Annual Report
2011
Table of Contents
Our Mission & Core Values
Letter to Shareholders
Management’s Discussion and Analysis
Consolidated Financial Statements
Investor and Corporate Information
Board of Directors and Senior Management
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Mission & Core Values
MedMira’s focus is helping people know(cid:24)
Modern medical science has made tremendous strides in the treatment of
disease, but since many serious diseases start with vague symptoms, or even
no symptoms at all, accurate and rapid diagnosis of disease is the first and
most important step in treating disease and controlling its spread. MedMira is
dedicated to bringing the worldwide medical community rapid diagnostics that
meet the highest international standards.
Core Values
MedMira is built on a set of core shared values that form a consistent base for
how we operate and interact with our customers, employees, shareholders,
and partners around the world.
Innovation
It is the life-blood of our Company and at the heart of everything we do at
MedMira.
Quality
We consistently embrace the disciplines of quality science, business,
and manufacturing, with rigorous compliance practices and systems that
guarantee each and every product we make is consistently of the highest
quality.
Cooperation
We build relationships with like-minded partners, alliances and team
members to foster new opportunities and continued innovation.
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Letter to Shareholders
Dear Shareholders,
Thank you for your continued support of MedMira.
While the Company continues to be challenged in achieving its revenue
objectives, fiscal year 2011 brought forward a broad range of opportunities
which MedMira and its strategic partners are pursuing in markets around the
world.
the
The Company’s most significant advancement
USD$2,278,192 contract awarded by the US Army for the development and
commercialization of a multi-marker Hepatitis B Core Total Antibody Rapid
Test.
this year was
MedMira began its business development focus on military organizations
nearly two years ago. Today, the Company is moving its first US Army contract
forward according to the project plan and is also working with the Canadian
Armed Forces. In April 2011, the Canadian Forces Health Services Group,
which delivers healthcare services at Canadian military installations across
Canada and overseas, began using MedMira’s Multiplo rapid test for HIV,
Hepatitis B and C.
MedMira will continue to focus on military organizations as a key market
vertical, pursuing further opportunities with both the US and Canadian militaries
as well as others around the world. The US Army contract is solid foundation
upon which the Company can build a reputation as a leading provider of key
diagnostic tools for frontline healthcare. Once approved, the product being
developed under the US Army contract will also be sold to non-military
customers in the US and other markets. Additionally, MedMira plans on
pursuing commercialization activities around new rapid diagnostics in the US,
Canadian and European markets.
After a long and challenging market entry into China, the Company is beginning
to see positive results in this market. Working closely with Triplex International
Biosciences Co. Ltd. (Triplex), our strategic partner for both business
development and outsourced manufacturing in the region, resulted in an initial
order for 400,000 rapid HIV tests. Additionally, a number of public tenders
have been awarded to Triplex and orders are scheduled for delivery in the first
quarter of 2012. Triplex’s business development team is progressively building
business by capitalizing on MedMira’s top ranking in an evaluation by the
China Centre for Disease Control and the advancements in the country’s
healthcare system after many years of reformation.
In the latter half of fiscal year 2011 MedMira began to re-focus on the
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Letter to Shareholders
European market. Regulators in this market have approved a rapid HIV
product suite that further aligns it with the product offering in international
markets. The Company is also exploring several vertical markets within
Europe, including armed forces organizations, non-government agencies
working in international markets, and the life sciences research sector.
Following the close of the fiscal year end, MedMira received notification from
the World Health Organization (WHO) that the Company’s application for the
Prequalification of Diagnostics Programme has been selected to move through
the next stages of the process. It is anticipated that MedMira will complete
major milestones and make significant progress in the Prequalification of
Diagnostics Programme in 2012.
Participation in the WHO’s Prequalification of Diagnostics Programme enables
MedMira to bring the rapid HIV test assessed in this technical evaluation in line
with the product formats currently available in international markets. This
further streamlines the product range MedMira offers globally and enables
MedMira and its partners to capitalize on opportunities with a number of United
Nations agencies and other non-government aid agencies using the WHO
listing as part of their decision criteria.
This progress with the WHO will be helpful to MedMira’s partners working in
Africa, Latin America, the Middle East and other developing regions of the
world. In Africa, MedMira’s strategic partners, Vitest AG and Advance Aid,
continue to work on market development strategies with both the public and
private sector. They have made some great progress in establishing an
excellent reputation for MedMira in this market and we anticipate that this work
will translate to sales. However the market remains a highly challenging
environment with unpredictable timelines.
MedMira is moving forward, formulating plans to commercialize new products,
developing market opportunities through our strategic partnership network with
the support of committed investors. We look forward to a successful year for
MedMira and we appreciate your continued support.
Hermes Chan
Chief Executive Officer
MedMira Inc.
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
November 28, 2011
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Company Overview
Fourth Quarter Analysis
Year to Date Analysis
Segmented Information
Quarterly Financial Data
Liquidity and Capital Resources
Financial Instruments
Related Party Transactions
Intellectual Property Rights
Key Accounting Policies
Internal Control Systems and Disclosure Controls
Risk and Uncertainties
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
This Management’s Discussion and Analysis (MD&A) for the year ended July 31, 2011 has been
prepared to help investors understand the financial performance of MedMira Inc. (MedMira or the
Company) in the broader context of the Company’s strategic direction, the risk and opportunities as
understood by management, and the key metrics that are relevant to the Company’s performance.
The Audit Committee of the Board of Directors has reviewed this document and all other publicly
reported financial information for integrity, usefulness, reliability and consistency.
The following discussion should be read in conjunction with the consolidated financial statements for
the year ended July 31, 2011. The preparation of these financial statements may require
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amount of revenue and
expenses during the reporting period. Management bases estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under the circumstances,
the results of which form the foundation for making judgments about the carrying value of assets
and liabilities. Actual results may differ from these estimates under different assumptions or
conditions. Management believes that the accounting policies, outlined in the Summary of
Significant Accounting Policies section of its consolidated financial statements, affect its more
significant judgments and estimates used in the preparation of its consolidated financial statements.
This document contains forward looking statements, such as statements regarding future sales
opportunities in various global regions and financing initiatives that are based on current
expectations of management. These statements involve uncertainties and risks, including the
Company’s ability to obtain and/or access additional financing with acceptable terms as well as
delays in anticipated product sales. Such forward-looking statements should be given careful
consideration and undue reliance should not be placed on these statements.
This document and the related financial statements can also be viewed on the Company’s website
at www.medmira.com and at www.sedar.com.
Company Overview
Based in Halifax, Nova Scotia, MedMira is a publicly traded, Canadian life sciences company
focused on the development of rapid diagnostics and technology.
MedMira’s patented rapid flow-through technology platform is the basis for the Company’s line of
rapid diagnostics, which are highly accurate, easy-to-use, and produce immediate results – a strong
advantage over most rapid diagnostics on the market today. MedMira’s technology and diagnostics
are becoming well known for excellence in performance and quality.
All of MedMira’s rapid tests utilize a distinctive flow-through testing platform. More than CDN$20
million has been invested over the past 12 years in perfecting this core technology, which has
proven itself time and time again with its excellent clinical performance and its success in rigorous
evaluations and inspections, leading to regulatory approvals in the United States (FDA), Canada
(Health Canada), European Union (CE Mark) and China (SFDA), as well as ISO 9001:2008 and ISO
13485:2003 certifications. One of MedMira’s key products, its rapid HIV test, is the only rapid HIV
test in the world to be approved by all of these major health and medical regulators.
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
MedMira has been granted patents encompassing this test system, which serve to protect the test
components and testing procedure that comprise its technology.
MedMira sells its rapid tests through a worldwide network of medical distributors with customers in
all sectors of the healthcare industry, including laboratories, hospitals, point-of-care facilities,
governments, and public health agencies.
Business Development Activities
MedMira made progress in the development of several key market segments and sales channels
during this fiscal year. The Company continued with cost containment strategies, process-oriented
operational improvements, and product and technology platform research and development.
Together these advancements position MedMira well to capitalize on future opportunities for growth.
The Company continued to refine and build its global strategic partner network in order to further its
reach into geographical and niche market segments where opportunities for its products and
technology platform exist.
Africa
Early in fiscal year 2010, MedMira’s strategic partner working in East Africa, Advance Aid, undertook
and completed an in-market pilot study in Kenya to position the Company’s Reveal HIV rapid test
with key customers in voluntary testing and counselling centers. This initiative produced very
positive results which clearly demonstrated the value of Reveal HIV rapid test in the massive
screening programs that Kenya and other African countries plan to undertake in the near future.
Upon completion, the study report was submitted to Kenya’s health regulators for further evaluation.
MedMira’s test has been approved by the Ministry of Health and as of year end, the Kenyan health
authorities were formulating their testing and procurement strategy. The Company’s East Africa
partner is active and involved in this process.
Elsewhere in Africa, the Company’s strategic partner Vitest AG (Vitest) continued to pursue both
private and public healthcare market advancements, evaluate local agent candidates, and prepare
for tender and proposal opportunities. MedMira continues to identify Africa as a market with
significant potential; however, it remains a challenging market with unpredictable timelines.
Asia Pacific
MedMira, together with its strategic partner Triplex International Biosciences Co. Limited (Triplex),
has made significant progress in the China market this year. Triplex and MedMira’s partnership has
two parallel streams – sales and outsourced manufacturing. The Triplex sales team has been
successful in advancing MedMira’s rapid HIV test in China’s public healthcare market through tender
processes. Key to winning business in this market sector was an in-depth evaluation conducted by
China’s Center for Disease Control and Prevention (CDC). The results of this study placed
MedMira’s rapid HIV test first among 12 key competitors in this market. Shortly following the release
of the study, Triplex placed an order for 400,000 tests, its first significant order for the China market.
Shipment of this order was immediately followed by a second order.
Europe
During this fiscal year, MedMira began activities to re-launch the Company’s products in the
European market. As part of this process, the Company prepared and submitted a dossier to
European regulators that will further align the product offering in this market with those that MedMira
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
offers in other markets. Approval by the Notified Body for a revamped product suite was received
subsequent to the close of the fiscal year end. Planning for a full-scale market launch and
expansion of the Company’s presence in the European market is ongoing.
Latin America
The Company continued to push forward in the Latin American markets during this fiscal year with
market development in both private and public healthcare sectors. MedMira also began R&D
collaboration in the region with the introduction of the Miriad research product line. The creation of a
manufacturing hub to perform assembly and final packaging in this region is also being explored
through a strategic partnership channel. Manufacturing operations located in strategic geographic
locations throughout the world will bring further customer service efficiencies to MedMira.
Middle East
MedMira began work in the Middle East market this year, partnering with multiMed Holdings Inc.
(multiMed), a US-based sales and marketing entity with a strong distribution platform in the region.
