<Page>
EXHIBIT 3
AETERNA LABORATORIES INC.
Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
<Page>
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF
AETERNA LABORATORIES INC.
We have audited the consolidated balance sheets of AETERNA LABORATORIES INC.
as at December 31, 2003 and 2002 and the consolidated statements of
operations, deficit, other capital and cash flows for each of the years in
the three-year period ended December 31, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 2003 and 2002 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2003 in
accordance with Canadian generally accepted accounting principles.
[Signature of PricewaterhouseCoopers LLP]
CHARTERED ACCOUNTANTS
Quebec, Quebec, Canada
February 25, 2004, except as to note 25 which is as of March 3, 2004
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers
LLP and the other member firms of PricewaterhouseCoopers International
Limited, each of which is a separate and independent legal entity.
(1)
<Page>
AETERNA LABORATORIES INC.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(expressed in thousands of Canadian dollars)
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 22,414 12,494
Short-term investments (note 21) 41,953 69,040
Accounts receivable (notes 5 and 6) 48,191 74,840
Inventory (notes 5 and 7) 16,169 16,335
Prepaid expenses and deferred charges 3,314 2,041
Future income tax assets (note 18) 2,604 1,682
-----------------------------------------
134,645 176,432
PROPERTY, PLANT AND EQUIPMENT (notes 8 and 17) 19,599 21,688
DEFERRED CHARGES 1,322 1,047
INTANGIBLE ASSETS (notes 9 and 17) 65,513 90,300
GOODWILL (note 10) 61,184 24,252
FUTURE INCOME TAX ASSETS (note 18) 13,516 17,249
-----------------------------------------
295,779 330,968
-----------------------------------------
-----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Promissory note (note 5) - 43,000
Accounts payable and accrued liabilities (note 11) 53,062 42,557
Income taxes 3,490 3,783
Balances of purchase price (note 4) 1,113 39,690
Current portion of long-term debt 3,777 3,202
-----------------------------------------
61,442 132,232
-----------------------------------------
DEFERRED REVENUES 10,563 12,438
CONVERTIBLE TERM LOANS (note 12) 19,920 -
LONG-TERM DEBT (note 13) 15,132 9,969
EMPLOYEE FUTURE BENEFITS (note 14) 6,658 6,042
FUTURE INCOME TAX LIABILITIES (note 18) 25,991 35,275
NON-CONTROLLING INTEREST 29,952 24,676
-----------------------------------------
169,658 220,632
-----------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 15) 187,601 153,578
OTHER CAPITAL 7,486 854
DEFICIT (73,011) (44,864)
CUMULATIVE TRANSLATION ADJUSTMENT 4,045 768
-----------------------------------------
126,121 110,336
-----------------------------------------
295,779 330,968
-----------------------------------------
-----------------------------------------
</Table>
SUBSEQUENT EVENT (note 25)
The accompanying notes are an integral part of these consolidated financial
statements.
APPROVED BY THE BOARD OF DIRECTORS
<Table>
/s/ ERIC DUPONT /s/ PIERRE MACDONALD
- ------------------------------------- --------------------------------------
Eric Dupont, PhD Pierre MacDonald, MSc
Director Director
</Table>
(2)
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AETERNA LABORATORIES INC.
Consolidated Statements of Deficit
- -------------------------------------------------------------------------------
(expressed in thousands of Canadian dollars)
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
BALANCE - BEGINNING OF YEAR 44,864 19,082 15,613
Net loss for the year 28,147 25,782 3,469
----------------------------------------------------------------
BALANCE - END OF YEAR 73,011 44,864 19,082
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
Consolidated Statements of Other Capital
- --------------------------------------------------------------------------------
(expressed in thousands of Canadian dollars)
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
BALANCE - BEGINNING OF YEAR 854 - -
Conversion option related to convertible term loans
(note 12) 6,187 - -
Stock-based compensation costs (notes 3 and 15d) 445 107 -
Issuance of warrants - 747 -
----------------------------------------------------------------
BALANCE - END OF YEAR 7,486 854 -
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
(3)
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AETERNA LABORATORIES INC.
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
(expressed in thousands of Canadian dollars, except share and per share data)
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
REVENUES 166,413 101,204 43,777
----------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 98,048 77,443 29,950
Selling, general and administrative 29,103 17,777 13,039
Research and development costs 45,347 26,062 22,681
Research and development tax credits and grants (note 17) (1,223) (1,933) (5,989)
Depreciation and amortization
Property, plant and equipment 3,745 1,992 1,353
Intangible assets 5,676 429 330
Goodwill - - 167
----------------------------------------------------------------
180,696 121,770 61,531
----------------------------------------------------------------
OPERATING LOSS (14,283) (20,566) (17,754)
----------------------------------------------------------------
OTHER REVENUES (EXPENSES)
Interest income 2,146 3,079 3,569
Interest expense
On redeemable common shares of the subsidiary - - (437)
On long-term debt and convertible term loans (4,113) (485) (274)
Other (722) (23) (75)
Foreign exchange gain (loss) (1,574) (195) 127
----------------------------------------------------------------
(4,263) 2,376 2,910
----------------------------------------------------------------
LOSS BEFORE INCOME TAXES (18,546) (18,190) (14,844)
INCOME TAX RECOVERY (EXPENSE) (note 18) (5,932) (4,425) 4,752
----------------------------------------------------------------
LOSS BEFORE THE FOLLOWING ITEMS (24,478) (22,615) (10,844)
GAIN (LOSS) ON DILUTION (note 4e and 4i) (64) 424 10,223
NON-CONTROLLING INTEREST (3,605) (3,591) (3,600)
----------------------------------------------------------------
NET LOSS FOR THE YEAR (28,147) (25,782) (3,469)
----------------------------------------------------------------
----------------------------------------------------------------
BASIC AND DILUTED NET LOSS PER SHARE (note 2) (0.65) (0.67) (0.11)
----------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (note 20) 42,993,432 38,584,537 30,968,710
----------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
(4)
<Page>
AETERNA LABORATORIES INC.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(expressed in thousands of Canadian dollars)
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year (28,147) (25,782) (3,469)
Items not affecting cash and cash equivalents
Depreciation and amortization 9,421 2,421 1,850
Stock-based compensation costs 477 53 -
Future income taxes 1,866 1,860 (5,674)
Interest expense - - 437
Loss (gain) on dilution 64 (424) (10,223)
Non-controlling interest 3,605 3,591 3,600
Employee future benefits 528 18 -
Deferred charges 141 - -
Deferred revenues (1,177) - -
Accretion on convertible term loans 1,245 - -
Change in non-cash operating working capital items (note 16) (2,516) (3,634) (2,327)
----------------------------------------------------------------
(14,493) (21,897) (15,806)
----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of promissory note (43,000) 43,000 -
Net proceeds from the issuance of convertible term loans 24,415 - -
Payments on balance of purchase price (note 4f) (2,358) - -
Increase in long-term debt 7,904 - -
Repayment of long-term debt (3,109) (2,608) (2,620)
Issuance of warrants - 747 -
Issuance of shares 36,580 57,442 19,459
Share issue expenses (2,557) (1,324) (1,954)
Issuance of shares by a subsidiary, net of redemption 41 2,000 -
----------------------------------------------------------------
17,916 99,257 14,885
----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (49,464) (56,658) (24,911)
Proceeds from the sale of short-term investments 76,552 29,751 44,228
Business acquisitions, net of cash and cash equivalents
acquired (note 4) (18,839) (43,474) (13,475)
Acquisition of a product line (40) (435) -
Purchase of property, plant and equipment (1,194) (5,146) (610)
Additions to intangible assets (628) (1,423) (344)
----------------------------------------------------------------
6,387 (77,385) 4,888
----------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,810 (25) 3,967
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 110 526 766
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 12,494 11,993 7,260
----------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 22,414 12,494 11,993
----------------------------------------------------------------
----------------------------------------------------------------
ADDITIONAL INFORMATION
Interest paid 431 466 478
Income taxes paid 4,242 1,776 1,462
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
(5)
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AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
1 INCORPORATION AND NATURE OF ACTIVITIES
AEterna Laboratories Inc. ("AEterna or the "Company"), incorporated under
the Canada Business Corporations Act, is organized into three operating
segments. The biopharmaceutical segment focuses on the development of
novel therapeutic approaches with an extensive product portfolio,
including two already marketed and several other products in early and
late-stage development in oncology, endocrinology and infectious diseases.
Cetrorelix is sold in the United States and Europe to the IN VITRO
fertilization market, and is in Phase II clinical trials for
endometriosis, uterus myoma and enlarged prostate. Miltefosine is sold for
black fever and has successfully completed a Phase III trial in parasitic
skin disease.
The cosmetics and nutrition segment is dedicated to the development,
manufacturing and marketing of cosmetics, active ingredients and
nutritional products. The distribution segment specializes in value-added
services by supporting innovation, importing and distributing raw
materials and high-end brand-name activities. These two segments are
operated by Atrium Biotechnologies Inc. and its subsidiaries.
