NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Cell MedX Corp. (the Company) was incorporated under the laws of the State of Nevada. On April 26, 2016, the Company formed a subsidiary, Cell MedX (Canada) Corp. (Cell MedX Canada) under the laws of the province of British Columbia.
The Company is in an early development stage focusing on the discovery, development and commercialization of therapeutic and non-therapeutic products that promote general wellness and alleviate complications associated with medical conditions including, but not limited to, diabetes, Parkinsons disease, and high blood pressure.
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2018, the Company has not achieved profitable operations and has accumulated a deficit of $6,050,841. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America and are presented in US dollars.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary, Cell MedX Canada. On consolidation, all intercompany balances and transactions are eliminated.
Reclassifications
Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current periods presentation. These reclassifications had no net effect on the consolidated results of operations or financial position for any period presented.
Accounting estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-6
Foreign currency translations and transactions
The Companys functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
The functional currency of Cell MedX Canada is the Canadian dollar. On consolidation, the subsidiary translates its assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translates its revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income/loss. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Revenue recognition
Revenue is recognized when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.
Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.
Research and development costs
The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.
F-7
Long-lived assets
In accordance with ASC 360, Property, Plant, and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over two years. At May 31, 2018, the Company expensed the equipment as part of its research and development costs as future economic benefit of the equipment could not be readily determined.
Fair value measurements
The book value of cash, other current assets, accounts payable, accrued liabilities, notes and advances payable, due to related parties, and unearned revenue approximate their fair values due to the short term maturity of those instruments. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 -
quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 -
observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 -
assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended May 31, 2018 and 2017.
Stock options and other stock-based compensation
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees are recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share purchase options and the binomial option pricing model to determine the fair value of all stock based awards classified as liabilities. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
Recent accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
F-8
NOTE 3 - RELATED PARTY TRANSACTIONS
Amounts due to related parties, other than notes payable to related parties (Note 8) at May 31, 2018 and 2017:
|
|
|
|
| |
|
May 31, 2018
|
|
May 31, 2017
|
Due to the former Chief Executive Officer (CEO) and director
(2)
|
$
|
54,275
|
|
$
|
--
|
Due to a director and former CEO and President (Notes 8 and 9)
|
|
32,400
|
|
|
109,453
|
Due to the Chief Financial Officer (CFO)
|
|
20,790
|
|
|
9,777
|
Due to the Vice President (VP), Technology and Operations
|
|
59,035
|
|
|
55,781
|
Due to the former Chief Medical Officer
|
|
81,059
|
|
|
81,059
|
Due to the former VP, Corporate Strategy
|
|
86,758
|
|
|
86,777
|
Due to related parties
|
$
|
334,317
|
|
$
|
342,847
|
These amounts are unsecured, due on demand and bear no interest.
During the years ended May 31, 2018 and 2017, the Company had the following transactions with related parties:
|
|
|
|
| |
|
May 31, 2018
|
|
May 31, 2017
|
Management fees incurred to the former CEO and director(2)
|
$
|
65,458
|
|
$
|
--
|
Management fees incurred to a director and former CEO and President
|
|
43,200
|
|
|
43,200
|
Stock-based compensation incurred to the director and the former CEO and President
|
|
--
|
|
|
11,600
|
Management fees incurred to the CFO
|
|
12,000
|
|
|
12,000
|
Stock-based compensation incurred to the CFO (Note 9)
|
|
89,556
|
|
|
--
|
Consulting fees incurred to the former VP, Corporate Strategy(1)
|
|
--
|
|
|
32,649
|
Consulting fees incurred to the VP, Technology and Operations(1)
|
|
47,067
|
|
|
47,614
|
Stock-based compensation incurred to the Chief Medical Officer
|
|
18,916
|
|
|
105,883
|
Accrued interest expense incurred to a former significant shareholder (Note 8)
|
|
5,973
|
|
|
7,919
|
Accretion expense associated with a loan agreement entered into with a former significant shareholder (Note 8)
|
|
--
|
|
|
22,972
|
Total transactions with related parties
|
$
|
282,170
|
|
$
|
283,837
|
(1)
On September 26, 2016, the Company entered into a letter agreement (the Letter Agreement) with Jean Arnett, the former VP of Corporate Strategy and a director, and Brad Hargreaves, the VP of Technology and Operations and a director, to cancel the unvested portion of the options granted to Ms. Arnett and Mr. Hargreaves by the Company (Note 9). In addition, the Company renegotiated its consulting arrangements with Ms. Arnett and Mr. Hargreaves. Based on the Letter Agreement, the Company has agreed to pay each of Ms. Arnett and Mr. Hargreaves CAD$5,000 per month, beginning effective August 1, 2016, for duration of six months.
