Pharmacovigilance and medical affairs support | | January 1, 2014 | | Monthly retainer of $1,250, plus hourly charges for pharmacovigilance services outside base services. Quality assurance support | | June 1, 2010 | | Services provided as needed on an hourly basis. | AGGRASTATAGGRASTAT® clinical trial management
| | May 1, 2010 | | Services provided as needed on an hourly basis. |
During fiscal 2013, $134,696 (20122014, $125,583 (2013 - $146,154)$134,696) was recorded for fees paid or payable to GVI CDS.
The Company also has a consulting agreement with CanAm Bioresearch Inc. (CanAm), a company controlled by a close family member of Dr. Friesen’s to provide contract research services. During fiscal 2013,2014, the Company recorded fee paid or payable to CanAm totaling $467,763 (2012$229,732 (2013 - $254,493)$467,763) for contract research.
These transactions were in the normal course of business and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Beginning on February 22, 2013, these amounts began to bear interest at a rate of 5.5% per annum. For the year ended May 31, 2013,2014, $36,904 (2013 - $7,366 (2012 - nil and 20112012 - nil) was recorded within finance expense in relation to these amounts payable to related parties.
As of May 31, 2013,2014, included in accounts payable and accrued liabilities is $106,216$90,262 (May 31, 20122013 - $7,862)$106,216) payable to GVI, $89,545$148,461 (May 31, 20122013 - $10,403)$89,545) payable to GVI CDS and $351,299$373,956 (May 31, 20122013 - $51,705)$351,297) payable to CanAm, which are unsecured, payable on demand and bear interest as described above.
On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually. The Company may terminate this agreement at any time upon 120 days written notice. During the year ended May 31, 2014, the Company recorded a bonus of $286,849 to its Chief Executive Officer which is recorded within selling, general and administrative expenses. As at May 31, 2013,2014, included in accounts payable and accrued liabilities is $37,750$286,849 (May 31, 20122013 - nil)$37,750) payable to the Chief Executive Officer as a result of this consulting agreement, which is unsecured, payable on demand and non-interest bearing.
Subsequent to May 31, 2014, On July 18, 2011,11, 2014 and as described in note 10(b) the Company issued 1,333,333 commonannounced that, subject to all necessary regulatory approvals, it had entered into a shares (20,000,000 pre-consolidated common shares) of the Company in consideration for the guarantee of long-term debt by the Company'sagreement with its Chief Executive Officer, and entities controlled bypursuant to which the Company will issue common shares at a deemed price of $1.98 per common share to satisfy outstanding amounts owing to the Chief Executive Officer. TheseOf the amount payable to the Chief Executive Officer as at May 31, 2014, $286,849 was included in this shares had a valuefor debt agreement. To date, the shares have not been issued as the Company is in the process of $371,834, netobtaining the necessary regulatory approval for issuance of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method.these shares.
C. Interests of Experts and Counsel
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements or Other Financial Information
Financial Statements
The consolidated financial statements of the Company for the years ended May 31, 2014, 2013 and 2012 have been prepared in accordance with IFRS, as issued by the IASB, and are included under Item 18 of this Annual Report. The consolidated financial statements including related notes are accompanied by the report of the Company’s independent registered public accounting firm, Ernst & Young LLP. Legal Proceedings
There are no legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability. There are no significant legal proceedings to which the Company is a party, nor to the best of the knowledge of the Company’s management are any legal proceedings contemplated.
Dividend Policy
The Company has not paid dividends in the past and it has no present intention of paying dividends on its shares as it anticipates that all available funds will be invested to finance the growth of its business. The directors of the Company will determine if and when dividends should be declared and paid in the future based upon the Company’s financial position at the relevant time. All of the Company’s Shares are entitled to an equal share of any dividends declared and paid.
B. Significant Changes
There have been no significant changes to the accompanying financial statements since May 31, 2013,2014, except as disclosed in this Annual Report on Form 20-F.
ITEM 9. THE OFFERING AND LISTING
A. Listing Details
The Company’s shares were delisted from NYSE Amex (now NYSE MKT) on July 3, 2008 and from the TSX on March 26, 2010. From March 26, 2010 until October 21, 2011, shares of the Company traded on the NEX board of the TSX-V under the symbol “MPH.H”. On October 24, 2011 shares of the Company commenced trading on the TSX-V under the symbol “MPH”. The historical trading data for the common shares of the Company on the above-mentioned exchanges is set out below.
| TSX/NEX/TSX-V
High ($)
| TSX/NEX/TSX-V
Low ($)
| Fiscal Quarter Ended
May 31, 2013
February 29, 2013
Period from
November 2, 2012 to
November 30, 2012
Period from
September 1, 2012 to
November 1, 2012
August 31, 2012
May 31, 2012
February 29, 2012
November 30, 2011
August 31, 2011
May 31, 2011
February 28, 2011
November 30, 2010
August 31, 2010
| 0.45
0.67
0.64
0.045
0.04
0.045
0.045
0.035
0.06
0.03
0.02
0.02
0.025
| 0.20
0.23
0.38*
0.03*
0.025
0.025
0.015
0.02
0.015
0.005
0.01
0.01
0.01
|
| TSX/NEX/ TSX-V | TSX/NEX/ TSX-V | | High ($) | Low ($) | Fiscal Quarter Ended | | | | | | May 31, 2014 | 3.15 | 0.35 | February 28, 2014 | 0.70 | 0.20 | November 1, 2013 | 0.53 | 0.14 | August 31, 2013 | 0.28 | 0.10 | May 31, 2013 | 0.45 | 0.20 | February 29, 2013 | 0.67 | 0.23 | Period from | | | November 2, 2012 to | | | November 30, 2012 | 0.64 | 0.38* | Period from | | | September 1, 2012 to | | | November 1, 2012 | 0.045 | 0.03* | August 31, 2012 | 0.04 | 0.025 | May 31, 2012 | 0.045 | 0.025 | February 29, 2012 | 0.045 | 0.015 | November 30, 2011 | 0.035 | 0.02 | August 31, 2011 | 0.06 | 0.015 |
* Effective atBy Articles of Amendment filed by the opening ofCompany under the marketCanada Business Corporations Act on November 2,1, 2012, the Company’s issued and outstanding common shares were consolidated on the basis of one post-consolidation common share for every fifteen pre-consolidation common shares. The Company's name and trading symbol did not change as a result of the consolidation. The Company’s common shares were reduced from 182,947,595 to 12,196,508 issued and outstanding as a result of the consolidation.
B. Plan of Distribution
Not applicable.
C. Markets
The Company's common shares commenced trading on the Toronto Stock Exchange on March 15, 2002 and on the American Stock Exchange (later called NYSE Amex and now called NYSE MKT) on February 17, 2004. The Company’s shares ceased trading on NYSE Amex effective July 3, 2008 and transferred from the Toronto Stock Exchange to the NEX board of the TSX Venture Exchange on March 26, 2010. From March 26, 2010 until October 21, 2011, shares of the Company traded on the NEX board of the TSX-V under the symbol “MPH.H”. On October 24, 2011 shares of the Company commenced trading on the TSX-V under the symbol “MPH”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
B. Memorandum and Articles of Association
1. Objects and Purposes of the Company
The Articles of Continuance (the(as amended, the “Articles”) and the By-Laws of the Company place no restrictions upon the Company’s objects and purposes.
2. Directors
Under applicable Canadian law, the directors and officers of the Company, in exercising their powers and discharging their duties, must act honestly and in good faith with a view to the best interests of the Company. The directors and officers must also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Section 4.18 of By-Law No.1A of the Company (the “By-Law”) provides that a director shall not be disqualified by reason of his office from contracting with the Company or a subsidiary thereof. Subject to the provisions of the Canada Business Corporations Act (the “Act”), a director shall not by reason only of his office be accountable to the Company or its shareholders for any profit or gain realized from a contract or transaction in which he has an interest. Such contract or transaction shall not be voidable by reason only of such interest, or by reason only of the presence of a director so interested at a meeting, or by reason only of his presence being counted in determining a quorum at a meeting of the directors at which such a contract or transaction is approved, provided that a declaration and disclosure of such interest shall have been made at the time and in the manner prescribed by section 120 of the Act, and the director so interested shall have refrained from voting as a director on the resolution approving the contract or transaction (except as permitted by the Act) and such contract shall have been reasonable and fair to the Company and shall have been approved by the directors or shareholders of the Company as required by section 120 of the Act.
Section 4.01The Company’s Articles provide that the Company’s board shall consist of the By-Law states that thea minimum of one and a maximum of 15 directors. The exact number of directors to form the board, shall bebetween the minimum and maximum number of directors prescribed by the Articles, is determined from time to time by the directorsboard. Section 4.01 of the Company entitled to vote at regular meetings. ABy-Law states that the quorum of the board shall be a majority of the board.board, or such other number of directors as the board may from time to time determine. No business shall be transacted at a meeting unless a quorum is present.
Section 3.01 of the By-Law states that the board may, without the authorization of the shareholders:
i) borrow money upon the credit of the Company;
ii) i) | borrow money upon the credit of the Company; | ii) | issue, reissue, sell or pledge debt obligations of the Company, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured; | iii) | subject to section 44 of the Act, give a guarantee on behalf of the Company to secure performance of any present or future indebtedness, liability or obligation of any person; and | iv) | mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company. |
iii) subject to section 44 of the Act, give a guarantee on behalf of the Company to secure performance of an obligation of any person; and
iv) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company.
The borrowing powers of the directors can be varied by amending the By-Law of the Company.
There is no provision in the By-Law imposing a requirement for retirement or non-retirement of directors under an age limit requirement.
Section 4.02 of the By-law states that a director need not be a shareholder to be qualified as a director. However, section 4.02 also provides that at least 25% of the directors shall be resident Canadians unless the Company has less than four directors, in which case at least one director must be a resident Canadian.
Under section 4.03 of the By-law, directors are to be elected yearly by ordinary resolution to hold office until the close of the next annual meeting of shareholder. If directors fail to be elected at any such meeting of shareholders, then the incumbent directors continue in office until their successors are elected.
3. Shares
The Articles of the Company provide that the Company is authorized to issue an unlimited number of shares designated as Common Shares, Class A Common Shares and Preferred Shares. Except for meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or series, each holder of the Common and Class A shares is entitled to receive notice of, to attend and to vote at all meetings of the shareholders of the Company. Subject to the rights, privileges, restrictions and conditions attached to any other class of shares of the Company, the holders of the Common and Class A shares are also entitled to receive dividends if, as and when declared by the directors of the Company and are entitled to share equally in the remaining property of the Company upon liquidation, dissolution or winding-up of the Company.
The Preferred Shares may from time to time be issued in one or more series and, subject to the following provisions, and subject to the sending of articles of amendment in respect thereof, the directors may fix from time to time and before issue a series of Preferred Shares, the number of shares which are to comprise that series and the designation, rights, privileges, restrictions and conditions to be attached to that series of Preferred Shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion, and any sinking fund or other provisions.
The Preferred Shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, rank on a parity with the Preferred Shares of every other series and be entitled to preference over the Common and Class A Common Shares and over any other shares of the Company ranking junior to the Preferred Shares. The Preferred Shares of any series may also be given other preferences, not inconsistent with these articles, over the Common Shares and Class A Common Shares and any other shares of the Company ranking junior to the Preferred Shares of a series as may be fixed in accordance with terms outlined above.
If any cumulative dividends or amounts payable on the return of capital in respect of a series of Preferred Shares are not paid in full, all series of Preferred Shares shall participate rateably in respect of accumulated dividends and return of capital.
Unless the directors otherwise determine in the articles of amendment designating a series of Preferred Shares, the holder of each share or a series of Preferred Shares shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided in the Act.
4. Rights of Shareholders
Under the Act, shareholders of the Company are entitled to examine, during its usual business hours, the Company’s articles and by-laws, notices of directors and change of directors, any unanimous shareholder agreements, the minutes of meetings and resolutions of shareholders and the list of shareholders.
Shareholders of the Company may obtain a list of shareholders upon payment of a reasonable fee and sending an affidavit to the Company or its transfer agent stating, among other things, that the list of shareholders will not be used by any person except in connection with an effort to influence the voting of shareholders of the Company, an offer to acquire shares of the Company or any other matter relating to the affairs of the Company.
Under the Act, shareholders of the Company may apply to a court having jurisdiction directing an investigation to be made of the Company. If it appears to the court that the formation, business or affairs of the Company were conducted for fraudulent or unlawful purposes, or that the powers of the directors were exercised in a manner that is oppressive or unfairly disregards the interests of the shareholders, the court may order an investigation to be made of the Company.
To change the rights of holders of stock, where such rights are attached to an issued class or series of shares, requires the consent by a separate resolution of the holders of the class or series of shares, as the case may be, requiring a majority of two-thirds of the votes cast.
The Company is organized under the laws of Canada. The majority of the Company’s directors, officers, and affiliates of the Company, as well as the experts named in this registration statement, are residents of Canada and, to the best of the Company’s knowledge, all or a substantial portion of their assets and all of the Company’s assets are located outside of the United States. As a result, it may be difficult for shareholders of the Company in the United States to effect service of process on the Company or these persons above within the United States, or to realize in the United States upon judgments rendered against the Company or such persons. Additionally, a shareholder of the Company should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against the Company or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Company or such persons predicated upon the U.S. federal securities laws or other laws of the United States.
Laws in the United States and judgments of U.S. courts would generally be enforced by a court of Canada unless such laws or judgments are contrary to public policy in Canada, are or arise from foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and are not in compliance with applicable laws in Canada regarding the limitation of actions. Further, a judgment obtained in a U.S. court would generally be recognized by a court of Canada, except under the following examples:
i) | borrow money upon the judgment was renderedcredit of the Company; | ii) | issue, reissue, sell or pledge debt obligations of the Company, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured; | iii) | subject to section 44 of the Act, give a guarantee on behalf of the Company to secure performance of any present or future indebtedness, liability or obligation of any person; and | iv) | mortgage, hypothecate, pledge or otherwise create a security interest in a U.S. court that had no jurisdiction accordingall or any property of the Company, owned or subsequently acquired, to applicable laws in Canada;secure any obligation of the Company. |
ii) | the judgment was subject to ordinary remedy (appeal, judicial review and any other judicial proceeding which renders the judgment not final, conclusive or enforceable under the laws of the applicable state) or not final, conclusive or enforceable under the laws of the applicable state; |
iii) | the judgment was obtained by fraud or in any manner contrary to natural justice or rendered in contravention of fundamental principles of procedure; and |
iv) | a dispute between the same parties, based on the same subject matter has given rise to a judgment rendered in a court of Canada or has been decided in a third country and the judgment meets the necessary conditions for recognition in a court of Canada. |
5. Meetings
Subject to the provisions of the Act, the annual general meeting of the shareholders shall be on such date in each year as the board of directors may determine, and a special meeting of the shareholders may be convened at any time by order of the President or by the board on their own motion or on the requisition of shareholders as provided for in the Act. Notice of the time and place of each meeting of shareholders shall be given not less than 21 days nor more than 60 days before the date of the meeting to each director and shareholder. A meeting of shareholders may be held without notice at any time and at any place provided a waiver of notice is obtained in accordance with section 136 of the Act. The quorum for the transaction of business at meetings of the shareholders shall consist of not less than one (1) shareholdertwo shareholders present or represented by proxy and holding in all not less than five (5%)10% percent of the issued capital ofoutstanding shares entitled to vote at the Company carrying voting rights.meeting. At any meeting of shareholders, every person shall be entitled to vote who, at the time of the taking of a vote (or, if there is a record date for voting, at the close of business on such record date) is entered in the register of shareholders as the holder of one or more shares carrying the right to vote at such meeting, subject to the provisions of the Act.
6. Ownership of Securities
There are no limitations on the right to own securities, imposed by foreign law or by the Articles or By-Law or other constituent document of the Company.
7. Change in Control of Company
No provision of the Company’s Articles or By-Law would have the effect of delaying, deferring, or preventing a change in control of the Company, and operate only with respect to a merger, acquisition or corporate restructuring of the Company or any of its subsidiaries. The Company no longer has a shareholder rights plan.
C. Material Contracts
The following are the material contracts of the Company, other than those mentioned elsewhere in this Form, to which the Company or any member of the group is a party, for the two years immediately preceding publication of this registration statement.
a) | Management services agreement with Genesys Venture Inc., dated January 1, 2012. |
b) | Debt settlement agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. |
c) | Royalty and guarantee agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. | None
D. Exchange Controls
There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. (See "Item 10E - Taxation", below.)
There is no limitation imposed by Canadian law or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote Common Shares of the Company. However, the Investment Canada Act (Canada) (the “Investment Act”"Investment Act") has rules regarding certain acquisitions of shares by non-residents,non-Canadians, along with other requirements under that legislation.
The following discussion summarizes the principal features of the Investment Act for a non-residentnon-Canadian who proposes to acquire Common Shares of the Company. The discussion is general only; it is not a substitute for independent legal advice from an investor’sinvestor's own advisor;adviser; and, except where expressly noted, it does not anticipate statutory or regulatory amendments.
The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures, (each an “entity”). Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review, the Minister of Industry (or the Minister of Canadian Heritage and Official Languages for investments in a Canadian business engaged in any of the activities of a “cultural business”), is satisfied that the investment is likely to be of net benefit to Canada.
A non-Canadian would acquire control of the Company for the purposes of the Investment Act through the acquisition of Common Shares if the non-Canadian acquired a majority of the Common Shares of the Company.
Further, the acquisition of less than a majority but one-third or more of the Common Shares of the Company would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of Common Shares.
ForTo determine whether an investment is reviewable under the Investment Act it is necessary to consider whether the investor (or the vendor) is a direct acquisition that would result in an acquisition of control of the Company, subject to the exception for “WTO-investors” that are‘WTO investor’ (ie, controlled by persons who are resident incitizens of countries that are members of the World Trade Organization (“WTO”("WTO") member nations (there; there are currently 153160 WTO members), a proposed investment would be reviewable where; the book value of the acquired assets is CAD $5 million or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, where the value of the acquired assets is less than CAD $5 million. For a proposed indirect acquisition that is not a so-called WTO transaction and that would result in an acquisition of control of the Company through the acquisition of a non-Canadian parent entity, the investment would be reviewable where (a) the value of the Canadian assets acquired in the transaction is CAD $50 million or more, or (b) the value ofbusiness being acquired; and whether the Canadian assets is greater than 50% of the value of all of the assetsbusiness being acquired engages in the transaction and the value of the Canadian assets is CAD $5 million or more. In the case of a direct acquisition by or from a “WTO investor”, the threshold is significantly higher, and is adjusted for inflation each year. The 2012 threshold is CAD$330 million. Other than the exception noted below, an indirect acquisition involvingcultural activities.
Where a WTO investor is not reviewable underinvolved, and if the Investment Act. The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carryingbeing acquired directly and is not engaged in cultural activities, an investment will be reviewable only if the Canadian operating business being acquired has assets with a book value in excess of CAD$354 million for 2014. (Note: the threshold is typically increased in January of each year, and would be expected to increase in January 2015, unless pending amendments to the Investment Act increase this threshold before then. Such amendments are expected to both increase the threshold, and to change it from an ‘assets’ test to an ‘enterprise value’ test. Once the amendments come into force the initial threshold will be an enterprise value of CAD$600 million, increasing two years later to CAD$800 million, and after a further two years to CAD$1 billion. The new threshold will come into force on a “cultural business”. Thedate to be determined by regulation once the definition of enterprise value has been finalised.)