On December 17, 2003, the Company decided to stop the clinical development
in renal cell carcinoma with Neovastat (R). The Company continues to
develop fourteen products and to market two others in different
indications including Neovastat (R) which is in phase III in non-small
cell lung cancer.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. These principles conform, in all
material respects, with accounting principles generally accepted in the
United States, except as described in note 23. The significant accounting
policies, which have been consistently applied, are summarized as follows:
BASIS OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
the Company and all of its subsidiaries, accounted for using the full
consolidation method. Intercompany transactions and related balances have
been eliminated. The subsidiaries and the Company's percentage of interest
are as follows:
<Table>
<Caption>
PERCENTAGE OF INTEREST
-----------------------------------------
2003 2002
% %
SUBSIDIARIES
AEterna GmbH - 100.00
Zentaris GmbH (previously Zentaris AG - merger with AEterna GmbH in
2003) 100.00 100.00
Atrium Biotechnologies inc. ("Atrium") 61.76 61.76
Atrium Biotech USA inc. 100.00 100.00
Siricie S.A. 100.00 -
Unipex Finance S.A. 80.65 70.28
Interchemical S.A. 100.00 -
Chimiray S.A. 100.00 -
</Table>
(6)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and
liabilities reported in the financial statements. Those estimates and
assumptions also affect the disclosure of contingencies at the date of the
financial statements and the reported amounts of revenues and expenses
during the years. Significant estimates include the allowance for doubtful
accounts, provisions for obsolete inventory, future income tax assets, the
useful lives of property, plant and equipment, the valuation of intangible
assets and goodwill, the fair value of options granted and certain accrued
liabilities. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Foreign subsidiaries
Zentaris GmbH ("Zentaris"), a German subsidiary of AEterna and Atrium
Biotech USA inc., a subsidiary of Atrium, are considered to be integrated
foreign operations. As a result, the foreign subsidiaries' accounts are
translated into Canadian dollars using the temporal method. Under this
method, monetary assets and liabilities are translated at the exchange
rates in effect at the balance sheet date. Non-monetary assets and
liabilities are translated at historical rates. Revenues and expenses are
translated at the average rate for the year. Gains and losses resulting
from translation are reflected in the statement of operations.
Unipex Finance S.A. ("Unipex") and its subsidiaries, Interchemical S.A.
and Chimiray S.A., as well as Siricie S.A., which are all French
subsidiaries of Atrium, are considered to be self-sustaining foreign
operations. As a result, the foreign subsidiaries' financial statements,
whose functional currency is other than the Canadian dollar, are
translated into Canadian dollars using the current rate method. Under this
method, assets and liabilities are translated at the exchange rates in
effect at the balance sheet date and revenues and expenses are translated
at the average rate for the year. Gains and losses resulting from
translation are deferred in the "Cumulative translation adjustment"
account under "Shareholders' Equity".
Transactions denominated in foreign currencies are translated into
Canadian dollars as follows:
Monetary assets and liabilities are translated at the exchange rate
in effect at the balance sheet date and revenues and expenses are
translated at the monthly average exchange rate. Non-monetary assets
and liabilities are translated at historical rates. Gains and losses
arising from such translation are reflected in the statements of
operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and balances with banks,
exclusive of bank advances, as well as all highly liquid short-term
investments. The Company considers all highly liquid short-term
investments having a term of less than three months at the acquisition
date to be cash equivalents.
(7)
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AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
SHORT-TERM INVESTMENTS
Short-term investments, which are valued at the lower of amortized cost
and market value, are mainly composed of bonds which do not meet the
Company's definition of cash and cash equivalents.
INVENTORY
Inventory is valued at the lower of cost and market value. Cost is
determined using the first in, first out basis. Cost of finished goods
includes raw materials, labour and manufacturing overhead under the
absorption costing method. Market value is defined as replacement cost for
raw materials and as net realizable value for finished goods.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost, net of related
government grants and accumulated depreciation. Depreciation is calculated
using the following methods and annual rates:
<Table>
<Caption>
ANNUAL RATES
METHODS %
Building Straight-line 5
Equipment Declining balance and straight-line 20
Office furniture Declining balance and straight-line 10 and 20
Computer equipment Straight-line 25 and 33 1/3
Automotive equipment Straight-line 20
</Table>
The carrying value of property, plant and equipment is evaluated whenever
significant events occur which may indicate a permanent impairment in
value, based upon a comparison of the carrying value to the fair value.
DEFERRED CHARGES
Deferred charges relate to deferred upfront payments made by a subsidiary
in connection with research and development collaborations and to
financing charges. These deferred charges are included in the statement of
operations over the progress of the research and development work related
to the contracts and on the term of the convertible term loans,
respectively.
INTANGIBLE ASSETS
Intangible assets consist of patents, trademarks, licenses, distribution
agreements and organization costs. Patents and trademarks represent costs,
including professional fees, incurred for the filing of patents and the
registration of trademarks for product marketing and manufacturing
purposes, net of related government grants and accumulated amortization.
Intangible assets are amortized on a straight-line basis over their
estimated useful lives of eight to fifteen years for patents, ten years
for trademarks, licenses and distribution agreements, and three to five
years for organization costs, which are fully amortized as at December 31,
2003.
(8)
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AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Intangible assets with finite lives are reviewed for impairment when
events or circumstances indicate that costs may not be recoverable.
Impairment exists when the carrying value of the assets is greater than
the undiscounted future cash flows expected to be provided by the asset.
The amount of impairment loss, if any, is the excess of its carrying value
over its fair value. Finite-lived intangible assets are written down for
any permanent impairment in value of the unamortized portion. As at
December 31, 2003, there were no events or circumstances indicating that
the carrying value may not be recoverable. The Company does not have
indefinite-lived intangible assets.
GOODWILL
Goodwill represents the excess of the purchase price over the fair values
of the net assets of entities acquired at the respective dates of
acquisition. Goodwill is tested annually, or more frequently if impairment
indicators arise, for impairment in relation to the fair value of each
reporting unit to which goodwill applies and the value of other assets in
that reporting unit. An impairment charge is recorded for any goodwill
that is considered impaired.
EMPLOYEE FUTURE BENEFITS
Some of the Company's subsidiaries maintain defined benefit plans and two
defined contribution plans for their employees. These subsidiaries accrue
their obligations under employee benefit plans and the related costs. In
this regard, the following policies have been adopted:
o The cost of pension and other retirement benefits earned by employees
is actuarially determined using the projected unit credit method and
benefit method prorated on service and management's best estimate of
salary escalation and retirement ages of employees.
o The net actuarial gain (loss) of the benefit obligation is reported
in the statement of operations as it arises.
DEFERRED REVENUES
Deferred revenues relate to upfront payments received by a subsidiary in
connection with research cooperation agreements. These revenues are
included in the statement of operations based on the progress of the
research and development work related to the contracts.
REVENUE RECOGNITION
The biopharmaceutical segment is currently in a phase in which potential
products are being further developed or marketed jointly with strategic
partners. The existing cooperation and royalty agreements usually foresee
one-time payments (upfront payments), payments for research and
development services in the form of cost reimbursements, milestone
payments and royalty receipts for licensing and marketing product
candidates.
Payments received at the beginning of research cooperation agreements
(upfront payments) are not recorded as revenue when received but are
amortized based on the progress of the research and development work
concerned.
(9)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Milestone payments are recognized when appropriate development results are
achieved and agreed by the customer. Royalty receipts for marketing
products are only to be paid by cooperation and royalty partners when
product revenues are achieved and are accordingly first recorded as
revenues by the Company at such time.
Revenues from sales of products are recognized, net of estimated sales
allowances and rebates, when title passes to customers, which is at the
time goods are shipped.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, future income tax assets and liabilities are determined
according to differences between the carrying amounts and tax bases of the
assets and liabilities. Changes in the net future income tax assets or
liabilities are included in the statement of operations. Future income tax
assets and liabilities are measured using substantively enacted tax rates
and laws expected to apply in the years in which assets and liabilities
are expected to be recovered or settled.
The Company establishes a valuation allowance against future income tax
assets if, based on available information, it is not more likely than not
that some or all of the future income tax assets will be realized.
RESEARCH AND DEVELOPMENT TAX CREDITS AND GRANTS
The Company is entitled to scientific research and experimental
development ("SR&ED") tax credits granted by the Canadian federal
government ("Federal") and the government of the Province of Quebec
("Provincial"). Federal SR&ED tax credits are earned on qualified Canadian
SR&ED expenditures at a rate of 20% and can only be used to offset Federal
income taxes otherwise payable. Refundable provincial SR&ED tax credits
are generally earned on qualified SR&ED salaries, subcontracting and
university contract expenses incurred in the Province of Quebec, at a rate
of 17.5% (20% in 2002).
SR&ED tax credits and grants are accounted for using the cost reduction
method. Accordingly, tax credits and grants are recorded as a reduction of
the related expenses or capital expenditures in the period the expenses
are incurred. The refundable portion of SR&ED tax credits is recorded in
the year in which the related expenses or capital expenditures are
incurred and the non-refundable portion of SR&ED tax credits and grants is
recorded at such time, provided the Company has reasonable assurance the
credits or grants will be realized.
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. Development costs are expensed as
incurred except for those which meet generally accepted criteria for
deferral, which are capitalized and amortized against operations over the
estimated period of benefit. As at December 31, 2003, no costs have been
deferred.
(10)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
LOSS PER SHARE
In order to calculate the loss per share, subordinate and multiple voting
shares are considered as common shares.
The basic net loss per share is calculated using the weighted average
number of common shares outstanding during the year.
The diluted net loss per share is calculated based on the weighted average
number of common shares outstanding during the year, plus the effects of
dilutive common share equivalents such as options, warrants and
convertible term loans. This method requires that the diluted net loss per
share be calculated using the treasury stock method, as if all common
share equivalents had been exercised at the beginning of the reporting
period, or period of issuance, as the case may be, and that the funds
obtained thereby were used to purchase common shares of the Company at the
average trading price of the common shares during the period.
