TSX-V: CZO
Annual Report 2014
● ●
● ● Table of contents
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .1
Unique Bioprocessing Expertise . . . . . . . . . . . . . . . . . .3
From Field to Formulation . . . . . . . . . . . . . . . . . . . . . . .4
From Plant to Pill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Management’s Discussion and Analysis . . . . . . . . . . . .7
Consolidated Financial Statements . . . . . . . . . . . . . . . .24
Notes to Consolidated Financial Statements . . . . . . . . .31
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . .58
14MAY201322075453
Ceapro Inc.
is a Canadian biotechnology company involved in the
development of proprietary extraction technology and the application of this
technology to the production of extracts and ‘‘active ingredients’’ from oats and other
renewable plant resources. Ceapro adds further value to its extracts by supporting
their use in cosmeceutical, nutraceutical, and therapeutics products for humans and
animals. The Company has a broad range of expertise in natural product chemistry,
microbiology, biochemistry, immunology and process engineering. These skills merge
in the fields of active ingredients, biopharmaceuticals and drug-delivery solutions.
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders
We are very pleased to report that 2014 was operationally record-breaking on many fronts for your company.
“Upward to Greater Heights,” fittingly describes the best ever financial results in Ceapro’s history where year over year
revenues and net profit increased by 36% and 806%, respectively.
These financial results were achieved because of an all time increased demand for our flagship products, avenanth-
ramides, even while maintaining investments in selected new product development.
Much time and effort was focused on advancing the realization of our new state-of-the-art manufacturing facility.
Our offices and laboratories were moved to the new site in 2014 and the successful completion, implementation, and
commissioning of the production area remains our top priority for 2015. An additional team of experts was hired to
complete this critical project and we anticipate starting producing first validation trials during the second half of 2015.
Keeping the business up and running while implementing a special project is always a major challenge. We are thank-
ful and proud of our dedicated employees who have successfully delivered on increased demand in a timely manner.
This is evidence of what we can expect from our competent team when we transition and operate from our new facility.
Further, in order to minimize start-up risks and to comply with strict technical requirements from our major custom-
ers, we will run our two plants in parallel until the end of 2015. We shall also continue to build up inventory for our key
product, avenanthramides, for which we expect another solid year in 2015.
Moving forward, while we have temporarily slowed the pace of our research and development programs with dry for-
mulations of our value drivers, avenanthramides and beta glucan due to the site transition project, we expect to pur-
sue their development as active ingredients to serve large, well-established, and growing markets such as functional
foods, drinks, and nutraceuticals.
Our strategic transition to the functional food and/or nutraceutical sectors will represent a significant opportunity for
Ceapro in the near and long term.
Moreover, we shall initiate a research program with our proprietary PGX platform technology for which we have
recently obtained the worldwide rights for all industrial applications. We view this as a potential game-changer for
Ceapro and expect to invest the necessary resources to advance this program as quickly as possible.
Looking at key accomplishments in 2014, we are very proud of our dedicated team who achieved the following:
• Financial Results vs. 2013
Total Sales
Income from Operations
Net Profit
Cash from Operations
$8,890,000 vs. $6,524,000
$2,000,000 vs. $ 447,000
$1,594,000 vs. $ 176,000
$2,443,000 vs. $ 490,000
4
1
• Signed a Development and Licensing Agreement with the University of Alberta for the use of an enabling Pres-
surized Gas eXpansion (PGX) Technology for the development and large scale production of dry formulations;
• Received a prestigious BIOTECanada Gold Leaf Award as Emerging Company of the year in Industry and Agricul-
ture;
• Awarded a non-reimbursable research grant from Alberta Innovates Bio Solutions to develop a novel functional
energy drink formulation utilizing Ceapro’s proprietary high-purity dry form beta glucan as an active ingredient
in collaboration with the University of Alberta;
• Obtained encouraging results for increased yield of avenanthramides through the use of a malting technology
licensed from Agriculture Canada;
• Moved offices and research and development laboratories to Ceapro’s new facility in South Edmonton;
• Announced the Scientific Achievement & Innovation Award from BioAlberta honoring Ceapro’s research scientist,
Bernhard Seifried, Ph.D., a PGX Technology co-inventor; and
• Appointed world-renowned health and disease management expert, William W. Li, M.D. to the Board of Directors.
Subsequent to year-end
• Expanded the Company’s licence agreement with the University of Alberta to include worldwide rights to de-
velop and commercialize PGX Technology in all industrial fields;
• Signed a licence agreement with Arrgo for the continuity of a research project with flagship product, avenanth-
ramides.
• Entered into a loan agreement at attractive rates with long-time partner Agriculture Financial Services Corpora-
tion for a commercial financing of up to $900,000;
• Completed a non-brokered private placement totalling $960,000;
• Appointed international pharmaceutical industry expert, Ulrich Kosciessa, Ph.D, to the Board of Directors.
We are more confident than ever that Ceapro has the key to new successes by offering: a de-risked business model with
a base business in the cosmetic sector, which provides a revenue stream; well advanced near-term catalysts with dry
beta glucan as a potential functional food/nutraceutical; and, long-term catalysts with dry formulations of avenanth-
ramides for the nutraceutical and/or pharmaceutical markets.
This is an exciting time for all of us at Ceapro, as well as for our partners and shareholders. Our small group of employ-
ees is firmly committed to continue to deliver results with the goal of unlocking significant value for our shareholders.
We sincerely thank everyone for their efforts in striving to make Ceapro one of the best biotech companies in Canada.
We are very grateful to our customers and you, our loyal Shareholders, for your continued support and confidence.
GILLES R. GAGNON, M.Sc., MBA, ICD.D
PRESIDENT AND CEO
GLENN ROURKE MBA, ICD.D
CHAIRMAN OF THE BOARD
April 27, 2015
2
UNIQUE BIOPROCESSING EXPERTISE
Ceapro’s manufacturing has been done in Agrivalue Processing Business Incubator (APBI) since 2008. Up to date,
Ceapro ended the fiscal year 2014 with the best full-year financial performance in its history, while building 12 months
worth of product inventory and completing the construction of the new state-of-the-art facility. Having bypassed the
level of incubator’s capacity and having a solid foundation supported by great assets, the Company is going to gradu-
ate from APBI and move all its production operations to its own facility located in South Edmonton in 2015.
This unique bioprocessing facility comprising about 20,000 sq. ft. is by far the largest and most exciting project we
have undertaken.
Ceapro will be one of the very few bioprocessors in Canada and the only one capable of producing its unique oat-
derived products. Our facility will host the entire company under one roof, will hold a Natural Health Products site li-
cence from Health Canada, and will be GMP qualified to meet the standards of some of the largest and most stringent
multi-national companies. The facility is expected to come on stream at a time when a host of positive influences are
coming together for Ceapro. These include a heightened awareness and acceptance to incorporate Mother Nature
into our daily health care regimes, a sharply increased awareness and amount of research being conducted on our
core value drivers, avenanthramides and beta glucan, and the commercialization of our development projects that
have shown positive results to date.
Our development projects have focussed on our expertise in oats and developing new innovative natural health
care products to address global needs. Oats have a host of well-documented health care benefits. However, in order
to exploit these opportunities, numerous challenges must be overcome, including securing adequate and quality
feedstock, developing proper formulations, achieving manufacturing scale up, and completing scientific testing. Our
activities over the last few years have focussed on overcoming these challenges and we have been thrilled with the
results to date.
There is a tremendous value in these new health care technologies, a value that is separate and distinct from Ceapro’s
traditional bioprocessing business.
We expect to be able to commercialize some of our development projects into new products for the medicinal food,
nutraceutical, or pharmaceutical markets. Our next stories provide an update on these projects and what it means
for Ceapro.
3
FROM FIELD TO FORMULATION
Personal Care: Our Base Business
Our strategic path is clear: we will grow our customer base and presence in the personal care cosmetic market, while con-
tinuing to explore and clinically validate new product applications for our value drivers, avenanthramides and beta glucan
under different formulations.
AVENANTHRAMIDES
Ceapro’s flagship product, avenanthramides, is a group of polyphenol compounds found exclusively in oats. This group of
molecules that work synergistically represent the active component of oats that provides relief for a host of skin conditions,
such as eczema, chicken pox, and insect bites. Ceapro is the only company in the world producing the only commercial
natural avenanthramide product which is featured in several of the best-selling global personal care brands.
One of the challenges to further penetrate the personal care market is the relatively small supply of commercial oats that
have adequate quantities of avenanthramides to be commercially profitable and therapeutic. Reliability of supply is also a
challenge since the oat quality will vary widely from year to year; thus, making security of supply an issue. In 2012, Ceapro
entered into two technology agreements with Agriculture and Agri Food Canada (AAFC) to address this situation. The first
is an oat process technology that, when applied to a certain oat variety post-harvest, can drastically increase the avenan-
thramide content from non-commercial amounts to amounts well beyond what Ceapro has ever purchased on the open
market. The second agreement provided access to a particular new oat variety (non-GMO), which consequently requires
Ceapro to grow the variety.
AAFC Process Technology - Update and Ceapro’s Opportunity
In 2014, using the AAFC technology, Ceapro boosted the concentrations of avenanthramides at a commercial scale, from
nearly non-detectable levels up to levels more than double what Ceapro traditionally extracts. We then successfully ran
commercial scale test extractions on our stimulated oats (non-GMO). In 2015, the process will be further validated and
incorporated into our production at the new state-of-the-art facility.
The ability to grow large amounts of high yield oats that can be stimulated will overcome any limitations caused by scarce
supply or procurement issues and will allow to serve larger markets. Furthermore, this project will provide a huge boost
to the gross margin for Ceapro’s bioprocessing business, since the contents of avenanthramides in the grain have been
increased to previously unheard of levels.
High quality feedstock
Molecule identification
and analytics
Optimization of
products from nature
4
Bioprocessing and production
Commercial phytochemicals
Global personal care market
BETA GLUCAN
Ceapro’s value driver product, beta glucan, is known as
the anti-aging active ingredient included in well known
brands. Studies have shown that beta glucan is highly
effective in stimulating collagen synthesis and can play a
prominent role in skin restructuring and wound healing.
Beta glucan extracted from oat is water soluble. Ceapro
has shown the unusual ability of its oat-based beta glu-
can to penetrate skin deeply despite its large molecular
weight. As a result, the use of oat beta glucan as a poten-
tial delivery system has attracted interest from multiple
parties looking to improve the delivery of their therapeu-
tic products. The potential to impregnate or encapsulate
bioactives with formulations of beta glucan has increased
the interest in determining its potential as a delivery
platform.
Pressurized Gas eXpansion (PGX) Technology – Background and Update
Ceapro’s oat beta glucan is currently sold as a liquid formulation. In order to fully exploit the potential of beta glucan,
Ceapro embarked in 2012 in a major project to develop dry formulations. Ceapro then elected to conduct research
work by using a technology developed at the University of Alberta. Such technology, based on supercritical condi-
tions, enabled the successful development of dry formulations of beta glucan at the lab scale level.
In 2014, the goal was to establish the broad application potential of the PGX technology to effectively dry challeng-
ing biopolymers. A technical study was successfully conducted with the prestigious Massachusetts Institute of Tech-
nology to impregnate Coenzyme Q10 (CoQ10) onto dry beta glucan. This very exciting result opened up many op-
portunities to develop new products and superior formulations for the pharmaceutical and nutraceutical sectors, in
line with our stated goals. This enabling technology was also tested on nano crystalline cellulose (CNC); the PGX tech-
nology produced a nano-particle aerogel product, something
that was not possible with traditional spray drying. Through-
out the year, Ceapro demonstrated the ability of the PGX tech-
nology to work and add value for other industries who face
drying challenges with their biopolymers and biomaterials. In
2015, Ceapro has launched a “Beta Glucan/CoQ10” project with
the University of Alberta to continue our transition towards
other sectors. In addition, Ceapro continues to plan for its PGX
demonstration plant.
5
FROM PLANT TO PILL
Healthcare: Our Near-Term
and Long-Term Catalysts
Our strategic path is clear: while we will grow our customer base and presence in the personal care market, we will explore and clinically
validate new product applications for our value drivers, avenanthramides and beta glucan in nutraceutical and pharmaceutical markets.
AVENANTHRAMIDES
In addition to cosmetics applications, it has been suggested that Ceapro’s flagship product, avenanthramides, when taken orally could
be beneficial in serious conditions like inflammatory bowel syndrome, atherosclerosis, colon cancer, and joint inflammation. These find-
ings led to the idea that avenanthramides could be developed as an active pharmaceutical ingredient (API). In order to achieve this, we
have to be able to produce it in adequate quantities to allow for a bioavailable formulation that will enable us to conduct clinical trials to
demonstrate the safety and efficacy of avenanthramides in targeted indications.
High Purity Avenanthramides - Update and Ceapro’s Opportunity
As mentioned in the personal care section, Ceapro has developed a process to increase concentrations of avenanthramides from oats.
Also, in order to develop these compounds as an API, avenanthramides need to be highly purified and well characterized
In 2014, Ceapro continued to characterize its high purity, high quality powder product. The results so far have indicated very exciting
opportunities for the nutraceutical and/or pharmaceutical markets. Recently, industry players have initiated clinical studies with oat
avenanthramides in order to investigate its bioavailability and metabolism profile.
BETA GLUCAN
Ceapro’s value driver product, beta glucan, is also well known for its cholesterol lowering properties as well as modulating glucose me-
tabolism. The high purity of the powder obtained with our Pressurized Gas eXpansion (PGX) technology leads us to the development
of beta glucan beyond the personal care market and look at nutraceutical and pharmaceutical markets using beta glucan to target
metabolic diseases.
High Purity Oat Beta Glucan - Update and Ceapro’s Opportunity
Ceapro continued to set the stage for preclinical studies and further clinical trials for high purity dried oat beta glucan. In 2015, as men-
tioned in the personal care section, Ceapro has commenced the Beta Glucan/CoQ10 study with the University of Alberta and we antici-
pate that this novel dry Beta Glucan impregnated (iBG) formulation to be the first potential commercial application in the functional
food sector.
Traditional plant source
Molecule identification
and analytics
Process development
and purification
Purified avenanthramides
and betan glucan
Clinical validation
Commercial
phytopharmaceuticals
6
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MANAGEMENT’S DISCUSSION & ANALYSIS
:: MANAGEMENT’S DISCUSSION & ANALYSIS
The MD&A provides commentary on the results of operations for the years ended December 31, 2014 and 2013, the
financial position as at December 31, 2014, and the outlook of Ceapro Inc. (‘‘Ceapro’’) based on information available as
at April 21, 2015. The following information should be read in conjunction with the audited consolidated financial
statements as at December 31, 2014, and related notes thereto, as well as the audited consolidated financial statements
for the year ended December 31, 2013, which are prepared in accordance with International Financial Reporting
Standards (IFRS) and the Management’s Discussion and Analysis (MD&A) for the year ended December 31, 2013. All
comparative percentages are between the years ended December 31, 2014 and 2013 and all dollar amounts are
expressed in Canadian currency, unless otherwise noted. Additional information about Ceapro can be found on SEDAR
at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This MD&A offers our assessment of Ceapro’s future plans and operations as at April 21, 2015, and contains forward-
looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties,
including those discussed below. Readers are cautioned that the assumptions used in the preparation of forward-
looking information, although considered reasonable at the time of preparation, may prove to be imprecise and, as
such, undue reliance should not be placed on forward-looking statements. Actual results, performance, or
achievements could differ materially from those expressed in, or implied by, these forward-looking statements. No
assurance can be given that any of the events anticipated will transpire or occur, or if any of them do so, what benefits
Ceapro will derive from them. The Company disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events, or otherwise unless required by law.
VISION, CORE BUSINESS, AND STRATEGY
Ceapro is incorporated under the Canada Business Corporations Act; and its wholly-owned subsidiaries, Ceapro
Technology Inc., Ceapro Veterinary Products Inc., Ceapro Active Ingredients Inc., and Ceapro BioEnergy Inc., are
incorporated under the Alberta Business Corporations Act. Ceapro (P.E.I.) Inc. is a wholly-owned subsidiary incorporated
in Prince Edward Island. Ceapro USA Inc. is a wholly-owned subsidiary incorporated in the state of Nevada. Ceapro is a
growth stage biotechnology company. Our primary business activities relate to the development and
commercialization of natural products for personal care, cosmetic, human, and animal health industries using
proprietary technology, natural, renewable resources, and developing innovation.