While initial success was seen with the approval of five MedMira rapid tests in Jordan, progress has
slowed due to ongoing political instability. Despite these roadblocks, MedMira and multiMed
continue to initiate product evaluations, registrations, and pursue sales opportunities in the Middle
East, with a focus on the private and the public healthcare markets within the region’s most stable
nations.
North America
In this fiscal year MedMira made its most significant market progress in the North American market
since achieving FDA approval on its rapid HIV test. In July 2011, the Company was awarded a U.S.
Army Medical Research Acquisition Activity (USAMRAA) contract, valued at USD$2,278,192, to
develop and commercialize a multi-marker rapid test for the detection of the Hepatitis B Core IgG
and IgM antibodies. The U.S. Army will fund all development costs and associated fees in obtaining
a U.S. Food and Drug Administration (FDA) premarket approval (PMA) for this new rapid test. Once
approved, the product will be supplied by MedMira directly to the U.S. Army and to other customers
through typical distribution sales channels.
Sales for the Reveal G3 Rapid HIV-1 Antibody Test in the US declined during 2011 due to increased
use of automated diagnostic solutions in hospital and laboratory settings. The Company will
continue to focus on point-of-care diagnostics solutions, a high growth segment of the diagnostics
industry.
Research and Development (R&D)
During fiscal year 2011, MedMira’s R&D team carried out experimental development on projects to
advance various applications on its patented flow-through diagnostic technology platform. Some of
the projects included development of tests for sexually transmitted diseases (STDs), breast cancer,
and transfusion transmitted diseases such as Hepatitis B. Some of this project work was conducted
completely by the MedMira team, while other projects have been done in collaboration with strategic
partners.
MedMira’s R&D team dedicated a significant effort to completing activities leading to the issuance of
a contract to MedMira from USAMRAA for the development of a rapid test to aid in the diagnosis of
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Hepatitis B. The team has also worked to establish new links within armed services organizations
around the world.
Additionally, MedMira’s R&D team has continued to advance its patented technology platform by
improving ease of use for end-users and worked collaboratively with the operations and production
teams to achieve efficiencies in manufacturing.
Operations
During this fiscal year, MedMira’s operations team focused on fulfilling product orders, further
development of relationships with key suppliers and outsourced manufacturers, and expanding the
Company’s manufacturing capabilities and capacity. The team explored several different scenarios
for expanding the Company’s manufacturing scope, including automation and the possibility of
additional manufacturing hubs to be located in strategic markets, thus streamlining the delivery
timelines for customers around the world.
The Company engaged with external experts to develop a comprehensive plan for full automation of
the production process. This long-term project is in the initial planning stages and expected
implementation timelines are yet to be determined. Production automation will be important to the
future profitability plans of the Company.
Fourth Quarter Analysis
Operating Revenue and Gross Profit
The Company recorded revenue from product sales in the quarter ended July 31, 2011 of $248,681
as compared to $30,273 for the same period last year. Gross profit for the quarter was $93,721
compared to $120,759 in the same period in 2010. Current year gross profit is in line with
management expectations. 2010 gross profit included a one time adjustment to cost of sales
resulting in higher than normal gross profit.
Operating Expenses
Total operating expenses decreased to $491,745 in the quarter ended July 31, 2011, compared to
$781,129 during the same period in 2010.
• Wages and benefits for the quarter ended July 31, 2011 remained constant at $339,871,
compared to $335,446 for the same period in 2010.
• Research and development expense for the quarter ended July 31, 2011 was $23,865,
compared to $77,209 for the same period last year. This decrease was the result of the
realization of tax credits and grants related to research which were accounted for as a credit
to the R&D expense.
• General and administrative (G&A) expenses were $117,502 for the quarter ended July 31,
2011, compared to $366,826 for the same period in 2010. The decrease in expenses was a
result of decreases in accounts payable and improved administrative efficiencies as a result
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
of the consolidation of facilities.
• Other operating expenses increased to $10,507 for the quarter ended July 31, 2011,
compared to $1,648 in the same period last year.
Non-operating Expenses
Non-operating expenses increased to $1,233,896 in the quarter ended July 31, 2011, compared to
$722,726 for the same period last year. This increase in expense is due primarily to an increase in
interest expense from $707,655 in the quarter ended July 31, 2010 to $1,153,381 in the same period
in 2011. Additionally, exchange loss in the quarter ended July 31, 2011 increased to $80,514 from
$49,768 in the same period in 2010.
Year to Date Analysis
Selected Annual Balance Sheet Information
For the year ended
July 31, 2011
July 31, 2010
July 31, 2009
Total assets
1,492,123 568,178 523,414
Current liabilities
Long-term liabilities
Shareholders' deficiency
20,605,822 16,801,868 15,583,695
- 430,328 936,563
(19,113,699)
(16,664,018)
(15,996,844)
Total liabilities and shareholders' deficiency
1,492,123 568,178 523,414
The accrual of a interest related to promissory notes for the year ended July 31, 2011 was $3.6
million, compared with $2.4 million for the same period in 2010. The issuance of new promissory
notes required to cover operating expenses increased current liabilities approximately $0.8 million,
while the issuance of new equity reduced the shareholders deficiency by $2.5 million. Net loss for
the year increased shareholders deficiency by a further $4.9 million.
Selected Annual Statement of Loss Information
For the year ended
Sales
Cost of sales
Gross profit
Operating and other expenses
Net loss before tax
Net loss per share
July 31, 2011
July 31, 2010
July 31, 2009
909,869
1,073,175
1,137,645
493,914
338,152
580,236
415,955
735,023
557,409
5,345,138
5,153,685
5,820,580
(4,929,183)
(4,418,662)
(5,263,171)
0.02
0.02
0.05
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Operating Revenue and Gross Profit
The Company recorded revenue from product sales of $909,869 as compared to $1,073,175 for the
same period last year, a decrease of approximately 15%. The revenue decrease was primarily
attributable to the Company’s decreased sales in North America which was minimized by sales
growth in Asia Pacific.
Gross profit for the year was $415,955 or 45.7% compared to $735,023 or 68.5% in the prior year.
Prior year gross profit was higher than expected due to a reduction in accrued expenses.
Operating Expenses
Operating expenses decreased to $2,273,059 in 2011 from $3,072,343 in 2010.
• Wages and benefits for the year ended July 31, 2011 remained constant at $1,303,935
versus $1,357,468 in 2010.
• R&D expense decreased to $275,272 compared to $332,364 for the same period last year.
The decrease in R&D expense is the result of tax incentives and funding for research
performed during the period.
• G&A expenses were $661,533 for the year ended July 31, 2011, down from $1,308,504 for
the same period last year. Continued efficiencies in G&A expenses are being realized from
the consolidation of facilities and tighter fiscal controls. These savings are expected to
persist in future periods.
• Other operating expenses decreased to $32,319 compared to $74,007 in the same period
last year. The change in expense versus last period was driven by reductions in
amortization as a result of assets fully depreciating and reductions in marketing
expenditures.
Non-operating Expenses
Non-operating expenses increased to $3,072,079 from $2,081,342 due primarily to an increase in
interest expense to $3,603,613 from $2,395,246. This was partially offset by a foreign exchange
rate gain of $528,986, compared to a gain of $267,991 in 2010, due to a strengthening of the
Canadian dollar.
Segmented Information
The Company has determined that it has a single reportable segment and has two product lines—
commercial products and research products, which are broken down as follows:
For the three months ended
July 31, 2010
July 31, 2011
July 31, 2011
For the year ended
July 31, 2010
Commercial diagnostic tests
247,456
29,981
904,654
1,068,544
Miriad research test kits
1,225
292
5,215
4,631
Total sales
248,681
30,273
909,869
1,073,175
Miriad Research Tests Kits are diagnostics designed for the academic, medical, clinical, and life sciences research sectors
and are built on the patented MedMira rapid flow-through technology platform.
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
The geographic breakdown of sales is shown below:
For the three months ended
July 31, 2010
July 31, 2011
July 31, 2011
For the year ended
July 31, 2010
North America
68,154
8,246
540,340
876,478
Latin America/Caribbean
2,345
5,077
9,105
49,575
Europe
Asia Pacific
Other
Total sales
- 8,747
106,115
79,620
178,182
-
178,403
41,529
- 8,203
75,906
25,973
248,681
30,273
909,869
1,073,175
Quarterly Financial Data
The following consolidated data was drawn from the financial statements for the current and
previous fiscal year:
Selected Quarterly Information
(all values expressed in thousands of dollars except per share amounts )
Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010* Q2 2010 Q1 2010
Sales
Cost of sales
Gross profit
249
155
94
296
147
149
189
101
88
177
91
86
30
(90)
120
163
98
65
504
172
332
376
158
218
Operating & other expenses
1,726
1,030
1,392
1,197
1,504
1,071
1,288
1,290
Net loss before tax
(1,632)
(881)
(1,304)
(1,111)
(1,384)
(1,006)
(956)
(1,072)
Net loss per share
(0.007)
(0.004)
(0.01)
(0.01)
(0.01)
(0.01)
(0.004)
(0.01)
*In the MD&A for the year ended 2010, the Company reported an adjustment to the third quarter results. The third quarter
amounts reflect a reduction in revenue of $437,787 for product in which title had not passed to the final customer. The
revenue originally had been recognized on passing of title to the Company’s distribution partner, however, it was
subsequently determined that collection would not be reasonably assured until product was sold to an end user. The
resulting adjustment is shown below.
Reported
Adjusted
Variance
Revenue
$601,109
$163,322
$437,787
Cost of sales
Gross profit
153,858
447,251
98,063
55,795
65,259
381,992
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Liquidity and Capital Resources
Cash and Working Capital
The Company had a cash reserve of $1,026,763 on July 31, 2011, as compared to bank
indebtedness of $62,745 on July 31, 2010. The Company’s net working capital position as of July
31, 2011 was a deficit of $19.1 million compared to the July 31, 2010 working capital deficit of $16.2
million. The Company has incurred losses and negative cash flows on a cumulative basis since
inception. For the year ended July 31, 2011, the Company incurred a net loss of approximately $4.9
million and negative cash flows from operations of approximately $3.9 million, compared to a net
loss of $4.4 million and negative cash flows of $2.6 million for the same period in 2010.
Summary of Cash Flows
Cash provided by (used in)
For the year ended
July 31, 2011
July 31, 2010
Net cash flows from operating activities
(1,692,981)
(2,637,317)
Net cash flows from financing activities
2,726,568
2,692,820
Net cash flows from investing activities
(6,823)
(55,503)
Net change in cash
1,026,763
-
Cash and cash equivalents - Beginning
-
-
Cash and cash equivalents – End
1,026,763
-
Operating Activities
MedMira generated negative cash flows from operations of $1.7 million for the year ended July 31,
2011, compared to negative cash flows of $2.6 million for the same period in 2010. The decrease in
cash flow from operations was caused by a greater increase in accounts payable in 2010 than in
2011.
