Avricore Health Inc.
(former VANC Pharmaceuticals Inc.)
Unaudited Condensed Interim
Consolidated Financial Statements
For the three months ended March 31, 2019
Notice to Reader
Management has prepared the unaudited condensed interim consolidated financial statements for VANC Pharmaceuticals Inc. (the Company) in accordance with National Instrument 51-102 released by the Canadian Securities Administration. The Company discloses that its auditors have not reviewed the unaudited consolidated financial statements for the period ended March 31, 2019.
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(Expressed in Canadian Dollars)
| Note | March 31, 2019 | December 31, 2018 |
|
| $ | $ |
ASSETS |
|
|
|
|
|
|
|
Current Assets |
|
|
|
Cash and cash equivalents |
| 122,086 | 84,442 |
Accounts receivable | 4 | 128,424 | 280,280 |
Prepaid expenses | 5 | 227,616 | 286,246 |
Inventories | 6 | 108,790 | 102,499 |
|
| 586,916 | 753,467 |
|
|
|
|
Equipment | 7 | 19,431 | 21,005 |
Intangible assets | 8 | 363,842 | 425,733 |
Total Assets |
| 970,189 | 1,200,205 |
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
Accounts payable and accrued liabilities | 9 | 325,306 | 314,239 |
|
| 325,306 | 314,239 |
SHAREHOLDERS’ EQUITY |
|
|
|
Share capital | 10 | 21,332,363 | 20,783,372 |
Shares to be issued | 3 | - | 211,167 |
Reserves | 10 | 5,126,068 | 5,119,838 |
Deficit |
| (25,813,548) | (25,228,411) |
|
| 644,883 | 885,966 |
Total Liabilities and Shareholders’ Equity |
| 970,189 | 1,200,205 |
|
|
|
|
Commitments (Note 16)
Segmented information (Note 17)
Subsequent events (Note 20)
Approved and authorized on behalf of the Board of Directors on May 30, 2019.
“Sukhwinder Bob Rai” “David Hall”
Sukhwinder Bob Rai, DirectorDavid Hall, Chairman
The accompanying notes are an integral part of these financial statements
Page2
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
| Note | 2019 | 2018 |
|
|
|
|
|
| $ | $ |
Revenue |
|
|
|
Sales |
| 50,302 | 309,788 |
Marketing, promotional incentives |
| - | (154,696) |
Net sales |
| 50,302 | 155,092 |
|
|
|
|
Cost of Sales |
| 37,872 | 57,163 |
|
|
|
|
Gross profit (loss) |
| 12,430 | 97,929 |
|
|
|
|
Expenses |
|
|
|
Amortization |
| 63,466 | 101,686 |
Consulting |
| 117,000 | 18,000 |
General and administrative | 13, 14 | 115,231 | 173,438 |
Product registration and development | 11 | 4,901 | 72,130 |
Professional fees | 14 | 27,673 | 34,239 |
Selling and marketing | 12 | 241,934 | 138,004 |
Share-based compensation | 10, 14 | 28,904 | 226,932 |
|
| 599,109 | 764,429 |
Other income (expense) |
|
|
|
Finance costs |
| - | (342) |
Write-down of inventories | 6 | (363) | (22,455) |
Other income |
| 1,905 | 5,330 |
|
|
|
|
Net loss and comprehensive loss for the year |
| (585,137) | (683,967) |
|
|
|
|
Basic and Diluted Loss Per Share |
| (0.01) | (0.02) |
Weighted Average Number of Common Shares Outstanding |
| 41,665,161 | 28,334,734 |
|
|
|
|
Segmented information (Note 17)
The accompanying notes are an integral part of these financial statements
Page3
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Condensed Interim Consolidated Statements of Changes in Equity
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
| Number of Shares | Share Capital | Shares to be Issued | Warrant Reserve | Option Reserve |
Deficit |
Total |
|
| $ | $ | $ | $ | $ | $ |
|
|
|
|
|
|
|
|
Balance, December 31, 2017 | 27,860,623 | 18,340,491 | 973,333 | 221,388 | 4,054,494 | (21,091,609) | 2,498,097 |
Exercise of warrants | 591,500 | 126,510 | - | (8,210) | - | - | 118,300 |
Share-based compensation | - | - | - | - | 226,932 | - | 226,932 |