Our products include:
• A commercial line of natural active ingredients, including beta glucan, avenanthramides (colloidal oat extract), oat
powder, oat oil, oat peptides, and lupin peptides, which are marketed to the personal care, cosmetic, medical, and
animal health industries through our distribution partners and direct sales; and
• Veterinary therapeutic products, including an oat shampoo, an ear cleanser, and a dermal complex/conditioner,
which are manufactured and marketed to veterinarians in Japan and Asia, through agreements with Daisen
Sangyo Co. Ltd.
Other products and technologies are currently in the research and development or pre-commercial stage. These
technologies include:
• A drug delivery platform using our beta glucan technology to deliver compounds for uses ranging from wound care
and therapy, to skin care treatments that reduce the signs of aging;
• An extension to the active ingredients product range offering, through new formulations;
• A variety of novel manufacturing technologies including Pressurized Gas Expansion drying technology which is
currently being tested on oat beta glucan but may have application for multiple classes of compounds;
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CEAPRO Annual Report 2014 7
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MANAGEMENT’S DISCUSSION & ANALYSIS
• The development of a new oat variety and certain technologies to increase the content of avenanthramides to high
levels to enable new innovative products to be introduced to new markets including medicinal foods,
nutraceuticals, and botanical drugs; and
• CeaProve(cid:3), a diabetes test meal to screen pre-diabetes and to confirm diabetes diagnosis.
Our vision is to be a global leader in developing and commercializing products for the human and animal health
markets through the use of proprietary technology and renewable resources. We act as innovator, advanced processor,
and formulator in the development of new products. We deliver our technology to the market through distribution
partnerships and direct sales efforts. Our strategic focus is in:
• Identifying unique plant sources and technologies capable of generating novel active natural products;
• Increasing sales and expanding markets for our current active ingredients;
• Developing and marketing additional high-value proprietary therapeutic natural products;
• Developing and improving manufacturing technologies to ensure efficiencies; and
• Advancing new partnerships and strategic alliances to develop new commercial active ingredients, manufacturing
technologies, and target markets.
As a knowledge-based enterprise, we will also expand and strengthen our patent portfolio and build the necessary
manufacturing infrastructure to become a global technology company.
Our business growth depends on our ability to access global markets through distribution partnerships. Our marketing
strategy emphasizes providing technical support to our distributors and their customers to maximize the value of our
technology and product utilization. Our vision and business strategy are supported by our commitment to the following
core values:
• Adding value to all aspects of our business;
• Enhancing the health of humans and animals;
• Discovering and commercializing new, therapeutic natural ingredients and bioprocessing technologies;
• Producing the highest quality work possible in products, science, and business; and
• Developing personnel through guidance, opportunities, and encouragement.
To support these objectives, we believe we have strong intellectual and human capital resources and we are developing
a strong base of partnerships and strategic alliances to exploit our technology. The current economic environment
provides challenges in obtaining financial resources to fully exploit opportunities. To fund our operations, Ceapro relies
upon revenues primarily generated from the sale of active ingredients, and the proceeds of public and private offerings
of equity securities, debentures, government grants and loans, and other investment offerings.
RISKS AND UNCERTAINTIES
Biotechnology companies are subject to a number of risks and uncertainties inherent in the development of any new
technology. General business risks include: uncertainty in product development and related clinical trials and validation
studies, the regulatory environment, for example, delays or denial of approvals to market our products, the impact of
technological change and competing technologies, the ability to protect and enforce our patent portfolio and
intellectual property assets, the availability of capital to finance continued and new product development, and the
ability to secure strategic partners for late stage development, marketing, and distribution of our products. To the
extent possible, we pursue and implement strategies to reduce or mitigate the risks associated with our business.
The Company has exposure to financial instrument and other risks as follows:
A) CREDIT RISK
Trade and other receivables
The Company makes sales to customers that are well-established within their respective industries. Based on
previous experience, the counterparties had zero default rates and management views this risk as minimal.
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8 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
Approximately 95% of trade receivables are due from two customers at December 31, 2014 (2013 – 94% from two
customers) and all trade receivables at December 31, 2014 and 2013 are current. These main customers are
considered to have good credit quality and historically have a high quality credit rating.
Other receivables represent amounts due for research program claims, government goods and services taxes, and
scientific and research tax credits. The collectability risk is deemed to be low because of the good quality credit rating
of the counter-parties.
Cash and cash equivalents
The Company has cash and cash equivalents in the amount of $272,845 at December 31, 2014 (2013 – $1,953,019)
and mitigates its exposure to credit risk on its cash balances by maintaining its bank accounts with Canadian
Chartered Banks and investing in low risk, high liquidity investments.
There are no past due or impaired financial assets. The maximum exposure to credit risk is the carrying amount of the
Company’s trade and other receivables and cash and cash equivalents. The Company does not hold any collateral
as security.
B) LIQUIDITY RISK
In meeting its financial obligations, the Company may be exposed to liquidity risks if it is unable to collect its trade and
other receivables balances in a timely manner, which could in turn impact the Company’s long-term ability to meet
commitments under its current facilities. In order to manage this liquidity risk, the Company regularly reviews its aged
trade receivables listing to ensure prompt collections. The Company regularly reviews its cash availability and whenever
conditions permit, the excess cash is deposited in short-term interest bearing instruments to generate revenue while
maintaining liquidity. There is no assurance that the Company will obtain sufficient funding to execute its strategic
business plan.
The following are the contractual maturities of the Company’s financial liabilities and obligations:
within 1 year
$
1 to 3 years
$
3 to 5 years
$
over 5 years
$
Total
$
Accounts payable and accrued
liabilities
Long-term debt obligations
Repayable CAAP funding
1,791,145
867,877
83,883
–
1,735,755
167,766
Total
2,742,905
1,903,521
–
820,010
167,766
987,776
–
–
167,766
167,766
1,791,145
3,423,642
587,181
5,801,968
C) MARKET RISK
Market risk is comprised of interest rate risk, foreign currency risk, and other price risk. The Company’s exposure to
market risk is as follows:
1. Foreign currency risk
Foreign currency risk arises from the fluctuations in foreign exchange rates and the degree of volatility of these rates
relative to the Canadian dollar.
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CEAPRO Annual Report 2014 9
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MANAGEMENT’S DISCUSSION & ANALYSIS
The following table summarizes the impact of a 1% change in the foreign exchange rates of the Canadian dollar
against the US dollar (USD) and the Euro on the financial assets and liabilities of the Company.
Financial assets
Accounts receivable
Financial liabilities
CARRYING
AMOUNT
(USD)
FOREIGN EXCHANGE RISK (USD)
(cid:4)1%
+1%
EARNINGS & EQUITY
EARNINGS & EQUITY
365,092
3,651
(3,651)
Accounts payable and accrued liabilities
392,649
Total increase (decrease)
Financial liabilities
Long-term debt
Total increase (decrease)
CARRYING
AMOUNT
(EURO)
827,159
(3,926)
(275)
3,926
275
FOREIGN EXCHANGE RISK (EURO)
(cid:4)1%
+1%
EARNINGS & EQUITY
EARNINGS & EQUITY
(8,272)
(8,272)
8,272
8,272
The carrying amount of accounts receivable and accounts payable and accrued liabilities in USD and long-term debt
in Euro represents the Company’s exposure at December 31, 2014.
2. Interest rate risk
The Company has minimal interest rate risk because its long-term debt agreements are all at fixed rates.
D) SHARE PRICE RISK
Ceapro’s share price is subject to equity market price risk, which may result in significant speculation and volatility of
trading due to the uncertainty inherent in the Company’s business and the technology industry.
There is a risk that future issuance of common shares may result in material dilution of share value, which may lead to
further decline in share price. The expectations of securities analysts and major investors about our financial or scientific
results, the timing of such results, and future prospects, could also have a significant effect on the future trading price of
Ceapro’s shares.
E) PEOPLE AND PROCESS RISK
A variety of factors will affect Ceapro’s future growth and operating results, including the strength and demand for the
Company’s products, the extent of competition in our markets, the ability to recruit and retain qualified personnel, and
the ability to raise capital.
Ceapro’s consolidated financial statements are prepared within a framework of IFRS selected by management and
approved by the Board of Directors. The assets, liabilities, revenues, and expenses reported in the consolidated financial
statements depend to varying degrees on estimates made by management. An estimate is considered a critical
accounting estimate if it requires management to make assumptions about matters that are highly uncertain and if
different estimates that could have been used would have a material impact. The significant areas requiring the use of
management estimates relate to provisions made for inventory valuation, amortization of property and equipment, tax
liabilities and tax assets, normal provisions, the assumptions used in determining share-based compensation, the
interest rates used in determining the employee future benefits obligation, and the estimated sales projections to value
the royalty financial liability. These estimates are based on historical experience and reflect certain assumptions about
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10 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
the future that we believe to be both reasonable and conservative. Actual results could differ from those estimates.
Ceapro continually evaluates the estimates and assumptions.
F) LOSS OF KEY PERSONNEL
Ceapro relies on certain key employees whose skills and knowledge are critical to maintaining the Company’s success.
Ceapro always strives to identify and retain key employees and always strives to be competitive with compensation and
working conditions.
G) INTERRUPTION OF RAW MATERIAL SUPPLY
Interruption of key raw materials could significantly impact operations and our financial position. Interruption of supply
could arise from weather related crop failures or from market shortages. Ceapro attempts to purchase key raw materials
well in advance of their anticipated use and is in-licensing technologies from third parties to reduce this risk.
H) ENVIRONMENTAL ISSUES
Violations of safety, health, and environmental regulations could limit operations and expose the Company to liability,
cost, and reputational impact. In addition to maintaining compliance with national and provincial standards, Ceapro
maintains internal safety and health programs.
I) REGULATORY COMPLIANCE
As a natural extract producer, Ceapro is subject to various regulations and violation of these could limit markets into
which we can sell. Ceapro has introduced a range of procedures which will ensure that Ceapro is well prepared for new
regulations and obligations that may be required. Significant investments are being made to ensure compliance with
the continually evolving regulatory environment.
FUTURE ACCOUNTING POLICIES NOT YET ADOPTED
At the date of authorization of the Company’s consolidated financial statements, certain new standards and
amendments to existing standards have been published by the IASB that are not yet effective and have not been
adopted early by the Company. Information on those expected to be relevant to the Company’s consolidated
financial statements is provided below.
Management anticipates that all relevant pronouncements will be adopted in the Company’s accounting policies for
the first period beginning after the effective date of the pronouncement. New standards, interpretations, and
amendments either not adopted or listed below are not expected to have a material impact on the Company’s
consolidated financial statements.
IFRS 9 ‘‘FINANCIAL INSTRUMENTS’’ (2014)
The IASB recently released IFRS 9 ‘‘Financial instruments’’ (2014), representing the completion of its project to replace
IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’. The new standard introduces extensive changes to
IAS 39’s guidance of the classification and measurement of financial assets and introduces a new ‘‘expected credit
loss’’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge
accounting.
The Company’s management has not yet assessed the impact of IFRS 9 on these consolidated financial statements.
The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2018.
IFRS 15 ‘‘REVENUE FROM CONTRACTS WITH CUSTOMERS’’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS18 ‘‘Revenue’’, IAS 11 ‘‘Construction
contracts’’, and several revenue related interpretations. The new standard establishes a control-based revenue
recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs,
including how to account for arrangements with multiple performance obligations, variable pricing, customer refund
rights, supplier repurchase options, and other common complexities.
IFRS 15 is effective for reporting periods beginning on or after January 1, 2017. The Company’s management has not
yet assessed the impact of IFRS 15 on these consolidated financial statements.
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CEAPRO Annual Report 2014 11
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MANAGEMENT’S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS – YEARS ENDED DECEMBER 31, 2014, 2013, AND 2012
CONSOLIDATED INCOME STATEMENT
$000S EXCEPT PER SHARE DATA
Total revenues
Cost of goods sold
Gross margin
Research and product
development
General and administration
Sales and marketing
Finance costs
Income (loss) from operations
Other operating loss
Net income (loss)
Basic net income (loss) per
common share
Diluted net income (loss) per
common share
%
100%
52%
48%
11%
26%
1%
2%
7%
(cid:4)4%
3%
%
100%
46%
54%
7%
22%
0%
2%
22%
(cid:5)5%
18%
2014
8,890
4,126
4,764
578
1,984
14
188
2,000
(406)
1,594
0.026
0.025
2013
6,524
3,425
3,099
731
1,709
85
127
447
(271)
176
0.003
0.003
%
100%
53%
47%
17%
35%
4%
2%
(cid:4)10%
0%
(cid:4)10%
2012
5,165
2,716
2,449
856
1,795
199
113
(514)
(24)
(538)
(0.009)
(0.009)
During the year ended December 31, 2014, the Company’s revenue increased by 36% or $2,366,000 to $8,890,000 from
$6,524,000 in 2013 and cost of goods sold increased by 20% or $701,000 to $4,126,000 from $3,425,000 in comparison
with the same period of 2013. These changes resulted in an increase in the amount of gross margin by 54% or
$1,665,000 to $4,764,000 in 2014 from $3,099,000 in 2013.
Income from operations has increased by $1,553,000 to $2,000,000 in 2014 from $447,000 during the year ended
December 31, 2013.
Net income in the year ended December 31, 2014, has increased by $1,418,000 to $1,594,000 from $176,000 in 2013
mostly due to an increase in gross margin.
During the fourth quarter of 2014, the Company’s revenue significantly increased by 37% or $557,000 to $2,059,000
from $1,502,000 in 2013 and cost of goods sold increased by 46% or $400,000 to $1,274,000 from $874,000 in
comparison with the same period of 2013. These changes resulted in an increase in the amount of gross margin by 25%
or $157,000 to $785,000 in 2014 from $628,000 in 2013.
Income from operations has increased by $221,000 to $222,000 in the fourth quarter of 2014 from $1,000 in the fourth
quarter of 2013.
There was net income in the fourth quarter of 2014 of $97,000 in comparison with net loss of $104,000 in the same
period of 2013.
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12 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
REVENUE
$000S
Total revenues
PRODUCT SALES
Year Ended
December 31,
Quarter Ended
December 31,
2014
8,890
2013
CHANGE
6,524
36%
2014
2,059
2013
CHANGE
1,502
37%
Sales in the year ended December 31, 2014 increased by $2,366,000 or 36% primarily as a result of higher sales volumes
of avenanthramides and oat oil. Total revenues were also positively impacted by a stronger U.S. dollar relative to the
Canadian dollar.
Sales in the fourth quarter of 2014 increased by $557,000 or 37% primarily as a result of higher sales volumes of
avenanthramides and oat oil and the strengthening of the U.S. dollar.
EXPENSES
COST OF GOODS SOLD AND GROSS MARGIN
$000S
Sales
Cost of goods sold
Gross margin
Gross margin %
Year Ended
December 31,
Quarter Ended
December 31,
2014
8,890
4,126
4,764
54%
2013
CHANGE
36%
20%
54%
6,524
3,425
3,099
48%
2014
2,059
1,274
785
38%
2013
CHANGE
37%
46%
25%
1,502
874
628
42%
Cost of goods sold is comprised of the direct raw materials required for the specific formulation of products, as well as
direct labour, quality assurance and control, packaging, transportation costs, plant costs, and amortization on plant and
equipment assets. Aside from labour, rent, quality control related expenses, overhead, and property plant and
equipment amortization, the majority of costs are variable in relation to the volume of product produced or shipped.
During the year ended December 31, 2014, cost of goods sold increased by $701,000 or 20%, from $3,425,000 in 2013 to
$4,126,000 in 2014. The gross margin in the year ended December 31, 2014 is higher by 54% primarily due to higher
sales and sales revenue in excess of the increases in cost of goods sold. The gross margin percentage increased by 6%
from 48% in the year ended December 31, 2013 to 54% in the same period of 2014 due to favorable natural feedstock
variations and a product sales mix weighted toward higher margin products.
During the fourth quarter of 2014, the cost of goods sold rose by $400,000 or 46%, from $874,000 in 2013 to $1,274,000
in 2014. The gross margin in the fourth quarter of 2014 was higher by 25% primarily due to higher sales and sales
revenue in excess of the increase in cost of goods sold. The gross margin percentage decreased by 4% from 42% in the
fourth quarter of 2013 to 38% in the same period of 2014, mainly due to the use of feedstock that presented some
processing issues and therefore required additional purification steps which increased cost of goods sold.