3 CHANGES IN ACCOUNTING POLICIES
a) YEAR ENDED DECEMBER 31, 2003
STOCK-BASED COMPENSATION PLANS
On January 1, 2002, the Company adopted the recommendations of Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3870
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS. This Section
establishes standards for the recognition, measurement and disclosure of
stock-based compensation made in exchange for goods and services and
requires the use of the fair value method to account for awards to
non-employees and direct awards of stock to employees and encourages, but
does not require, the use of the fair value method to account for
stock-based compensation costs arising from awards to employees. On
October 15, 2003, this section was amended to require expensing of all
stock-based compensation awards in the financial statements for fiscal
years beginning on or after January 1, 2004 with early adoption
encouraged. In accordance with the transitional provisions of this
section, the Company has decided to adopt the revisions in the current
year and used the prospective method as a transitional method, as
permitted under those amendments. According to this method, all
stock-based compensation granted during the twelve-month period ended
December 31, 2003 have been recorded in the corresponding period without
restatement of prior years. However, the Company is still required to
provide pro-forma disclosures relating to net loss and net loss per share
as if stock-based compensation costs had been recognized in the financial
statements using the fair value method for options granted in 2002. These
disclosures have been presented in note 15.
IMPAIRMENT OF LONG-LIVED ASSETS
In December 2002, the CICA issued Handbook Section 3063, "Impairment of
Long-lived Assets", which is effective for fiscal years beginning on or
after April 1, 2003 with early adoption encouraged. Under this Section, an
impairment loss is measured as the difference between the carrying value
of an asset and its fair value. The Company adopted this Section in 2003
without effect on operations or balance sheets.
(11)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
DISCLOSURE OF GUARANTEES
On January 1, 2003, the Company prospectively adopted Accounting Guideline
14 of the CICA Handbook, "Disclosure of Guarantees". This new guideline
requires certain disclosure about obligations under guarantees other than
product warranties. The adoption of this guideline had no impact on the
Company's financial statements since the Company has no guarantee that
falls into the scope of this new guideline.
DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS
On May 1, 2003, the Company prospectively adopted Section 3475 of the CICA
Handbook, "Disposal of Long-Lived Assets and Discontinued Operations".
Under this new section, a long-lived asset to be disposed of other than by
sale continues to be classified as held and used until it is disposed of;
a long-lived asset classified as held for sale is measured at the lower of
its carrying value of fair value less cost to sell; a loss recognized on
classification of long-lived assets as held for sale or a group of assets
as a discontinued operation does not include future operating losses,
other than to the extent to which they are included in the fair value of
the asset; and discontinued operations are defined more broadly than under
existing rules. The adoption of this new standard had no impact on the
Company's financial statements since the Company did not have such
operations.
b) STANDARDS APPLICABLE FOR FISCAL YEAR 2004
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
In July 2003, the CICA issued new Handbook Section 1100 "Generally
Accepted Accounting Principles" ("GAAP"), which is effective for fiscal
years beginning on or after October 1, 2003. This new section defines
GAAP, establishes the relative authority of various types of CICA
Accounting Standards Board pronouncements, says what to do when the
Handbook does not cover a particular situation and clarifies the role of
"industry practice" in setting GAAP. The Company will adopt this new
standard on January 1, 2004. Adopting this standard is not expected to
have a significant impact on the Company's financial statements.
GENERAL STANDARDS OF FINANCIAL STATEMENT PRESENTATION
In July 2003, the CICA issued new Handbook Section 1400 "General Standards
of Financial Statement Presentation" which is effective for fiscal years
beginning on or after October 1, 2003. This new section confirms that the
financial statements of an entity must present fairly in accordance with
Canadian generally accepted accounting principles its financial position,
results of operations and cash flows. The Company will adopt this new
standard on January 1, 2004. Adopting this standard is not expected to
have a significant impact on the Company's financial statements.
(12)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
HEDGING RELATIONSHIPS
The CICA has issued Accounting Guideline 13 "Hedging Relationships", which
establishes certain conditions regarding when hedge accounting may be
applied and which is effective for fiscal years beginning on or after
January 1, 2004. AcG 13 addresses the identification, designation,
documentation, and effectiveness of hedging transactions for the purposes
of applying hedge accounting. It also establishes conditions for applying
or discontinuing hedge accounting. Under this new guideline, the Company
will also be required to document its hedging transactions and explicitly
demonstrate that the hedges are sufficiently effective in order to
continue hedge accounting for positions hedged with derivatives. Any
derivative instrument that does not qualify for hedge accounting will be
reported on a mark-to-market basis in earnings. The adoption of this
guideline as at January 1, 2004 will not have any significant impact on
the Company's financial statements since there are no significant hedging
transactions as of this date.
4 BUSINESS ACQUISITIONS
ACQUISITIONS IN 2003
a) Interchemical S.A. and Chimiray S.A.
On August 5, 2003, Unipex, a French subsidiary of Atrium, acquired
100% of the issued and outstanding common shares of Interchemical
S.A. and Chimiray S.A. for a total consideration of $18,689,300 of
which an amount of $14,184,390 was paid cash, net of cash and cash
equivalents acquired of $3,583,081, and $921,829 as a balance of
purchase price, non-interest bearing, payable on January 15, 2004.
These companies are specializing in the distribution of fine
chemicals and active ingredients. The results of operations have been
included in the statement of operations since August 5, 2003, being
the date of acquisition. Concerning the acquisition of these
companies, an independent valuation report was issued on October 1,
2003 confirming that no specific identifiable intangible assets has
any material value which could be separated from goodwill.
b) Siricie S.A.
On November 18, 2003, Atrium acquired 100% of the issued and
outstanding common shares of Siricie S.A. for a total consideration
of $2,039,721 of which an amount of $1,810,849 was paid cash, net of
cash and cash equivalents acquired of $73,867, and $155,005 as a
balance of purchase price, non-interest bearing, payable at the
latest in October 2004. This company is specializing in the
development of active ingredients drawn from marine life for the
cosmetics industry. The results of operations have been included in
the statement of operations since November 18, 2003, being the date
of acquisition. The purchase price allocation shown is preliminary
and is based on the Company's estimates of fair value. The final
allocation is expected to be completed within the next six months and
may result in a portion of the purchase price being allocated from
goodwill to identifiable intangible assets.
(13)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The net assets acquired at the allocated values are as follows:
<Table>
<Caption>
INTERCHEMICAL
S.A. AND
CHIMIRAY S.A. SIRICIE S.A.
$ $
Assets
Current assets 17,973 1,130
Property, plant and equipment 395 79
Intangible assets 4 200
Future income tax assets 531 71
-------------------------------------------
18,903 1,480
-------------------------------------------
Liabilities
Current liabilities 15,197 -
Long-term liabilities 1,019 898
-------------------------------------------
16,216 898
-------------------------------------------
Net identifiable assets acquired 2,687 582
Goodwill 16,002 1,458
-------------------------------------------
Purchase price 18,689 2,040
Less: Cash and cash equivalents acquired (3,583) (74)
Balance of purchase price (922) (155)
-------------------------------------------
Net cash used for the acquisition 14,184 1,811
-------------------------------------------
-------------------------------------------
</Table>
Goodwill is not deductible for income tax purposes.
c) Product line acquired in 2002 by Atrium Biotech USA Inc.
The contingent payments in 2003 resulting from the acquisition of a
product line in 2002 by Atrium Biotech USA Inc., a subsidiary of
Atrium, amounted to $40,000 (US$30,336). That amount has been
recorded as goodwill. Atrium Biotech USA Inc.
does not expect to incur any additional payments.
d) Unipex
On January 13, May 27, and July 16, 2003, Atrium acquired 23,760
common shares of the outstanding capital stock of Unipex for a cash
consideration of $2,843,766. Those acquisitions have been accounted
for as step acquisitions. Atrium also made an additional investment
by acquiring 70,400 treasury common shares of Unipex, increasing its
interest to 80.65% (70.28% in 2002). The excess of the purchase price
over the net identifiable assets on the date of acquisition is
$3,174,618 and is recorded as goodwill not deductible for income tax
purposes.
(14)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
e) Gain (loss) on dilution
On May 27, 2003, pursuant to the issuance of 2,200 common shares by
Unipex, a loss on dilution amounting to $66,544 was recognized.
On September 14, 2003 as a result of the issuance of 2,000 shares by
Atrium, a gain on dilution amounting to $2,137 was recognized.
Subsequently, as a result of the redemption of those shares, goodwill
amounting to $9,375 was recognized.
ACQUISITIONS IN 2002
f) Zentaris
On December 30, 2002, AEterna GmbH, a new subsidiary of AEterna,
acquired 100% of the issued and outstanding shares of Zentaris.
Zentaris is an integrated biopharmaceutical and biotechnological
company which develops and produces innovative products and
technologies for patient-friendly therapies in oncology and
endocrinology.
The net assets acquired and the purchase price were subject to
adjustments subsequent to the review of the audited financial
statements of Zentaris as at December 31, 2002. Following the
adjustments relating to the review of the audited financial
statements of Zentaris in December 31, 2002, the total consideration
paid for the acquisition of Zentaris is $85,494,850
(euro 51,917,491).
The purchase price allocation, following the acquisition of Zentaris'
shares in December 2002, was finalized upon receipt of an independent
valuation report during the second quarter of 2003, resulting in a
decrease of $19,583,843 in intangible assets, $8,041,577 in future
income tax liabilities and in an allocation of $11,542,266 as
goodwill. On the acquisition date, two products developed by Zentaris
have generated profits resulting from their sales. The developed
technology and in-process research and development (R&D) have been
valued using a discounted cash flow approach, resulting in an
allocated fair value of $66,942,949. The goodwill related to this
transaction amounted to $11,542,266 and it will not be amortized but
tested annually for impairment in relation to the fair value of this
reporting unit to which goodwill applies. The results of operations
have been consolidated in the statement of operations from December
30, 2002, being the date of acquisition.
The balance of purchase price, bearing interest at the EURIBOR rate
for a three-month term deposit plus 1%, was due and payable on the
earlier of September 30, 2003 or the merger date of AEterna GmbH and
Zentaris. This amount was offset in 2003 against the receivable from
a former affiliated company of Zentaris resulting in a cash
disbursement of $2,358,000.
