Ehave Connect products, until our products reach commercial profitability. As a result of these
expected losses and negative cash flows from operations, along with our current cash position, we only have sufficient resources
to fund operations through September 1, 2018. To the extent that we are required to raise additional funds to conduct research
and acquire facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of
debt or equity securities. There are no assurances that we will be successful in obtaining the level of financing needed for our
operations, and we may be unable to secure such funding when needed in adequate amounts or on acceptable terms, if at all. Any
additional equity financing may involve substantial dilution to our then existing shareholders. The inability to raise the additional
capital will restrict our ability to develop and conduct business operations. If we cannot raise additional capital, we will need
to reduce our cash burn to last 12 months by focusing our efforts on existing products only, leveraging research funding to conduct
additional clinical studies on efficacy and postponing the development of the Ehave Connect platform and integration and development
of new techniques for assessment and rehabilitation.
Our independent auditors have expressed
their concern as to our ability to continue as a going concern.
We reported an accumulated deficit of $6,989,124
and had a stockholders’ deficit of $2,009,266 at December 31, 2017. As a result of our financial condition, we have received
a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2017
and 2016 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern without
the infusion of significant additional capital. There can be no assurance that management will be successful in implementing its
plans. If we are unable to raise additional financings we may cease operations.
Our products may not be successful
in gaining market acceptance, which would negatively impact our revenues.
Currently, our business strategy is to
develop and market Ehave Connect in an effective and timely manner and gain access to additional technologies at a time and in
a manner that we believe is best for our development. We deployed our Ehave Connect platform in 2017 in Canada and plan to launch
Ehave Connect in the United States in 2018. We may have difficulties in reaching market acceptance, which could negatively impact
our revenues, for a number of reasons including:
|
·
|
the failure of our Ehave Connect system
to meet the users’ and clinicians’ expectations;
|
|
·
|
any delays in securing partnerships and
strategic alliances;
|
|
·
|
any technical delays and malfunctions;
|
|
·
|
the availability of alternative platforms,
software programs or devices that may be, or may be perceived as, more effective, faster, easier to use or less costly than our
Ehave Connect platform;
|
|
·
|
failure to receive regulatory approval
on a timely basis or at all; and
|
|
·
|
failure to receive a sufficient level
of reimbursement from government, insurers or other third-party payors.
|
If we are unable to keep up with
rapid technological changes in our field, we will be unable to operate profitably.
Our industry is characterized by extensive
research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments,
our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not
render our software or potential products uneconomical or result in products superior to those we develop or that any products
or services we develop will be preferred to any existing or newly-developed products.
Many of our potential competitors
are better established and have significantly greater resources which may make it difficult for us to compete in the markets in
which we intend to sell our products.
The market for the products we develop
is highly competitive. Many of our potential competitors are well established with larger and better resources, longer relationships
with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. Increased
competition may result in price reductions, reduced gross margins, loss of market share and loss of licensees, any of which could
materially and adversely affect our business, operating results and financial condition. We cannot ensure that prospective competitors
will not adopt technologies or business plans similar to ours, or develop products which may be superior to ours or which may prove
to be more popular. It is possible that new competitors will emerge and rapidly acquire market share. We cannot ensure that we
will be able to compete successfully against future competitors or that the competitive pressures will not materially and adversely
affect our business, operating results and financial condition.
If we lose any of our key management
personnel or consultants, we may not be able to successfully manage our business or achieve our objectives.
Our future success depends in large part
upon the leadership and performance of our management and consultants. The Company's operations and business strategy are dependent
upon the knowledge and business contacts of our executive officers and our consultants. We have employment agreements with each
of Prateek Dwivedi or David Goyette to serve as our chief executive officer and our chief technology officer, respectively. Although,
we hope to retain the services of our officers and consultants, if any of our officer or consultants should choose to leave us
for any reason before we have hired additional personnel, our operations may suffer. If we should lose their services before we
are able to engage and retain qualified employees and consultants to execute our business plan, we may not be able to continue
to develop our business as quickly or efficiently.
In addition, we must be able to attract,
train, motivate and retain highly skilled and experienced technical employees in order to successfully develop our business. Qualified
technical employees often are in great demand and may be unavailable in the time frame required to satisfy our business requirements.
We may not be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of technical
personnel or our inability to hire or retain sufficient technical personnel at competitive rates of compensation could impair our
ability to successfully grow our business. If we lose the services of any of our personnel, we may not be able to replace them
with similarly qualified personnel, which could harm our business.
Developments or assertions by us
or against us relating to intellectual property rights could materially impact our business.
Pursuant to an amendment to the collaboration
agreement, effective January 1, 2014, with Toronto’s Hospital for Sick Children (the “Hospital”), all intellectual
property rights to the cognitive assessment and rehabilitation software jointly developed with the Hospital belong to the Hospital.
Our agreement with Multi-Health Systems Inc. (“MHS”), as amended, provides that all right, title and interest in and
to certain tests and other materials published by MHS relating to the tests are and will remain solely and exclusively vested in
MHS.
We will attempt to protect proprietary
and intellectual property rights to our products through licensing and distribution arrangements although we currently do not have
any patents or applications for our products.
Litigation may also be necessary in the
future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others or
to defend against claims of invalidity. Such litigation could result in substantial costs and the diversion of resources.
As we create or adopt new software, we
will also face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property
rights.
Our products could infringe on the
intellectual property rights of others which may result in costly litigation and, if we do not prevail, could also cause us to
pay substantial damages and prohibit us from selling or licensing our products.
Third parties may assert infringement or
other intellectual property claims against us. We may have to pay substantial damages, including damages for past infringement
if it is ultimately determined that our products or technology infringe a third party’s proprietary rights. Further, we may
be prohibited from selling or providing products before we obtain additional licenses, which, if available at all, may require
us to pay substantial royalties or licensing fees. Even if claims are determined to be without merit, defending a lawsuit takes
significant time, may be expensive and may divert management’s attention from our other business concerns. Any public announcements
related to litigation or interference proceedings initiated or threatened against us could cause our business to be harmed and
our stock price to decline.
We have identified material weaknesses in our internal control over financial reporting, and if we are unable
to achieve and maintain effective internal control over financial reporting or effective disclosure controls, we may be at risk
to accurately report financial results or detect fraud, which could have a material adverse effect on our business.
As directed by Section 404 of the Sarbanes-Oxley
Act of 2002, the SEC adopted rules requiring an annual assessment by management of the effectiveness of a public company’s
internal controls over financial reporting and an attestation report by the company’s independent auditors addressing this
assessment, if applicable. As discussed in Item 15 “Controls and Procedures” based on a review of our internal controls
over financial reporting, management concluded that our internal controls over financial reporting was not effective due to the
existence of a material weakness relating to the lack of segregation of duties as of December 31, 2017. A material weakness is
defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected
on a timely basis by the company’s internal controls. Management has since addressed this weakness and has implemented the
necessary changes to have effective controls over financial reporting. For additional information, see Item 15 “Controls
and Procedures.”
We cannot assure you that we will be able to remediate our existing material weaknesses in a timely manner,
if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that
is significantly increased in light of the complexity of our business. If our efforts to remediate these material weaknesses, as
described in Item 15 “Controls and Procedures”, are not successful or if other deficiencies occur, our ability to accurately
and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could
result in late filings of our annual or interim reports under the Exchange Act, restatements of our consolidated financial statements
or other corrective disclosures. Our failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on an
ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in
turn could harm our business and negatively impact the trading price of the common shares. In addition, future changes in our accounting,
financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment
accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our
financial reporting, which may adversely affect our share price,
suspension
of trading or delisting of our common shares by OTCQB, or other material adverse effects on our business, reputation, results of
operations, financial condition or liquidity. Furthermore, if we continue to have these existing material weaknesses, other material
weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state
our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our shares.
The market for our products is immature
and volatile and if it does not develop, or if it develops more slowly than we expect, the growth of our business will be harmed.
The market for software-based systems for
mental health or treatments using medical cannabis is a new and unproven market, and it is uncertain whether it will achieve and
sustain demand and market adoption. Our success will depend to a substantial extent on the willingness of customers and healthcare
professionals to use our systems, as well as on our ability to demonstrate the value of our software and products to customers
and to develop new applications that provide value to customers and users. If customers and users do not perceive the benefits
of our products, then our market may not develop at all, or it may develop more slowly than we expect, either of which could significantly
adversely affect our operating results. In addition, we have limited insight into trends that might develop and affect our business.
We might make errors in predicting and reacting to relevant business, legal and regulatory trends, which could harm our business.
If any of these events occur, it could materially adversely affect our business, financial condition or results of operations.
If our security measures are breached
and unauthorized access to a customer’s data are obtained, our products may be perceived as insecure, we may incur significant
liabilities, our reputation may be harmed and we could lose sales and customers.
Our products involve the storage and transmission
of customers’ proprietary information, as well as protected health information, or PHI, which, in the United States, is regulated
under the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations, collectively “HIPAA,”
and other state and federal privacy and security laws. Because of the extreme sensitivity of this information, the security features
of our product are very important. If our security measures, some of which will be managed by third parties, are breached or fail,
unauthorized persons may be able to obtain access to sensitive data, including HIPAA-regulated protected health information. A
security breach or failure could result from a variety of circumstances and events, including but not limited to third-party action,
employee negligence or error, malfeasance, computer viruses, attacks by computer hackers, failures during the process of upgrading
or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors,
and catastrophic events.
If our security measures were to be breached
or fail, our reputation could be severely damaged, adversely affecting customer or investor confidence, customers may curtail their
use of or stop using our products and our business may suffer. In addition, we could face litigation, damages for contract breach,
penalties and regulatory actions for violations of HIPAA and other state and federal privacy and security regulations, significant
costs for investigation, remediation and disclosure and for measures to prevent future occurrences. In addition, any potential
security breach could result in increased costs associated with liability for stolen assets or information, repairing system damage
that may have been caused by such breaches, incentives offered to customers or other business partners in an effort to maintain
the business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes,
deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants.
While we maintain insurance covering certain security and privacy damages and claim expenses we may not carry insurance or maintain
coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage
that could result from a security incident.
We plan to outsource important aspects
of the storage and transmission of customer information, and thus rely on third parties to manage functions that have material
cyber-security risks. These outsourced functions include services such as software design and product development, software engineering,
database consulting, data-center security, IT, network security, data storage and Web application firewall services. We cannot
assure you that any measures that are taken will adequately protect us from the risks associated with the storage and transmission
of customers’ proprietary information and protected health information.
We may experience cyber-security and other
breach incidents that may remain undetected for an extended period. Because techniques used to obtain unauthorized access or to
sabotage systems change frequently and generally are not recognized until launched against us, we may be unable to anticipate these
techniques or to implement adequate preventive measures. In addition, in the event that our customers authorize or enable third
parties to access their data or the data of their employees on our systems, we cannot ensure the complete integrity or security
of such data in our systems as we would not control access. If an actual or perceived breach of our security occurs, or if we are
unable to effectively resolve such breaches in a timely manner, the market perception of the effectiveness of our security measures
could be harmed, we could be subject to regulatory action or other damages and we could lose sales and customers.
If we fail to comply with applicable
health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant
liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers
to work with us.
Once our products are deployed in the
United States, we will be subject to data privacy and security regulation by both the federal government and the states in
which we conduct our business. HIPAA established uniform federal standards for certain “covered entities,” which
include health care providers, health plans, and health care clearing houses, governing the conduct of specified electronic
health care transactions and protecting the security and privacy of protected health information, or PHI. The Health
Information Technology for Economic and Clinical Health Act, or HITECH, which was signed into law on February 17, 2009, makes
certain of HIPAA’s privacy and security standards directly applicable to “business associates,” which are
individuals or entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on
behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered
entities, business associates and other persons, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce HIPAA’s requirements and seek attorney’s fees and costs
associated with pursuing federal civil actions.
In addition, states have enacted privacy
and security laws and regulations that regulate the use and disclosure of certain data, with some state laws covering medical and
healthcare information. These laws vary by state and could impose additional requirements and penalties on us. For example, some
states impose restrictions on the use and disclosure of health information pertaining to mental health or substance abuse. Further,
state laws and regulations may require us to notify affected individuals in the event of a data breach involving individually identifiable
information, which may be broader than the type of information covered by HIPAA. In addition, the Federal Trade Commission may
use its consumer protection authority to initiate enforcement actions in data privacy and security matters.
If we are unable to protect the privacy
and security of our customers’ data, we could be found to have breached our contracts with our customers, we could face civil
and criminal penalties under federal and state laws, we could be subject to litigation and we could suffer reputational harm or
other damages. We may not be able to adequately address the business, technical and operational risks created by HIPAA and other
privacy and security regulations. Furthermore, we are unable to predict what changes to HIPAA or other laws or regulations might
be made in the future or how those changes could affect our business or the costs of compliance.
Our proprietary software may not
operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from
other purposes, any of which could harm our business and operating results.
Proprietary software development is time-consuming,
expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we
discover additional problems that prevent our proprietary applications from operating properly. We are currently implementing software
with respect to a number of new applications and services. If our software does not function reliably or fails to achieve client
expectations in terms of performance, clients could assert liability claims against us or attempt to cancel their contracts with
us. This could damage our reputation and impair our ability to attract or maintain clients.
Moreover, data services are complex as
those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors. Material performance
problems, defects or errors in our existing or new software and applications and services may arise in the future and may result
from interface of our offering with systems and data that we did not develop and the function of which is outside of our control
or undetected in our testing. These defects and errors and any failure by us to identify and address them could result in loss
of revenue or market share, diversion of development resources, injury to our reputation and increased service and maintenance
costs. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating results.
We depend on data centers operated
by third parties for our products, and any disruption in the operation of these facilities could adversely affect our business.
We provide our products through a third-party
data center. While we control and have access to our servers and all of the components of our network that are located in our external
data centers, we do not control the operation of these facilities. The owners of our data centers have no obligation to renew agreements
with us on commercially reasonable terms, or at all. If we are unable to renew any such agreements we may enter into on commercially
reasonable terms, or if our data center operator is acquired, we may be required to transfer our servers and other infrastructure
to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.
Problems faced by our third-party data
center locations could adversely affect the experience of our customers. The operators of the data centers could decide to close
their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by the operators of
the data centers or any of the service providers with whom we or they contract may have negative effects on our business, the nature
and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for
capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service
levels at our data centers or cause such data centers and systems to fail. Any changes in third-party service levels at our data
centers or any disruptions or other performance problems with our products could adversely affect our reputation or result in lengthy
interruptions in our services. Interruptions in our services might reduce our revenue, cause us to issue refunds to customers for
prepaid and unused subscriptions, subject us to potential liability or adversely affect our renewal rates.
If currency exchange rates fluctuate
substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
As our head office and operations are primarily
based in Canada, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee
compensation and other operating expenses in Canadian dollars. Fluctuations in the exchange rates between the U.S. dollar and the
Canadian dollar could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported
results of operations. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion
of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.
Our future U.S. operations and relationships
with healthcare providers, investors, consultants, third-party payors, patients, and other customers may be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and regulations, which in the event of a violation could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Our future U.S. operations and arrangements
with healthcare providers, physicians and third-party payors may expose us to broadly applicable fraud and abuse and other federal
and state healthcare laws and regulations. These laws may constrain the business and/or financial arrangements and relationships
through which we market, sell and distribute our products. Potentially applicable U.S. laws include:
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the federal Anti-Kickback Statute, which
prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing
or arranging for, or recommending the ordering, purchasing or leasing of, items or services payable by Medicare, Medicaid or any
other federal healthcare program;
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federal false claims laws and civil monetary
penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting,
or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or
fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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HIPAA, which imposes federal criminal and civil liability for executing,
or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements relating to healthcare
matters;
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also imposes
certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
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analogous state laws and regulations,
such as state anti-kickback and false claims laws, which may be broader in scope and apply to referrals and items or services reimbursed
by any third-party payers, including commercial insurers, many of which differ from each other in significant ways and often are
not preempted by federal law, thus complicating compliance efforts.
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Because of the breadth of these laws and
the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our
business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws
is uncertain and subject to rapid change in the current environment of healthcare reform. Our risk of being found in violation
of these laws is increased by the fact that some of these laws are open to a variety of interpretations. If our past or present
operations, practices, or activities are found to be in violation of any of the laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation
in government healthcare programs, such as Medicare and Medicaid, imprisonment, damages, fines, disgorgement, contractual damages,
reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which
could adversely affect our ability to operate our business and our results of operations. Further, defending against any such actions
can be costly, time-consuming and may require significant resources. Therefore, even if we are successful in defending against
any such actions that may be brought against us, our customers may be unwilling to use our products and our business may be impaired.
We may not be in compliance with
rules and regulations of the U.S. Food and Drug Administration (the “FDA”) should they become applicable to any products
we develop in the future.
While our Ehave Connect product that we
intend to sell in the United States is not currently regulated by the FDA, the FDA may decide to regulate our Ehave Connect product
in the future. Should the FDA decide to regulate our Ehave Connect product as a medical device, we may not be able to obtain marketing
clearance or approval for our Ehave Connect product in a timely manner or at all which may have an adverse effect on our business,
financial condition and results of operations.
In the event that the FDA decides to regulate
our Ehave Connect product as a medical device and we are able to obtain FDA clearance or approval to sell, market or advertise
our Ehave Connect product, there is no guarantee that our methods and procedures will continue to satisfy regulatory requirements,
should such regulatory requirements exist in the future. Any future regulation could subject us to potential liability if we were
deemed to be non-compliant with such rules and regulations. If we are not able to comply with the regulatory requirements, should
there be such regulatory requirements in the future, we may be restricted from continuing to sell, market or advertise our Ehave
Connect product in the United States which may have an adverse effect on our business, financial condition and results of operations.
We have no current plans to market, advertise
or sell computerized cognitive assessment aids in the United States. Types of computerized cognitive assessment aids for the measurement
and assessment of behavioral and cognitive abilities such as brain games are games purporting to increase intelligence or cognitive
function are currently regulated by the FDA as Class II medical devices. Such brain games may be subject to clinical processes
to determine their accuracy or validity. Terminology such as “neuroplasticity”, “attention” and “working
memory” have become ubiquitous as the “brain game” market has grown. Current clinical practice refers to the
use of cognitive software for the measurement of deficits as an “assessment”, and the use of software tools as rehabilitation
methods as “remediation”. Should we decide in the future to market, advertise, or sell products that may be considered
by the FDA as computerized cognitive assessment aids, we may be required to undergo costly and time consuming clinical trials to
prove the accuracy and validity of our computerized cognitive assessment aids, should we have any such products to market, sell
or advertise in the future.
The results of any future clinical
trials that we may need to perform in the future may not support our medical device candidate requirements or intended use claims
or may result in the discovery of unanticipated inconsistent data
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We have no current plans to market, advertise
or sell computerized cognitive assessment aids in the United States and we do not anticipate that the FDA will require us to perform
clinical trials on our Ehave Connect platform. Should we be required by the FDA to perform clinical trials on our Ehave Connect
platform, we cannot be certain that results from such clinical trials will support our Ehave Connect requirements or intended use
claims, which could inhibit our marketing strategies, or that the FDA or foreign authorities will agree with our conclusions regarding
them. Success in our internal development studies of our Ehave Connect does not ensure that formal clinical trials will be successful,
and we cannot be sure that clinical trials will replicate the results of our Ehave Connect internal development studies. The clinical
trial process may fail to demonstrate that our Ehave Connect, or any computerized cognitive assessment aids that we may develop
in the future, are safe, effective, and consistent for the desired or proposed indicated uses, which could cause us to abandon
a product and may delay development of others. Any requirement to perform unanticipated clinical trials or delay or termination
of any such unanticipated future clinical trials may delay or inhibit our ability to commercialize our Ehave Connect platform,
or any computerized cognitive assessment aids that we may develop in the future; and affect our ability to generate revenues.
A security breach or disruption
or failure in a computer or communications systems could adversely affect us.
Our operations depend on the continued
and secure functioning of our computer and communications systems and the protection of electronic information (including sensitive
personal information as well as proprietary or confidential information) stored in computer databases maintained by us or by third
parties. Such systems and databases are subject to breach, damage, disruption or failure from, among other things, cyber-attacks
and other unauthorized intrusions, power losses, telecommunications failures, fires and other natural disasters, armed conflicts
or terrorist attacks. We may be subject to threats to our computer and communications systems and databases of unauthorized
access, computer hackers, computer viruses, malicious code, cyber-crime, cyber-attacks and other security problems and system disruptions. Unauthorized
persons may attempt to hack into our systems to obtain personal data relating to clinical trial participants or employees or our
confidential or proprietary information or of third parties or information relating to our business and financial data. If,
despite our efforts to secure our systems and databases, events of this nature occur, we could expose clinical trial participants
or employees to financial or medical identity theft, lose clinical trial participants or employees or have difficulty attracting
new clinical trial participants or employees, be exposed to the loss or misuse of confidential information or business and financial
data, have disputes with clinical trial participants or employees, suffer regulatory sanctions or penalties under applicable laws,
incur expenses as a result of a data privacy breach, or suffer other adverse consequences including legal action and damage to
our reputation.
RISKS ASSOCIATED WITH OUR COMMON SHARES
AND COMPANY
We expect that our stock price will
fluctuate significantly.
The trading price of our common shares
may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include:
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announcement
of new products by our competitors;
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release of new products by our competitors;
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adverse regulatory decisions;
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developments in our industry or target markets; and
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general market conditions including factors unrelated to our operating performance.
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Recently, the stock market in general has
experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme market volatility in the
price of our common shares which could cause a decline in the value of our shares.