Net loss | - | - | - | - | - | (683,967) | (683,967) |
Balance, March 31, 2018 | 28,452,123 | 18,467,001 | 973,333 | 213,178 | 4,281,426 | (21,775,576) | 2,159,362 |
Balance, December 31, 2018 | 40,103,665 | 20,783,371 | 211,167 | 733,387 | 4,386,452 | (25,228,411) | 885,966 |
Shares issued for cash | 4,206,435 | 294,450 | - | - | - | - | 294,450 |
Exercise of warrants | 73,928 | 43,375 | - | (22,675) | - | - | 20,700 |
Shares to be issued | 1,236,191 | 211,167 | (211,167) | - | - | - | - |
Share-based compensation | - | - | - | - | 28,904 | - | 28,904 |
Net loss | - | - | - | - | - | (585,137) | (585,137) |
Balance, March 31, 2019 | 45,620,219 | 21,332,363 | - | 710,712 | 4,415,356 | (25,813,548) | 644,883 |
The accompanying notes are an integral part of these financial statements
Page4
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
| 2019 | 2018 |
| $ | $ |
Operating Activities |
|
|
Net loss | (585,137) | (683,967) |
Adjustment for the non-cash items: |
|
|
Amortization | 63,466 | 101,686 |
Share-based payments | 28,904 | 226,932 |
Write down of inventories | - | 22,455 |
|
|
|
Change in working capital items: |
|
|
Accounts receivable | 151,856 | (28,150) |
Prepaid expenses and deposits | 58,630 | 64,270 |
Inventories | (6,291) | (76,707) |
Accounts payable and accrued liabilities | 11,067 | (44,788) |
Net cash used in operating activities | (277,505) | (418,269) |
|
|
|
Investing Activities |
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|
Acquisition net of cash received | - | (50,000) |
Net cash used in investing activities | - | (50,000) |
|
|
|
Financing Activities |
|
|
Proceeds from issuance of shares, net | 294,450 | - |
Proceeds from exercise of warrants and options | 20,700 | 118,300 |
Net cash provided by financing activities | 315,150 | 118,300 |
|
|
|
Increase (Decrease) in Cash | 37,645 | (349,969) |
Cash and Cash Equivalents, Beginning of year | 84,441 | 559,733 |
Cash and Cash Equivalents (Bank Overdraft), End of period | 122,086 | 209,764 |
|
|
|
Cash and Cash Equivalents Consist of: |
|
|
Cash | 122,086 | 193,208 |
Guaranteed Investment Certificates | - | 16,556 |
Cash and cash equivalents | 122,086 | 209,764 |
Supplemental cash flow information (Note 18)
The accompanying notes are an integral part of these financial statements
Page5
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
1.NATURE OF OPERATIONS AND GOING CONCERN
Avricore Health Inc. (former VANC Pharmaceuticals Inc.) (the “Company”) was incorporated under theCompany Act of British Columbia on May 30, 2000. The Company’s common shares trade on the TSX Venture Exchange (the “Exchange”) under symbol “AVCR” and are quoted on the OTCIQ Market as “NUVPF”. The Company’s registered office is at 810 – 789 West Pender Street, Vancouver, British Columbia, V6C 1H2.
The Company’s operations consist of the marketing and distribution of generic and over-the-counter (“OTC”) pharmaceuticals and point of care technology and point of care tests.
The consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operations for the foreseeable future and be able to realize assets and satisfy liabilities in the normal course of business. The Company has always experienced operating losses and negative operating cash flows. Operations have been funded by the issuance of share capital. These conditions may cast substantial doubt on the Company’s ability to continue as a going concern.
The continuation of the Company as a going concern is dependent upon its ability to generate revenue from its operations, or raise additional financing to cover ongoing cash requirements.