(15)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
g) ADF Chimie S.A. (merger with Unipex in 2002)
On May 1, 2002, Unipex Finance S.A., a French subsidiary of Atrium,
acquired 100% of the issued and outstanding common shares of ADF
Chimie S.A., for a total consideration of $2,315,471 of which an
amount of $1,329,178 was paid cash, net of cash acquired of $548,106,
and $438,187 as a balance of purchase price. The acquisition is
subject to contingent payments specified in the agreement for an
approximate amount of $807,827 (euro 487,700) payable in cash at the
latest in July 2005. These contingent payments will be recorded as
goodwill when the related conditions have been met. ADF Chimie S.A.
is a distributor of active and specialty ingredients for the
cosmetics industry. The results of operations have been included in
the statement of operations from May 1, 2002, being the date of
acquisition.
The net assets acquired at the allocated values are as follows:
<Table>
<Caption>
ZENTARIS ADF CHIMIE S.A.
$ $
Assets
Current assets 51,330 1,880
Property, plant and equipment 2,934 7
Intangible assets 66,943 -
Future income tax assets 14,891 -
-----------------------------------------
136,098 1,887
-----------------------------------------
Liabilities
Current liabilities 15,778 665
Deferred revenues 12,438 -
Employee future benefits 5,886 -
Future income tax liabilities 28,043 -
-----------------------------------------
62,145 665
----------------------------------------
Net identifiable assets acquired 73,953 1,222
Goodwill 11,542 1,093
-----------------------------------------
Purchase price 89,495 2,315
-----------------------------------------
----------------------------------------
Consideration
Cash (3,646) (548)
Balance of purchase price (39,748) (438)
-----------------------------------------
(43,394) (986)
-----------------------------------------
-----------------------------------------
Net cash used for the acquisition 42,101 1,329
-----------------------------------------
-----------------------------------------
</Table>
Goodwill is non-deductible for income tax purposes.
(16)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
h) Other acquisitions
On April 15, 2002, Atrium Biotech USA Inc. acquired a product line
for a total cash consideration of $435,394. The acquisition was
subject to contingent payments specified in the agreement for a
maximum amount of $300,000 of which $100,000 were paid and recorded
as goodwill in 2002. The balance of $200,000 may be payable at the
latest in October 2003 if the related conditions have been met; it
will be then recorded as goodwill. The results of operations of this
acquisition have been included in the statement of operations since
April 15, 2002, being the date of acquisition. Based upon the
allocation of the purchase price, the transaction resulted in
$212,134 of goodwill and $223,260 of inventory. The goodwill acquired
is deductible for income tax purposes.
On September 8, 2002, Atrium acquired 300 common shares of the
outstanding capital stock of Unipex, increasing its interest in the
latter to 70.28% (70.2% in 2001) for a cash consideration of $31,171.
The excess of the purchase price over the net carrying value on the
date of acquisition is $26,221 and is recorded as goodwill not
deductible for income tax purposes.
i) Gain on dilution
On September 13, 2002, as a result of the issuance of 166,667 shares
by Atrium, a gain on dilution amounting to $424,751 was recognized.
ACQUISITION IN 2001
j) Unipex
On July 2, 2001, Atrium acquired 70.2% of the issued and outstanding
common shares of Unipex for total cash consideration of $21,000,390.
Unipex specializes in providing value-added services of importation,
in supporting innovation, and in distributing raw materials and
high-end brand-name additives for multinational corporations. Under
the shareholders' agreement, the minority shareholders of Unipex will
have the right to exchange their shares for shares of Atrium in the
event of its listing on the stock exchange.
(17)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The acquisition has been accounted for using the purchase method, and the
results of operations have been consolidated from the date of acquisition.
The fair value of net assets acquired is as follows:
<Table>
<Caption>
$
Assets
Current assets 28,216
Property, plant and equipment 1,103
Identifiable intangible assets 304
--------------------
29,623
--------------------
Liabilities
Current liabilities 15,337
Long-term liabilities 10,475
--------------------
25,812
--------------------
Net identifiable assets acquired 3,811
--------------------
--------------------
Net identifiable assets acquired - 70.2% 2,675
Goodwill 18,325
--------------------
Purchase price 21,000
Less: Cash and cash equivalents acquired (7,526)
--------------------
Net cash used for the acquisition 13,474
--------------------
--------------------
</Table>
An amount of $8,300,000 out of the total amount of goodwill is deductible
for income tax purposes over the following years.
5 CREDIT FACILITIES AND PROMISSORY NOTE
Atrium has an available line of credit, bearing interest at prime rate and
renewable annually. A moveable hypothec without delivery on accounts
receivable and inventory amounting to $5,806,880 has been pledged as
security for the line of credit of an authorized amount of $5,000,000. As
at December 31, 2003 and 2002, the line of credit was unused. Zentaris has
an available unsecured line of credit of an authorized amount of
$1,628,000 (euro 1,000,000), bearing interest at a rate of 8% and
renewable in July 2004. As at December 31, 2003, that line of credit was
unused.
The promissory note bearing interest at prime rate plus 1% was due on
demand. A moveable hypothec on the universality of the Company's accounts
receivable, cash equivalents and short-term investments has been given as
security. The promissory note was repaid on January 15, 2003.
(18)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
6 ACCOUNTS RECEIVABLE
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Trade, net of an allowance for doubtful accounts of $305 ($247 in 2002) 42,569 30,980
Receivable from a former affiliated company of Zentaris, bearing interest
at the EURIBOR rate for a three-month term deposit plus 1% (note 4f) - 37,576
Interest 846 754
Grants 1,646 2,939
Research and development tax credits recoverable 677 860
Commodity taxes 1,146 1,094
Other 1,307 637
-----------------------------------------
48,191 74,840
-----------------------------------------
-----------------------------------------
</Table>
7 INVENTORY
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Raw materials 6,572 6,965
Finished goods 9,597 9,370
-----------------------------------------
26,169 16,335
-----------------------------------------
-----------------------------------------
</Table>
(19)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
8 PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
AS AT DECEMBER 31,
---------------------------------------------------------------------------------------
2003 2002
----------------------------------------- -----------------------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
$ $ $ $
Land 452 - 459 -
Building 13,575 2,531 13,582 1,920
Equipment 11,552 4,583 10,367 2,341
Office furniture 1,253 696 1,147 579
Computer equipment 1,941 1,552 1,648 778
Automotive equipment 288 100 140 37
---------------------------------------------------------------------------------------
29,061 9,462 27,343 5,655
------------------ ------------------
Less:
Accumulated depreciation 9,462 5,655
------------------- ------------------
19,599 21,688
------------------- ------------------
------------------- ------------------
</Table>
9 INTANGIBLE ASSETS
<Table>
<Caption>
AS AT DECEMBER 31,
---------------------------------------------------------------------------------------
2003 2002
----------------------------------------- -----------------------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
$ $ $ $
Patents and trademarks 71,094 6,685 90,201 1,040
Licences and distribution
agreements 1,203 99 1,206 112
Organization costs 189 189 190 145
---------------------------------------------------------------------------------------
72,486 6,973 91,597 2,297
------------------ ------------------
------------------ ------------------
Less:
Accumulated
amortization 6,973 1,297
------------------- ------------------
65,513 90,300
------------------- ------------------
------------------- ------------------
</Table>
(20)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Changes in the Company's intangible assets are as follows:
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Balance - Beginning of year 90,300 2,065
Adjustment related to purchase price allocation (note 4f) (19,584) -
Acquisitions 599 88,313
Amortization (5,676) (429)
Effect of foreign exchange rate (126) 351
-----------------------------------------
Balance - End of year 65,513 90,300
-----------------------------------------
-----------------------------------------
</Table>
10 GOODWILL
The net carrying value of goodwill is composed as follows:
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Balance - Beginning of year 24,252 22,188
Adjustment related to purchase price allocation (note 4f) 11,594 -
Acquisitions 20,675 1,431
Effect of foreign exchange rate 4,663 633
-----------------------------------------
Balance - End of year 61,184 24,252
-----------------------------------------
-----------------------------------------
</Table>
11 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Trade payable 33,149 27,009
Accrued liabilities on research contracts 2,383 3,747
Interest on convertible term loans 2,250 -
Advance payment related to a licensing agreement 999 1,016
Salaries and employee benefits 2,291 2,250
Deferred revenues 5,564 4,867
Other accrued liabilities 6,426 3,668
-----------------------------------------
53,062 42,557
-----------------------------------------
-----------------------------------------
</Table>
(21)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
12 CONVERTIBLE TERM LOANS
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Term loans bearing interest at an annual rate of 12%, payable annually
or at maturity at the Company's option for which moveable hypothecs on
all assets, with the exception of equipment and shares of a subsidiary,
have been given as collateral. The equity component of the loans, which
corresponds to the holders' option to convert the notes into equity
shares of the Company, was valued at the date of the loans and is
classified as other capital. The loans and the unpaid interest, if any,
are convertible at all times at the holders' option into subordinate
voting shares of the Company at a conversion price of $5.05 per
subordinate voting share up to a maximum of 6,955,089 shares. The
nominal amount of the $25 million loans as well as the unpaid accrued
interest, if not converted by the holders, are repayable by the Company
on March 31, 2006 19,920 -
-----------------------------------------
</Table>
13 LONG-TERM DEBT
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Loan from the federal and provincial governments, non-interest bearing,
payable in five annual equal and consecutive instalments, beginning
in July 2004 4,000 4,000
Loans payable in euros and for which the shares of the subsidiary Unipex
S.A. have been given as collateral euro 1,128,124 (euro 2,225,756
in 2002) bearing interest at LIBOR rate plus
1%, payable in quarterly instalments including principal and
interest, maturing in October 2004 1,836 3,687
euro 2,286,735 (euro 2,286,735 in 2002) bearing interest at EURIBOR
rate plus 2.5%, interest payable annually, maturing in October 2005 3,723 3,788
Unsecured bank loans payable in euros
euro 5,000,000 bearing interest at EURIBOR rate plus 1%, principal
payable in accretion annually from August 2004 and interest
payable half-yearly from February 2004, maturing in August 2008 8,140 -
euro 526,696 bearing interest at a rate of 4.45%, payable in quarterly
instalments including principal and interest, maturing in
January 2008 858 -
-----------------------------------------
(forward) 18,557 11,475
</Table>
(22)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
(brought forward) 18,557 11,475
euro 26,907 bearing interest at a rate of 4.35%, payable in quarterly
instalments including principal and interest, maturing in
January 2006 44 -
Balance of purchase price, non-interest bearing, payable in euros in
monthly instalments of $10,100 (euro 6,098), maturing in July 2006 308 434
Loan from a shareholder of a subsidiary, bearing interest at 4%,
reimbursed during 2003 - 1,262
-----------------------------------------
18,909 13,171
-----------------------------------------
Less: Current portion 3,777 3,202
-----------------------------------------
15,132 9,969
-----------------------------------------
-----------------------------------------
</Table>
The principal instalments due on long-term debt for the next five years
amount to $3,776,708 in 2004, $6,018,780 in 2005, $2,767,161 in 2006,
$3,048,838 in 2007 and $3,296,921 in 2008.