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CEAPRO Annual Report 2014 13
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MANAGEMENT’S DISCUSSION & ANALYSIS
RESEARCH AND PRODUCT DEVELOPMENT
$000S
Salaries and benefits
Regulatory and patents
Other
Product development – CeaProve(cid:3)
Total research and product development
expenditures
Year Ended
December 31,
Quarter Ended
December 31,
2014
2013
CHANGE
301
138
114
553
25
578
629
256
(172)
713
18
731
(cid:4)22%
39%
(cid:4)21%
2014
(45)
25
2
(18)
3
(15)
2013
CHANGE
131
32
(3)
160
3
(cid:4)111%
0%
163
(cid:4)109%
During the year ended December 31, 2014, research and development expenses before CeaProve(cid:3) development
decreased by 22% or $160,000 in comparison with the same period of 2013 due to decreased salary costs of $328,000
and regulatory and patents expenditure of $118,000. The higher patent costs in 2013 were due to the issue of key beta
glucan patents in several European countries. The lower salary costs were a result of changing the priorities of some key
staff from research and development activities to work on the new production process design for the new
manufacturing facility. As the time of these individuals was directly related to the construction of the new production
process, their time has been capitalized to the new facility.
CeaProve(cid:3) costs have increased from $18,000 in 2013 to $25,000 in 2014 due to patent costs.
During the fourth quarter of 2014, research and development expenses before CeaProve(cid:3) development have decreased
by 111% due to the capitalization of employee benefits adjusted for at year end.
CeaProve(cid:3) costs in the fourth quarters of 2014 and 2013 were consistent.
GENERAL AND ADMINISTRATION
Year Ended
December 31,
Quarter Ended
December 31,
$000S
Salaries and benefits
Consulting
Board of directors compensation
Insurance
Accounting and audit fees
Rent
Public company costs
Travel
Depreciation
Legal
Other
2014
2013
CHANGE
597
291
181
113
90
116
68
130
82
187
129
626
274
139
115
69
94
52
124
61
44
111
1,709
16%
2014
147
89
53
36
16
12
22
30
43
113
47
608
2013
CHANGE
159
71
31
28
16
28
5
32
30
8
35
443
37%
Total general and administration expenses
1,984
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14 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
General and administration expenses for the year ended December 31, 2014 increased by $275,000 or 16% from
$1,709,000 to $1,984,000 primarily due to higher board of directors’ compensation from share-based payments,
accounting and audit fees, rent, depreciation, and legal expenses relating to the AVAC trials.
During the fourth quarter of 2014, general and administration expenses increased by $165,000 or 37% mostly due to
the same reasons as for the year ended.
SALES AND MARKETING
$000S
Travel
Courses, conferences & advertising
Other
Total sales and marketing
Year Ended
December 31,
Quarter Ended
December 31,
2014
2013
CHANGE
2014
2013
CHANGE
–
4
10
14
24
46
15
85
(cid:4)84%
–
–
1
1
–
–
11
11
(cid:4)91%
Sales and marketing expenses in the year ended December 31, 2014 decreased by $71,000 or 84% in comparison with
the same period of 2013. The fourth quarter of 2014 showed a consistent decrease in expenditures, with a $10,000 or
91% decrease versus the same quarter in 2013. Although our goal is to expand our business with existing customers
and to explore potential opportunities with new customers, in fiscal 2014, the decision was made to place a greater
marketing emphasis on distribution partners which requires lower levels of expenditure.
FINANCE COSTS
$000S
Interest on royalty financial liability
Interest on long-term debt
Transaction costs
Royalties to University of Guelph & AAFC
Accretion of CAAP loan
Year Ended
December 31,
Quarter Ended
December 31,
2014
2013
CHANGE
2014
2013
CHANGE
18
46
18
48
58
25
35
2
23
42
188
127
48%
–
(51)
5
–
15
(31)
5
8
(15)
–
12
10
(cid:4)410%
As at December 31, 2014, royalty investors received royalties equal to 2.285% (2013 – 2.285%) of revenues from product
sales and royalty, licence, and product development fees of active ingredients and veterinary therapeutic products and
CeaProve(cid:3), to a maximum of two times the amount invested. During the year ended December 31, 2014, the Company
fully recognized the remaining royalty financial liability. The final royalty payment to investors of $43,075 was paid in the
first quarter of fiscal 2015 and no further royalties will be payable under this royalty agreement.
AVAC Ltd. receives royalties of up to 2.5% to 5% of revenues from eligible product sales, to a maximum of one and a half
to two times the amount invested.
Royalty expenses will vary directly with fluctuations in eligible product sales, royalty, licence and product development
fees, product sales mix, and any new royalty interest offerings that may be completed.
Finance costs increased in the year ended December 31, 2014 in comparison with the same period of 2013 primarily due
to an increase in the minimum royalties payable to AAFC, an increase in the accretion of the CAAP loan, and increased
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CEAPRO Annual Report 2014 15
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MANAGEMENT’S DISCUSSION & ANALYSIS
interest on long-term debt due to new debt facilities added. The decrease in interest on long-term debt in the fourth
quarter was a result of the capitalization of borrowing costs at year-end.
The Company entered into Canadian Agricultural Adaptation Program (‘‘CAAP’’) repayable contribution agreements for
total possible funding of $1,339,625 available over the period from October 7, 2010 through September 30, 2012.
During the year ended December 31, 2012, the Company voluntarily decommitted $668,557 as a result of lower
anticipated project expenditures to the maximum possible funding under the agreement of $671,068. The end date for
project expenditures and start date for repayments were also extended one year to September 30, 2013 and to
December 31, 2014 respectively. As the contributions are non-interest bearing, the fair value at inception is estimated as
the present value of the principal payments required, discounted using the prevailing market rates of interest for a
similar instrument estimated to be 15% per annum. The difference between the fair value of the contributions and the
cash received is accounted for as a government grant. The first payment was received in the first quarter of 2011.
Accretion of the CAAP loan was $58,000 in the year ended December 31, 2014 (December 31, 2013 – $42,000).
OTHER OPERATING LOSS (INCOME)
$000S
Foreign exchange (income) loss
Loss on write-off of licence
Loss on disposal of property and equipment
Other (income) loss
Plant relocation costs
Year Ended
December 31,
Quarter Ended
December 31,
2014
2013
CHANGE
2014
2013
CHANGE
(27)
26
4
(3)
406
406
23
–
12
(4)
240
271
50%
(6)
–
–
19
112
125
13
–
12
1
79
105
19%
Foreign exchange income in the year ended December 31, 2014 was $27,000 in comparison with a loss of $23,000 in
2013 due to the fluctuations of the US dollar and Euro versus the Canadian dollar in comparison with the same period of
2013. Gains, particularly against Euro denominated long-term debt, were recognized in the three months ended
December 31, 2014. A one-time charge of $26,000 to write off a licence was recognized in the year ended December 31,
2014 as a result of a decision by the Company to terminate the associated agreement. Plant relocation costs represent
costs incurred relating to the new manufacturing facility that are not directly related to the acquisition and construction
of the new manufacturing facility and therefore are not eligible to be capitalized.
DEPRECIATION AND AMORTIZATION EXPENSES
In the year ended December 31, 2014 the total depreciation and amortization of $296,000 (2013 – $293,000) was
allocated as follows: $86,000 to general and administration expense (2013 – $62,000), $24,000 to inventory (2013 –
$6,000), and $186,000 (2013 – $225,000) to cost of goods sold.
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16 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
QUARTERLY INFORMATION
The following selected financial information is derived from Ceapro’s unaudited quarterly financial statements for each
of the last eight quarters, all of which cover periods of three months. All amounts shown are in Canadian currency.
2014
2013
$000S EXCEPT
PER SHARE DATA
Total revenues
Net income (loss)
Basic net income (loss) per
common share
Diluted net income (loss)
per common share
Q4
2,059
97
Q3
2,445
690
Q2
2,432
630
Q1
1,954
177
Q4
1,503
(103)
Q3
1,997
123
Q2
1,012
(252)
Q1
2,012
408
0.002
0.011
0.010
0.003
(0.002)
0.002
(0.004)
0.007
0.001
0.011
0.010
0.003
(0.002)
0.002
(0.004)
0.007
Ceapro’s quarterly sales and results primarily fluctuate due to variations in the timing of customer orders, different
product mixes, and the capacity to manufacture products.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EMPLOYED
$000S
Non-current assets
Current assets
Current liabilities
Total assets less current liabilities
Non-current liabilities
Shareholders’ equity
Total capital employed
December 31, 2014
December 31, 2013
6,035
1,648
(2,965)
4,718
2,626
2,092
4,718
1,948
3,149
(2,213)
2,884
2,640
244
2,884
Non-current assets increased by $4,087,000 due to an acquisition of $4,405,000 of property and equipment (net grant
proceeds) offset by a depreciation provision of $296,000, fixed asset disposals of $4,000, licence write-off of $26,000
offset by an increase in deposits of $8,000.
Current assets decreased by $1,501,000. Cash decreased by $1,680,000, trade and other receivables increased by
$104,000, prepaid expenses decreased by $281,000, and inventories increased by $356,000.
Current liabilities totaling $2,965,000 increased by the net amount of $752,000 mostly due to an increase in the current
portion of long-term debt of $269,000, an increase in trade payables and accrued liabilities of $796,000 offset by a
decreased employee future benefit obligation of $19,000, a decrease in royalty related obligations of $95,000, and a
decrease in deferred revenue of $199,000.
Non-current liabilities totaling $2,626,000 decreased by the net amount of $14,000 due to long-term debt increases of
$139,000 offset by decrease in the discounted CAAP loan in the amount of $26,000, and accrued employee future
benefit obligation reclassified to current liabilities in the amount of $127,000.
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CEAPRO Annual Report 2014 17
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MANAGEMENT’S DISCUSSION & ANALYSIS
Equity of $2,092,000 at December 31, 2014 increased by $1,848,000 from equity of $244,000 at December 31, 2013 due
to net income for the year ended December 31, 2014 of $1,594,000 and recognized share-based compensation of
$112,000, and proceeds from share options exercised of $142,000.
NET DEBT
$000S
Cash and cash equivalents
Current financial liabilities*
Non-current financial liabilities*
Total financial liabilities
NET DEBT
December 31, 2014
December 31, 2013
273
2,675
2,626
5,301
5,028
1,953
1,705
2,513
4,218
2,265
* Current and non-current financial liabilities include accounts payable and accrued liabilities, current and non-current
portion of long-term debt, royalties interest payable, current of royalty financial liability, and current and non-current
portion of CAAP loan.
The Company’s net debt increased by $2,763,000 due to a decrease of cash and cash equivalent in the amount of
$1,680,000, accounts payable and accrued liabilities increase of $796,000, long-term debt increase in the amount of
$408,000, CAAP loan discounted amount net decreased of $26,000, and decreased royalty related obligations of $95,000.
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18 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
SOURCES AND USES OF CASH
The following table outlines our sources and uses of funds during the periods ended December 31, 2014 and 2013.
$000S
Sources of funds:
Funds generated from operations (cash flow)
Changes in non-cash working capital items
Restricted cash received and utilized
Grant used for capital assets
Repayable CAAP Funding
Share issuance
Long-term debt, net of repayments
Uses of funds:
Purchase of property and equipment
Purchase of leasehold improvements
Purchase of prepaid deposits from grant
Employee future benefits obligation repayment
Deferred revenue reduction
Interest paid
Repayment of royalty financial liability
Transaction costs
Repayable CAAP funding
Repayment of long-term debt
Net change in cash flows
Year Ended
December 31,
Quarter Ended
December 31,
2014
2013
2014
2013
2,158
422
–
295
–
142
1,072
4,089
(2,337)
(2,283)
–
150
–
(137)
(95)
–
(84)
(683)
(5,769)
(1,680)
621
(50)
709
1,624
198
–
2,045
5,147
(663)
(1,641)
(37)
–
(709)
(81)
(87)
(81)
–
(168)
(3,467)
1,680
118
830
–
84
–
22
–
1,054
(429)
(451)
–
–
–
(28)
18
–
(84)
(198)
(1,172)
(118)
(34)
232
–
915
67
–
2,045
3,225
(542)
(1,012)
43
–
–
(13)
(26)
(81)
–
(43)
(1,674)
1,551
Net change in cash flow decreased by $3,360,000 during the year ended December 31, 2014 in comparison with the
same period of 2013 primarily due to the significant investment made on its new manufacturing facility.
The Company is currently in progress to complete its new manufacturing facility which involves substantial capital
expenditures for engineering and design, permitting, construction of leaseholds, equipment, as well as other related
costs required to meet the strict requirements for major customers. The scope of the original planned manufacturing
facility has been redefined throughout fiscal 2014 to take advantage of new manufacturing process design
opportunities that are expected to provide value to the Company and its shareholders in future years. As a result, the
facility has not yet been completed and the overall planned investment for the first phase of the facility has been
expanded and is currently estimated at $12,200,000 of which the Company has completed and recorded approximately
$6,500,000 at December 31, 2014. As a result of the increased scope of the project, the Company had a working capital
deficiency of approximately $1,317,000 at December 31, 2014 and will require additional financing to complete the first
phase of the manufacturing facility.
Subsequent to the year end, the Company issued an aggregate of $960,000 of unsecured 8% convertible debentures
that mature on December 31, 2016 and entered into a new loan agreement which can be drawn to a maximum of
$900,000, bears interest at 3.84%, and will mature on July 1, 2020. The proceeds from these new financings will be used
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CEAPRO Annual Report 2014 19
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MANAGEMENT’S DISCUSSION & ANALYSIS
to address the working capital deficiency that exists at December 31, 2014 and towards completion of the Company’s
new manufacturing facility.
The Company estimates that the cash flows generated by its operating activities as well as cash available through other
sources will be sufficient to finance its operating expenses, ongoing capital investment, and current debt repayment,
but will still require additional funds in the amount of $3,700,000 to complete the new manufacturing facility.
The Company relies upon revenues generated from the sale of active ingredients, the proceeds of public and private
offerings of equity securities and debentures, income offerings, and government funding programs to support the
Company’s operations.
Total common shares issued and outstanding as at April 21, 2015 were 61,632,281 (April 14, 2014 – 60,403,948). In
addition, 3,881,667 stock options as at April 21, 2015 (April 14, 2014 – 3,950,000) were outstanding that are potentially
convertible into an equal number of common shares at various prices.
To meet future requirements, Ceapro intends to raise additional cash through some or all of the following methods:
public or private equity or debt financing, income offerings, capital leases, collaborative and licensing agreements, and
government funding programs. However, there is no assurance of obtaining additional financing through these
arrangements on acceptable terms, if at all.
The ability to generate new cash will depend on external factors, many beyond the Company’s control, as outlined in
the Risks and Uncertainties section. Should sufficient capital not be raised, Ceapro may have to delay, reduce the scope
of, eliminate, or divest one or more of its discovery, research, or development technology or programs, any of which
could impair the value of the business.
GOVERNMENT FUNDING
a) During the year ended December 31, 2010, the Company was approved for non-repayable funding in the amount of
$124,000 from Alberta Innovates Technology Futures (AITF). During the year ended December 31, 2014, the
Company received $nil (2013 – $9,166) which was recorded as a reduction of research and product development
expenses. This agreement was completed during the year ended December 31, 2013.
b) During the year ended December 31, 2012, the Company was approved for a second agreement for non-repayable
funding in the amount of $124,000 from AITF. During the current year, the Company received $18,333 (2013 –
$62,000) which was recorded as a reduction of research and project development expenses. This agreement has
been completed at December 31, 2014.
c)
d)
The Company was approved for non-repayable funding to a maximum of $21,250 of eligible expenditures under the
Novel Crops Initiative program from the Prince Edward Island Department of Agriculture. The Company recorded the
amount of $nil as a reduction of research and product development expenditures under this program in the year
(2013 – $5,000). This agreement was completed during the year ended
ended December 31, 2014
December 31, 2013.
The Company entered into Canadian Agricultural Adaptation Program (‘‘CAAP’’) repayable contribution agreements
for total possible funding of $1,339,625 receivable over the year from October 7, 2010 through September 30, 2012.
During the year ended December 31, 2012, the Company voluntarily amended the maximum possible funding under
the agreement to $671,068 as a result of lower anticipated project expenditures. The end date for project
expenditures was also extended one year to September 30, 2013. All amounts claimed under the program are
repayable interest free over eight years beginning in 2014. The Company received or recorded as receivable funding
of $671,068 to December 31, 2013 under this program and no further funds are expected. The first repayment of
$83,884 due December 31, 2014 has been paid.
