KPMG LLP
Chartered Accountants
2000 McGill College Avenue
Suite 1900
Montréal (Québec) H3A 3H8
Téléphone (514) 840-2100
Telefax (514) 840-2187
http://www.kpmg.ca
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of ProMetic Life Sciences Inc. (formerly
Innovon Life Sciences Holdings Limited) as at December 31, 1998 and 1997 and as at
September 30, 1997 and the consolidated statements of income and deficit and changes in financial
position for each of the 12-month periods ended December 31, 1998 and 1997, for the transition year
ended December 31, 1998 and for the year ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at December 31, 1998 and 1997 and as at September 30, 1997
and the results of its operations and the changes in its financial position for the 12-month periods
ended December 31, 1998 and 1997, for the transition year ended December 31, 1998 and for the
year ended September 30, 1997 in accordance with generally accepted accounting principles.
(signed) KPMG LLP
Chartered Accountants
Montreal, Canada
February 26, 1999
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Consolidated Balance Sheets
Assets
Current assets:
Cash
Marketable securities (note 2)
Accounts receivable (note 3)
Tax credit receivable
Scientific research and experimental
development tax credit receivable
Inventories (note 4)
Prepaid expenses
December 31,
1998
1997
September 30,
1997
$
51,837
4,483,540
8,327,414
–
$
159,644
398,756
660,642
161,570
–
3,139,114
702,860
16,704,765
269,280
1,332,282
109,279
3,091,453
$
817,614
1,075,765
701,688
162,204
269,280
1,202,420
21,489
4,250,460
Capital assets (note 5)
14,373,072
5,167,530
5,131,788
Deferred development costs (note 6)
2,430,271
1,185,073
814,416
Other assets (note 7)
2,866,263
1,986,193
1,919,547
$ 36,374,371
$ 11,430,249
$12,116,211
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 8 (a))
Accounts payable and accrued liabilities
Current portion of long-term debt (note 8)
$ 3,644,200
6,239,114
1,070,832
10,954,146
Long-term debt (note 8)
Non-controlling interest (note 9 (b) (iii) and (v))
5,509,219
–
$
205,103
1,723,126
428,406
2,356,635
3,377,439
2,970,943
$
642,392
1,524,728
378,146
2,545,266
3,517,971
3,350,296
Shareholders' equity:
Share capital (note 9)
Deficit
Commitments (notes 5 (b), (c) and 10)
Contingency (note 11)
36,211,229
(16,300,223)
19,911,006
10,054,207
(7,328,975)
2,725,232
8,879,206
(6,176,528)
2,702,678
$ 36,374,371
$ 11,430,249
$12,116,211
See accompanying notes to consolidated financial statements.
On behalf of the Board:
(signed) Pierre Laurin, Director
(signed) Daniel Auclair, Director
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Consolidated Statements of Income and Deficit
12-month
periods ended
December 31,
1998
1997
Transition
year ended
December 31,
1998
(15 months)
Year ended
September 30,
1997
(12 months)
Net sales
Cost of goods sold
$ 10,037,537
7,765,265
2,272,272
$ 2,153,345
3,062,340
(908,995)
$ 10,585,852
8,597,761
1,988,091
$ 2,199,896
3,058,034
(858,138)
Operating expenses:
Administrative and
marketing expenses
Research and
development
expenses (note 6)
Amortization of
deferred start-up
costs
Operating loss before
financial expenses
8,646,954
3,566,152
9,522,385
3,323,981
685,354
185,615
745,033
138,010
440,155
9,772,463
366,669
4,118,436
536,790
10,804,208
385,908
3,847,899
7,500,191
5,027,431
8,816,117
4,706,037
Financial expenses
448,363
280,648
534,472
222,141
Loss before tax credit
on loss and non-
controlling interest
7,948,554
5,308,079
9,350,589
4,928,178
Tax credit on loss
–
(164,438)
–
(164,438)
Loss before non-
controlling interest
Non-controlling
interest
7,948,554
5,143,641
9,350,589
4,763,740
(1,474,367)
(1,640,452)
(1,853,720)
(1,581,804)
Net loss
6,474,187
3,503,189
7,496,869
3,181,936
Deficit, beginning
of year
Share and warrant
issue expenses