14 EMPLOYEE FUTURE BENEFITS
Some group companies in France and in Germany provide unfunded defined
benefit pension plans for some classes of employees. Provisions for
pension obligations are established for benefits payable in the form of
retirement, disability and surviving dependant pensions. The benefits
offered vary according to the legal, fiscal and economic conditions of
each country.
The following table provides a reconciliation of the changes in the plans'
accrued benefits obligations:
<Table>
<Caption>
PENSION OTHER
BENEFITS BENEFITS
$ $
Obligation - Beginning of year 5,350 692
Current service cost 277 21
Interest cost 287 36
Actuarial loss (gain) 187 (136)
Benefits paid (49) (104)
Business acquisition 95 -
Effect of foreign currency exchange rate changes 2 -
-----------------------------------------
Obligation - End of year 6,149 509
-----------------------------------------
-----------------------------------------
</Table>
(23)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The significant actuarial assumptions adopted to determine the Company's
accrued benefits obligations are as follows:
<Table>
<Caption>
ACTUARIAL ASSUMPTIONS PENSION BENEFITS OTHER BENEFITS
Discount rate 2.5% and 5.75% 5.75%
Pension benefits increase 1.25% 1.25%
Future salary increase 0.5% to 3.75% 2.75%
</Table>
Pensions of former employees are not increased.
With the exception of those offered by Zentaris acquired on December 31,
2002, the employee future benefits maintained by one of the Company's
subsidiaries are not significant and therefore, the disclosures otherwise
required for the years ended December 31, 2001 and 2002 have not been
provided.
15 SHARE CAPITAL
a) Authorized
Unlimited number of shares of the following classes:
Common
Multiple voting shares, voting and participating, ten
votes per share, convertible into one subordinate
voting share at the option of the holder
Subordinate voting shares, voting and participating, one vote
per share
Preferred, first and second ranking, issuable in series, with
rights and privileges specific to each class.
As at December 31, 2003, there are neither multiple voting shares nor
preferred shares issued and outstanding.
(24)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
b) Issued
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------------------------------------------------
2003 2002 2001
--------------------------- --------------------------- ---------------------------
AMOUNT AMOUNT NUMBER AMOUNT
NUMBER $ NUMBER $ $
MULTIPLE VOTING SHARES
Balance - Beginning of year 4,727,100 1,862 4,852,723 1,911 4,852,723 1,911
Conversion of shares (4,727,100) (1,862) (125,623) (49) - -
-----------------------------------------------------------------------------------
Balance - End of year - - 4,727,100 1,862 4,852,723 1,911
-----------------------------------------------------------------------------------
SUBORDINATE VOTING SHARES
Balance - Beginning of year 35,961,927 151,716 27,978,321 95,602 25,219,151 78,097
Conversion of shares 4,727,100 1,862 125,623 49 - -
Issued pursuant to the
stock option plan 141,965 1,030 257,983 1,189 802,170 3,803
Issued pursuant to a
private placement - - 7,600,000 56,253 - -
Issued pursuant to
public offerings 4,500,000 35,550 - - 1,957,000 15,656
Share issue expenses - (2,557) - (1,377) - (1,954)
-----------------------------------------------------------------------------------
Balance - End of year 45,330,992 187,601 35,961,927 151,716 27,978,321 95,602
-----------------------------------------------------------------------------------
TOTAL SHARE CAPITAL 45,330,992 187,601 40,689,027 153,578 32,831,044 97,513
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</Table>
c) Common share issues
Effective on May 29, 2003, all the multiple voting shares were
converted into the same number of subordinate voting shares.
On July 24, 2003, pursuant a bought deal, the Company issued
4,500,000 subordinate voting shares at a price of $7.90 per share for
gross proceeds of $35,550,000. Pursuant to the exercise of stock
options, the Company issued 141,965 subordinate voting shares at an
average of $7.25 per share for proceeds of $1,029,630.
On April 9, 2002, pursuant to a private placement, the Company issued
7,600,000 subordinate voting shares at prices ranging from $7.40 to
$7.45 per share for gross proceeds of $56,253,333. Pursuant to the
exercise of stock options, the Company issued 257,983 common shares
at an average price of $4.60 per share for proceeds of $1,188,722.
In 2001, pursuant to a public offering, the Company issued 1,957,000
subordinate voting shares at a price of $8.00 per share for gross
proceeds of $15,656,000. Pursuant to the exercise of stock options,
the Company issued 802,170 common shares at an average price of $4.74
per share for proceeds of $3,803,051.
(25)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
d) Company's stock option plan
In December 1995, the Company's Board of Directors adopted a stock
option plan for its directors, senior executives, employees and other
collaborators providing services to the Company. The number of shares
that are issuable under the plan shall not exceed 4,069,352. Options
granted under the plan expire after a maximum period of ten years
following the date of grant. Options granted under the plan generally
vest over a three-year period.
The following table summarizes the stock option activity under this
plan:
<Table>
<Caption>
2003 2002 2001
--------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
$ $ $
Balance - Beginning of
year 2,949,872 6.96 2,877,671 7.05 2,641,591 6.01
Granted 1,074,564 4.09 1,048,895 5.97 1,441,350 8.04
Exercised (141,965) 7.25 (257,983) 4.61 (802,170) 4.74
Expired (172,285) 5.74 (382,129) 6.19 (186,100) 9.35
Forfeited (512,751) 7.07 (336,582) 7.35 (217,000) 7.56
-----------------------------------------------------------------------------------
Balance - End of year 3,197,435 6.02 2,949,872 6.96 2,877,671 7.05
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Options exercisable -
End of year 1,272,574 7.05 1,025,640 6.92 1,315,080 5.97
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</Table>
The following table summarizes the stock options outstanding as at
December 31, 2003:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS CURRENTLY EXERCISABLE
---------------------------------------------------- -------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE PRICE EXERCISE PRICE
EXERCISE PRICE NUMBER LIFE $ NUMBER $
$3.75 to $7.00 2,119,710 8.39 4.98 673,392 5.42
$7.01 to $10.00 969,225 5.01 8.17 490,682 8.33
$10.01 to $14.35 108,500 1.42 11.22 108,500 11.22
------------------------------------------------------------------------------------------
3,197,435 7.13 6.02 1,272,574 7.05
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</Table>
In 2003, the Company granted to certain collaborators 30,000 options
(40,000 in 2002) with a fair value of $76,018 ($107,032 in 2002)
which have been recorded as other capital.
(26)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
ASSUMPTIONS USED IN DETERMINING STOCK-BASED COMPENSATION COSTS
The table below shows the assumptions used in determining stock-based
compensation costs under the Black-Scholes option pricing model:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-----------------------------------------
2003 2002
Dividend yield Nil Nil
Expected volatility 64.3% 57.0 %
Risk-free interest rate 3.96% 3.72 %
Expected life (years) 3.92 2.7
Number of stock options granted 1,074,564 1,048,895
Weighted average fair value of options granted ($) 2.03 2.29
-----------------------------------------
COMPENSATION COSTS ($) 444,935 257,489
-----------------------------------------
-----------------------------------------
</Table>
Had compensation costs been determined using the fair value method at
the date of grant for awards granted during 2002 under this stock
option plan, the Company's pro-forma net loss, basic and diluted loss
per share for the year ended December 31, 2003 would have been
$29,368 and $0.68 ($26,039 and $0.67 in 2002).
e) Atrium's stock option plan
On November 1, 2000, the Board of Directors of Atrium adopted a stock
option plan for its directors and employees providing services to
Atrium. The exercise price of these options is equivalent to their
fair value established annually from a specific formula and approved
by the Board of Directors. The number of shares that are issuable
under the plan shall not exceed 650,000. Options granted under the
plan generally vest over a five-year period, with 20% vesting on an
annual basis starting on the first anniversary of the date of grant,
and they expire after a maximum period of ten years following the
date of grant.
The Company's ownership percentage of the subsidiary will change as a
result of future exercises of stock options and outstanding
subsidiary stock options may dilute the Company's share of profits in
the calculation of loss per share.