The condensed interim consolidated financial statements do not reflect any adjustments, which could be material, to the carrying values of assets and liabilities, which may be required should the Company be unable to continue as a going concern.
| Three months ended March 31, 2019 | Year ended December 31, 2018 |
| $ | $ |
Deficit | (25,813,548) | (25,228,411) |
Working capital | 261,610 | 439,228 |
Economic dependence
The Company currently has licensing arrangements with three manufacturers to purchase, distribute and commercialize their drug molecules in Canada. The Company derives the majorityof its gross sales from two distributors for the three months ended March 31, 2019. The ability of the Company to sustain operations is partially dependent on the continued operation of these distributors. The launch of new OTC products diversifies the Company’s portfolio and reduces the risk of the economic dependence.
2.BASIS OF PRESENTATION
a)Statement of Compliance and basis of presentation
The interim consolidated financial statements for the three months ended March 31, 2019 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), IAS 34 Interim Financial Reporting. The interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2018. The accounting policies followed in these interim financial statements are consistent with those applied in the Company’s most recent annual financial statements for the year ended December 31, 2018.
Page6
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.BASIS OF PRESENTATION (continued)
b)Basis of presentation
The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The significant accounting policies are presented in Note 3 of the audited consolidated financial statements for the year ended December 31, 2018 and have been consistently applied in each of the periods presented. The consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency, unless other indicated.
The preparation of consolidated financial statements in accordance with IFRS requires the Company’s management to make estimates, judgments and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3(m) of the audited consolidated financial statements for the year ended December 31, 2018. Actual results might differ from these estimates. The Company’s management reviews these estimates and underlying judgments on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the year in which the estimates are revised.
c)Basis of consolidation
Consolidated financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of comprehensive loss from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control exists.
These consolidated financial statements include the accounts of the Company and its controlled wholly owned subsidiaries, Vanc Marine Pharmaceuticals Inc. and HealthTab Inc.
3.ACQUISITION
On December 28, 2017, the Company completed the acquisition of all the common shares of HealthTab Inc. (“HealthTab”). HealthTab’s primary asset is intellectual property and certain trademarks and web domains related to the design of the HealthTab system, being a lab-accurate, point of care testing platform. Under the share purchase agreement, the consideration paid by the Company is as follows:
Cash payment of $100,000 upon signing of the share purchase agreement (paid);
Cash payment of $100,000 in six equal monthly instalments after the closing date (paid);
Issue 880,000 common shares no later than 125 days after the closing date (issued) (Notes 11);
Issue 880,000 common shares no later than 245 days after the closing date (issued);
Issue 906,667 common shares no later than 365 days after the closing date (issued);
Issue common shares equal to the higher of $100,000 or 5% of net sales related to HealthTab for the year ended December 2018 by January 31, 2019 (issued); and
Issue common shares equal to the higher of $100,000 or 5% of net sales related to HealthTab for the year ended December 2019 by January 31, 2020
This acquisition has been accounted for as an acquisition of assets and liabilities as HealthTab did not meet the definition of a business under IFRS 3, Business Combinations.
Page7
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.ACQUISITION
The shares to be issued have been valued based on the Company’s share price on the acquisition. Due to the uncertainty associated with future revenue derived from HealthTab, the Company has estimated the 2019 and 2020 share issuances to be $100,000 each.
The aggregate fair values of assets acquired and liabilities assumed were as follows on the acquisition date, December 28, 2017:
|
| $ |
Purchase consideration: |
|
|
Cash |
| 100,000 |
Asset acquisition liability |
| 100,000 |
Shares to be issued |
| 973,333 |
Acquisition costs |
| 28,806 |
|
| 1,202,139 |
|
|
|
Net assets acquired: |
|
|
Cash |
| 38 |
Equipment |
| 64,608 |
Intangible assets |
| 1,140,283 |
Accounts payable and accrued liabilities |
| (2,790) |
Total net assets acquired |
| 1,202,139 |
4.ACCOUNTS RECEIVABLE
The Company’s accounts receivable consists of the following:
| March 31, 2019 | December 31, 2018 |
| $ | $ |
Trade receivables | 106,375 | 193,455 |
GST receivable | 22,049 | 86,815 |
Employee advances | - | - |
| 128,424 | 280,280 |
5.PREPAID EXPENSES AND DEPOSITS
The closing balance consists of prepaid expense to vendors of $194,121 (December 31, 2018 – $218,951), security deposit for office of $8,420 (December 31, 2018 - $8,420), prepaid business insurance of $13,075 (December 31, 2018 - $7,396) and security deposits of $12,000 (December 31, 2018 - $Nil).