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20 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
e) During the year ended December 31, 2011, the Company entered into a Contribution Agreement with Alberta
Innovates Bio Solutions (AI-Bio Solutions) for a non-repayable grant contribution totaling up to $1,600,000 towards
the construction of a new bio-processing facility and subject to compliance with all terms and conditions of the
agreement. In accordance with the agreement, the Company received $750,000 in 2011, and received $690,000 in
2013. The amount of $nil (2013 – $1,398,777) was recorded as a reduction of capitalized expenditures. An amount of
$160,000 is expected to be received in 2015.
f) During the year ended December 31, 2012, the Company entered into a contribution agreement with an agency of
the federal government to provide funding of up to $253,000 for certain research activities. This contribution
agreement was amended to increase the potential non-repayable contribution amount to $345,000 from $253,000 in
2013. During the year ended December 31, 2014, the Company received or recorded as receivable the amount of $nil
(December 31, 2013 – $302,909). This agreement was completed during the year ended December 31, 2013.
g) During the year ended December 31, 2013, the Company entered into an agreement under the Growing Forward
2 program to provide non-repayable grant funding in an amount up to $673,000. During the year ended
December 31, 2014, the Company received or recorded as receivable the amount of $300,254, (December 31, 2013 –
$192,345) of which $294,623 was recorded as a reduction of capitalized expenditures. The Company received an
additional $79,640 in 2015 and the project was completed.
h) During the year ended December 31, 2014, the Company entered into a non-repayable grant agreement with AI-Bio
Solutions to provide funding of up to $198,000 for certain research activities. During the year ended December 31,
2014, the Company received $89,100. An amount of $22,117 was expended on the research project and the
remaining $66,983 is recorded as deferred revenue at December 31, 2014. The Company anticipates receiving up to
$108,900 in 2016.
i)
During the year ended December 31, 2014, the Company entered into an agreement under the Growing Forward
2 program to provide non-repayable grant funding for up to $52,500 for certain research activities. During the year
ended December 31, 2014, the Company recorded $20,242 as a receivable. The Company received an additional
$8,443 in 2015 and the project was completed.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2014, $26,000 (2013 – $25,000) of royalties were earned by employees and
directors from their investment in previous Ceapro royalty offerings. As at December 31, 2014, $8,700 (2013 – $6,000) of
royalties were payable to employees and directors.
During the year ended December 31, 2014, the Company paid key management salaries, short-term benefits, consulting
fees, and director fees totaling $519,000 (2013 – $672,000), and key management personnel received share-based
payments of $57,000 (2013 – $41,000).
Amount payable to directors at December 31, 2014 was $29,000 (2013 – $29,000).
These transactions are in the normal course of operations and are measured at the amount of consideration established
and agreed to by the related parties.
COMMITMENTS AND CONTINGENCIES
a) During the year ended December 31, 2011, the Company and its wholly-owned subsidiary, Ceapro Veterinary
Products Inc. were served with a statement of claim from AVAC Ltd. alleging damages of $724,500 pursuant to a
product development agreement. The Company and Ceapro Veterinary Products Inc. filed a statement of defense to
refute the claim and the evidentiary portion of the trial was completed in January 2015. All written arguments were
completed on March 16, 2015 and have been submitted to the presiding judge. The Company believes it has
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CEAPRO Annual Report 2014 21
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MANAGEMENT’S DISCUSSION & ANALYSIS
presented strong defenses to the allegations at trial. However, at this time, the outcome of the litigation is uncertain
and no provisions have been made in the consolidated financial statements for this litigation.
b) During the year ended December 31, 2012, the Company and its wholly-owned subsidiary, Ceapro Technology Inc.
were served with a statement of claim from AVAC Ltd. alleging damages of $1,470,000 pursuant to two product
development agreements. The Company and Ceapro Technology Inc. filed a statement of defense to refute the claim
and the evidentiary portion of the trial was completed in January 2015. All written arguments were completed on
March 16, 2015 and have been submitted to the presiding judge. The Company believes it has presented strong
defenses to the allegations at trial. However, at this time, the outcome of the litigation is uncertain and no provisions
have been made in the consolidated financial statements for this litigation.
c) During the year ended December 31, 2008, the Company entered into a licensing agreement with the University of
Guelph for an exclusive variety of a mint plant. During the year ended December 31, 2011, the Company entered into
a new licensing agreement with the University of Guelph for additional market rights for the exclusive variety of a
mint plant.
In accordance with the new agreement, there are future minimum royalty prepayments of $10,000 per annum
starting in 2012 for royalty payments which will be calculated as 5% of net sales from products derived from the mint
plants. The minimum royalty payments are creditable against royalties in years where royalties are due. The
agreement is an executory contract and therefore all royalty payments under the contract will be recognized as they
become due. During the year ended December 31, 2014, the Company decided to terminate the licence agreement
and no further royalties will be payable.
d) During the year ended December 31, 2012, the Company entered into a new licence agreement for a new
technology to increase the concentration of avenanthramides in oats. The Company shall pay an annual royalty
percentage rate of 2% of sales, payable every January 1st and July 1st, subject to a minimum annual royalty payment
according to the schedule below:
Year
2012
2013
2014
2015
2016
Amount
nil
$12,500
$37,500
$50,000
$50,000
And $50,000 each year thereafter while the licence agreement remains in force. The agreements remain in force until
the patents expire or are abandoned.
The agreement is an executory contract and therefore all royalty payments under the contract will be recognized as
they become due.
e) During the year ended December 31, 2014, the Company entered into a new licence agreement with the University
of Alberta for the rights to a technology that would allow the development, production and commercialization of
powder formulations that could be used as active ingredients.
In accordance with the agreement and as amended on February 2, 2015, the Company shall pay the following
royalties, payable on a semi-annual basis:
(a) a royalty of 3.5% of net sales generated from the field of pharmaceuticals;
(b) a royalty of 3.0% of net sales generated from the field of nutraceuticals;
(c)
a royalty of 2.75% of net sales generated from the field of cosmetics;
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22 CEAPRO Annual Report 2014
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MANAGEMENT’S DISCUSSION & ANALYSIS
(d) a royalty of 1.0% of net sales generated from the field of functional foods;
(e) a royalty of 3.0% of net sales generated from other fields.
The Company shall pay a minimum annual advance on earned royalties of $5,000 commencing March 1, 2017 and
every year thereafter while the licence agreement remains in force.
The agreement is on executory contract and therefore all royalty payments under the agreement will be recognized
as they become due.
f)
In the normal course of operations, the Company may be subject to litigation and claims from customers, suppliers,
and former employees. Management believes that adequate provisions have been recorded in the accounts where
required. Although it is not possible to estimate the extent of potential costs, if any, management believes that the
ultimate resolution of such contingencies would not have a material adverse effect on the financial position of
the Company.
OUTLOOK
We are very pleased with the 2014 results showing the highest full year revenue in Ceapro’s history with an increase of
36% or $ 2,366,000 over the full year ended December 31, 2013 as well as showing a net profit of $1,594,000 compared
to a net profit of $176,000 in 2013. These results were achieved while advancing the implementation of a new
state-of-the-art manufacturing facility and maintaining investments in selected new product development.
Offices and laboratories were moved to the new site in 2014. While the successful completion, implementation, and
commissioning of the production area remains our top priority for 2015, in parallel, we are committed to remain laser-
focused on executing our strategic imperatives for growth that will drive significant value to all of our shareholders in
the near, mid, and long term.
Moving forward, while we have temporarily slowed down the pace of our research and development programs with dry
formulations of our value drivers, avenanthramides and beta glucan, due to the site transition project, we expect to
pursue their development as active ingredients to serve large, well-established, and growing markets like functional
foods, drinks, and nutraceuticals. We are in the process of evaluating investment and financing options so we can move
forward as rapidly as possible to assess their safety and efficacy through pre-clinical and clinical research programs to be
conducted over a 24-month period. Our strategic transition to the functional food and/or nutraceutical sectors will
represent a significant opportunity for Ceapro in the near and long term.
Further, we will initiate a research program with our proprietary PGX platform technology for which we have recently
obtained the worldwide rights for all industrial applications. We view this as a potential game changer for Ceapro and
expect to invest the necessary resources to advance this program forward.
ADDITIONAL INFORMATION
Additional information relating to Ceapro Inc., including a copy of the Company’s Annual Report and Proxy Circular, can
be found on SEDAR at www.sedar.com.
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CEAPRO Annual Report 2014 23
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CONSOLIDATED FINANCIAL STATEMENTS
:: CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S REPORT
TO THE SHAREHOLDERS OF CEAPRO INC.,
The accompanying consolidated financial statements of Ceapro Inc., and all information presented in this report, are the
responsibility of Management and have been approved by the Board of Directors.
The consolidated financial statements have been prepared by Management in accordance with International Financial
Reporting Standards. The consolidated financial statements include some amounts that are based on the best estimates
and judgments of Management. Financial information used elsewhere in the report is consistent with that in the
consolidated financial statements.
To further the integrity and objectivity of data in the consolidated financial statements, Management of the Company
has developed and maintains a system of internal controls, which Management believes will provide reasonable
assurance that financial records are reliable and form a proper basis for preparation of consolidated financial
statements, and that assets are properly accounted for and safeguarded.
The Board of Directors carries out its responsibility for the consolidated financial statements in the report principally
through its Audit Committee. The Audit Committee is appointed by the Board, and all of its members are outside and
unrelated Directors. The Committee meets periodically with Management and the external auditors to discuss internal
controls over the financial reporting process and financial reporting issues, to make certain that each party is properly
discharging its responsibilities, and to review quarterly reports, the annual report, the annual consolidated financial
statements, management discussion and analysis, and the external auditor’s report. The Committee reports its findings
to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders.
The Company’s auditors have full access to the Audit Committee, with and without Management being present.
The consolidated financial statements have been audited by the Company’s auditors, Grant Thornton LLP, the external
auditors, in accordance with auditing standards generally accepted in Canada on behalf of the shareholders.
SINCERELY,
SIGNED ‘‘Gilles Gagnon’’
President and Chief Executive Officer
SIGNED ‘‘Branko Jankovic, CA’’
Chief Financial Officer and Vice President, Finance
April 21, 2015
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24 CEAPRO Annual Report 2014
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CONSOLIDATED FINANCIAL STATEMENTS
24FEB201422045893
Independent Auditor’s report
Grant Thornton LLP
1701 Scotia Place 2
10060 Jasper Avenue NW
Edmonton, AB
T5J 3R8
T +1 780 422 7114
F +1 780 426 3208
E Edmonton@ca.gt.com
www.GrantThornton.ca
To the Shareholders of
Ceapro Inc.
We have audited the accompanying consolidated financial statements of Ceapro Inc., which comprise the
consolidated balance sheets as at December 31, 2014 and December 31, 2013 and the consolidated
statements of income and comprehensive income, changes in equity and cash flows for the years then
ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
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CEAPRO Annual Report 2014 25
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CONSOLIDATED FINANCIAL STATEMENTS
24FEB201422045893
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
balance sheets of Ceapro Inc. as at December 31, 2014 and December 31, 2013 and its financial performance
and its cash flows for the years ended December 31, 2014 and December 31, 2013 in accordance with
International Financial Reporting Standards.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements which
indicates that the Company has a significant working capital deficiency as a result of an ongoing project,
which requires additional capital financing to complete. The Company will be reliant on identifying and
receiving additional proceeds from additional financing to meet the costs required to complete the project.
These conditions, along with other matters as set forth in Note 1, indicate the existence of a material
uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Edmonton, Canada
April 21, 2015
Chartered Accountants
8MAY201323214477
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26 CEAPRO Annual Report 2014
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CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories (note 4)
Prepaid expenses and deposits
Non-Current Assets
Deposit
Licenses (note 5)
Property and equipment (note 6)
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities
Deferred revenue (note 9)
Current portion of long-term debt (note 7)
Current portion of employee future benefits obligation (note 10)
Current portion of CAAP loan (note 12)
Royalties interest payable (note 8b)
Current portion of royalty financial liability (note 8b)
Non-Current Liabilities
Employee future benefits obligation (note 10)
Long-term debt (note 7)
CAAP loan (note 12)
Equity
Share capital (note 11b)
Contributed surplus (note 11c)
Accumulated other comprehensive loss
Deficit
TOTAL LIABILITIES AND EQUITY
See accompanying notes
Approved on Behalf of the Board
SIGNED: ‘‘John Zupancic’’
Director
December 31,
2014
$
December 31,
2013
$
272,845
423,567
210,904
679,265
61,502
1,648,083
36,903
36,292
5,961,951
6,035,146
7,683,229
1,791,145
162,279
768,345
127,009
72,942
43,075
–
2,964,795
–
2,361,326
265,075
2,626,401
6,565,927
507,505
(16,916)
(4,964,483)
2,092,033
7,683,229
1,953,019
250,859
279,413
323,582
342,289
3,149,162
28,562
66,254
1,853,024
1,947,840
5,097,002
994,408
361,309
499,718
145,973
72,942
31,631
106,692
2,212,673
127,009
2,222,298
290,529
2,639,836
6,315,858
503,829
(16,916)
(6,558,278)
244,493
5,097,002
SIGNED: ‘‘Donald J. Oborowsky’’
Director
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CEAPRO Annual Report 2014 27
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CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
Year Ended December 31,
Revenue (note 13)
Cost of goods sold
Gross margin
Research and product development
General and administration
Sales and marketing
Finance costs (note 16)
Income from operations
Other operating loss (note 15)
Net income for the year
Other comprehensive loss
Actuarial loss on employee future benefit obligation (note 10)
Total comprehensive income for the year
Net income per common share (note 25):
Basic
Diluted
2014
$
8,890,256
4,126,484
4,763,772
578,361
1,984,025
13,700
187,969
1,999,717
(405,922)
1,593,795
–
1,593,795
2013
$
6,524,062
3,425,248
3,098,814
731,174
1,709,053
84,897
126,663
447,027
(271,219)
175,808
(16,916)
158,892
0.03
0.03
0.00
0.00
Weighted average number of common shares outstanding
60,901,619
60,278,948
See accompanying notes
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28 CEAPRO Annual Report 2014
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CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share
Capital
$
Contributed
surplus
$
Deficit
$
Accumulated other
comprehensive loss
$
Balance December 31, 2012
6,315,858
431,792
(6,734,086)
Share-based payments
Net income for the year
Other comprehensive loss
(actuarial loss) (note 10)
–
–
72,037
–
–
175,808
Balance December 31, 2013
6,315,858
Share-based payments
Stock options exercised
Net income for the year
503,829
111,995
(6,558,278)
–
–
250,069
(108,319)
–
–
1,593,795
–
–
–
(16,916)
(16,916)
–
–
Balance December 31, 2014
6,565,927
507,505
(4,964,483)
(16,916)
See accompanying notes
Equity
$
13,564
72,037
175,808
(16,916)
244,493
111,995
141,750
1,593,795
2,092,033
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CEAPRO Annual Report 2014 29
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CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
OPERATING ACTIVITIES
Net income for the year
Adjustments to reconcile net income to cash and cash equivalents provided by
2014
$
2013
$
1,593,795
175,808
operating activities
Finance costs
Transaction costs
Depreciation and amortization
Loss on disposal of property and equipment
Loss on write-off of licence
Accretion of CAAP loan (note 12)
Grant revenue recognized
Employee future benefits obligation
Share-based payments
Net income for the year adjusted for non-cash items
CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Trade receivables
Other receivables
Inventories
Prepaid expenses and deposits
Deferred revenue
Royalty liability accrued
Accounts payable and accrued liabilities
Net income for the year adjusted for non-cash and working capital items
Interest paid
CASH GENERATED FROM OPERATIONS
INVESTING ACTIVITIES
Purchase of property and equipment
Purchase of leasehold improvements
Purchase of prepaid deposits from grant
Purchase of licenses
CASH USED BY INVESTING ACTIVITIES
FINANCING ACTIVITIES
Long-term debt
Employee future benefits obligation repayment
Stock options exercised
Transaction costs
Repayment of long-term debt
Repayment of CAAP loan (note 12)
Grant used for purchasing of leaseholds, property and equipment, and prepaid
deposits
CAAP loan
Deferred revenue
Restricted cash and cash equivalents
Repayment of royalty financial liability
CASH GENERATED FROM FINANCING ACTIVITIES
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes
45,548
18,532
296,383
3,680
25,875
58,430
–
4,027
111,995
2,158,265
(172,708)
68,509
(355,683)
272,446
(199,030)
11,444
796,737
421,715
(136,608)
2,443,372
(2,337,054)
(2,282,812)
–
–
(4,619,866)
1,071,678
(150,000)
141,750
–
(682,555)
(83,884)
294,623
–
–
–
(95,292)
496,320
(1,680,174)
1,953,019
272,845
82,634
1,960
292,636
12,440
–
42,070
(97,072)
38,847
72,037
621,360
2,542
(79,626)
466,475
(218,073)
(629,024)
(5,234)
412,586
(50,354)
(80,988)
490,018
(662,639)
(1,640,714)
(36,926)
–
(2,340,279)
2,044,852
–
–
(80,869)
(168,502)
–
1,623,987
197,495
(708,777)
708,777
(86,789)
3,530,174
1,679,913
273,106
1,953,019
Cash and cash equivalents are comprised of $266,054 (2013 – $946,304) on deposit with financial institutions, $6,791
(2013 – $6,715) held in money market mutual funds, and $nil (2013 – $1,000,000) held in guaranteed investment
certificates.