(27)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The following table summarizes the stock option activity under this
plan:
<Table>
<Caption>
2003 2002 2001
------------------------------- ----------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
NUMBER $ NUMBER $ NUMBER $
Balance -
Beginning of
year 578,500 10.97 545,500 10.78 347,500 10.00
Granted 30,000 12.29 60,000 12.29 230,000 11.84
Exercised (2,000) 10.00 - - - -
Forfeited (9,000) 11.27 (27,000) 10.00 (32,000) 10.00
-------------------------------------------------------------------------------------------
Balance - End of
year 597,500 11.03 578,500 10.97 545,500 10.78
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Options
exercisable -
End of year 280,000 10.66 155,500 10.36 66,500 10.00
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</Table>
The following table summarizes the stock options outstanding as at
December 31, 2003:
<Table>
<Caption>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
CONTRACTUAL PRICE PRICE
EXERCISE PRICE NUMBER LIFE $ NUMBER $
$10.00 327,500 6.19 10.00 199,500 10.00
$12.29 270,000 8.13 12.29 80,500 12.29
--------------------------------------------------------------------------------
597,500 7.07 11.03 280,000 10.66
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</Table>
f) Warrants
Pursuant to the April 9, 2002 private placement, the Company issued
7,466,666 warrants for subordinate voting shares of the Company at a
price of $0.10 per warrant for an amount of $746,667. Expiring March
31, 2003, 3,800,000 warrants may be exercised at a price of $13.00
per share and 3,666,666 warrants, expiring December 31, 2003 may be
exercised at a price of $20.00 per share subject to certain
conditions. Those warrants have now expired.
(28)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
16 STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
Change in non-cash operating working capital items
Accounts receivable (1,071) (6,048) (879)
Inventory 3,670 (960) (904)
Prepaid expenses and deferred charges (956) (212) (497)
Accounts payable and accrued liabilities (3,884) 2,603 431
Income taxes (275) 983 (478)
----------------------------------------------------------------
(2,516) (3,634) (2,327)
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
17 GRANTS
Under the federal contribution program called Technology Partnerships
Canada ("TPC"), the Company received a grant equivalent to 30% of the
eligible expenses incurred by the Company in the development of AE-941 in
oncology, dermatology and ophthalmology to a maximum of $29,400,000. This
contribution will be repaid only upon the approval by Canadian or American
health authorities of AE-941 derived products for each indication
according to the corresponding generated income. Royalties will be paid
based on a percentage of gross project revenues under the terms and
conditions stipulated in the agreements entered into between TPC and the
Company.
As at December 31, 2003, grants (reimbursement of grants) in the amount of
($539,571) [$103,125 in 2002 and $4,354,839 in 2001] have been recognized,
of which an amount of ($545,120) [$103,125 in 2002 and $4,261,965 in 2001]
has been recorded as a grant (reimbursement of grants) in the statement of
operations, nil [nil in 2002 and $36,098 in 2001] as a decrease in
property, plant and equipment and $5,549 [nil in 2002 and $56,776 in 2001]
as a decrease in intangible assets. If the Company has to repay this
contribution, the payments will be accounted for as an expense or in
addition to property, plant and equipment or intangible assets in the
period the condition for repayment has arisen. As at December 31, 2002, a
reimbursement of grants, in the amount of $323,599 has been accounted for
in addition to intangible assets.
During the period from January 1, 1999 to December 31, 2003, the Company
recognized total grants of $14,334,082 of which an amount of $13,493,504
has been recorded as a grant in the statement of operations, $756,898 as a
decrease in property, plant and equipment and $83,680 as a decrease in
intangible assets.
(29)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
18 INCOME TAXES
The reconciliation of the combined Canadian federal and Quebec provincial
income tax rate to the income tax expense (recovery) is as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
Combined federal and provincial statutory
income tax rate 33.05% 35.16% 37.16%
----------------------------------------------------------------
----------------------------------------------------------------
Income tax recovery based on statutory income6,756
tax rate $ (6,129) $ (6,396) $ (5,516)
Manufacturing and processing tax credit 678 1,162 691
Non-deductible interest expense - - 162
Change in valuation allowance 10,557 9,487 (124)
Accretion on convertible term loans 386 - -
Stock-based compensation costs 138 - -
Variation in statutory income tax rate of
foreign subsidiaries 224 (50) 126
Change in promulgated rate 340 357 -
Additional tax deduction (113) (108) (12)
Other (149) (27) (79)
----------------------------------------------------------------
$ 5,932 4,425 $ (4,752)
----------------------------------------------------------------
----------------------------------------------------------------
Income tax expense (recovery) is represented
by:
Current $ 3,859 $ 2,565 $ 922
Future 2,073 1,860 (5,674)
----------------------------------------------------------------
$ 5,932 $ 4,425 $ (4,752)
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
(30)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Significant components of future income tax assets and liabilities are as
follows:
<Table>
<Caption>
AS AT DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
Future income tax assets
Current
Deferred revenues 2,134 - -
Acquisition costs 470 - -
Other - 1,682 30
----------------------------------------------------------------
2,604 1,682 30
----------------------------------------------------------------
Long-term
Research and development costs 12,489 9,554 7,502
Share issue expenses 1,173 1,016 1,071
Operating losses carried forward 21,916 14,914 2,858
Property, plant and equipment 289 - -
Intangible assets and goodwill 3,084 4,390 5,780
Employee future benefits 509 425 -
Deferred revenues 4,349 6,749 -
Other 63 - -
----------------------------------------------------------------
43,872 37,048 17,211
Valuation allowance (30,356) (19,799) (10,312)
----------------------------------------------------------------
13,516 17,249 6,899
----------------------------------------------------------------
16,120 18,931 6,929
----------------------------------------------------------------
Future income tax liabilities
Property, plant and equipment - 347 575
Deferred charges 504 556 -
Intangible assets 25,487 34,372 -
----------------------------------------------------------------
25,991 35,275 575
----------------------------------------------------------------
FUTURE INCOME TAX ASSETS (LIABILITIES), NET (9,871) (16,344) 6,354
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
As at December 31, 2003, the Company has non-refundable research and
development tax credits of $12,489,000 which can be carried forward to
reduce Canadian federal income taxes payable and expire at the latest in
2013. No tax benefit has been accounted for in connection with those
credits.
The carryforwards and the tax credits claimed could be subjected to a
review and a possible adjustment by the Canadian federal and Quebec
provincial tax authorities.
The majority of the loss carryforwards will expire no later than December
31, 2010.
(31)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
19 SEGMENT INFORMATION
The Company manages its business and evaluates performance based on three
operating segments, which are the biopharmaceutical, the cosmetics and
nutrition and the distribution segments. The accounting principles used
for these three segments are consistent with those used in the preparation
of these consolidated financial statements.
INFORMATION BY GEOGRAPHIC REGION
Revenues by geographic region are detailed as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
Canada 951 1,301 481
United States 6,395 4,671 3,894
Europe
Switzerland 20,424 - -
France 101,046 83,915 30,810
Other 29,458 6,450 4,021
Asia 7,448 4,385 4,317
Other 691 482 254
----------------------------------------------------------------
166,413 101,204 43,777
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
Revenues have been allocated to geographic regions based on the country of
residence of the related customers.
Long-lived assets by geographic region are detailed as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
Canada 18,785 20,688 16,025
United States 1,578 1,543 1,234
France 49,824 24,186 22,398
Germany 76,109 89,823 -
----------------------------------------------------------------
146,296 136,240 36,657
----------------------------------------------------------------
----------------------------------------------------------------
</Table>
Long-lived assets consist of property, plant and equipment, intangible
assets and goodwill.
(32)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
THE PRINCIPAL FINANCIAL INFORMATION FOR EACH OF THESE SEGMENTS IS AS
FOLLOWS:
<Table>
<Caption>
2003
------------------------------------------------------------------------------------
BIOPHAR- COSMETICS AND CONSOLIDATED
MACEUTICAL NUTRITION DISTRIBUTION ADJUSTMENTS TOTAL
$ $ $ $ $
REVENUES 46,106 15,291 105,526 (510) 166,413
------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 6,756 2,509 88,772 11 98,048
Selling, general and administrative 15,478 5,046 8,653 (74) 29,103
Research and development costs 44,670 677 - - 45,347
Research and development tax credits and grants (943) (280) - - (1,223)
Depreciation and amortization 8,824 222 375 - 9,421
------------------------------------------------------------------------------------
74,785 8,174 97,800 (63) 180,696
------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (28,679) 7,117 7,726 (447) (14,283)
OTHER REVENUES (EXPENSES)
Interest income 1,763 201 182 - 2,146
Interest expense (4,288) - (547) - (4,835)
Foreign exchange gain (loss) (145) (978) (451) - (1,574)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (31,349) 6,340 6,910 (447) (18,546)
INCOME TAX RECOVERY (EXPENSE) (1,154) (2,111) (2,667) - (5,932)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE THE FOLLOWING ITEMS (32,503) 4,229 4,243 (447) (24,478)
Gain (loss) on dilution 2 (66) - - (64)
Non-controlling interest - (1,592) (2,184) 171 (3,605)
------------------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE YEAR (32,501) 2,571 2,059 (276) (28,147)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SEGMENT ASSETS 179,882 15,565 100,434 (102) 295,779
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
GOODWILL 11,585 3,100 46,499 - 61,184
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF LONG-LIVED ASSETS
EXCLUDING GOODWILL 1,723 51 48 - 1,822
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF GOODWILL 11,585 1,507 19,177 - 32,269
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</Table>
One customer from the distribution segment represents more than 10% of the
Company's revenues for which the sales represent 11% (13% in 2002 and 12% in
2001).
One customer from the biopharmaceutical segment represents more than 10% of the
Company's revenues for which the sales represent 12% in 2003.