Market prices for securities of software
development companies generally are volatile and the share price for our common shares has been historically volatile. This increases
the risk of securities litigation. Factors such as announcements of technological innovations, new commercial products, patents,
the development of proprietary rights, results of clinical trials, regulatory actions, publications, financial results, our financial
position, future sales of shares by us or our current shareholders and other factors could have a significant effect on the market
price and volatility of the common shares.
If our business is unsuccessful,
our shareholders may lose their entire investment.
Although shareholders will not be bound
by or be personally liable for our expenses, liabilities or obligations beyond their total original capital contributions, should
we suffer a deficiency in funds with which to meet our obligations, the shareholders as a whole may lose their entire investment
in our Company.
Trading of our common shares on the
OTCQB Venture Market is limited and sporadic, making it difficult for our shareholders to sell their shares or liquidate their
investments.
Prior to the listing of our common
shares for trading on the OTCQB Venture Market in November 2016, there was no public market for our common shares. Although
our common shares are traded on the OTCQB Venture Market, the market for our common shares has demonstrated varying
levels of trading activity. Furthermore, an active trading market may not be sustained in the future. The lack of an active
market may impair your ability to sell your common shares at the time you wish to sell them or at a price that you consider
reasonable. The lack of an active market may also reduce the fair value of your common shares. An inactive market may also
impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire
other companies or technologies by using our shares as consideration.
Our common shares are subject to
the “penny stock” rules of the SEC and we have no established market for our securities, which makes transactions in
our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 15g-9 which establishes
the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price
of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions
in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in
penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which,
in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing
to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors
to dispose of our common shares and cause a decline in the market value of our stock.
Disclosure also has to be made about the
risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both
the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks.
We are a “foreign private issuer”,
and you may not have access to the information you could obtain about us if we were not a “foreign private issuer”.
We are considered a “foreign private
issuer” under the Securities Act of 1933, as amended. As a foreign private issuer we will not have to file quarterly reports
with the SEC nor will our directors, officers and 10% stockholders be subject to Section 16(b) of the Exchange Act. Such exemption
may result in shareholders having less data and there being fewer restrictions on insiders’ activities in our securities.
As a foreign private issuer we will not be subject to the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation
FD does not apply to non-U.S. companies and will not apply to us. Accordingly, you may not be able to obtain information about
us as you could obtain if we were not a “foreign private issuer”.
Because the majority of our assets
and of our officers and directors are located outside the United States, it may be difficult for an investor to enforce within
the United States any judgments obtained against us or any of our officers and directors.
All of our assets are presently located
outside of the United States and we do not currently maintain a permanent place of business within the United States. In addition,
some of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial
portion of such persons’ assets are located outside the United States. As a result, it may be difficult for an investor to
effect service of process or enforce within the United States any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition,
there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against
us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or
any state thereof. There is even uncertainty as to whether the Canadian courts would have jurisdiction to hear original actions
brought in Canada against us or our directors and officers predicated upon the securities laws of the United States or any state
thereof.
Because we do not intend to pay any
cash dividends on our common shares, our shareholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings
to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common shares in
the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they
sell them at a price higher than that which they initially paid for such shares.
Because we are not subject to compliance
with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested
director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well
as rule changes proposed and enacted by the SEC, the New York Stock Exchange, the NYSE MKT and NASDAQ, as a result of Sarbanes-Oxley
Act of 2002, require the implementation of various measures relating to corporate governance. These measures are designed to enhance
the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges. Because
we will not be seeking to be listed on any of the exchanges, we will not be presently required to comply with many of the corporate
governance provisions.
Our officer and directors own a substantial
amount of our common shares and, therefore, exercise significant control over our corporate governance and affairs which may result
in their taking actions with which other shareholders do not agree.
Our executive officer and directors and their affiliates control approximately 31.54% of our outstanding
common shares. These shareholders, if they act together, may be able to exercise substantial influence over the outcome of all
corporate actions requiring approval of our shareholders, including the election of directors and approval of significant corporate
transactions, which may result in corporate action with which other shareholders do not agree. This concentration of ownership
may also have the effect of delaying or preventing a change in control which might be in other shareholders’ best interest
but which might negatively affect the market price of our common shares.
Our authorized capital consists of
an unlimited number of shares of one class designated as common shares. We may, in the future, issue additional common shares,
which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation authorizes
the issuance of an unlimited number of our common shares, no par value, of which 71,304,035 shares are currently issued and outstanding.
The future issuance of common shares may result in substantial dilution in the percentage of our common shares held by our then
existing shareholders. We may value any common shares issued in the future on an arbitrary basis. The issuance of common shares
for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by
our investors, and may have an adverse effect on any trading market of our common shares.
Offers or availability for sale of
a substantial number of our common shares may cause the price of our common shares to decline.
If our shareholders sell substantial amounts
of our common shares in the public market, including shares issued in the public offering and shares issued upon conversion of
outstanding convertible notes or exercise of outstanding warrants, or upon the expiration of any statutory holding period, under
Rule 144, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang”
and in anticipation of which the market price of our common shares could fall. The existence of an overhang, whether or not sales
have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity
or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
We qualify as an “emerging
growth company” under the Jumpstart Our Business Startups Act, or JOBS Act. As a result, we are permitted to, and intend
to, rely on exemptions from certain disclosure requirements.
For so long as we are an emerging growth
company, we will not be required to:
● have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;
● comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e.,
an auditor discussion and analysis);
● submit
certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;”
and
● disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the chief executive officer’s compensation to median employee compensation.
We will remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our ordinary shares that is held
by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii)
the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Until such time, however, we cannot predict
if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common
shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be
more volatile.
In addition, when these exemptions cease
to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We
cannot predict or estimate the amount of additional costs we may incur as a result of us ceasing to be an emerging growth company
or the timing of such costs. In addition, once we no longer qualify as an emerging growth company under the JOBS Act and lose the
ability to rely on the exemptions related thereto, depending on our status as per Rule 12b-2 of the Securities Exchange Act of
1934, as amended, our independent registered public accounting firm may also need to attest to the effectiveness of our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. We will be performing the system and process
evaluation and testing (and any necessary remediation) required to comply with the management certification and eventual auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 when we are no longer an emerging growth company. This
process will require the investment of substantial time and resources, including by our senior management. As a result, this process
may divert internal resources and take a significant amount of time and effort to complete.
Since we have elected under Section
107 of the JOBS Act to use the extended transition period with respect to complying with new or revised accounting standards, our
financial statements may not be comparable to companies that comply with public company effective dates making it more difficult
for an investor to compare our results with other public companies.
Section 107 of the JOBS Act provides that
an emerging growth company can take advantage of the extended transition period provided in Section 102(b)(2)(B) of the Act for
complying with new or revised accounting standards. In other words, as an emerging growth company we can delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage
of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies
that comply with such new or revised accounting standards.
We may be classified as a Passive
Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2018 and may continue to be, or become, a PFIC in
future years, which may have negative tax consequences for U.S. investors.
We will be treated as a PFIC for U.S. federal
income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or
(ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Based
on our estimated gross income, the average value of our gross assets, and the nature of our business, we may be classified as a
PFIC in the current taxable year and may be treated, or may become, a PFIC in future years. If we are treated as a PFIC for any
taxable year during which a U.S. investor held our common shares, certain adverse U.S. federal income tax consequences could apply
to the U.S. investor. See “Item 10. Additional Information – E. Taxation– Passive Foreign Investment Company
Rules.”
ITEM 4. INFORMATION ON THE COMPANY
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History
and Development of the Company
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We were incorporated under the laws of
the Province of Ontario (specifically under the Business Corporations Act (Ontario)) on October 31, 2011, in the Province of Ontario,
Canada, and did business as Behavioural Neurological Applications and Solutions. Effective November 4, 2015, we changed our name
to Ehave, Inc.
From inception and prior to our public
offering closed in June 2016, we had been funded by a combination of investment capital and grant financing totaling approximately
$1,100,000, comprised of approximately $630,000 of grant financing and $470,000 of equity financing.
On May 14, 2015, we effectuated a 100,000:1
forward stock split of our common shares.
On July 7, 2015, we closed a private placement
of convertible notes with a principal value of $325,000 and commenced the legal and financial processes of becoming an SEC registrant
and commencing a public offering.
On September 24, 2015, we filed our registration
statement on Form F-1, which was declared effective on April 4, 2016, for a public offering of up to 11,002,445 common shares and
warrants to purchase 11,002,445 common shares. The registration statement also included a prospectus for resale of up to 11,393,642
common shares issuable upon the conversion of certain convertible notes and 11,393,642 common shares issuable upon the exercise
of certain warrants offered by the selling shareholders named in the prospectus.
On June 14, 2016, we had a closing of the
offering of an aggregate of 6,503,667 common shares and warrants to purchase an aggregate of 6,503,667 common shares, for gross
proceeds of $266,000. Subsequent to the initial closing, on June 24, 2016, we had a second closing of the offering of an aggregate
of 1,589,242 common shares and warrants to purchase 1,589,242 common shares, for gross proceeds of $65,000. We received total gross
proceeds of $331,000 from the offering.
On November 14, 2016, we received notice
from the Financial Industry Regulatory Authority (“FINRA”) that pursuant to FINRA Rule 6432 and Rule 15c2-11 that our
company may initiate a priced quotation on the OTC Bulletin Board under the trading symbol EHVVF. On November 21, 2016, our common
shares were listed for trading on the OTCQB Venture Market.
On November 21, 2016, we appointed Prateek
(Teek) Dwivedi as our Chief Executive Officer and director.
On November 14, 2016, we entered into a
definitive securities purchase agreement to sell up to $1,500,026 of convertible promissory notes and warrants in multiple closings
in a private placement. We have used and intend to use the net proceeds from the private placement to further the development of
Ehave Connect, for MegaTeam clinical trials, for general marketing and investor relations’ purposes, and for working capital.
As of December 31, 2016, we received $259,357 of $309,357 of the firmly committed amount and waived $50,000 of the firmly committed
amount for future reassignment as permitted under the agreement. Certain lenders have notified us that it will not elect to fund
an aggregate of $683,130 of additional loans and have permitted its reassignment, of which $489,368 has been reassigned. In the
year ended December 31, 2017, we issued additional convertible promissory notes in an aggregate principal amount of $609,826 pursuant
to the note and warrant purchase agreement. As of December 31, 2017, we had received total proceeds of $869,183 pursuant to the
note and warrant purchase agreement.
On December 13, 2016, we entered into an
agreement with Multi-Health Systems (“MHS”), an international healthcare technology developer of scientifically validated
assessments, granting us access to MHS’s extensive library of mental health assessments. Under the partnership, we agreed
to integrate MHS’s psychological assessment tests into our Ehave Connect mental health digital informatics platform. Initially,
we focused on MHS’s tests related to behavior assessment and ADHD, including the Conners® suite of ADHD assessments.
On May 4, 2017, we amended our agreement with MHS to include the Davidson Trauma Scale and Startle Physiological Anger Numbness
to assess Post Traumatic Stress Disorder (“PTSD”). This is a continuation of adding products from MHS’s catalog
as a result of completion of the integration of the Conners suite of products. We expect to incrementally add additional products
from MHS’s catalog of mental health assessments and services to Ehave Connect.
On February 3, 2017, we entered into a
Strategic Relationship Agreement (the “MedReleaf Agreement”) with MedReleaf Corp. (“MedReleaf”), pursuant
to which we and MedReleaf agreed to develop a branded MedReleaf app utilizing our Ehave Connect platform to advance the study and
therapeutic use of medical cannabis. In connection with the MedReleaf Agreement, MedReleaf made an investment of $100,000 into
the Company in the form of a convertible note, and was granted an option to invest $200,000 into our TSX-V common stock public
offering.
On June 30, 2017, we entered into a non-binding
Letter of Intent with Companion Healthcare Technologies Corporation (“CHT”), a company engaged in healthcare technologies
to improve the quality of care for pets. Under the terms that were contemplated, CHT would have exclusive rights to our Ehave Connect
platform for use in companion animals. Initially a demonstration platform will be built to show the capabilities of the Ehave informatics
platform. A deposit for the exclusive license fee and demonstration platform was provided by CHT, which will be applied against
fees contemplated in a definitive agreement. We performed the services required to create a demonstration platform and delivered
it to CHT.
On July 27, 2017, we issued demand non-interest
bearing senior secured promissory notes in the aggregate principal amount of $134,575 (CDN$169,000) to certain lenders.
On October 11, 2017, we entered into Investor
Letters, pursuant to which certain persons agreed to purchase securities of the Company on similar terms as certain offerings of
the Company that are consummated prior to December 31, 2017, or, if such an offering is not consummated, the purchase amount will
be converted into a secured promissory note that matures on January 31, 2018 (which, at the investor’s option, may be converted
into common shares of the Company). We received aggregate proceeds of $100,000. No such offerings were consummated prior to December
31, 2017, and such notes were converted into unsecured promissory notes on January 31, 2018.
On November 15, 2017, we issued demand non-interest bearing senior secured promissory notes in the aggregate
principal amount of $196,237. Lenders of the promissory notes were issued 2,133,333 common share warrants at an exercise price
of $0.075 per share with an expiry date of November 16, 2022. On January 31, 2018 $148,745 of the promissory notes were repaid
and $47,932 of the promissory notes were exchanged for unsecured convertible debentures.
On March 1, 2018, we entered in an agreement
with Revive Therapeutics Ltd. (“Revive”) for the use of the Ehave Connect platform in Revive’s research initiatives
involving medical cannabis for the treatment of liver disease. Under this agreement, Revive will use Ehave Connect for both clinical
trials and facilitating patient management.
On March 5, 2018, we entered an agreement
with Aequus Pharmaceuticals Inc. (“Aequus”), for the use of Ehave Connect to enhance and streamline data management
processes for Aequus-sponsored clinical trials studying cannabinoid formulations for treating various neurological conditions.
On January 31, 2018, the Company entered
into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CDN$1,500,000),
issued in two installments. The Secured Debentures are secured against certain of our assets. Under the terms of the Secured Debentures,
the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the
issue price of common shares under a qualified offering. The conversion of the Secured Debentures is at the option of the holder.
At the time of conversion, the holder will also receive an equal amount of common share purchase warrants with an exercise price
equal to the issue price. The Secured Debentures are due on July 31, 2018 and bear interest at 10% per annum. The initial installment
of the Secured Debentures was issued on January 31, 2018 for proceeds of $609,310 (CDN$750,000). On March 19, 2018, the final instalment
of $573,307 (CDN$750,000) was received. The Secured Debentures are secured against the general assets and intellectual property
of the Company.
On January 31, 2018, promissory notes with an aggregate principal amount of $311,967 (CDN$384,000) outstanding
at December 31, 2017 were exchanged for unsecured convertible debentures (the “Unsecured Debentures”). From January
1, 2018 to January 31, 2018, the Company issued an additional $20,098 (CDN$25,000) Unsecured Debentures for total proceeds of $332,065
(CDN$409,000). On March 19, 2018, an installment of the Unsecured Debentures in the amount of $382,263 (CDN$500,000) was received.
Under the terms of the Unsecured Debentures, the principal amount and accrued interest is convertible into common shares of the
Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Unsecured
Debentures is at the option of the holder. At the time of conversion, the holder will also receive 120% of the amount of the common
shares issued of common share purchase warrants with an exercise price equal to the issue price. The Unsecured Debentures are due
on July 31, 2018 and bear interest at 10% per annum.
On February 1, 2018, the Company repaid CDN$60,000 of promissory notes outstanding at December 31, 2017.
The balance of the promissory notes due to Scott Woodrow, a Director of the Company, was exchanged for an unsecured convertible
debenture in the amount of CDN$59,000.
The proceeds from these private placements were used for general working capital purposes, particularly
the development and marketing of our platform, Ehave Connect.
Our principal office is located at 203-277
Lakeshore Road East, Oakville, Ontario, Canada L6J 6J3 and our telephone number is (905) 362-1499.
We are not aware of any indication of any public takeover offers
by third parties in respect of our common shares during our last and current financial years.
We are creating a mental health data platform
that integrates with our proprietary and third-party assessment and therapeutic digital applications. Our product focus is based
on three tiers of activities: (1) MegaTeam and Ninja Reflex, our clinically validated digital assessment and rehabilitation software
that is engaging for the patient, (2) adaptation of third-party clinically validated digital assessment and rehabilitation software
for enhanced patient engagement and data modeling, and (3) Ehave Connect, our advanced mental health informatics and digital application
delivery platform. We intend to provide technology solutions to clinicians, patients, researchers, pharmaceutical companies and
payors.
Currently our products are being deployed
in Canada.
MegaTeam and Ninja Reflex Digital Assessment
and Rehabilitation Applications
Our MegaTeam and Ninja Reflex assessment
and rehabilitation products are built on established methodologies for the measurement of cognitive abilities in populations with
attention deficit and hyperactivity disorder, or ADHD. Methodologies commonly used today involve repetitive performance of tasks
using digital interface. These tasks are repeatedly administered to the patient in order to obtain accurate measures. Many of the
assessments used today had been developed using programming methodologies whereby the task is simply exhibited on screen and the
patient is instructed to respond to stimuli. Our research has found that patients, in particular those with symptoms of ADHD, have
difficulty completing the necessary regiment of tasks due to lack of engagement. Additionally, these tasks are often administered
in a clinical setting, often resulting in the patient and their accompanying parent or guardian staying in clinical settings for
an extended time. Our products have been developed to address these primary concerns as well as to enable a breadth of cognitive
tasks to be assessed and an individualized cognitive rehabilitation program to be administered remotely.
The MegaTeam and NinjaReflex applications
involve the imbedding of cognitive assessment and rehabilitation tasks within an engaging video game environment. MegaTeam and
NinjaReflex were designed and programmed with the intention of providing comparable engagement to video game play. In the design,
narrative and programming of our MegaTeam and NinjaReflex games, we utilize experts in children’s digital content and programming.
Our tools have been developed on Unity, a common game development platform that can be used on most fixed and mobile devices, enabling
the expansion of narrative and the adaptation of new character and game environments to maintain long-term engagement of product
differentiation. The underlying cognitive tools and data remain unchanged as the “skin” is adapted for future versions
and client profiles. A significant part of the MegaTeam and NinjaReflex development involved assessing user engagement and consultation
on characters, narrative and graphic design.
MegaTeam and NinjaReflex applications have
been designed for deployment on multiple digital interfaces including PC, Mac, Android and iOS systems. Our applications may be
used in a clinic or a patient’s home or remotely, provided there is an adequate data connection.
Based on feedback from users and clinical
psychologists regarding strong user engagement of our MegaTeam and NinjaReflex products, we believe that our products have a strong
capacity for training compliance.
Developed MegaTeam and NinjaReflex products
include: (1) Stop Signal Reaction Time Assessment (2) N Back Assessment (3) Inhibitory Control Rehabilitation (4) and Working Memory
Rehabilitation. We are planning the development of a broader suite of cognitive tasks and rehabilitation mechanisms in order to
increase the addressable mental health indications.
Ehave Connect Software Platform
Ehave Connect is a cloud-based platform
that allows for the input, tracking and extraction of clinical data. Based on the clinical data collected, Ehave Connect provides
patient management and digital assessment tools to healthcare providers and physicians so that they are better equip to provide
diagnosis and treatment to patients in their care. We expect Ehave Connect to enable a community of third-party solutions providers
to connect with end-users of the data. Such solutions include assessments, diagnostics, therapeutics, devices, brain research,
clinical research, and such end users include patients, clinicians, regulators, payors, researchers, medical cannabis licensed
producers and pharmaceutical companies.
Ehave Connect is intended to be integrated
into the clinician’s workflow to capture, record and deliver objective patient data, with the ultimate goal of helping the
clinician improve patient care. We believe that Ehave Connect can fill the information gap in mental healthcare and medical cannabis
due to the inefficiency from relying largely on pen-and-paper assessments and difficulty of tracking patient compliance and outcomes
at a large scale. Ehave Connect can also create value for medical cannabis and mental health researchers and insurance payors,
by giving access to objective outcomes data to support and validate their efforts.
Because of Ehave Connect’s comprehensive
data capabilities, we believe that Ehave Connect is ideally suited for major mental health conditions, including illnesses and
diseases treated by medical cannabis, which assessment, treatment and outcomes are inherently subjective, variable, or difficult
to track with conventional tools. The mental health conditions that we believe our platform is suited for and can be readily used
include PTSD, ADHD, anxiety, autism, depression, obsessive compulsive disorder (“OCD”), and concussion. We believe
our platform is suited for the following major illnesses that are subject to medical cannabis treatments: pain, arthritis, nausea/cancer
treatments, seizures, migraines, MS, psychological conditions, spinal cord injury/diseases and auto-immune diseases.
Right Data
Our goal is rooted not in “big data”,
but in “right data” by providing all of the clinical data in an organized and complete form. While healthcare datasets
may quickly become large and complex, we believe that there is a tendency to try to collect anything and everything, and hope that
the analytics will derive conclusions. We believe that multiple data sets may provide inconsistencies in the type and quality of
data being collected, effectively rendering the combined data incompatible and unusable.
Our immediate strategy in the United States
is to sell our Ehave Connect alone as a patient management application. However, our long-term strategy is to couple our Ehave
Connect cloud-based platform with computerized cognitive assessment aid products into a medical device that is prescriptive on
the data being collected and focused on collecting specific data elements that are critical on a per disease/condition basis. We
believe that defining a patient-centered ontology for leading behavioral science diseases and conditions that is based on a minimum
critical clinical data set would be more effective for clinicians to determine both diagnosis and treatment plans and more useful
to researchers who are looking for consistent data across patients. The data categories can be broadly defined as: demographics,
clinical tests, diagnosis, treatment, clinician reported outcomes and patient reported outcomes. We work with clinicians and researchers
in each of our target diseases/conditions to define the specific data elements in each of these categories. With the definition
of the data sets as the basis, we have created a platform that integrates our own, as well as third party, digital applications
for clinicians, patients and researchers. We believe that each of these applications is carefully selected to deliver high impact
experiences, and when integrated to our platform, are mapped to our data sets.