6.INVENTORIES
At March 31, 2019 and December 31, 2018, the Company’s inventory consists of the following:
| March 31, 2019 | December 31, 2018 |
| $ | $ |
Finished goods | 108,790 | 102,499 |
| 108,790 | 102,499 |
Inventories expensed to cost of sales during the three months ended March 31, 2019 are $26,638 (2018 - $54,509). During the three months ended March 31, 2019, the Company recorded a write-down of
Page8
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
inventory of $363 (2018 - $22,455).
7.EQUIPMENT
| Office Furniture and Equipment | Computer equipment and Systems | Laboratory Equipment | Leasehold Improvements | Total |
Cost | $ | $ | $ | $ | $ |
Balance, December 31, 2017 | 7,491 | 66,870 | 38,896 | 24,182 | 137,439 |
Additions | 5,000 | - | - | - | 5,000 |
Write off | (1,637) | (62,972) | - | - | (64,609) |
Balance, December 31, 2018 and March 31, 2019 | 10,854 | 3,898 | 38,896 | 24,182 | 77,830 |
|
|
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|
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|
Accumulated Amortization |
|
|
|
|
|
Balance, December 31, 2017 | 1,612 | 2,130 | 25,342 | 18,634 | 47,718 |
Amortization | 3,264 | 19,422 | 4,067 | 1,849 | 28,602 |
Write off | (495) | (19,000) | - | - | (19,495) |
Balance, December 31, 2018 | 4,381 | 2,552 | 29,409 | 20,483 | 56,825 |
Amortization | 485 | 100 | 712 | 277 | 1,574 |
Balance, March 31, 2019 | 4,866 | 2,652 | 30,121 | 20,760 | 58,399 |
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Carrying value |
|
|
|
|
|
As at December 31, 2017 | 5,879 | 64,740 | 13,554 | 5,548 | 89,721 |
As at December 31, 2018 | 6,473 | 1,346 | 9,487 | 3,699 | 21,005 |
As at March 31, 2019 | 5,988 | 1,246 | 8,775 | 3,422 | 19,431 |
8.INTANGIBLE ASSETS
| HealthTab | Corozon | Emerald | Total |
Cost | $ | $ | $ | $ |
Balance, December 31, 2017 | 1,140,283 | - | - | 1,140,283 |
Acquired assets | - | 231,818 | 510,878 | 742,696 |
Write down | (1,140,282) | (231,817) | - | (1,372,099) |
Balance, December 31, 2018 and March 31, 2019 | 1 | 1 | 510,878 | 510,880 |
|
|
|
|
|
Accumulated Amortization |
|
|
|
|
Balance, December 31, 2017 | 4,166 | - | - | 4,166 |
Amortization | 380,093 | 41,667 | 85,147 | 506,907 |
Write down | (384,259) | (41,667) | - | (425,926) |
Balance, December 31, 2018 | - | - | 85,147 | 85,147 |
Amortization | - | - | 61,891 | 61,891 |
Balance, March 31, 2019 | - | - | 147,038 | 147,038 |
|
|
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|
|
Carrying value |
|
|
|
|
As at December 31, 2017 | 1,136,117 | - | - | 1,136,117 |
As at December 31, 2018 | 1 | 1 | 425,731 | 425,733 |
As at March 31, 2019 | 1 | 1 | 363,840 | 363,842 |
Page9
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
8.INTANGIBLE ASSETS
On April 11, 2018, the Company entered into an asset purchase agreement with Corozon Consulting Corporation for the acquisition of the Corozon Platform. The Corozon Platform consists of two complementary modules: Corozon Academy which offers practical professional education to community pharmacists and Corozon Hardware which is an e-commerce portal that allows pharmacists to order point-of-care diagnostic devices and supplies. For consideration, the Company will pay twelve monthly instalments totaling $50,000 (paid) and issue 909,090 common shares valued at $200,000 (issued) (Notes 11).