(33)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
<Table>
<Caption>
2002
------------------------------------------------------------------------------------
BIOPHAR- COSMETICS AND CONSOLIDATED
MACEUTICAL NUTRITION DISTRIBUTION ADJUSTMENTS TOTAL
$ $ $ $ $
REVENUES 315 13,386 87,859 (356) 101,204
------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales - 2,308 75,476 (341) 77,443
Selling, general and administrative 7,536 4,327 5,914 - 17,777
Research and development costs 25,269 793 - - 26,062
Research and development tax credits and grants (1,599) (334) - - (1,933)
Depreciation and amortization 1,999 114 308 - 2,421
------------------------------------------------------------------------------------
33,205 7,208 81,698 (341) 121,770
------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (32,890) 6,178 6,161 (15) (20,566)
OTHER REVENUES (EXPENSES)
Interest income 2,510 272 297 - 3,079
Interest expense (2) - (506) - (508)
Foreign exchange gain (loss) 5 (23) (177) - (195)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (30,377) 6,427 5,775 (15) (18,190)
INCOME TAX RECOVERY (EXPENSE) - (2,435) (1,990) - (4,425)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE THE FOLLOWING ITEMS (30,377) 3,992 3,785 (15) (22,615)
Gain (loss) on dilution 424 - - - 424
Non-controlling interest - (1,482) (2,109) - (3,591)
------------------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE YEAR (29,953) 2,510 1,676 (15) (25,782)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SEGMENT ASSETS 244,709 25,016 62,411 (1,168) 330,968
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
GOODWILL - 1,519 22,733 - 24,252
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF LONG-LIVED ASSETS
EXCLUDING GOODWILL 95,488 1,109 244 - 96,841
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF GOODWILL - 312 1,119 - 1,431
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</Table>
(34)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
<Table>
<Caption>
2001
------------------------------------------------------------------------------------
BIOPHAR- COSMETICS AND CONSOLIDATED
MACEUTICAL NUTRITION DISTRIBUTION ADJUSTMENTS TOTAL
$ $ $ $ $
REVENUES - 11,367 82,629 (219) 43,777
------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales - 1,913 28,172 (135) 29,950
Selling, general and administrative 6,542 3,983 2,514 - 13,039
Research and development costs 22,063 618 - - 22,681
Research and development tax credits and grants (5,774) (215) - - (5,980)
Depreciation and amortization 1,437 179 234 - 1,850
------------------------------------------------------------------------------------
24,268 6,478 30,920 (135) 61,531
------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (24,268) 4,889 1,709 (84) (17,754)
OTHER REVENUES (EXPENSES)
Interest income 2,371 840 358 - 3,569
Interest expense (437) - (349) - (786)
Foreign exchange gain (loss) 92 100 (65) - (127)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (22,242) 5,829 1,653 (84) (14,844)
INCOME TAX RECOVERY (EXPENSE) - (5,468) (716) - (4,752)
------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE THE FOLLOWING ITEMS (22,242) 11,297 937 (84) (10,092)
Gain (loss) on dilution 10,223 - - - 10,223
Non-controlling interest - (3,186) (414) - (3,600)
------------------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE YEAR (12,019) 8,111 523 (84) (3,469)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SEGMENT ASSETS 64,097 18,729 51,902 (376) 134,352
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
GOODWILL - 1,206 20,982 - 22,188
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF LONG-LIVED ASSETS
EXCLUDING GOODWILL 753 183 18 - 954
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
ACQUISITION OF GOODWILL - - 19,576 - 19,576
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</Table>
(35)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
20 LOSS PER SHARE
The following table summarizes the reconciliation of the basic weighted
average number of shares outstanding and the diluted weighted average
number of shares outstanding used in the diluted net loss per share
calculation:
<Table>
<Caption>
2003 2002 2001
BASIC WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 42,993,432 38,584,537 30,968,710
Diluted effect of stock options 118,953 142,098 615,650
----------------------------------------------------------------
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 43,112,385 38,726,635 31,584,360
----------------------------------------------------------------
----------------------------------------------------------------
ITEMS EXCLUDED FROM THE CALCULATION OF DILUTED
NET LOSS PER SHARE BECAUSE THE EXERCISE
PRICE WAS GREATER THAN THE AVERAGE MARKET
PRICE OF THE COMMON SHARES OR DUE TO
THEIR ANTI-DILUTIVE EFFECT
Stock options 1,281,183 1,298,349 283,503
Subordinate voting shares which would be
issued following the conversion of
the convertible term loans 3,712,871 - -
</Table>
For the years ended December 31, 2003, 2002 and 2001, the diluted net loss
per share was the same as the basic net loss per share since the dilutive
effect of stock options and convertible term loans was not included in the
calculation; otherwise, the effect would have been anti-dilutive.
Accordingly, the diluted net loss per share for those years was calculated
using the basic weighted average number of shares outstanding.
(36)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
21 FINANCIAL INSTRUMENTS
SHORT-TERM INVESTMENTS
<Table>
<Caption>
2003 2002
$ $
Discount notes and commercial paper, bearing interest at effective annual
rates ranging from 2.44% to 3.49% in 2003 and from 2.42% to 4.54% in
2002, maturing on different dates from April 2004 to August 2005 in
2003 and from January 2003 to February 2007 in 2002 8,521 13,964
Bonds, bearing interest at effective annual rates ranging from 2.31% to
4.79% in 2003 and from 3.09% to 7.08% in 2002, maturing on different
dates from February 2004 to April 2007 in 2003 and from February 2003
to April 2012 in 2002 33,432 55,076
-----------------------------------------
41,953 69,040
-----------------------------------------
-----------------------------------------
</Table>
FOREIGN CURRENCY RISK
Since the Company operates on an international scale, it is exposed to
currency risks as a result of potential exchange rate fluctuations. As at
December 31, 2003, there are no significant outstanding forward exchange
contracts.
FAIR VALUE
Cash and cash equivalents, short-term investments, accounts receivable,
accounts payable and accrued liabilities and balances of purchase price
are financial instruments whose fair value approximates their carrying
value due to their short-term maturity. The fair value of short-term
investments is $42,046,465 ($69,925,301 in 2002). The fair value of
long-term debt and convertible term loans has been established by
discounting the future cash flows at an interest rate corresponding to
that which the Company would currently be able to obtain for loans with
similar maturity dates and terms. The fair value of long-term debt and
convertible term loans is $45,727,332 ($13,427,346 in 2002).
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and accounts receivable. Cash and cash
equivalents are maintained with high-credit quality financial
institutions. Short-term investments consist primarily of bonds issued by
high-credit quality corporations and institutions. Consequently,
management considers the risk of non-performance related to cash and cash
equivalents and short-term investments to be minimal.
(37)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Generally, the Company does not require collateral or other security from
customers for trade accounts receivable; however, credit is extended
following an evaluation of creditworthiness. In addition, the Company
performs on-going credit reviews of all its customers and establishes an
allowance for doubtful accounts when accounts are determined to be
uncollectible.
INTEREST RATE RISK
The Company's exposure to interest rate risk is as follows:
<Table>
Cash and cash equivalents Variable interest rate
Short-term investments Fixed interest rate
Accounts receivable Non-interest bearing
Unused lines of credit Prime rate and 8%
Accounts payable and accrued liabilities Non-interest bearing
Balances of purchase price Non-interest bearing
Convertible term loans As described in note 12
Long-term debt As described in note 13
</Table>
22 COMMITMENTS
The Company is committed to various operating leases totalling $2,595,000
in 2004, $1,859,000 in 2005, $1,818,000 in 2006 and $1,696,000 in 2007 and
in 2008.
The Company is also committed to some service and manufacturing contracts
totalling $3,105,000 in 2004 and $2,934,000 in 2005.
23 SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND IN THE UNITED STATES
As a registrant with the Securities and Exchange Commission in the United
States, the Company is required to reconcile its financial statements for
significant differences between generally accepted accounting principles
as applied in Canada (Canadian GAAP) and those applied in the United
States (U.S. GAAP).
Additional disclosures required under U.S. GAAP have been provided in the
accompanying financial statements and notes. In addition, the following
summarizes differences between Canadian and U.S. GAAP and other required
disclosures under U.S. GAAP.