Financing Activities
Cash flows from financing activities were positive $2.7 million for the year ended July 31, 2011,
compared to positive $2.7 million for the year ended July 31, 2010. The financing cash flow
included $2.5 million in share issuances of which $1.5 million occurred in the quarter ended July 31,
2011.
Investing Activities
Cash flow from investments included purchase of equipment for the year ending July 31, 2011 of
$6,823, compared to $55,503 for the same period in 2010.
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Debt
As at July 31, 2011, the Company had promissory notes of $7.5 million, convertible debentures of
$1.4 million and long-term debt of $5.7 million, compared to $5.5 million, $1.4 million, and $5.7
million respectively for the same periods in 2010. These promissory notes, convertible debentures,
and long-term debt are all classified as current liabilities as all are in default or are payable within
one year. On July 18, 2011 the Company announced CAD $1.5 million equity investment to begin a
strategic refinancing plan that will use compromise debt arrangements intended to reduce the
Company’s overall debt.
Further discussions on liquidity and capital resources can be found in the "Liquidity Risk" section of
this document, under “Need for Additional Capital” in the “Risk and Uncertainties” section in this
document and in Note 1 of the July 31, 2011 consolidated financial statements of MedMira Inc.
Equity/Shares
The Company is authorized to issue an unlimited number of common shares without nominal par
value. The number of issued and outstanding common shares on July 31, 2011 was 252,264,320.
The Company is also authorized to issue an unlimited number of Series A preferred shares
redeemable at $0.01 per share after March 31, 2010, convertible into an equal number of common
shares upon the Company meeting certain milestones. There were 5,000,000 Series A preferred
shares issued and outstanding on July 31, 2011.
During the year ended July 31, 2011, the Company completed the following significant financing
transactions through the issuance of common shares:
• Completed the placement of 20,000,000 equity units at $0.05 per unit for proceeds of $1
million with Andurja AG of Switzerland. Each equity unit consists of one common share
and one common share purchase warrant.
• Completed the placement of 30,000,000 equity units at $0.05 per unit for proceeds of
$1.5 million with Andurja Beteiligungen AG of Switzerland. Each equity unit consists of
one common share and one common share purchase warrant.
The Company had 3,845,000 outstanding stock options on July 31, 2011. The outstanding stock
options have a weighted average exercise price of $0.13 per share and a weighted average
remaining term of 1.7 years. The number of outstanding warrants on July 31, 2011 was 96,119,500.
The outstanding warrants have a weighted average exercise price of $0.10 per share and a
weighted average remaining term of 2.6 years.
Subsequent Event
On October 14, 2011 the Company granted 3,290,000 stock options to employees and directors
under its stock option plan that was approved by shareholders at the Company’s Annual General
Meeting on January 27, 2011. The options are exercisable at $0.10 over a three year period.
Off Balance Sheet Arrangements
The Company was not party to any off balance sheet arrangements as of July 31, 2011.
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Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Financial Instruments
The Company recognizes financial instruments based on their classification. Depending on the
financial instruments’ classification, changes in subsequent measurements are recognized in net
loss or other comprehensive loss. The Company has implemented the following classifications:
• Cash is classified as “Held-for-Trading” and recorded at fair market value. Changes in fair
value for the year are recorded in net loss;
• Accounts receivable are classified as “Loans and Receivables.” After their initial value
measurement, they are measured at amortized cost using the effective interest method;
and
• Bank indebtedness, accounts payable and accrued liabilities, promissory notes payable,
convertible debt and long-term debt are classified as “Other Financial Liabilities.” After
their initial fair value measurement, they are measured at amortized cost using the
effective interest method.
Risk Management
MedMira has exposure to the following risks from its financial instruments: credit risk, liquidity risk
and currency risk. Senior management monitors risk levels and reviews risk management activities
as they determine to be necessary.
Credit Risk
The Company derives approximately 86% (2010—87%) of its revenue from two (2010—two) main
customers and, for these customers, assesses the recoverability of each account on a regular basis.
There was $382 in bad debts during the year (2010—$8,810). As of July 31, 2011, 66% of the
accounts receivable balance is due from three customers (2010—76% due from three customers)
and no other customers account for more than 10% of the accounts receivable balances as at July
31, 2011.
Liquidity Risk
The Company manages liquidity by forecasting and monitoring operating cash flows and through the
use of revolving credit facilities and share issuances.
The Company has incurred losses and negative cash flows on a cumulative basis since inception.
For the year ended July 31, 2011, the Company incurred a net loss of approximately $4.9 million
(2010—$4.4 million) and negative cash flows from operations of approximately $1.7 million (2010—
$2.6 million). As at July 31, 2011, the Company had an accumulated deficit of approximately $73.9
million (2010—$69.0 million). In addition to its ongoing working capital requirements, the Company
must secure sufficient funding for its R&D programs and for existing commitments, including its
promissory notes payable of approximately $7.5 million,
long-term debt repayments of
approximately $5.7 million, and redemption of convertible debentures of approximately $1.4 million,
all due in fiscal 2012. These circumstances lend significant doubt as to the ability of the Company to
meet its obligations as they come due and, accordingly, the appropriateness of the use of
accounting principles applicable to a going-concern.
14
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Management is pursuing other financing alternatives to fund the Company’s operations, so it can
continue as a going-concern. Management plans to secure the necessary financing through new
equity and debt arrangements and is pursuing dramatic increases in sales revenue. Nevertheless,
there is no assurance that this initiative will prove successful.
Currency Risk
MedMira receives revenues and incurs expenses in US and Canadian currencies, and as a result, is
subject to uncertainty as foreign exchange rates fluctuate. The Company’s US dollar denoted debt
is approximately US $6.6 million plus accrued interest payable of approximately US $2.1 million at
July 31, 2011. The exchange fluctuations from quarter to quarter account for a significant portion of
the company’s exchange gain and loss. Sales are for the most part in US dollars, however, they are
recorded at the exchange rate prevailing on or near the transaction date and collected in a timely
manner.
The Company also experiences currency exposure resulting from balance sheet fluctuations of US-
denominated cash, accounts receivable, accounts payable, and US-denominated promissory notes.
MedMira mitigates this currency risk by maintaining a balance of US dollars which is used to pay
down US-denominated liabilities and replenishes the balance through US-denominated revenues.
A one cent change in the USD/CAD exchange rate would have an estimated impact on net income
of $9,000. For the US-denominated promissory notes, a fluctuation of one cent in the USD/CAD
exchange rate would have an impact on net income of approximately $90,000.
Fair Value
Management believes the carrying value of accounts receivable, bank indebtedness, and accounts
payable and accrued liabilities approximate fair value at the year-ends due to their short-term
nature.
As of July 31, 2011, the fair value of the promissory notes payable, convertible debentures and long-
term debt in default was not reasonably determinable as these were due on demand.
Fair value estimates are made at a specific point in time on relevant market information. These
estimates involve uncertainties and matters of significant judgement and cannot be determined with
precision. Change in assumptions and estimates could significantly affect fair values.
Related Party Transactions
During the year ended July 31, 2011 the company recorded sales of $80,718 and retained a balance
in accounts receivable at July 31, 2011 of $10,521 with a company presided over by a director of
MedMira Inc. The company also recorded interest of $2,579,278 and retained a balance in accounts
payable at July 31, 2011 of $1,690,803 related to debt held by a director and significant
shareholders.
15
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Intellectual Property Rights
The Company strives to protect its intellectual property in established and emerging markets around
the world as warranted. MedMira’s intellectual property portfolio for its rapid flow-through (RFT)
platform and the methodology behind its rapid diagnostics includes the following:
• United States: Patent No. 10/163,675
• European Union: European Patent Application No. EP1417489
• China: Chinese Patent No. 02819646.5
The Company’s corporate and product brand names are protected by trademarks in the United
States and Canada.
Key Accounting Policies
The significant accounting policies of MedMira are described in Note 2 of the July 31, 2011
consolidated financial statements of MedMira Inc.
Management Estimates
The preparation of financial statements in accordance with Canadian Generally Accepted
Accounting Principles (GAAP) requires management to make estimates that affect the reported
amounts of assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from management’s
best estimates as additional information becomes available in the future. The main critical
accounting estimates requiring key assumptions and judgment are the impairment of assets,
accrued liabilities and capital and warrant valuation.
Revenue Recognition
Revenue from sales of products is recognized when title passes to end-users customers, which is
generally at the time the products are shipped, and ultimate collection is reasonably assured.
Revenue from license fees is recognized based on the terms of the license agreement and when
ultimate collection is reasonably assured. Licenses subject to attaining milestones are recognized
as milestones are reached. Non-refundable up-front fees are recognized as revenue over the term
of the license.
Future Accounting Standard Changes
Convergence with International Financial Reporting Standards (IFRS)
The Company will no longer prepare its financial statements in accordance with GAAP as set out in
Part V of the Canadian Institute of Chartered Accountants (CICA) Handbook – Accounting, for the
periods beginning on or after August 1, 2011, when it will start to apply as its primary basis of
accounting IFRS as published by the International Accounting Standards Board and set out in Part I
of the CICA Handbook. Accounting changes to GAAP effective on or after August 1, 2011 are not
discussed in these financial statements and will not be applied by the Company.
16
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
MedMira’s transition to IFRS in 2011 is expected to have an impact on the opening balance sheet as
at August 1, 2010. The full effects are still being determined, however MedMira has identified
certain significant standards likely to impact the consolidated financial statements. These
assessments are based on available information and expectations as of the date of this MD&A and
thus, are subject to change based on new facts and circumstances.
In order to prepare for the transition to IFRS effective on January 1, 2011, the Company is following
a three-phase transition plan: initial review and assessment; in-depth analysis; and implementation.
The Company has performed an initial review of the expected impact of IFRS and is in the process
of completing the in-depth analysis. The Company has trained finance personnel on the application
of IFRS accounting policies and the potential impact on the consolidated financial statements. The
Company is currently preparing a draft opening balance sheet, along with the accounting policies
under IFRS, and will present them to the Audit Committee for review. All amounts will be considered
unaudited, as the Company has not yet prepared a full set of financial statements under IFRS.
During the implementation phase, the Company will introduce accounting policy changes and make
required modifications to internal control procedures and accounting systems prior to the first
required IFRS reporting period.
Below is a summary of key differences between GAAP and IFRS that will affect the Company. This
list is not intended to be comprehensive, it highlights differences that the Company believes will
have the most potential to impact significant change to its financial statements.