On April 15, 2018, the Company entered into a supply and distribution agreement with Emerald Health Therapeutics, Inc. (“Emerald”) to sell and distribute certain proprietary endocannabinoid-supporting products in Canada to licensed pharmacies. For consideration, the Company issued 3,030,303 warrants to Emerald valued at $510,878 to acquire 3,030,303 common shares of the Company at a price of $0.33 per share until April 15, 2020 (issued) (Notes 11).
During the year ended December 31, 2018 the Company recognized impairment of the intangible assets related to HealthTab acquisition (note 3) and Corozon Platform acquisition in the amount of $964,354. The impairment can be reversed in future periods when there is a change in the estimates used to determine the asset's recoverable amount.
9.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company’s accounts payable and accrued costs consist of the following:
| March 31, 2019 | December 31, 2018 |
| $ | $ |
Trade accounts payable | 236,532 | 226,575 |
Accrued liabilities | 88,774 | 87,664 |
| 325,306 | 314,239 |
During the year ended December 31, 2018, the Company issued 233,450 common shares to Lampyon Canada Inc. valued at $43,915 in consideration for services rendered pursuant to the terms of a service agreement entered into on April 10, 2018 During the three months ended March 31, 2019 the Company issued 125,081 share valued at $11,167 for the same services.
10.SHAREHOLDERS’ EQUITY
Authorized share capital
Authorized: Unlimited number of common shares without par value.
Issued share capital
During the three months ended March 31, 2019:
The Company issued 73,928 common shares for exercise of 73,928 stock options for gross proceeds of $20,700. $22,675 was reclassified from reserves to share capital on exercise of warrants.
The Company issued 125,081 common shares to Lampyon valued at $11,167 in consideration for services rendered pursuant to the terms of a service agreement entered into on April 10, 2018.
Page10
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
10.SHAREHOLDERS’ EQUITY (continued)
The Company issued 1,111,110 common shares valued at $200,000 related to the acquisition of HealthTab (Note 3).
During the year ended December 31, 2018:
The Company issued 2,666,667 common shares valued at $773,733 related to the acquisition of HealthTab (Note 3).
The Company issued 909,090 common shares valued at $181,818 related to the acquisition of the Corozon Platform.
The Company issued 233,450 common shares to Lampyon valued at $43,915 in consideration for services rendered pursuant to the terms of a service agreement entered into on April 10, 2018.
The Company closed a private placement and issued 5,327,335 units at a price of $0.15 per unit for gross proceeds of $799,100. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire additional common share of the Company at a price of $0.33 per share until July 27, 2020. The Company paid finder’s fees of $18,264 in cash and issued 88,800 finder’s warrants valued at $9,332. The finder’s warrants are exercisable to purchase one common share of the Company at $0.33 per share until July 31, 2020.
The Company issued 131,000 common shares for exercise of 131,000 stock options for gross proceeds of $28,820. $40,180 was reclassified from reserves to share capital on exercise of options.
The Company issued 2,975,500 common shares for exercise of 2,975,500 warrants for gross proceeds of $595,100. $8,210 was reclassified from reserves to share capital on exercise of warrants.
The Company granted 3,030,330 warrants valued at $510,877 to Emerald Health Therapeutics Inc. as consideration for a supply and distribution agreement.
Stock options
The Company has adopted an incentive share purchase option plan under the rules of the Exchange pursuant to which it is authorized to grant options to executive officers, directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The options can be granted for a maximum term of ten years and generally vest either immediately or in specified increments of up to 25% in any three-month period.