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30 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
:: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
1. NATURE OF BUSINESS OPERATIONS AND GOING CONCERN
Ceapro Inc. (the ‘‘Company’’) is incorporated under the Canada Business Corporations Act and is listed on the TSX
Venture Exchange under the symbol CZO. The Company’s primary business activities relate to the marketing and
development of various health and wellness products and technology relating to plant extracts.
The Company’s head office address is 7824 51 Avenue, Edmonton, AB T6E 6W2.
The consolidated financial statements have been prepared on a going concern basis which assumes that the Company
will continue in operation for the foreseeable future and will be able to realize its assets and discharge liabilities in the
normal course of operations. However, certain conditions may cast significant doubt upon the validity of this
assumption. The Company is currently in progress to complete a new manufacturing facility which involves substantial
capital expenditures for engineering and design, permitting, construction of leaseholds, equipment, as well as other
related costs required to meet the strict requirements of major customers. The scope of the original planned
manufacturing facility has been redefined throughout fiscal 2014 to take advantage of new manufacturing process
design opportunities that are expected to provide value to the Company and its shareholders in future years. As a result,
the facility has not yet been completed and the overall planned investment for the first phase of the facility has been
expanded and is currently estimated at $12,200,000, of which the Company has completed and recorded approximately
$6,500,000 at December 31, 2014. As a result of the increased scope of the project, the Company had a working capital
deficiency of $1,316,712 at December 31, 2014 and will require additional financing to complete the first phase of the
manufacturing facility.
When a new manufacturing facility is brought into commercial production, there is always a risk as to the magnitude of
investment of human and financial resources required for start up and commissioning activities. While the Company
intends to fully utilize its expertise and engage qualified third parties to complete these activities and minimize risks,
there is considerable risk inherent in these activities. Additional funds will be required to complete these essential
activities.
Subsequent to the year end, the Company issued an aggregate of $960,000 of convertible debentures and entered into
a new loan agreement which can be drawn to a maximum of $900,000 (see note 26). The proceeds from these new
financings will be used to address the working capital deficiency that exists at December 31, 2014 and towards
completion of the Company’s new manufacturing facility. However, the Company will still require additional funds of
approximately $3,700,000 to complete the first phase of the manufacturing facility.
The Company has relied on the proceeds of public and private offerings of equity securities and debentures, debt, and
other income offerings to support the Company’s operations. The Company’s ability to continue as a going concern is
dependent on obtaining additional financial capital, maintaining profitability, and generating consistent positive cash
flow. Management is pursuing additional funding with long-term partners, government programs, and other sources to
fully fund its anticipated needs. There can be no assurance that the Company will be able to access capital when
needed, achieve profitability, or generate positive cash flow.
These consolidated financial statements do not reflect the adjustments that might be necessary to the carrying amount
of reported assets and liabilities, revenues and expenses, and the balance sheet classification used if the Company were
unable to continue operations. Such adjustments could be material.
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CEAPRO Annual Report 2014 31
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
A) STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board (‘‘IASB’’).
The Board of Directors authorized these consolidated financial statements for issue on April 21, 2015.
B) BASIS FOR PRESENTATION
These consolidated financial statements have been prepared on the historical cost basis. All transactions are recorded
on an accrual basis.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ceapro
Technology Inc., Ceapro Veterinary Products Inc., Ceapro Active Ingredients Inc., Ceapro BioEnergy Inc., Ceapro
(P.E.I) Inc., and Ceapro USA Inc.
All intercompany accounts and transactions have been eliminated on consolidation.
C) USE OF MANAGEMENT CRITICAL JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The preparation of consolidated financial statements requires management to make critical judgments, estimates, and
assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses recorded during
the reporting period. In making estimates and judgments, management relies on external information and observable
conditions where possible, supplemented by internal analysis as required. Actual results may differ from those
estimates. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Management critical judgments
Policies that are critical for the presentation of the financial position and financial performance of the Company and that
require judgments are discussed below.
FUNCTIONAL CURRENCY
The functional currency for the Company and each of the Company’s subsidiaries is the currency of the primary
economic environment in which the respective entity operates; the Company has determined the functional currency
of each entity to be the Canadian dollar. Such determination involves certain judgments to identify the primary
economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in
events and/or conditions which determine the primary economic environment.
LEASES
Management considers all current leases as operating leases. In making their judgment, management considered the
detailed criteria for the capital lease recognition set out in IAS 17 Lease and, in particular, whether the Company had
been transferred substantially all the risks and rewards incidental to ownership.
Management estimates and assumptions
Policies that are critical for the presentation of the financial position and financial performance of the Company and that
require estimates and assumptions are discussed below.
EMPLOYEE BENEFITS
The Company has an unfunded post-employment defined benefit pension plan. The liability for this plan recognized in
the balance sheet of the Company is the present value of the defined benefit obligation. The costs related to this
pension plan are included in profit or loss. The critical assumption used to determine the Company’s obligation is the
discount rate applied to the obligation. Management determines the appropriate discount rate at the end of each year
by considering the interest rate of high quality corporate bonds that have terms to maturity approximating the terms of
the related pension liability.
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32 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROVISIONS
The Company records provision for matters where a legal or constructive obligation exists at the balance sheet date, as a
result of past events and a reliable estimate can be made of the obligation. These matters might include restructuring
projects, legal matters, disputed issues, indirect taxes, and other items. These obligations may not be settled for a
number of years and a reliable estimate has to be made of the likely outcome of each of these matters. These provisions
represent our best estimate of the costs that will be incurred, but actual experience may differ from the estimates made
and therefore affect future financial results. The effects would be recognized in profit or loss.
TAXATION
The Company makes estimates in respect of tax liabilities and tax assets. Full provision is made for future and current
taxation at the rates of tax prevailing at the year end unless future rates have been substantively enacted. These
calculations represent our best estimate of the costs that will be incurred and recovered but actual experience may
differ from the estimates made and therefore affect future financial results. The effects would be recognized in profit or
loss, primarily through taxation.
The Company recognizes the deferred tax benefit related to deferred tax assets to the amount that is probable to be
realized. Assessing the recoverability of deferred tax assets requires management to make significant estimates of future
taxable profit. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions
from deferred tax assets.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value. Cost of inventory includes cost of purchase
(purchase price, import duties, transport, handling, and other costs directly attributable to the acquisition of
inventories), cost of conversion, and other costs incurred in bringing the inventories to their present location and
condition. Net realizable value for inventories is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the sale. Provisions are made in profit or loss
of the current period on any difference between book value and net realizable value.
PROPERTY AND EQUIPMENT
The Company provides for depreciation expense on property and equipment at rates designed to amortize the cost of
individual items and their material components over their estimated useful lives. Management makes estimates of
future useful life based on patterns of benefit consumption and impairments based on past experience and market
conditions. Impairment losses and depreciation expenses are presented in profit or loss of the current period.
LICENCES
The Company amortizes licences over their estimated useful lives. Management makes estimates of future useful life
based on patterns of benefit consumption, terms of licence agreements, and impairments based on past experience
and market conditions. Impairment losses and depreciation expenses are presented in profit or loss of the
current period.
ROYALTIES
The Company has a royalty financial obligation liability. The obligation is based on the present value of management’s
best estimate for eventual repayment which is based on estimated future sales. Changes in the sales estimates could
significantly affect the value of the obligation at each reporting date. The effects are recognized in profit or loss in the
current period.
When funding from royalty agreements is received, management is required to recognize a liability initially at fair value.
To estimate the fair value of the obligation, the Company makes estimates of future cash flows and discounts those cash
flows at an estimated prevailing market rate of interest for a similar instrument. Management updates the estimated
future cash flows required under the royalty agreements at each reporting date to assess whether the value of
obligation should be adjusted. The effects of any change in the obligation are recognized in profit or loss in the
current period.
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CEAPRO Annual Report 2014 33
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHARE-BASED PAYMENTS
The fair value of share-based payments is determined using the Black Scholes option pricing model based on estimated
fair values at the date of grant. The Black Scholes option pricing model utilizes subjective assumptions such as expected
price volatility and expected life of the award. Changes in these assumptions can significantly affect the fair value
estimate. For more information see note 11.
D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits, and all highly liquid short-term investments with
original maturities of three months or less.
E) REVENUE RECOGNITION
Revenues are measured at the fair value of consideration received or receivable. Revenue is recognized when the
Company has transferred the significant risks and rewards of ownership to the customer, the amount of revenue can be
measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company,
the costs incurred or to be incurred can be measured reliably, and the Company maintains no continuing managerial
involvement to the degree usually associated with ownership nor effective control over the goods sold.
F) INVENTORIES
Inventories are valued at the lower of cost and net realizable value.
Costs of inventory include costs of purchase, costs of conversion, and any other costs incurred in bringing the
inventories to their present location and condition. Costs of conversion include direct costs (materials and labor) and
indirect costs (fixed and variable production overheads). Fixed overheads are allocated based on normal capacity. Raw
materials are assigned costs by using a first-in-first-out cost formula and work-in-progress, and finished goods are
assigned costs by using a weighted average cost formula.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
G) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation methods and rates are calculated as follows:
Manufacturing equipment
Office equipment
Computer equipment
Leasehold improvements
10 years straight-line
20% declining balance
30% declining balance
over the term of the lease
Cost for property and equipment includes the purchase price, import duties, non-refundable taxes, and any other costs
directly attributable to bringing the asset into the location and condition to be capable of operating. Significant parts of
an item of property and equipment with different useful lives are recognized and depreciated separately. Depreciation
commences when the asset is available for use. The asset’s residual values, useful lives, and method of depreciation are
reviewed at each financial year end and adjustments are accounted for prospectively if appropriate. An item of property
and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or
loss arising on derecognition of an asset is included in profit or loss in the period the asset is derecognized.
H) BORROWING COSTS
Borrowing costs are capitalized when such costs are directly attributable to the acquisition, construction, or production
of a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to prepare for its
intended use. All other borrowing costs are recognized as an expense in the period in which they are incurred.
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34 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I) IMPAIRMENT OF NON-FINANCIAL ASSETS
The carrying amounts of property and equipment and intangible assets with a finite life are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the
purpose of measuring recoverable cash flows, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units or CGUs). If such indication exists, the Company estimates the recoverable
amount of the assets, which is the higher of its fair value less costs of disposal and its value in use. Value in use is
estimated as the present value of future cash flows generated by this asset or CGU including eventual disposal. If the
recoverable amount of an asset is less than its carrying amount, the carrying amount is reduced to its recoverable
amount, and an impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently
reverses, the carrying amount of the asset is increased to the lesser of the revised estimated recoverable amount and
the carrying amount that would have been recorded, had no impairment loss been recognized previously. Any such
recovery is recognized immediately in profit or loss.
J) LEASES
Leases are classified as finance or operating leases. A lease is classified as a finance lease if it effectively transfers
substantially the entire risks and rewards incidental to ownership.
At the commencement of the lease, the Company recognizes finance leases as an asset acquisition and an assumption
of an obligation in the consolidated balance sheet at amounts equal to the lower of the fair value of the leased property
or the present value of the minimum lease payments. The discount rate to be used in calculating the present value of
the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the
incremental borrowing rate is used. The interest element of the lease payment is recognized as finance cost over the
lease term to achieve a constant periodic rate of interest on the remaining balance of the liability. Any initial direct costs
of the lessee are added to the amount recognized as an asset. The useful life and depreciation method is determined on
a consistent basis with the Company’s policies for property and equipment. The asset is depreciated over the shorter of
the lease term and its useful life.
All other leases are accounted for as operating leases, wherein payments are expensed on a straight-line basis over the
term of the lease.
K) INTANGIBLE ASSETS
Licences
Licences are recorded at cost and are amortized straight-line over the life of the licence.
Research and product development expenditures
Research costs are expensed when incurred. Product development costs are also expensed when incurred unless the
Company can demonstrate the following:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(b) its intention to complete the intangible asset and use or sell it;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can
demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to
be used internally, the usefulness of the intangible asset;
(e) the availability of adequate technical, financial, and other resources to complete the development and to use or
sell the intangible asset;
(f ) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Costs are reduced by government grants and investment tax credits where applicable.
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CEAPRO Annual Report 2014 35
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Following initial capitalization of product development expenditures, the intangible asset is carried at cost less
accumulated amortization and any accumulated impairment losses. Amortization commences when product
development is completed and the asset is available for use. It is amortized over the period of expected future economic
benefit. The expected lives of assets are reviewed on an annual basis and if necessary, changes in useful lives are
accounted for prospectively.
L) TRADE RECEIVABLES
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method, less provision for impairment. A provision for impairment of trade receivables is established when
there is objective evidence that the Company may not be able to collect all amounts due according to the original terms
of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators
that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount
and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in
profit or loss within operating costs. When a trade receivable is uncollectible, it is written off against the allowance
account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other
operating costs in profit or loss.
M) FOREIGN CURRENCY TRANSACTIONS
The Canadian dollar is the functional and presentation currency of the Company and each of the Company’s
subsidiaries.
Foreign currency monetary assets and liabilities of the Company and its subsidiaries are translated using the period end
closing rate and non-monetary assets and liabilities, measured at historic cost, are translated at the rate of exchange at
the date of the transaction. Foreign currency transactions are translated at the spot exchange rate which is in effect at
the date of the transaction. Foreign currency gains or losses arising on translation are included in other operating
income (loss) in profit or loss.
N) INCOME TAXES
Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent
that it relates to items recognized directly in equity, in which case the tax expense is also recognized directly in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates and laws
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are provided for using the liability method on temporary differences between the tax
bases and carrying amounts of assets and liabilities. Deferred tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable income in the year in which temporary differences are
expected to be recovered or settled. Changes to these balances, including changes due to changes in income tax rates,
are recognized in profit or loss in the period in which they occur.
Deferred tax assets are recognized to the extent future recovery is probable. Deferred tax assets are reduced to the
extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to
be recovered.
O) GOVERNMENT ASSISTANCE
Government grants are recognized where there is a reasonable assurance that the grant will be received and all
attached conditions will be complied with. Government grants are recognized as an offset to expenses over the periods
in which the Company recognizes expenses which the grants are intended to compensate. Government grants related
to assets are recognized as cost reduction of the assets and reduce depreciation over the expected useful life of the
related assets.
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36 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P) INVESTMENT TAX CREDITS
Investment tax credits relating to qualifying scientific research and experimental development expenditures are
accrued provided it is probable that the credits will be realized. When recorded, the investment tax credits are
accounted for as a reduction of the related expenditures.
Q) INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is computed by dividing the income (loss) by the weighted average number of
common shares outstanding during the year. Diluted per share amounts reflect the potential dilution that could occur if
the Company’s convertible securities and convertible debentures were converted to common shares. Diluted income
(loss) per common share is calculated by adjusting the profit or loss attributable to common shareholders and the
weighted average number of common shares outstanding for the effect of all dilutive potential common shares. When
the Company is in a net loss position, the conversion of convertible securities is considered to be anti-dilutive.
R) SHARE-BASED PAYMENTS
The Company issues equity-settled share-based awards to eligible employees, directors, officers, and consultants under
stock option plans that can vest over periods ranging from 2 years to 10 years and have a maximum term of ten years.