On January 23, 2017, Ms. Jean Arnett resigned as the VP of Corporate Development and as a director of the Company.
The Company continues to pay Mr. Hargreaves CAD$5,000 per month for his consulting services which can be cancelled at any time.
(2)
On May 3, 2018, the Company entered into an agreement with Dr. Owen, its former CEO and a director, to extinguish the debt to Dr. Owen, in the amount of CAD$69,998. Pursuant to the agreement, the Company agreed to the following:
(i)
if the payment is made no later than May 17, 2018, a one-time cash payment of CAD$35,000 and a conversion of up to CAD$10,000 owed to Dr. Owen into common stock of the Company at then current private placement price; or
(ii)
if the payment cannot be made prior to May 17, 2018, the series of 12 monthly payments of CAD$5,833.17 each, and a conversion of up to CAD$15,000 owed to Dr. Owen into common stock of the Company at then current private placement price.
F-9
NOTE 4 - EQUIPMENT
During the year ended May 31, 2017, the Company received 20 eBalance Pro wellness devices. The Company paid the developer $96,217 (
89,040) for the devices. At May 31, 2018, the Company expensed the full cost of the equipment as part of its research and development costs.
|
|
|
|
| |
|
May 31, 2018
|
|
May 31, 2017
|
Book value, beginning of the year
|
$
|
193,571
|
|
$
|
207,083
|
Changes during the year
|
|
(193,571)
|
|
|
109,534
|
Amortization
|
|
--
|
|
|
(123,046)
|
Book value, end of the year
|
$
|
--
|
|
$
|
193,571
|
NOTE 5 - INVENTORY
As at May 31, 2018, the inventory consisted of supplies held for resale valued at $10,793 (May 31, 2017 - $4,683) and work in progress valued at $Nil (May 31, 2017 - $3,478).
NOTE 6 - OTHER CURRENT ASSETS
As at May 31, 2018, other current assets consisted of $23,915 in prepaid expenses (May 31, 2017 - $19,743) and $2,351 in receivables associated with GST the Company paid on the taxable supplies (May 31, 2017 - $4,759).
NOTE 7 - UNEARNED REVENUE
During the year ended May 31, 2018, the Company received a $59,588 (CAD$75,000) deposit on a distribution contract.
During the year ended May 31, 2017, the Company received $40,000 and $11,259 (CAD$15,000) in deposits on its eBalance Pro devices.
On February 7, 2018, the Company agreed to convert the CAD$75,000 deposit it received during the year ended May 31, 2018, into 240,000 units at a price of $0.25 per unit. Each unit consisted of one common share and one share purchase warrant exercisable for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
As at May 31, 2018, the Company had recorded a total of $51,585 (2017 - $51,110) in unearned revenue comprised of the deposits on the eBalance Pro devices the Company received during the Fiscal 2017.
NOTE 8 - NOTES AND ADVANCES PAYABLE
The tables below summarize the short-term loans and advances outstanding as at May 31, 2018 and 2017:
|
|
|
|
|
|
|
| |
As at May 31, 2018
|
Principal
Outstanding
|
Interest Rate
per Annum
|
|
Accrued
Interest
|
|
Total Book
Value
|
$
|
6,000
|
6%
|
Non-convertible
|
$
|
225
|
|
$
|
6,225
|
|
95,570
|
6%-12%
|
Related party
|
|
4,066
|
|
|
99,636
|
|
11,598
|
0%
|
Advances
|
|
--
|
|
|
11,598
|
$
|
113,168
|
|
|
$
|
4,291
|
|
$
|
117,459
|
F-10
|
|
|
|
|
|
|
| |
As at May 31, 2017
|
Principal
Outstanding
|
Interest Rate
per Annum
|
|
Accrued
Interest / Accretion
|
|
Total Book
Value
|
$
|
382,484
|
6%
|
Non-convertible
|
$
|
6,727
|
|
$
|
389,211
|
|
61,748
|
6%
|
Related party
|
|
2,241
|
|
|
63,989
|
|
50,000
|
6%
|
Term Loan - related party
|
|
3,775
|
|
|
53,775
|
|
34,324
|
0%
|
Advances
|
|
--
|
|
|
34,324
|
$
|
528,556
|
|
|
$
|
12,743
|
|
$
|
541,299
|
Loan agreements
During the year ended May 31, 2018, the Company entered into a number of loan agreements with Mr. Richard Jeffs (Mr. Jeffs), a former major shareholder, for a total of $34,840 (CAD$45,000) (May 31, 2017 - $104,209). The CAD$25,000 received on July 12, 2017, bears interest at 6% per annum, is unsecured and is payable on demand. The two loans for a total of CAD$20,000 (CAD$10,000, each) received on April 5, 2018 and May 9, 2018, bear interest at 12% per annum, are unsecured and are payable on demand (the 2018 Jeffs Loans). To secure the 2018 Jeffs Loans, the Company agreed to the financing fees of CAD$500 per each 2018 Jeffs Loan. The financing fees bear interest at 12% per annum from the day the funds were advanced. The financing fees become payable concurrently with a demand to repay the 2018 Jeffs Loans.