The changes in share options including those granted to directors, officers, employees and consultants during three months ended March 31, 2019 and year ended December 31, 2018 are summarized as follows:
| Three months ended March 31, 2019 | Year ended December 31, 2018 | ||
| Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price |
Beginning Balance | 2,539,000 | $0.23 | 2,420,000 | $0.24 |
Options granted | 420,000 | $0.23 | 665,000 | $0.23 |
Expired/Cancelled | (319,000) | $0.26 | (415,000) | $0.24 |
Exercised | (73,928) | $0.28 | (131,000) | $0.23 |
Page11
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
Ending Balance | 2,566,072 | $0.23 | 2,539,000 | $0.23 |
Exercisable | 2,563,572 | $0.23 | 2,536,500 | $0.23 |
10.SHAREHOLDERS’ EQUITY (continued)
The following table summarizes information about share options outstanding and exercisable as at March 31, 2019:
Exercise Price | Expiry date | Options | ||
|
| Outstanding | Exercisable | |
$0.15 | July 20, 2022 | 150,000 | 150,000 | |
$0.15 | September 27, 2022 | 150,000 | 150,000 | |
$0.28 | November 15, 2022 | 150,000 | 150,000 | |
$0.28 | December 8, 2022 | 1,181,072 | 1,178,572 | |
$0.24 | March 27, 2023 | 200,000 | 200,000 | |
$0.21 | April 11, 2023 | 175,000 | 175,000 | |
$0.125 | September 12, 2023 | 140,000 | 140,000 | |
$0.15 | January 24, 2024 | 280,000 | 280,000 | |
$0.15 | February 28, 2024 | 140,000 | 140,000 | |
|
| 2,566,072 | 2,563,572 |
Share-based compensation
Share-based compensation of $28,904 was recognized during the three months ended March 31, 2019 (2018 - $226,932) for stock options vested during the current period. Options issued to directors and officers of the Company vested immediately, while those issued to consultants vest over one year, however, the Board may change such provisions at its discretion or as required on a grant-by-grant basis.
Share-based payments for options granted was measured using the Black-Scholes option pricing model with the following assumptions:
| Three months ended March 31, 2019 | Year ended December 31, 2018 |
Expected life | 5.0 years | 5.0 years |
Volatility | 157% | 142% - 157% |
Dividend yield | 0% | 0% |
Risk-free interest rate | 1.80% - 1.86% | 2.03% - 2.24% |
Option pricing models require the use of highly subjective estimates and assumptions, including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates.
Warrants
The Company has issued warrants entitling the holders to acquire common shares of the Company. The summary of changes in warrants is presented below.
| Three months ended March 31, 2019 | Year ended December 31, 2018 | ||
| Number of Warrants | Weighted Average Exercise Price | Number of Warrants | Weighted Average Exercise Price |
Beginning Balance | 10,821,961 | $0.27 | 8,381,326 | $0.20 |
Warrants issued | - | - | 5,416,135 | $0.33 |
Exercised | - | - | (2,975,500) | $0.20 |
Page12
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
Outstanding | 10,821,961 | $0.27 | 10,821,961 | $0.27 |
10.SHAREHOLDERS’ EQUITY (continued)
The following table summarizes information about warrants outstanding and exercisable as at March 31, 2019:
Exercise Price | Expiry date | Warrants Outstanding |
$0.20 | June 26, 2022 | 1,791,159 |
$0.20 | August 3, 2022 | 742,667 |
$0.20 | November 27, 2022 | 2,872,000 |
$0.33 | July 31, 2020 | 5,416,135 |
|
| 10,821,961 |
During the year ended December 31, 2018, the fair value of the finders’ warrants was calculated using the Black-Scholes Option Pricing Model using the following assumptions:
| Year ended December 31, |
| 2018 |
Expected life | 2.0 years |
Volatility | 154% - 169% |
Dividend yield | 0% |
Risk-free interest rate | 2.05% - 2.10% |
No warrants were issued during the three months ended March 31, 2019.