Quality Data
While we believe that collecting right
data gives the platform focus and ensures that it does not become unwieldy, the quality of the data is imperative. As is the case
in other complex data environments, the integrity of healthcare data output depends on the quality of the input data. Our applications
are specifically curated so that they minimize entry of invalid data and allow clinicians, patients and researchers to interact
with high quality data that are reliable.
Outcome Data
We have learned from other healthcare institutions
that outcome data based on high quality clinical, diagnosis and treatment data can be relied upon to inform clinicians when making
treatment decisions. We believe that outcome data in healthcare, and in particular behavioral sciences, has been missing, unstructured
or incomplete. The lack of reliable outcome data limits the value of large data sets. We believe that our platform solves this
problem by providing the platform and applications that allow for consistent outcome capture by clinicians.
Our applications capture outcomes from
a patient’s perspective: outcomes can be automatically captured by sensors or manually by inserting input into the applications
and become part of the data set.
With increased use, we expect the size
of our data set to grow, and we hope that our platform will be the source of high quality clinical and outcome data for behavioral
sciences for use by clinicians, researchers, healthcare systems and industry partners to improve outcomes. We hope to accomplish
this by the creation and integration of carefully chosen applications.
Data Insights and Machine Learning
We have built machine learning algorithms
that connect outcome data to diagnosis and treatment plans to build data insights that may provide useful guidance on the appropriate
treatment plans. This is particularly powerful for both mental healthcare and treatments using medical cannabis. Because, to the
best of our knowledge, current regulatory environment in Canada and the United States does not require licensed producers of medical
cannabis to conduct clinical trials, clinicians are often missing comprehensive information on how to prescribe medical cannabis
in terms of strain, route (smoke/vape, eat, oil, gel cap), dose (quantity) and frequency; such information are typically available
to them for traditional pharmaceuticals but are not available for medical cannabis. We believe our solution will provide clinicians
the knowledge they need to confidently prescribe cannabis to their patients. With respect to mental healthcare, we believe that
the data insights Ehave Connect can provide on the psychological assessment scores, new digital assessments, and outcome data on
traditional pharmaceuticals along with digital remediation may heighten the level of rigor in mental healthcare to the level similar
to that of other diseases or medical conditions, such as cancer.
Patient Privacy and Consent: Use of
Blockchain
We believe that privacy and security of
patient data must be one of the cornerstones of the Ehave Connect platform architecture, especially considering the sensitivity
of mental healthcare patients and medical cannabis users tend to have toward keeping their patient data private. We plan to use
the Blockchain technology, which we believe will allow patients to have greater control over their health record, while providing
a decentralized mechanism for trusted stakeholders to contribute and access data for the benefit of the patient. This includes
a simple and automated ability to allow patients to control, including giving consent to, specific portions of their health record
to be available to certain parties for a set period of time, which we believe would be ideal for clinical trials. We believe that
the current manual process for such tasks can be cumbersome and difficult to ensure compliance We have joined the Hyperledger collaborative,
whose members include large technology leaders and innovators, with a goal of working together to help establish standards in Blockchain
implementations.
Applications
Our data platform provides the basis for
applications that clinicians, researchers and patients use to receive and contribute data. The applications can be as simple as
forms that are filled out or surveys that are responded to, or as complex as digital therapeutics, which is the treatment of cognitive
impairments using technology. The applications are curated on a per disease/condition basis. For example, the applications used
for ADHD for boys aged 7 to 10 will differ than the applications used for OCD for girls aged 16+.
The patient management applications built
into Ehave Connect allows clinicians to manage patients, view data within the data sets and assign applications to patients or
their parents. They assign applications from an App Store concept, where they see the best clinical data, diagnosis, therapeutic
and outcome applications available and can choose the one that is most appropriate for their patient. The applications are ranked
in terms of value (our rating), rating (from other users) and use, and can have a fee associated with it.
Ehave Connect for Medical Cannabis
In medical cannabis, our solution can be
suitable for patients with a wide variety of illnesses or diseases that are treated by medical cannabis. Ehave Connect can be configured
to capture and track the data required to evaluate cannabis therapies, from intake to assessment, treatment planning, delivery
and adherence, to tracking of treatment outcomes. Licensed cannabis producers may use this data to validate and market the efficacy
and safety of their products.
by providing a suite of patient management
and assessment tools that are designed to:
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enable more accurate and efficient study of medical cannabis;
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establish objective treatment guidelines that physicians can rely upon when prescribing cannabis therapies;
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provide researchers, regulators and payors/insurers with digital access to objective patient outcomes data; and
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support development and use of medical cannabis for the full breadth of indications where such therapies are applied.
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We believe that Ehave Connect’s benefits
for the medical cannabis community is centered around a recognized need for evidence-based approach to formulation, titration,
adherence, regulatory compliance and patient outcomes to reach full potential of medical cannabis as a validated clinical therapeutic.
Ehave Connect provides patients and caregivers a digital portal available on desktop, tablet, mobile devices that enables self-monitoring
and adherence to treatment. Clinicians are provided with reliable, data-driven guidelines for proper dosing and formulation, condition-specific
strains and personalized treatment plans. Licensed producers are given access to information on validation of dose, strain, adherence
and patient outcomes, and potential supporting information for regulatory approval and reimbursement. Ehave Connect provides developers
and pharmaceutical companies clinical evidence to support novel formulations or delivery, and proprietary technologies correlated
with patient outcomes. Regulators and payors may be able to make optimal decisions based on real patient outcomes and comprehensive
data for dose, strain, potency and formulation.
We believe that Ehave Connect can enable
prescribers of medical marijuana to design and monitor treatment plans, track patient compliance, and verify treatment outcomes
in a reliable and objective manner. Similar to other areas of mental health, Ehave Connect captures clinical data digitally from
“gold standard” assessments and surveys from third parties, as well as from novel treatment tools and devices, creating
a data-rich network of patient information that has the potential to validate and legitimize this burgeoning healthcare segment.
On March 1, 2018, we entered in an agreement
with Revive Therapeutics Ltd. (Revive) for the use of the Ehave Connect platform in Revive’s research initiatives involving
medical cannabis for the treatment of liver disease. Under this agreement, Revive will use Ehave Connect for both clinical trials
and facilitating patient management.
On March 5, 2018, we entered an agreement
with Aequus Pharmaceuticals Inc. (“Aequus”), for the use of Ehave Connect to enhance and streamline data management
processes for Aequus-sponsored clinical trials studying cannabinoid formulations for treating various neurological conditions.
Third Party Content on Ehave Connect
We believe that it is critical to partner
across the mental healthcare community, and we have secured partnerships with industry leaders.
Partnership with MedReleaf
On February 3, 2017, we entered into the
MedReleaf Agreement with MedReleaf, pursuant to which we and MedReleaf agreed to develop a branded MedReleaf App utilizing our
Ehave Connect platform to advance the study and therapeutic use of medical cannabis. MedReleaf is Canada’s premium licensed
producer and distributor of medical cannabis. The objective of the partnership with MedReleaf is to validate and optimize the use
of MedReleaf’s medical cannabis products as therapeutic treatments for various health conditions. We and MedReleaf monitor
every step of the medical cannabis treatment life cycle, collect diagnosis data and intake assessments, run validated psychological
assessments to monitor treatment response, manage patient treatment plans, and objectively analyze patient outcomes. On November
1, 2017 we announced the launch of a digital patient intake portal with MedReleaf that was built on our Ehave Connect platform.
Our technology is used to establish baseline patient assessments and track patient-reported symptoms by incorporated a panel of
clinically-validated assessments into a single portal.
Partnership with MHS
In December 2016, we signed an agreement
with MHS, a leading provider of psychological assessment tools. We have integrated MHS’s gold standard Connors® suite
of ADHD assessments, as well as the Davidson Trauma Scale and SPAN assessments for PTSD into Ehave Connect. We expect to offer
MHS’s entire catalogue of tests in time, and in so doing we believe that we can enhance the evaluation of any mental health
indication. We plan to move into areas such as anxiety, depression, OCD, autism, and more. We believe that the expansion of the
implementation of MHS’ catalogue will establish ourselves as a recognized player in this field and provides an opportunity
to showcase the value that Ehave Connect adds for patients, clinicians and other leading publishers of mental health assessments,
which we anticipate will attract additional partners.
The Hospital for Sick Children
In December 2011, we entered into a collaboration
with Toronto’s Hospital for Sick Children to identify the clinical needs, design and processes required to create clinical
grade toolsets. In addition to specific tools, we have developed a content delivery and patient data platform, known as Resource
Knowledge Information Access that enables content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients.
These tools were used during randomized control studies of the MegaTeam game, and will be used in future trials with the Hospital
for Sick Children.
Third-party Contract Services
We believe that we have the expertise of
understanding the complexities of mental health assessments and rehabilitation methodologies, along with game design and programming.
Researchers and developers of digital applications for mental health may recognize the advantage of engaged users, but lack the
expertise in game based translation. We intend to market our company to researchers and developers with fee-based services to enhance
their digital applications. We are working closely with mental health research networks to avail our existing MegaTeam and NinjaReflex
tools as well as our programming expertise to enhance and commercialize new products and services.
We believe that Ehave Connect is uniquely suited to enhance
the development and commercialization of various therapies for mental health conditions, through collaboration with pharmaceutical
companies, facilitating the capture and management of clinical data for regulatory trials or post-market validation. Our platform
enables the capture of trial data directly from patients and clinicians, and lowers the need of clinical trial coordinators, data
clerks and other staff that make clinical trials expensive. In this capacity, we may act as a contract research organization (CRO)
for pharmaceutical, biotechnology and medical device industries, as well as research institutions, universities and government
organizations, to help in development, commercialization, clinical research and clinical trials management. In March 2018, we entered
in an agreement with Revive and Aequus for the use of the Ehave Connect platform in each of Revive’s and Aequus’s clinical
studies.
Business Strategy
Our business strategy is to develop and
market Ehave Connect in an effective and timely manner and gain access to additional technologies at a time and in a manner that
we believe is best for our development. We intend to achieve our business strategy by focusing on these key areas:
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developing Ehave Connect to expand its capabilities in delivery of proprietary and third party content;
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expanding MegaTeam and Ninja Reflex with additional game titles, and participate in further clinical studies with Hospital for Sick Children on the CHILD-BRIGHT network, which is a Canadian research network that aims to improve the lives of children with brain-based development disabilities we are a partner to and provider of in-kind services and support);
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forming strategic alliances with selected licensed producers of medical cannabis and publishers of psychological assessments, at a time and in a manner where such alliances may complement and expand our research and development efforts on the product and provide sales and marketing capabilities;
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developing relationships with pharmaceutical and insurance companies that could be instrumental in deploying our technology to drug development and treatment monitoring; and
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developing relationships with companies that could be instrumental in assisting us to access other innovative therapeutics.
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Our business strategy is based on attaining
a number of commercial objectives, which, in turn, are supported by a number of product development goals. Our product
development presently being conducted is primarily of a research and development nature.
Market
We anticipate that the principal markets
in which our products will compete will initially include North America. Thereafter, we hope to expand our markets to Europe and
Asia. Currently our products are being deployed in Canada. We plan to launch Ehave Connect in the United States in 2018.
Mental healthcare, including its assessment
and treatment, is a significant market. Forty-four million adults in the United States are estimated to experience mental illness
per year, which is 20% of the population. The size of the U.S. mental health treatment market is $113 billion, and the size of
private insurance spending on mental health is $32 billion. The size of the cognitive assessment market world-wide is over $2.4
billion.
(Source: Mental Health America - State of Mental Health Report, 2016; SAMSHA Spending Estimates Project, 2010; MarketsandMarkets,
2015).
ADHD is a common affliction with worldwide
prevalence estimated at approximately 7% (
Source: “Prevalence of Attention-Deficit/Hyperactivity Disorder: A Systematic
Review and Meta-analysis”, Rae Thomas, Sharon Sanders, Jenny Doust, Elaine Beller, Paul Glasziou, Pediatrics Feb 2015, peds.2014-3482;
DOI: 10.1542/peds.2014-3482
). ADHD symptoms typically start or are first noticed in preschool age children
(“Prevalence
of Attention-Deficit/Hyperactivity Disorder: A Systematic Review and Meta-analysis”, Rae Thomas, Sharon Sanders, Jenny Doust,
Elaine Beller, Paul Glasziou, Pediatrics Feb 2015, peds.2014-3482; DOI: 10.1542/peds.2014-3482
). While symptoms may decline
with age, ADHD symptoms and impairments can persist into adolescence and adulthood
(Source: “A lifetime of attention-deficit/hyperactivity
disorder: diagnostic challenges, treatment and neurobiological mechanism”, Julia Geissler and Klaus-Peter Lesch, Expert Review
Of Neurotherapeutics Vol. 11 , Iss. 10,2011
).
In Deloitte’s Life Sciences Outlook
Report in 2016, it recognized a 12-fold increase in companion diagnostics, or technology that provides information that is essential
to the safe and effective use of a corresponding drug. Ehave Connect’s comprehensive clinical data model allows for powerful
companion applications to be built that aid in diagnosis, treatment and patient outcome optimization.
For medical cannabis, the demand is strong
and growing, with a projected market of CDN$3 billion by 2024
(Source: Health Canada, 2016)
. Between 4,000 and 5,000 new
patients are added per month, with a projection of 450,000 licensed users by 2019. At this time, only 5% of physicians in Canada
prescribe medical cannabis. This is corroborated with by Grand View Research, which in 2017 published that the global medical marijuana
cannabis market will be $55.8 billion by 2025. The increase in interest amongst academic researchers and healthcare providers is
amongst the significant factors driving growth. Validating therapeutic dosing and administration of cannabis-based therapies, while
paramount to developing new products and promoting clinical acceptance, remains a challenge, particularly in mental health indications
where patient outcomes are difficult to track. Currently, the medical marijuana industry lacks comprehensive clinical data for
prescribers to draw from when advising patients on treatment plans, as well as systems to track patient adherence and outcomes.
Further, the large variety of medical marijuana strains and delivery modalities has not been rigorously assessed or optimized.
The National Academy of Sciences report
on The Health Effects of Cannabis and Cannabinoids in 2017 states that there is inadequate information to assess their effects,
and made key recommendations around research that points to the need for evidence and surveillance, as follows:
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Address Research Gaps: Develop national cannabis research agenda that addresses key gaps in the evidence base on the short- and long-term health effects of cannabis use (both beneficial and harmful effects)
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Improve Research Quality: Develop research standards and benchmarks to guide and ensure the production of high-quality cannabis research
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Improve Surveillance Capacity: Support improvements to federal and state-based public health surveillance systems to ensure sufficient data are available to inform research on the short- and long-term health effects of cannabis use
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Address Research Barriers: Fully characterize the impacts of regulatory barriers to cannabis research and propose strategies for supporting development of the resources and infrastructure necessary to conduct a comprehensive cannabis research agenda
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We believe that Ehave Connect’s evidence-based
approach to treatment using medical cannabis is aligned with recommendations made in the report.
Competition
We are not aware of direct competition
to Ehave’s mental health informatics platform, Ehave Connect, in the market. We note that electronic health record software
vendors, such as Cerner, Epic and Athena Health have broad clinical data solutions as a part of their solution, but are focused
on acute care centers, rather than community care where the majority of mental health is practiced. There are many small electronic
medical record software vendors that are focused on mental health for community-based clinicians that have small installation base,
but, to the best of our knowledge, software from such vendors typically only have a portion of the data that Ehave Connect tracks.
In the medical cannabis market, there are
licensed producers and third-party software providers who have released patient tracking software applications. While these applications
track consumption and how patients are feeling while taking specific strains, to the best of our knowledge, they typically do not
have the clinical data to map to the consumption and the outcome.
For our MegaTeam and Ninja Reflex game
applications, we are aware of a few competitors, including Akili Ineractive, Attentiv, Myndlift and C8Sciences. Many of these companies
are currently conducting clinical trials. Our strategy for game development starts from using known proven clinical measures rather
than creating new measures, and we believe that the advantage of this methodology is that broad normative data does not need to
be established and the barrier to clinical adoption may be lower with known measures that clinicians are already comfortable with.
Product Differentiation
We strive to provide the best tools and
resources for today’s populations suffering from mental illness. Many of the incumbent products have been developed and validated
in their academic forms, which, we believe, lack appeal for today’s clients and practitioners. We believe there is a demand
for real time, data-rich digital tools that enable individual treatment and ongoing monitoring, while a significant portion of
the existing market for cognitive assessment and therapy relies upon paper-based tools and checklists that have little or no connected
monitoring capacity or real-time progress reporting. As such, we seek to develop products with the following key features: (1)
user engagement, (2) data richness, (3) clinically validated, and (4) multi-screen and mobile deployment.
Our assessment products are derived from
designs and methods clinically studied. Our plans include the study of our derived products and cognitive rehabilitation software
through clinical studies led by hospitals. These studies include multiple phases from pilot studies through affected population
studies and allow the measurement, using various criteria and techniques, of the effect of our cognitive rehabilitation program
on target populations.
Marketing
Our marketing channels consist of direct
sales and leveraging partners for market outreach. Our current strategy is for direct sales to publishing partners, medical device
partners, pharmaceutical companies and medical cannabis licensed producers. These partnerships strengthen the content that is on
the Ehave Connect platform that helps to ensure the capture high quality clinical data that we depend on. Through these partnerships,
we gain access to clinicians and the patients they serve.
We also engage a public relations firm
to help reach media outlets.
Regulatory Requirements
Our future business operations and activities
in the U.S. may be directly or indirectly subject to subject to certain federal and state laws relating to the privacy and security
of health information, and state and federal laws designed to guard against healthcare fraud and abuse, including, but not limited
to, those described below.
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HIPAA, as amended by HITECH, established
comprehensive requirements related to the privacy, security, and transmission of individually identifiable health information.
It governs patient privacy practices of healthcare providers, health plans, and healthcare clearinghouses (or “covered entities”),
as well as their respective business associates to the extent that they perform services for or on behalf of the covered entities
that involve the use or disclosure of protected health information. HIPAA also mandates notification in the event of a breach and
regulates standardization of data content, codes and formats used in healthcare transactions. Covered entities and business associates
may be subject to significant civil and criminal penalties, as well as enforcement by state attorneys general, for violations of
HIPAA or its implementing regulations.
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HIPAA also imposes federal criminal and
civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program
or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under
the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and
willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements
in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.
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The federal Anti-Kickback Statute which
prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly
or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase,
order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid
programs.
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The
federal Civil False Claims Act imposes liability on any person or entity, which, among other things, knowingly presents, or causes
to be presented, a false or fraudulent claim for payment by a federal healthcare program. The “qui tam” or “whistleblower”
provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government, alleging that
the defendant has submitted a false claim to the federal government, and to share in any monetary recovery.
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The federal Civil Monetary Penalties Law
prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health care program beneficiary
if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner,
or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies.
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Analogous state fraud and abuse laws and
regulations, such as state anti-kickback and false claims laws, may apply to items or services reimbursed under Medicaid, other
state programs, or, in some states, private third-party payors. In addition, many U.S. states have enacted patient confidentiality
laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting
further legislation in this area, including privacy safeguards, security standards, and data security breach notification requirements.
These state laws, which may be even more stringent than the HIPAA requirements, many of which differ from each other in significant
ways and are often not preempted by the federal requirements.
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FDA's Medical Device Regulation
The FDA has broad authority over the regulation of medical devices
marketed for sale in the United States. The FDA regulates the research, clinical testing, manufacturing, safety, labeling, storage,
recordkeeping, premarket clearance or approval, promotion, distribution and production of medical devices. The FDA also regulates
the export of medical devices manufactured in the United States to international markets.
Under the Food, Drug, and Cosmetic Act, or FDCA, the FDA classifies
medical devices into one of three classes: Class 1, Class 2 or Class 3. Medical devices deemed to pose lower risk are placed into
either Class 1 or Class 2.
Class 1 medical devices are deemed to pose the lowest risk to
the patient. Accordingly, Class 1 medical devices are subject to the lowest degree of regulatory scrutiny and need only comply
with the FDA's General Controls. The General Controls include compliance with the registration, listing, adverse event reporting
requirements, and applicable portions of the Quality Systems Regulation, or QSR, as well as the general misbranding and adulteration
prohibitions. Unless specifically exempted in the regulations, general controls require a company that intends to market a Class
1 medical device, like us, to gain clearance for marketing through the 510(k) process. Many Class 1 medical devices, however, are
exempt from 510(k) clearance because the level of risk is low.
Class 2 medical devices are considered higher risk devices than
Class I medical devices. Class 2 medical devices are subject to General Controls as well as additional Special Controls. Special
Controls may include labeling requirements, mandatory performance standards, and post market surveillance. Generally companies
that intend to market Class 2 medical devices, like us, must comply with applicable regulations and submit a 510(k) premarket submission
for review to receive clearance to list and market their medical devices. The 510(k) must establish substantial equivalence to
a predicate medical device. Some Class 2 medical devices are exempt from filing a 510(k) but in some instances, Class II medical
devices may be required to file a Premarket Approval, or PMA, application.
Medical devices deemed by the FDA to pose
the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent
to a previously cleared medical device, are classified as Class 3 medical devices and require a PMA before commercialization.