(38)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The following summary sets out the material adjustments to the Company's
reported net loss, net loss per share and shareholders' equity which would
be made to conform with U.S. GAAP:
STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001
$ $ $
Net loss for the year under Canadian GAAP (28,147) (25,782) (3,469)
Stock-based compensation costs a) (64) (254) (256)
Accretion on convertible term loans f) 1,245 - -
In-process R&D, net of related future income taxes d) (16,276) - -
Amortization of in-process R&D 1,266 - -
Financing costs allocated to other capital f) (34) - -
Interest expense b) - - 437
Amortization of organization costs c) 45 87 41
--------------------------------------------------------------
Net loss for the year under U.S. GAAP (41,965) (25,949) (3.247)
--------------------------------------------------------------
Other comprehensive loss
Unrealized gains on short-term investments e) 94 885 869
Less: Reclassification of adjustments for gains
realized in net loss (885) (1,390) -
--------------------------------------------------------------
Net unrealized losses (gains) (791) (505) 869
--------------------------------------------------------------
Foreign currency translation adjustments 3,277 580 188
--------------------------------------------------------------
Comprehensive loss (39,479) (25,874) (2,190)
--------------------------------------------------------------
--------------------------------------------------------------
Basic and diluted net loss per share under U.S. GAAP (0.92) (0.67) (0.10)
--------------------------------------------------------------
--------------------------------------------------------------
Weighted average number of shares outstanding under
U.S. GAAP 42,993,432 38,584,537 30,968,710
--------------------------------------------------------------
--------------------------------------------------------------
</Table>
(39)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
STATEMENTS OF DEFICIT
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001
$ $ $
Deficit in accordance with Canadian GAAP (73,011) (44,864) (19,082)
Stock-based compensation costs
Current year a) (64) (254) (256)
Cumulative effect of prior years (4,898) (4,644) (4,388)
Accretion on convertible term loans
Current year f) 1,245 - -
In-process R&D, net of related future income taxes d) (16,276) - -
Amortization of in-process R&D, net of related
income taxes 1,266 - -
Amortization of financing costs allocated to other
capital f) (34) - -
Amortization of organization costs
Current year c) 45 87 41
Cumulative effect of prior years 128 41 -
---------------------------------------------------------------
Deficit in accordance with U.S. GAAP (91,599) (49,634) (23,685)
---------------------------------------------------------------
---------------------------------------------------------------
</Table>
SHARE CAPITAL
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Share capital in accordance with Canadian GAAP 187,601 153,578
Stock-based compensation costs related to stock option plan for
underwriting compensation
Current year - -
Cumulative effect of prior years (896) (896)
-----------------------------------------
Share capital in accordance with U.S. GAAP 186,705 152,682
-----------------------------------------
-----------------------------------------
</Table>
(40)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
OTHER CAPITAL
<Table>
<Caption>
AS AT DECEMBER 31,
-----------------------------------------
2003 2002
$ $
Other capital in accordance with Canadian GAAP 7,486 854
Reclassification of convertible term loans (6,325) -
Reclassification of financing costs related to convertible term loans 137 -
Stock-based compensation costs
Current year a) 64 254
Cumulative effect of prior years 4,898 4,644
Stock-based compensation costs related to stock option plan for
underwriting compensation
Current year a) - -
Cumulative effect of prior years 896 896
-----------------------------------------
Other capital in accordance with U.S. GAAP 7,156 6,648
-----------------------------------------
-----------------------------------------
</Table>
ACCUMULATED OTHER COMPREHENSIVE INCOME
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001
$ $ $
Foreign currency translation adjustments
Balance - Beginning of year 768 188 -
Change during the year 3,277 580 188
---------------------------------------------------------------
Balance - End of year 4,045 768 188
---------------------------------------------------------------
Unrealized gains (losses) on short-term investments
and forward exchange contracts
Balance - Beginning of year 885 1,390 521
Change during the year (791) (505) 869
---------------------------------------------------------------
Balance - End of year 94 885 1,390
---------------------------------------------------------------
Accumulated other comprehensive income 4,139 1,653 1,578
---------------------------------------------------------------
---------------------------------------------------------------
</Table>
(41)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
BALANCE SHEETS
The following table summarizes the significant differences between the
balance sheet items under Canadian GAAP as compared to U.S. GAAP as at
December 31, 2003 and 2002:
<Table>
<Caption>
AS AT DECEMBER 31, 2003 AS AT DECEMBER 31, 2002
--------------------------------- ---------------------------------
AS REPORTED U.S. GAAP AS REPORTED U.S. GAAP
$ $ $ $
Intangible assets d) 65,513 40,132 90,300 90,300
Convertible term loans f) 19,920 25,000 - -
Future income tax liabilities d) 25,991 15,620 35,275 35,275
Shareholders' Equity
Share capital 187,601 186,705 153,578 152,682
Other capital f) 7,486 7,156 854 6,648
Deficit (73,011) (91,599) (44,864) (49,634)
Cumulative translation adjustment 4,045 - 768 -
Accumulated other comprehensive income - 4,139 - 1,653
</Table>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2002 and 2001, there are no
significant differences between the statements of cash flows under
Canadian GAAP as compared to U.S. GAAP.
(42)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
a) STOCK-BASED COMPENSATION
Through December 31, 2002, the Company and its subsidiaries accounted
for their stock-based compensation plan under the intrinsic value
method in accordance with APB 25. There is no expense recognized for
stock options as they were granted at the stock price on the grant
date and, therefore they have no intrinsic value. Effective January
1, 2003, the Company has adopted Statement of Financial Accounting
Standard ("SFAS") No. 123 using the prospective transition method.
SFAS 123 requires all stock-based compensation awards, including
stock options, to be accounted for at fair value. Under this
prospective transition method, all new awards granted to employees on
or after January 1, 2003 are accounted for at fair value. Awards
outstanding as of December 31, 2002, if not subsequently modified,
continue to be accounted for under APB 25. Fair value is based on a
Black-Scholes valuation model with compensation costs recognized in
earnings over the required service period. The Company provides
additional pro-forma disclosures as required under SFAS No.123 for
stock options granted before the adoption of this standard.
As required under Canadian GAAP, all stock-based compensation awards
granted since January 1, 2003 have been expensed in the financial
statements using the fair value method. Pro-forma disclosures are
required for stock options granted to employees from January 1, 2002
to December 31, 2002.
b) REDEEMABLE COMMON SHARES OF THE SUBSIDIARY
As required under Canadian GAAP, redeemable common shares of the
subsidiary, issued in 2000, that were redeemable at the option of the
holders were classified as liabilities in accordance with the
substance of the contractual arrangement and the definition of a
financial liability, and the accretion of the redeemable common
shares is recorded as interest expense. Under U.S. GAAP, those shares
are considered as "mandatorily redeemable"; they were then classified
outside of shareholders' equity and long-term liabilities, in the
mezzanine section of the balance sheet. Interest expense was charged
to deficit.
c) ORGANIZATION COSTS
Under U.S. GAAP, all organization costs are expensed as incurred.
Under Canadian GAAP, organization costs are accounted for as
intangible assets and are amortized on a straight-line basis over a
five-year period.
d) RESEARCH AND DEVELOPMENT COSTS
Under U.S. GAAP, all development costs are expensed as incurred.
Under Canadian GAAP, development costs which meet generally accepted
criteria for deferral are capitalized and amortized. As at December
31, 2003, the Company had not deferred any development costs.
(43)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
Furthermore, under U.S. GAAP, in-process research and development
acquired in a business combination is written off at the time of
acquisition and no future income taxes are recognized on this asset
in the purchase price allocation process. Under Canadian GAAP,
in-process research and development acquired in a business
combination is capitalized and amortized over its estimated useful
life. Future income taxes are recognized on the acquisition date on
that asset in the purchase price allocation process.
e) SHORT-TERM INVESTMENTS
Short-term investments, which are classified as available-for-sale
securities, include the Company's investment in bonds for which the
Company does not have the positive intent or ability to hold to
maturity. Under U.S. GAAP, available-for-sale securities are carried
at fair value with unrealized gains and losses net of the related tax
effects as part of other comprehensive loss.
Under Canadian GAAP, short-term investments are valued at the lower
of amortized cost and market value.
f) CONVERTIBLE TERM LOANS
Under Canadian GAAP, proceeds from the issuance of convertible term
loans are allocated among long-term convertible term loans and
shareholder's equity, resulting in a debt discount that is amortized
to expense over the term of the loans. The financing costs related to
those loans have been allocated on a pro-rata basis between deferred
charges and other capital. Under U.S. GAAP, those costs are all
included in deferred charges and amortized over the term of the
loans, and convertible term loans are totally considered as long-term
debt.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Under U.S. GAAP, the Company shall measure compensation cost related to
awards of stock options using the intrinsic value method of accounting. In
this instance, however, under SFAS 123, Accounting for Stock-Based
Compensation, the Company is required to make pro-forma disclosures of net
earnings (loss), basic net earnings (loss) per share and diluted net
earnings (loss) per share as if the fair value based method of accounting
had been applied.
The fair value of options granted was estimated using the Black-Scholes
options pricing model with the following weighted average assumptions: a
risk-free interest rate of 3.72% for 2002 and 5.1% for 2001, an expected
volatility of 57% for 2002 and 60% for 2001, dividends of nil and an
expected life of 2.7 years for 2002 and 4.7 years for 2001. The weighted
average grant-date fair value of options granted during the years ended
December 31, 2002 and 2001 was $2.29 and $4.16, respectively.
(44)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars,
except share/option and per share/option data and as otherwise noted)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
If the fair value based method had been used to account for stock-based
compensation costs related to stock options issued to employees before
January 1, 2003, the net loss and related net loss per share figures under
U.S. GAAP would be as follows:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001
$ $ $
Pro-forma net loss for the year 43,187 26,206 3,916
Basic and diluted pro-forma net loss per share 1.00 0.68 0.13
</Table>
RENTAL EXPENSES
Rental expenses amounted to approximately $2,611,000 in 2003 ($171,000 in
2002 and $121,000 in 2001).
UNAUDITED PRO-FORMA INFORMATION ON BUSINESS ACQUISITIONS
Under U.S. GAAP, pro-forma information must be provided as though the
business acquisition had occurred at the beginning of the reported
periods.
The following unaudited pro-forma information reflects the results of
operations as if the 2002 acquisitions had been completed on January 1,
2002.
Such information is not necessarily indicative of the actual results which
would have been achieved, nor is it necessarily indicative of future
consolidated results of the Company:
<Table>
<Caption>
$
(UNAUDITED)
Revenues 132,872
Net loss (36,985)
Basic and diluted net loss per share (0.96)
</Table>
The acquisitions made in 2003 are considered insignificant for pro-forma
information purposes.
(45)
<Page>
AETERNA LABORATORIES INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2003, 2002 AND 2001
- -------------------------------------------------------------------------------
24 COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
current year presentation.
25 SUBSEQUENT EVENT
On March 3, 2004, Atrium, through its new incorporated subsidiary, Atrium
Pureco, Inc., completed the acquisition of the operating assets of Pure
Encapsulations, Inc. for a total consideration of approximately
US$37,100,000 ($50,000,000) of which an amount of US$35,000,000 will be
paid cash and US$2,100,000 as a balance of purchase price. This company,
based in the United States, is focused mainly on the development,
manufacturing and marketing of nutritional supplements geared towards
physicians and other healthcare professionals. The financing of the
transaction resulted from the issuance of a senior debt of $27,000,000 and
a subordinate debt in the amount of $13,407,000.
This acquisition will be accounted for using the purchase method and the
results of operations will be included in the consolidated financial
statements of the Company from the date of acquisition, being March 3,
2004.
(46)