11.PRODUCT REGISTRATION AND DEVELOPMENT
| Three months ended March 31, | |
| 2019 | 2018 |
| $ | $ |
Payroll | 4,901 | 64,250 |
Product registration and licensing fees | - | 7,880 |
| 4,901 | 72,130 |
12.SELLING AND MARKETING EXPENSES
| Three months ended March 31, | |
| 2019 | 2018 |
| $ | $ |
Payroll (sales personnel) | 55,578 | 48,277 |
Marketing and advertising | 174,024 | 71,582 |
Distribution | 12,332 | 17,185 |
Travel | - | 960 |
| 241,934 | 138,004 |
Page13
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
13.GENERAL AND ADMINISTRATIVE EXPENSES
| Three months ended March 31, | |
| 2019 | 2018 |
| $ | $ |
Bank service charges | 1,467 | 463 |
Filing and registration fees | 27,695 | 18,106 |
Foreign exchange | - | 102 |
Insurance | 1,110 | 8,354 |
Management fees (Note 14) | 37,500 | 78,479 |
Office maintenance | 21,351 | 11,725 |
Payroll | - | 16,986 |
Rent | 12,740 | 12,429 |
Seminar and conferences | - | 12,571 |
Travel | 13,368 | 14,223 |
| 115,231 | 173,438 |
14.RELATED PARTY TRANSACTIONS
Related party transactions not otherwise described in the consolidated financial statements are shown below. The remuneration of the Company’s directors and other members of key management, who have the authority and responsibility for planning, directing and controlling the activities of the Company, consist of the following:
| Three months ended March 31, | |
| 2019 | 2018 |
| $ | $ |
Professional fees | 15,000 | 10,000 |
Management fees | 37,500 | - |
Salaries and benefits | - | 78,513 |
Share-based compensation | - | 220,915 |
| 52,500 | 309,428 |
As at March 31, 2019, there was $nil (December 31, 2018 - $nil) due to related parties included in accounts payable and accrued liabilities.
15.CAPITAL DISCLOSURES
The Company includes shareholders’ equity in the definition of capital. The Company’s objective when managing capital is to maintain sufficient cash resources to support its day-to-day operations. The availability of capital is solely through the issuance of the Company’s common shares. The Company will not issue additional equity until such time when funds are needed and the market conditions become favorable to the Company. There are no assurances that funds will be made available to the Company when required. The Company makes every effort to safeguard its capital and minimize its dilution to its shareholders.
The Company is not subject to any externally imposed capital requirements. There were no changes in the Company’s approach to capital management during the three months ended March 31, 2019.
Page14
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
16.COMMITMENTS
Leased premises
The Company has entered into contracts for leased premises, which expire in 2018. In September 2017, the Company extended the lease. Total future minimum lease payments under these contracts are as follows:
| March 31, 2019 |
| $ |
Within 1 year | 38,219 |
2 years | 58,602 |
| 96,821 |
17.SEGMENTED INFORMATION
The company has the following business divisions:
Products Business Division
Marketing and distribution of generic and over-the-counter (OTC) pharmaceutical products and, through the Company's Corozon Platform, the distribution of point of care screening devices and related supplies and training materials.
Point of Care Business Division
Point of care screening services provided through the Company's HealthTab system and software platform.
Summarized financial information concerning reportable segments is shown in the following tables. As at March 31, 2019:
| VANC | HealthTab | Total |
| $ | $ | $ |
Accounts receivable | 128,424 | - | 128,424 |
Inventories | 108,790 | - | 108,790 |
Equipment | 19,431 | - | 19,431 |
Intangible assets | 363,841 | 1 | 363,842 |
|
|
|
|
Accounts payable | 321,612 | 3,694 | 325,306 |
Page15
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
17.SEGMENTED INFORMATION (continued)
VANC Pharmaceuticals | Three months ended March 31, | |
| 2019 | 2018 |
| $ | $ |
Revenue |
|
|
Sales | 44,199 | 306,752 |
Marketing, promotional incentives | - | (154,696) |
Net sales | 44,199 | 152,056 |
|
|
|
Cost of Sales | 34,652 | 56,938 |
|
|
|
Gross Profit (loss) | 9,547 | 95,118 |
|
|
|
Expenses |
|
|
Amortization | 63,466 | 96,919 |
Consulting | 117,000 | 18,000 |
General and administrative | 111,600 | 173,322 |
Product registration and development | 4,901 | 72,130 |
Professional fees | 27,673 | 34,239 |
Selling and marketing | 241,934 | 138,004 |
Share-based compensation | 28,904 | 226,932 |
| 595,478 | 759,546 |
Other income (expense) |
|
|
Finance costs | - | (342) |
Write down of inventories | (363) | (22,455) |
Other (loss) income | 1,905 | 5,330 |
|
|
|
Net loss and comprehensive loss for the period | (584,389) | (681,895) |
HealthTab | March 31, | |
| 2019 | 2018 |
| $ | $ |
Revenue |
|
|
Sales | 6,103 | 3,036 |
Net sales | 6,103 | 3,036 |
|
|
|
Cost of Sales | 3,220 | 225 |
|
|
|
Gross Profit (loss) | 2,883 | 2,811 |
|
|
|
Expenses |
|
|
Amortization | - | 4,767 |
General and administrative | 3,631 | 116 |
| 3,631 | 4,883 |
|
|
|
Net loss and comprehensive loss for the period | (748) | (2,072)- |
Page16
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
18.SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2019 the Company:
Issued in total 1,111,110 common shares valued at $200,000 related to the acquisition of HealthTab (Notes 4 and 11).