If the acquisition by a WTO investor is indirect (i.e., the acquisition of shares of a foreign corporation that controls a Canadian business) the transaction is not reviewable. Where the Canadian business engages in any of the activities of a ‘cultural business’, or if neither the investor nor the vendor are WTO investors, the applicable thresholds for direct and indirect investments are assets with a book value of CAD$5 million or CAD$50 million, respectively. (The acquisition of a Canadian business that is a “cultural business”"cultural business" is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.)
An acquisition of control of a Canadian business by a non-Canadian that falls below the thresholds for review under the Investment Act does not require the filing of an application for review. However, even where an investment falls below the thresholds, it must still be notified by way of a two-page form to the Investment Review Division of the Department of Industry (or the Department of Canadian Heritage for cultural cases). Notifications may be submitted by the investor any time before or up to 30 days after implementation of the investment.
In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister of Industry Minister has reasonable grounds to believe that an investment by a non-Canadian “could"could be injurious to national security,”" the Minister of Industry Minister may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Canada Act. To date, there is neither legislation nor guidelines published, or anticipated to be published, on the meaning of “injurious"injurious to national security.”" Discussions with government officials suggest that very few investment proposals will cause a review under these new sections.
Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to Common Shares of the Company are exempt from the Investment Act, including
(a) | acquisition of Common Shares of the Company by a person in the ordinary course of that person’sperson's business as a trader or dealer in securities, |
(b) | acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and |
(c) | acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of Common Shares, remained unchanged. |
E. Taxation
U.S. Federal Income Tax Consequences
The following is a summary of the anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares 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 consequences that may apply to a U.S. Holder as a result of 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 of the acquisition, ownership, and disposition of Common Shares. 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. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.
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 Internal Revenue Service (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 Annual Report. 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 on a retroactive basis. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.
U.S. Holders
For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.
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 consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code; (i) U.S. Holders who are U.S. expatriates or former long-term residents of the United States.; or (j) U.S. Holders that own (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.
If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Consequences” above).
U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
General Taxation of Distributions
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares 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 or accumulated “earnings and profits” of the Company. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).
Reduced Tax Rates for Certain Dividends
For taxable years beginning before January 1, 2011, a dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date.” The Company generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (b) the Common Shares are readily tradable on an established securities market in the U.S. However, even if the Company satisfies one or more of such requirements, the Company will not be treated as a QFC if the Company is a “passive foreign investment Company” (as defined below) for the taxable year during which the Company pays a dividend or for the preceding taxable year.
As discussed below, the Company does not believe that it was a “passive foreign investment Company” for the taxable year ended May 31, 2012, and does not expect that it will be a “passive foreign investment Company” for the taxable year ending May 31, 2013. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its “passive foreign investment Company” status or that the Company will not be a “passive foreign investment Company” for the current taxable year or any subsequent taxable year. Accordingly, although the Company expects that it may be a QFC for the taxable year ending May 31, 2012, there can be no assurances that the IRS will not challenge the determination made by the Company concerning its QFC status, that the Company will be a QFC for the taxable year ending May 31, 2012 or any subsequent taxable year, or that the Company will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.
If the Company is not a QFC, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.
Distributions Paid in Foreign Currency
The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).
Dividends Received Deduction
Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financial advisor, legal counsel, or accountant regarding the dividends received deduction.
Disposition of Common Shares
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules unless the gain is subject to tax in Canada and resourced as “foreign source” under the U.S.-Canada Tax Convention and the U.S. Holder elects to treat such gain as “foreign source”.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
The amount realized on a sale or other disposition of Common Shares for an amount in foreign currency will generally be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date.
Foreign Tax Credit
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 paid. 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 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.” In addition, this limitation is calculated separately with respect to specific categories of income. Dividends paid by the Company generally will constitute “foreign source” income and generally will be categorized as “passive income.” The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.
Information Reporting; Backup Withholding Tax
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, or proceeds arising from the sale or other taxable disposition of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%, 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, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. 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. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.
Additional Rules that May Apply to U.S. Holders
If the Company is a “passive foreign investment Company” (as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Passive Foreign Investment Company
The Company generally will be a “passive foreign investment Company” under Section 1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income or (b) 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if the Company is not publicly traded and either is a “controlled foreign corporation” or makes an election). “Passive income” 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 asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, if the Company is a PFIC and owns shares of another foreign corporation that also is a PFIC, under certain indirect ownership rules, a disposition of the shares of such other foreign corporation or a distribution received from such other foreign corporation generally will be treated as an indirect disposition by a U.S. Holder or an indirect distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code discussed below. To the extent that gain recognized on the actual disposition by a U.S. Holder of Common shares or income recognized by a U.S. Holder on an actual distribution received on Common Shares was previously subject to U.S. federal income tax under these indirect ownership rules, such amount generally should not be subject to U.S. federal income tax.
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or 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.”
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Shares generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year. A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.
A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, a U.S. Holder that makes a QEF Election generally 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) and the “ordinary earnings” of the Company, which will be taxed as ordinary income to such U.S. Holder. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.
A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are “marketable stock” (as defined in Section 1296(e) of the Code). A U.S. Holder that makes a Mark-to-Market Election will include in gross income, for each taxable 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 taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, 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 as of the close of such taxable year.
The Company does not believe that it was a PFIC for the taxable year ended May 31, 2011,2014, and, based on current operations and financial projections, does not expect that it will be a PFIC for the taxable year ending May 31, 2012.2015. The determination of whether the Company was, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether the Company will be a PFIC for the taxable year ending May 31, 20122014 and each subsequent taxable year depends on the assets and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status or that the Company was not, or will not be, a PFIC for any taxable year.
The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant 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. Canadian Federal Income Tax Considerations for United States Residents
The following, as of the date hereof, is a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Shares by a holder, (a) who for the purposes of the Income Tax Act (Canada) (the “Tax Act”) at all relevant times, is not resident, or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company for the purpose of the Tax Act, holds the Common Shares as capital property and does not use or hold, and is not deemed to use or hold, the Common Shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of the Canada - United States Income Tax Convention (the “Convention”) at all relevant times, is a resident of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) Common Shares in connection with a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Convention. Common Shares will generally be considered to be capital property to a holder unless such shares are held in the course of carrying on a business, or in an adventure or concern in the nature of trade. Holders who meet all the criteria in clauses (a) and (b) are referred to herein as a “U.S. Holder” or “U.S. Holders” and this summary only addresses the tax considerations to such U.S. Holders. The summary does not deal with special situations, such as the particular circumstances of traders or dealers, limited liability companies, tax exempt entities, insurers or financial institutions. Such holders should consult their own tax advisors.
This summary is based upon the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (“Regulations”), all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the current provisions of the Convention and the current administrative practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary does not otherwise take into account or anticipate any changes in law or administrative practices whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of the United States or of any other jurisdiction outside Canada.
For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares must be converted into Canadian dollars based on the relevant exchange rate applicable thereto.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder and no representation with respect to the federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. The tax liability of a U.S. Holder will depend on the holder’s particular circumstances. Accordingly, U.S. Holders should consult with their own tax advisors for advice with respect to their own particular circumstances.
Dividends
Amounts paid or credited or deemed to be paid or credited to a U.S. Holder as, on account or in lieu of payment, or in satisfaction of, dividends on Common Shares will be subject to Canadian withholding tax on the gross amount of the dividends. Under the Convention, the rate of Canadian withholding tax on dividends paid or credited by the Company to a U.S. Holder that beneficially owns such dividends is generally 15% unless the beneficial owner is a Company which owns at least 10% of the voting stock of the Company at that time in which case the rate of Canadian withholding tax is reduced to 5%.
Dispositions
A U.S. Holder will generally not be subject to tax under the Tax Act on any capital gain realized on a disposition of Common Shares, unless the shares constitute “taxable Canadian property” to the U.S. Holder at the time of disposition and the U.S. Holder is not entitled to relief under the Convention. Generally, Common Shares will not constitute taxable Canadian property to a U.S. Holder provided that such shares are listed on a designated stock exchange (which currently includes the NEX at the time of the disposition and, during the 60-month period immediately preceding the disposition, the U.S. Holder, persons with whom the U.S. Holder does not deal at arm’s length, or the U.S. Holder together with such persons has not owned 25% or more of the issued shares of any series or class of the Company’s capital stock.
If the Common Shares constitute taxable Canadian property to a particular U.S. Holder, any capital gain arising on their disposition may be exempt from Canadian tax under the Convention if at the time of disposition the Common Shares do not derive their value principally from real property situated in Canada.
Canadian Federal Income Tax Consequences
The following is a summary of the principal Canadian federal income tax considerations, as of the date hereof, generally applicable to Security holders who deal at arm's length with the Company, who, for purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”) and any applicable tax treaty or convention, have not been and will not be resident or deemed to be resident in Canada at any time while they have held shares of the Company, to whom such shares are capital property, and to whom such shares are not “taxable Canadian property” (as defined in the Canadian Tax Act). This summary does not apply to a non-resident insurer.
Generally, shares of the Company will be considered to be capital property to a holder thereof provided that the holder does not use such shares in the course of carrying on a business or has not acquired them in one or more transactions considered to be an adventure in the nature of trade. All security holders should consult their own tax advisors as to whether, as a matter of fact, they hold shares of the Company as capital property for the purposes of the Canadian Tax Act.
Under the current provisions of the Canadian Tax Act, as modified by the Proposed Amendments (see below), one-half of capital gains (‘‘taxable capital gains’’) must be included in computing the income of a holder in the year of disposition. One-half of capital losses (‘‘allowable capital losses’’) may generally be deducted against taxable capital gains for the year of disposition subject to and in accordance with the provisions of the Canadian Tax Act.
Allowable capital losses in excess of a holder’s taxable capital gains of a taxation year may generally be carried back three years and carried forward indefinitely for deduction against taxable capital gains realized in those years, to the extent and under circumstances permitted under the Canadian Tax Act.
This discussion takes into account specific proposals to amend the Canadian Tax Act and the regulations thereunder publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and assumes that all such Proposed Amendments will be enacted in their present form. No assurances can be given that the Proposed Amendments will be enacted in the form proposed, if at all; however the Canadian federal income tax considerations generally applicable to security holders described herein will not be different in a material adverse way if the Proposed Amendments are not enacted.
Except for the foregoing, this discussion does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein.
Generally, shares of the Company will not be taxable Canadian property at a particular time provided that such shares are listed on a prescribed stock exchange (which exchanges currently include the Toronto Stock Exchange), the holder does not use or hold, and is not deemed to use or hold, the shares of the Company in connection with carrying on a business in Canada and the holder, persons with whom such holder does not deal at arm's length, or the holder and such persons, have not owned (or had under option) 25% or more of the issued shares of any class or series of the capital stock of the Company at any time within five years preceding the particular time.
A holder of shares of the Company that are not taxable Canadian property will not be subject to tax under the Canadian Tax Act on the sale or other disposition of shares.
While intended to address all material Canadian Federal Income Tax considerations, this summary is for general information purposes only, and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares. No opinion was requested by the Company, or is provided by its legal counsel and/or auditors. Additionally, this summary does not consider the effects of United States federal, state, local or foreign income tax consequences.
Accordingly, holders and prospective holders of common shares should consult their own tax advisors about the consequences of purchasing, owning, and disposing of common shares of the Company.
F. Dividends and Paying Agents
Not applicable
G. Statement by Experts
Not applicable
H. Documents on Display
Exhibits attached to this Annual Report are available for viewing on EDGAR, or may be inspected at the head office of Company at 2 – 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6, during normal business hours. Copies of the Company’s financial statements and other continuous disclosure documents required under Canadian securities legislation are available for viewing on the internet at www.sedar.com.
I. Subsidiary Information
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of the Company’s investment activities is to preserve principal by maximizing the income the Company receives from such activities without significantly increasing risk. Securities that the Company invests in are generally highly liquid short-term investments such as term deposits with terms to maturity of less than one year. Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk arising primarily from fluctuations in interest rates on its cash and cash equivalents.equivalents, long-term debt and other long-term liability. An increase or decrease in interest rates of one percent during the year ended May 31, 2013,2014, with all other variables held constant, would result in a corresponding increase or decrease inon the Company's net (loss) income byof approximately $6,000 (2012$2,000 (2013 - $9,000)$6,000). An increase or decrease in the crown company borrowing rate of one percent during the year ended May 31, 2013,2014, with all other variables held constant, would have increasedresult in a corresponding increase or decreaseddecrease on the Company's net (loss) income byof approximately $ 51,000 (2012$52,000 (2013 - $44,000)$51,000). FOREIGN EXCHANGE RISK The parent of the Company’s primary currency of operations is the Canadian dollar. Its wholly-owned operating subsidiaries primary currency of operations is the US dollar. The Company has expenditures and holds investments denominated in US dollars. In fiscal 2013,2014, it is estimated that approximately 85% of the Company’s expenditures were denominated in a foreign currency, primarily being the US dollar and 100% of the Company’s product revenues were denominated in the US dollar. To date the Company has not entered into any future or forward contracts, or other derivative instruments, for either hedging or speculative purposes, to mitigate the impact of foreign exchange fluctuations on these costs, revenues or on U.S. dollar denominated debt. A 10% change in foreign exchange rates for fiscal 20122014 would have impacted loss for the year by 10%. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures, as such term is defined in Rules 13(a)-13(e) and 15(d)-15(e) of the Exchange Act are designed to provide reasonable assurance that all relevant information is communicated to senior management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO. Based on this evaluation these officers concluded that as of the end of the period covered by this Annual Report on Form 20-F, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including our company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that the disclosure controls and procedures were not effective was due to the presence of a material weakness in internal control over financial reporting as identified below under the heading “Internal Controls over Financial Reporting Procedures”. Management anticipates that such disclosure controls and procedures will not be effective until the material weakness is remediated. Management’s Annual Report on Internal Control over Financial Reporting The management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and the board of directors regarding the reliability of financial reporting and preparation and fair presentation of published financial statements for external purposes in accordance with IFRS. Internal control over financial reporting includes those policies and procedures that: | 1. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the design and operation of internal control over financial reporting as of May 31, 2013,2014, based on the framework set forth in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s ICFR was not effective as at May 31, 20132014 due to the following material weaknesses:
Due to the limited number of staff with an appropriate level of technical accounting knowledge, experience and training and the inability to attract outside expert advice on a cost effective basis, there is a risk of material misstatements related to the accounting and reporting for complex transactions. This control deficiency creates a reasonable possibility that a material misstatement of the annual financial statements would not have been prevented or detected in a timely manner. Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report. Changes in Internal Control over Financial Reporting and Planned Remediation Activities There have been no changes in the Company's internal controls identified in connection with the evaluation described in the preceding paragraph that occurred during the period covered by this Annual Report on Form 20-F which have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. No remediation activities have been undertaken to date in fiscal 2014.2015. Due to resource constraints and the present stage of the Company’s development the Company does not have sufficient size and scale to warrant the hiring of additional staff to correct this material weakness at this time. ITEM 16. RESERVED
Not applicable
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
As of May 31, 2013,2014, Mr. Brent Fawkes CA, a non-employee director, was a member of the audit committee of the Company. The board of directors of the Company has determined that Mr. Fawkes (i) qualifies as an audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F and (ii) is independent as defined by Rule 121Ain section 803 of the NYSE MKT Company Guide and Rule 10A-3 of the Exchange Act. In addition, all members of the audit committee are considered financially literate under applicable Canadian laws.
ITEM 16B. CODE OF ETHICS
On August 23, 2004, the Company adopted a written Code of Business Conduct and Ethics (“Code of Ethics”) that applies to the Company’s principal executive officer, principal financial officer and to all its other employees. These standards are a guide to help ensure that all of the Company’s employees live up to high ethical standards. A copy of the Code of Ethics is maintained on the Company’s website at www.medicure.com.
During the most recently completed fiscal year, the Company has neither: (a) amended its Code of Ethics; nor (b) granted any waiver (including any implicit waiver) form any provision of its Code of Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
On May 31, 2013, the Company changed its auditors from KPMG LLP to Ernst & Young LLP..
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the chartered accountants, KPMG LLP and Ernst & Young LLP, is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered that was approved through its pre-approval process.
The Company incurred the following fees to KPMGErnst & Young LLP for the previous two fiscal years. OnAs at May 31, 2013,2014, the Company changed its auditors from KPMG LLPhad accrued $80,000 relating to Ernst & Young LLP. For the fiscal year ended May 31, 2013, the Company did not incur any fees from Ernst & Young, however $80,000 ofLLP audit fees were accrued at May 31, 2013.fees. (a) Audit fees | 2013 | 2012 | | $- | $139,500 |
(a) Audit fees | 2014 | 2013 | | | $86,400 | $- | |
Audit fees consist of fees billed for the audit of the Company’s annual financial statements. (b) Audit-related fees | 2013 | 2011 | | $- | $15,000 |
(b) Audit-related fees | 2014 | 2013 | | | $- | $- | |
Audit-related fees consist of fees billed for accounting consultations. (c) Tax fees | 2013 | 2011 | | $- | $- |
(c) Tax fees | 2014 | 2013 | | | $- | $- | |
98(d) All other fees | 2014 | 2013 | | | $74,900 | $- | |
(d) All other fees | 2013 | 2011 | | $- | $- |
All other fees include due diligence work performed by Ernst & Young LLP.
(e) Audit Committee’s Pre-approval Policies
All KPMG LLP and Ernst & Young LLP services and fees are approved by the Audit Committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In the year ended May 31, 2013,2014, the Company did not purchase any of its issued and outstanding Common Shares pursuant to any repurchase program or otherwise. ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
KPMG LLP (“KPMG”) were appointed the auditors of Medicure Inc., (the “Corporation”) on August 14, 2000. The Corporations’ shareholders approved at the last annual and special meeting of the shareholders of the Corporation held November 30, 2012 that KPMG be re-appointed auditors of the Corporation until the next annual meeting.Not applicable.
The Board of Directors, upon the recommendation of the Audit Committee, has decided not to renew KPMG’s appointment as auditor. The audit committee has reviewed the situation and determined that the appointment of Ernst & Young LLP (“E&Y”) as auditors of the Corporation would be in the best interests of the Corporation. As such, the Company’s audit committee has recommended that E&Y be appointed as the successor auditor and the Board of Directors have approved the same.
There have been no reservations in the auditor’s reports for the audits of the three most recently completed fiscal years.
There have been, in the opinion of the Corporation, no reportable events.
ITEM 16G. CORPORATE GOVERNANCE
Not applicable.
ITEM 16H.MINE SAFETY DISCLOSURE
Not applicable. PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable. See “Item 18 – Financial Statements”.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB, and are presented in Canadian dollars.