All medical device manufacturers must register
their establishments with the FDA; such registrations require the payment of user fees. In addition, both 510(k) premarket submissions
and PMA applications are subject to the payment of user fees, paid at the time of submission for FDA review.
The use of forms and tools for the measurement
and assessment of behavioral and cognitive abilities are considered computerized cognitive assessment aids by the FDA. The FDA
currently classifies such products as Class II medical devices. Currently we are engaging in clinical trials of Ehave MegaTeam
games outside of the United States. Such clinical trials are being performed to prove efficacy and may have supporting evidence
in the event that we filed an marketing application in the United States and the FDA requires this data before we are able to market,
advertise or sell our Ehave MegaTeam games in the United States.
510(k) Clearance Pathway
If required to obtain 510(k) clearance
for our Ehave MegaTeam games or any other computerized cognitive assessment aid products in the future, such products may be classified
as medical devices and we would may be required to submit a premarket notification demonstrating that the proposed medical device
is substantially equivalent to a previously cleared 510(k) device. FDA's 510(k) clearance pathway usually takes from three to twelve
months. On average the review time is approximately six months, but it can take significantly longer than twelve months in some
instances, as the FDA may require additional information, including clinical data, to make a determination regarding substantial
equivalence.
After a medical device receives 510(k)
clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major
change in its intended use, will require a new 510(k) clearance or, depending on the modification, require a PMA. The FDA requires
each manufacturer to determine whether the proposed change requires submission of a new 510(k) notice, or a premarket approval,
but the FDA can review any such decision and can disagree with a manufacturer's determination. If the FDA disagrees with a manufacturer's
determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance
or premarket approval is obtained. If the FDA requires us to seek 510(k) clearance or premarket approval for any modifications
to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance
or approval. Also, in these circumstances, we may be subject to significant regulatory fines or penalties. We have made and plan
to continue to make additional product enhancements to products that we believe do not require new 510(k) clearances, but we cannot
guarantee that the future enhancements, should they occur, will be exempt from new 510(k) clearances.
De Novo Reclassification
If we decide to market, advertise or sell
our Ehave MegaTeam games or any other any other computerized cognitive assessment aid products in the future, such products may
not have a suitable predicate medical device to be cleared as a 510(k) medical device. If the FDA finds that there is no suitable
predicate medical device, it will automatically be considered our Ehave MegaTeam games or any other computerized cognitive assessment
aid products that we apply for clearance to market, advertise or sell in the future a Class III medical device. However, in instances
where a medical device is novel and there is no suitable predicate device, but that medical device is deemed to be of low to moderate
risk, the FDA may reclassify the device to Class I or Class II via de novo reclassification petition pathway. This process involves
the submission of a de novo reclassification petition, and the FDA's acceptance that “special controls” are adequate
to ensure the product’s performance and safety.
The FDA now allows de novo reclassification
petitions, a mechanism by which a sponsor can directly submit a detailed de novo reclassification petition as the device’s
initial submission without having to first receive a not substantially equivalent, or NSE, decision on a 510(k) submission. Historically,
the de novo reclassification pathway typically would take at least 9 to 12 months from filing to clearance. Since the enactment
of the 21
st
Century Cures Act, de novo classification petitions may be submitted to the FDA at any time and does not
require a FDA finding of not substantially equivalent to a 510(k) application before the petition is made. FDA must respond to
any de novo classification requests within 120 days of a completed petition.
In the future, we may decide to submit
a de novo reclassification petition for our Ehave MegaTeam games or any other computerized cognitive assessment aid products that
we may develop. To support a de novo reclassification petition, our objective would be to demonstrate that the proposed medical
device poses a low to moderate risk to patients. If the FDA determines that such a product is not a candidate for de novo reclassification,
it will require approval of the device for market through the PMA application process.
Alternatively, if we seek 510(k) clearance
and our medical device is found not substantially equivalent, or NSE, the FDA will consider a de novo petition if our proposed
medical device has been determined to be NSE due to: (1) the lack of an identifiable predicate medical device, (2) a new intended
use, or (3) different technological characteristics to a predicate device that raise different questions of safety and effectiveness.
The de novo classification request should include a description of the medical device, labeling for the device, reasons for the
recommended classification and information to support the recommendation. Should the FDA believe our proposed medical device’s
general controls or general and special controls provides reasonable assurance of safety and effectiveness, the FDA may classify
our medical device as a Class II medical device. If the FDA classifies the device into Class II, we will then receive an approval
order to market the device. This device type can then be used as a predicate device for future 510(k) submissions. However, if
the FDA subsequently determines that the device will remain in the Class III category, then we may not be marketed until we have
obtained a PMA.
Premarket Approval Pathway
A PMA application must be submitted if
a medical device cannot be cleared through the 510(k) process or by de novo reclassification petition. The PMA application process
is generally more costly and time consuming than the 510(k) process. A PMA application must be supported by extensive data including,
but not limited to, analytical, preclinical, clinical trials, manufacturing, statutory preapproval inspections, and labeling to
demonstrate to the FDA's satisfaction the safety and effectiveness of the medical device for its intended use.
After a PMA application is sufficiently
complete, the FDA will accept the application and begin an in-depth review of the submitted information. By statute, the FDA has
180 days to review the "accepted application," although, generally, review of the application can take between one and
three years, but it may take significantly longer. During this review period, the FDA may request additional information or clarification
of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened
to review and evaluate the application and provide recommendations to the FDA as to the approvability of the medical device. The
preapproval inspections conducted by the FDA include an evaluation of the manufacturing facility to ensure compliance with the
QSR, as well as inspections of the clinical trial sites by the Bioresearch Monitoring group to evaluate compliance with good clinical
practice and human subject protections. New premarket approval applications or premarket approval application supplements are required
for modifications that affect the safety or effectiveness of the medical device, including, for example, certain types of modifications
to the medical device's indication for use, manufacturing process, labeling and design. Significant changes to an approved PMA
require a 180-day supplement, whereas less substantive changes may utilize a 30-day notice, or the 135-day supplement. PMA supplements
often require submission of the same type of information as a PMA application, except that the supplement is limited to information
needed to support any changes from the medical device covered by the original PMA application, and may not require as extensive
clinical data or the convening of an advisory panel. None of our products are currently approved under a premarket approval and
we do not believe that we will ever have a product that requires a PMA.
Clinical Trials
Clinical trials are almost always required
to support a PMA application or de novo reclassification petition and are sometimes required for a 510(k) premarket notification.
If we decide to market, advertise or sell our Ehave MegaTeam and NinjaReflex games or any other any other computerized cognitive
assessment aid products that we may develop in the future, and if the FDA believes that such product presents a potential “significant
risk” to health, safety, or the welfare of a human subject, the FDA may require us to collect safety and effectiveness data
on human subjects regardless of our device’s classification. If we are required to collect data on human subjects, the FDA
will require us to file an application for an Investigational Device Exemption, or IDE with the FDA and obtain IDE approval prior
to commencing the human clinical trials. The IDE application must be supported by appropriate pre-clinical data, such as animal
and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically
sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed
a “non-significant risk” device and eligible for more abbreviated investigational device exemption requirements. Clinical
trials for a significant risk device may begin once the IDE application is approved by the FDA and the appropriate institutional
review boards at the clinical trial sites. Future clinical trials of our motion preservation designs will require that we obtain
an IDE from the FDA prior to commencing clinical trials and that the trial be conducted under the oversight of an institutional
review board at the clinical trial site. Our clinical trials must be conducted in accordance with FDA regulations and other federal
and state regulations concerning human subject protection, including informed consent and healthcare privacy. A clinical trial
may be suspended by the FDA or the IRB at any time for various reasons, including a belief that the risks to the study participants
outweigh the benefits of participation in the study. Even if a study is completed, the results of our clinical trials may not demonstrate
the safety and efficacy of the medical device, or may be equivocal or otherwise not be sufficient to obtain approval of our Ehave
MegaTeam and NinjaReflex game or any other computerized cognitive assessment aid products that we may develop in the future. At
this time, we do not plan on marketing, advertising or selling our Ehave MegaTeam and NinjaReflex games or any other computerized
cognitive assessment aid products in the United States and therefore, do not anticipate performing clinical trials in the United
States.
Patents and Trade Secrets
The patent positions and proprietary rights
of pharmaceutical and biotechnology firms, including us, are generally uncertain and involve complex legal and factual questions.
We believe there will continue to be significant litigation in the industry regarding patent and other intellectual property rights.
We have not registered any patents in respect
of Ehave Connect, Megateam and NinjaReflex ; however we maintain our proprietary server architecture and mobile applications as
trade secrets. We have registered the trade name “Ehave, Inc.” and owns the domain “ehave.com.”
We rely on unpatented trade secrets and
improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. No
assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques,
or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our rights to our
unpatented trade secrets.
We require our employees and consultants
to execute confidentiality agreements upon the commencement of employment and consulting relationships with us. These agreements
provide that all confidential information developed by or made known to an individual during the course of the employment or consulting
relationship generally must be kept confidential. In the case of employees, the agreements provide that all inventions conceived
by the individual, while employed by us, relating to our business are our exclusive property. While we have implemented reasonable
business measurements to protect confidential information, these agreements may not provide meaningful protection for our trade
secrets in the event of unauthorized use or disclosure of such information.
Seasonality of Business
Our results of operations have not been
materially impacted by seasonality.
|
C.
|
Organizational
Structure
|
Not applicable.
|
D.
|
Property,
Plants and Equipment
|
We currently lease approximately 1,636
square feet of office space located at 277 Lakeshore Road East, Suite 203, Oakville, Ontario, Canada. The term under our lease
agreement, as amended on April 6, 2018, will expire on May 1, 2020. We do not own or lease any other office space, manufacturing
facilities or equipment and do not have any current plans to construct or acquire any facilities.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion
of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included
elsewhere in this Annual Report on Form 20-F. The following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs, including our belief as to the potential of MegaTeam applications as an effective remediation tool for ADHD
and our expectations as to the success of our research and development and Ehave Connect platform and related content distribution
in 2018 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical
facts, involve known and unknown risks and uncertainties]. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere
in this Annual Report on Form 20-F, particularly those in “Item 3. Key Information – D. Risk Factors.” See also
“Special Note Regarding Forward-Looking Statements.”
With respect to the forward-looking statements
made within this Item 5, we have made numerous assumptions regarding among other things: our ability to obtain financing to fund
our continuing development programs, the results of our clinical trials, our ability to obtain commercial sales and on the distribution
of proprietary and partnered content on Ehave Connect, and future expense levels being within our current expectations. Investors
are cautioned against placing undue reliance on forward-looking statements. We do not undertake to update these forward-looking
statements except as required by applicable law.
Overview
We are creating a medical cannabis and
mental health data platform that integrates with our proprietary and third-party assessment and therapeutic digital applications.
Our product focus is based on three tiers of activities: (1) MegaTeam and Ninja Reflex, our clinically validated digital assessment
and rehabilitation software that is engaging for the patient, (2) adaptation of custom and third-party clinically validated digital
assessment and rehabilitation software for enhanced patient engagement and data modeling, and (3) Ehave Connect, our advanced mental
health and medical cannabis informatics and digital application delivery platform. We intend to provide technology solutions to
clinicians, patients, researchers, pharmaceutical companies and payors.
We qualify as an “emerging growth
company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure
requirements. For so long as we are an emerging growth company, we will not be required to:
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|
have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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-
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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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-
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submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
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-
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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
|
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected
to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2
under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which
we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Critical Accounting Policies and Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires companies to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses 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. These estimates and judgments are subject to an inherent degree of
uncertainty, and actual results may differ. Our significant accounting policies are more fully described in Note 1 to our financial
statements included elsewhere in this Annual Report. Critical accounting estimates and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances, and are particularly important to the portrayal of our financial position and results of operations. Our
estimates are primarily guided by observing the following critical accounting policies:
Financial Overview
Our operations have been funded, to date, primarily through the sale of our common shares in a public
offering and series of private placements of convertible notes and warrants. From our inception through December 31, 2017, we have
raised an aggregate of approximately $2,292,516 to fund our operations, of which approximately $366,455 was from our public offering
in June 2016, and approximately $1,961,764 was from the issuance of convertible notes and warrants. In addition, we received additional
aggregate investments of $1,924,582 from private placements of convertible notes and warrants that closed in each of January and
March of 2018.
Operating Losses
Since our inception, we have incurred significant
operating losses. Our net losses were $4,141,613 and $1,502,204 for the year ended December 31, 2017 and 2016, respectively. As
of December 31, 2017, we had an accumulated deficit of $6,989,124. We expect to continue to incur significant expenses and operating
losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We
anticipate that our expenses will increase significantly as we plan to continue development and commercialization of Ehave Connect
and MegaTeam and NinjaReflex products as well as to engage in continuing research and development related to products and services.
Years Ended December 31, 2017, and
December 31, 2016
Revenues
We earned total revenue of $78,260 during
the year ended December 31, 2017, compared to no revenue during the year ended December 31, 2016. This increase was primarily due
to proceeds for professional services pursuant to contracts we entered into with MedReleaf for customizations for its digital intake
portal and CHT for its demonstration platform.
Operating Expenses
Our total operating expenses for the year ended December 31, 2017 was $1,260,574 compared to $1,110,847
in 2016, an increase of $149,727. The increase in operating expenses is primarily due to an increase in overall operating activity
due to available funding. Major areas of increased activity include additions to the team. The operating expenses for the year
ended December 31, 2017, consisted of salaries of $560,440, rent of $26,235, professional fees of $223,928, insurance expenses
of $10,277, travel expenses of $12,112, software development of $189,976, communications of $231,662 and general and administrative
expenses of $5,944.The operating expenses for the year ended December 31, 2016, consisted of salaries of $292,389, rent of $35,328,
professional fees of $378,156, insurance expenses of $5,110, travel expenses of $30,608, software development of $221,688, communications
of $108,175 and general and administrative expenses of $39,393. We believe that the upward trend in operating expenses will continue
as we further develop our products for distribution and advance our capital markets objectives.
|
|
For
the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
560,440
|
|
|
|
292,389
|
|
Rent
|
|
|
26,235
|
|
|
|
35,328
|
|
Professional
fees
|
|
|
223,928
|
|
|
|
378,156
|
|
Insurance
|
|
|
10,277
|
|
|
|
5,110
|
|
Travel
|
|
|
12,112
|
|
|
|
30,608
|
|
Communications
|
|
|
231,662
|
|
|
|
108,175
|
|
Software
development
|
|
|
189,976
|
|
|
|
221,688
|
|
General
and administrative
|
|
|
5,944
|
|
|
|
39,393
|
|
Total
operating expenses
|
|
|
1,260,574
|
|
|
|
1,110,8
47
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
Warrant
expense
|
|
|
2,745,731
|
|
|
|
301,606
|
|
Salaries
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
(decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,440
|
|
|
|
292,389
|
|
|
|
268,051
|
|
|
|
92
|
|
The increase in salaries is primarily attributable
to an increase in the number of employees and full year salaries. During the year ended December 31, 2017, we had stock options
expense of $139,758 related to stock option grants to our CEO and CTO that is not included in salaries.
Professional Fees
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
(decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,928
|
|
|
|
378,156
|
|
|
|
(154,228
|
)
|
|
|
41
|
|
The decrease in professional fees is primarily
attributable to the hiring of full time employees.
Communications
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
(decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,663
|
|
|
|
108,175
|
|
|
|
123,487
|
|
|
|
114
|
|
We continued to incur communications expenses
due to the listing of our common shares on the OTCQB Venture Market in 2017. In connection with our SEC filings, we engaged communications
consultants to assist in the preparation, assembly and dissemination of relevant information.
Software Development
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2015
|
|
|
Increase
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
(decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,976
|
|
|
|
221,688
|
|
|
|
(31,712
|
)
|
|
|
14
|
|
The decrease in software development expenses
is due to the addition of 3 full-time equivalent personnel during the year ended in December 31, 2017
Warrant Expense
|
|
For
the years ended December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
(decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,745,731
|
|
|
|
301,666
|
|
|
|
2,444,125
|
|
|
|
810
|
|
The increase in warrant expense is due
to the issuance of warrants to purchase 5,433,230 common shares, as compared to the issuance of warrants to purchase
12,645,476 common shares in 2016, associated with our fundraising.
Net Loss
Net loss for the year ended December 31, 2017, was $4,141,613 as compared to a net loss of $1,502,204
in 2016.
|
B.
|
Liquidity
and Capital Resources
|
Through December 31, 2017, we have incurred
an accumulated deficit of $6,989,124, primarily as a result of expenses incurred through a combination of development and commercialization
activities related to our products and general and administrative expenses supporting those activities, as well as a net loss of
$4,141,613 and negative operating cash flows. Our total cash and cash equivalents balance as of December 31, 2017 was $3,671. At
December 31, 2017, we had working capital deficit of $1,830,282, of which $1,092,047 relates to convertible notes convertible into common shares subsequent to the year ended December 31, 2017. We anticipate that we will continue to incur losses and negative
cash flows from operations, and that such losses will increase over the next several years due to development costs associated
with our MegaTeam, Ninja Reflex and Ehave Connect products, until our products reach commercial profitability. As a result of these
expected losses and negative cash flows from operations, along with our current cash position, we only have sufficient resources
to fund operations through September 1, 2018. Therefore, there is substantial doubt about our ability to continue as a going concern.
Our plans include the continued commercialization
of our products and raising capital through a combination of equity offerings, debt financings, other third-party funding and other
collaborations and strategic partnerships. There are no assurances, however, that we will be successful in obtaining the level
of financing needed for our operations. We are exploring various financing options including equity funding and strategic collaboration.
However, there are no assurances that we will be successful in obtaining the level of financing needed for our operations or that
any such financing would be on terms favorable to us. Any future financing may involve substantial dilution to existing investors.
If we are unsuccessful in commercializing our products and raising capital, we may need to reduce activities, curtail or cease
operations.
In 2013 and 2014 we entered into convertible
loan agreements with investors, including our President and Chief Executive Officer, and affiliates of his, and a former director,
pursuant to which such investors loaned us an aggregate of CDN$490,000. All of the loans were converted into an aggregate of 13,176,094
common shares on December 15, 2014.
We received approximately CDN$491,204
in grants in connection with our collaboration with the Hospital and CDN$225,000 from Canada-Israel Research and Development Foundation.
In addition, we received aggregate gross proceeds of CDN$490,000 pursuant to our convertible loan and an aggregate of CDN$75,000
from the sale of equity securities in December 2014 and March 2015.
On July 7, 2015, we closed a private placement
offering with seven investors for the sale of $325,000 principal amount of convertible notes and warrants to purchase common shares.
Between January 20, 2016 and February 17, 2016, we sold an additional $141,000 principal amount of convertible notes and warrants
in private placement offerings to three initial investors.
On June 14, 2016, we had a closing of the
offering of an aggregate of 6,503,667 common shares and warrants to purchase an aggregate of 6,503,667 common shares, for gross
proceeds of $266,000. Subsequent to the initial closing, on June 24, 2016, we had a second closing of the offering of an aggregate
of 1,589,242 common shares and warrants to purchase 1,589,242 common shares, for gross proceeds of $65,000. We received total gross
proceeds of $331,000 from the offering.
On November 14, 2016, we entered into a
definitive securities purchase agreement to sell up to $1,500,026 of convertible promissory notes and warrants in multiple closings
in a private placement. We used the net proceeds from the private placement to further the development of Ehave Connect, for MegaTeam
clinical trials, for general marketing and investor relations’ purposes, and for working capital. As of December 31, 2016,
we received $259,357 of $309,357 of the firmly committed amount and waived $50,000 of the firmly committed amount for future reassignment
as permitted under the agreement. Certain lenders have notified us that it will not elect to fund an aggregate of $683,130 of additional
loans and have permitted its reassignment, of which $489,368 has been reassigned. In the year ended December 31, 2017, we issued
additional convertible promissory notes in an aggregate principal amount of $609,826 pursuant to the note and warrant purchase
agreement. As of December 31, 2017, we had received total proceeds of $869,183 pursuant to the note and warrant purchase agreement.
Although there are remaining commitments under the note and warrant purchase agreement, we have not received funds thereunder since
May 2017.
On July 27, 2017, we issued demand non-interest
bearing senior secured promissory notes in the aggregate principal amount of $134,575 (CDN$169,000).
On October 11, 2017, we entered into Investor
Letters, pursuant to which certain persons agreed to purchase our securities on similar terms as certain of our offerings that
are consummated prior to December 31, 2017, or, if such an offering is not consummated, the purchase amount will be converted into
a secured promissory note that matures on January 31, 2018 (which, at the investor’s option, may be converted into our common
shares). We received aggregate proceeds of $100,000. No such offerings consummated prior to December 31, 2017, and such notes
were converted into unsecured promissory notes on January 31, 2018.
On November 15, 2017, we issued demand non-interest bearing senior secured promissory notes in the aggregate
principal amount of $196,237. Lenders of the promissory notes were issued 2,133,333 common share warrants at an exercise price
of $0.075 per share with an expiry date of November 16, 2022. On January 31, 2018 $148,745 of the promissory notes were repaid
and $47,932 of the promissory notes were exchanged for unsecured convertible debentures.
We earned total revenue of $78,260 during
the year ended December 31, 2017, for providing services pursuant to contracts we entered into with MedReleaf for customizations
for its digital intake portal and CHT for its demonstration platform.
On January 31, 2018, the Company entered
into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CDN$1,500,000),
issued in two installments. The Secured Debentures are secured against certain of our assets. Under the terms of the Secured Debentures,
the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the
issue price of common shares under a qualified offering. The conversion of the Secured Debentures is at the option of the holder.