7,328,975
3,610,454
6,176,528
2,237,096
2,497,061
215,332
2,626,826
757,496
Deficit, end of year
$ 16,300,223
$ 7,328,975
$ 16,300,223
$ 6,176,528
Loss per share
0.22
0.18
0.27
0.17
Weighted average number of
outstanding shares (in thousands)
29,726
19,746
28,215
18,723
See accompanying notes to consolidated financial statements.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Consolidated Statements of Changes in Financial Position
12-month
periods ended
December 31,
1998
1997
Transition
year ended
December 31,
1998
(15 months)
Year ended
September 30,
1997
(12 months)
$ (6,474,187)
$ (3,503,189)
$ (7,496,869)
$ (3,181,936)
Cash provided by (used in):
Operations:
Net loss
Items not involving cash:
Depreciation of capital
assets
Amortization of deferred
start-up costs
Amortization and
write-off of deferred
development costs
Non-controlling interest
Net change in non-cash ope-
rating working capital items
501,964
440,155
199,506
(1,474,367)
(4,722,743)
(11,529,672)
385,701
366,669
153,669
(1,640,452)
(1,304,070)
(5,541,672)
594,636
536,790
224,934
(1,853,720)
(4,700,317)
(12,694,546)
398,383
385,908
13,496
(1,581,804)
(1,302,524)
(5,268,477)
Financing:
Proceeds from share and
warrant issues
Share and warrant
issue expenses
Increase in long-term debt
Repayment of long-term debt
Non-controlling interest
Advances on royalties
Investments:
Additions to tangible
capital assets
Business acquisition (net of
cash of $354), (note 17)
Deferred development
costs (note 6)
Deferred start-up costs
Acquisition of rights and
licenses
Increase (decrease) in
cash position
26,157,022
1,747,164
27,332,023
6,177,656
(2,497,061)
3,124,376
(596,322)
(1,496,576)
8,522
24,699,961
(215,332)
1,538,969
(269,517)
–
(195,932)
2,605,352
(2,626,826)
3,124,376
(686,594)
(1,496,576)
–
25,646,403
(757,496)
1,738,969
(211,614)
247,788
(187,410)
7,007,893
(7,073,992)
(541,978)
(7,202,406)
(617,311)
(2,784,966)
(1,444,704)
(1,328,747)
–
(12,632,409)
–
(2,784,966)
–
(763,646)
(553,157)
–
(1,858,781)
(1,840,789)
(1,483,506)
–
(13,311,667)
(459,000)
(420,323)
(207,788)
(1,704,422)
537,880
(4,795,101)
359,810
34,994
Cash position, beginning of year
353,297
5,148,398
1,250,987
1,215,993
Cash position, end of year
$
891,177
$
353,297
$
891,177
$ 1,250,987
Cash is comprised of cash and marketable securities less bank indebtedness.
See accompanying notes to consolidated financial statements.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
The Company, incorporated under the Canada Business Corporations Act, is an integrated
pharmaceutical company which develops, manufactures and markets injectable and non-
injectable generic products and pharmaceutical protein separation and purification media.
1. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements have been prepared using accounting principles
applicable to a going concern, which assume that the Company will continue its operations in
the foreseeable future and be able to realize assets and satisfy liabilities in the normal
course of business.
However, an emerging company assumes that it can expect future profitability and the
support of its shareholders and other external funding sources, if applicable. Management is
of the opinion that adequate resources will be available to complete the projects under
development as at December 31, 1998.
(b) Consolidation basis:
The consolidated financial statements include the accounts of ProMetic Life Sciences Inc.
and its subsidiaries.
(c) Use of estimates:
The preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from such estimates.
(d) Marketable securities:
Marketable securities which represent highly liquid investments are carried at the lower of
cost and market.
(e) Inventories:
Work in process and finished goods are valued at the lower of cost and net realizable value.