The consolidated financial statements are in the following order:
| 1. | Report of Independent Registered Public Accounting Firm; |
| 2. | Consolidated Statements of Financial Position; |
| 3. | Consolidated Statements of Net (Loss) Income and Comprehensive (Loss) Income; |
| 4. | Consolidated Statements of Changes in Deficiency |
| 5. | Consolidated Statements of Cash Flows; and |
| 6. | Notes to Consolidated Financial Statements. |
Consolidated Financial Statements (Expressed in Canadian Dollars) MEDICURE INC. Year ended May 31, 20132014
MANAGEMENT REPORT The accompanying financial statements have been prepared by management and approved by the Board of Directors of Medicure Inc. (the “Company”). Management is responsible for the information and representations contained in these financial statements. These financial statements have been prepared in accordance with International Financial Reporting Standards. The significant accounting policies, which management believes are appropriate for the Company, are described in note 3 to these financial statements. The Company maintains a system of internal control and processes intended to provide reasonable assurance that assets are safeguarded and to ensure that relevant and reliable financial information is produced. The Board of Directors is responsible for reviewing and approving these financial statements and overseeing management’s performance of its financial reporting responsibilities. An Audit Committee of non-management Directors is appointed by the Board. The Audit Committee reviews the financial statements, audit process and financial reporting with management and with the external auditors and reports to the Board of Directors prior to the approval of the audited consolidated financial statements for publication. Ernst & Young LLP, the Company’s external auditors, audited the financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) to enable them to express to the shareholders their opinion on these financial statements. Their report follows. /s/ Albert Friesen /s/ James Kinley
———————————————————— ———————————————————— Dr./s/ Albert D. Friesen | /s/ James Kinley | Dr. Albert D. Friesen Chief Executive Officer Chief Financial Officer | Mr. James F. Kinley CA Chief Financial Officer |
Chief Executive Officer Chief Financial Officer
September 25, 2013 10, 2014
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Medicure Inc.
We have audited the accompanying consolidated financial statements of Medicure Inc., which comprise the consolidated statements of financial position as at May 31, 20132014 and 2012,2013, and the consolidated statements of income (loss) and comprehensive income (loss), changes in deficiency and cash flows for each of the years in the three-yeartwo year period ended May 31, 2013,2014, and a summary of significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Medicure IncInc.. as at May 31, 20132014 and 2012,2013, and its financial performance and its cash flows for each of the years in the three-yeartwo year period ended May 31, 20132014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of matter
The accompanying consolidated financial statements have been prepared assuming that Medicure Inc. will continue as a going concern. As discussed in note 2(c) to the consolidated financial statements, Medicure Inc. has experienced losses and has accumulated a deficit of $125,877,356$127,516,308 since incorporation and has a working capital deficiency of $2,065,539$869,164 as at May 31, 2013 that raises2014. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in note 2(c). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Other matters
The consolidated financial statements of Medicure Inc. for the year ended May 31, 2012 were audited by KPMG LLP who expressed an unmodifiedunqualified audit opinion on those consolidated financial statements on September 14, 2012.
Winnipeg, Canada,
| | Winnipeg, Canada, September 25, 2013. 10, 2014. | Chartered Accountants |
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of Medicure Inc.
We have audited the accompanying comparative information of Medicure Inc. which comprise the consolidated statements of net income and comprehensive income, changes in deficiency and cash flows for the year ended May 31, 2012, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the comparative information in these consolidated financial statements present fairly, in all material respects, the consolidated financial performance and consolidated cash flows of Medicure Inc. for the year ended May 31, 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Emphasis of Matter The accompanying consolidated financial statements have been prepared assuming that Medicure Inc. will continue as a going concern. As discussed in note 2(c) to the consolidated financial statements, Medicure Inc. has experienced operating losses and has accumulated a deficit since incorporation that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in note 2(c). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The consolidated statements of financial position as at May 31, 2014 and 2013, the consolidated statements of net loss and comprehensive loss, changes in deficiency and cash flows for the years then ended and notes, comprising a summary of significant accounting policies and other explanatory information, are audited by another auditor who expressed an unmodified opinion on September 10, 2014.
/s/ KPMG LLP Chartered Accountants
September 14, 2012 Winnipeg, Canada MEDICURE INC. Consolidated Statements of Financial Position (expressed in Canadian dollars) May 31, 20132014 and 2012 | | Note | | 2014 | | | 2013 | | | | | | | | | | | | | Note | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | Cash | | | | | $ | 126,615 | | | $ | 1,124,345 | | | | $ | 234,297 | | | $ | 126,615 | | Accounts receivable | | | 4 | | | | 432,616 | | | | 420,197 | | 4 | | | 947,602 | | | | 432,616 | | Inventories | | | 5 | | | | 902,799 | | | | 542,325 | | 5 | | | 765,653 | | | | 902,799 | | Prepaid expenses | | | | | | | 29,455 | | | | 125,084 | | | | | 206,188 | | | | 29,455 | | | | | Total current assets | | | | | | | 1,491,485 | | | | 2,211,951 | | | | | 2,153,740 | | | | 1,491,485 | | | | | | | | | | | | | | Non-current assets: | | | | | | | | | | | | | | Non‑current assets: | | | | | | | | | | | Property and equipment | | | 6 | | | | 22,235 | | | | 30,745 | | 6 | | | 20,681 | | | | 22,235 | | Intangible assets | | | 7 | | | | 1,910,069 | | | | 2,500,928 | | 7 | | | 1,433,158 | | | | 1,910,069 | | | | | Total non-current assets | | | | | | | 1,932,304 | | | | 2,531,673 | | | Total non‑current assets | | | | | 1,453,839 | | | | 1,932,304 | | | | | | | | | | | | | | Total assets | | | | | | $ | 3,423,789 | | | $ | 4,743,624 | | | | $ | 3,607,579 | | | $ | 3,423,789 | | | | | | | | | | | | | | Liabilities and Deficiency | | | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | | | | | $ | 2,262,954 | | | $ | 1,355,993 | | | | $ | 3,000,609 | | | $ | 2,262,954 | | Accrued interest on long-term debt | | | 8 | | | | 22,295 | | | | 22,295 | | | Current portion of long-term debt | | | 8 | | | | 1,271,775 | | | | - | | | | | | Accrued interest on long‑term debt | | 8 | | | 22,295 | | | | 22,295 | | Current portion of long‑term debt | | 8 | | | - | | | | 1,271,775 | | Total current liabilities | | | | | | | 3,557,024 | | | | 1,378,288 | | | | | 3,022,904 | | | | 3,557,024 | | | | | | | | | | | | | | Non-current liabilities | | | | | | | | | | | | | | Long-term debt | | | 8 | | | | 3,510,119 | | | | 4,647,740 | | | Non‑current liabilities | | | | | | | | | | | Long‑term debt | | 8 | | | 4,847,279 | | | | 3,510,119 | | Royalty obligation | | | 8 | | | | 516,066 | | | | 538,269 | | 9 | | | 1,461,572 | | | | 516,066 | | Other long-term liability | | | 9 | | | | 167,261 | | | | - | | | | | | Total non-current liabilities | | | | | | | 4,193,446 | | | | 5,186,009 | | | Other long‑term liability | | 10 | | | 152,778 | | | | 167,261 | | Total non‑current liabilities | | | | | 6,461,629 | | | | 4,193,446 | | Total liabilities | | | | | | | 7,750,470 | | | | 6,564,297 | | | | | 9,484,533 | | | | 7,750,470 | | | | | | | | | | | | | | Deficiency: | | | | | | | | | | | | | | | | | | | | | | Share capital | | | 10 | | | | 117,033,258 | | | | 117,033,258 | | 11 | | | 117,036,672 | | | | 117,033,258 | | Contributed surplus | | | | | | | 4,449,305 | | | | 4,346,312 | | | | | 4,447,891 | | | | 4,449,305 | | Accumulated other comprehensive income | | | | | | | 68,112 | | | | 102,809 | | Accumulated other comprehensive income | | | 154,791 | | | | 68,112 | | Deficit | | | | | | | (125,877,356 | ) | | | (123,303,052 | ) | | | | (127,516,308 | ) | | | (125,877,356 | ) | | | | Total deficiency | | | | | | | (4,326,681 | ) | | | (1,820,673 | ) | | | | (5,876,954 | ) | | | (4,326,681 | ) | | | | | | | | | | | | | Going concern | | | 2(c) | | | | | | | | | | 2(c) | | | | | | | | | Commitments and contingencies | | | 14 | | | | | | | | | | 15 | | | | | | | | | Subsequent events | | | 8 | | | | | | | | | | 11, 16 & 21 | | | | | | | | | Total liabilities and deficiency | | | | | | $ | 3,423,789 | | | $ | 4,743,624 | | | | $ | 3,607,579 | | | $ | 3,423,789 | |
| | | On behalf of the Board: | | | "Dr. Albert Friesen" | "Mr. Brent Fawkes" | | Director | Director |
See accompanying notes to the consolidated financial statements.
MEDICURE INC. Consolidated Statements of Net (Loss) Income and Comprehensive (Loss) Income (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 | | | | | | | | | | | | | | | Note | | | 2014 | | | 2013 | | | 2012 | | Revenue: | | | | | | | | | | | | | Product sales, net | | | 13 | | | $ | 5,050,761 | | | $ | 2,602,700 | | | $ | 4,796,811 | | Cost of goods sold | | 5, 7 & 17 | | | | 868,122 | | | | 665,896 | | | | 1,069,279 | | Gross profit | | | | 4,182,639 | | | | 1,936,804 | | | | 3,727,532 | | | | | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | | | | | Selling, general and administrative | | 16 & 17 | | | | 3,329,551 | | | | 2,322,840 | | | | 2,673,725 | | Research and development | | 16 & 17 | | | | 688,671 | | | | 1,700,479 | | | | 1,044,491 | | | | | | | | | 4,018,222 | | | | 4,023,319 | | | | 3,718,216 | | Operating income (loss) | | | 164,417 | | | | (2,086,515 | ) | | | 9,316 | | | | | | | | | | | | | | | | | | | Other income: | | | | | | | | | | | | | | Gain on settlement of debt | | | 9 | | | | - | | | | - | | | | (23,931,807 | ) | Finance costs (income): | | | | | | | | | | | | | Finance income | | | | (41 | ) | | | (152 | ) | | | (775 | ) | Finance expense | | 8 &14 | | | | 1,809,028 | | | | 466,425 | | | | 553,734 | | Foreign exchange (gain) loss, net | | | (5,618 | ) | | | 21,516 | | | | 2,385 | | | | | | | | | | | | | | | | | | | | | | | | | | 1,803,369 | | | | 487,789 | | | | 555,344 | | Net (loss) income | | | | (1,638,952 | ) | | | (2,574,304 | ) | | | 23,385,779 | | Other comprehensive income (loss) | | | | | | | | | | Foreign currency translation differences for foreign operations | | | 86,679 | | | | (34,697 | ) | | | 479,439 | | Total comprehensive (loss) income | | | $ | (1,552,273 | ) | | $ | (2,609,001 | ) | | $ | 23,865,218 | | | | | | | | | | | | | | | | | | | Basic (loss) earnings per share | | | (0.13 | ) | | | (0.21 | ) | | | 1.99 | | Diluted (loss) earnings per share | | | (0.13 | ) | | | (0.21 | ) | | | 1.99 | | Weighted average number of common shares used in computing basic (loss) earnings per share | | | 12,196,745 | | | | 12,196,508 | | | | 11,745,854 | | Weighted average number of common shares used in computing fully diluted (loss) earnings per share | | | 12,196,745 | | | | 12,196,508 | | | | 11,752,521 | |
See accompanying notes to the consolidated financial statements. MEDICURE INC.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
| | Note | | | 2013 | | | 2012 | | | 2011 | | Revenue: | | | | | | | | | | | | | Product sales, net | | | 12 | | | | 2,602,700 | | | | 4,796,811 | | | | 3,628,274 | | | | Cost of goods sold | | 5, 7 & 16 | | | | 665,896 | | | | 1,069,279 | | | | 1,513,247 | | | | Gross profit | | | | | | | 1,936,804 | | | | 3,727,532 | | | | 2,115,027 | | | | | | Expenses: | | | | | | | | | | | | | | | | | Selling, general and administrative | | 15 & 16 | | | | 2,322,840 | | | | 2,673,725 | | | | 2,833,217 | | Research and development | | 15 & 16 | | | | 1,700,479 | | | | 1,044,491 | | | | 523,888 | | | | | | | | | | | 4,023,319 | | | | 3,718,216 | | | | 3,357,105 | | | | Operating (loss) income | | | | | | | (2,086,515 | ) | | | 9,316 | | | | (1,242,078 | ) | | | | | Other income: | | | | | | | | | | | | | | | | | Gain on settlement of debt | | | 8 | | | | - | | | | (23,931,807 | ) | | | - | | | | Finance costs (income): | | | | | | | | | | | | | | | | | Finance income | | | | | | | (152 | ) | | | (775 | ) | | | (473 | ) | Finance expense | | | 13 | | | | 466,425 | | | | 553,734 | | | | 3,100,175 | | Foreign exchange loss (gain), net | | | | | | | 21,516 | | | | 2,385 | | | | (2,707,006 | ) | | | | | | | | | | 487,789 | | | | 555,344 | | | | 392,696 | | | | Net (loss) income | | | | | | | (2,574,304 | ) | | | 23,385,779 | | | | (1,634,774 | ) | Other comprehensive (loss) income | | | | | | | | | | | | | | | | | Foreign currency translation differences for foreign operations | | | | (34,697 | ) | | | 479,439 | | | | (376,630 | ) | | | Total comprehensive (loss) income | | | | | | | (2,609,001 | ) | | | 23,865,218 | | | | (2,011,404 | ) | | | Basic and diluted (loss) earnings per share | | | | (0.21 | ) | | | 1.99 | | | | (0.19 | ) | Weighted average number of common shares used in computing basic (loss) earnings per share | | | | 12,196,508 | | | | 11,745,854 | | | | 8,687,170 | | Weighted average number of common shares used in computing fully diluted (loss) earnings per share | | | | | | | 12,196,508 | | | | 11,752,521 | | | | 8,687,170 | |
See accompanying notes to the consolidated financial statements.
MEDICURE INC. Consolidated Statements of Changes in Deficiency (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 2011 2012 | | | | | | | | | | | Cumulative | | | | | | | | | | | | | | | | | | Cumulative | | | | | | | | | | | | | Share | | | Contributed | | | Translation | | | | | | | | | | | | Share | | | Contributed | | | Translation | | | | | | | | | | Note | | | Capital | | | Surplus | | | Account | | | Deficit | | | Total | | | Note | | | Capital | | | Surplus | | | Account | | | Deficit | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2010 | | | | | $ | 116,014,623 | | | $ | 4,044,810 | | | $ | - | | | $ | (145,054,057 | ) | | $ | (24,994,624 | ) | | | | | Net loss for the year ended May 31, 2011 | | | | - | | | | - | | | | - | | | | (1,634,774 | ) | | | (1,634,774 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive loss for the year ended May 31, 2011 | | | | | | - | | | | - | | | | (376,630 | ) | | | - | | | | (376,630 | ) | | Transactions with owners, recorded directly in equity Share-based payments | | | 10(c) | | | | - | | | | 77,057 | | | | - | | | | - | | | | 77,057 | | | | | | Total transactions with owners | | | | | | | - | | | | 77,057 | | | | - | | | | - | | | | 77,057 | | | | | | Balance, May 31, 2011 | | | | | | $ | 116,014,623 | | | $ | 4,121,867 | | | $ | (376,630 | ) | | $ | (146,688,831 | ) | | $ | (26,928,971 | ) | | | | | $ | 116,014,623 | | | $ | 4,121,867 | | | $ | (376,630 | ) | | $ | (146,688,831 | ) | | $ | (26,928,971 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year ended May 31, 2012 | Net income for the year ended May 31, 2012 | | | | - | | | | - | | | | - | | | | 23,385,779 | | | | 23,385,779 | | Net income for the year ended May 31, 2012 | | | | - | | | | - | | | | - | | | | 23,385,779 | | | | 23,385,779 | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income for the year ended May 31, 2012 | | | | | | | - | | | | - | | | | 479,439 | | | | - | | | | 479,439 | | | Other comprehensive income for the year | | Other comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | ended May 31, 2012 | | | | | | | - | | | | - | | | | 479,439 | | | | - | | | | 479,439 | | Transactions with owners, recorded directly in equity | Transactions with owners, recorded directly in equity | | | | | | | | | | | | | | | | | | Transactions with owners, recorded directly in equity | | | | | | | | | | | | | | | | | | | | | | Issuance of common shares | | | 10(b) | | | | 1,018,635 | | | | - | | | | - | | | | - | | | | 1,018,635 | | | | 11(b) | | | | 1,018,635 | | | | - | | | | - | | | | - | | | | 1,018,635 | | Share-based payments | | | 10(c) | | | | - | | | | 224,445 | | | | - | | | | - | | | | 224,445 | | | Share based payments | | | | 11(c) | | | | - | | | | 224,445 | | | | - | | | | - | | | | 224,445 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total transactions with owners | | | | | | | 1,018,635 | | | | 224,445 | | | | - | | | | - | | | | 1,243,080 | | | | | | | | 1,018,635 | | | | 224,445 | | | | - | | | | - | | | | 1,243,080 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2012 | | | | | | $ | 117,033,258 | | | $ | 4,346,312 | | | $ | 102,809 | | | $ | (123,303,052 | ) | | $ | (1,820,673 | ) | | | | | | $ | 117,033,258 | | | $ | 4,346,312 | | | $ | 102,809 | | | $ | (123,303,052 | ) | | $ | (1,820,673 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year ended May 31, 2013 | | | | - | | | | - | | | | - | | | | (2,574,304 | ) | | | (2,574,304 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income for the year ended May 31, 2013 | | | | | | | - | | | | - | | | | (34,697 | ) | | | - | | | | (34,697 | ) | | Transactions with owners, recorded directly in equity Share-based payments | | | 10(c) | | | | - | | | | 102,993 | | | | - | | | | - | | | | 102,993 | | | Net loss for the year ended May 31, 2013 | | Net loss for the year ended May 31, 2013 | | | | - | | | | - | | | | - | | | | (2,574,304 | ) | | | (2,574,304 | ) | Other comprehensive loss for the year | | | | | | | | | | | | | | | | | | | | | | | | | | ended May 31, 2013 | | | | | | | | - | | | | - | | | | (34,697 | ) | | | - | | | | (34,697 | ) | Transactions with owners, recorded directly in equity | | Transactions with owners, recorded directly in equity | | | | | | | | | | | | | | | | | | | | | | Share based payments | | | | 11(c) | | | | - | | | | 102,993 | | | | - | | | | - | | | | 102,993 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total transactions with owners | | | | | | | - | | | | 102,993 | | | | - | | | | - | | | | 102,993 | | | | | | | | - | | | | 102,993 | | | | - | | | | - | | | | 102,993 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2013 | | | | | | $ | 117,033,258 | | | $ | 4,449,305 | | | $ | 68,112 | | | $ | (125,877,356 | ) | | $ | (4,326,681 | ) | | | | | | $ | 117,033,258 | | | $ | 4,449,305 | | | $ | 68,112 | | | $ | (125,877,356 | ) | | $ | (4,326,681 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss for the year ended May 31, 2014 | | Net loss for the year ended May 31, 2014 | | | | - | | | | - | | | | - | | | | (1,638,952 | ) | | | (1,638,952 | ) | Other comprehensive income for the year | | Other comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | ended May 31, 2014 | | | | | | | | - | | | | - | | | | 86,679 | | | | - | | | | 86,679 | | Transactions with owners, recorded directly in equity | | Transactions with owners, recorded directly in equity | | | | | | | | | | | | | | | | | | | | | | Stock options exercised | | | | 11(b) | | | | 3,414 | | | | (1,414 | ) | | | - | | | | - | | | | 2,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total transactions with owners | | | | | | | | 3,414 | | | | (1,414 | ) | | | - | | | | - | | | | 2,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2014 | | | | | | | $ | 117,036,672 | | | $ | 4,447,891 | | | $ | 154,791 | | | $ | (127,516,308 | ) | | $ | (5,876,954 | ) |
See accompanying notes to the consolidated financial statements.