At the time of conversion, the holder will also receive an equal amount of common share purchase warrants with an exercise price
equal to the issue price. The Secured Debentures are due on July 31, 2018 and bear interest at 10% per annum. The initial installment
of the Secured Debentures was issued on January 31, 2018 for proceeds of $609,310 (CDN$750,000). On March 19, 2018, the final instalment
of $573,307 (CDN$750,000) was received. The Secured Debentures are secured against the general assets and intellectual property
of the Company.
On January 31, 2018, promissory notes with
an aggregate principal amount of $311,967 (CDN$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible
debentures (the “Unsecured Debentures”). From January 1, 2018 to January 31, 2018, the Company issued an additional
$20,098 (CDN$25,000) Unsecured Debentures for total proceeds of $332,065 (CDN$409,000). On March 19, 2018, an installment of the
Unsecured Debentures in the amount of $382,263 (CDN$500,000) was received. Under the terms of the Unsecured Debentures, the principal
amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the issue price
of common shares under a qualified offering. The conversion of the Unsecured Debentures is at the option of the holder. At the
time of conversion, the holder will also receive 120% of the amount of the common shares issued of common share purchase warrants
with an exercise price equal to the issue price. The Unsecured Debentures are due on July 31, 2018 and bear interest at 10% per
annum.
On February 1, 2018, the Company repaid
CDN$60,000 of promissory notes outstanding at December 31, 2017. The balance of the promissory notes due to Scott Woodrow, a Director
of the Company, was exchanged for an unsecured convertible debenture in the amount of CDN$59,000.
The proceeds from these private placements were used for
general working capital purposes, particularly the development and marketing of our platform, Ehave Connect.
Operating Activities
Net cash used in operating activities increased
to $977,372 for the year ended December 31, 2017, from $760,495 for the year ended December 31, 2016. The increase in net cash
used in the year ended December 31, 2017 of $216,877 was primarily due to increased operating expenses as described above under
“–A. Operating Results—Operating Expenses.”
Investing Activities
Net cash provided by investing activities
increased to $450,229 for the year ended December 31, 2017, from ($14,667) for the year ended December 31, 2016. The increase in
net cash provided in the year ended December 31, 2017, was primarily due to the effect of foreign exchange fluctuations on the
holding of cash in Canadian dollar accounts
Financing Activities
Net cash provided by financing activities decreased to $524,033 for the year ended December 31, 2017, from
$766,812 for the year ended December 31, 2016. The decrease in net cash provided by financing activities in the year ended December
31, 2017 was primarily due to the decreased amount raised from the private placement of convertible notes and promissory notes
raised in the year ended December 31, 2017, compared to the year ended December 31, 2016.
|
C.
|
Research
and Development, Patents, and Licenses, etc.
|
Ongoing research
and development is critical to our success. We seek to engage with reputable research and clinical institutions to access and assist
tools and methods developed. We hope to finance our research and development with government and research grants and internal funds.
Our research and development is comprised primarily of software development expenditures. We intend to continue to research and
develop new technologies and products for the mental health market. There can be no assurance that we can achieve any or all of
our research and development goals.
We spent $189,976 and $221,688 on software
development in 2017 and 2016, respectively. These amounts were spent on the development or improvement of our technologies and
products, including salary paid to our employees engaged in research and development activities. During the twelve months ended
December 31, 2017, we had 5 employees engaged in our research and development activities, compared to 4 employees engaged in research
and development activities during the twelve months ended December 31, 2016. See the disclosure in “Item 4. Information on
the Company B. Business Overview” for further information on the Company’s research and development policies.
It is important to note that historical
patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures
and availability of capital resources vary substantially from period to period, depending on the level of development activity
being undertaken at any one time and the availability of funding from investors and prospective strategic partners. See discussion
in Parts A and B of Item 5:“Operating and Financial Review and Prospects” for a description of the trend information
relevant to us. Except as disclosed elsewhere in our annual report, we know of no trends, uncertainties, demands, commitments or
events that are reasonably likely to have a material effect on our liquidity or capital resources or that would cause reported
financial information not necessarily to be indicative of future operating results or financial conditions.
|
E.
|
Off-Balance Sheet Arrangements
|
We are not party to any transactions, agreements
or other contractual arrangements with unconsolidated entities whereby we have financial guarantees, subordinated retained interests,
derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or
any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market
risk or credit risk support.
|
F.
|
Tabular Disclosure of Contractual Obligations
|
We have the following contractual obligations
as of December 31, 2017:
Contractual Obligations
|
|
Payments Due by Period
|
|
|
|
Total
$
|
|
|
Less than 1 year
$
|
|
|
2-3 years
$
|
|
|
4-5 years
$
|
|
|
After 5 years
$
|
|
Capital lease obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease (1)
|
|
|
109,679
|
|
|
|
45,893
|
|
|
|
63,786
|
|
|
|
-
|
|
|
|
-
|
|
Purchase obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other long term obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total contractual obligations
|
|
|
109,679
|
|
|
|
45,893
|
|
|
|
63,786
|
|
|
|
-
|
|
|
|
-
|
|
Note:
|
(1)
|
Our operating leases are comprised of our office leases and exclude our portion of operating costs.
|
We expect to fund our capital expenditure
requirements and commitments with existing working capital.
We seek safe harbor for our forward-looking
statements contained in Items 5.E and F. See “
Cautionary Note Regarding Forward-Looking Statements”.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES
|
A.
|
Directors
and Senior Management
|
The following table sets forth the names,
ages and positions of our current board members and executive officers:
Name
|
|
Age
|
|
Position with the Company
|
|
Director of the
Company Since
|
Scott Woodrow
|
|
46
|
|
Founder, Director
|
|
October 31, 2011
|
Prateek Dwivedi
|
|
46
|
|
President, Chief Executive Officer, Director
|
|
November 18, 2016
|
Dr. Ted Witek
|
|
60
|
|
Chairman of the Board, Director
|
|
November 18, 2016
|
Steve Stefano
|
|
63
|
|
Director
|
|
November 18, 2016
|
Dr. Harry Levy
|
|
74
|
|
Director
|
|
November 18, 2016
|
Dianne Parsons
|
|
54
|
|
Acting
Chief
Financial Officer and Controller
|
|
Not applicable
|
David Goyette
|
|
57
|
|
Chief Technology Officer
|
|
Not applicable
|
The business address of our officers and
directors is c/o Ehave, Inc., 277 Lakeshore Road East, Suite 203, Oakville, Ontario, Canada L6J 6J3.
Our directors are elected for a term of
one year and serve until such director’s successor is duly elected and qualified. Our executive officer serves at the pleasure
of the Board of Directors. None of our directors have any family relationships with any of our other directors or executive officer.
Certain of our directors are associated
with other companies, which may give rise to conflicts of interest. In accordance with the Business Corporations Act
(Ontario), directors who have a material interest in any person who is a party to a material contract or a proposed material contract
with us are required, subject to certain exceptions, to disclose that interest and abstain from voting on any resolution to approve
that contract. In addition, the directors are required to act honestly and in good faith with a view to the best interests
of Ehave Inc.
We are not aware of any arrangement or
understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected
as a director or officer.
Biographies
Ted Witek,
Chairman of the Board,
Director
Dr. Ted Witek is a healthcare executive
and scholar based in Toronto and Lisbon. He currently serves as the Chief Scientific Officer of Innoviva (Nasdaq: INVA). He is
also appointed a Senior Fellow at the Institute of Health Policy, Management, and Evaluation of The University of Toronto and Professor
at the Dalla Lana School of Public Health and Faculty of Pharmacy.
Prior to joining Innoviva, Dr. Witek served
as President and Chief Executive Officer of Boehringer Ingelheim in Canada and in Portugal. Joining Boehringer in 1992, Dr. Witek
held a number of positions of increasing responsibility, including leading the global clinical development and launch of several
respiratory products, most notably Spiriva®. Dr. Witek led the Respiratory and Immunology clinical research groups in the U.S.
and served as the Boehringer Co-chair of the Joint Operating Committee with Pfizer in their global alliance. During his tenure
in Canada, Dr. Witek served on the Board of Directors at Rx&D, Canada’s National Association for Research-Based Pharmaceutical
Companies, chairing its Heath Technology Assessment and Public Affairs Committees. He also served more than 10 years on the Drug/Device
Discovery and Development Committee of the American Thoracic Society, serving as Chairman from 2010 to 2012. He currently serves
on the Ontario Heath Innovation Council. Dr. Witek holds a doctorate of public health from Columbia University, an M.P.H. from
Yale University, and an MBA from Henley Management College.
Steve Stefano,
Director
Steve Stefano is a seasoned pharmaceutical
executive and entrepreneur with more than 30 years of relevant industry experience. Mr. Stefano currently serves as Managing Director
of Ashfield Market Access, a subsidiary of United Drug Group, a multi-national corporation based in Dublin, Ireland, that provides
outsourced commercial and medical solutions to biopharmaceutical companies. Ashfield Market Access is a consulting organization
that specializes in market research, market strategies, and account management for payer reimbursement and retail distribution
in the U.S. commercial market. Prior to joining the Ashfield Market Access, Mr. Stefano founded and served as Managing Partner
of SynopiaRx, a consulting firm specializing in U.S. payer reimbursement and retail distribution. SynopiaRx was acquired by United
Drug Group in 2012.
From 1986 to 2009, Mr. Stefano held various
roles of increased responsibility at Glaxo, GlaxoWellcome, and GlaxoSmithKline (GSK), within its commercial organizations. From
1986 to 2009, Mr. Stefano led GSK’s U.S. Payer Markets Divisions. From 2001 to 2008, he led GSK’s Neurohealth Division,
and organically grew the division’s sales from $300 million to $2.6 billion in seven years. Mr. Stefano also spearheaded
the acquisition of several critical and strategic in-licensed medicines for GSK, including Horizant®, Dynastat®, and Potiga®,
as well as the acquisition of Reliant Pharmaceuticals.
Mr. Stefano served on the Board of Directors
for Valeant Pharmaceuticals (2008-2010), Teamm Pharmaceuticals (2001-2004), and The Jimmy V Celebrity Golf Classic (2002-2009).
He has been a frequent guest lecturer at the Duke Fuqua School of Business and at the University of Pennsylvania Wharton School
of Business. He is a graduate of Saint Joseph’s University.
Harry Levy,
Director
Dr. Harry Levy, who is the Founder and
CEO of interMDnet Corporation, which for the past 20 years in partnership with the Albert Einstein College of Medicine in New York
and academic professors from 15 other U.S. medical schools, has pioneered the design and distribution of e-learning for physicians,
allied medical professionals, and health consumers. Among its many clinical offerings across various digital platforms, interMDnet
created innovative “medutainment,” real-time, competitive educational games which motivate physicians to adopt new
clinical guidelines and protocols.
Prior to founding interMDnet, Dr. Levy
was the research director of Health Opinion Research, Inc., where he led the development of “video interactive patients,”
a research tool designed to prospectively assess actual physician-patient practice behavior. Dr. Levy received his A.B. degree
from Columbia University, his M.D. from New York University, post-doctoral training in community and preventive medicine at the
Mount Sinai School of Medicine in New York, where he was later a fellow and junior faculty member, and his M.P.H. from Yale.
Prateek Dwivedi,
President, Chief
Executive Officer, Director
Prateek (Teek) Dwivedi is the chief executive
officer of Ehave, bringing 20 years of technology and healthcare leadership experience. Prior to joining Ehave in 2015, Teek led
Cancer Informatics at Princess Margaret Hospital at the University Health Network in Toronto, Canada. In this position, Teek was
responsible for building a next generation health and research informatics platform designed to capture and analyze cancer patient
data. From 2008 to 2011, Teek was the Vice President and Chief Information Officer at Mount Sinai Hospital in Toronto, where he
led a 170+ person team responsible for technology infrastructure. At Mount Sinai, Teek was instrumental in implementing a personalized
medicine informatics platform strategy.
Before his tenure at Mount Sinai, Teek
was the Vice President of Operations at AudienceView Ticketing, where he managed a team of 47 engineers. Teek has held key strategy
and product development positions at Cascada Mobile (exit via acquisition), Casero (exit via acquisition) and Solect Technology
group (exit via acquisition). Teek received his undergraduate and graduate degrees in Systems Design Engineering from the University
of Waterloo.
Scott Woodrow,
Founder, Director
Scott Woodrow is a Founder and Director
of Ehave, Inc. From October 2011 through April 2018, Scott served as the Company’s Chief Financial Officer, and from July
31, 2018 through April 2018, Scott served as the Company’s VP Corporate and Business Development. Scott formed the company
through his understanding and experience with the significant gaps that exist between the treatment of mental health and other
healthcare needs. Scott has been involved in healthcare technologies for over 20 years, starting in an advisory capacity and growing
through active investment and finally in the establishment of Ehave, Inc. Scott is passionate about improving the human condition
and believes strongly that the unlimited capacity of the human mind is our greatest gift. Scott is involved with many healthcare
industry and research institutions in assisting the advancement of technologies and bringing solutions from the bench to the clinic.
Scott is an active volunteer in the community and is a Board member of the Zareinu Education Centre – a school for children
with mild and severe physical and mental disabilities.
Scott was Managing Partner of Lions Peak
International Innovation Fund, LP, a Canadian investment fund investing in Israeli high tech companies, from 2007 to 2013. He has
also provided consulting services to healthcare research facilities and companies since 2013. From 2007 through 2013, Scott was
a director of PCure Ltd., a medical device company developing patient positioning and planning systems for radiation therapy for
cancer. From 1998-2005, Scott was at Ernst & Young, LLP with a primary client base of venture capital firms and their venture
backed portfolio companies. Scott served clients primarily in Canada and in Israel and was a designated individual for clients
originating in Israel. After leaving Ernst & Young, LLP in 2005, Mr. Woodrow continued advisory services to venture firms and
venture backed companies.
Dianne Parsons
, Acting Chief Financial
Officer and Controller
Dianne Parsons was appointed as the acting
chief financial officer in April 2018. Prior to joining Ehave, Dianne has held senior financial officer positions focused on strategic
planning, operations and financial management in technology-based businesses, turnaround management situations, and manufacturing.
In addition to her role at Ehave, Ms. Parsons provides consulting services to Alpha Cancer Technologies Inc. since May 2016 and
has held a part time CFO position with Alpha Cancer Technologies Inc. since January 2017. Ms. Parsons holds a Master of Accounting
degree from the University of Waterloo and is a Chartered Professional Accountant and Chartered Accountant.
David Goyette,
Chief Technology
Officer
David Goyette is the chief technology officer
of Ehave, Inc. Dave joined Ehave in December 2016 and brings over 30 years of technology, software architecture, and innovation
experience in healthcare, imaging solutions, embedded systems, distributed systems, and gaming. Dave’s most recent experience
includes the position of software architect for the Cancer Informatics program at Princess Margaret Hospital at University Health
Network in Toronto. Dave was also recently a software architect at Symcor, responsible for architecting and designing a next generation
platform to be used by new initiatives. Prior to these positions, Dave designed and implemented the next generation console and
analytic tools for Novadaq’s SPY fluorescent imaging platform (Dave co-authored several patents for this product). Before
Novadaq, Dave proposed a concept for a new MMOG game to the Montecito Picture Company, and partnered with them on developing the
concept and building a prototype in cooperation with a team of artists and game developers from Seneca at York.
Dave is experienced in building applications
for the Android ecosystem, and in building cross platform applications for Android and IOS. Dave’s other healthcare experience
includes the architecture and design for both the Philip and Hitachi Medical System MRI devices. Dave has been a trainer for Sun
Microsystems, and has successfully led technical teams on a score of other projects throughout his career. Dave received his undergraduate
degree in B.Math (double honours in Computer Science and C&O) from the University of Waterloo, and successfully completed 7
of the 9 courses required for an M.Eng degree from the University of Toronto.
Directors
In the year ended December 31, 2017, each
director who is not a salaried employee of the Company earned a fee of $33,000, which will be paid in 2018.
Directors, annually, may elect to take
up to 100% of their respective annual retainer in either options or restricted share awards.
Officers
Summary Compensation Table
The following table sets forth information
concerning the total compensation paid to our officers in 2017. Our officers are paid fees in Canadian dollars. These amounts are
presented in U.S. dollars and have been converted at the rate of exchange as of December 29, 2017, the last business day prior
to December 31, 2017 ($1.00 = CDN$1.2571).
Name and principal
position
|
|
Year
|
|
|
Salary
$
|
|
|
Share-
based
awards
$
(1)
|
|
|
Option-
based
awards
$
(1)
|
|
|
Bonus
$
|
|
|
All other
compensation
$
|
|
|
Total
compensation
$
|
|
Prateek Dwivedi
|
|
|
2017
|
|
|
|
304,572
|
|
|
|
N/A
|
|
|
|
2,672
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
423,098
|
|
Chief Executive Officer
|
|
|
2016
|
|
|
|
25,853
|
|
|
|
N/A
|
|
|
|
73,435
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
106,935
|
|
(2)
|
|
|
2015
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Woodrow
|
|
|
2017
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
116,238
|
(3)
|
|
|
116,238
|
|
Former Chief Executive Officer, Former Chief Financial Officer and VP of Corporate and Business Development
|
|
|
2016
|
|
|
|
236,525
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
236,525
|
|
(1)(2)
|
|
|
2015
|
|
|
|
192,783
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
192,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Goyette
|
|
|
2017
|
|
|
|
154,214
|
|
|
|
N/A
|
|
|
|
137,086
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
398,893
|
|
Chief Technology Officer
|
|
|
2016
|
|
|
|
13,315
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
16,667
|
|
|
|
|
2015
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Notes:
(1)
|
The value of share and option based awards are based on the grant date assumptions as disclosed in Note 7 ”
Stock Based Compensation”
in our 2017 audited financial statements.
|
(2)
|
On December 1, 2016, Mr. Woodrow resigned as President and Chief Executive Officer and Mr. Dwivedi was appointed President and Chief Executive Officer. As of April 23, 2018, Mr. Woodrow ceased to serve as our chief financial officer.
|
(3)
|
Consulting fees paid to NView Management Inc. pursuant to the Services Agreement with the Company, dated January 15, 2017. Scott Woodrow is the president of the NView Management Inc., and provided services as Vice President Corporate and Business Development.
|
Narrative Discussion
We have entered into employment agreements
with each of the following Executive Officers (each an “Employment Agreement”). Pursuant to the terms of
the Employment Agreements, the salary for the year 2018 are:
Name and principal position
|
|
Year
|
|
|
Salary
$(1)
|
|
Mr. Prateek Dwivedi
|
|
|
2018
|
|
|
|
304,572
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
Mr. David Goyette
|
|
|
2018
|
|
|
|
154,214
|
|
Chief Technology Officer
|
|
|
|
|
|
|
|
|
|
(1)
|
Our officers are paid fees in Canadian dollars. These amounts are presented in U.S. dollars and have been converted at the rate of exchange ($1.00 = Cdn$1.2969).
|
Further, each executive officer is entitled
to additional benefits and performance-based bonuses. Such benefits relate to supplemental health care plans and travel allowances.
Performance based bonuses are based on the achievement of our plans and objectives and may be up to 100% of the base salary in
which a proportion may be paid in the form of additional stock options. Each of the foregoing officers’ Employment
Agreements provides that such officer is subject to certain confidentiality and non-competition restrictions during and following
the course of his employment with the Company.
Pursuant to the Employment Agreement
with Prateek Dwivedi, dated July 25, 2016, we appointed Mr. Dwivedi as our chief executive officer, his employment to begin
upon our achievement of the closure of a financing round in $500,000. Mr. Dwivedi’s annual base salary is set at
$304,572 (CDN$395,000 converted at the rate of exchange of $1.00 = Cdn$1.2969), and he is eligible to receive a performance-based bonus from time to time, up to 100% of his
annual base salary, subject to the approval and reasonable discretion of the board of directors as may be delegated to our
Compensation Committee from time to time, in a combination of cash payments and the granting of option awards, again subject
to the reasonable discretion of the board of directors. Notwithstanding the foregoing, Mr. Dwivedi shall be paid his
discretionary bonus in the form of cash payments alone until he has received the equivalent of 50% of his annual base salary,
after which time any additional discretionary bonus payments may be made as a combination of cash payments or option awards,
subject to the reasonable discretion of the board of directors. On the date of Mr. Dwivedi’s hire, Mr. Dwivedi is
entitled to receive an initial equity award of in the form of participation in our incentive stock option plan, of 5% of our
total outstanding common shares, subject to regulatory approval (the “Initial Equity Award”). The Initial Equity
Award will commence vesting immediately, with a vesting period of six (6) months. Conditional upon completion of the next
financing round of $10 million, we will grant to Mr. Dwivedi a single one-time adjustment equity award in an amount
sufficient to maintain his 5% share of our total outstanding common shares, subject to regulatory approval (the
“Adjustment Equity Award”). The Adjustment Equity Award will commence vesting immediately, with a vesting period
of twelve (12) months. In the event that Mr. Dwivedi’s employment with the Company is terminated without cause, vesting
of the Initial Equity Award and the Adjustment Equity Award will occur in the normal course, as if Mr. Dwivedi’s
employment had not terminated. If we terminate Mr. Dwivedi’s Employment Agreement for “cause” (as set forth
in his Employment Agreement), Mr. Dwivedi shall receive payment of any salary and vacation pay earned to the date of
termination, and any stock options will vest and be exercisable in accordance with the express terms of our stock option
plan, as may be amended from time to time. We may terminate Mr. Dwivedi’s Employment Agreement without
“cause,” by providing 6 to 24 months’ pay, depending on the duration of his service to the Company, in lieu
of notice of termination, and Mr. Dwivedi will be entitled to a discretionary bonus for the period of pay in lieu of notice
calculated as the average of the discretionary bonus received by him over the previous 3 years, or part thereof if his
employment is terminated earlier than his 3rd anniversary date. Mr. Dwivedi may terminate his Employment Agreement for any
reason at any time with 3 months’ written notice to the Company. Mr. Dwivedi may resign for “good reason”
(as set forth in his Employment Agreement) within 60 days of him learning of the facts that are the basis for the resignation
for good reason. Upon Mr. Dwivedi’s written notice tendering of his resignation for good reason, it shall be deemed
that Mr. Dwivedi’s employment by the Company is terminated without cause. At the time of Mr. Dwivedi’s
appointment, Mr. Dwivedi was also appointed to the board of directors.