Raw materials are valued at the lower of cost and replacement cost. Cost is established
using the first in, first out method.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 2
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
1. Significant accountings policies (continued):
(f) Capital assets:
Tangible assets:
Tangible assets are recorded at cost. Depreciation is provided over the estimated useful
lives of tangible assets using the following methods and rates:
Asset
Method
Rate/period
Leasehold improvements
Building
Equipment and tools
Equipment under capital leases
Office equipment and furniture
Computer equipment
Intangible assets:
Straight-line
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
Lease period
5%
10% to 30%
20%
20%
30%
Rights and licenses include vested rights as well as fees and expenditures incurred to obtain
licenses for product manufacturing and marketing.
Depreciation is provided over the useful life of the asset, which varies from 5 to 15 years,
using the straight-line method.
(g) Deferred start-up costs:
Expenditures incurred during the pre-operating period of a new commercial production
facility, are deferred and amortized on a straight-line basis over a period not exceeding five
years.
(h) Deferred development costs:
Development costs of new products and processes, which are considered technically and
financially feasible, are stated at cost less related research and development tax credits and
grants. These costs are amortized from the start-up date of commercial production, based
on sales. Should the Company determine that the unamortized balance is in excess of
recoverable amounts, the excess will be charged to income for the year.
(i) Revenue recognition:
Revenues are recorded at the time of shipment of product, and are presented net of a
provision for estimated returns and rebates.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 3
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
1. Significant accounting policies (continued):
(j) Scientific research and experimental development expenses:
Research and development expenditures are charged to income in the year in which they
are incurred, net of related tax credits. Research and development expenses include the
costs related to customer paid research and development orders. The related revenue is
included in sales.
(k) Foreign currency translation:
Foreign currency transactions are translated into Canadian dollars using the temporal
method. Under this method, monetary assets and liabilities are translated at year-end
exchange rates. Non-monetary items are translated at historical exchange rates. Expense
items are translated at the exchange rate on the transaction date or at average rates of
exchange prevailing during the period. Any resulting exchange gains or losses are included
in the income statement.
2. Marketable securities:
December 31, 1998
December 31, 1997
September 30, 1997
Cost
Market
Cost
Market
Cost
Market
Commercial
paper
(note 8 (a))
InvesNat
Corporate
Cash Manage-
ment Fund
Banker’s
$4,478,790
$4,478,790
$ 398,756
$ 398,756
$
–
$
–
–
–
acceptances,
Bank of Montreal
Other
–
4,750
–
4,750
–
–
–
–
784,351
784,351
–
–
291,414
–
291,414
–
$4,483,540
$ 4,483,540
$ 398,756
$ 398,756
$1,075,765
$1,075,765
Commercial paper represents notes issued by Canadian corporations and rated R-1 High by
Dominion Bond Rating Services.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 4
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
3. Accounts receivable:
Trade
Receivable - company under
control of shareholders
Sales taxes receivable
Other
4.
Inventories:
December 31,
1998
1997
September 30,
1997
$ 7,749,541
$
412,892
$
499,200
95,363
398,604
83,906
95,363
74,841
77,546
79,676
88,528
34,284
$ 8,327,414
$
660,642
$
701,688
December 31,
1998
1997
September 30,
1997
Raw materials
Work in progress and finished goods
$ 1,362,997
1,776,117
$
799,837
532,445
$
838,342
364,078
$ 3,139,114
$ 1,332,282
$ 1,202,420
5. Capital assets:
Land
Leasehold improvements
Building
Equipment and tools
Equipment under capital leases
Office equipment and furniture
Computer equipment
Rights and licenses ((a), (b) and (c))
Construction in progress
Cost
Accumulated
depreciation
$
129,019
845,056
5,971,758
5,123,709
48,663
213,749
680,745
2,580,610
144,033
$
–
53,039
262,298
776,379
22,126
46,991
178,592
24,845
–
December 31,
1998
$
Net book
value
129,019
792,017
5,709,460
4,347,330
26,537
166,758
502,153
2,555,765
144,033
$15,737,342
$ 1,364,270
$14,373,072