Issued 125,081 shares to Lampyon Canada Inc valued at $11,167
19.FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and asset acquisition liability. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities. The Company has exposure to credit risk, liquidity risk and market risk as a result of its use of financial instruments.
This note presents information about the Company’s exposure to each of the above risks and the Company’s objectives, policies and processes for measuring and managing these risks. Further quantitative disclosures are included throughout the consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has implemented and monitors compliance with risk management policies.
a)Credit risk
The Company performs ongoing credit evaluations of its accounts receivable, but does not require collateral. The Company establishes an allowance for doubtful accounts based on the credit risk applicable to particular customers and historical data.
Approximately 45% of trade receivables are due from one customer at March 31, 2019 (December 31, 2018 – 51% from one customer).
Pursuant to their collective terms, accounts receivable from customers were aged as follows:
| March 31, 2019 | December 31, 2018 |
| $ | $ |
Not past due | 20,912 | 193,448 |
Under 30 days past due | 33,618 | 27,266 |
31 – 90 days past due | 29,379 | 3,881 |
Over 90 days past due | 44,515 | 55,685 |
| 128,424 | 280,280 |
Page17
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
19.FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
b)Liquidity risk
Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation.
The Company monitors its spending plans, repayment obligations and cash resources, and takes actions with the objective of ensuring that there is sufficient capital in order to meet short-term business requirements. To facilitate its expenditure program, the Company raises funds primarily through public equity financing. The Company anticipates it will have adequate liquidity to fund its financial liabilities through future equity contributions.
As at March 31, 2019, the Company’s financial liabilities were comprised of accounts payable and accrued liabilities of $325,306 (December 31, 2018 - $314,239).
c)Market risk
Market risk for the Company consists of currency risk and interest rate risk. The objective of market risk management is to manage and control market risk exposure within acceptable limits, while maximizing returns.
Currency risk
Foreign currency risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. As all of the Company’s purchases and sales are denominated in Canadian dollars, and it has no significant cash balances denominated in foreign currencies, the Company is not exposed to foreign currency risk at this time.
Interest rate risk
Interest rate risk is the risk that fair values or future cash flows will fluctuate as a result of changes in market interest rates. In respect of financial assets, the Company’s policy is to invest cash at floating interest rates and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders.
The Company is not exposed to significant interest rate risk.
d)Fair value of financials instruments
The fair values of financial assets and financial liabilities are determined as follows:
Cash and cash equivalents are measured at fair value. For accounts receivable, accounts payable, accrued liabilities and asset acquisition liability carrying amounts approximate fair value due to their short-term maturity;
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
Page18
Avricore Health Inc. (former VANC Pharmaceuticals Inc.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Expressed in Canadian Dollars)
19.FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities and amounts resulting from direct arm’s length transactions.
Cash and cash equivalents are valued using quoted market prices or from amounts resulting from direct arm’s length transactions. As a result, these financial assets have been included in Level 1 of the fair value hierarchy.
Level 2:
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full contractual term. Derivatives are included in Level 2 of the fair value hierarchy as they are valued using price models. These models require a variety of inputs, including, but not limited to, contractual terms, market prices, forward price curves, yield curves and credit spreads. The Company has no financial instruments at this level.
Level 3:
Inputs for the asset or liability are not based on observable market data. Currently, the Company has no financial instruments at this level.
20.SUBSEQUENT EVENTS
Subsequent to the period ended March 31, 2019 the Company granted 615,000 stock options exercisable for a period of five years at an exercise price of $0.06 per common share.
Page19