On December 1, 2016, we entered into the
Employment Agreement with David Goyette as our chief technology officer, his employment to begin upon our achievement of the closure
of a financing round in CDN$500,000. Mr. Goyette’s annual base salary is set at $159,096 (CDN$200,000 converted at the rate
of exchange as of December 29, 2017, the last business day prior to December 31, 2017, $1.00 = CDN$1.2571), and he is eligible
to receive a performance-based bonus from time to time, up to 25% of his annual base salary, in cash, subject to the approval and
sole discretion of the board of directors. On the date of Mr. Goyette’s hire, Mr. Goyette is entitled to receive an initial
equity award of 365 common shares, subject to regulatory approval. Such award will commence vesting immediately, with a vesting
period of 2 years. In the event that Mr. Goyette’s employment is terminated for any reason, vesting will cease immediately
on the date of termination, and any unvested options will be forfeited. If we terminate Mr. Goyette’s Employment Agreement
for “cause” (as set forth in his Employment Agreement), Mr. Goyette shall receive payment of any salary and vacation
pay earned to the date of termination. We may terminate Mr. Goyette’s Employment Agreement without “cause,” by
providing Mr. Goyette with the minimum notice (or pay in lieu of such notice) and severance pay (if any) to which he is entitled
under the Employment Standards Act, 2000 or any amended or replacement legislation, plus any other minimum rights, benefits and
entitlements to which he is entitled under the Employment Standards Act, 2000 at such time. Mr. Goyette may terminate his Employment
Agreement for any reason at any time with 2 months’ written notice to the Company.
On April 28, 2018, we entered into a
Services Agreement with Dianne Parsons, C.P.A., pursuant to which, as a contractor, she will provide services as controller
and chief financial officer of the Company. The term of her engagement will continue until June 30, 2018, unless terminated
by either the Company or Dianne upon one month prior notice. In addition, the Company may immediately terminate the Services
Agreement, with no other obligations, upon default by Dianne in the performance of any of her obligations under the Services
Agreement. For the term of the Services Agreement, the Company agreed to pay Dianne CDN$60 per hour for controller
activities and CDN$105 per hour for chief financial officer activities.
We do not provide pension, retirement or
similar benefits to its directors and executive officers. No funds were set aside or accrued by the Company during the fiscal year
ended December 31, 2017, to provide pension, retirement or similar benefits to our directors or officers pursuant to any existing
plan provided or contributed to by us or our subsidiaries. We do not currently have a stock appreciation rights plan.
Our directors are elected by the shareholders
at each Annual General Meeting (or Annual Special Meeting) and typically hold office until the next meeting, at which time they
may be re-elected or replaced. Casual vacancies on the board are filled by the remaining directors and the persons filling
those vacancies hold office until the next Annual General Meeting (or Annual Special Meeting), at which time they may be re-elected
or replaced. Our officers are appointed by the Board of Directors and hold office indefinitely at the pleasure of the
Board of Directors.
Directors’ Contracts
We receive a director’s consent from
each of the independent directors upon their acceptance of their director’s position.
We do not have any contracts with any of
its directors which provide for benefits upon the termination of employment.
Compensation Committee
Our compensation committee consists of
three outside, independent directors under Canadian law: Mr. Witek, Mr. Stefano and Mr. Levy. Mr. Witek serves as chairman of the
compensation committee. The members of the compensation committee have not been officers of the company. Our compensation committee
is responsible for making recommendations to the board of directors regarding compensation terms for our officers and directors
and for determining salaries and incentive compensation for our executive officers and incentive compensation for our other employees
and consultants.
Audit Committee
Our audit committee consists of Mr.
Woodrow, Mr. Stefano and Mr. Levy. Mr. Woodrow serves as chairman of the audit committee. The
audit committee ensures that the Company’s management has designed and implemented an effective system of internal
financial controls, assesses the integrity of the financial statements and related financial disclosure of the Company, and
reviews the Company’s compliance with regulatory and statutory requirements as they relate to financial statements,
taxation matters and disclosure of financial information. The audit committee also reports to the board of directors with
respect to such matters and recommends the selection of independent auditors. Additionally, the committee monitors and
reports on the independence and performance of the Company’s independent auditors.
The following table sets out the number
of our employees at the end of each of the last three fiscal years by activity. All employees are located in Canada.
Activity
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
Operating
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
Total
|
|
|
7
|
|
|
|
6
|
|
|
|
3
|
|
The following table sets forth certain
information as of May 14, 2018, regarding the beneficial ownership of our common shares by each of our directors and all of our
executive officers and directors as a group.
|
|
Number of common shares
beneficially owned
(1)
|
|
|
% of
Outstanding common
shares
(2)
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Scott Woodrow
|
|
|
19,777,338
|
(3)
|
|
|
27.73
|
%
|
Prateek Dwivedi
|
|
|
3,393,296
|
(4)
|
|
|
4.76
|
%
|
David Goyette
|
|
|
605,261
|
(5)
|
|
|
0.86
|
%
|
Dr. Ted Witek
|
|
|
-
|
|
|
|
-
|
|
Steve Stefano
|
|
|
-
|
|
|
|
-
|
|
Dr. Harry Levy
|
|
|
-
|
|
|
|
-
|
|
All officers and directors as a group (6 persons):
|
|
|
23,775,895
|
|
|
|
33.35
|
%
|
Notes:
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
|
(2)
|
Based on 71,304,035 common shares issued and outstanding on May 14, 2018.
|
|
(3)
|
Includes 13,973,623 common shares beneficially owned by 2110345 Ontario Inc. and NView Management Inc. over which Mr. Woodrow has sole voting and dispositive power.
|
|
(4)
|
Includes options to purchase 3,271,047 common shares that are currently exercisable or exercisable within 60 days of May 14, 2018.
|
|
(5)
|
Includes options to purchase 580,811 common shares that are currently exercisable or exercisable within 60 days of May 14, 2018.
|
The following table sets forth the amount
and terms of options to acquire common shares of our Company we have granted to our directors, senior management and key employees:
Name and office
held
|
|
Number of
Options
|
|
|
Date of
Grant
|
|
Exercise
Price
|
|
|
Expiry Date
|
|
|
|
|
|
|
|
|
|
|
|
Prateek Dwivedi
Chief Executive Officer, President
|
|
|
2,808,359
|
|
|
November 28, 2016
|
|
|
0.12
|
|
|
November 28, 2021
|
David Goyette
Chief Technology Officer
|
|
|
433,000
|
|
|
January 12, 2017
|
|
|
0.50
|
|
|
January 12, 2022
|
Prateek Dwivedi
Chief Executive Officer, President
|
|
|
1,404,118
|
|
|
October 20, 2017
|
|
|
0.08
|
|
|
October 20, 2022
|
David Goyette
Chief Technology Officer
|
|
|
274,415
|
|
|
October 20, 2017
|
|
|
0.08
|
|
|
October 20, 2022
|
Total:
|
|
|
4,919,892
|
|
|
|
|
|
|
|
|
|
Option Plan
Our Stock Option Plan (“SOP”)
sets the maximum number of common shares which may be issued under options granted pursuant to the SOP which shall be 15% of the
number of issued and outstanding common shares of the Company.
The SOP authorizes the board of directors
of the Company or a committee of the board of directors to issue options to directors, officers, employees and consultants of the
Company.
The purpose of the SOP is to provide consultants,
officers, directors and employees with a proprietary interest in the Company in order to: (i) increase the interest in the Company’s
welfare of those individuals who share primary responsibility for the management, growth and protection of the business of the
Company; (ii) furnish an incentive to such individuals to continue providing their services to the Company and its subsidiaries;
and (iii) provide a means through which the Company and its subsidiaries may attract qualified persons to engage as consultants,
officers, directors and employees.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table lists the beneficial
ownership of our securities as of May 14, 2018, by each person known by us to be the beneficial owner of 5% or more of the outstanding
shares of any class of our securities. As of May 14, 2018, 71,304,035 of our ordinary shares were outstanding. As at May 14,
2018, with the exception of Shareholders disclosed in “Item 6.E Share Ownership”, we are not aware of any shareholder
who beneficially owns, directly or indirectly, or exercises control or direction over, our common shares, of more than 5% of the
outstanding common shares.
Name of Beneficial Owner
|
|
Number of
Shares
Beneficially
Owned
|
|
|
Percentage of Shares
Outstanding
|
|
Rocfrim, Inc. (2)(3)(4)
|
|
|
7,840,882
|
|
|
|
10.84
|
%
|
|
|
|
|
|
|
|
|
|
Plazacorp Investments Limited(5)(6)
|
|
|
8,601,992
|
|
|
|
11.90
|
%
|
|
|
|
|
|
|
|
|
|
David Stefansky (1)
|
|
|
8,801,176
|
|
|
|
12.17
|
%
|
|
|
|
|
|
|
|
|
|
Eisenberg Family Foundation(7)
|
|
|
9,088,710
|
|
|
|
12.57
|
%
|
(1)
|
Includes (i) 690,399 shares issuable upon the conversion of notes and (ii) 3,108,381 shares issuable upon
the exercise of warrants that are currently convertible or exercisable within 60 days of May 14, 2018. Includes 5,590,791 common
shares and shares issuable upon exercise of warrants beneficially owned by Bezalel Partners, LLC over which Mr. Stefansky has sole
voting and dispositive power. Includes 988,206 shares issuable upon the exercise of warrants that are currently exercisable within
60 days of May 14, 2018 and 988,206 shares issuable upon the conversion of the convertible note outstanding as of May 14, 2018.
|
(2)
|
Includes 872,870 shares issuable upon the exercise of warrants that are currently exercisable within 60
days of May 14, 2018 and 872,870 shares issuable upon the conversion of the convertible note outstanding as of May 14, 2018.
|
(3)
|
Includes (i) 697,248 shares held by Rocpart Inc. ("Rocpart") over which Mr. Kaplan, as President of Rocpart has sole voting and dispositive power and (ii) 5,476,772 shares held by Rocfrim over which Mr. Kaplan has sole voting and dispositive power.
|
(4)
|
Jesse Kaplan, President of Rocfrim has sole voting and dispositive power over shares held by Rocfrim.
|
(5)
|
Sruli Weinrib, Vice President of Plazacorp has sole voting and dispositive power over shares held by Plazacorp.
|
(6)
|
Includes 888,615 shares issuable upon the exercise of warrants that are currently exercisable within 60
days of May 14, 2018 and 888,615 shares issuable upon the conversion of the convertible note outstanding as of May 14, 2018.
|
(8)
|
Solomon Eisenberg has sole voting and dispositive power over shares held by Eisenberg Family
Foundation. Includes 4,544,355 shares issuable upon the conversion of the convertible note outstanding as of May 14,
2018.
|
The voting rights of our major shareholders
do not differ from the voting rights of holders of our shares who are not major shareholders. Each of the above listed securities
entitles the holder to one vote at our company’s shareholder meetings.
Changes in Percentage Ownership by
Major Shareholders
As of May 14, 2018, Mr. Woodrow, a founder of the Company, beneficially owned 19,777,338 common shares,
or 27.73%, of our then outstanding common shares.
As of May 15, 2017, Mr. Woodrow beneficially owned 19,777,338 common shares, or 27.73%, of our then outstanding
common shares.
As of March 10, 2016, Mr. Woodrow beneficially owned 19,777,241 common shares, or 63.24%, of our then
outstanding common shares.
As of March 10, 2016, Romena Holdings Inc.
beneficially owned 5,000,000 common shares, or 17.81%, of our then outstanding common shares.
As of May 14, 2018, Rocfrim Inc. beneficially owned 7,840,882 common shares, or 10.84%, of our then outstanding
common shares.
As of May 15, 2017, Rocfrim Inc. beneficially
owned 7,449,646 common shares, or 9.6%, of our then outstanding common shares.
As of March 10, 2016, Rocfrim Inc. beneficially
owned 5,476,772 common shares, or 16.32% of our then outstanding common shares.
As of May 14, 2018, Plazacorp Investments Limited beneficially owned 8,601,992 common shares, or 11.9%,
of our then outstanding common shares.
As of May 15, 2017, Plazacorp Investments
Limited beneficially owned 7,567,951 common shares, or 9.84%, of our then outstanding common shares.
As of March 10, 2016, Plazacorp Investments
Limited beneficially owned 5,476,772 common shares, or 16.32% of our then outstanding common shares.
As of May 14, 2018, David Stefansky beneficially owned 8,801,176 common shares, or 12.17%, of our then
outstanding common shares.
As of May 15, 2017, David Stefansky beneficially
owned 7,567,951 common shares, or 9.84%, of our then outstanding common shares. Includes 5,590,791 common shares and shares issuable
upon exercise of warrants beneficially owned by Bezalel Partners, LLC over which Mr. Stefansky has sole voting and dispositive
power.
As of March 10, 2016, David Stefansky beneficially
owned 7,546,781 common shares, or 9.81% of our then outstanding common shares.
As of May 14, 2018, Eisenberg Family Foundation beneficially owned 9,088,710 common shares, or 12.57%,
of our then outstanding common shares. Solomon Eisenberg has sole voting and dispositive power over shares held by Eisenberg Family
Foundation.
Shares Held in the United States
The following table indicates, as of May
14, 2018, the total number of common shares issued and outstanding, the approximate total number of holders of record of common
shares, the number of holders of record of common shares with U.S. addresses, the portion of the outstanding common shares
held by U.S. holders of record, and the percentage of common shares held by U.S. holders of record. This table does not
indicate beneficial ownership of common shares.
Total Number of Holders of Record
|
|
|
Total Number of
Common Shares
Issued and
Outstanding
|
|
|
Number of
US Holders of
Record
|
|
|
Number of
Common Shares
Held by
US Holders of
Record
|
|
|
Percentage of
Common Shares Held
by US Holders of
Record
|
|
48
|
|
|
|
71,304,035
|
|
|
|
11
|
|
|
|
34,027,278
|
|
|
|
47.72
|
%
|
Change of Control
As of May 14, 2018, there were no arrangements
known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control by Others
To the best of the Company’s knowledge, the Company is
not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person,
severally or jointly.
|
B.
|
Related
Party Transactions
|
Other than the transactions described below,
since January 1, 2017, we entered into related party transactions as follows:
|
·
|
We have entered into employment contracts with each of our officers (see Item 6).
|
|
·
|
We entered into an Investor Letter, dated October 11, 2017, with each of Scott Woodrow, Jesse Kaplan,
PlazaCorp Investments Limited, Rocfrim Inc., Bezalel Partners LLC, and David Stefansky, pursuant to which such persons agreed to
purchase securities of the Company on similar terms as certain offerings of the Company that are consummated prior to December
31, 2017, or, if such an offering is not consummated, the purchase amount will be converted into a secured promissory note that
matures on January 31, 2018 (which, at the investor’s option, may be converted into common shares of the Company). Such investors
are also entitled to additional warrant coverage in the event that we do not close such an offering prior to December 31, 2017.
No such offering consummated prior to December 31, 2017, and such notes were converted into unsecured convertible debentures notes
on January 31, 2018.
|
|
·
|
On July 27, 2017, the Company entered into a demand non-interest bearing secured promissory note with
Scott Woodrow, a director of the Company, in the principal amount of $47,778 (CDN$60,000). In November 2017, the note was converted
into a note with 626,513 attached warrants. Subsequently, the note has been repaid.
|
|
·
|
On July 27, 2017, the Company entered into a demand non-interest bearing secured promissory note with
NView Management in the principal amount of $86,797 (CDN$109,000). Scott Woodrow, a director of the Company, is the controlling
shareholder, director and President of NView Management, Currently, $45,490 (CDN$59,000) is outstanding on this note.
|
|
·
|
On October 11, 2017, the
Company entered into a demand non-interest bearing unsecured promissory note with Scott Woodrow, a director of the Company, in
the principal amount of $80,276 (CDN$100,000). On January 18, 2018 the note was exchanged for an unsecured convertible debenture.
|
|
·
|
We entered into a term sheet with Companion Healthcare Corporation (“CHC”), dated June 30,
2017, whereby CHC will acquire the exclusive rights to the Company’s informatics platform for use in companion animals, and
we received a deposit of $135,232 for the Company’s fieldwork. License fees are to be established by a third party evaluator.
Scott Woodrow, a director of the Company, is the President and a minority shareholder of CHC.
|
|
·
|
On November 14, 2016, we entered into a definitive securities purchase agreement to sell up to $1,500,026 of convertible promissory notes and warrants in multiple closings in a private placement. Each of Bezalel Partners, LLC (an entity over which Mr. Stefansky holds sole control), Rocfrim, Inc. and Plazacorp Investments Limited participated in the private placement committed to fund a total of $185,718 per such investor. As of May 14, 2018, Bazalel Partners, LLC has purchased convertible promissory notes in an aggregate principal amount of $55,358, Rocfrim, Inc. has purchased convertible promissory notes in an aggregate principal amount of $48,897 and Plazacorp Investments Limited has purchased convertible promissory notes in an aggregate principal amount of $49,779.
|
|
C.
|
Interests of Experts and Council
|
Not applicable
ITEM 8. FINANCIAL INFORMATION
|
A.
|
Statements and Other Financial Statements
|
Financial Statements
The financial statements filed as part
of this annual report are filed under Item 18.
Legal Proceedings
The directors and the management of the
Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff
in any material proceeding or pending litigation.
The directors and the management of the
Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
Dividend Policy
We have not paid any dividends on our common shares. We anticipate that, for the foreseeable future, we will retain any future earnings to support operations and
to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends for at least the next
several years. We may pay dividends on our common shares in the future if we generate profits and in accordance with the Business
Corporations Act (Ontario). Any decision to pay dividends on common shares in the future will be made by the board of
directors on the basis of the earnings, financial requirements and other conditions existing at such time.
Except as otherwise disclosed in this Annual
Report on Form 20-F, no significant change has occurred since December 31, 2017.
ITEM 9. THE OFFER AND LISTING
|
A.
|
Offering and Listing Details
|
Our common shares have commented
trading on the OTCQB Venture Market under the symbol EHVVF on November 21, 2016. Prior to that, there was no established
market for our common shares. The last reported sales price of our common shares on June 12, 2018 on the OTCQB Venture Market
was $0.044. The following table sets forth the high and low per share sales prices for our common shares on the
OTCQB Venture Market, for the periods indicated.
Annual Stock Information
OTCQB
|
|
|
High
|
|
|
Low
|
|
2016
|
|
|
0.50
|
|
|
|
0.01
|
|
2017
|
|
|
0.50
|
|
|
|
0.04
|
|
Quarterly Stock Information
|
|
High
|
|
|
Low
|
|
2016
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
0.50
|
|
|
$
|
0.01
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.50
|
|
|
$
|
0.2544
|
|
Second Quarter
|
|
$
|
0.48
|
|
|
$
|
0.2544
|
|
Third Quarter
|
|
$
|
0.2544
|
|
|
$
|
0.04
|
|
Fourth Quarter
|
|
$
|
0.15
|
|
|
$
|
0.06
|
|
2018
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.085
|
|
|
$
|
0.05359
|
|
Monthly Stock Information
Month
|
|
High
|
|
|
Low
|
|
December 2017
|
|
$
|
0.09535
|
|
|
$
|
0.06
|
|
January 2018
|
|
$
|
0.085
|
|
|
$
|
0.057
|
|
February 2018
|
|
$
|
0.0749
|
|
|
$
|
0.05359
|
|
March 2018
|
|
$
|
0.07
|
|
|
$
|
0.055
|
|
April 2018
|
|
$
|
0.07
|
|
|
$
|
0.05
|
|
May 2018
|
|
$
|
0.067
|
|
|
$
|
0.037
|
|
Through June 12, 2018
|
|
$
|
0.05
|
|
|
$
|
0.043
|
|
Not applicable
Our common shares are traded/quoted on
the OTCQB Venture Market under the symbol “EHVVF”.
Not applicable
Not applicable
Not applicable
ITEM 10. ADDITIONAL INFORMATION
Not applicable
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B.
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Memorandum and Articles of Association
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Articles of Continuance
We are governed by our amended articles
of incorporation (the “Articles”) under the Business Corporations Act of Ontario (the “Act”) and by our
by-laws (the “By-laws”). Our Articles provide that there are no restrictions on the business we may carry on or
on the powers we may exercise. Companies incorporated under the Act are not required to include specific objects or purposes in
their articles or by-laws.
Directors
Subject to certain exceptions, including
in respect of voting on any resolution to approve a contract that relates primarily to the director’s remuneration, directors
may not vote on resolutions to approve a material contract or material transaction if the director is a party to such contract
or transaction. The directors are entitled to remuneration as shall from time to time be determined by the Board of Directors with
no requirement for a quorum of independent directors. The directors have the ability under the Act to exercise our borrowing power,
without authorization of the shareholders. The Act permits shareholders to restrict this authority through a company’s articles
or by-laws (or through a unanimous shareholder agreement), but no such restrictions are in place for us. Our Articles and By-laws
do not require directors to hold shares for qualification.