First-time adoption of International Financial Reporting Standard (IFRS 1)
IFRS 1 sets out the procedures that an entity must follow when it adopts IFRS for the first time as
the basis for preparing its general purpose financial statements. IFRS 1 is mandatory guidance for
entities preparing and applying IFRS consolidated financial statements for the first time. The
transition guidance in IFRS 1 takes precedence over specific transition provisions in individual IFRS
standards and contains specific optional exemptions and mandatory exceptions from the general
requirement for retrospective application.
The following are IFRS 1 exemptions that the Company will elect on transition date:
• Fixed assets: An entity may elect to revalue property and equipment at fair value at the
transition date and use this fair value as the deemed transition cost. The Company will not
utilize this election.
• Share-based payments: The exemption allows first-time adopters to exempt from applying
IFRS 2 to the following: equity instruments that were granted prior to November 7, 2002;
equity instruments that were granted after November 7, 2002 but vested before transition
to IFRS; and to liabilities settled before the transition date. The Company is utilizing this
election.
• Financial instruments: Any entity may elect to change the designation of previously
recognized financial instruments if certain conditions are met. The Company will keep the
same classification of its financial instruments.
17
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
IAS 16 – Property, plant and equipment (PP&E)
IFRS requires that separate significant components of an item of PP&E be recorded and
depreciated separately. The Company does not have any compound assets that consist of
significant parts in relation to the total cost of the item, where each significant part may be
depreciated with different useful lives.
IFRS permits revaluation accounting to be applied to an entire class of PP&E. The revalued amount
of an asset is the fair value at the revaluation date less any subsequent accumulated depreciation
and subsequent accumulated impairment losses. The Company will be electing to measure its
PP&E using the cost method.
IAS 39 – Financial instruments: recognition and measurement
IAS39 requires that notes and loans be measured at the amortized cost using the effective interest
method. The current nature of MedMira's financial liabilities will result in little impact to the valuation
of debt during the transition to IFRS. However, the renegotiation of the terms of debt obligations
could result in reclassification to long-term liabilities and could result in significant measurement
differences from GAAP.
Other GAAP vs. IFRS differences
The Company has completed a review of the differences between GAAP and IFRS and believe the
following standards will not have a material impact on the Company’s financial statements, other
than enhanced disclosures:
•
Intangible assets
• Leases
•
Income taxes
• Revenue recognition
• Related party transactions
Internal Control Systems and Disclosure Controls
To ensure the integrity and objectivity of the data, management maintains a system of internal
controls comprising of written policies, procedures and a program of internal reviews which provides
reasonable assurance that transactions are recorded and executed in accordance with its
authorization that assets are properly safeguarded and that reliable financial records are maintained.
Management is currently updating existing standardized processes to improve internal controls and
reduce compliance costs. The updated controls will help improve timeliness and accuracy of
financial records as well as continue to ensure that the Company’s assets are properly safeguarded.
Disclosure controls and procedures within MedMira have been designed to provide reasonable
assurance that all relevant information is identified to the Disclosure Committee to ensure
appropriate and timely decisions are made regarding public disclosure.
18
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
Management, under the supervision of the CEO and CFO, has evaluated the effectiveness of our
internal control over financial reporting and based on this evaluation, the CEO and CFO have
concluded that internal control over financial reporting was effective as of July 31, 2011.
Because of inherent limitations, internal control over financial reporting and disclosure controls can
provide only reasonable assurances and may not prevent or detect misstatements. Furthermore,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
The Audit Committee of the Board of Directors of MedMira reviewed this MD&A, and the
consolidated financial statements of MedMira for July 31, 2011 and MedMira’s Board of Directors
approved these documents prior to their release.
Risk and Uncertainties
The Company’s base of activity has expanded to manufacturing products for distribution in
international markets. As a result, the Company’s operations are exposed to a variety of risk factors.
The Company’s operations and markets have been evolving, making it difficult to accurately predict
future operating results. Actual future results may differ significantly in any forward-looking
statements. Factors that may cause such differences include, but are not limited to, the following:
Need for Additional Capital
Cash generated from operations is insufficient to satisfy working capital and capital expenditure
requirements, and the Company may be required to sell additional equity or debt securities or obtain
additional credit facilities. In recent quarters the Company has relied on temporary funding advanced
from key investors. There can be no assurance that this source of funding will continue to be
available on acceptable terms or at all. Additional capital may not be available on satisfactory terms,
or at all. Management is pursuing other financing alternatives to fund the Company’s operations so
it can continue as a going-concern.
The Company intends to continue to explore opportunities to enter into supply agreements, joint
venture relationships, and other special purpose vehicles with third parties from time to time in order
to continue to commercialize its patent pending technology and other intellectual property. Such
arrangements may include the issuance of equity or debt securities of the Company, subject to
compliance with the applicable requirements of the Canadian securities regulatory authorities and
the TSX-V.
Any additional equity financing may result in the dilution of shareholders, and debt financing, if
available, may include restrictive covenants. MedMira’s future liquidity and capital funding
requirements will depend on numerous factors including:
•
•
the extent to which new products and products under development are successfully
developed, gain market acceptance and become and remain competitive;
the costs and timing of further expansion of sales, marketing and manufacturing activities
and facilities needs;
19
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
•
•
the timing and results of clinical studies and regulatory actions regarding potential products;
and
the costs and timing associated with business development activities, including potential
licensing of technologies patented by others.
Continued operations will be contingent on generating sufficient revenues or raising additional
capital or debt financing. There is no assurance that these initiatives will be successful.
Competition
The in vitro diagnostics market in which the Company participates is highly complex and
competitive. It is comprised of both large healthcare companies that have substantially greater
financial, scientific, and other resources than MedMira and a variety of international companies
producing diagnostic products of varying quality. In the developed regions of the world with strong
healthcare infrastructures, the in vitro diagnostics market for serious and emerging infectious
diseases such as HIV and Hepatitis C has been focused on diagnostic tests using instrument based
platforms designed for clinical laboratories. Diagnostic products designed for use in non-laboratory
settings at the point-of-care or for use in laboratories or public health clinics using non-instrument
based platforms for the screening and diagnosis of infectious diseases are becoming more
mainstream in both the developed and developing regions of the world. Competition in this sector of
the market is intense and is expected to increase. Many of the companies have substantially greater
resources available for development, marketing and distribution of these products than does
MedMira.
Significant Development and Marketing Effort Required
Products currently under development by MedMira require additional development, testing and
investment prior to any final commercialization. There can be no assurance that these products or
any future products will be successfully developed, prove to be safe and effective in clinical trials,
receive applicable regulatory approvals, be capable of being produced in commercial quantities at
reasonable costs or be successfully marketed. The long-term success of MedMira must be
considered in light of the expenses, difficulties and delays frequently encountered in connection with
the development of new technology and the competitive and highly regulated environment in which
MedMira operates.
High Degree of Regulation
MedMira operates in a highly regulated industry and is subject to the authority and approvals of
certain regulatory agencies, including Health Canada, the FDA in the USA, the SFDA in China, the
Notified Body in the European Union and applicable health authorities in other countries, with regard
to the development, testing, manufacture, marketing and sale of its products. The process of
obtaining such approvals can be costly and time consuming, and there can be no assurance that
regulatory approvals will be obtained or maintained. Any failure to obtain (or significant delay in
obtaining) or maintain Health Canada, FDA, Notified Body or SFDA approvals (or, to a lesser extent,
approval of applicable health authorities in other countries) for MedMira’s new or existing products
could materially adversely effect MedMira’s ability to market its products successfully and could
therefore have a material adverse effect on the business of MedMira.
20
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
No Assurance of Patent Protection
MedMira has filed patent applications in the US, Canada, China, and other foreign countries relating
to various aspects of its rapid diagnostic platform, processes, reagents, and equipment. Although
MedMira’s management believes that the patents for which the Company applied may be issued,
there can be no such assurance, nor can MedMira assure that competitors will not develop
functionally similar or superior diagnostic testing devices. Moreover, there is a question as to the
extent to which biotechnology discoveries and related products and processes can effectively be
protected by patents. The law regarding the breadth or scope of biotechnology patents is new and
evolving. No assurance can be given that, if a patent issued to MedMira is challenged, it will be held
valid and enforceable or will be found to have a scope sufficiently broad to cover competitors’
products or processes. The cost of enforcing MedMira’s patent right, if any, in lawsuits that it may
bring against infringers may be significant and could limit MedMira’s operations.
Possible Patent Infringement
The extent to which biotechnology discoveries and related products and processes can be
effectively protected by patents and be enforceable is uncertain and subject to interpretation by the
courts. The technologies, products, and processes of MedMira may be subject to claims of
infringement on the patents of others and, if such claims are successful, could result in the
requirement to access such technology by license agreement. There can be no assurance that such
licenses would be available on commercially acceptable terms. If MedMira is required to acquire
rights to valid and enforceable patents but cannot do so at reasonable cost, MedMira’s ability to
manufacture or market its products would be materially adversely affected. The cost of MedMira’s
defence against infringement charges by other patent holders may be significant and could limit
MedMira’s operations.
Ability to Retain and Attract Key Management and Other Experienced Personnel
Since its inception, the Company has been, and continues to be, dependant in its ability to attract
and maintain key scientific and commercial personnel upon whom the Company relies for its product
innovations and commercialization programs. Loss of key personnel individually or as a group could
have significant adverse impact on the Company’s immediate and future achievement of operating
results.
Limited Sales and Marketing Resources and Reliance on Key Distributors to Market and Sell
the Company’s Product
Commercialization of the Company’s products is expensive and time consuming. In the USA, an
exclusive distribution relationship has been established with American Health Diagnostics to market
and sell the Company’s products. The Company will rely on the joint sales efforts of its exclusive US
distributor and their sub-distributors Cardinal Health, a Fortune 100 company, and VWR
International to distribute MedMira’s Reveal™ G3 Rapid HIV-1 Antibody Test product line.
In China, MedMira has formed a strategic partnership with Triplex to market and distribute the
Company’s rapid HIV test within the assigned territory. This strategic partnership also encompasses
the assembly and packaging of final product components.
the Company pursues collaborative arrangements with established
Outside
pharmaceutical and distribution companies for marketing, distribution, and sale of its products. Any
the USA,
21
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
revenues received by the Company will be dependent on the efforts of third parties and there can be
no assurance that such efforts will be successful. Failure to establish sustainable and successful
sales and marketing programs with effective distributor support programs may have a material
adverse effect on the Company.
If any of the Company’s distribution agreements are terminated and the Company is unable to enter
into alternative agreements or if the Company elects to distribute new products directly, additional
investment in sales and marketing resources would be required which would increase future selling,
general and administrative expenses. The Company has limited experience in direct sales,
marketing and distribution of its products. A failure of the Company to successfully market its
products would have a material and adverse effect on the Company.