During the year ended May 31, 2018, the Company entered into a loan agreement for $6,000 (2017 - $408,696) with an arms-length party. The loan bears interest at 6% per annum, is unsecured and payable on demand.
Term loan with Richard Jeffs
On March 3, 2016, the Company entered into a loan agreement (the Term Loan Agreement) with Mr. Jeffs for a loan in the principal amount of $50,000 maturing March 3, 2017, with interest payable at a rate of 6% per annum (the Term Loan). As additional consideration for the Term Loan, the Company issued to Mr. Jeffs share purchase warrants (the Warrants) for the purchase of up to 2,000,000 shares of the Companys common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share if exercised during the fifth year. The Warrants were determined to be detachable from the debt instrument, as the debt instrument did not have to be surrendered to exercise the Warrants. Pursuant to the guidance provided by ASC 470-20-25-2, proceeds from the Term Loan were allocated to the principal and stock purchase warrants based on the relative fair values of the two elements. The portion of the proceeds allocated to the Warrants was $25,000 and was recorded to additional paid-in capital.
The Term Loan had an effective interest rate of 77.51%, which was due primarily to the recording of non-cash accretion interest.
At March 3, 2016, the fair value of Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:
| |
|
At March 3, 2016
|
Expected Warrant Life
|
5 years
|
Risk-Free Interest Rate
|
1.33%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
16%
|
On September 15, 2017, the Company received a notice from Mr. Jeffs informing the Company of the assignment of rights to the Term Loan and interest accrued thereon to two unaffiliated parties. The assignees notified the Company of their intention to convert the debt acquired by them from Mr. Jeffs into the shares of the Companys common stock as part of the debt restructuring, which was completed on October 12, 2017 (Note 9).
Debt settlement
On October 12, 2017, the Company completed its debt restructuring, by issuing a total of 1,837,128 shares on conversion of $459,282 in debt owed under the notes payable (Notes 3 and 9).
F-11
On October 12, 2016, as part of its non-brokered private placement offering (the 2017 Offering), the Company settled a total of $1,006,691 owed under the notes payable (the Debt), which consisted of $949,001 in principal and $57,690 in accrued interest. The Debt was converted to 6,711,272 units of the Companys common stock at $0.15 per unit (Note 9).
Advances payable
During the year ended May 31, 2018, the Company repaid $22,704 (net of $9,936 advanced during the period) in non-interest bearing advances. These advances were unsecured and payable on demand. As at May 31, 2018, a total of $11,598 was due and payable on account of non-interest bearing advances (2017 - $34,323).
Interest expense
During the year ended May 31, 2018, the Company recorded $11,227 (2017 - $29,062) in interest expense associated with its liabilities under the notes payable. Of this amount $741 (2017 - $775) was associated with interest recorded on the Term Loan with Mr. Jeffs and $5,232 (2017 - $7,144) with demand notes payable issued to Mr. Jeffs.
NOTE 9 - SHARE CAPITAL
In January 2015 the Company received a subscription to 150,000 units (each a Unit) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consisted of one share of the Companys common stock and one warrant for the purchase of one additional share of the Companys common stock, exercisable at a price of $1.00 per share, expiring on December 31, 2015. The Company issued the shares on September 20, 2016. Since the expiration date of the warrants had passed, the warrants were not issued.