Share-based payments are accounted for using the fair value method, whereby compensation expense related to these
programs is recorded in profit or loss with a corresponding increase to contributed surplus. The fair value of options
granted is determined using Black-Scholes option pricing model at the grant date and expensed over the vesting
period. Expected forfeitures are estimated at the date of grant and subsequently adjusted if further information
indicates estimated forfeitures will change. Upon the exercise of the stock options, consideration received together with
the amount previously recognized in contributed surplus is recorded as an increase to share capital.
S) EMPLOYEE FUTURE BENEFITS
The Company accrues its obligations under an employee defined benefit pension plan and related costs. The cost of
retirement benefits earned by employees is determined by reference to employee’s salary and management’s best
estimate of expected retirement ages of employees. The liability recognized in the balance sheet is the present value of
the defined benefit obligation. The discount rate used is based on the interest rates for high quality corporate bonds
that have terms to maturity approximating the terms of the obligation. Past service costs relating to plan amendments
are accrued and recognized in the year the amendments occur. The Company recognizes actuarial gains and losses in
other comprehensive income or loss.
T) PROVISIONS
A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it
is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the
obligation can be made. If the effect is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the
risks specific to the liability. The unwinding of the discount is recognized as a finance cost.
U) TRADE AND OTHER PAYABLES
Trade and other payables, including accruals, are recorded when the Company is required to make future payments as a
result of purchases of assets or services. Trade and other payables are recognized initially at fair value and are
subsequently measured at amortized cost using the effective interest rate method.
V) FINANCIAL INSTRUMENTS
All financial instruments are measured at initial recognition at fair value plus any transaction costs that are directly
attributable to the acquisition of the financial instruments except for transaction costs related to financial instruments
classified as at fair value through profit or loss (‘‘FVTPL’’) which are expensed as incurred. The Company has designated
its financial instruments as follows:
i) Cash and cash equivalents and trade and other receivables have been classified as loans and receivables and are
measured at amortized cost using the effective interest method, less any allowance for uncollectability. The Company
recognizes purchase or sale of financial assets using trade date accounting.
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CEAPRO Annual Report 2014 37
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ii) Accounts payable and accrued liabilities, long-term debt, royalties interest payable, royalty financial liability, and
the CAAP loan are classified as other financial liabilities and are measured at amortized cost using the effective
interest rate method.
W) CONSOLIDATED STATEMENT OF CASH FLOWS
The Company prepares its consolidated statement of cash flows using the indirect method.
3. CHANGES IN ACCOUNTING POLICIES
Future accounting policies not yet adopted
At the date of authorization of these consolidated financial statements, certain new standards and amendments to
existing standards have been published by the IASB that are not yet effective and have not been adopted early by the
Company. Information on those expected to be relevant to the Company’s consolidated financial statements is
provided below.
Management anticipates that all relevant pronouncements will be adopted in the Company’s accounting policies for
the first period beginning after the effective date of the pronouncement. New standards, interpretations, and
amendments either not adopted or listed below are not expected to have a material impact on the Company’s
consolidated financial statements.
IFRS 9 ‘‘FINANCIAL INSTRUMENTS’’ (2014)
The IASB recently released IFRS 9 ‘‘Financial instruments’’ (2014), representing the completion of its project to replace
IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’. The new standard introduces extensive changes to
IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘‘expected credit loss’’
model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting.
The Company’s management have not yet assessed the impact of IFRS 9 on these consolidated financial statements.
The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2018.
IFRS 15 ‘‘REVENUE FROM CONTRACTS WITH CUSTOMERS’’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘‘Revenue’’, IAS 11 ‘‘Construction
contracts’’, and several revenue related interpretations. The new standard establishes a control-based revenue
recognition model and provides additional guidance in many areas not covered in detail under existing IFRS, including
how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights,
supplier repurchase options, and other common complexities.
IFRS 15 is effective for reporting periods beginning on or after January 1, 2017. The Company’s management has not yet
assessed the impact of IFRS 15 on these consolidated financial statements.
4. INVENTORIES
The Company had the following inventories at the end of each reporting year:
Raw materials
Work in progress
Finished goods
December 31,
2014
$
December 31,
2013
$
289,784
43,867
345,614
679,265
224,671
–
98,911
323,582
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38 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories expensed to cost of goods sold during the year ended December 31, 2014 are $4,046,206 (December 31,
2013 – $3,360,544).
During the year ended December 31, 2014, the Company decreased the carrying value of inventory by $26,671 (2013 –
$28,447) due to estimated realizable values from certain finished goods being lower than cost and included this amount
in cost of goods sold.
5. LICENCES
During the year ended December 31, 2014, the Company entered into a licence agreement with the University of
Alberta for the rights to a technology that would allow the development, production, and commercialization of powder
formulations that could be used as active ingredients. The agreement expires after a term of 20 years or after the
expiration of the last patent obtained, whichever event shall occur first. There is no initial licence fee, but the Company
is required to make royalty payments (see Note 20 (e)).
During the year ended December 31, 2012, the Company entered into a licence agreement for a new technology to
increase the concentration of avenanthramides in oats. The Company paid a fee of $44,439 to cover previous patent
costs and commenced amortizing the licence over 15 years, in April 2012. Amortization of $2,962 has been included in
general and administration for the year ended December 31, 2014 (December 31, 2013 – $2,963) (see note 20(d)).
During the year ended December 31, 2011, the Company entered into a new licensing agreement with the University of
Guelph for an exclusive variety of a mint plant. This agreement replaced the agreement the Company entered during
the year ended December 31, 2008. The Company paid a licensing fee of $30,000 in 2008 and $15,000 in 2011. The
remaining unamortized portion of the licence fee from 2008 and the new fee in 2011 is being amortized over 10 years,
being the term of the new licensing agreement, commencing in 2011. Amortization of $1,125 has been included in
general and administration for the year ended December 31, 2014 (December 31, 2013 – $4,500) (see note 20(c)).
During the quarter ended September 30, 2014, the cost of the licence fee of $45,000 and accumulated amortization of
$19,125 were written off and included in other operating loss as a result of a decision by the Company to terminate the
licence agreement.
Cost of Licences
Balance – December 31, 2012
Additions
Balance – December 31, 2013
Additions
Write-off
Balance – December 31, 2014
Accumulated amortization
Balance – December 31, 2012
Amortization
Balance – December 31, 2013
Amortization
Write-off
Balance – December 31, 2014
Net book value
Balance – December 31, 2014
Balance – December 31, 2013
$
89,439
–
89,439
–
(45,000)
44,439
15,722
7,463
23,185
4,087
(19,125)
8,147
36,292
66,254
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CEAPRO Annual Report 2014 39
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT
Cost
December 31, 2012
Additions
Disposal
Cost reduced by grant
December 31, 2013
Additions
Disposal
Cost reduced by grant
December 31, 2014
Accumulated Depreciation
December 31, 2012
Depreciation
Disposal
December 31, 2013
Depreciation
Disposal
December 31, 2014
Carrying value
December 31, 2014
December 31, 2013
Equipment
not available
for use
$
24,370
3,569
–
–
3,127,569
651,805
(31,045)
(103,284)
27,939
3,645,045
1,982,459
–
(294,623)
50,409
(10,209)
–
Manufacturing
Equipment
$
Office
Equipment
$
Computer
Equipment
$
Leasehold
Improvements
$
Total
$
3,647,239
2,303,353
294,902
120,364
5,199
1,640,714
–
–
300,101
113,165
(12,970)
–
–
(31,045)
(1,483,777)
(1,587,061)
277,301
2,321,303
–
–
4,332,486
4,699,526
(32,023)
(294,623)
80,034
2,066
–
–
82,100
232,190
(8,844)
–
1,715,775
3,685,245
305,446
400,296
2,598,604
8,705,366
–
–
–
–
–
1,800,959
260,253
(18,605)
2,042,607
237,768
(6,721)
2,273,654
65,534
3,176
–
68,710
13,570
(8,675)
73,605
1,715,775
27,939
1,411,591
1,602,438
231,841
13,390
226,037
21,744
–
247,781
25,473
(12,947)
260,307
139,989
52,320
120,364
2,212,894
–
–
120,364
15,485
–
285,173
(18,605)
2,479,462
292,296
(28,343)
135,849
2,743,415
2,462,755
156,937
5,961,951
1,853,024
Depreciation expense is allocated to the following expense categories:
Year Ended December 31, 2014
Year Ended December 31, 2013
Cost of goods sold
$
186,070
225,214
Inventory
$
23,984
6,273
General and
administration
$
82,242
53,686
Total
$
292,296
285,173
Amortization of leasehold improvements for certain sections of the new manufacturing facility has commenced as
these sections were completed and the Company moved partial operations to the new facility. The production section is
not being amortized as the facility has not yet commenced manufacturing operations.
Included in the additions for equipment not available for use are capitalized borrowing costs of $41,169 (2013 – $nil)
and capitalized employee benefits of $182,316 (2013 – $nil) arising directly from the construction of the new
manufacturing equipment and production process. Included in leasehold improvement additions are capitalized
borrowing costs of $38,491 (2013 – $nil) and capitalized employee benefits of $55,324 (2013 – $nil) arising directly from
the construction of the new manufacturing facility. The borrowing costs have been capitalized at the rates of the
specific borrowings of 3.91% and 2.85%.
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40 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Loan payable secured by a general security agreement due January, 2018 (a).
Loan payable secured by certain intellectual property due January, 2019 (b).
Loan payable secured by a general security agreement due April, 2019 (c).
Loan payable secured by a forklift due June, 2018 (d).
Transaction costs
Less current portion
December 31,
2014
$
December 31,
2013
$
582,693
1,161,166
1,404,672
43,477
(62,337)
3,129,671
768,345
2,361,326
758,033
1,465,500
579,352
–
(80,869)
2,722,016
499,718
2,222,298
Interest expense is presented under finance costs for the following years:
Year Ended December 31, 2014
Year Ended December 31, 2013
45,548
35,455
(a) During the year ended December 31, 2012, the loan was renewed to January 1, 2018 at an interest rate of 3.71%
with monthly blended principal and interest payments of $16,674 starting February 1, 2013. The loan is secured by a
general security agreement covering all present and after acquired personal property subject by a subordination of
the claim for certain intellectual property that has been pledged as security for the long-term debt described in
note 7 (b).
(b) During the year ended December 31, 2013, the Company entered into a new loan agreement which is secured by
certain intellectual property and is due January 2, 2019. The loan, for 1 million Euro, is repayable over 5 years at an
interest rate of 2.85%. At December 31, 2014, the loan balance was $1,161,166 in Canadian currency. Monthly
blended principal and interest payments in the amount of 17,902 Euro commenced February 1, 2014. Based on the
exchange rate at December 31, 2014, the monthly payment is $25,131 in Canadian dollars.
(c) During the year ended December 31, 2013, the Company entered into a new loan secured by a general security
agreement and is due April 1, 2019. The loan can be drawn to maximum $1,600,000 Canadian dollars, is repayable
over a 5-year term, and has an interest rate of 3.91%. At December 31, 2014, $1,600,000 was drawn on this loan
(December 31, 2013, $579,352). Monthly blended principal and interest payments in the amount of $29,352
commenced on May 1, 2014. The loan is secured by a general security agreement covering all present and after
acquired personal property subject to a subordination of the claim for certain intellectual property that has been
pledged as security for the long-term debt described in note 7(b).
(d) During the year ended December 31, 2014, the Company entered into a new loan agreement to purchase a
forklift. The loan is repayable over a four-year term and requires monthly blended principal and interest payments of
$1,167 and has an interest rate of 6.15%. The loan is secured by the forklift with a carrying value of $50,031 and is due
June 1, 2018.
The Company is in compliance with all terms and conditions of its long-term debt agreements.
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CEAPRO Annual Report 2014 41
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. ROYALTIES PAYABLE
a) In the year ended December 31, 2004, the Company’s wholly-owned subsidiary, Ceapro Technology Inc. (CTI),
received a commitment for financial assistance totaling $250,000 for pre-market activities of CeaProve(cid:3) (a health and
wellness product) upon completion of project objectives as outlined and agreed to by both parties. As at December 31,
2014, $225,000 (2013 – $225,000) of this commitment has been received and the remaining $25,000 was decommitted.
CTI is obligated to pay a royalty (to a maximum of two times the financial assistance received) on sales generated from
CeaProve(cid:3) on the following basis: 0% of revenues earned to December 31, 2005, 2.5% of revenues earned to
December 31, 2006, and 5% thereafter until repaid. No royalties have been paid or accrued during the current or prior
years. CTI has repaid at December 31, 2014 $nil (2013 – $nil) of this obligation. Upon completion of the repayment of
the financial assistance received, CTI will also be required to repay $19,750 advanced during the year ended
December 31, 2002. The portion of this obligation paid or accrued as at December 31, 2014 was $nil (2013 – $nil). The
potential amount payable per agreement as at December 31, 2014 is $469,750 (2013 – $469,750) (see note 8(e)).
b) On December 28, 2005, the Company sold a 2.285% royalty interest in the Company’s future sales and licensing of
certain active ingredients, animal health, and CeaProve(cid:3) products for $457,000. The maximum royalties payable are two
times the amount invested or $914,000. The portion of this obligation paid or accrued as at December 31, 2014 was
$914,000 (2013 – $789,345). During the year, the Company repaid $113,211 through cash payments (2013 – $116,343).
The balance of royalties payable under this offering as at December 31, 2014 totaled $43,075, the cheques for which
were released just after year-end, (2013 – $31,631). The potential amount payable per agreement as at December 31,
2014 is $nil (2013 – $124,655) (see note 8(e)). The balance outstanding was set up as a royalty financial liability which
results in a discounted liability of $nil (2013 – $106,692).
Opening amount of royalties interest payable
Royalty expense recognized
Amount paid during the year
Closing amount of royalties interest payable
Opening amount of royalty financial liability
Principal repayment of the discounted amount during the year
Closing amount of royalty financial liability
Less current portion
Interest expense paid during the year
Year Ended
December 31,
2014
$
Year Ended
December 31,
2013
$
31,631
124,655
(113,211)
43,075
106,692
(106,692)
–
–
–
17,959
25,037
122,937
(116,343)
31,631
205,309
(98,617)
106,692
106,692
–
24,320
c) In the year ended December 31, 2005, the Company and its wholly-owned subsidiary, Ceapro Veterinary Products Inc.
(CVP), received a commitment for financial assistance totaling $362,250 for product innovation development in the area
of Veterinary Therapeutics and Active Ingredients. As at December 31, 2014, $362,250 (2013 – $362,250) of the
commitment has been received. The Company and CVP are obligated to pay a 2.5% royalty to a maximum of $75,000
per quarter (to a maximum of two times the financial assistance received or $724,500) on sales generated from products
developed using these funds. The portion of the obligation accrued and paid at December 31, 2014 was $1,224 (2013 –
$940). The potential amount payable per agreement as at December 31, 2014 is $723,276 (2013 – $723,560)
(see note 8(e)).
d) In the year ended December 31, 2005, the Company’s wholly-owned subsidiary, Ceapro Technology Inc. (CTI),
received a commitment for financial assistance totaling $800,000 for pre-market activities of CeaProve(cid:3) (a health and
wellness product) upon completion of project objectives as outlined and agreed to by both parties. As at December 31,
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42 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2014, $510,000 of this commitment has been received (2013 – $510,000) and the remaining $290,000 has been
decommitted. CTI is obligated to pay a royalty (to a maximum of one and a half times the financial assistance received or
$765,000) on sales of CeaProve(cid:3) on the following basis: 0% of net sales and net sub-licensing revenues earned until
royalty payments have been fully satisfied under the investment agreement in note 8(a), and 5% thereafter until repaid
to a maximum of $125,000 per quarter. No royalties have been incurred during the current year. The portion of this
obligation paid or accrued as at December 31, 2014 was $nil (2013 – $nil). The potential amount payable per agreement
as at December 31, 2014 is $765,000 (2013- $765,000) (see note 8(e)).
e) Potential royalties payable as at December 31, 2014 and 2013:
Notes
8 (a)
8 (b)
8 (c)
8 (d)
Total
Potential amount
payable at
December 31,
2014
Potential amount
payable at
December 31,
2013
Year of agreement
2004
2005
2005
2005
469,750
–
723,276
765,000
469,750
124,655
723,560
765,000
1,958,026
2,082,965
As the funding received in items a), c) and d) above is contingently repayable, it constitutes a liability that is recognized
initially at fair value and subsequently at amortized cost using the effective interest method. As the initial fair value was
estimated to be negligible, funding received was recorded as revenue and no liability was recorded. Management
updates the estimate of future cash flows required under these agreements at each reporting date to assess whether
the expected repayments constitute a significant liability. When a liability needs to be recognized, a fair value
adjustment is required.