Manufacturing, Capability, Scale-Up, Manufacturing
Inefficiencies and Constraints
for New Products, Capacity,
The Company must manufacture its products in compliance with regulatory requirements, in
sufficient quantities and on a timely basis, while maintaining product quality and acceptable
manufacturing costs. If it is unable to manufacture or contract for such capabilities on acceptable
terms for its products under development, MedMira’s plans for commercialization could be materially
adversely affected.
MedMira’s manufacturing facilities are, or will be, subject to periodic regulatory inspections by the
FDA, Notified Body, SFDA and other regulatory agencies and these facilities are subject to Quality
System Regulations requirements of the FDA and other standards organizations. MedMira may not
satisfy such regulatory or standards requirements, and any failure to do so would have a material
adverse effect on the Company.
In addition, production and scale-up of manufacturing for new products may require the
development of new manufacturing technologies and expertise. Manufacturing and quality control
problems may arise as the Company attempt to scale-up manufacturing and such scale-up may not
be achieved in a timely manner or at commercially reasonable cost, or at all.
Rapidly Changing Technology
The in vitro diagnostic testing field as a whole is characterized by rapidly advancing technology that
could render MedMira’s products obsolete at any time and thereby adversely affect the financial
condition and future prospects of the Company.
Fluctuations in Revenue
The Company’s quarterly and annual revenues may fluctuate due to several factors, including
seasonal variations in demand, competitive pressure on average selling prices, customer order
patterns, the rate of acceptance of the Company’s products, product delays or production
inefficiencies, regulatory uncertainties or delays, costs and timing associated with business
development activities, including potential licensing of technologies, international market conditions
and variations in the timing and volume of distributor purchases. The healthcare industry traditionally
is not impacted by seasonal demand. The impact of one or a combination of several of these factors
could have a significant adverse effect on the operations of the Company. In addition, changes in
existing collaborative relationships, as well as the establishment of new relationships, product
22
Management’s Discussion & Analysis
For the Year Ended July 31, 2011
licensing and other financing relationships, could materially impact the Company’s financial position
and results from operations.
Market Acceptance of Current and New Products
MedMira’s ability to market its diagnostic products will, in part, depend on its or its partners’ ability to
convince users that these products represent viable and efficacious diagnostic tests. There can be
no assurance that MedMira will be successful in this regard.
Uncertainties Regarding Health Care Reimbursement and Reform
The future revenues and profitability of diagnostic companies as well as the availability of capital
may be affected by the continuing efforts of government and third party payors to contain or reduce
costs of healthcare through various means. For example, in certain foreign markets, pricing or
profitability is subject to government control. In the U.S., there has been, and the Company expects
that there will continue to be, a number of federal and state proposals to implement similar
government controls. While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted, the announcement or adoption of such proposals could have a material
adverse effect on the Company’s results of operations.
Effects of Inflation and Foreign Currency Fluctuations
A significant portion of the Company’s revenue and expenses are in U.S. dollars, and therefore
subject to fluctuations in exchange rates. There is a risk that significant fluctuations in exchange
rates may impact on the Company’s ability to sell its products and, thereby, have a material adverse
impact on the Company’s results of operations.
Product Liability
MedMira may be subject to claims of personal injury and could become liable to clinical laboratories,
hospitals and patients for injuries resulting from the use of its products. MedMira could suffer
financial loss due to defects in its products and such financial loss together with litigation expenses
could have a material adverse effect on its operations. MedMira has obtained product liability
insurance to protect against possible losses of this nature. However, no assurance can be given that
such insurance will be adequate to cover all claims or that MedMira will be able to maintain such
insurance at a reasonable cost.
Possible Volatility of Share Price
The stock market has from time to time experienced significant price and volume fluctuations that
may be unrelated to the operating performance of the Company. In addition, the market price of the
Company’s common shares, like the share prices of many publicly traded biotechnology companies,
has been highly volatile. Announcement of technology innovations or new commercial products by
the Company or its competitors, developments or disputes concerning patent or proprietary rights,
publicity regarding actual or potential medical results relating to products under development by the
Company or its competitors, regulatory developments in both the U.S. and foreign countries, public
concern as to the safety of biotechnology products and economic and other external factors, as well
as period to period fluctuations in financial results may have a significant impact on the market price
of the Company’s common shares. It is likely that in some future quarter the Company’s operating
results will be below the expectations of the public market analysts and investors. In such event, the
price of the Company’s common shares would likely be materially adversely affected.
23
MedMira Inc.
Consolidated Financial Statements
July 31, 2011 and 2010
24
Management’s Responsibility for
Financial Reporting
November 28, 2011
The accompanying consolidated financial statements of MedMira Inc. (the “Company”) have been
prepared by the Company’s management. The financial statements have been prepared in accordance
with accounting principles generally accepted in Canada and contain estimates based on management’s
judgment. Internal control systems are maintained by management to provide reasonable assurances
that assets are safeguarded and financial information is reliable.
The Board of Directors of the Company is responsible for ensuring that management fulfils its
responsibilities for financial reporting and is ultimately responsible for reviewing and approving the
consolidated financial statements and the accompanying management’s discussion and analysis. The
Board of Directors carries out this responsibility principally through its Audit Committee.
The Audit Committee is a subcommittee of the Board of Directors. It is responsible for oversight of the
internal control and financial matters assisting the Company’s management and independent auditors to
ensure that the integrity of the financial reporting process is maintained.
The Company’s independent auditors, PricewaterhouseCoopers LLP, are appointed by the shareholders
to conduct an audit in accordance with Canadian generally accepted auditing standards and their report
follows.
Hermes Chan
President & Chief Executive Officer
Daniel Frid
Chief Financial Officer
Halifax, Nova Scotia
25
Independent Auditor’s Report
November 28, 2011
Independent Auditor’s Report
To the Shareholders
of MedMira Inc.
We have audited the accompanying consolidated financial statements of MedMira Inc. and its
subsidiaries, which comprise the consolidated balance sheets as at July 31, 2011 and 2010 and the
consolidated statements of loss, comprehensive loss and deficit and cash flows for the years then ended,
and the related notes, which comprise a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, 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 entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
26
Independent Auditor’s Report
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of MedMira Inc. and its subsidiaries as at July 31, 2011 and 2010 and the results of their
operations and their cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Emphasis of matter
Without qualifying our opinion, we draw attention to note 1 in the financial statements which describes
matters and conditions that indicate the existence of material uncertainties that may cast significant doubt
about MedMira Inc.’s ability to continue as a going concern.
(signed) “PricewaterhouseCoopers LLP”
Chartered Accountants
Halifax, Nova Scotia
PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
27
MedMira Inc.
Balance Sheet
As at July 31, 2011 and 2010
Assets
Current assets
Cash
Accounts receivable
Inventory (note 4)
Prepaid expenses
Investment tax credits recoverable (note 5)
Property and equipment (note 6)
Intangible assets (note 7)
Liabilities
Current liabilities
Bank indebtedness (note 3)
Accounts payable and accrued liabilities
Unearned revenue
Promissory notes payable to related parties (note 8)
Promissory notes payable to non-related parties (note 8)
Convertible debentures payable to related parties (note 9)
Convertible debentures payable to non-related parties (note 9)
Current portion of long-term debt (note 10)
Long-term debt (note 10)
Shareholders’ Deficiency
Share capital and warrants (note 11)
Contributed surplus (note 11)
Deficit
Going-concern (note 1)
Commitments (note 14)
2011
$
1,026,763
82,942
214,601
109,009
26,307
1,459,622
32,499
2
2010
$
–
40,289
359,641
59,366
53,098
512,394
55,782
2
1,492,123
568,178
–
5,308,216
643,976
6,554,465
970,731
650,000
791,667
5,686,767
62,745
3,887,097
591,108
5,045,272
501,790
650,000
791,667
5,272,189
20,605,822
16,801,868
–
430,328
20,605,822
17,232,196
52,934,661
50,681,078
1,845,043
1,656,124
(73,930,403)
(69,001,220)
(19,113,699)
(16,664,018)
1,492,123
568,178
Approved on behalf of the Board of Directors
(signed) “Hermes Chan”, Director
(signed) “Romano Robusto”, Director
28
MedMira Inc.
Consolidated Statements of Loss, Comprehensive Loss and Deficit
For the years ended July 31, 2011 and 2010
2011
$
2010
$
909,869
1,073,175
493,914
338,152
415,955
735,023
30,106
661,533
275,272
2,213
1,303,935
33,548
1,308,504
332,364
40,459
1,357,468
2,273,059
3,072,343
Sales
Cost of sales
Gross profit
Expenses
Amortization
General and administrative
Research and development
Sales and marketing
Wages and benefits
Net loss before the following
(1,857,104)
(2,337,320)
Other income (expenses)
Interest expense
Other income
Foreign exchange gain
Loss before income taxes
(3,603,613)
2,548
528,986
(2,395,246)
45,913
267,991
(4,929,183)
(4,418,662)
Recovery of future income taxes (note 12)
37,000
—
Net loss and comprehensive loss for the years
(4,892,183)
(4,418,662)
Deficit – Beginning of years
Deficit – End of years
(69,001,220)
(64,582,558)
(73,893,403)
(69,001,220)
Basic and diluted loss per share (note 18)
(0.02)
(0.02)
29
MedMira Inc.
Consolidated Statements of Cash Flows
For the years ended July 31, 2011 and 2010
Cash provided by (used in)
Operating activities
Net loss for the years
Charges (credits) to income not involving cash
Amortization
Foreign exchange gain
Non-cash interest expense
Recovery of future income taxes
Net change in non-cash working capital balances related to operations
Decrease (increase) in accounts receivable
Decrease (increase) in inventory
Decrease (increase) in prepaid expenses
Decrease in investment tax credits recoverable
Increase in accounts payable and accrued liabilities
Increase (decrease) in unearned revenue
Financing activities
Net change in bank indebtedness
Proceeds from issuance of share capital and warrants (net of share issuance costs)
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of promissory notes
Repayment of promissory notes
Investing activities
Purchase of property and equipment
2011
$
2010
$
(4,892,183)
(4,418,662)
30,106
(528,986)
1,992,232
(37,000)
33,548
(267,991)
1,306,767
—
(3,435,831)
(3,346,338)
(42,653)
145,040
(49,643)
26,791
1,610,446
52,868
4,448
(48,022)
14,889
5,876
804,009
(72,179)
(1,692,982)
(2,637,317)
(62,745)
1,479,502
–
(15,750)
1,336,136
(10,575)
(3,405,964)
2,265,970
3,553,796
(48,132)
514,150
(187,000)
2,726,568
2,692,820
(6,823)
(55,503)
Net change in cash during the years and Cash – End of years
1,026,763
–
Supplemental cash flow information (note 17)
30
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
1
Nature of operations and going-concern
Nature of operations
MedMira Inc. (the “Company”), through its subsidiaries, is engaged in the business of research and
development and manufacturing of medical diagnostic testing kits and other medical devices. The
Company invests in research in order to maintain its position in the world-wide market place in the current
areas of expertise.