Rights, Preferences and Dividends Attaching
to Shares
The holders of common shares have the right
to receive dividends if and when declared. Each holder of common shares, as of the record date prior to a meeting, is entitled
to attend and to cast one vote for each common share held as of such record date at such annual and/or special meeting, including
with respect to the election or re-election of directors. Subject to the provisions of our By-laws, all directors may, if still
qualified to serve as directors, stand for re-election. The numbers of our Board of Directors are not replaced at staggered intervals
but are elected annually.
On a distribution of assets on a winding-up,
dissolution or other return of capital (subject to certain exceptions) the holders of common shares shall have a right to receive
their
pro rata
share of such distribution. There are no sinking fund or redemption provisions in respect of the common
shares. Our shareholders have no liability to further capital calls as all shares issued and outstanding are fully paid and non-assessable.
No other classes of shares are currently
permitted to be issued.
Action Necessary to Change the Rights
of Shareholders
The rights attaching to the different classes
of shares may be varied by special resolution passed at a meeting of that class’s shareholders.
Annual and Special Meetings of Shareholders
Under the Act and our By-laws, we are required
to mail a Notice of Meeting and Management Information Circular to registered shareholders not less than 21 days and not more
than 50 days prior to the date of the meeting. Such materials must be filed concurrently with the applicable securities regulatory
authorities in Canada and the US. Subject to certain provisions of the By-laws, a quorum of two or more shareholders
in person or represented by proxy holding or representing by proxy not less than five (5%) percent of the total number of issued
and outstanding shares enjoying voting rights at such meeting is required to properly constitute a meeting of shareholders. Shareholders
and their duly appointed proxies and corporate representatives are entitled to be admitted to our annual and/or special meetings.
Limitations on the Rights to Own Shares
The Articles do not contain any limitations
on the rights to own shares. Except as described below, there are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities to hold or vote the securities held. There are also
no such limitations imposed by the Articles and By-laws with respect to our common shares.
Disclosure of Share Ownership
In general, under applicable securities
regulation in Canada, a person or company who beneficially owns, directly or indirectly, voting securities of an issuer or who
exercises control or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting
rights attached to all the issuer’s outstanding voting securities is an insider and must, within 10 days of becoming
an insider, file a report in the required form effective the date on which the person became an insider. The report must disclose
any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. Additionally,
securities regulation in Canada provides for the filing of a report by an insider of a reporting issuer whose holdings change,
which report must be filed within 10 days from the day on which the change takes place.
The rules in the US governing the ownership
threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the
Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) of more than 5% of a class of an equity security registered under Section 12 of the Exchange Act. In
general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the SEC containing
the information prescribed by the regulations under Section 13 of the Exchange Act. This information is also required to be
sent to the issuer of the securities and to each exchange where the securities are traded.
Other Provisions of Articles and By-laws
There are no provisions in the Articles
or By-laws:
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•
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delaying or prohibiting a change in control of our company that operate only with respect to a merger, acquisition or corporate restructuring;
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•
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discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares;
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•
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requiring disclosure of share ownership; or
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•
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governing changes in capital, where such provisions are more stringent than those required by law.
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We have employment contracts with our chief
executive officer and our chief technology officer as summarized in Item 6B.
On March 5, 2018, we entered a definitive
agreement with Aequus, following a Letter of Interest signed in August 2017. Under this agreement, Aequus will use Ehave Connect
to enhance and streamling data management processes for Aequus-sponsored clinical trials studing Cannabinoid formulations for treating
various neurological conditions.
On March 1, 2018, we entered in an agreement
with Revive for the use of the Ehave Connect platform in Revive’s research initiatives involving medical cannabis for the
treatment of liver disease. Under this agreement, Revive will use Ehave Connect for both clinical trials and facilitating patient
management. In the initial project, Revive will pay us based on the number of patient records it hosts on Ehave Connect, and
subsequent projects will be negotiated by the parties. The agreement will renew for one year terms unless notice of termination
is rendered one month prior to such termination dates.
On April 6, 2018, we signed an amendment
to the lease of our office space in Oakville, Ontario, for a period of two years, commencing on May 1, 2018 and expiring on May
1, 2020. The total monthly payment under the sublease is $1,607, plus any applicable fees and taxes.
On September 12, 2017, we entered into
a consulting agreement with Bull Media Consulting LLC, for a period of 3 months, commencing September 15, 2017 for financial advisory,
strategic business panning, and investor relations services. The total monthly cost is $10,000 per month.
On March 22, 2017, we entered into a consulting
agreement with Nison Consulting, LLC, for a period of 6 months, commencing on March 27, 2017 for public relations and media relations
services. The total monthly cost is $5,000 per month. The term of the agreement will automatically renew for additional six-month
terms unless either party notifies its intention not to renew with 30 days notice. Ehave had given notice on the fourth month,
with total obligations agreed to be 5 months.
On December 13, 2016, we entered into an
agreement with MHS, pursuant to which MHS granted us the non-exclusive license to use certain test materials published by MHS for
inclusion and integration into our mental health informatics platform and distribution in North America and to create output reports
for the completed tests. We are to pay MHS 70% of net sales of all copies of the test published by us. The initial term of the
agreement is three years. The agreement may be terminated by either party upon delivery of written notice of termination to the
other party, in the event that the other party fails to comply with any term or condition of the agreement and such non-compliance
is not cured within the 60 day period following written notice thereof given by the non-defaulting party to the defaulting party.
On May 4, 2017, we amended our agreement with MHS to include the Davidson Trauma Scale (DTS) and Startle Physiological Anger Numbness
(SPAN) to assess Post Traumatic Stress Disorder (PTSD).
On November 1, 2016, we entered into an
agreement with Tiberend Strategic Advisors for exclusive public relations services. The term of the agreement is 12 months, which
will automatically renew for additional one-year terms unless either party notifies its intention not to renew with 60 days’
notice. The total monthly cost is $9,350 per month prior to the listing of our securities on the NASDAQ Stock Market or $12,100
per month following the listing of our securities on the NASDAQ Stock Market.
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 our securities, except as discussed below in Section E,
Taxation
.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws
of Canada or in our organizational documents on the right of foreigners to hold or vote securities of our company, except that
the
Investment Canada Act
(the “Investment Canada Act”) may require review and approval by the Minister of Industry
(Canada) of certain acquisitions of “control” of our Company by a “non-Canadian.”
Investment Canada Act
Under the Investment Canada Act, transactions
exceeding certain financial thresholds, and which involve the acquisition of control of a Canadian business by a non-Canadian,
are subject to review and cannot be implemented unless the Minister of Industry and/or, in the case of a Canadian business engaged
in cultural activities, the Minister of Canadian Heritage, are satisfied that the transaction is likely to be of “net benefit
to Canada”. If a transaction is subject to review (a “Reviewable Transaction”), an application for review
must be filed with the Investment Review Division of Industry Canada and/or the Department of Canadian Heritage prior to the implementation
of the Reviewable Transaction. The responsible Minister is then required to determine whether the Reviewable Transaction is likely
to be of net benefit to Canada taking into account, among other things, certain factors specified in the Investment Canada Act
and any written undertakings that may have been given by the applicant. The Investment Canada Act contemplates an initial review
period of up to 45 days after filing; however, if the responsible Minister has not completed the review by that date, the
Minister may unilaterally extend the review period by up to 30 days (or such longer period as may be agreed to by the
applicant and the Minister) to permit completion of the review. Direct acquisitions of control of most Canadian businesses by or
from World Trade Organization (“WTO”) investors are reviewable under the Investment Canada Act only if, in the case
of an acquisition of voting securities, the value of the worldwide assets of the Canadian business or, in the case of an acquisition
of substantially all the assets of a Canadian business, the value of those assets exceed C$295 million for the year 2008 (this
figure is adjusted annually to reflect inflation). Indirect acquisitions (e.g., an acquisition of a US corporation with a Canadian
subsidiary) of control of such businesses by or from WTO investors are not subject to review, regardless of the value of the Canadian
businesses’ assets. Significantly lower review thresholds apply where neither the investor nor the Canadian business is WTO
investor controlled or where the Canadian business is engaged in uranium mining, certain cultural businesses, financial services
or transportation services.
Even if the transaction is not reviewable
because it does not meet or exceed the applicable financial threshold, the non-Canadian investor must still give notice to Industry
Canada and, in the case of a Canadian business engaged in cultural activities, Canadian Heritage, of its acquisition of control
of a Canadian business within 30 days of its implementation.
Competition Act
The
Competition Act
(Canada) (the “Competition
Act”) requires that a pre-merger notification filing be submitted to the Commissioner of Competition (the “Commissioner”)
in respect of proposed transactions that exceed certain financial and other thresholds. If a proposed transaction is subject to
pre-merger notification, a pre-merger notification filing must be submitted to the Commissioner and a waiting period must expire
or be waived by the Commissioner before the transaction may be completed. The parties to a proposed transaction may choose to submit
either a short-form filing (in respect of which there is a 14-day statutory waiting period) or a long-form filing (in respect
of which there is a 42-day statutory waiting period). However, where the parties choose to submit a short-form filing, the Commissioner
may, within 14 days, require that the parties submit a long-form filing, in which case the proposed transaction generally
may not be completed until 42 days after the long-form filing is submitted by the parties.
The Commissioner may, upon request, issue
an advance ruling certificate (“ARC”) in respect of a proposed transaction where she is satisfied that she would not
have sufficient grounds on which to apply to the Competition Tribunal for an order under the merger provisions of the Competition
Act. If the Commissioner issues an ARC in respect of a proposed transaction, the transaction is exempt from the pre-merger notification
provisions. In addition, if the transaction to which the ARC relates is substantially completed within one year after the ARC is
issued, the Commissioner cannot seek an order of the Competition Tribunal under the merger provisions of the Competition Act in
respect of the transaction solely on the basis of information that is the same or substantially the same as the information on
the basis of which the ARC was issued.
If the Commissioner is unwilling to issue
an ARC, she may nevertheless issue a “no action” letter waiving notification and confirming that she is of the view
that grounds do not then exist to initiate proceedings before the Competition Tribunal under the merger provisions of the Competition
Act with respect to the proposed transaction, while preserving, during the three years following completion of the proposed transaction,
her authority to initiate proceedings should circumstances change.
Regardless of whether pre-merger notification
is required, the Commissioner may apply to the Competition Tribunal (a special purpose tribunal) for an order under the merger
provisions of the Competition Act. If the Competition Tribunal finds that the transaction is or is likely to prevent or lessen
competition substantially, it may order that the parties not proceed with the transaction or part of it or, in the event that the
transaction has already been completed, order its dissolution or the disposition of some of the assets or shares involved. In addition,
the Competition Tribunal may, with the consent of the person against whom the order is directed and the Commissioner, order that
person to take any other action as is deemed necessary to remedy any substantial lessening or prevention of competition that the
Competition Tribunal determines would or would likely result from the transaction.
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS
The following is a general summary of certain
material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership and disposition of common shares.
This summary is for general information
purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations
that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition,
this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the
U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder
under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or
U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership,
and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable
tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of common shares.
No legal opinion from U.S. legal counsel
or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on
the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this
summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings
of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”),
and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of this document. Any
of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change
could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed
legislation.
U.S. Holders
For purposes of this summary, the term
“U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:
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•
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an
individual who is a citizen or resident of the United States;
|
|
•
|
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
|
|
•
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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•
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a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed
This summary does not address the U.S.
federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including,
but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts,
or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts,
or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply
a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own common shares
as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than
one position; (f) acquire common shares in connection with the exercise of employee stock options or otherwise as compensation
for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); or (h) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the
total combined voting power or value of the outstanding shares of the Company. This summary also does not address the U.S. federal
income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b)
persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada)
(the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian
property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S.
Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders
described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition
of common shares.
If an entity or arrangement that is classified
as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S.
federal income tax consequences to such entity or arrangement and the partners (or other owners or participants) of such entity
or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners
or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or
other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through”
entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership and disposition of common shares.
Passive Foreign Investment Company Rules
PFIC Status of the Company
If the Company were to constitute a “passive
foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any
year during a U.S. Holder’s holding period, then certain potentially adverse rules may affect the U.S. federal income tax
consequences to a U.S. Holder as a result of the acquisition, ownership and disposition of common shares. The Company may be a
PFIC for its current tax year and subsequent tax years. The determination of whether any corporation was, or will be, a PFIC for
a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.
In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over
the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly,
there can be no assurance that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company)
concerning its PFIC status. Each U.S. Holder should consult its own tax advisors regarding the PFIC status of the Company and each
subsidiary of the Company.
In any year in which the Company is classified
as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations
and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in
an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding
the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
The Company generally will be a PFIC if,
for a tax year, (a) 75% or more of the gross income of the Company is passive income (the “PFIC income test”) or (b)
50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive
income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross
income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental
or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain
rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
For purposes of the PFIC income test and
PFIC asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding
shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other
corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes
of the PFIC income test and PFIC asset test described above, and assuming certain other requirements are met, “passive income”
does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related
persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable
to the income of such related person that is not passive income.
Under certain attribution rules, if the
Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’s direct or indirect
equity interest in any company that is also a PFIC (a ’’Subsidiary PFIC’’), and will generally be subject
to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the
stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another
Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be
subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of
common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions
are received and no redemptions or other dispositions of common shares are made.
Default PFIC Rules Under Section 1291
of the Code
If the Company is a PFIC for any tax year
during which a U.S. Holder owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition,
ownership, and disposition of common shares will depend on whether and when such U.S. Holder makes an election to treat the Company
and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code
(a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”).
A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing
U.S. Holder.”
A Non-Electing U.S. Holder will be subject
to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable
disposition of common shares and (b) any “excess distribution” received on the common shares. A distribution generally
will be an “excess distribution” to the extent that such distribution (together with all other distributions received
in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S.
Holder’s holding period for the common shares, if shorter).
Under Section 1291 of the Code, any gain
recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary
PFIC), and any “excess distribution” received on common shares or with respect to the stock of a Subsidiary PFIC, must
be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount
of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and
to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferred rates).
The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary
income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such
tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest
paid as “personal interest,” which is not deductible.
If the Company is a PFIC for any tax year
during which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to
such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing
U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section
1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which
the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective
QEF Election for the first tax year in which the holding period of its common shares begins generally will not be subject to the
rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective
QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain
of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company,
which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net
long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings
and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax
on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to
such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders
that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made
a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current
U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest
paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely and effective
QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that
such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S.
Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the
amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes
a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares. The procedure
for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF
Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the
U.S. Holder’s holding period for the common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election
by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year.
If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period
for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such
U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under
the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day
the QEF Election is effective. If a U.S. Holder makes a QEF Election but does not make a “purging” election to recognize
gain as discussed in the preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue
to be subject to tax under the rules of Section 1291 discussed above with respect to its common shares. If a U.S. Holder owns PFIC
stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder
and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year
for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated
or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the
Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years
in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election
will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which
the Company qualifies as a PFIC.
U.S. Holders should be aware that there
can be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will
supply U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Company
is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should
consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching
a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return.
However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S.
Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of
the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market
Election only if the common shares are marketable stock. The common shares generally will be “marketable stock” if
the common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange
Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c)
a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is
located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements,
and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of
such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively
promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally
will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities,
on at least 15 days during each calendar quarter. Provided that the common shares are “regularly traded” as described
in the preceding sentence, the common shares are expected to be marketable stock. However, each U.S. Holder should consult its
own tax advisor in this regard.
A U.S. Holder that makes a Mark-to-Market
Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above
with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax
year of such U.S. Holder’s holding period for the common shares for which the Company is a PFIC and such U.S. Holder has
not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of,
and distributions on, the common shares.
A U.S. Holder that makes a Mark-to-Market
Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any,
of (a) the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s adjusted
tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal
to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares, over (b) the fair market value
of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market
Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market
Election generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross
income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition
of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed
the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over
(b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation
are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.
A U.S. Holder makes a Mark-to-Market Election
by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies
to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to
be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax
advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible
to make a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of
any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election
will not be effective to avoid the application of the default rules of Section 1291 of the Code described above with respect to
deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC to its shareholder.
Other PFIC Rules
Under Section 1291(f) of the Code, the
IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a
timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred
(e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to
a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain additional adverse rules may apply
with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example,
under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided
in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
Special rules also apply to the amount
of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes
paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules
relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should
consult with its own tax advisors regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S.
Holder should consult its own tax advisors regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of common shares.
General Rules Applicable to the Ownership
and Disposition of Common Shares
The following discussion describes the
general rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special rules
described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives a distribution,
including a constructive distribution, with respect to a Common Share will be required to include the amount of such distribution
in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of
the current and accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes.
A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such
distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and
profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S.
Holder’s tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale
or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings
and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution
by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares
by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Subject to applicable
limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company
to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term
capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not
be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each
U.S. Holder should consult its own tax advisors regarding the application of such rules.
Sale or Other Taxable Disposition of
Common Shares
Upon the sale or other taxable disposition
of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the
U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basis in
such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s
U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term
capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.
Preferential tax rates currently apply
to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates
for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations
under the Code.
Additional Considerations
Additional Tax on Passive Income
Certain U.S. Holders that are individuals,
estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “net
investment income,” which includes dividends on the common shares and net gains from the disposition of the common shares.
Further, excess distributions treated as dividends, gains treated as excess distributions under the PFIC rules discussed above,
and mark-to-market inclusions and deductions are all included in the calculation of net investment income.
Treasury Regulations provide, subject to
the election described in the following paragraph, that solely for purposes of this additional tax, that distributions of previously
taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally,
to determine the amount of any capital gain from the sale or other taxable disposition of common shares that will be subject to
the additional tax on net investment income, a U.S. Holder who has made a QEF Election will be required to recalculate its basis
in the common shares excluding QEF basis adjustments.
Alternatively, a U.S. Holder may make an
election which will be effective with respect to all interests in controlled foreign corporations and QEFs held in that year or
acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gains
calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult
their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of the common shares.
Receipt of Foreign Currency
The amount of any distribution paid to
a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal
to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether
such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal
to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after
the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally
will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method.
Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning,
and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above,
a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis,
whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made
on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during
a year.
Complex limitations apply to the foreign
tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty,
and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that
is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income
tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should
consult its own U.S. tax advisors regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law, certain
categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.
For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold
certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets
includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained
by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment
that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to
these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for
failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding
the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising
from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding
tax, at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number
(generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S.
Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty
of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified
such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these
information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the
U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability,
if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements
set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder.
A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess
a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting
requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO
CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP,
AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO
THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.
|
F.
|
Dividends
and Paying Agents
|
Not applicable
Not applicable
We are subject to the informational requirements
of the Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information
at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street,
N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We “incorporate by reference”
information that we file with the SEC, which means that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of this Form 20-F and more recent information
automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.
As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each
person, including any beneficial owner, to whom a copy of this annual report has been delivered, on the written or oral request
of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this annual
report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such
information). Requests for such copies should be directed to us at the following address Prateek Dwivedi, Chief Executive Officer,
277 Lakeshore Road East, Suite 203, Oakville, Ontario, Canada L6J 6J3, +1(905)362-1499, info@ehave.com
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I.
|
Subsidiary Information
|
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Foreign Currency Risk
We operate primarily in Canada and the
United States. Therefore, we are exposed to foreign currency risk associated with our expenses outside of Canada. We
do not use financial derivative instruments to manage this market risk.
Interest Rate Risk
None of the Company’s long-term debt
contain interest rate provisions that may be subject to fluctuations in market interest rates. As such, the Company does not have
significant interest rate risk or has entered into any financial instruments to mitigate such risk.
We do not use financial instruments for
trading purposes and are not parties to any leverage derivatives. We do not currently engage in hedging transactions. See
“Currency and Exchange Rates” and Item 4 – “Information on the Company”.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES.
Not applicable.
The accompanying notes are an integral part of these
financial statements.
The accompanying notes are an integral part of these
financial statements.
The accompanying notes are an integral part of these
financial statements.
The accompanying notes are an integral part of these
financial statements.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization and General Description of Business
EHAVE, Inc. (formerly known as “Behavioural Neurological
Applications and Solutions or 2304101 Ontario Inc.”) (“We” or “the Company”), was incorporated
under the laws of the Province of Ontario, Canada on October 31, 2011. The Company is a publicly listed company whose
shares are traded on the OTCQB under the symbol EHVVF.
The Company is a healthcare company developing a health
data platform that integrates with proprietary and third-party assessment and therapeutic digital applications. Our product focus
is based on three tiers of activities: (1) MegaTeam and Ninja Reflex, our clinically validated digital assessment and rehabilitation
software that is engaging for the patient, (2) adaptation of third-party clinically validated digital assessment and rehabilitation
software for enhanced patient engagement and data modeling, and (3) Ehave Connect, our advanced health informatics and digital
application delivery platform. We intend to provide technology solutions to clinicians, patients, researchers, pharmaceutical companies
and payors.
B. Basis of Presentation
These financial statements and related notes are presented
in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The
Company’s functional currency is Canadian dollars. The Company’s fiscal year end is December 31.
The Company qualifies as an
“emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”)
as the Company does not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2017,
its last fiscal year. The Company has elected to take advantage of the extended transition period provided in Section 102(b)(1)
of the JOBS Act for complying with new or revised accounting standards.
Certain prior year amounts have been reclassified for consistency
with the current year presentation. These reclassifications had no effect on the reported results of operations.
Revenue Recognition
The following criteria must
be met in determining whether revenue may be recorded: (1) persuasive evidence of a contract exists; (2) software has
been delivered and/or services have been provided; (3) the price is fixed or determinable; and (4) collection is reasonably
assured.