9. DEFERRED REVENUE
During the year ended December 31, 2014, the Company received $89,100 from Alberta Innovates Bio Solutions (AI-Bio
Solutions) under a non-repayable grant agreement to fund a research project. During the year, the Company has
expended $22,117. The balance of the grant is presented as deferred revenue.
Deferred revenue also consists of $95,296 (2013 – $361,309) for prepaid sales orders from a customer.
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CEAPRO Annual Report 2014 43
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE FUTURE BENEFITS OBLIGATION
The Company has an unfunded, non-registered, non-indexed defined benefit pension plan for an officer. The retirement
benefit is two months’ salary for each year the employee is employed by the Company up to age 55.
Management is required to make an estimate regarding the discount rate used to determine the accrued benefit
obligation. This estimate is of a short-term nature, which is consistent with the nature of the revised agreement.
Actuarial losses of $16,916 arose from changes of discount rate from 4.19% in 2012 to 2.3% in 2013.
The agreement was revised during the year ended December 31, 2013 and the total amount of $277,009 will be paid to
settle the obligation as per the following installments:
January 1, 2014
July 1, 2014
January 1, 2015
Total:
$50,000
$100,000
$127,009
$277,009
As a result of an amendment to the agreement, the Company recorded a loss on curtailment of $14,815 in the year
ended December 31, 2013. The present value of the installments at December 31, 2014 was $127,009 and no further
expenses under current service costs will be incurred as a result of this amendment.
Accrued benefit obligation
Unfunded balance, beginning of year
Current service cost
Loss on curtailment (or past service costs)
Interest costs on accrued benefit obligation
Actuarial losses, net of $nil tax
Benefit repayment
Less current portion
Elements of defined benefit costs recognized in the year
Current service cost
Loss on settlement
Interest cost on accrued benefit obligation
Year Ended
December 31,
2014
$
272,982
–
–
4,027
–
(150,000)
127,009
127,009
–
Year Ended
December 31,
2013
$
217,219
18,301
14,815
5,731
16,916
–
272,982
145,973
127,009
Year Ended
December 31,
2014
$
Year Ended
December 31,
2013
$
–
–
4,027
4,027
18,301
14,815
5,731
38,847
Defined benefit costs have been presented under research and product development expenses in the consolidated
statement of net income for the year.
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44 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SHARE CAPITAL
A. AUTHORIZED
i. Unlimited number of Class A voting common shares. Class A common shares have no par value.
ii. Unlimited number of Class B non-voting common shares. There are no issued Class B shares.
B. ISSUED – CLASS A COMMON SHARES
Year Ended
December 31, 2014
Year Ended
December 31, 2013
Number of
Shares
60,278,948
1,145,000
61,423,948
Amount
$
6,315,858
250,069
6,565,927
Number of
Shares
60,278,948
–
Amount
$
6,315,858
–
60,278,948
6,315,858
Balance at beginning of the year
Stock options exercised
Balance at end of the year
C. CONTRIBUTED SURPLUS
The following table summarizes the changes in contributed surplus:
Balance at beginning of year
Share-based payments (note11(d))
Stock options exercised
2014
$
503,829
111,995
(108,319)
507,505
2013
$
431,792
72,037
–
503,829
D. STOCK OPTIONS AND SHARE-BASED PAYMENTS
The Company has granted stock options to eligible employees, directors, officers, and consultants under stock option
plans that vest over two-year periods and have a maximum term of ten years.
The Company accounts for options granted under these plans in accordance with the fair value based method of
accounting for share-based payments. In the year ended December 31, 2014, the Company granted 1,330,000
(December 31, 2013 – 1,400,000) stock options. The application of the fair value based method requires the use of
certain assumptions regarding the risk-free market interest rate, expected volatility of the underlying stock, life of the
options, and forfeiture rate. The weighted average risk-free rate used in 2014 was 2.18% (2013 – 1.62%), the weighted
average expected volatility was 115% (2013 – 111%) which was based on prior trading activity of the Company’s shares,
the weighted average expected life of the options was 10 years (2013 – 10 years), forfeiture rate was 0% (2013 – 0%), the
weighted average share price was $0.13 (2013 – $0.06), the weighted average exercise price was $0.13 (2013 – $0.10),
and the expected dividends were nil (2013 – nil). The weighted average grant date fair value of options granted in the
year ended December 31, 2014 was $0.13 (2013 – $0.05) per option.
The share-based payments expense recorded during the current year relating to options granted in 2014, 2013, and
2012 was $111,995 (during 2013 relating to options granted in 2013, 2012, and 2011 – $72,037).
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CEAPRO Annual Report 2014 45
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SHARE CAPITAL (CONTINUED)
A summary of the status of the Company’s stock options at December 31, 2014 and 2013 and changes during the years
ended on those dates is as follows:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at end of year
Exercisable at end of year
2014
2013
Number of
Options
3,145,000
1,330,000
(1,145,000)
–
(210,000)
3,120,000
1,946,668
Weighted
Average
Exercise Price
$
0.11
0.13
0.12
–
0.10
0.12
0.11
Number of
Options
2,940,000
1,400,000
–
(810,000)
(385,000)
3,145,000
2,201,667
Weighted
Average
Exercise Price
$
0.13
0.10
–
0.15
0.12
0.11
0.12
E. STOCK OPTIONS OUTSTANDING ARE AS FOLLOWS:
Fair Value
$
0.37
0.13
0.08
0.05
0.09
0.11
0.06
0.10
Exercise
Price
$
0.27
0.14
0.10
0.10
0.10
0.15
0.10
0.13
12. CAAP LOAN
Year of
Expiration
2024
2024
2024
2023
2022
2016
2015
2014
Weighted
Average
Contractual
Life Remaining
(years)
9.9
9.4
9.0
8.0
7.5
1.5
0.7
–
7.2
December 31,
2014
Number of
Options
150,000
250,000
810,000
December 31,
2013
Number of
Options
–
–
1,065,000
1,265,000
300,000
275,000
270,000
–
300,000
325,000
430,000
825,000
3,120,000
3,145,000
The Company entered into Canadian Agricultural Adaptation Program (‘‘CAAP’’) repayable contribution agreements for
total possible funding of $1,339,625 receivable over the period from October 7, 2010 through September 30, 2012.
During the year ended December 31, 2012, the Company voluntarily decommitted $668,557 as a result of lower
anticipated project expenditures resulting in amended maximum possible funding under the agreement of $671,068.
The end date for project expenditures and start date for repayments were also extended one year to September 30,
2013 and December 31, 2014 respectively. All amounts claimed under the program are repayable interest free over
eight years beginning in 2014.
As the contributions are non-interest bearing, the fair value at inception is estimated as the present value of the
principal payments required, discounted using the prevailing market rates of interest for a similar instrument which was
estimated to be 15% per annum. The difference between the fair value of the contributions and the cash received is
accounted for as a government grant.
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46 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The balance of repayable contribution is derived as follows:
Year Ended December 31,
Opening balance
Funding received or receivable
Grant revenue recognized
Repayment
Accretion of CAAP loan
Less current portion
2014
$
363,471
–
–
(83,884)
58,430
338,017
72,942
265,075
2013
$
220,978
197,495
(97,072)
–
42,070
363,471
72,942
290,529
The principal repayment required for amounts received or receivable from inception to December 31, 2013 is $83,883
annually from 2014 through 2021. The first repayment of $83,884 was invoiced to the Company on December 31, 2014
and therefore the Company reclassified this payment outstanding to accounts payable and accrued liabilities.
13. SALES
During the year ended December 31, 2014, the Company had export sales to two customers of the Company’s products
in the aggregate amount of $8,206,953 (92%) (2013 – to two customers in the amount of $6,042,428 (93%)). The
Company is therefore dependent on those customers to maintain and expand the volume of product sales.
14. RELATED PARTY TRANSACTIONS
Related party transactions during the years not otherwise disclosed in these consolidated financial statements are
as follows:
Year Ended December 31,
Royalties earned by employees and directors
Amounts payable to employees and directors included in royalties
payable
Key management salaries, short-term benefits, consulting fees, and
director fees
Key management personnel share-based payments
Amount payable to directors
2014
$
25,666
8,719
519,053
56,806
28,750
2013
$
24,889
5,967
671,838
40,754
28,750
These transactions are in the normal course of operations and are measured at the amount of consideration established
and agreed to by the related parties.
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CEAPRO Annual Report 2014 47
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. OTHER OPERATING LOSS (INCOME)
Year Ended December 31,
Foreign exchange (income) loss
Loss on write-off of licence
Loss on disposal of property and equipment
Other income
Plant relocation costs
16. FINANCE COSTS
Year Ended December 31,
Interest on royalty financial liability
Interest on long-term debt
Transaction costs
Royalties to University of Guelph & AAFC
Accretion of CAAP loan
17. INCOME TAXES
A) INCOME TAX EXPENSE
Components of income tax expenses are:
Current tax expense
Deferred tax expense:
Origination and reversal of temporary differences
Change in unrecognized deductible temporary differences
Prior period adjustments
Income tax expense (recovery)
2014
$
(26,514)
25,875
3,680
(2,621)
405,502
405,922
2014
$
17,959
45,548
18,532
47,500
58,430
2013
$
22,803
–
12,440
(4,103)
240,079
271,219
2013
$
24,678
35,455
1,960
22,500
42,070
187,969
126,663
December 31,
2014
$
December 31,
2013
$
–
–
619,435
(544,273)
(75,162)
–
404,459
(186,446)
(218,013)
–
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48 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actual income tax provision differs from the expected amount calculated by applying the Canadian combined
federal and provincial corporate tax rates to income before tax. These differences result from the following:
Income before tax
Statutory income tax rate
Expected income tax
Increase (decrease) resulting from:
Non-deductible items
Change in unrecognized assets
Prior period tax adjustments
Income tax expense (recovery)
B) RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets are attributable to the following:
SRED pool, net of ITC’s
Deferred tax assets
Offset by deferred tax liabilities
Net deferred tax asset
Deferred tax liabilities are attributable to the following:
PP&E
Finance fees
CAAP loan
Deferred tax liabilities
Offset by deferred tax assets
Net deferred tax liability
C) UNRECOGNIZED DEFERRED TAX ASSETS
Deferred tax assets have not been recognized in respect of the following
items:
Deductible temporary differences
Tax losses
December 31,
2014
$
1,593,795
25.00%
398,449
30,177
(353,464)
(75,162)
–
December 31,
2013
$
175,808
25.00%
43,952
20,137
153,924
(218,013)
–
December 31,
2014
$
December 31,
2013
$
187,142
187,142
(187,142)
–
(121,686)
(3,160)
(62,296)
(187,142)
187,142
–
156,157
156,157
(156,157)
–
(75,603)
(3,651)
(76,903)
(156,157)
156,157
–
December 31,
2014
$
December 31,
2013
$
1,329,539
3,740,504
5,070,043
1,284,347
4,139,160
5,423,507
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CEAPRO Annual Report 2014 49
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. INCOME TAXES (CONTINUED)
The tax losses expire between 2015 and 2034. Deferred tax assets have not been recognized in repsect of these items as
it is not probable that future taxable profit will be available against which the Company can utilize the benefits.
18. SEGMENTED INFORMATION
The Company operates in one industry segment, which is the active ingredient product technology industry. The
majority of the revenue is derived from sales in North America. All the assets of the Company, which support the
revenues of the Company, are located in Canada. The distribution of revenue by location of customer is as follows:
Year Ended December 31,
United States
Germany
Other
Canada
19. EMPLOYEE BENEFITS
Year Ended December 31,
Employee benefits
2014
$
7,425,861
1,286,887
176,271
1,237
8,890,256
2013
$
5,228,790
1,072,936
202,897
19,439
6,524,062
2014
$
2013
$
2,498,791
2,312,480
Employee benefits include wages, salaries, bonus, and CPP, EI, WCB contributions, and benefit premiums.
20. CONTINGENCIES AND COMMITMENTS
a) During the year ended December 31, 2011, the Company and its wholly-owned subsidiary, Ceapro Veterinary
Products Inc. were served with a statement of claim from AVAC Ltd. alleging damages of $724,500 pursuant to a product
development agreement. The Company and Ceapro Veterinary Products Inc., filed a statement of defense to refute the
claim and the evidentiary portion of the trial was completed in January 2015. All written arguments were completed on
March 16, 2015 and have been submitted to the presiding judge. The Company believes it has presented strong
defenses to the allegations at trial. However, at this time, the outcome of the litigation is uncertain and no provisions
have been made in the consolidated financial statements for this litigation.
b) During the year ended December 31, 2012, the Company and its wholly-owned subsidiary, Ceapro Technology Inc.,
were served with a statement of claim from AVAC Ltd. alleging damages of $1,470,000 pursuant to two product
development agreements. The Company and Ceapro Technology Inc. filed a statement of defense to refute the claim
and the evidentiary portion of the trial was completed in January 2015. All written arguments were completed on
March 16, 2015 and have been submitted to the presiding judge. The Company believes it has presented strong
defenses to the allegations at trial. However, at this time, the outcome of the litigation is uncertain and no provisions
have been made in the consolidated financial statements for this litigation.
c) During the year ended December 31, 2008, the Company entered into a licensing agreement with the University of
Guelph for an exclusive variety of a mint plant. During the year ended December 31, 2011, the Company entered into a
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50 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
new licensing agreement with the University of Guelph for additional market rights for the exclusive variety of a
mint plant.
In accordance with the new agreement, there are future minimum royalty prepayments of $10,000 per annum starting
in 2012 for royalty payments which will be calculated as 5% of net sales from products derived from the mint plants. The
minimum royalty payments are creditable against royalties in years where royalties are due. The agreement is an
executory contract and therefore all royalty payments under the contract will be recognized as they become due.
During the year ended December 31, 2014, the Company decided to terminate the licence agreement and no further
royalties will be payable.
d) During the year ended December 31, 2012, the Company entered into a new licence agreement for a new technology
to increase the concentration of avenanthramides in oats. The Company shall pay an annual royalty percentage rate of
2% of sales, payable every January 1st and July 1st, subject to a minimum annual royalty payment according to the
schedule below:
Year
2012
2013
2014
2015
2016
Amount
nil
$12,500
$37,500
$50,000
$50,000
And $50,000 each year thereafter while the licence agreement remains in force. The agreements remain in force until
the patents expire or are abandoned.
The agreement is an executory contract and therefore all royalty payments under the contract will be recognized as they
become due.
e) During the year ended December 31, 2014, the Company entered into a new licence agreement with the University of
Alberta for the rights to a technology that would allow the development, production, and commercialization of powder
formulations that could be used as active ingredients.
In accordance with the agreement and as amended on February 2, 2015, the Company shall pay the following royalties,
payable on a semi-annual basis:
(a) a royalty of 3.5% of net sales generated from the field of pharmaceuticals;
(b) a royalty of 3.0% of net sales generated from the field of nutraceuticals;
(c) a royalty of 2.75% of net sales generated from the field of cosmetics;
(d) a royalty of 1.0% of net sales generated from the field of functional foods;
(e) a royalty of 3.0% of net sales generated from other fields.
The Company shall pay a minimum annual advance on earned royalties of $5,000 commencing March 1, 2017 and every
year thereafter while the licence agreement remains in force.
The agreement is on executory contract and therefore all royalty payments under the agreement will be recognized as
they become due.
f ) In the normal course of operations, the Company may be subject to litigation and claims from customers, suppliers
and former employees. Management believes that adequate provisions have been recorded in the accounts where
required. Although it is not possible to estimate the extent of potential costs, if any, management believes that the
ultimate resolution of such contingencies would not have a material adverse effect on the financial position of
the Company.
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CEAPRO Annual Report 2014 51
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. OPERATING LEASE
The Company incurred $731,379 in 2014 (2013 – $508,626) under rental operating leases. These amounts were recorded
as follows: general and administration expenses of $115,543 (2013 – $90,120), research and development expenses of
$831 (2013 – $nil), cost of goods sold of $234,343 (2013 – $267,103), and other operating loss of $380,662 (2013 –
$151,403).