Going-concern
The accompanying financial statements have been prepared on the basis of Canadian generally accepted
accounting principles (“GAAP”) applicable to a “going concern”, which contemplates the realization of
assets and liquidation of liabilities during the normal course of operations. However, certain adverse
conditions and events cast significant doubt upon the validity of this assumption.
The Company has incurred losses and negative cash flows on a cumulative basis since inception. For the
year ended July 31, 2011, the Company incurred a net loss of approximately $4.9 million (2010 - $4.4
million) and negative cash flows from operations of approximately $1.7 million (2010 - $2.6 million). As at
July 31, 2011, the Company has an accumulated deficit of approximately $73.9 million. In addition to its
on-going working capital requirements, the Company must secure sufficient funding for its research and
development programs for existing commitments, including its promissory notes payable of approximately
$7.5 million, long-term debt repayments of approximately $5.7 million, all due in fiscal 2012, and
redemption of convertible debentures of approximately $1.4 million. These circumstances lend significant
doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the
appropriateness of the use of accounting principles applicable to a going-concern.
Management is pursuing other financing alternatives to fund the Company’s operations so it can continue
as a going-concern. Management plans to secure the necessary financing through new equity and debt
arrangements. Nevertheless, there is no assurance that this initiative will be successful.
The Company is subject to risks associated with early stage companies, including but not limited to,
dependence on key individuals, competition from substitute services and larger companies, and the
requirement for the continued successful development and marketing of its products and services. The
Company’s ability to continue as a going-concern is dependent upon its ability to generate positive cash
flow from operations and secure additional financing. These financial statements do not reflect the
adjustments to carrying values of assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary were the going-concern assumption inappropriate and these
adjustments could be material.
2
Significant accounting policies
Financial statement presentation
These financial statements have been prepared in accordance with GAAP. All amounts are expressed in
Canadian dollars unless otherwise stated.
31
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
2
Significant accounting policies (continued)
Changes in accounting policies and future accounting standard changes
Convergence with International Financial Reporting Standards (“IFRS”)
The Company will cease to prepare its financial statements in accordance with GAAP as set out in Part V
of the Canadian Institute of Chartered Accountants (“CICA”) Handbook – Accounting, for the periods
beginning on or after August 1, 2011, when it will start to apply as its primary basis of accounting IFRS as
published by the International Accounting Standards Board and set out in Part I of the CICA Handbook –
Accounting. Consequently, future accounting changes to GAAP that are effective on or after August 1,
2011, are not discussed in these financial statements as they will not be applied by the Company.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries:
MedMira Laboratories Inc.
Precious Life Saving Products Inc.
Maple Biosciences Inc.
1091089 Alberta Ltd.
Cash
Cash consists of cash on hand and bank balances.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at
rates of exchange in effect at the date of the balance sheet. Non-monetary assets, liabilities and other
items recorded in net loss are translated at rates of exchange in effect at the date of the transaction. The
resulting foreign exchange gains and losses are included in the determination of net loss for the current
year.
Inventory
Raw materials are valued at the lower of cost and net realizable value, determined using the first-in, first-
out method, and replacement cost. Work-in-process and inventory of finished goods are valued at the
lower of cost, determined on a specific item basis, and net realizable value.
Property and equipment
Property and equipment are recorded at cost less accumulated amortization. Amortization is provided for
on a straight-line basis as follows:
32
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
2
Significant accounting policies (continued)
Manufacturing equipment
Laboratory equipment
Office equipment and furniture
5 years
5 years
5 years
Leasehold improvements
over term of the lease
Property and equipment is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be used
is measured by comparing the net book value of the asset to the undiscounted future cash flows expected
to be generated by the asset. An impairment is recognized to the extent that the carrying amount exceeds
the fair value of the asset.
Intangible assets
Intangible assets represent intellectual properties and product technology which are recorded at cost and
are being amortized on a straight-line basis over their useful life estimated at 11-15 years. The value of
intellectual properties and product technology is regularly evaluated by reviewing the returns of the related
business, taking into account the risks associated with the investment. Any impairment in the value of the
intellectual properties and product technology is written off against earnings.
Research and development
All research costs are expensed in the period incurred. Development costs are capitalized if they meet
the criteria for capitalization and amortized over the period of the expected life. Development costs are
written off when there is no longer expectation of future benefits.
Investment tax credits
Investment tax credits arise as a result of the Company incurring eligible research and development
expenses and are recorded as a reduction of the current year expense when it is determined with
reasonable assurance that they will be realized.
Loss per share
Loss per share is computed based on the weighted average number of common shares outstanding
during the years. Diluted loss per share is equal to the loss per share since the exercise of options and
warrants is anti-dilutive.
Stock-based compensation
The Company has a stock option plan, which is described in note 11 (c). The CICA Handbook Section
3870, “stock-based compensation and other stock-based payments”, sets out a fair value based method
for the recognition, measurement and disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services.
33
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
2
Significant accounting policies (continued)
The value of options is determined using the Black-Scholes option pricing model that takes into account,
as of the grant date, the exercise price, the expected life of the option, the current price of the underlying
stock, expected dividends on the stock, the risk-free interest rate over the expected life of the option, as
well as the expected volatility of its stock over the expected life of the option. The resulting value of the
options granted to employees is expensed on a straight-line basis over their vesting periods. Options
granted to non-employees are measured at fair value initially when granted and re-measured at each
reporting date until the measurement date is reached, which is the earliest of completion of performance,
a performance commitment being achieved or when vesting occurs.
Future income taxes
The Company uses the liability method of accounting for income taxes. Under this method, current
income taxes are recognized for estimated income taxes payable for the current year. Future tax assets
and liabilities are recognized for the future income tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Future tax assets and liabilities are measured using the substantively enacted tax rates that will be in
effect when the differences are expected to reverse or when losses are expected to be utilized. The effect
on future income tax assets and liabilities of a change in tax rates is recognized in operations in the year
in which the change occurs. Future income tax assets are evaluated and if realization is not considered
more likely than not, a valuation allowance is provided.
Revenue recognition
Revenue from sales of products is recognized when title passes to customers, which is generally at the
time the products are shipped and ultimate collection is reasonably assured.
Revenue from license fees is recognized based on the terms of the license agreement and when ultimate
collection is reasonably assured. Licenses subject to attaining milestones are recognized as milestones
are reached. Non-refundable up-front license fees are recognized as revenue over the term of the
license.
Management estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amount of certain assets, liabilities, revenues, expenses and
disclosure of contingent assets and liabilities at the date of the financial statements and for the year
presented. Actual results could differ significantly from those estimates and assumptions. These include
but are not limited to:
• Amounts recorded for amortization and impairment of property and equipment which depend on
estimates of net recoverable amounts based on expected economic lives and future cash flows from
related assets;
• Amounts recorded for investment tax credits recoverable which are calculated based on the expected
eligibility and tax treatment of qualifying scientific research and experimental development
expenditures recorded in the Company’s financial statements;
• Contingencies that are accrued on an undiscounted basis when it is probable that a liability for past
events exists and the liability can be reasonably estimated. In determining whether a liability exists,
the Company is required to make judgments as to the probability of a future event occurring;
34
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
2
Significant accounting policies (continued)
• The allocation of proceeds between common shares and warrants;
• The fair value calculation of stock-based compensation; and
• The fair value allocation of consideration for multiple element revenue arrangements.
3
Bank indebtedness
During 2010, the Company had a bank line of credit of $3,500,000 that was repaid with funds from a loan
acquired from the Province of Nova Scotia (note 10). As at July 31, 2011, the Company had a bank
overdraft in the amount of $nil (2010 - $62,745).
4
Inventory
Raw materials
Work in process
Finished goods
2011
$
83,677
116,214
14,710
2010
$
147,592
99,293
112,756
214,601
359,641
At July 31, 2011 a portion of inventory owned by MedMira is being held at a third party location which
consists of the following:
Raw materials
Work in process
Finished goods
2011
$
–
49,744
–
49,744
2010
$
16,297
23,513
102,521
142,331
As at July 31, 2011, there are no valuation allowances against inventory (2010 - $nil). Included in cost of
sales is a write-off of inventory of $73,840 (2010 - $nil) to reduce inventory to the lower of cost or net
realizable value.
5
Investment tax credits recoverable
The balance represents refundable investment tax credits for Scientific Research and Development
claims. This amount is subject to assessments by Canada Revenue Agency. During the year, the
Company recorded investment tax credits recoverable in the amount of $26,307 (2010 - $5,876), which
has been applied against the research and development expenses.
35
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
6
Property and equipment
Manufacturing equipment
Laboratory equipment
Office equipment and furniture
Leasehold improvements
Manufacturing equipment
Laboratory equipment
Office equipment and furniture
Leasehold improvements
7
Intangible assets
Intellectual properties
Product technology
Accumulated amortization and write-downs
Cost
$
174,394
23,931
180,695
561,077
Accumulated
amortization
$
168,878
23,931
171,249
543,540
940,097
907,598
Cost
$
702,478
467,028
508,665
561,076
Accumulated
amortization
$
694,311
465,007
495,342
528,805
2,239,247
2,183,465
2011
Net
$
5,516
–
9,446
17,537
32,499
2010
Net
$
8,167
2,021
13,323
32,271
55,782
2011
$
2,584,899
258,137
(2,843,034)
2010
$
2,584,899
258,137
(2,843,034)
2
2
The Company acquired product technology and intellectual properties through the acquisition of Precious
Life Savings Products Inc. and MedMira Laboratories Inc. In 2001, the Company recorded an impairment
charge to write-down these assets to a nominal value.
During 2006, the Company acquired intellectual properties, in the form of patents and technology with a
value of $2,102,569 related to the acquisition of Maple Biosciences Inc. and the BAG-1 technology.
During 2008, management reduced its research and development efforts related to these intangible
assets and recorded an impairment charge to write-down these assets to a nominal value.
36
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
8
Promissory notes payable
2011
$
2010
$
Due to directors and officers on demand, interest at 3% - 25%.
6,554,465
5,045,272
Due on demand, interest at 12% - 15%, two at US $500 daily
779,631
501,790
Due on demand, interest payable at the daily rate of US $500 each
for the two promissory notes
191,000
—
7,525,196
5,547,062
The above promissory notes are repayable prior to certain other creditors. The promissory notes as at
July 31, 2011 and 2010 include $6,333,675 and $5,045,272, respectively, denominated in US currency
(US $6,628,650 and US $4,906,418, respectively). One promissory note in the amount of US $5,846,795
is accruing additional interest at the rate of 25% as the promissory note is in default. A director has
provided a personal guarantee for one of the promissory notes in the amount of US $380,290.