On October 12, 2016, the Company closed its non-brokered private placement offering (the 2017 Offering) at a price of $0.15 per unit, by issuing 2,383,333 units for cash proceeds of $357,500 and 6,711,272 units to the holders of the Companys notes payable (Note 8) for debt settlement of $1,006,691. Each unit sold under the 2017 Offering consisted of one common share of the Company and one share purchase warrant expiring on October 12, 2021, and entitling the holder to purchase one additional common share for a period of five years after closing at an exercise price of $0.50 per share if exercised during the first year, $0.75 per share if exercised during the second year, $1.00 per share if exercised during the third year, $1.25 per share if exercised during the fourth year, and at $1.50 per share if exercised during the fifth year.
On October 12, 2017, the Company closed its non-brokered private placement offering (the 2018 Offering) at a price of $0.25 per Unit, by issuing 1,480,000 Units for total gross proceeds of $370,000. Each Unit sold under the 2018 Offering consisted of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
On October 12, 2017, the Company completed its debt restructuring initiative by converting a total of $459,282 the Company owed under its notes payable and $120,254 under services payable to its director, former CEO and President into 2,318,144 shares of the Companys common stock at $0.25 per share.
On February 7, 2018, the Company agreed to convert the CAD$75,000 deposit it received on distribution contract into 240,000 units of its common stock at a price of $0.25 per unit consisting of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year. The Company recorded $14,400 as reserve, representing the difference between the fair market value of the Companys common stock on the day of conversion, being $0.19 per share, and the value of the units issued at conversion, being $0.25 per unit.
F-12
Options
On August 24, 2017, the board of directors of the Company granted options to purchase up to 300,000 common shares of the Company to its CFO and up to 1,750,000 common shares of the Company to its consultants. The options vested immediately and may be exercised at a price of $0.35 per share for a period of five years expiring on August 24, 2022.
The fair values of the options granted to the CFO and to the consultants were calculated to be $89,556 and $522,407, respectively, and were determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
| |
|
At August 24, 2017
|
Expected Life of Options
|
5 years
|
Risk-Free Interest Rate
|
1.78%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
187%
|
The changes in the number of stock options outstanding during the years ended May 31, 2018 and 2017 are as follows:
|
|
|
|
|
|
| |
|
Year ended
May 31, 2018
|
|
Year ended
May 31, 2017
|
|
Number of
options
|
Weighted
average
exercise
price
|
|
Number of
options
|
Weighted
average
exercise
price
|
Options outstanding, beginning
|
7,550,000
|
$
|
0.35
|
|
25,050,000
|
$
|
0.14
|
Options granted
|
2,050,000
|
$
|
0.35
|
|
--
|
|
n/a
|
Options expired
|
(150,000)
|
$
|
0.20
|
|
--
|
|
n/a
|
Options cancelled
|
--
|
$
|
n/a
|
|
(17,500,000)
|
$
|
0.05
|
Options outstanding, ending
|
9,450,000
|
$
|
0.35
|
|
7,550,000
|
$
|
0.35
|
Options exercisable, ending
|
9,450,000
|
$
|
0.35
|
|
6,950,000
|
$
|
0.32
|
Details of options outstanding and exercisable as at May 31, 2018, are as follows:
|
| |
Exercise price
|
Grant date
|
Number of options
outstanding and exercisable
|
$0.05
|
November 25, 2014
|
2,500,000
|
$0.67
|
January 13, 2015
|
2,400,000
|
$0.35
|
August 5, 2015
|
2,500,000
|
$0.35
|
August 24, 2017
|
2,050,000
|
|
|
9,450,000
|
At May 31, 2018, the weighted average remaining contractual life of the stock options outstanding and exercisable was 3.02 years.
Warrants
The changes in the number of warrants outstanding during the years ended May 31, 2018 and 2017 are as follows:
|
|
| |
|
Year ended
May 31, 2018
|
|
Year ended
May 31, 2017
|
Warrants outstanding, beginning
|
11,094,605
|
|
2,000,000
|
Warrants issued
|
1,720,000
|
|
9,094,605
|
Warrants outstanding, ending
|
12,814,605
|
|
11,094,605
|
F-13
Details of warrants outstanding as at May 31, 2018, are as follows:
|
| |
Exercise price
|
Grant Date
|
Number of
warrants
exercisable
|
$0.40 during the period from March 3, 2018 to March 3, 2019
$0.60 during the period from March 3, 2019 to March 3, 2020
$0.75 during the period from March 3, 2020 to March 3, 2021
|
March 3, 2016
|
2,000,000
|
$0.75 up to October 12, 2018
$1.00 during the period from October 12, 2018 to October 12, 2019
$1.25 during the period from October 12, 2019 to October 12, 2020
$1.50 during the period from October 12, 2020 to October 12, 2021
|
October 12, 2016
|
9,094,605
|
$0.50 up to October 12, 2018
$1.00 during the period from October 12, 2018 to October 12, 2019
$1.50 during the period from October 12, 2019 to October 12, 2020
|
October 12, 2017
|
1,480,000
|
$0.50 up to February 7, 2019
$1.00 during the period from February 7, 2019 to February 7, 2020
$1.50 during the period from February 7, 2020 to February 7, 2021
|
February 7, 2018
|
240,000
|
|
|
12,814,605
|
At May 31, 2018, the weighted average life and price of the warrants was 3.17 years and $0.66, respectively.