MEDICURE INC. Consolidated StatementStatements of Cash Flows (expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
| | Note | | | 2013 | | | 2012 | | | 2011 | | | | | | Cash provided by (used in): | | | | | | | | | | | | | Operating activities: | | | | | | | | | | | | | Net (loss) income for the period | | | | | | (2,574,304 | ) | | | 23,385,779 | | | | (1,634,774 | ) | Adjustments for: | | | | | | | | | | | | | | | | Gain on settlement of debt | | | 8 | | | | - | | | | (23,931,807 | ) | | | - | | Amortization of property and equipment | | | 6 | | | | 11,500 | | | | 19,663 | | | | 20,243 | | Amortization of intangible assets | | | 7 | | | | 525,482 | | | | 857,887 | | | | 878,688 | | Stock-based compensation | | | 10 | | | | 102,993 | | | | 224,445 | | | | 77,057 | | Write-down of inventory | | | 5 | | | | 19,639 | | | | 109,194 | | | | 292,950 | | Write-down of intangible assets | | | 7 | | | | 62,133 | | | | 216,011 | | | | 280,235 | | Finance expense | | | 13 | | | | 466,425 | | | | 553,734 | | | | 3,100,175 | | Difference between fair value of other long-term liability and funding received | | | 9 | | | | (32,739 | ) | | | - | | | | - | | Unrealized foreign exchange loss | | | | | | | (3,011 | ) | | | (873 | ) | | | (2,766,612 | ) | Change in the following: | | | | | | | | | | | | | | | | | Accounts receivable | | | | | | | (12,419 | ) | | | (54,707 | ) | | | 25,433 | | Inventories | | | | | | | (380,113 | ) | | | (201,645 | ) | | | (202,861 | ) | Prepaid expenses | | | | | | | 95,629 | | | | 113,378 | | | | (71,785 | ) | Accounts payable and accrued liabilities | | | | | | | 889,829 | | | | (497,468 | ) | | | 436,706 | | Other long-term liability | | | 9 | | | | 200,000 | | | | - | | | | - | | Interest paid | | | 13 | | | | (273,417 | ) | | | (221,278 | ) | | | (5,185 | ) | Debt issuance costs | | | 8 | | | | - | | | | (70,240 | ) | | | - | | Royalties paid | | | 8 | | | | (88,105 | ) | | | (84,784 | ) | | | - | | | | Cash flows (used in) from operating activities | | | | | | | (990,478 | ) | | | 417,289 | | | | 430,270 | | | | Investing activities: | | | | | | | | | | | | | | | | | Acquisition of property and equipment | | | 6 | | | | (3,108 | ) | | | (1,488 | ) | | | (2,487 | ) | Acquisition of intangible assets | | | 7 | | | | (4,289 | ) | | | (96,424 | ) | | | (42,327 | ) | | | Cash flows used in investing activities | | | | | | | (7,397 | ) | | | (97,912 | ) | | | (44,814 | ) | | | Financing activities: | | | | | | | | | | | | | | | | | Share issuance costs | | | 10 | | | | - | | | | (34,166 | ) | | | - | | Proceeds from long-term debt | | | 8 | | | | - | | | | 5,000,000 | | | | - | | Repayments of long-term debt | | | 8 | | | | - | | | | (4,750,000 | ) | | | - | | Debt settlement costs | | | 8 | | | | - | | | | (164,308 | ) | | | - | | | | Cash flows from financing activities | | | | | | | - | | | | 51,526 | | | | - | | | | Foreign exchange gain (loss) on cash held in foreign currency | | | | | | | 145 | | | | 3,258 | | | | (6,534 | ) | | | (Decrease) increase in cash | | | | | | | (997,730 | ) | | | 374,161 | | | | 378,922 | | Cash, beginning of period | | | | | | | 1,124,345 | | | | 750,184 | | | | 371,262 | | | | Cash, end of period | | | | | | | 126,615 | | | | 1,124,345 | | | | 750,184 | | | | | | Supplementary information: | | | | | | | | | | | | | | | | | Non-cash financing activities: | | | | | | | | | | | | | | | | | Shares issued on debt settlement | | 9 & 10 | | | | - | | | | 646,801 | | | | - | | Shares issued for guarantee on long-term debt | | 9 & 10 | | | | - | | | | 371,834 | | | | - | |
See accompanying notes to the consolidated financial statements.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 | | Note | | | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | | | Cash provided by (used in): | | | | | | | | | | Operating activities: | | | | | | | | | | | Net (loss) income for the year | | | $ | (1,638,952 | ) | | $ | (2,574,304 | ) | | $ | 23,385,779 | | Adjustments for: | | | | | | | | | | | | | | Gain on settlement of debt | | | 9 | | | | - | | | | - | | | | (23,931,807 | ) | Amortization of property and equipment | | | 6 | | | | 7,727 | | | | 11,500 | | | | 19,663 | | Amortization of intangible assets | | | 7 | | | | 553,542 | | | | 525,482 | | | | 857,887 | | Stock‑based compensation | | | 11 | | | | - | | | | 102,993 | | | | 224,445 | | Write‑down of inventory | | | 5 | | | | 22,209 | | | | 19,639 | | | | 109,194 | | Write‑down of intangible assets | | | 7 | | | | - | | | | 62,133 | | | | 216,011 | | Finance expense | | 8 &14 | | | | 1,809,028 | | | | 466,425 | | | | 553,734 | | Difference between fair value of other long‑term liability and | | | | | | | | | funding received | | | 10 | | | | (14,483 | ) | | | (32,739 | ) | | | - | | Unrealized foreign exchange loss (gain) | | | 5,303 | | | | (3,011 | ) | | | (873 | ) | Change in the following: | | | | | | | | | | | | | Accounts receivable | | | | (514,986 | ) | | | (12,419 | ) | | | (54,707 | ) | Inventories | | | | | | | 114,937 | | | | (380,113 | ) | | | (201,645 | ) | Prepaid expenses | | | | (176,733 | ) | | | 95,629 | | | | 113,378 | | Accounts payable and accrued liabilities | | | 407,925 | | | | 889,829 | | | | (497,468 | ) | Other long‑term liability | | | 10 | | | | - | | | | 200,000 | | | | - | | Interest paid | | | 14 | | | | (299,346 | ) | | | (273,417 | ) | | | (221,278 | ) | Debt issuance costs | | | 8 | | | | - | | | | - | | | | (70,240 | ) | Royalties paid | | | 9 | | | | (165,291 | ) | | | (88,105 | ) | | | (84,784 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from (used in) operating activities | | | 110,880 | | | | (990,478 | ) | | | 417,289 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investing activities: | | | | | | | | | | | | | | | | Acquisition of property and equipment | | | 6 | | | | (5,513 | ) | | | (3,108 | ) | | | (1,488 | ) | Acquisition of intangible assets | | | 7 | | | | - | | | | (4,289 | ) | | | (96,424 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows used in investing activities | | | | (5,513 | ) | | | (7,397 | ) | | | (97,912 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financing activities: | | | | | | | | | | | | | | | | | Exercise of stock options | | | 11 | | | | 2,000 | | | | - | | | | - | | Share issuance costs | | | 11 | | | | - | | | | - | | | | (34,166 | ) | Proceeds from long‑term debt | | | 8 | | | | - | | | | - | | | | 5,000,000 | | Repayments of long‑term debt | | | 8 | | | | - | | | | - | | | | (4,750,000 | ) | Debt settlement costs | | | 8 | | | | - | | | | - | | | | (164,308 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | 2,000 | | | | - | | | | 51,526 | | | | | | | | | | | | | | | | | | | Foreign exchange gain on cash held in foreign currency | | | 315 | | | | 145 | | | | 3,258 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash | | | | | | | 107,682 | | | | (997,730 | ) | | | 374,161 | | Cash, beginning of year | | | | | | | 126,615 | | | | 1,124,345 | | | | 750,184 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash, end of year | | | | | | $ | 234,297 | | | $ | 126,615 | | | $ | 1,124,345 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Supplementary information: | | | | | | | | | | | | | | | | | Non‑cash financing activities: | | | | | | | | | | | | | | Shares issued on debt settlement | | 9 & 11 | | | $ | - | | | $ | - | | | $ | 646,801 | | Shares issued for guarantee on long‑term debt | | 8 & 11 | | | $ | - | | | $ | - | | | $ | 371,834 | |
See accompanying notes to the consolidated financial statements. MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 1. Reporting entity: Medicure Inc. (the "Company") is a company domiciled and incorporated in Canada and as of October 24, 2011, its Common Shares are listed on the TSX Venture Exchange. Prior to October 24, 2011 and beginning on March 29, 2010, the Company's Common Shares were listed on the NEX board of the TSX Venture Exchange. Prior to March 29, 2010, the Company's Common Shares were listed on the Toronto Stock Exchange. Additionally, the Company's shares were listed on the American Stock Exchange (later called NYSE Amex and now called NYSE MKT) on February 17, 2004 and the shares ceased trading on the NYSE Amex effective July 3, 2008. The Company remains a U.S. Securities and Exchange Commission registrant. The address of the Company's registered office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada. The Company is a biopharmaceutical company engaged in the research, development and commercialization of human therapeutics. Through its subsidiary Medicure International, Inc., the Company has rights to the commercial product AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, U.S. Virgin Islands, and Guam). AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome ("ACS") including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction. The Company’s primary ongoing research and development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®. 2. Basis of preparation of financial statements: (a) Statement of compliance These consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The Company adopted IFRS 10 and 13, and amendments to International Accounting Standard ("IAS") 1 on June 1, 2013. There was no material impact as a result of the adoption of these standards and amendments. The consolidated financial statements were authorized for issue by the Board of Directors on September 25, 2013.10, 2014. (b) Basis of presentation The consolidated financial statements have been prepared on the historical cost basis except for the following items in the statement of financial position:items: | · | Derivative financial instruments are measured at fair value. |
| · | Financial instruments at fair value through profit and loss are measured at fair value. |
(c) Going concern These consolidated financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is substantial doubt about the appropriateness of the use of the going concern assumption because the Company has experienced operating losses from incorporation and has accumulated a deficit of $125,877,356$127,516,308 as at May 31, 20132014 and a working capital deficiency of $2,065,539.$869,164. Management has forecastforecasted that contractual commitments and debt service obligations will exceed the Company's net cash flows and working capital during fiscal 2014.2015. The Company’s future operations are dependent upon its ability to grow sales of AGGRASTAT®, to develop and/or acquire new products, and/or secure additional capital, which may not be available under favourable terms or at all, and/or renegotiate the terms of its contractual commitments and long-term debt.commitments. If the Company is unable to grow sales, develop and/or acquire new products, raise additional capital or renegotiate the terms of its contractual commitments, management willintends to consider other strategies including further cost curtailments, delays of research and development activities, asset divestures and/or monetization of certain intangibles.intangible assets. Effective August 1, 2013, the Company renegotiated its long-term debt and received an additional two yeartwo-year deferral of principal repayments. Under the renegotiated terms, the loan continues to be interest only with principal repayments now beginning on August 1, 2015 and the loan maturesmaturing on July 1, 2018.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 2. Basis of preparation of financial statements (continued): (c) Going concern (continued): The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to, the actions taken or planned, some of which are described above, which are intended to mitigate the adverse conditions and events whichthat raise doubt about the validity of the going concern assumption used in preparing these consolidated financial statements. There is no certainty that the Company’s working capital and net cash flows will be sufficient through fiscal 20142015 or that the above described and other strategies will be sufficient to permit the Company to continue as a going concern. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported revenuesrevenue and expenses, and the consolidated statement of financial position classifications used. (d) Functional and presentation currency The consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency. All financial information presented has been rounded to the nearest dollar except where indicated otherwise. (e) Use of estimates and judgments The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Areas where management has made critical judgments in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include the determination of the Company and its subsidiaries functional currency and the determination of the Company's cash generating units ("CGU") for the purposes of impairment testing. Information about key assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes: | · | Note 3(c)(ii): Valuation of the royalty obligation |
| · | Note 3(c)(ii): Valuation of the warrant liability |
| · | Note 3(c)(ii): Valuation of the other long-term liability |
| · | Note 3(d): Provisions for returns and discounts |
| · | Note 3(g)(i): The estimation of accruals for research and development costs |
| · | Note 3(g)(ii): The measurement and period of use of intangible assets |
| · | Note 3(j)(ii): The assumptions and model used to estimate the value of share-based payment transactions |
| · | Note 3(l): The measurement of the amount and assessment of the recoverability of income tax assets |
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 3. Significant accounting policies: The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated. (a) Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Medicure International Inc., and Medicure Pharma Inc. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All significant inter-company transactions and balances have been eliminated. (b) Foreign currency Items included in the financial statements of each of the Company's consolidated subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency. The U.S. dollar is the functional currency of Medicure Pharma, Inc. In the three months ended August 31, 2011, as a result of the long-term debt settlement (note 8)9) and other factors, the focus of Medicure International, Inc.'s operations changed and, accordingly, its functional currency was changed from the Canadian dollar to the U.S. dollar, effective June 1, 2011. In accordance with International Accounting Standard ("IAS")IAS 21, The Effects of Changes in Foreign Exchange Rates, this change has been accounted for prospectively. Foreign currency transactions are translated into the respective functional currencies of the Company and its subsidiaries using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period endperiod-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit and loss. The results and financial position of the Company's consolidated subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the date of that consolidated statement of financial position; (ii) income and expenses for each year are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognized in other comprehensive (loss) income in the cumulative translation account. When a foreign operation is disposed of, a proportionate share of the cumulative exchange differences previously recognized in equity is recognized in the statementconsolidated statements of net (loss) income and comprehensive (loss) income, as part of the gain or loss on sale where applicable. (c) Financial instruments (i) Financial assets The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
(i) Financial assets (continued)
Financial assets and liabilities are offset and the net amount presented in the statementconsolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (c) Financial instruments (continued): (i) Financial assets (continued): The Company classifies non-derivative financial assets into the following categories:category: loans and receivables. The Company has not classified any assets or liabilities as held-to-maturity or as available-for-sale. CashLoans and cash equivalentsreceivables
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.cost. Loans and receivables compriseare comprised of cash and accounts receivables.receivable. (ii) Financial liabilities The Company has the following non-derivative financial liabilities which are classified as other financial liabilities: accounts payable and accrued liabilities, accrued interest on long-term debt and long-term debt. All other financial liabilities are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to interestfinance expense. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. Warrants with an exercise price denominated in a foreign currency are recorded as a warrant liability and classified as fair value through profit and loss. The warrant liability is included within accounts payable and accrued liabilities and the change in the fair value of the warrants is recorded as a gain or loss in the consolidated statement of net (loss) income (loss) and comprehensive (loss) income (loss) within finance expense. These warrants have not been listed on an exchange and therefore do not trade on an active market. The warrant liability is measured by reference torecorded at the fair value of the warrants at the date at which they were granted and subsequently revalued at each reporting date. Estimating fair value for these warrants requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them. The royalty obligation is measured by reference torecorded at its fair value at the date at which the liability was incurred and subsequently revalued at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenuesrevenue from AGGRASTAT® sales and an appropriate discount rate and making assumptions about them.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
(ii) Financial liabilities (continued):
The other long-term liability is measured by reference torecorded at its fair value at the date at which the liability was incurred and subsequently revalued at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining the time frame when certain sales targets are expected to be met and an appropriate discount rate and making assumptions about them.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (iii) Fair Value Measurement(d) Revenue recognition
The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
The fair value of the warrant liability is based on level 2 (significant observable inputs) and the fair value of the royalty obligation and other long-term liability are based on level 3 (unobservable inputs).
(d) Revenue recognition
Revenue from the sale of goods, comprising finished and unfinished products, in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, chargebacks, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized. (e) Inventories Inventories consist of unfinished product (raw materials) and packaging materials, as well as finished products and are measured at the lower of cost and net realizable value. The cost of inventories is based on the first in first outfirst-in first-out principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (f) Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciationamortization and accumulated impairment losses. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. The costs of the day-to-day servicing of property and equipment are recognized in the statementconsolidated statements of net (loss) income (loss) and comprehensive (loss) income (loss) in the period in which they are incurred.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):(ii) Amortization
(f) Property and equipment (continued):
(ii) Amortization
Amortization is recognized in profit or loss over the estimated useful lives of each part of an item of property and equipment in a manner which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:\
Asset | | Basis | Rate | | | | | Computer and office equipment | Straight-lineStraight‑line | 25% | Furniture, fixtures and equipment | Diminishing balance | 20% to 25% |
Amortization methods, useful lives and residual values are reviewed at each financial year-endyear end and adjusted if appropriate.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (g) Intangible assets (i) Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. No development costs have been capitalized to date. Research and development expenses include all direct and indirect operating expenses supporting the products in development. (ii) Intangible assets Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized in profit or loss as incurred. Costs incurred in obtaining a patent are capitalized and amortized on a straight-line basis over the legal life of the respective patent, ranging from five to twenty years, or its economic life, if shorter. Costs incurred in obtaining a trademark are capitalized and amortized on a straight-line basis over the legal life of the respective trademark, being ten years, or its economic life, if shorter. Costs incurred in obtaining a customer list are capitalized and amortized on a straight-line basis over approximately ten years, or its estimated economic life, of approximately ten years.if shorter. Costs incurred in successfully obtaining a patent, trademark or customer list are measured at cost less accumulated amortization and accumulated impairment losses. The cost of servicing the Company's patents and trademarks are expensed as incurred. (iii) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized in profit or loss as incurred.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):
(g) Intangible assets (continued):
(iv) Clinical trial expenses:expenses Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts. (v) Government assistance and investment tax credits:credits Government assistance toward current expenses is recorded as a reduction of the related expenses in the period the expenses are incurred. Government assistance towards property and equipment is deducted from the cost of the related property and equipment. The benefits of investment tax credits for scientific research and experimental development expenditures ("SR&ED") incurred directly by the Company are recognized in the period the qualifying expenditure is made, providing there is reasonable assurance of recoverability. SR&ED investment tax credits receivable are recorded at their net realizable value.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (h) Impairment of financial assets At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss for financial assets carried at amortized cost. The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. (i) Impairment of non-financial assets The Company assesses at each reporting period whether there is an indication that a non-financial asset may be impaired. An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Impairment losses are recognized in net (loss) income (loss) and comprehensive (loss) income (loss) and included in research and development expense if they relate to patents. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount is the greater of the asset's or CGU's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less cost to sell, an appropriate valuation model is used. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):(j) Employee benefits
(j) Employee benefits
(i) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. (ii) Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (k) Finance income and finance costs Finance income comprises interest income on funds invested which is recognized as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings which are recognized in profit or loss using the effective interest method, changes in the fair value of the warrant liability, accretion on the royalty obligation and amortization of deferred debt issue costs using the effective interest method. Foreign currency gains and losses are reported on a net basis. (l) Income taxtaxes Income tax expense comprises current and deferred tax.taxes. Current taxtaxes and deferred taxtaxes are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive (loss) income. Current tax istaxes are the expected tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax receivable or payable in respect of previous years. Deferred tax istaxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax istaxes are not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax istaxes are not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax istaxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilitiesassets and assets,liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilitiesassets and assetsliabilities on a net basis or their tax assets and liabilities will be realized simultaneously.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued):
(l) Income tax (continued):
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (m) Earnings (loss) per share The Company presents basic earnings per share ("EPS") data for its common voting shares. Basic EPS is calculated by dividing the profit or loss attributable to common voting shareholders of the Company by the weighted average number of common voting shares outstanding during the period, adjusted for own shares held. Diluted EPS is computed similar to basic EPS except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercise were used to acquire common shares at the average market price during the reporting periods. (n) Comparative figures Certain of the comparative figures have been reclassified to conform to the current years' presentation.