The two promissory notes payable (the “Notes”), at July 31, 2011 or $191,100 are denominated in US
currency (US $200,001). The terms of the two Notes are identical. Each note bears interest at a daily
rate of US $500. As the Notes are in default, they are due on demand and include the following additional
obligations and security. Each Note has a charge over inventory; each Note has the rights to a US $0.10
charge on all company product orders for a period of five years; each Note has a priority charge on all
monies received from certain customers. The Notes, including unpaid interest and all other obligations,
can be settled by the issuance of 6.5 million shares of the Company for each Note.
During the year, the Company received $1,336,136 (2010 - $514,150) in cash proceeds from promissory
notes payable. The Company repaid in cash $10,575 (2010 - $187,000) during the year of which $nil
(2010 - $nil) was to the directors.
37
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
9
Convertible debentures
Convertible debenture with a coupon interest rate of 10% per annum,
payable monthly, maturing two years from the date of close. The
principal was repayable in full on February 29, 2010. The
debenture was convertible to common shares at any time during
the term at $0.33 per share at the option of the holder. The
debenture is currently in default and is classified as a current
liability.
Convertible debenture with a coupon interest rate of 9% per annum,
payable monthly, maturing four years from the date of close.
The principal is repayable in full on August 28, 2012. The
debenture is convertible in whole or party into common shares of
MedMira Inc. at $0.15 per share in years one and two, $0.165 in
year three, and $0.1815 in year four. If the remaining balance of
the debenture was converted to common shares, it would result
in the issuance of an additional 4,333,333 common shares in
years one and two, 3,939,394 in year three, and 3,581,267 in
year four. The loan is secured by interest on intellectual property
and on the step-up technology. The debenture is in default and
is classified as a current liability.
Less: Current portion payable to related parties
Current portion payable to non-related parties
2011
$
2010
$
791,667
791,667
650,000
650,000
1,441,667
1,441,667
650,000
791,667
–
650,000
791,667
–
During the year ended July 31, 2011, $nil (2010 - $30,000) of debentures were converted to shares and
$nil (2010 - $nil) were repaid in cash.
38
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
10
Long-term debt
Loan payable to Atlantic Canada Opportunities Agency, non-interest bearing, payable in
six payments of $500 and 40 payments of $9,950 and one payment of $5,935
beginning November 2006. During 2010 payment terms changed to be six
payments of $1,000 and 37 payments of $9,950 for the remainder of the balance.
The loan is currently in default and classified as a current liability.
2011
$
2010
$
368,085
374,086
Loan payable to Atlantic Canada Opportunities Agency, non-interest bearing, payable in
48 equal monthly principal instalments beginning January 2008. During 2010
payment terms changed to be six payments of $500 and 41 payments of $4,117.
The loan is currently in default and is classified as a current liability.
168,382
171,382
Loan payable to the Atlantic Canada Opportunities Agency, non-interest bearing, payable
in five payments of $750 and 60 payments of $8,334 beginning July 2010. The loan
is currently in default and is classified as a current liability.
496,250
500,000
Loan payable to the Atlantic Canada Opportunities Agency, non-interest bearing, payable
in four payments of $750 and 60 payments of $8,334 beginning August 2010. The
loan is currently in default and is classified as a current liability.
497,000
500,000
Loan payable, 10% per annum, payable in 33 monthly instalments interest and principal of
$23,415 starting March 2009. The loan is currently in default and is classified as a
current liability.
677,050
677,049
Loan payable
to Nova Scotia Government Department of Economic and Rural
Development with interest bearing at the Province’s five year cost of funds plus 2%.
The loan is payable in 54 monthly instalments beginning June 1, 2010. The loan is
secured by first interest on intellectual property and on the Maple Bio sensor
technology. The loan principle payments are in arrears and therefore the loan is
classified as a current liability.
Less: Current portion
3,480,000
3,480,000
5,687,767
5,702,517
5,687,767
5,272,189
–
430,328
Interest on long-term debt in the amount of $46,588 (2010 - $97,707) was paid during the year.
During the year ended July 31, 2011, the Company received $nil (2010 - $53,796) in cash proceeds from
the issuance of long-term debt and repaid $15,750 (2010 - $48,132) in cash and converted $nil (2010 -
$758,182) to common shares.
All long-term debt is in default and therefore fully payable in fiscal 2012.
39
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
11 Share capital and warrants
a) Authorized
Unlimited number of Series A preferred shares, non-voting, non participating, redeemable at $.001 per
share after March 31, 2010, convertible into an equal number of common shares upon the
Company meeting certain milestones. The preferred shares earn no dividends.
Unlimited number of voting common shares without nominal or par value.
b) Issued
Number of
Common
shares
Preferred
shares
Stock
purchase
warrants
Common
shares
$
Preferred
shares
$
Warrants
$
Balance, July 31, 2009
133,422,218
5,000,000
10,452,833
46,559,037
2,500
368,053
Issued for cash in
drawdown of equity
line of credit
Issued to repay
promissory notes
Issued to settle accounts
payable
Issued to repay long-
term debt
Issue for cash
Issued to repay
convertible
debentures
Share issuance costs
5,091,638
418,417
10,095,677
12,636,370
40,000,000
600,000
–
–
–
–
–
–
–
–
–
–
–
300,000
25,105
672,231
–
40,000,000
758,182
1,186,581
–
–
30,000
(34,030)
–
–
–
–
–
–
–
–
–
–
–
813,419
–
–
Balance, July 31, 2010
202,264,320
5,000,000
50,452,833
49,497,106
2,500
1,181,472
Total share capital and
warrants
50,681,078
Number of
Common
shares
Preferred
shares
Stock
purchase
warrants
Common
shares
$
Preferred
shares
$
Warrants
$
Balance, July 31, 2010
202,264,320
5,000,000
50,452,833
49,497,106
2,500
1,181,472
Issued to repay promis-
sory notes
Issue for cash
Expiration of warrants
Share issuance costs
20,000,000
30,000,000
–
–
–
–
–
–
20,000,000
30,000,000
(4,333,333)
–
636,588
869,554
–
(20,498)
–
–
–
–
363,412
630,446
(225,919)
–
Balance, July 31, 2011
252,264,320
5,000,000
96,119,500
50,982,750
2,500
1,949,411
Total share capital and
warrants
52,934,661
40
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
11
Share capital and warrants (continued)
b) Issued (continued)
(i) The total common shares issued and outstanding includes 4,064,464 common shares held in
escrow, scheduled to be released in accordance with pre-determined dates and events.
(ii) The Series A preferred shares have a stated capital of $2,500 (2010 - $2,500).
c) Stock option plan
The Company has established a stock option plan for its shareholders, employees, officers, directors and
consultants. All options vest immediately upon issue and the Company is authorized to issue a maximum
of 6,000,000 options. The options are exercisable into an equivalent of 3,845,000 common shares (2010
– 4,713,225) at exercise prices ranging between $0.10 and $0.34. The options expire between the dates
of October 19, 2012 and January 5, 2014. All options outstanding at July 31, 2011 and 2010 are
exercisable.
There were no options issued during the year.
2011
Weighted
average
exercise
price
$
Contributed
surplus and
other
$
Number
(000’s)
2010
Weighted
average
exercise
price
$
0.14
0.21
1,030,354
–
0.13
1,030,354
5,007
(294)
4,713
0.14
0.11
0.14
Contributed
surplus and
other
$
1,030,354
–
1,030,354
Number
(000’s)
4,713
(868)
3,845
595,770
595,770
218,919
1,845,043
30,000
1,656,124
Outstanding, Beginning
of year
Expired/forfeited
Options at year-end
Equity component of
convertible
debenture
Cumulative ascribed
value of expired
warrants, net of
tax effect
Contributed Surplus
41
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
11 Share capital and warrants (continued)
The following table summarizes information about options outstanding and exercisable at July 31, 2011:
Range of
exercise prices
$
0.100
0.335
Number
outstanding and
exercisable
$
Weighted average
exercise price per
share
$
Weighted average
remaining contractual
life (years)
$
3,345,000
500,000
3,845,000
0.100
0.335
0.131
1.71
1.92
1.74
d) Stock purchase warrants
During the year ended July 31, 2011, 50,000,000 (2010 - 40,000,000) stock purchase warrants were issued
in conjunction with shares issued for cash. These warrants permit the purchase of one common share each
at $0.10 per share and are exercisable over four years. At July 31, 2011 the Company had the following
warrants outstanding:
Number
Exercise Price
$
6,119,500
40,000,000
20,000,000
30,000,000
96,119,500
0.10
0.06 – 0.10
0.10
0.10
Expiry date
December 22, 2013
November 4, 2012
November 16, 2014
July 18, 2015
The fair value of the warrants has been estimated by management using the Black-Scholes option pricing
model. The weighted average assumptions used in the pricing model to value the warrants are as follows:
Risk-free interest rate
Term
Expected volatility
Expected dividend yield
e)
Equity line of credit
2011
2010
2.6%
4.0 years
151%
$nil
1.4%
3.0 years
152%
$nil
The Company entered into an agreement with Cornell Capital Partners, LP (“Cornell”) in which the
Company had the right, but not the obligation, to require Cornell to purchase up to $10 million of common
shares over a 58-month period beginning on November 22, 2005 and ending on September 6, 2010. To
exercise its draw down rights, the Company was required to deliver a draw down notice to Cornell
specifying, among other things, the minimum price at which the Company was prepared to sell its shares,
the dollar amount of common shares that the Company was willing to sell, to a maximum of $150,000, and
the draw down pricing period start date. The purchase price of the common shares was calculated, at the
time of issuance, using a formula based on a percentage of volume-weighted average market price
42
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
11 Share capital and warrants (continued)
e)
Equity line of credit (continued)
(“VWAP”) over a 10-day pricing period. As of July 31, 2010, the Company had completed draw downs
totalling $3,621,210 and issued 28,498,336 common shares to Cornell under the terms of the equity line.
There were no further draw downs in 2011.
12
Income Taxes
a) Reconciliation between statutory and actual rate
2011
$
2010
$
Loss for the years before income taxes
4,929,183
4,418,662
Combined basic federal and provincial income tax recovery at 33.1%
(2010 – 34.4%)
Effect of income taxes of:
Non-deductible stock-based compensation
Non-deductible interest
Non-recognition of operating losses
Excess amortization over capital cost allowance
Scientific research and development expenditures
Other
1,632,000
1,520,000
(8,000)
(27,000)
(1,683,000)
(10,000)
(32,000)
165,000
–
(6,000)
(1,541,000)
(12,000)
(55,000)
94,000
Recovery of income taxes
37,000
–
b) Non-capital losses
The Company has non-capital losses available for income tax purposes totalling approximately
$40,455,000. This amount can be used to reduce taxable income of future years. The benefit of these
losses has not been reflected in these financial statements as realization is not considered to be more
likely than not. These losses expire as follows:
Years ending July 31, 2014
2015
2026
2027
2028
2029
2030
2031
During the year, no ($nil) non-capital losses expired.