NOTE 10 - INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
|
|
| |
|
May 31, 2018
|
|
May 31, 2017
|
Net loss
|
$
|
(1,546,798)
|
|
$
|
(1,249,446)
|
Statutory tax rate
|
|
21%
|
|
|
34%
|
Expected income tax recovery
|
|
(333,000)
|
|
|
(423,000)
|
Permanent differences and other
|
|
549,000
|
|
|
40,000
|
Effect of foreign exchange
|
|
--
|
|
|
(1,000)
|
Change in valuation allowance
|
|
(216,000)
|
|
|
384,000
|
Income tax recovery
|
$
|
--
|
|
$
|
--
|
The Companys tax-effected future income tax assets and liabilities are estimated as follows:
|
|
|
|
| |
|
May 31, 2018
|
|
May 31, 2017
|
Deferred income tax assets (liabilities)
|
|
|
|
Losses carried forward
|
$
|
799,000
|
|
$
|
1,035,000
|
Equipment
|
|
71,000
|
|
|
50,000
|
Less: Valuation allowance
|
|
(870,000)
|
|
|
(1,085,000)
|
Net deferred income tax assets
|
$
|
--
|
|
$
|
--
|
At May 31, 2018 and 2017, the Company has recorded a valuation allowance for the aggregate of its tax assets as management believes it is more likely than not that the deferred tax asset will not be realized.
As at May 31, 2018, the Company had net operating loss carry forwards in the United States of approximately $3,603,000 to reduce future federal and state taxable income. These losses may be carried forward indefinitely.
As at May 31, 2018, the Company also had non-capital loss carry forwards of approximately $166,000 to reduce future Canadian taxable income. These losses expire in 2037 and 2038.
The Company is not currently subject to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax adjustments, if accepted, that would result in a material change to its financial position.
F-14
NOTE 11 - SUBSEQUENT EVENTS
Loan Agreements
Subsequent to the year ended May 31, 2018, the Company received $15,338 (CAD$20,000) under loan agreements with Mr. Jeffs. The loans bear interest at 12% per annum, are unsecured, non-convertible and payable on demand. To secure the loans, the Company agreed to the financing fees of CAD$500 per each loan. The financing fees bear interest at 12% per annum from the day the funds were advanced. The financing fees become payable concurrently with a demand to repay the loans.
Letter of Intent for Worldwide Distribution Rights
Subsequent to the year ended May 31, 2018, the Company entered into a non-binding letter of intent (the LOI) with an arms-length party (the Distributor) for worldwide distribution rights to eBalance devices for home-based usage. Pursuant to the LOI, the Company and the Distributor have entered into negotiations aimed at obtaining a definitive agreement within a 90-day period. As consideration for the signing of the LOI, the Distributor agreed to advance to the Company $250,000 as a one-time refundable deposit, which the Company will be required to pay back should the LOI expire without execution of the definite agreement.
Royalty Agreements
Subsequent to the year ended May 31, 2018, the Company entered into an intellectual property royalty agreement (the IP Royalty Agreement) with and arms-length party (the IP Vendor). Pursuant to the IP Royalty Agreement the Company agreed to acquire certain additional developments and improvements for its eBalance devices that were developed by the IP Vendor in exchange for a perpetual royalty of USD$350 or CAD$350, depending on the currency the revenue is generated in, for each device sold, distributed or licensed whether through a distributor, sales representative or by the Company itself.
Subsequent to the year ended May 31, 2018, the Company entered into a royalty agreement (the Royalty Agreement) with a third party. Pursuant to the Royalty Agreement, the Company agreed to pay the third party, in perpetuity, a 10% royalty on the revenue the Company receives from its distributors or end-users introduced to the Company by the Vendor.
F-15