The Company is committed to future annual payments under operating leases for manufacturing facilities, office space
and warehouse starting April 1, 2013. Total lease commitments exclusive of operating costs from January 1, 2015 to
March 31, 2025 are disclosed in the table below:
New lease for plant
Warehouse
Total
22. FINANCIAL INSTRUMENTS
0 - 1 year
$
201,870
58,500
260,370
2 - 5 years
$
842,807
63,375
906,182
6 - 11 years
$
1,206,173
–
1,206,173
Total
$
2,250,850
121,875
2,372,725
Financial assets and financial liabilities measured at fair value in the balance sheet are grouped into three Levels of a fair
value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement,
as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly
• Level 3: unobservable inputs for the asset or liability
The estimated fair value of the Company’s financial instruments approximates the amount for which the financial
instruments could currently be exchanged in an arms length transaction between willing parties who are under no
compulsion to act.
The fair value of cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities, and
royalties interest payable approximate their carrying amount due to their short-term nature. The fair value of long-term
debt is estimated to approximate its carrying value because the interest rates do not differ significantly from current
interest rates for similar types of borrowing arrangements (level 2).
The Canadian Agricultural Adaptation Program (‘‘CAAP’’) loan is recorded at the amount drawn under the agreement,
discounted using the prevailing market rate of interest for a similar instrument, which represents the estimated fair
value of the obligation.
The fair value of the CAAP loan and the repayable research funding are not materially different from their carrying
amounts as funding received has been discounted using an estimate of a market rate of interest and is being accreted
back to its nominal amount (level 2).
The royalty financial liability was estimated using a discount rate that results from the estimated future repayment of
that obligation which is based on expected sales. As there has been no significant change in estimated future
repayments, and as the estimated discount rate also approximates the Company’s estimated cost of capital for similar
borrowing arrangements, management believes the carrying amount of this obligation does not differ significantly
from its fair value (level 3).
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52 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets out a comparison of the carrying amount and fair values of the Company’s financial assets and
financial liabilities:
Loans and receivables:
Cash and cash equivalents
Trade and other receivables
Other financial liabilities:
Accounts payable and accrued liabilities
Long-term debt
CAAP loan
Royalties interest payable
Royalty financial liability
December 31, 2014
December 31, 2013
Book value
$
Fair value
$
Book value
$
272,845
634,471
1,791,145
3,129,671
338,017
43,075
–
272,845
634,471
1,791,145
3,129,671
338,017
43,075
–
1,953,019
530,272
994,408
2,722,016
363,471
31,631
106,692
Fair value
$
1,953,019
530,272
994,408
2,722,016
363,471
31,631
106,692
The Company has exposure to credit, liquidity and market risk as follows:
A) CREDIT RISK
TRADE AND OTHER RECEIVABLES
The Company makes sales to customers that are well-established within their respective industries. Based on
previous experience, the counterparties had zero default rates and management views this risk as minimal.
Approximately 95% of trade receivables are due from two customers at December 31, 2014 (2013 – 94% from two
customers) and all trade receivables at December 31, 2014 and 2013 are current. These main customers are
considered to have good credit quality and historically have a high quality credit rating.
Other receivables represent amounts due for research program claims, government goods and services taxes, and
scientific and research tax credits. The collectability risk is deemed to be low because of the good quality credit rating
of the counter-parties.
CASH AND CASH EQUIVALENTS
The Company has cash and cash equivalents in the amount of $272,845 at December 31, 2014 (2013 – $1,953,019)
and mitigates its exposure to credit risk on its cash balances by maintaining its bank accounts with Canadian
Chartered Banks and investing in low risk, high liquidity investments.
There are no past due or impaired financial assets. The maximum exposure to credit risk is the carrying amount of the
Company’s trade and other receivables and cash and cash equivalents. The Company does not hold any collateral
as security.
B) LIQUIDITY RISK
Liquidity risk relates to the risk that the Company will encounter difficulty in meeting its financial obligations. The
Company may be exposed to liquidity risks if it is unable to collect its trade and other receivables balances in a timely
manner, which could in turn impact the Company’s long-term ability to meet commitments under its current facilities. In
order to manage this liquidity risk, the Company regularly reviews its aged trade receivables listing to ensure prompt
collections. The Company regularly reviews its cash availability and whenever conditions permit; the excess cash is
deposited in short-term interest bearing instruments to generate revenue while maintaining liquidity. There is no
assurance that the Company will obtain sufficient funding to execute its strategic business plan.
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CEAPRO Annual Report 2014 53
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. FINANCIAL INSTRUMENTS (CONTINUED)
The following are the contractual maturities of the Company’s financial liabilities and obligations:
within 1 year
$
1 to 3 years
$
3 to 5 years
$
over 5 years
$
Accounts payable and accrued liabilities
1,791,145
867,877
83,883
–
1,735,755
167,766
2,742,905
1,903,521
–
820,010
167,766
987,776
–
–
167,766
167,766
Long-term debt obligations
Repayable CAAP funding
Total
C) MARKET RISK
Total
$
1,791,145
3,423,642
587,181
5,801,968
Market risk is comprised of interest rate risk, foreign currency risk, and other price risk. The Company’s exposure to
market risk is as follows:
1. FOREIGN CURRENCY RISK
Foreign currency risk arises from the fluctuations in foreign exchange rates and the degree of volatility of these rates
relative to the Canadian dollar.
The following table summarizes the impact of a 1% change in the foreign exchange rates of the Canadian dollar
against the US dollar (USD) and the Euro on the financial assets and liabilities of the Company.
Financial assets
Accounts receivable
Financial liabilities
CARRYING
AMOUNT
(USD)
FOREIGN EXCHANGE RISK (USD)
-1%
+1%
EARNINGS & EQUITY
EARNINGS & EQUITY
365,092
3,651
(3,651)
Accounts payable and accrued liabilities
392,649
Total (decrease) increase
Financial liabilities
Long-term debt
Total (decrease) increase
CARRYING
AMOUNT
(EURO)
827,159
(3,926)
(275)
3,926
275
FOREIGN EXCHANGE RISK (EURO)
(cid:4)1%
+1%
EARNINGS & EQUITY
EARNINGS & EQUITY
(8,272)
(8,272)
8,272
8,272
The carrying amount of accounts receivable and accounts payable and accrued liabilities in USD and long-term debt
in Euro represents the Company’s exposure at December 31, 2014.
2. INTEREST RATE RISK
The Company has minimal interest rate risk because its long-term debt agreements are all at fixed rates.
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54 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. CAPITAL DISCLOSURES
The Company considers its capital to be its equity. The Company’s objective in managing capital is to ensure a sufficient
liquidity position to finance its manufacturing operations, research and development activities, administration and
marketing expenses, working capital and overall capital expenditures, including those associated with patents and
trademarks. The Company makes every effort to manage its liquidity to minimize dilution to its shareholders
when possible.
The Company has funded its activities through public offerings and private placements of common shares, royalty
offerings, loans, convertible debentures, and grant contributions.
The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect
to capital risk management did not change during the year ended December 31, 2014.
24. GOVERNMENT ASSISTANCE
a) During the year ended December 31, 2010, the Company was approved for non-repayable funding in the amount of
$124,000 from Alberta Innovates Technology Futures (AITF). During the year ended December 31, 2014, the Company
received $nil (2013 – $9,166) which was recorded as a reduction of research and product development expenses. This
agreement was completed during the year ended December 31, 2013.
b) During the year ended December 31, 2012, the Company was approved for a second agreement for non-repayable
funding in the amount of $124,000 from AITF. During the current year, the Company received $18,333 (2013 – $62,000)
which was recorded as a reduction of research and project development expenses. This agreement has been completed
at December 31, 2014.
c) The Company was approved for non-repayable funding to a maximum of $21,250 of eligible expenditures under the
Novel Crops Initiative program from the Prince Edward Island Department of Agriculture. The Company recorded the
amount of $nil as a reduction of research and product development expenditures under this program in the year ended
December 31, 2014 (2013 – $5,000). This agreement was completed during the year ended December 31, 2013.
d) The Company entered into Canadian Agricultural Adaptation Program (‘‘CAAP’’) repayable contribution agreements
for total possible funding of $1,339,625 receivable over the year from October 7, 2010 through September 30, 2012.
During the year ended December 31, 2012, the Company voluntarily amended the maximum possible funding under
the agreement to $671,068 as a result of lower anticipated project expenditures. The end date for project expenditures
was also extended one year to September 30, 2013. All amounts claimed under the program are repayable interest free
over eight years beginning in 2014. The Company received or recorded as receivable funding of $671,068 to
December 31, 2013 under this program and no further funds are expected (see note 12).
e) During the year ended December 31, 2011, the Company entered into a Contribution Agreement with AI-Bio
Solutions for a non-repayable grant contribution totaling up to $1,600,000 towards the construction of a new
bio-processing facility and subject to compliance with all terms and conditions of the agreement. In accordance with
the agreement, the Company received $750,000 in 2011, and received $690,000 in 2013. The amount of $nil (2013 –
$1,398,777) was recorded as a reduction of capitalized expenditures. An amount of $160,000 is expected to be received
in 2015.
f ) During the year ended December 31, 2012, the Company entered into a contribution agreement with an agency of
the federal government to provide funding of up to $253,000 for certain research activities. This contribution agreement
was amended to increase the potential non-repayable contribution amount to $345,000 from $253,000 in 2013. During
the year ended December 31, 2014, the Company received or recorded as receivable the amount of $nil (December 31,
2013 – $302,909). This agreement was completed during the year ended December 31, 2013.
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CEAPRO Annual Report 2014 55
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24. GOVERNMENT ASSISTANCE (CONTINUED)
g) During the year ended December 31, 2013, the Company entered into an agreement under the Growing Forward
2 program to provide non-repayable grant funding in an amount up to $673,000. During the year ended December 31,
2014, the Company received or recorded as receivable the amount of $300,254, (December 31, 2013 -$192,345) of which
$294,623 was recorded as a reduction of capitalized expenditures. The Company received an additional $79,640 in 2015
and the project was completed.
h) During the year ended December 31, 2014, the Company entered into a non-repayable grant agreement with AI-Bio
Solutions to provide funding of up to $198,000 for certain research activities. During the year ended December 31, 2014,
the Company received $89,100. An amount of $22,117 was expended on the research project and the remaining
$66,983 is recorded as deferred revenue at December 31, 2014. The Company anticipates receiving up to $108,900
in 2016.
i) During the year ended December 31, 2014, the Company entered into an agreement under the Growing Forward
2 program to provide non-repayable grant funding for up to $52,500 for certain research activities. During the year
ended December 31, 2014, the Company recorded $20,242 as a receivable. The Company received an additional $8,443
in 2015 and the project was completed.
25. INCOME PER COMMON SHARE
Year Ended December 31,
Net income for the year for basic and diluted earnings per share calculation
Weighted average number of shares outstanding
Effect of dilutive stock options
Diluted weighted average number of common shares
Income per share – basic
Income per share – diluted
2014
$1,593,795
60,901,619
1,632,028
62,533,647
$0.03
$0.03
2013
$175,808
60,278,948
–
60,278,948
$0.00
$0.00
For the year ended December 31, 2014, 316,666 outstanding stock options have not been included in the diluted
income per share calculation because either the options’ exercise price or the unvested options’ exercise price taking
into consideration remaining share-based payments were greater than the average market price of the common shares
during the year.
For the year ended December 31, 2013, the Company’s 3,145,000 stock options outstanding have not been included in
the diluted income per share calculation because the options’ exercise prices were greater than the average market
price of the common shares during the year.
26. SUBSEQUENT EVENTS
a) Subsequent to the year end, the Company issued an aggregate of $960,000 of unsecured convertible debentures that
mature on December 31, 2016.
The debentures bear interest at 8% per annum with interest payable on June 30 and December 31 of each year.
Pursuant to the terms of the debentures, the Company will have the option to satisfy interest payments through the
issuance of common shares based on the volume weighted average trading price of the common shares for the
20 trading days upon which the common shares traded on the TSX-V immediately prior to the interest obligation date.
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56 CEAPRO Annual Report 2014
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The debentures are convertible into common shares of the Company at any time at a price of $0.64 per common share
at the option of the holder and may be redeemed at the option of the Company upon giving notice of 60 days. The
debentures and any common shares issued upon conversion of the convertible debentures are subject to a four-month
hold period from the date of issue.
b) Subsequent to the year end, the Company entered into a new loan agreement. The loan can be drawn to a maximum
of $900,000, bears interest at the rate of 3.84%, and will mature on July 1, 2020. The proceeds drawn under the loan will
be payable interest only up to July 1, 2015 and commencing on that date will be repayable by monthly blended
principal and interest payments in the amount of $16,483. On March 24, 2015, the Company received an initial draw on
the loan for aggregate proceeds of $290,000. The loan is secured by a general security agreement covering all present
and after acquired personal property subject by a subordination of the claim for certain intellectual property that has
been pledged as security for the long-term debt described in note 7(b).
c) Subsequent to the year end, the Company issued 1,040,000 stock options to officers, directors, and employees of the
Company. The stock options have a weighted average exercise price of $0.63 per common share and expire in 10 years.
d) Subsequent to the year end, 208,333 options were exercised for a weighted average price of $0.10 per common share
and gross proceeds of $21,833.
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CEAPRO Annual Report 2014 57
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:: INVESTOR INFORMATION – APRIL 27, 2015
DIRECTORS
Glenn Rourke, Chair
Gilles Gagnon, President & CEO
Dr. Ulrich Kosciessa
Dr. William W. Li
Donald Oborowsky
John Zupancic
OFFICERS
Gilles Gagnon, M.Sc., MBA
President & CEO
Branko Jankovic, CA
Chief Financial Officer
Vice President, Finance
STOCK INFORMATION
Listed on the TSX Venture Stock Exchange
Symbol: CZO
REGISTERED OFFICE
2600 Manulife Place
10180 – 101 Street NW
Edmonton, AB
Canada T5J 3V5
AUDITORS
Grant Thornton LLP
1701 Scotia Place 2
10060 Jasper Avenue NW
Edmonton, Alberta
Canada T5J 3R8
CORPORATE COUNSEL
Bryan & Company
2600 Manulife Place
10180 – 101 Street NW
Edmonton, Alberta
Canada T5J 3V5
SECURITIES COUNSEL
Bryan & Company
2600 Manulife Place
10180 – 101 Street NW
Edmonton, Alberta
Canada T5J 3V5
CHARTERED BANK
TD Canada Trust
148 City Centre East
10205 – 101 Street NW
Edmonton, Alberta
Canada T5J 2Y8
HEAD OFFICE
7824 – 51 Avenue NW
Edmonton, Alberta
Canada T6E 6W2
Telephone: 1 780.421.4555
Fax: 1 780.421.1320
Website: www.ceapro.com
Email: info@ceapro.com
INVESTOR RELATIONS
Jenene Thomas Communications, LLC
48 Sky Manor Road, Suite G4
Pittstown, New Jersey
USA 08867
Contact: Jenene Thomas
Telephone (US): 908.938.1475
Email: jenene@jenenethomascommunications.com
TRANSFER AGENT & REGISTRAR
Computershare
600, 530 – 8th Avenue SW
Calgary, Alberta
Canada T2P 3S8
CHANGE OF ADDRESS
Registered Shareholders should notify the
Company’s Transfer Agent and Registrar at the
address set out above.
Beneficial Owners should contact their respective
brokerage firm to give notice of change of address.
FINANCIAL CALENDAR
The Company’s year-end is December 31. Quarterly
reports are mailed in May, August, and November.
ANNUAL GENERAL AND SPECIAL MEETING OF
SHAREHOLDERS
The annual general and special meeting of shareholders
will be held on:
June 3, 2015 at 10:30 am MDT
Location:
Delta Edmonton South Hotel
and Conference Centre – Crystal Gallery
4404 Gateway Boulevard
Edmonton, Alberta
Canada T6H 5C2
EQUAL OPPORTUNITY EMPLOYER
Ceapro Inc. is an equal opportunity employer and seeks
to attract and retain the best-qualified people
regardless of race, religion, national origin, gender,
sexual orientation, age, or disability.
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58 CEAPRO Annual Report 2014
Printed in Canada
Ceapro Inc.
7824 – 51 Avenue NW
Edmonton, Alberta
Canada T6E 6W2
Telephone: 1 780.421.4555
Fax: 1 780.421.1320
www.ceapro.com