$
3,893,000
5,355,000
6,428,000
5,898,000
4,778,000
4,538,000
4,482,000
5,083,000
40,455,000
43
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
12
Income Taxes (continued)
c) Property and equipment
The Company has a tax asset arising from excess amortization over capital cost allowance of
approximately of $1,842,000. The benefit of this asset has not been recorded in these consolidated
financial statements as realization is not considered more likely than not.
d) Scientific research and development costs
As at July 31, 2011, the Company has non-deducted scientific research and development costs of
approximately $3,976,000 (2010 - $3,517,000) with no expiry date. The benefit of this asset has not been
recorded in these consolidated financial statements as realization is not considered more likely than not.
e) Investment tax credits
As at July 31, 2011, the Company has scientific research and development investment tax credits of
approximately $1,267,000 (2010 - $1,250,000) that can be offset against future taxes payable. The
benefit of this asset has not been recorded in these consolidated financial statements as realization is not
considered more likely than not. The right to claim these credits expires as follows:
Years ending July 31, 2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
$
17,000
109,000
290,000
119,000
89,000
99,000
109,000
128,000
88,000
107,000
49,000
40,000
23,000
1,267,000
13 Related party transactions
a)
The following transactions with shareholders and directors were in the normal course of operations
and are measured at the exchange amount as agreed upon by the parties:
Sales revenue
Interest expense
2011
$
80,718
2,579,278
2010
$
–
1,895,942
44
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
13 Related party transactions (continued)
b)
As at July 31, 2011, the following balance sheet items were outstanding from related parties:
Trade accounts receivable from a shareholder
Inventory held at a shareholder’s site
Accounts payable to shareholders
2011
$
10,521
–
1,690,803
2010
$
–
39,810
1,578,601
14 Commitments
The Company has minimum operating lease commitments as follows:
Years ending July 31, 2012
2013
2014
2015
15
Financial Instruments
Premises
$
221,840
224,845
18,748
–
465,433
Office
equipment
$
3,000
1,250
–
–
4,250
Total
$
224,840
226,095
18,748
–
469,683
The Company has implemented the following classifications for financial assets and financial liabilities:
• Cash is classified as “Held-for-Trading” and recorded at fair market value. Changes in fair value for
the year are recorded in net loss;
• Accounts receivable are classified as “Loans and Receivables.” After their initial value measurement,
they are measured at amortized cost using the effective interest method; and
• Bank indebtedness, accounts payable and accrued liabilities, promissory notes payable, convertible
debt and long-term debt are classified as “Other Financial Liabilities.” After their initial fair value
measurement, they are measured at amortized cost using the effective interest method.
a)
Fair value
Management believes the carrying value of accounts receivable, bank indebtedness, and accounts
payable and accrued liabilities approximate fair value at the year-ends due to their short-term nature.
The fair value of the promissory notes payable, convertible debentures and long-term debt in default is not
reasonably determinable as these are in default and due on demand.
45
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
15
Financial Instruments (continued)
a)
Fair value (continued)
Fair value estimates are made at a specific point in time on relevant market information. These are
estimates and involve uncertainties and matters of significant judgment and cannot be determined with
precision. Change in assumptions and estimates could significantly affect fair values.
Fair value hierarchy
Financial instruments recorded at fair value on the balance sheet are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The value
hierarchy has the following levels:
Level 1 -
valuation based on quoted prices observed in active markets for identical assets and liabilities.
Level 2 -
valuation techniques based on inputs that are quoted prices of similar instruments in the markets, quoted
prices for identical or similar instruments in markets that are not active, inputs other than quoted prices
used in a valuation model that are observable for that instrument, and inputs that are derived principally
from or corroborated by observable market data by correlation or other means.
Level 3 -
valuation techniques with significant unobservable market inputs.
A financial instrument is classified to the lowest of the hierarchy for which a significant input has been
considered in measuring fair value.
The following table presents the financial instruments recorded at fair value in the consolidated balance
sheets as at July 31, 2011, classified using the fair value hierarchy described above:
Level 1
$
Level 2
$
Cash
1,026,763
–
b) Currency risk
Level 3
$
–
Most of the Company’s sales are made in foreign currencies. A one cent change in the USD/CAD
exchange rate would have an estimated impact on net income of $9,000. In addition, the Company has
promissory notes denominated in USD, for which a fluctuation of one cent in the USD/CAD exchange rate
would have an impact on net income of approximately $90,000.
c) Credit risk
The Company derives approximately 86% (2010 - 87%) of its revenue from two (2010 - two) main
customers and, for these customers, assesses the recoverability of each account on a regular basis.
There was $382 in bad debts during the year (2010 - $8,810). As of July 31, 2011, 66% of the accounts
46
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
15
Financial Instruments (continued)
c) Credit risk (continued)
receivable balance is due from three customers (2010 - 76% due from three customers) and no other
customers account for more than 10% of the accounts receivable balances as at July 31, 2011.
d) Liquidity risk
The Company manages liquidity by forecasting and monitoring operating cash flows and through the use
of revolving credit facilities and share issuances (see note 1).
e) Contractual maturity analysis for financial liabilities
Promissory notes
Long-term debt
Convertible debt
Total
7,525,196
5,686,767
1,441,667
Less than
1 year
7,525,196
5,686,767
1,441,667
14,653,630
14,653,630
2 to 3 years
4 to 5 years
After 5 years
–
–
–
–
–
–
–
–
–
–
–
–
Payments noted above do not include interest.
16
Segmented information
The Company has determined that it has a single reportable segment and has two product lines:
commercial products and research products which are broken down as follows:
Commercial
Research
2011
$
904,654
5,215
909,869
2010
$
1,068,544
4,631
1,073,175
The Company has entered a new market sector with a research product line aimed at medical and life
sciences researchers. The line consists of fully commercialized products designed for in vitro diagnostics
(IVD) used by research specialists for a variety of uses as well as a unique Developer Toolkit.
47
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
16
Segmented information (continued)
The company’s geographic information is as follows:
Sales
North America
Africa
Central and South America
Europe
Asia
Other
17
Supplemental cash flow information
Non-cash financing
Shares issued to repay convertible debentures and related costs
Shares issued to repay promissory notes
Shares issued to repay long-term debt
Shares issued to repay accrued liabilities
Accrued liabilities converted to promissory notes
Interest paid
18 Basic and diluted loss per share
Loss per common share is calculated as follows:
2011
$
540,340
–
9,105
106,115
178,403
75,906
2010
$
876,478
2,046
49,575
79,620
41,529
23,927
909,869
1,073,175
2011
$
–
970,000
–
30,000
1,622,573
53,024
2010
$
30,000
25,105
758,182
672,231
–
162,060
2011
$
2010
$
Net loss
(4,892,183)
(4,418,662)
Weighted average number of common shares – Basic and diluted
216,593,087
188,202,175
Loss per common share – Basic and diluted
(0.02)
(0.02)
For the years ended July 31, 2011 and 2010, the diluted weighted average number of common shares
outstanding is the same as the basic weighted average number of common shares outstanding, as the
Company had a net loss and the exercise of potentially dilutive instruments would be anti-dilutive.
48
MedMira Inc.
Notes to Consolidated Financial Statements
For the years ended July 31, 2011 and 2010
19 Capital disclosures
The Company’s objectives when managing capital are to provide an adequate return to shareholders,
safeguard its assets, maintain a competitive cost structure and continue as a going-concern in order to
pursue the development and sale of its pipeline products. To maximize ongoing development and growth
effort, the Company did not pay out dividends during the year ended July 31, 2011 (2010 - $nil). The
Company is not anticipating paying out dividends during the year ended July 31, 2012.
The Company’s capital is summarized in the table below:
Total bank indebtedness, long-term debt, promissory notes and
convertible debentures
Less: Cash
Net debt
2011
$
2010
$
14,653,628
12,753,991
(1,026,763)
–
13,626,865
12,753,991
Total Shareholders’ Deficiency
(19,113,699)
(16,664,018)
(5,486,834)
(3,910,027)
To facilitate the management of its capital structure, the Company prepares annual expenditure operating
budgets that are updated as the input parameters change. Cash flow is monitored and updated daily.
As disclosed in notes 8, 9 and 10, the Company is in default on its promissory notes payable, convertible
debentures and certain long-term debt. As a result, these amounts are classified as current liabilities.
20 Subsequent events
On October 14, 2011 the Company granted 3,290,000 stock options to employees and directors under its
stock option plan. The options are exercisable at $0.10 over a three-year period.
49
Investor and Corporate Information
Investor Information
Transfer Agent
Computershare Trust Company of Canada
Ste. 2008, Purdy’s Wharf Tower 2
1969 Upper Water Street
Halifax, Nova Scotia B3J 3R7
Telephone: (902) 420-3553
Annual General Meeting
The AGM of MedMira Inc. will be held:
10 am, Monday, January 30, 2012
Halifax, Nova Scotia
Shares of MedMira Inc. trade on the TSX Venture Exchange
Stock Symbol: MIR
On NASDAQ, MedMira Inc. information can be found under the symbol:
MMIRF in the “Other OTC” category.
Transfer Agent
Computershare Trust Company of Canada
Ste. 2008, Purdy’s Wharf Tower 2
1969 Upper Water Street
Halifax, NS, Canada B3J 3R7
Telephone: (902) 420-3553
Investor Relations
Andrea Young
Suite 1, 155 Chain Lake Drive
Halifax, NS, Canada B3S 1B3
Telephone: (902) 450-1588
Email: ir@medmira.com
Board of Directors
Hermes Chan
Markus Meile
Romano Robusto
Dr. Shou-Ching Tang
Corporate Information
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
1601 Lower Water Street, Suite 400
Halifax, NS, Canada B3J 3P6
Telephone: (902)491-7400
Legal Counsel
Stewart McKelvey
Suite 900
1959 Upper Water Street
Halifax, NS, Canada B3J 3N2
Telephone: (902) 420-3200
Global Headquarters
MedMira Inc.
Suite 1, 155 Chain Lake Drive
Halifax, Nova Scotia, Canada, B3S 1B3
Telephone: (902) 450-1588
Facsimile: (902) 450-1580
Website: www.medmira.com
Email: info@medmira.com
Senior Management
Hermes Chan – Chief Executive Officer
Daniel Frid – Chief Financial Officer
Sing Chan – Chief Operating Officer
50