Revenue is recorded as the software
is delivered and/or services are provided based on the relative fair value of each element. Unbilled receivables are created when
services are performed or software is delivered and revenue is recognized in advance of billings. Deferred revenue is created when
billing occurs in advance of performing services or when all revenue recognition criteria have not been met.
The Company generates revenue
from the following sources: (1) Software revenue, (2) Software as a Service [“SaaS”], and (3) Services
revenue.
Software Revenue
: The
Company’s software revenue is comprised of traditional software license fees, maintenance and support fees, and fees from
the resale of third-party software licenses. These software license fees include term licenses, perpetual licenses and rental fees.
Maintenance and support are generally offered under annual or multi-year terms and are billed either monthly or annually in advance.
The Company’s maintenance and support provides customers with periodic technology updates and interactive support related
to our software. Maintenance and support revenue is recognized ratably over the stated term.
Services Revenue
: The
Company’s services offerings help customers to install, optimize and integrate the Company’s software into their computing
environment. For fixed-fee professional services contracts, revenue is recorded based upon proportional performance, measured by
the actual number of hours incurred divided by the total estimated number of hours for the project. Changes in the estimated costs
or hours to complete the contract, and losses, if any, are reflected in the period during which the change or loss becomes known.
The Company also provides professional services on a time and materials basis, recognized monthly based upon hours incurred to
date. In all cases, contract milestones, project risk profile and refund provisions are taken into consideration.
Foreign Currency Translation
The functional currency of the
Company’s foreign operations is generally the local currency of the country in which the operation is located. All assets
and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expenses
are translated using average exchange rates during the period. The result from currency translation is reflected in stockholders’
deficit as a component of accumulated other comprehensive income.
Software Products and Research
and Development
Software development costs are
expensed as incurred and consist primarily of design and development costs of new products, and significant enhancements to existing
products incurred before the establishment of technological feasibility. Costs incurred subsequent to technological feasibility
of new and enhanced products, costs incurred to purchase or to create and implement internal-use software, and software obtained
through business acquisitions are capitalized. Such costs are amortized over the estimated useful lives of the related products,
using the straight-line method.
Income Taxes
Income tax expense is based
on income before income taxes, and is accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets 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. Valuation allowances are recorded when it is more likely than not that
a deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. Considerable judgment is required in assessing and estimating these amounts and the difference between the actual outcome
of these future tax consequences and the estimates made could have a material impact on the operating results. To the extent that
new information becomes available which causes the Company to change its judgment regarding the adequacy of existing tax liabilities,
such changes to tax liabilities will impact income tax expense in the period in which such determination is made. The Company records
interest and penalties related to unrecognized tax benefits in income tax expense.
The Company makes claims for
Scientific Research and Experimental Development (“SRED”) expenditures which are included in refundable taxes receivable.
Judgment is required in the determination of qualifying expenses. The final determination of qualifying expenses is not known until
acceptance by tax authorities. The Company's SRED credits are recorded in the financial statements after review of the relevant
accounting pronouncements and once the determination of the expected SRED credits are reasonably assured. The claim for the current
and prior year is in progress.
Net Loss per Common Share, basic
The Company has adopted Accounting Standards Codification
(“ASC”) subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and
disclosure requirements of earnings per share (EPS) information. Basic earnings (loss) per share includes no dilution and is computed
by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings (loss)
per share reflects the potential dilution of securities that could share in the earnings or losses of the entity. The Company had
options to purchase 4,919,892 (2016- 2,217,958) common shares outstanding for the year December 31, 2017. Additionally, warrants
to purchase 11,220.545 (2016- 12,064,140) common shares of the Company have been issued. Since these options and warrants would
be anti-dilutive, no fully diluted loss per share is presented.
Recent Pronouncements
During the years ended December
31, 2017 and 2016 and through June 13, 2018 there were several new accounting pronouncements issued by the Financial Accounting
Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does
not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s
financial statements.
New standards and interpretations
In May 2014, the FASB issued
ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step
analysis of transactions to determine when and how revenue is recognized. The effective date for ASC 606 is annual reporting periods
beginning after December 15, 2017. The core principle is that a company should recognize revenue to depict the transfer of 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. Companies may apply the new guidance using either the full retrospective transition method, which
requires restating each prior period presented, or the modified retrospective transition method, under which the new guidance is
applied to the current period presented in the financial statements and a cumulative-effect adjustment is recorded as of the date
of adoption. The Company is evaluating the potential impact this guidance will have on our financial statements, if any.
In March 2016, the FASB issued
ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation,
and disclosure of leases for both lessees and lessors. ASU 2016- 02 requires lessees to classify leases as either finance or operating
leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining
lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification
will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over
the term of the lease. ASU 2016-02 will be effective for use beginning January 1, 2019, with early adoption permitted. Entities
are required to use a modified retrospective transition method for existing leases. The Company is currently evaluating the potential
impact this guidance will have on our financial statements, if any.
C. Risks and Uncertainties
Foreign Currency Risk
The Company is exposed to fluctuations in the exchange
rate between the United States dollar and the Canadian dollar. The Company’s continued financing activities are primarily
in United States dollars while the Company’s expenditures are primarily in Canadian dollars. Should the exchange rate between
the Canadian dollar and the United States dollar fluctuate, the Company may be exposed to resource constraints.
2. GOING CONCERN
The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles in the United States, which contemplate the continuation of the Company
as a going concern. The Company reported an accumulated deficit of $6,989,124 at December 31, 2017, and had a comprehensive loss
of $4,208,936 for the year ended December 31, 2017.
In view of the matters described, there is substantial
doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. At December 31, 2017,
the Company had insufficient operating revenues and cash flows to meet its financial obligations. There can be no assurance that
management will be successful in implementing its plans. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The
Company raised $917,138
through private placements of convertible
notes during the year ended December 31, 2017. The translation effect on this amount is $49,500. The subscription agreements dated
January 31, 2018 and March 19, 2018 in the private placement provides for additional proceeds of $1,620,587
.
If we receive the potential additional proceeds of up to $591,000 combined with the Company's anticipated operating cash flows,
the Company is expected to have sufficient cash flows to operate for at least the next 12 months.
See
Note 11.
Notwithstanding the foregoing, the Company anticipates
that it will have to raise additional capital to fund research and development and operations over the next 12 months. To the extent
that the Company is required to raise additional funds to cover costs of operations, the Company intends to do so through additional
public or private offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place,
other than those described in Note 11, no guaranties that any other such financings would be forthcoming, or as to the terms of
any such financings. Any future financing may involve substantial dilution to existing investors.
3. FAIR VALUE MEASUREMENT
ASC Topic 820,
Fair Value Measurement
, establishes
a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Refundable
taxes, accounts payable, development grant and convertible notes are all stated at book value due to the term and nature of such
items.
4. RELATED PARTY TRANSACTIONS
The Company paid a salary to Prateek Dwivedi, the current
Chief Executive Officer and a Director of the Company of $304,572 (CDN$395,000) (2016 - $23,568 (CDN$32,500) and consulting fees
to a company in which he is the beneficial owner of $117,839 (CDN$162,350)). During 2017 the Company paid consulting fees of $116,238
(CDN$150,750) to Scott Woodrow. The Company paid a salary to Scott Woodrow, the former Chief Executive Officer and Director of
the Company, of $171,519 (CDN$236,525) for the year ended December 31, 2016.
On July 27, 2017, the Company entered into a demand non-interest
bearing secured promissory note with Scott Woodrow, a director of the Company, in the principal amount of $47,778 (CDN$60,000).
In November 2017, the note was converted into a note with 800,000 attached warrants.
On July 27, 2017, the Company entered into a demand non-interest
bearing secured promissory note with NView Management in the principal amount of $86,797 (CDN$109,000). Scott Woodrow, a director
of the Company, is the controlling shareholder, director and President of NView Management , As at December 31, 2017 $45,490 (CDN$59,000) was outstanding on this note.
On October 11, 2017, the Company entered into a demand
non-interest bearing unsecured promissory note with Scott Woodrow, a director of the Company, in the principal amount of $80,276
(CDN$100,000). On January 18, 2018 the note was exchanged for an unsecured convertible debenture. (see note 11)
At December 31, 2016, Convertible Notes to related parties
were as follows:
Related Party
|
|
Position
|
|
Amount
|
|
Jesse Kaplan
|
|
Director
|
|
$
|
142,358
|
|
David Stefansky
|
|
Director
|
|
|
142,358
|
|
|
|
|
|
$
|
284,896
|
|
On January 12, 2017, Jesse Kaplan and David Stefansky
resigned as Directors of the Company.
5. CONVERTIBLE NOTES
During the year
ended December 31, 2017, the Company issued $609,826 [2016 – 400,357] of convertible promissory notes under the convertible
promissory note agreement with existing shareholders entered into on November 14, 2016. The convertible promissory note agreement
with existing shareholders of the Company, allows for proceeds up to $1,500,000. The convertible promissory notes are convertible
into the number of securities sold in the qualified offering equal to the aggregate amount of the principal and accrued and unpaid
interest then outstanding under such note divided by the lower of (i) 80% of the price per equity security sold to investors in
the qualified offering, and (ii) the quotient of $5,500,000 and the number of common shares outstanding immediately prior to the
closing of a qualified offering. Holders of the convertible promissory note shall receive warrant to purchase the number
of common shares of the Company equal to the aggregate consideration funded by each lender prior to the qualified offering divided
by the conversion price. Common Stock Purchase Warrants shall have a strike price of 120% of the conversion price.
During the year ended December 31, 2016, the Company
received proceeds on convertible notes of $466,000. The convertible notes bear interest at a rate of 4% per annum and have maturity
dates from July 7, 2017 to November 16, 2018. Interest is to be accrued January 1 and July 1 commencing January 1, 2016. The holders,
at their option, may elect to receive interest in cash, common shares or a combination thereof. The notes are convertible into common
shares of the Company at the option of the holder at a conversion price of $0.0409 per share being equal to 11,947,403 common shares. Under the terms of the convertible note, the Company was required to have a “Go Public Event”. Under
the provisions of the convertible note, the Go Public Event required the Company’s common shares to be listed for trading
or quoted on a Trading Market. This event took place on February 7, 2017 when the shares of the Company began trading on the OTCQB.
In connection with the purchase of convertible notes,
holders of the convertible note were issued 9,529,643 Common Stock Purchase Warrants.
The convertible notes are secured by a general security
agreement on the Company’s assets. On February 2, 2017, the notes were converted and the warrants were exercised under the
cashless exercise provision resulting in the issuance of 26,914,315 common shares effective as of that date.
6. PROMISSORY NOTES
During
the year ended December 31, 2017, the Company received proceeds on promissory notes of $196,237.
The
promissory notes are non-interest bearing and due on demand. Lenders of the promissory notes were issued 2,133,333
common
stock purchase warrants at an exercise price of $0.075
per
share with an expiry date of November 16, 2022. On January 31, 2018, $148,745
of
the promissory notes were repaid and $47,932 of the promissory notes were exchanged for unsecured convertible debentures.
7. STOCK BASED COMPENSATION
Under the terms of the Company’s employment agreement
with the Chief Executive Officer, Prateek Dwivedi, and the Chief Technology Officer, Dave Goyette, Mr. Dwivedi and Mr. Goyette
received during the year a grant of stock options to purchase up to 1,404,118 and 707,415, respectively (2016 - 2,808,359 &
nil ) shares of the Company’s common stock at a price of $0.50 and $0.08 per share. The Option Shares vested rateably over
12 months and 24 months respectively at the date of issuance.
Summary Stock Compensation Table
The following table sets forth the Company’s paid
or accrued stock compensation expense to its officers, directors, employees and contractors.
|
|
Stock
Awards
|
|
|
Stock
Options
Awards
|
|
|
Non-Vested
Stock
Awards
|
|
|
Securities
Underlying
Non-Vested
Stock
|
|
|
Total
|
|
Year ended December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2,808,359
|
|
|
$
|
-
|
|
Year ended December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2,111,533
|
|
|
$
|
-
|
|
A Summary of the status of the Company’s option
grants as of December 31, 2017 and 2016 and the changes during the periods then ended is presented below:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding December 31, 2015
|
|
|
8,200,000
|
|
|
$
|
0
|
|
|
|
6.0
|
|
|
|
-
|
|
Granted
|
|
|
2,808,359
|
|
|
|
-
|
|
|
|
5.0
|
|
|
|
-
|
|
Exercised
|
|
|
(8,200,000
|
)
|
|
|
-
|
|
|
|
4.0
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
2,808,359
|
|
|
$
|
-
|
|
|
|
5.0
|
|
|
$
|
-
|
|
Granted
|
|
|
2,111,533
|
|
|
$
|
0.17
|
|
|
|
5.0
|
|
|
|
-
|
|
Exercised
|
|
|
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2017
|
|
|
4,919,892
|
|
|
$
|
-
|
|
|
|
5.0
|
|
|
$
|
-
|
|
The weighted average fair value at the grant date for
options during the years ended December 31, 2017 and 2016 was estimated using the Black-Scholes option valuation model with the
following inputs:
|
|
2017
|
|
|
2016
|
|
Average expected life in years
|
|
|
5
|
|
|
|
5
|
|
Average risk-free interest rate
|
|
|
2.20
|
%
|
|
|
5.00
|
%
|
Average volatility
|
|
|
253
|
%
|
|
|
100
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rates for the options were taken from
the 5 year federal treasury rate at December 31, 2017. The expected volatility was based on historical data and other relevant
factors such as capital structure and the nature of the Company as a development stage company.
In calculating the expected life of stock options, the
Company determines the amount of time from grant date to expected contractual term date for vested options. In developing the expected
life assumption, all amounts of time are weighted by the number of underlying options.
A summary of the status of the Company’s vested
and non-vested option grants at December 31, 2017 and December 31, 2016 and the weighted average grant date fair value is presented
below:
2017
|
|
Shares
|
|
|
Weighted Average
Grant Date
Fair Value per
Share
|
|
|
Weighted
Average Grant
Date
Fair Value
|
|
Vested
|
|
|
3,410,191
|
|
|
$
|
0.14
|
|
|
$
|
476,080
|
|
Non-vested
|
|
|
1,509,701
|
|
|
$
|
0.14
|
|
|
$
|
211,706
|
|
Total
|
|
|
4,919,892
|
|
|
$
|
0.14
|
|
|
$
|
687,786
|
|
2016
|
|
Shares
|
|
|
Weighted Average
Grant Date
Fair Value per
Share
|
|
|
Weighted
Average Grant
Date
Fair Value
|
|
Vested
|
|
|
2,808,359
|
|
|
$
|
0.12
|
|
|
$
|
73,435
|
|
Non-vested
|
|
|
-
|
|
|
|
0.00
|
|
|
$
|
0
|
|
Total
|
|
|
2,808,359
|
|
|
$
|
0.12
|
|
|
$
|
73,435
|
|
Warrants Issued
The following table reflects a summary of Common Stock
warrants outstanding and warrant activity during 2017 and 2016:
|
|
Number of
warrants
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Term
(Years)
|
|
Warrants outstanding at December 31, 2015
|
|
|
7,946,210
|
|
|
|
-
|
|
|
|
-
|
|
Granted during the year
|
|
|
12,645,476
|
|
|
$
|
0.0818
|
|
|
|
4.55
|
|
Exercised during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at December 31, 2016
|
|
|
20,591,686
|
|
|
|
-
|
|
|
|
-
|
|
Granted during the year
|
|
|
5,433,230
|
|
|
$
|
0.0818
|
|
|
|
4.50
|
|
Exercised during the year
|
|
|
13,330,539
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at December 31, 2017
|
|
|
12,694,377
|
|
|
$
|
0.0818
|
|
|
|
4.50
|
|
The Common stock warrants expire in the years ended December
31 as follows:
Year
|
|
Amount
|
|
|
|
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
7,946,210
|
|
2021
|
|
|
4,748,167
|
|
2022
|
|
|
-
|
|
|
|
|
12,694,377
|
|
In the Company’s registered public offering in
June 2016, purchasers of 8,086,796 common shares were issued warrants to purchase 8,086,796 common shares. The warrants entitle
the holder to purchase the Company’s common shares at a purchase price of $0.0818 per share for up to a period of five years
from the date of issuance. After six months from the date of issuance, the holders of the warrants, at their option, may exercise
their warrants using a cashless exercise. An aggregate of warrants to purchase 11,393,643 common shares were issued in the registered
public offering. The value of Warrant expense recognized during the year ended December 31, 2017, was $2,745,730. (2016 - $ 301,606).
The Company estimates the fair value of warrants using
the Black-Scholes pricing model with the following inputs:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Average expected life in years
|
|
|
4.5
|
|
|
|
5.0
|
|
Average risk-free interest rate
|
|
|
2.20
|
%
|
|
|
5.0
|
%
|
Average volatility
|
|
|
253
|
%
|
|
|
100
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
8. DEVELOPMENT GRANT
On June 7, 2012, the Company entered into a project funding
agreement with the Canada-Israel Research and Development Foundation (“CIIRDF”). The purpose of the grant was to fund
the Company’s activities related to the development of a cognitive assessment and treatment platform for childhood attention
deficit disorder and attention hyperactivity disorder (the “Development”). Under the terms of the grant, CIIRDF would
fund up to CDN$300,000 of development activities related to the Development. The grant is repayable to CIIRDF based on 2.5% of
annual gross sales related to products developed from the Development. The Company received CDN$225,000 from CIIRDF to fund the
Development. The amount presented in these financial statements is reflected in United States dollars.
9. INCOME TAXES
The Company computes income taxes using the asset and
liability approach. The Company currently has no issue that creates timing differences that would mandate a deferred tax expense.
Due to the uncertainty as to the utilization of net operating loss carryforwards, a valuation allowance has been made to the extent
of any tax benefit that net operating losses may generate. No provision for income tax has been recorded for the years ended December
31, 2017 and December 31, 2016 due to the Company’s net operating loss carryforward from prior years.
The Company is entitled to refundable SRED tax credits
for qualifying research and development activities performed in Canada. The Company recognizes the benefit of its SRED tax credits
when there is reasonable assurance that they will be realized.
The Company has a net operating loss for tax purposes
of CDN$1,629,068 (2016 – CDN$1,130,809) that can be carried forward over 20 years.
Deferred Income Taxes
Deferred income taxes primarily represent the net effect
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
for income tax purposes. The components of the Company’s deferred taxes are as follows:
|
|
2017
|
|
|
2016
|
|
Deferred
tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
340,489
|
|
|
$
|
175,275
|
|
Total
deferred tax assets
|
|
|
340,489
|
|
|
|
175,275
|
|
Valuation
Allowance
|
|
|
(340,489
|
)
|
|
|
(175,275
|
)
|
Net
Deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
10. COMMITMENTS AND CONTINGENCIES
On December 8, 2011 the Company entered into a Collaboration
Agreement between The Hospital for Sick Children (“SickKids”) and the Ontario Brain Institute (“OBI”).
Under the terms of the Collaboration Agreement, the OBI agreed to fund SickKids activities related to the development of a software
based treatment program for Attention Deficit and Hyperactivity Disorder in children (the “Project”). Funding of SickKids
by the OBI was based on a Project budget of CDN$491,204 in which the Company was to contribute at least the same financial commitments
for its own activities under the Project. During the Project period from December 8, 2011 to March 31, 2014, the Company contributed
approximately CDN$540,000 consisting of CDN$437,400 of salaries and consulting fees, CDN$50,000 of software development and CDN$53,000
of equipment, supplies and overhead. Under the terms of the Collaboration Agreement, Project activities were to be substantially
completed by March 31, 2014. Under the terms of the Collaboration Agreement, the Company is obligated to pay SickKids a minimum
royalty on Project intellectual property of the amount of the Development Grant CDN$491,204. Under the terms of the royalty agreement
between the Company and SickKids, such payments are to be made based on 5% of net revenue for the first CDN$15,000,000 of related
Project product and 2.5% of net revenue thereafter. As of December 31, 2017, no amounts have been paid under the terms of the royalty
agreement.
11
SUBSEQUENT EVENTS
On January 31, 2018, the Company entered into a secured
convertible debenture agreement for total proceeds of $1,218,620 (CDN$1,500,000) issued in two instalments. Under the terms of
the secured convertible debenture, the principal amount and accrued interest is convertible into shares of the Company at a conversion
price equal to 75% the issue price of common shares under a qualified offering. The conversion of the secured convertible debenture
is at the option of the holder. At the time of conversion, the holder will also receive an equal amount of common share purchase
warrants with an exercise price equal to the issue price. The secured convertible debenture is due on July 31, 2018 and bears interest
at 10% per annum. The initial instalment of the secured convertible note was issued on January 31, 2018 for proceeds of $609,310
(CDN$750,000). On March 19, 2018, the final instalment of $573,307 (CDN$750,000) was received. The secured convertible note
is secured against the general assets and intellectual property of the Company.
On January 31, 2018, promissory notes of $311,967 (CDN$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible debentures. From Jan 1, 2018 to January 31,
2018, the Company issued an additional $20,098 (CDN$25,000) unsecured convertible debentures for total proceeds of $332,065 (CDN$409,000). Under the terms of the unsecured convertible debenture, the principal amount and accrued interest is convertible into
shares of the Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion
of the unsecured convertible debenture is at the option of the holder. At the time of conversion, the holder will also receive
120% of the amount of the common shares issued of common share purchase warrants with an exercise price equal to the issue price.
The unsecured convertible debenture is due on July 31, 2018 and bears interest at 10% per annum.
On February 1, 2018, the Company repaid CDN$60,000 of
the promissory notes outstanding at December 31, 2017. The balance of the promissory notes due to Scott Woodrow, a Director of
the Company, was exchanged for an unsecured convertible debenture in the amount of CDN$59,000.