(o) New standards and interpretations not yet adopted
Certain new standards, interpretations and amendments to existing standards issued by the International Accounting Standards Board ("IASB")IASB or the International Financial Reporting Interpretations Committee ("IFRIC") that are not yet effective up to the date of issuance of the Company’s financial statements are listed below. The Company is assessing the impact of these pronouncements on its consolidated results and financial position. The Company intends to adopt those standards when they become effective.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 3. Significant accounting policies (continued): (n) New standards and interpretations not yet adopted (continued); IFRS 9, Financial Instruments: Classification and Measurement IFRS 9 (2009) replaces the guidance in IAS 39, Financial Instruments: Recognition and Measurement, on the classification and measurement of financial assets. The Standard eliminates the existing IAS 39 categories of held to maturity,held-to-maturity, available-for-sale and loans and receivables. Financial assets will be classified into one of two categories on initial recognition: | · | financial assets measured at amortized cost; or |
| · | financial assets measured at fair value. |
Under IFRS 9, (2010), for financial liabilities measured at fair value under the fair value option, changes in fair value attributable to changes in credit risk will be recognized in other comprehensive (loss) income, ("OCI"), with the remainder of the change recognized in profit and loss. The mandatory effective date has not yet been determined by the IASB. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. IFRS 9 (2010) supersedes 15, Revenue from Contracts with Customers
IFRS 9 (2009)15, Revenue from Contracts with Customers, issued by the IASB in May 2014, is applicable to all revenue contracts and provides a model for the recognition and measurement of gains or losses from sales of some nonfinancial assets. The core principle is that revenue is recognized 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. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively [for example, service revenue and contract modifications] and improve guidance for multiple-element arrangements. IFRS 15 is effective for annual periods beginning on or after January 1, 2015,2017 and is to be applied retrospectively, with earlyearlier adoption permitted. For annual periods beginning before January 1, 2015,Entities will transition following either IFRS 9 (2009)a full or IFRS 9 (2010) may be applied. modified retrospective approach. The Company intends to adopt IFRS 9 (2010) in its consolidated financial statements for the annual period beginning on June 1, 2015. The extent ofis currently evaluating the impact of adoption of IFRS 9 (2010) has not yet been determined.
the above standard on its financial statements. MEDICURE INC.
NotesAmendments to the Consolidated IAS 32, Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
3. Significant accounting policies (continued)Instruments:
(o) New standards and interpretations not yet adopted (continued):
IFRS 10, Consolidated Financial Statements Presentation
In May 2011,Amendments to IAS 32 were issued to clarify the IASB published IFRS 10, Consolidated Financial Statements.existing requirements for offsetting financial assets and financial liabilities. The standardamendments are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the adoption of these amendments to have a material impact on the consolidated financial statements.
IFRIC 21, Levies IFRIC 21, Levies, addresses various accounting issues relating to levies imposed by a government. This interpretation is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted. IFRS 10 replaces IAS 27 and Standing Interpretation Committee ("SIC") 12, Consolidation Special Purpose Entities. The consolidation requirements previously included in IAS 27 have been included in IFRS 10, whereas the amended IAS 27 sets standards to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee, eliminating the risks and rewards approach included in SIC-12. An investor must possess the following three elements to conclude it controls an investee: power over the investee, exposure or rights to variable returns from involvement with the investee, and the ability to use power over the investee to affect the amount of the investor’s returns. IFRS 10 requires continuous reassessment of changes in an investor’s power over the investee and changes in the investor’s exposure or rights to variable returns. 2014. The Company intends to adopt IFRS 10 in itsis currently assessing the impact the adoption of this interpretation may have on the consolidated financial statements for the annual period beginning on June 1, 2013. The extent of the impact of adoption of IFRS 10 has not yet been determined. IFRS 13, Fair Value Measurementstatements.
In May 2011, the IASB published IFRS 13, Fair Value Measurement, which is effective prospectively for annual periods beginning on or after January 1, 2013, with earlier application permitted. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application. IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. IFRS 13 explains how to measure fair value when it is required or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.
The Company intends to adopt IFRS 13 prospectively in its consolidated financial statements for the annual period beginning on June 1, 2013. The extent of the impact of adoption of IFRS 13 has not yet been determined.
Amendments to IAS 1,39, Presentation of Financial StatementsInstruments: Recognition and Measurement In June 2011, the IASB2013, Novation of Derivatives and Continuation of Hedge Accounting was issued, which amends IAS 39, Financial Instruments Recognition and Measurement. Under these narrow scope amendments there would be no need to IAS 1, Presentation of Financial Statements, which is effective for annual periods beginning on or after July 1, 2012, with earlier application permitted. Thediscontinue hedge accounting if a hedging derivative was novated, provided certain criteria are met. These amendments to IAS 1 require companies preparing financial statements to group together items with OCI on the basis of whether they may be reclassified to the profit and loss section of the statement of income. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. The Company intends to adopt the amendments in its consolidated financial statements for the annual period beginning on June 1, 2013. The extent of the impact of adoption of the amendments has not yet been determined.
Annual Improvement to IFRSs 2009-2011 Cycle - Various Standards
In May 2012, the IASB published Annual Improvements to IFRSs - 2009-2011 Cycle as part of its annual improvements process to make non-urgent but necessary amendments to IFRSare effective for annual periods beginning on or after January 1, 2013 with retrospective application.2014. The Company does not expect the adoption of these amendments to have a material impact on its consolidated financial statements.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 3. Significant accounting policies (continued):
(o) New standards and interpretations not yet adopted (continued):
Annual Improvement to IFRSs 2009-2011 Cycle - Various Standards (continued):
The impending changes that potentially have an effect on the Company include:
· | IAS 1, Presentation of Financial Statements - the changes involve amendments to the presentation and disclosure of comparative information beyond the minimum and the presentation of the opening statement of financial position.
|
· | IAS 34, Interim Financial Reporting - the changes involve amendments to the presentation and disclosure of segment assets and liabilities.
|
The Company intends to adopt the amendments to the standards in its consolidated financial statements for the annual period beginning on June 1, 2013. The extent of the impact of the adoption of the amendments has not yet been determined.
4. Accounts receivable: | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | | May 31, 2014 | | | May 31, 2013 | | | | | | | | | | | | | | | | Trade accounts receivable | | | 422,588 | | | | 389,193 | | Trade accounts receivable | | $ | 928,852 | | | $ | 422,588 | | Other accounts receivable | | | 10,028 | | | | 31,004 | | Other accounts receivable | | | 18,750 | | | | 10,028 | | | | | 432,616 | | | | 420,197 | | | | $ | 947,602 | | | $ | 432,616 | |
As at May 31, 2013,2014, the trade accounts receivable consistsconsist of amounts owing from four customers which represent approximately 9998 percent (May 31, 20122013 - 10099 percent) of trade accounts receivable. 5. Inventories: | | | May 31, 2014 | | | May 31, 2013 | | | | | | | | | | Unfinished product and packaging materials | | $ | 152,488 | | | $ | 160,010 | | Finished product | | | 613,165 | | | | 742,789 | | | | | $ | 765,653 | | | $ | 902,799 | |
| | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | | | | | | | Unfinished product and packaging materials | | | 160,010 | | | | 228,210 | | Finished product | | | 742,789 | | | | 314,115 | | | | | 902,799 | | | | 542,325 | |
During the year ending May 31, 2013,2014, the Company wrote off inventoryinventories that had expired or waswere otherwise unusable of $22,209 (2013 - $19,639 (2012and 2012 - $109,194 and 2011 - $292,950)$109,194). InventoryInventories expensed as part of cost of goods sold during the year ended May 31, 2013 was2014 amounted to $300,378 (2013 - $131,355 (2012and 2012 - $227,517 and 2011 - $268,572)$227,517).
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
6. Property and equipment: | Computer | | Furniture, | | | Cost | and office equipment | | fixtures and equipment | | Total | | | | | | | Balance, May 31, 2012 | $ | 24,631 | | $ | 132,006 | | $ | 156,637 | Additions | | 3,108 | | | - | | | 3,108 | Effect of movements in exchange rates | | - | | | 430 | | | 430 | | | | | | | | | | Balance, May 31, 2013 | | 27,739 | | | 132,436 | | | 160,175 | Additions | | 5,513 | | | - | | | 5,513 | Effect of movements in exchange rates | | - | | | 5,218 | | | 5,218 | | | | | | | | | | Balance, May 31, 2014 | | 33,252 | | | 137,654 | | | 170,906 | | | | | | | | | | Accumulated amortization | | Computer and office equipment | | | Furniture, fixtures and equipment | | | Total | | | | | | | | | | Balance, May 31, 2012 | $ | 15,508 | | $ | 110,384 | | $ | 125,892 | Amortization for the year | | 6,174 | | | 5,326 | | | 11,500 | Effect of movements in exchange rates | | - | | | 548 | | | 548 | | | | | | | | | | Balance, May 31, 2013 | | 21,682 | | | 116,258 | | | 137,940 | Amortization for the year | | 3,577 | | | 4,150 | | | 7,727 | Effect of movements in exchange rates | | - | | | 4,558 | | | 4,558 | | | | | | | | | | Balance, May 31, 2014 | $ | 25,259 | | $ | 124,966 | | $ | 150,225 | | | | | | | | | | Carrying amounts | | Computer and office equipment | | | Furniture, fixtures and equipment | | | Total | | | | | | | | | | Balance, May 31, 2013 | $ | 6,057 | | $ | 16,178 | | $ | 22,235 | Balance, May 31, 2014 | $ | 7,993 | | $ | 12,688 | | $ | 20,681 |
| | | | | | | | | | | | Computer | | | Furniture, | | | | | | | and office | | | fixtures and | | | | | Cost | | equipment | | | equipment | | | Total | | | | | | | | | | | | Balance, May 31, 2011 | | $ | 35,721 | | | $ | 124,673 | | | $ | 160,394 | | Additions | | | 1,488 | | | | - | | | | 1,488 | | Disposals | | | (12,578 | ) | | | - | | | | (12,578 | ) | Effect of movements in exchange rates | | | - | | | | 7,333 | | | | 7,333 | | | | | | | | | | | | | | | Balance, May 31, 2012 | | | 24,631 | | | | 132,006 | | | | 156,637 | | Additions | | | 3,108 | | | | - | | | | 3,108 | | Effect of movements in exchange rates | | | - | | | | 430 | | | | 430 | | | | | | | | | | | | | | | Balance, May 31, 2013 | | $ | 27,739 | | | $ | 132,436 | | | $ | 160,175 | | | | | | | | | | | | | | | | | Computer | | | Furniture, | | | | | | | | and office | | | fixtures and | | | | | | Accumulated amortization and impairment losses | | equipment | | | equipment | | | Total | | | | | | | | | | | | | | | Balance, May 31, 2011 | | $ | 20,869 | | | $ | 92,583 | | | $ | 113,452 | | Amortization for the year | | | 7,217 | | | | 12,446 | | | | 19,663 | | Disposals | | | (12,578 | ) | | | - | | | | (12,578 | ) | Effect of movements in exchange rates | | | - | | | | 5,355 | | | | 5,355 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2012 | | | 15,508 | | | | 110,384 | | | | 125,892 | | Amortization for the year | | | 6,174 | | | | 5,326 | | | | 11,500 | | Effect of movements in exchange rates | | | - | | | | 548 | | | | 548 | | | | | | | | | | | | | | | Balance, May 31, 2013 | | $ | 21,682 | | | $ | 116,258 | | | $ | 137,940 | | | | | | | | | | | | | | | | | Computer | | | Furniture, | | | | | | | | and office | | | fixtures and | | | | | | Carrying amounts | | equipment | | | equipment | | | Total | | | | | | | | | | | | | | | Balance, May 31, 2012 | | $ | 9,123 | | | $ | 21,622 | | | $ | 30,745 | | Balance, May 31, 2013 | | $ | 6,057 | | | $ | 16,178 | | | $ | 22,235 | |
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 7. Intangible assets | | | | | | | | | | | | | | | | | | | | | | Customer | | | | | | Cost | | Patents | | | Trademarks | | | List | | | Total | | | | | | Trademarks | | | Customer List | | | Total | | | | | | | | | | | | | | | | Balance, May 31, 2011 | | $ | 8,555,292 | | | $ | 1,534,440 | | | $ | 270,784 | | | $ | 10,360,516 | | | Additions | | | 96,424 | | | | - | | | | - | | | | 96,424 | | | Change due to impairment | | | (339,680 | ) | | | - | | | | - | | | | (339,680 | ) | | Effect of movements in exchange rates | | | 546,734 | | | | 101,525 | | | | 17,916 | | | | 666,175 | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2012 | | | 8,858,770 | | | | 1,635,965 | | | | 288,700 | | | | 10,783,435 | | | $ | 8,858,770 | | | $ | 1,635,965 | | | $ | 288,700 | | | $ | 10,783,435 | | Additions | | | 4,289 | | | | - | | | | - | | | | 4,289 | | | | 4,289 | | | | - | | | | - | | | | 4,289 | | Change due to impairment | | | (62,282 | ) | | | - | | | | - | | | | (62,282 | ) | | | (62,282 | ) | | | - | | | | - | | | | (62,282 | ) | Effect of movements in exchange rates | | | 33,521 | | | | 6,177 | | | | 1,090 | | | | 40,788 | | | | 33,521 | | | | 6,177 | | | | 1,090 | | | | 40,788 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2013 | | $ | 8,834,298 | | | $ | 1,642,142 | | | $ | 289,790 | | | $ | 10,766,230 | | | | 8,834,298 | | | | 1,642,142 | | | | 289,790 | | | | 10,766,230 | | Effect of movements in exchange rates | | | | 403,853 | | | | 75,074 | | | | 13,248 | | | | 492,175 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2014 | | | $ | 9,238,151 | | | $ | 1,717,216 | | | $ | 303,038 | | | $ | 11,258,405 | | | | | | | | | | | | Customer | | | | | | | | | | | | | | | | | | | | | | Accumulated amortization and write-downs | | Patents | | | Trademarks | | | List | | | Total | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2011 | | $ | 5,971,585 | | | $ | 927,048 | | | $ | 163,597 | | | $ | 7,062,230 | | | Amortization | | | 721,405 | | | | 116,010 | | | | 20,472 | | | | 857,887 | | | Change due to impairment | | | (123,669 | ) | | | - | | | | - | | | | (123,669 | ) | | Effect of movements in exchange rates | | | 409,730 | | | | 64,880 | | | | 11,449 | | | | 486,059 | | | Accumulated amortization and impairment losses | | | | | | Trademarks | | | Customer List | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2012 | | | 6,979,051 | | | | 1,107,938 | | | | 195,518 | | | | 8,282,507 | | | $ | 6,979,051 | | | $ | 1,107,938 | | | $ | 195,518 | | | $ | 8,282,507 | | Amortization | | | 388,753 | | | | 116,220 | | | | 20,509 | | | | 525,482 | | | | 388,753 | | | | 116,220 | | | | 20,509 | | | | 525,482 | | Change due to impairment | | | (149 | ) | | | - | | | | - | | | | (149 | ) | | | (149 | ) | | | - | | | | - | | | | (149 | ) | Effect of movements in exchange rates | | | 38,945 | | | | 7,968 | | | | 1,408 | | | | 48,321 | | | | 38,945 | | | | 7,968 | | | | 1,408 | | | | 48,321 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2013 | | $ | 7,406,600 | | | $ | 1,232,126 | | | $ | 217,435 | | | $ | 8,856,161 | | | | 7,406,600 | | | | 1,232,126 | | | | 217,435 | | | | 8,856,161 | | Amortization | | | | 408,679 | | | | 123,134 | | | | 21,729 | | | | 553,542 | | Effect of movements in exchange rates | | | | 346,531 | | | | 58,657 | | | | 10,356 | | | | 415,544 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, May 31, 2014 | | | $ | 8,161,810 | | | $ | 1,413,917 | | | $ | 249,520 | | | $ | 9,825,247 | | | | | | | | | | | | Customer | | | | | | | | | | | | | | | | | | | | | | Carrying amounts | | Patents | | | Trademarks | | | List | | | Total | | | | | | Trademarks | | | Customer List | | | Total | | Balance, May 31, 2012 | | $ | 1,879,719 | | | $ | 528,027 | | | $ | 93,182 | | | $ | 2,500,928 | | | Balance, May 31, 2013 | | $ | 1,427,698 | | | $ | 410,016 | | | $ | 72,355 | | | $ | 1,910,069 | | | $ | 1,427,698 | | | $ | 410,016 | | | $ | 72,355 | | | $ | 1,910,069 | | Balance, May 31, 2014 | | | $ | 1,076,341 | | | $ | 303,299 | | | $ | 53,518 | | | $ | 1,433,158 | |
The Company has considered indicators of impairment as at May 31, 20132014 and May 31, 2012.2013. To May 31, 2013,2014, the Company has recorded an aggregate impairment loss of $16,136,325 primarily resulting from a previous write-down of AGGRASTAT® intangible assets and from patent applications no longer being pursued or patents being abandoned. The Company recordeddid not record a write-down of intangible assets of $62,133 during the year ended May 31, 2013 (20122014 (2013 - $216,011$62,133 and 20112012 - $280,235)$216,011) relating to patent applications no longer being pursued and patents being abandoned. The average remaining amortization period of the Company's intangible assets is approximately 3.52.5 years. For the year ended May 31, 2013,2014, amortization of intangible assets relating to AGGRASTAT® totaling $545,535 (2013 - $514,902 (2012and 2012 - $845,869 and 2011 - $839,725)$845,869) is recognized in cost of goods sold and amortization of other intangible assets totaling $8,007 (2013 - $10,580 (2012and 2012 - $12,018$12,018). The Company did not record a write-down of intangible assets during the year ended May 31, 2014 (2013 - $62,133 and 20112012 - $38,963)$216,011). In the years ended May 31, 2013 and 2012, write-downs of intangible assets totaling $62,133 (2012 - $216,011 and 2011 - $280,235) arewere recognized in research and development expense. As described in note 8, certain intangible assets were pledged as security against long-term debt.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 8. Long-term debt: | | | | | | | | | May 31, 2014 | | | May 31, 2013 | | Manitoba Industrial Opportunities Program loan | | $ | 4,847,279 | | | $ | 4,781,894 | | Current portion of long‑term debt | | | - | | | | 1,271,775 | | | | $ | 4,847,279 | | | $ | 3,510,119 | | | | | | | | | | | Principal repayments to maturity by fiscal year are as follows: | | | | | 2016 | | | | | | $ | 1,388,889 | | 2017 | | | | | | | 1,666,667 | | 2018 | | | | | | | 1,666,667 | | 2019 | | | | | | | 277,777 | | | | | | | | | 5,000,000 | | Less deferred debt issue expenses (net of accumulated amortization of $317,520) | | | | | | | 152,721 | | | | | | | | $ | 4,847,279 | |
The Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program ("MIOP"), to assist in the settlement of its existing long-term debt as described in note 9. The loan bears interest annually at 5.25% and originally matured on July 1, 2016. The loan was payable interest-only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. Effective August 1, 2013, the Company renegotiated its long-term debt and received an additional two-year deferral of principal repayments. Under the renegotiated terms, the loan continues to be interest-only with principal repayments now beginning on August 1, 2015 and the loan matures on July 1, 2018. The loan is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 1,333,333 common shares (20,000,000 pre-consolidated common shares (note 11)) of the Company with a fair value of $371,834, net of share issue costs of $28,166, in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. In connection with the guarantee, the Company entered into an indemnification agreement with the Chief Executive Officer under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement, the Company agreed to provide certain compensation upon a change in control of the Company. The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument ("MI") 61-101. Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances. The Company is required to maintain certain non-financial covenants under the terms of the MIOP loan. As at May 31, 2014, management believes it is in compliance with the terms of the loan. The effective interest rate on the MIOP loan for the year ended May 31, 2014 was seven percent (2013 - eight percent and 2012 - seven percent).
| | May 31, 2013 | | | May 31, 2012 | | | | | | | | | Manitoba Industrial Opportunities Program loan | | $ | 4,781,894 | | | $ | 4,647,740 | | Current portion of long-term debt | | | 1,271,775 | | | | - | | | | | | | | | | | | | $ | 3,510,119 | | | $ | 4,647,740 | |
Principal repaymentsMEDICURE INC. Notes to maturity by fiscal year are as follows:the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 | | | | 2014 | | $ | 1,388,889 | | 2015 | | | 1,666,667 | | 2016 | | | 1,666,667 | | 2017 | | | 277,777 | | | | | | | | | | 5,000,000 | | Less deferred debt issue expenses (net of accumulated amortization of $252,135) | | | 218,106 | | | | | | | | | $ | 4,781,894 | |
9. Royalty obligation On July 18, 2011, the Company settled its existing long-term debt with Birmingham Associates Ltd. ("Birmingham"), an affiliate of Elliott Associates L.P. ("Elliot"), in exchange for;for i) $4,750,000 in cash; ii) 2,176,003 common shares (32,640,043 pre-consolidation common shares (note 9)11)) of the Company; and iii) a royalty on future AGGRASTAT® sales until May 1, 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT® sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter. The previous lender has a one-time option to switch the royalty payment from AGGRASTAT® to a royalty on MC-1 sales. Management has determined there is no value to the option to switch the royalty.royalty as the product is not commercially available for sale and development of the product is on hold. In accordance with the terms of the agreement, if the Company were to dispose of its AGGRASTAT® rights, the acquirer would be required to assume the obligations under the royalty agreement. The difference between the carrying amount of the long-term debt extinguished and the consideration paid, comprising cash, equity instruments and the royalty obligation assumed, has been recognized as a gain on the settlement of debt in the statementconsolidated statements of net income and comprehensive income for the year ended May 31, 2012. In accordance with IFRIC 19, Extinguishing financial liabilities with equity instruments, the shares issued in partial consideration for the settlement of the debt have been included in consideration paid and measured at their fair value at the date of the settlement of $652,801. As at July 18, 2011, the Company had total Canadian dollar book value of long-term debt of $22,254,966, net of unamortized deferred financing fees of $941,454. The Company also had accrued interest payable of $8,145,865 for a total carrying value of the debt settled on July 18, 2011 of $30,400,831. The gain on the settlement of debt totals $23,931,807 and consideration paid comprised $4,750,000 cash paid, common shares with a value of $652,801 and a royalty obligation valued at $901,915, in addition to legal costs associated with the debt settlement transaction of $164,308. The initial value assigned to the royalty obligation, based on an expected value approach, was estimated atto be $901,915. The royalty obligation is recorded at fair value with the associated cash flows being revised each period resulting in a carrying value at May 31, 20132014 of $649,959$1,778,578 (May 31, 20122013 - $640,996)$649,959). The net accretionchange in the fair value of the royalty obligation for the year ended May 31, 20132014 of $72,889 (2012$1,349,372 (2013 - $72,689 and 2012 - ($217,973)) is recorded within finance expense on the Consolidatedconsolidated statements of net (loss) income and comprehensive (loss) income. Royalties for the year ended May 31, 20132014 total $104,979$201,131 in regards to the royalty obligation (2012(2013 - $99,965$104,979 and 20112012 - nil)$99,965), with payments made in fiscal 2013 being2014 of $165,291 (2013 - $88,105 (2012and 2012 - $84,784 and 2011 - nil)$84,784).
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
8. Long-term debt (continued):
The Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities ("MIOP") Program, to assist in the settlement of the Birmingham long-term debt. The loan bears interest annually at 5.25% and matures on July 1, 2016. The loan is payable interest-only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. The loan is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 1,333,333 common shares (20,000,000 pre-consolidated common shares (note 9)) of the Company with a fair value of $371,834, net of share issue costs of $28,166, in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. In connection with the guarantee the Company entered into an indemnification agreement with the Chief Executive Officer under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement the Company agreed to provide certain compensation upon a change in control of the Company. The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument (MI) 61-101. Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.
The Company is required to maintain certain non-financial covenants under the terms of the MIOP loan. As at May 31, 2013, management believes it is in compliance with the terms of the loan.
The effective interest rate on the MIOP loan for the year ended May 31, 2013 was eight percent.
Effective August 1, 2013, the Company renegotiated its long-term debt and received an additional two year deferral of principal repayments. Under the renegotiated terms, the loan continues to be interest-only with principal repayments now beginning on August 1, 2015 and the loan matures on July 1, 2018.
9.10. Other long-term liability
The Company received $200,000 of funding from the Province of Manitoba's Commercialization Support for Business program to assist the Company with the completion of a study evaluating AGGRASTAT® in patients with impaired kidney function. The study was completed and the funds were received during the year ended May 31, 2013. The funding is repayable when certain sales targets are met and the repayable requirement will remain in effect for a period not less than eight fiscal years. The other long-term liability was initially recorded at a fair value of $167,261 with the difference between the fair value of the liability and the funding received being recorded as a reduction in research and development expenses. The other long-term liability is recorded at fair value with the associated cash flows being revised each period resulting in a carrying value at May 31, 2014 of $152,778 (May 31, 2013 - $167,261). The net change in the other long-term liability for the year ended May 31, 2014 of $14,483 (2013 - nil and 2012 - nil) is recorded as a reduction to research and development expense on the consolidated statements of net (loss) income and comprehensive (loss) income.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 10.11. Capital stock:
(a) Authorized: The Company has authorized share capital of an unlimited number of common voting shares, an unlimited number of class A common shares and an unlimited number of preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued, the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares. On November 1, 2012, the Company completed a consolidation of its outstanding share capital on the basis of one post-consolidation share for every fifteen pre-consolidation shares. All comparative figures have been adjusted retrospectively.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
10. Capital stock (continued)
(b) Shares issued and outstanding: Shares issued and outstanding are as follows: | | Number of Common Shares | | | Amount | | Balance, May 31, 2011 | | | 8,687,172 | | | $ | 116,014,623 | | Shares issued on July 18, 2011 | | | 3,509,336 | | | | 1,018,635 | | Balance, May 31, 2012 | | | 12,196,508 | | | $ | 117,033,258 | | Balance, May 31, 2013 | | | 12,196,508 | | | $ | 117,033,258 | | Shares issued upon exercise of stock options (11c) | | | 3,333 | | | | 3,414 | | Balance, May 31, 2014 | | | 12,199,841 | | | $ | 117,036,672 | |
| | | | | | | | | Number of Common Shares | | | Amount | | | | | | | | | Balance, May 31, 2011 | | | 8,687,172 | | | $ | 116,014,623 | | Shares issued on July 18, 2011 | | | 3,509,336 | | | | 1,018,635 | | | | | | | | | | | Balance, May 31, 2012 | | | 12,196,508 | | | $ | 117,033,258 | | | | | | | | | | | Balance, May 31, 2013 | | | 12,196,508 | | | $ | 117,033,258 | |
On July 18, 2011, the Company issued 2,176,003 common shares (32,640,043 pre-consolidation common shares) as part of the consideration of the settlement of the Company's existing debt. These shares had a value of $646,801, net of share issue costs of $6,000 (note 8)9). On July 18, 2011, the Company issued 1,333,333 common shares (20,000,000 pre-consolidation common shares) of the Company in consideration for the guarantee of long-term debt by the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. These shares had a value of $371,834, net of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method (note 8). Subsequent to May 31, 2014, on July 11, 2014, the Company announced that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with its Chief Executive Officer, Dr. Albert Friesen and certain members of the Board of Directors, pursuant to which the Company will issue 205,867 of its common shares at a deemed price of $1.98 per common share to satisfy $407,617 of outstanding amounts owing to Chief Executive Officer and members of the Company’s Board of Directors. To date, the shares have not been issued as the Company is in the process of obtaining the necessary regulatory approval for issuance of these shares. (c) Stock option plan: The Company has a stock option plan which is administered by the Board of Directors of the Company with stock options granted to directors, management, employees and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum of 1,829,476 common shares of the Company at any time. The stock options generally have a maximum term of ten years. On July 18, 2011,May 6, 2014, 3,333 stock options, with a value of $3,414, were exercised at a price $0.60 for proceeds to the Company issued 836,133of $2,000.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 11. Capital stock options (12,542,000 pre-consolidation stock options) to certain officers, employees, management company employees and consultants of the Company, including the Chief Executive Officer and Chief Operating Officer, at an exercise price of $1.50 per common share ($0.10 per pre-consolidation common share). The options vested immediately and expire after ten years.(continued): (c) Stock option plan (continued): On May 10, 2013, the Company issued 463,000 stock options to certain directors, officers, employees, management company employees and consultants of the Company, including the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, at an exercise price of $0.30 per common share. The options vested immediately and expire after ten years. Changes in the number of options outstanding during the year ended May 31, 20132014 and 20122013 are as follows: | | | | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | | | | | | | | | | | | | | | | | | Weighted | | | | | | Weighted | | | | | | | average | | | | | | average | | | | Shares | | | exercise price | | | Shares | | | exercise price | | | | | | | | | | | | | | | Balance, beginning of period | | | 962,610 | | | $ | 3.04 | | | | 154,810 | | | $ | 11.10 | | Granted | | | 463,000 | | | | 0.30 | | | | 836,133 | | | | 1.50 | | Forfeited, cancelled or expired | | | (4,258 | ) | | | 4.68 | | | | (28,333 | ) | | | 1.35 | | | | | | | | | | | | | | | | | | | Balance, end of period | | | 1,421,352 | | | $ | 2.14 | | | | 962,610 | | | $ | 3.04 | | | | | | | | | | | | | | | | | | | Options exercisable, end of period | | | 1,421,352 | | | $ | 2.14 | | | | 962,610 | | | $ | 3.04 | |
| | | May 31, 2014 | | | | May 31, 2013 | | | | exercise price | | | | | Balance, beginning of year | 1,421,352 | | $ | 2.14 | | 962,610 | | $ | 3.04 | Granted | - | | | - | | 463,000 | | | 0.3 | Exercised | (3,333) | | | (0.6) | | - | | | - | Forfeited, cancelled or expired | - | | | - | | (4,258) | | | 4.68 | Balance, end of year | 1,418,019 | | $ | 2.15 | | 1,421,352 | | $ | 2.14 | Options exercisable, end of year | 1,418,019 | | $ | 2.15 | | 1,421,352 | | $ | 2.14 |
| | | | | | | | | | Options outstanding at May 31, 2014 consist of the following: | | | | | | | | | | | | | Weighted average remaining contractual life | | Options outstanding weighted average exercise price | | | | | 1,336,065 | | 7.65 years | | $1.05 | | 1,336,065 | $10.01 ‑ $15.00 | | 30,810 | | 3.52 years | | $12.71 | | 30,810 | | | 777 | | 1.40 years | | $17.85 | | 777 | $20.01 - $25.20 | | 50,367 | | 1.91 years | | $24.56 | | 50,367 | $0.30 ‑ $25.20 | | 1,418,019 | | 7.36 years | | $2.15 | | 1,418,019 |
MEDICURE INC.
Notes toThere were no stock options granted during the Consolidated Financial Statements
(expressed in Canadian dollars)
Yearsyear ended May 31, 2013, 20122014 and 2011
10. Capital stock (continued)
(c) Stock option plan: (continued):
Options outstanding at May 31, 2013 consist of the following:
| | | | | | | Weighted average | Options outstanding | | Range of | Number | remaining | weighted average | Number | exercise prices | outstanding | contractual life | exercise price | exercisable | | | | | | $0.30 - $5.00 | 1,339,398 | 8.64 years | $1.05 | 1,339,398 | $10.01 - $15.00 | 30,810 | 4.52 years | $12.71 | 30,810 | $15.01 - $20.00 | 777 | 2.40 years | $17.85 | 777 | $20.01 - $25.20 | 50,367 | 2.91 years | $24.56 | 50,367 | | | | | | $0.30 - $25.20 | 1,421,352 | 8.35 years | $2.14 | 1,421,352 |
Theas such there was no compensation expense related to stock options granted during the period and inyear or from previous periods under the stock option plan (2013 - $102,993 and 2012 - $224,445).
The compensation expense for the year ended May 31, 2013 was $102,993 (2012 - $224,445 and 2011 - $77,057). The compensation expense was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing model. There was no compensation expense recorded during the year ended May 31, 2014.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 11. Capital stock (continued): (c) Stock option plan (continued): | | | | May 31, 2013 | May 31, 2012 | | | | Expected option life | 5.1 years | 4.1 years | Risk-free interest rate | 1.34% | 1.90% | Dividend yield | nil | nil | Expected volatility | 161.87% | 193.05% |
| | | | | | | May 31, 2013 | Expected option life | | | 5.1 years | Risk-free interest rate | | | 1.34% | Dividend yield | | | nil | Expected volatility | | | 161.87% |
Subsequent to May 31, 2014, on July 7, 2014, the Company granted an aggregate of 332,300 options to certain directors, officers, employees, management company employees and consultants of the Company. Of these options, 92,300 are set to expire on the tenth anniversary of the date of grant, and 240,000 are set to expire on the fifth anniversary of the date of grant. All 332,300 options were issued at an exercise price of $1.90 per share. (d) Warrants: Changes in the number of warrants outstanding during the years ended May 31, 20132014 and 20122013 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | Exercise | | | | | | | | | | | | | | | | Issue | | Original | | price | | May 31, | | | Granted | | | May 31, | | | Granted | | | May 31, | | (Expiry date) | | granted | | per share | | 2011 | | | (Expired) | | | 2012 | | | (Expired) | | | 2013 | | | | | | | | | | | | | | | | | | | | | | 265,641 units | | | | | | | | | | | | | | | | | | | | (December 22, 2011) | | | 265,641 | | USD $25.50 | | | 265,641 | | | | (265,641 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | 66,667 units | | | | | | | | | | | | | | | | | | | | | | | | | | (December 31, 2016) | | | 66,667 | | USD $18.90 | | | 66,667 | | | | - | | | | 66,667 | | | | - | | | | 66,667 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 291,594 units | | | | | | | | | | | | | | | | | | | | | | | | | | (October 5, 2012) | | | 291,594 | | USD $22.50 | | | 291,594 | | | | - | | | | 291,594 | | | | (291,594 | ) | | | - | |
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
10. Capital stock (continued)
(d) Warrants (continued): | | Exercise | May 31, 2012 | Granted (Expired) | May 31, 2013 | Granted (Expired) | May 31, 2014 | | | | | | | | | 66,667 units | | | | | | | (December 31, 2016) | 66,667 | USD $18.90 | 66,667 | ‑ | 66,667 | ‑ | 66,667 | | | | | | | | | 291,594 units | | | | | | | (October 5, 2012) | 291,594 | USD $22.50 | 291,594 | (291,594) | ‑ | ‑ | ‑ |
IFRS requiresrequire warrants with an exercise price denominated in a currency other the entity's functional currency to be treated as a liability measured at fair value. The warrants, all with U.S. dollar exercise prices, are recorded at fair value within accounts payable and accrued liabilities as at May 31, 20132014 and total $10,524$54,344 (May 31, 20122013 - $35,053)$10,524). Changes in fair value of the warrants for the year ended May 31, 20132014 of $24,529 (2012$43,820 (2013 - $24,490($24,459) and 20112012 - ($27,374))$24,490) are recorded within finance expense. The warrants, with the exception of the warrants expiring on December 31, 2016, were issued together with common shares either under prospectus offerings or private placements with the net proceeds allocated to common shares and warrants based on their relative fair values using the Black-Scholes model. The warrants expiring on December 31, 2016 were issued with thea debt financing agreement in September 2007. The warrants expiring on December 31, 2016 may be exercised, upon certain conditions being met, on a cashless basis based on a formula described in the warrant agreements. (e) Per share amounts The weighted average number of common voting shares outstanding for the yearyears ended May 31, 2014, 2013 and 2012 was 12,196,745, 12,196,508 and 11,745,854, respectively. For the periodyears ended May 31, 2014 and 2013, the dilution created by options and warrants has not been reflected in the per share amounts as the effect would be anti-dilutive. For the year ended May 31, 2012, the dilution created by options and warrants has been reflected in the per share amounts. MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 12. Income taxes: The Company recognized no income taxes in the consolidated statements of net (loss) income and comprehensive (loss) income, as it has been incurring losses since inception, excluding the gain on the settlement of debt during the year ended May 31, 2012, and it is not probable that future taxable profits will be available against which the accumulated tax losses can be utilized. As at May 31, 20132014 and 2012,2013, deferred tax assets have not been recognized with respect to the following items: | | | | | | | | | 2013 | | | 2012 | | | | | | | | | Non-capital loss carry-forwards | | $ | 6,961,000 | | | $ | 6,816,000 | | Scientific research and experimental development | | | 3,793,000 | | | | 3,793,000 | | Share issue costs | | | 34,000 | | | | 56,000 | | Other | | | 720,000 | | | | 771,000 | | | | | 11,508,000 | | | | 11,436,000 | |
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
| | May 31, 2014 | | | May 31, 2013 | Non-capital loss carryforwards | | $ | 7,239,000 | | | $ | 6,961,000 | Scientific research and experimental development | | | 3,793,000 | | | | 3,793,000 | Share issue costs | | | 13,000 | | | | 34,000 | Other | | | 720,000 | | | | 720,000 | | | $ | 11,765,000 | | | $ | 11,508,000 |
11. Income taxes (continued):
The reconciliation of the Canadian statutory rate to the income tax rate applied to the net (loss) income (loss) for the periodyear to the income tax recovery is as follows: | | | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | | May 31, 2013 | | | May 31, 2012 | | | May 31, 2011 | | | | | | | | | | | | | | Loss (income) for the year: | | | | | | | | | | | (Loss) income for the year: | | | | | | | | | | | Canadian | | | (1,196,746 | ) | | | (1,699,690 | ) | | | (1,537,114 | ) | | $ | (1,742,843 | ) | | $ | (1,196,746 | ) | | $ | (1,699,690 | ) | Foreign | | | (1,377,558 | ) | | | 25,085,469 | | | | (97,660 | ) | | | 103,891 | | | | (1,377,558 | ) | | | 25,085,469 | | | | | | | | | | | | | | | | | (1,638,952 | ) | | | (2,574,304 | ) | | | 23,385,779 | | | | | (2,574,304 | ) | | | 23,385,779 | | | | (1,634,774 | ) | | | | | | | | | | | | | | | | Canadian federal and provincial income taxes at 27.00% | | | | | | | | | | | | | Canadian federal and provincial income taxes at 27.00% | | | | | | | | | (2012 - 27.00% and 2011 - 27.00%) | | | 695,000 | | | | (6,314,000 | ) | | | 544,000 | | | (2013 ‑ 27.00% and 2012 ‑ 27.00%) | | | | 443,000 | | | | 695,000 | | | | (6,314,000 | ) | Permanent differences and other items | | | (24,000 | ) | | | (74,000 | ) | | | (42,000 | ) | | | (177,000 | ) | | | (268,000 | ) | | | (546,000 | ) | Gain on settlement of debt | | | - | | | | 598,000 | | | | - | | | | - | | | | - | | | | 598,000 | | Foreign tax rate in foreign jurisdiction | | | (355,000 | ) | | | 6,097,000 | | | | (120,000 | ) | | | (9,000 | ) | | | (355,000 | ) | | | 6,097,000 | | Change in unrecognized deferred tax assets | | | (72,000 | ) | | | 165,000 | | | | (838,000 | ) | | | (257,000 | ) | | | (72,000 | ) | | | 165,000 | | Other | | | (244,000 | ) | | | (472,000 | ) | | | 456,000 | | | | | | - | | | | - | | | | - | | | $ | - | | | $ | - | | | $ | - | |
The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados (2.5 percent) and the United States (38 percent) that are applicable to losses incurred by the Company's wholly-owned subsidiaries, Medicure International Inc. and Medicure Pharma Inc. At May 31, 2013,2014, the Company has the following Canadian non-capital losses available for application in future years: Expires in: | | | | 2026 | | $ | 939,620 | 2027 | | | 1,111,169 | 2029 | | | 5,288,028 | 2030 | | | 2,711,408 | 2031 | | | 1,893,976 | 2032 | | | 1,485,583 | 2033 | | | 1,081,244 | 2034 | | | 1,648,001 | | | $ | 16,159,029 |
| | | | Expires in: | | | | 2014 | | $ | 171,296 | | 2026 | | | 939,620 | | 2027 | | | 1,111,169 | | 2029 | | | 5,288,028 | | 2030 | | | 2,711,408 | | 2031 | | | 1,893,976 | | 2032 | | | 1,485,583 | | 2033 | | | 1,081,244 | | | | | | | | | $ | 14,682,324 | |
130
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 12. Income taxes (continued): Scientific research and development tax credits of $3,826,000 (2012(2013 - $3,826,000 and 20112012 - $3,826,000), which can be applied against Canadian income taxes otherwise payable, with expiry by 2028. At May 31, 2013,2014, the Company has the following United States net operating losses available for application in future years: | | | | Expires in: | | | | 2029 | | $ | 1,197,553 | | 2030 | | | 433,690 | | 2032 | | | 109,601 | | | | | 1,740,844 | |
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
11. Income taxes (continued):Expires in: | | | 2029 | | $ | 753,376 | 2030 | | | 453,518 | 2032 | | | 114,612 | | | $ | 1,321,506 |
At May 31, 2013,2014, the Company has the following Barbados losses available for application in future years: Expires in: | | | | | | | 2014 | | $ | 2,325,816 | | | 2015 | | | 10,897,107 | | | $ | 9,724,344 | | 2016 | | | 9,096,726 | | | | 9,545,788 | | 2017 | | | 24,088,248 | | | | 25,277,368 | | 2018 | | | 37,290,501 | | | | 39,131,352 | | 2019 | | | 6,892,653 | | | | 7,232,910 | | 2020 | | | 1,876,970 | | | | 1,969,627 | | 2021 | | | 96,124 | | | | 100,869 | | 2023 | | | 855,611 | | | | 1,064,305 | | | | | | | | $ | 94,046,563 | | | | $ | 93,419,756 | | |
12.13. Revenue:
During the years ended May 31, 2014, 2013 2012 and 2011,2012, the Company earned revenues as follows: | | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | May 31, 2011 | | | | | | | | | | | | | | May 31, 2014 | | | May 31, 2013 | | | May 31, 2012 | | Sale of finished products - AGGRASTAT® | | | 2,602,700 | | | | 2,881,378 | | | | 3,628,274 | | | $ | 5,050,761 | | | $ | 2,602,700 | | | $ | 2,881,378 | | Sale of unfinished products | | | - | | | | 1,915,433 | | | | - | | | | - | | | | - | | | | 1,915,433 | | | | | | | | | | | | | | | | $ | 5,050,761 | | | $ | 2,602,700 | | | $ | 4,796,811 | | | | | 2,602,700 | | | | 4,796,811 | | | | 3,628,274 | | |
On July 6, 2011, the Company entered into an agreement with Iroko Cardio, LLC ("Iroko") to advance AGGRASTAT® in each of the Company's and Iroko's respective territories. Iroko ownsowned the rights to AGGRASTAT® outside of the Company's territory. Under the terms of the agreement, the Company transferred to Iroko, AGGRASTAT® unfinished product from inventory on hand and the rights to purchase additional quantities from a third party. In turn, Iroko paid Medicure International Inc. US$1,059,000 on July 6, 2011 and agreed to pay an additional US$850,000 on or before November 1, 2011, subject to certain conditions, which were satisfied prior to November 1, 2011 and full payment was received. The Company recognized $1,915,433 of revenue during the year ended May 31, 2012 in relation to this sale. In addition, Iroko made available to the Company certain analytical methods for testing of AGGRASTAT® drug product and provided the Company the option, exercisable by the Company within one year, to obtain certain data used by Iroko to obtain changes to the approved use of AGGRASTAT® in Europe. If the Company exercised its option to obtain the data and was successful in getting changes to the approved use of AGGRASTAT® in the United States, Iroko would have been entitled to receive a royalty of up to US$3,500,000 on future AGGRASTAT® sales based on three percent of sales per year. Management has determined the value of the option received to obtain such data used by Iroko iswas not significant. On July 6, 2012, the option to obtain the data expired without the Company exercising its rights thereunder. As a result, the Company has no ongoing or potential royalty obligation in connection with this agreement.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 13.14. Finance Costs:expense:
During the years ended May 31, 2014, 2013 2012 and 2011,2012, the Company incurred finance costsexpense as follows: | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | May 31, 2011 | | | | | | | | | | | | Interest on MIOP loan | | | 396,653 | | | | 348,838 | | | | - | | Interest on Birmingham long-term debt | | | - | | | | 385,663 | | | | 3,122,364 | | Revaluation of royalty obligation | | | 72,889 | | | | (217,973 | ) | | | - | | Revaluation of warrant liability | | | (24,529 | ) | | | 24,490 | | | | (27,374 | ) | Other interest and banking fees | | | 21,412 | | | | 12,716 | | | | 5,185 | | | | | | | | | | | | | | | | | | 466,425 | | | | 553,734 | | | | 3,100,175 | |
| | | | | May 31, 2013 | | | May 31, 2012 | | Interest on MIOP loan | | $ | 327,167 | | | $ | 396,653 | | | $ | 348,838 | | Interest on Birmingham long‑term debt | | | - | | | | - | | | | 385,663 | | Change in fair value of royalty obligation | | | 1,349,372 | | | | 72,889 | | | | (217,973 | ) | Change in fair value of warrant liability | | | 43,821 | | | | (24,529 | ) | | | 24,490 | | Other interest and banking fees | | | 88,668 | | | | 21,412 | | | | 12,716 | | | | $ | 1,809,028 | | | $ | 466,425 | | | $ | 553,734 | |
During the year ended May 31, 2013, 2012 and 2011, the Company paid finance costs as follows: | | | | | | | | | | During the years ended May 31, 2014, 2013 and 2012, the Company paid finance expense as follows: | | | | | | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | Interest paid on MIOP loan | | $ | 262,500 | | | $ | 262,500 | | | $ | 208,562 | | Other interest and banking fees paid | | | 36,846 | | | | 10,917 | | | | 12,716 | | | | $ | 299,346 | | | $ | 273,417 | | | $ | 221,278 | |
| | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | May 31, 2011 | | | | | | | | | | | | Interest paid on MIOP loan | | | 262,500 | | | | 208,562 | | | | - | | Other interest and banking fees paid | | | 10,917 | | | | 12,716 | | | | 5,185 | | | | | | | | | | | | | | | | | | 273,417 | | | | 221,278 | | | | 5,185 | |
14.15. Commitments and contingencies:
(a) Commitments: As at May 31, 20132014 and in the normal course of business, the Company has obligations to make future payments representing contracts and other commitments that are known and committed. | | | | | | | Purchase | | | | | agreement | | | | | commitments | | | Purchase agreement commitments | | | | | | | | | Contractual obligations payment due by fiscal period ending May 31: | | | | | | | 2014 | | | 1,618,697 | | | 2015 | | | 715,000 | | | $ | 2,001,833 | | 2016 | | | 358,000 | | | | 382,000 | | | | | | | | | | | | | $ | 2,691,697 | | | $ | 2,383,833 | |
The Company entered into manufacturing and supply agreements, as amended, to purchase a minimum quantity of AGGRASTAT® from a third party with remaining minimum purchases totaling $2,472,000$2,273,000 or US$2,385,0002,096,000 (based on current pricing) over the term of the agreement, which expires in fiscal 2016. Effective January 1, 2014, the agreement was amended and the amounts previously due during fiscal 2014 were deferred until fiscal 2015 and now bear interest at 3.25% per annum, with monthly payments being made against this balance owing of US$45,000. These payments will be applied to future inventory purchases expected to be made during fiscal 2015 and $182,620 is currently recorded within prepaid expenses in regards to this agreement. For the year ended May 31, 2014, interest of $17,009 (2013 - nil and 2012 - nil) is recorded within finance expense relating to this agreement. MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 14.15. Commitments and contingencies (continued):
(a) Commitments (continued): Effective OctoberOn January 1, 2009,2012, the Company entered into a business and administration services agreement with Genesys Venture Inc. ("GVI"), a company controlled by the Chief Executive Officer (note 15)16), under which the Company committed to pay $25,000 per month or $300,000 per annum. On October 1, 2010, an amendment was made to the agreement thereby reducing the fees to $15,000 per month, or $180,000 per year effective November 1, 2010. On January 1, 2012, the Company entered into a new agreement with GVI under which the Company committed to pay $15,833 per month, or $190,000 per year effective January 1, 2012. The agreement was automatically renewed on January 31,1, 2013 and 2014 for an additional period of one year.year periods. Either party may terminate this agreement at any time after June 30, 2012 upon 90 days written notice.
In addition to the contractual obligations disclosed above, the Company and its wholly owned subsidiaries have ongoing research and development agreements with third parties in the ordinary course of business.
Contracts with contract research organizations ("CROs") are payable over the terms of the associated clinical trials and timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial-related activities. (b) Guarantees: The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with respect to these indemnification obligations. (c) Royalties: As a part of the Birmingham debt settlement described in note 8,9, beginning on July 18, 2011, the Company is obligated to pay a royalty to the previous lender based on future commercial AGGRASTAT® sales until 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT® sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter. The previous lender has a one-time option to switch the royalty payment from AGGRASTAT® to a royalty on MC-1 sales. Management has determined there is no value to the option to switch the royalty.royalty as the product is not commercially available for sale and development of the product is on hold. Royalties for the year ended May 31, 20132014 total $104,979$201,131 in regards to the royalty obligation (2012(2013 - $99,965$104,979 and 20112012 - nil)$99,965), with payments made in fiscal 20132014 being $165,291 (2013 - $88,105 (2012and 2012 - $84,784 and 2011 - nil)$84,784). As part of the sale of unfinished product as described in note 12,13, if the Company exercised its option to obtain AGGRASTAT® data and was successful in getting changes to the approved use of AGGRASTAT® in the United States, the Company would behave been obligated to pay a three percent royalty of up to US$3,500,000 on future AGGRASTAT® sales. On July 6, 2012, the option to obtain the data expired without the Company exercising its rights thereunder. As a result the Company has no ongoing or potential royalty obligation in connection with this agreement. The Company is obligated to pay royalties to third parties based on any future commercial sales of MC-1, aggregating up to 3.9 percent on net sales. To date, no royalties are due and/or payable. (d) Contingencies: In the normal course of business, the Company may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of these matters may change in the future.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 15.16. Related party transactions:
(a) Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company. The Board of Directors, Chief Executive Officer, President and Chief Operating Officer and beginning in fiscal 2013, the Chief Financial Officer are key management personnel. In addition to their salaries, the Company also provides non-cash benefits and participation in the Stock Option Plan. The following table details the compensation paid to key management personnel for the years ended May 31: | | | | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | May 31,2011 | | | | | | | | | | | | Salaries, fees and short-term benefits | | | 472,623 | | | | 380,250 | | | | 690,320 | | Share-based payments | | | 79,190 | | | | 182,713 | | | | 14,615 | | | | | | | | | | | | | | | | | | 551,813 | | | | 562,963 | | | | 704,935 | |
| | | | May 31, 2014 | | | | May 31, 2013 | | | | May 31, 2012 | | | Salaries, fees and short-term benefits | | $ | 781,484 | | | $ | 472,623 | | | $ | 380,250 | | | Share-based payments | | | - | | | | 79,190 | | | | 182,713 | | | | | $ | 781,484 | | | $ | 551,813 | | | $ | 562,963 | | | | | | | | | | | | | | | |
The Company has $213,569$289,869 (May 31, 20122013 - $253,310)$213,569) recorded within accounts payable and accrued liabilities relating to amounts payable to the members of the Company's Board of Directors for services provided. Beginning on February 22, 2013, these amounts began to bear interest at a rate of 5.5% per annum. For the year ended May 31, 2013,2014, $14,918 (2013 - $3,107 (2012 - nil and 20112012 - nil) was recorded within finance expense in relation to these amounts payable to the members of the Company's Board of Directors. Subsequent to May 31, 2014, on July 11, 2014 and as described in note 11(b), the Company announced that, subject to all necessary regulatory approvals, it had entered into shares for debt agreements with certain members of the Board of Directors, pursuant to which the Company will issue common shares at a deemed price of $1.98 per common share to satisfy outstanding amounts owing to the Company’s Board of Directors. Of the amounts payable to the Company's Board of Directors as at May 31, 2014, $106,490 was included in these shares for debt agreements. To date, the shares have not been issued as the Company is in the process of obtaining the necessary regulatory approval for issuance of these shares. (b) Transactions with related parties Directors and key management personnel control 19 percent of the voting shares of the Company as at May 31, 2013.2014 (May 31, 2013 - 19 percent). During the year ended May 31, 2013,2014, the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $190,000 (2012(2013 - $184,167$190,000 and 20112012 - $225,000)$184,167) for business administration services, $30,500 (2013 - $32,500 (2012and 2012 - $19,563 and 2011 - $17,671)$19,563) in rental costs and $33,735 (2013 - $26,125 (2012and 2012 - $46,275 and 2011 - nil)$46,275) for commercial support services. As described in note 13,15, the Chief Financial Officer's services are provided through a consulting agreement with GVI. In addition, accounting, payroll, human resources and information technology services are provided to the Company through the GVI agreement. Clinical research services are provided through a consulting agreement with GVI Clinical Development Solutions ("GVI CDS"), a company controlled by the Chief Executive Officer. Pharmacovigilance and safety, regulatory support, quality control and clinical support are provided to the Company through the GVI CDS agreement. During the year ended May 31, 2013,2014, the Company paid GVI CDS $125,583 (2013 - $134,696 (2012and 2012 - $146,154 and 2011 - $169,762)$146,154) for clinical research services. Research and development services are provided through a consulting agreement with CanAm Bioresearch Inc. ("CanAm"), a company controlled by a close family member of the Chief Executive Officer. During the year ended May 31, 2013,2014, the Company paid CanAm $229,732 (2013 - $467,763 (2012and 2012 - $254,493 and 2011 - $138,817)$254,493) for research and development services. In addition, during
MEDICURE INC. Notes to the yearConsolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2011, the Company received $400,000 from CanAm relating to recoveries of amounts previously provided for. This amount is recorded as a reduction in selling, general2014, 2013 and administration expenses for the year ended May 31, 2011. There were no similar recoveries during fiscal 2013 or 2012.2012 16. Related party transactions (continued): (b) Transactions with related parties (continued): These transactions were in the normal course of business and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Beginning on February 22, 2013, these amounts began to bear interest at a rate of 5.5% per annum. For the year ended May 31, 2013,2014, $36,904 (2013 - $7,366 (2012 - nil and 20112012 - nil) was recorded within finance expense in relation to these amounts payable to related parties.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years endedAs at May 31, 2013, 2012 and 2011
15. Related party transactions (continued):
(b) Transactions with related parties (continued):
As of May 31, 2013,2014, included in accounts payable and accrued liabilities is $106,216$90,262 (May 31, 20122013 - $7,862)$106,216) payable to GVI, $89,545$148,461 (May 31, 20122013 - $10,403)$89,545) payable to GVI CDS and $351,297$373,956 (May 31, 20122013 - $51,705)$351,297) payable to CanAm, which are unsecured, payable on demand and bear interest as described above.
On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually. The Company may terminate this agreement at any time upon 120 days written notice. During the year ended May 31, 2014, the Company recorded a bonus of $286,849 to its Chief Executive Officer which is recorded within selling, general and administrative expenses. As at May 31, 2013,2014, included in accounts payable and accrued liabilities is $37,750$286,849 (May 31, 20122013 - nil)$37,750) payable to the Chief Executive Officer as a result of this consulting agreement, which is unsecured, payable on demand and non-interest bearing. OnSubsequent to May 31, 2014, on July 18, 2011,11, 2014 and as described in note 11(b), the Company issued 1,333,333 commonannounced that, subject to all necessary regulatory approvals, it had entered into a shares (20,000,000 pre-consolidation common shares) of the Company in consideration for the guarantee of long-term debt by the Company'sagreement with its Chief Executive Officer, and entities controlled bypursuant to which the Company will issue common shares at a deemed price of $1.98 per common share to satisfy outstanding amounts owing to the Chief Executive Officer. TheseOf the amount payable to the Chief Executive Officer as at May 31, 2014, $286,849 was included in this shares had a valuefor debt agreement. To date, the shares have not been issued as the Company is in the process of $371,834, netobtaining the necessary regulatory approval for issuance of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method (note 8).these shares.
16.17. Expenses by nature:
Expenses incurred for the years ended May 31, 2014, 2013 2012 and 20112012 are as follows: | | | | | | | | | | | | May 31, 2013 | | | May 31,2012 | | | May 31,2011 | | | | | | | | | | | | Personnel expenses | | | | | | | | | | Salaries, fees and short-term benefits | | | 1,194,861 | | | | 1,141,944 | | | | 1,612,239 | | Share-based payments | | | 102,993 | | | | 224,445 | | | | 77,057 | | | | | | | | | | | | | | | Salaries, fees and short-term benefits | | | 1,297,854 | | | | 1,366,389 | | | | 1,689,296 | | Amortization and derecognition | | | 599,115 | | | | 1,093,560 | | | | 1,179,166 | | Research and development | | | 1,374,391 | | | | 538,076 | | | | 197,911 | | Manufacturing | | | 117,071 | | | | 130,957 | | | | - | | Inventory material costs | | | 131,355 | | | | 227,515 | | | | 380,572 | | Write-off of inventory | | | 19,639 | | | | 109,194 | | | | 292,950 | | Medical affairs | | | 60,831 | | | | 38,971 | | | | 150,834 | | Administration | | | 302,723 | | | | 291,175 | | | | (87,389 | ) | Selling and logistics | | | 619,211 | | | | 516,872 | | | | 470,821 | | Professional fees | | | 167,025 | | | | 474,786 | | | | 596,191 | | | | | | | | | | | | | | | | | | 4,689,215 | | | | 4,787,495 | | | | 4,870,352 | |
| | | May 31, 2014 | | | May 31, 2013 | | | May 31, 2012 | | | Personnel expenses | | | | | | | | | | | Salaries, fees and short-term benefits | | $ | 1,584,724 | | | $ | 1,194,861 | | | $ | 1,141,944 | | | Share-based payments | | | - | | | | 102,993 | | | | 224,445 | | | Salaries, fees and short‑term benefits | | | 1,584,724 | | | | 1,297,854 | | | | 1,366,389 | | | Amortization and derecognition | | | 561,269 | | | | 599,115 | | | | 1,093,560 | | | Research and development | | | 401,311 | | | | 1,374,391 | | | | 538,076 | | | Manufacturing | | | 127,953 | | | | 117,071 | | | | 130,957 | | | Inventory material costs | | | 300,378 | | | | 131,355 | | | | 227,515 | | | Write‑off of inventory | | | 22,209 | | | | 19,639 | | | | 109,194 | | | Medical affairs | | | 136,996 | | | | 60,831 | | | | 38,971 | | | Administration | | | 618,022 | | | | 302,723 | | | | 291,175 | | | Selling and logistics | | | 780,748 | | | | 619,211 | | | | 516,872 | | | Professional fees | | | 352,734 | | | | 167,025 | | | | 474,786 | | | | | $ | 4,886,344 | | | $ | 4,689,215 | | | $ | 4,787,495 | |
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 17.18. Financial instruments:
(a) Financial assets and liabilities: Set out below is a comparison by class of the carrying amounts and fair value of the Company's financial instruments that are carried in the consolidated financial statements:
| | | Carrying Amount May 31, 2014 | | | Fair Value May 31, 2014 | | | Carrying Amount May 31, 2013 | | | Fair Value May 31, 2013 | | | | | | | | | | | | | | | | | Financial Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other financial liabilities | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 371,350 | | | $ | 371,350 | | | $ | 144,417 | | | $ | 144,417 | | | Current portion of long‑term debt | | | - | | | | - | | | | 1,271,775 | | | | 1,271,775 | | | Long‑term debt | | | 4,847,279 | | | | 4,847,279 | | | | 3,510,119 | | | | 3,510,119 | | | Royalty obligation | | | 1,461,572 | | | | 1,461,572 | | | | 516,066 | | | | 516,066 | | | Other long‑term liability | | | 152,778 | | | | 152,778 | | | | 167,261 | | | | 167,261 | |
Included in accounts payable and accrued liabilities at May 31, 2014 is the fair value of warrants denominated in a foreign currency (Level 2) of $54,344 (May 31, 2013 - $10,524) and the current portion of the royalty obligation (Level 3) of $317,006 (May 31, 2013 - $133,893). The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies. The carrying values of current monetary assets and liabilities approximate their fair values due to their relatively short periods to maturity. The fair value of the Company's long-term debt is estimated to approximate its carrying value based on the terms of the long-term debt. The royalty obligation and other long-term liability are carried at fair value (level 3). IFRS 13 Fair Value Measurement, establishes a fair value hierarchy that reflects the significance of the inputs used in measuring fair value. The fair value hierarchy has the following levels: | · | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| · | Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; |
| · | Level 3 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 18. Financial instruments (continued): (a) Financial assets and liabilities (continued): The fair value hierarchy of financial instruments measured at fair value on the consolidated statements of financial position as at May 31, 2014 is as follows:
| | | | Level 1 | | | | Level 2 | | | | Level 3 | | | Financial Liabilities | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | - | | | $ | 54,344 | | | $ | 317,006 | | | Long‑term debt | | | - | | | | 4,847,279 | | | | - | | | Royalty obligation | | | - | | | | - | | | | 1,461,572 | | | Other long‑term liability | | | - | | | | - | | | | 152,778 | |
Included in accounts payable and accrued liabilities at May 31, 2014 is the fair value of warrants denominated in a foreign currency (Level 2) of $54,344 and the current portion of the royalty obligation (Level 3) of $317,006. The fair value hierarchy of financial instruments measured at fair value on the consolidated statements of financial position as at May 31, 2013 is as follows: | | | | Level 1 | | | | Level 2 | | | | Level 3 | | | Financial Liabilities | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | - | | | $ | 10,524 | | | $ | 133,893 | | | Current portion of long‑term debt | | | - | | | | 1,271,775 | | | | - | | | Long‑term debt | | | - | | | | 3,510,119 | | | | - | | | Royalty obligation | | | - | | | | - | | | | 516,066 | | | Other long‑term liability | | | - | | | | - | | | | 167,261 | |
Included in accounts payable and accrued liabilities at May 31, 2013 is the fair value of warrants denominated in a foreign currency (Level 2) of $10,524 and the current portion of the royalty obligation (Level 3) of $133,893. Royalty obligation: Estimating fair value requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenue from AGGRASTAT® sales and an appropriate discount rate and making assumptions about them. If the expected revenue from AGGRASTAT® sales were to change by 10%, then the royalty obligation liability recorded at May 31, 2014 would change by approximately $236,000. If the discount rate used in calculating the fair value.value of the royalty obligation of 20% were to change by one percent, the royalty obligation liability recorded at May 31, 2014 would change by approximately $50,000. Other long-term liability: Estimating fair value requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining the time frame when certain AGGRASTAT® sales targets are expected to be met and an appropriate discount rate and making assumptions about them. If the time frame when certain AGGRASTAT® sales targets are expected to be met were to change by one year, the other long-term liability recorded at May 31, 2014 would change by approximately $31,000. If the discount rate used in calculating the fair value of the other long-term liability of 20% were to change by one percent, the other long-term liability recorded at May 31, 2014 would change by approximately $2,000.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 18. Financial instruments (continued): (a) Financial assets and liabilities (continued): For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. During the years ended May 31, 2014 and 2013, there were no transfers between Level 1 and Level 2 fair value measurements. (b) Risks arising from financial instruments and risk management: The Company's activities expose it to a variety of financial risks; market risk (including foreign exchange and interest rate risks), credit risk and liquidity risk. Risk management is the responsibility of the Company, which identifies, evaluates and, where appropriate, mitigates financial risks. (i) Market risk: (a) Foreign exchange risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risks primarily due to its U.S dollar denominated cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and royalty obligation. The Company has not entered into any foreign exchange hedging contracts. The Company is exposed to U.S. dollar currency risk through the following U.S. denominated financial assets and liabilities: | | | | | | | (Expressed in USD) | | May 31, 2013 | | | May 31,2012 | | | | | | | | | Cash and cash equivalents | | $ | 115,830 | | | $ | 988,734 | | Accounts receivable | | | 407,589 | | | | 376,796 | | Accounts payable and accrued liabilities | | | (1,189,421 | ) | | | (700,340 | ) | Royalty obligation | | | (497,749 | ) | | | (521,124 | ) | | | | | | | | | | | | $ | (1,163,751 | ) | | $ | 144,066 | |
| (Expressed in USD) | | | May 31, 2014 | | | | May 31, 2013 | | | Cash and cash equivalents | | $ | 177,548 | | | $ | 115,830 | | | Accounts receivable | | | 856,716 | | | | 407,589 | | | Accounts payable and accrued liabilities | | | (1,357,685 | ) | | | (1,189,421 | ) | | Royalty obligation | | | (1,348,065 | ) | | | (497,749 | ) | | | | $ | (1,671,486 | ) | | $ | (1,163,751 | ) |
Based on the above net exposures as at May 31, 2013,2014, assuming that all other variables remain constant, a five percent appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a corresponding increase or decrease on the Company's net (loss) income (loss) of approximately $58,000 (2012$84,000 (2013 - $7,000)$58,000). (b) Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk arising primarily from fluctuations in interest rates on its cash and cash equivalents, long-term debt and other long-term liability. An increase or decrease in interest rates of one percent during the year ended May 31, 2013,2014, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net (loss) income (loss) of approximately $6,000 (2012$2,000 (2013 - $9,000)$6,000). An increase in the crown company borrowing rate of one percent during the year ended May 31, 2013,2014, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net (loss) income (loss) of approximately $51,000 (2012$52,000 (2013 - $44,000)$51,000).
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 2012 and 20112012 17.18. Financial instruments (continued):
(b) Risks arising from financial instruments and risk management (continued):management: (ii) Credit risk: Credit risk is the risk of financial loss to the Company if a partner or counterparty to a financial instrument fails to meet its contractual obligation and arises principally from the Company’s cash and cash equivalents, and accounts receivable. The carrying amounts of the financial assets represents the maximum credit exposure. The Company limits its exposure to credit risk on cash and cash equivalents by placing these financial instruments with high-credit quality financial institutions. The Company is subject to a concentration of credit risk related to its accounts receivable as amounts are owing primarily from four customers. The Company has historically had no impaired accounts receivable. At May 31, 2013,2014, approximately 10% of the outstanding accounts receivable were withinoutside of the normal payment terms and theterms. The Company hadhas recorded no allowance for doubtful accounts.accounts as the Company believes these receivables are not impaired. (iii) Liquidity risk: Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities and to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due and to fund future operations. The majority of the Company’s accounts payable and accrued liabilities are due within the current operating period. For long-term debt repayments see note 8. (c) Capital management: The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern (note 2c) and to provide capital to pursue the development and commercialization of its products. In the management of capital, the Company includes cash and cash equivalents, long-term debt, capital stock, stock options, warrants and contributed surplus.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in lightorder to continue the business of economic conditions.the Company. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share and warrant issuances, granting of stock options, the issuance of debt or by undertaking other activities as deemed appropriate under the specific circumstance. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern (note 2(c)) and to provide capital to pursue the development and commercialization of its products. In the management of capital, the Company includes cash and cash equivalents, long-term debt, capital stock, stock options, warrants and contributed surplus. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or new debt. At this stage of the Company's development, in order to maximize its current business activities, the Company does not pay out dividends. Management reviews its capital management approach on an on-going basis and believes that this approach, given the relative size of the Company, is reasonable. The Company’s overall strategy with respect to capital risk management remains unchanged for the year ended May 31, 2013.2014.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 18.19. Determination of fair values:
A number of the Company's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following models. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Intangible assets The fair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
18. Determination of fair values (continued):
(b) Share-based payment transactions The fair value of the employee share options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. (c) Warrant liability The warrant liability is measured by reference torecorded at the fair value of the warrants at the date at which they were granted and is subsequently revalued at each reporting date. Estimating fair value for these warrants required determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them. (d) Royalty obligation The royalty obligation is measured by reference torecorded at its fair value at the date at which the liability was incurred and subsequently revalued at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenuesrevenue from AGGRASTAT® sales and an appropriate discount rate and making assumptions about them. (e) Other long-term liability The other long-term liability is measured by reference torecorded at its fair value at the date at which the liability was incurred and subsequently revalued at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining the time frame when certain AGGRASTAT®sales targets are expected to be met and an appropriate discount rate and making assumptions about them.
MEDICURE INC. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) Years ended May 31, 2014, 2013 and 2012 19.20. Segmented information:
The Company operates in one business segment, the biopharmaceutical industry. Substantially all of the Company’s assets and operations are located in Canada, the United States and Barbados. During the year ended May 31, 2013,2014, 100 percent of revenuesrevenue from the sale of finished product werewas generated from sales of AGGRASTAT® in the United States, which was to ninesix customers. Customer A accounted for 40 percent, Customer B accounted for 26 percent, Customer C accounted for 2425 percent, Customer D accounted for nineeight percent and the remaining fivetwo customers accounted for one percent of revenues.revenue. Additionally during fiscal 2012, the Company recorded a sale of unfinished product to a European pharmaceutical company as described in note 12.13.
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended May 31, 2013, 2012 and 2011
19. Segmented information (continued):
Property and equipment and intangible assets are located in the following countries: | | | | | | | | | May 31, 2013 | | | May 31, 2012 | | | | | | | | | Canada | | | 6,057 | | | | 9,256 | | Barbados | | | 1,910,069 | | | | 2,500,928 | | United States | | | 16,178 | | | | 21,489 | | | | | | | | | | | | | | 1,932,304 | | | | 2,531,673 | |
| | | | May 31, 2014 | | | | May 31, 2013 | | | Canada | | $ | 7,993 | | | $ | 6,057 | | | Barbados | | | 1,433,158 | | | | 1,910,069 | | | United States | | | 12,688 | | | | 16,178 | | | | | $ | 1,453,839 | | | $ | 1,932,304 | |
21. Subsequent event Subsequent to May 31, 2014, on July 3, 2014, the Company and its newly formed and wholly owned subsidiary, Medicure U.S.A. Inc. ("Medicure USA"), entered into an arrangement whereby they have acquired a minority interest in a pharmaceutical manufacturing business known as Apicore, along with an option to acquire all of the remaining issued shares within the next three years. Specifically, Medicure and Medicure USA have acquired a 6.09% equity interest (5.33% on a fully-diluted basis) in two newly formed holding companies of which Apicore LLC and Apicore US LLC will be wholly owned operating subsidiaries. The Company's equity interest and certain other rights, including the option rights, were obtained by the Company for services provided in its lead role in structuring a US$22.5 million majority interest purchase and financing of Apicore. There was no cash outflow in connection with the acquisition of the minority interest in Apicore. ITEM 19. EXHIBITS
Number Exhibit
1. Articles of Incorporation and Bylaws:
1.1 Medicure’s Articles of Incorporation dated September 15, 1997 [1];
1.2 Lariat’s Articles of Incorporation dated June 3, 1997 [1];
ITEM 19. EXHIBITS | | | | Number | Exhibit | | | 1 | Articles of Incorporation and Bylaws: | | | 1.1 | Medicure’s Articles of Incorporation dated September 15, 1997 [1]; | 1.2 | Lariat’s Articles of Incorporation dated June 3, 1997 [1]; | 1.3 | Medicure’s Certificate of Continuance from Manitoba to Alberta dated December 3, 1999 [1]; |
1.4 Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1];
1.4 | Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1]; | 1.5 | Medicure’s Certificate of Continuance from Alberta to Canada dated February 23, 2000 [1]; |
| 1.6 | Amended Certificate of Continuance and Articles of Continuance dated February 20, 2003 [3]; |
1.7 Bylaws [5];
1.8 Bylaw No. 2 **
1.9 Bylaw No. 1A
1.7Certificate of Amendment dated November 1, 2012 ** | | Bylaw No. 1A ** | | 4. | 4 | Material Contracts and Agreements:Agreements: | | | 4.1 | Transfer Agency Agreement between Montreal Trust Company of Canada and the Company dated as of January 26, 2000, whereby Montreal Trust Company of Canada agreed to act as transfer agent and registrar with respect to the Shares [1]; |
| | 4.2 | Medicure International Licensing Agreement between the Company and Medicure International Inc. dated June 1, 2000, wherein the Company granted Medicure International, Inc. a license with regard to certain intellectual property [1]; |
| | 4.3 | Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. dated June 1, 2000, wherein CanAm Bioresearch Inc. agreed to conduct research and development activities for Medicure International, Inc. [1]; |
| | 4.4 | Amendment to the Consulting Services Agreement dated February 1, 2002 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [2]; |
| | 4.5 | Stock Option Plan approved February 4, 2002 [3]; |
| | 4.5 | Amendment dated March 1, 2002 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5]; |
| | 4.7 | Amendment dated August 7, 2003 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [3]; |
| | 4.8 | Amendment to the Consulting Services Agreement dated October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [4]; |
| | 4.9 | Employment Agreement with Dawson Reimer dated October 1, 2001 [4]; |
| 4.10 | Amendment to Employment Agreement dated April 5, 2005 between A.D. Friesen Enterprises Ltd. and the Company [5]; |
| | 4.11 | Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Company [5]; |
| | 4.12 | Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Company [5]; |
| | 4.13 | Amendment dated July 8, 2005 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5]; |
| | 4.14 | Amendment to Employment Agreement dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Company [6]; |
| | 4.15 | Amendment to Development Agreement dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International, Inc. dated July 4, 2006 [6]; |
| | 4.16 | Amended Stock Option Plan approved October 25, 2005 [6]; |
| | 4.17 | Amendment to Employment Agreement dated October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Company [7]; |
| | 4.18 | Amended License Agreement between Medicure and the University of Manitoba dated November 24, 2006, originally dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [7]; |
| | 4.19 | Amendment to Employment Agreement dated October 1, 2007 between A.D. Friesen Enterprises Ltd. and the Company [8]; |
| | 4.20 | Amended Stock Option Plan approved October 2, 2007 as filed on October 9, 2007 Form S-8 #333-146574 |
| | 4.21 | Employment Agreement with Dwayne Henley June 10, 2008 [8] |
| | 4.22 | Debt financing agreement between Birmingham Associates Ltd. and the Company dated September 17, 2007 [8]. |
| | 4.23 | Business and administration services agreement between Genesys Venture Inc. and the Company dated October 1, 2010. |
| | 4.24 | Master services agreement between GVI Clinical Development Solutions Inc. and the Company dated June 9, 2009. |
| | 4.25 | Debt settlement agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. |
| | 4.26 | Royalty and guarantee agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. |
| 4.27 | Business and administration services agreement between Genesys Venture Inc. and the Company dated January 1, 2012. |
| | | Stock Option Plan approved November 30, 2012 ** | | | | | 11. | Code of Ethics [4]. |
| | | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **. |
| | | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **. |
| | | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **. | | | | [1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001. | | | | [2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002. | | | | [3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003. | | | | [4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004. | | | | [5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 19, 2005. | | | | [6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 10, 2006. | | | | [7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 22, 2007. | | | | [8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2008. | | | | [9] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 2, 2009. | | | | [10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2010. | | | | [11] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2011. | | | | [12] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 19, 2012. |
[1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001.
[2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002.
[3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003.
[4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004.
[5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 19, 2005.
[6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 10, 2006.
[7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 22, 2007.
[8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2008.
[9] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 2, 2009.
[10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2010.
[11] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2011.
[12] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 19, 2012.
23.1 Consent of Independent Registered Pubic Accounting Firm ** | [12] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 27, 2013. | | | | Consent of Independent Registered Pubic Accounting Firm ** |
** Filed Herewith
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 27, 201310, 2014
ON BEHALF OF THE CORPORATION, MEDICURE INC.
per:
/s/ Albert Friesen _____________________________________________________________________________ Albert D. Friesen, Ph.D.
Chairman, & CEO
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