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 5
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
5. Capital assets (continued):
Land
Leasehold improvements
Building
Equipment and tools
Equipment under capital
leases
Office equipment and
furniture
Computer equipment
Rights and licenses ((a), (b) and (c))
Land
Leasehold improvements
Building
Equipment and tools
Equipment under capital
leases
Office equipment and
furniture
Computer equipment
Rights and licenses ((a), (b) and (c))
December 31
1997
Cost
Accumulated
depreciation
Net book
value
$
73,621
97,407
2,170,594
2,738,076
$
–
26,530
178,117
519,266
$
73,621
70,877
1,992,477
2,218,810
48,663
137,719
214,263
549,493
15,049
27,521
82,020
13,803
33,614
110,198
132,243
535,690
$ 6,029,836
$
862,306
$ 5,167,530
September 30,
1997
Cost
Accumulated
depreciation
Net book
value
$
73,621
97,407
2,166,877
2,668,661
$
–
22,237
160,198
467,754
$
73,621
75,170
2,006,679
2,200,907
48,663
89,639
207,061
549,493
13,280
20,398
74,725
11,042
35,383
69,241
132,336
538,451
$ 5,901,422
$
769,634
$ 5,131,788
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 6
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
5. Capital assets (continued):
The depreciation expense amounted to $501,964 and $385,701 respectively for the 12-month
periods ended December 31, 1998 and 1997 and $594,636 and $398,383 respectively for the
transition year ended December 31, 1998 and for the year ended September 30, 1997.
(a) The Company owns an exclusive worldwide and perpetual royalty-free right to use the know-
how, information, technology and patents relating to chromatographic separation media
licensed by Cambridge University's
to develop,
manufacture, sell and market chromatographic separation media and extraction, separation
and purification devices.
Institute of Biotechnology ("IOB")
(b) Pursuant to a license agreement dated January 31, 1996, Monogel AB granted to ProMetic
Pharma Inc. (Pharma) the exclusive worldwide right to use certain know-how, information,
technology and patents relating
the development, manufacture and market of
monodispersed Agarose. Pursuant to this agreement, Pharma has made an advance of
$187,410, bearing interest to Monogel AB and is required to pay to Monogel AB an annual
royalty based on sales of Agarose by Pharma. The advance will be reimbursed when the
royalties payable will exceed US $150,000 annually. The excess of this amount, subject to
an annual limit of US $75,000, will be applied to reduce the balance of the advance. The
initial term of this license agreement is 15 years.
to
(c) Pursuant to a license agreement dated November 9, 1995, Bio-Technical Resources, L.P.
(BTR Separations) ("BTR"), a subsidiary of DuPont/Conagra, granted to BioSciences the
exclusive worldwide right to use the chromatographic patented technology relating to
Teflon® (Teflon is a registered trademark of Dupont) owned or licensed by BTR, to
manufacture or have manufactured by a third party and to sell Teflon® beads as part of the
chromatography separation media developed by ACL. In addition, BTR granted to
BioSciences the non-exclusive right to use the patented technology relating to Teflon®
owned by or licensed to BTR to manufacture or have manufactured by a third party and to
sell Teflon® beads for other separation processes. Pursuant to this agreement, BioSciences
is required to make certain fixed payments to BTR and to pay to BTR a continuing royalty on
net sales with respect to all Teflon® beads sold by BioSciences. BTR shall require
BioSciences to maintain certain minimum net sales during each contract year, beginning in
the fourth contract year, or to pay the equivalent royalty amount in order to maintain the
license. This license agreement shall expire on the earlier of (i) November 8, 2010 and (ii)
the date on which the last patent expires.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 7
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
5. Capital assets (continued):
(d) ProMetic Pharma Inc. owns various license agreements under which it has obtained
manufacturing rights for pharmaceutical products.
6. Deferred development costs:
12-month
periods ended
December 31,
1998
1997
$ 1,930,552
–
1,930,552
1,444,704
485,848
$
795,592
–
795,592
763,646
31,946
Transition
year ended
December 31,
1998
(15 months)
$ 2,360,888
–
2,360,888
1,840,789
520,099
Year ended
September 30,
1997
(12 months)
$
987,724
(404,210)
583,514
459,000
124,514
(106,351)
(13,496)
(106,351)
(13,496)
(93,155)
(140,173)
(118,583)
–
Research and development
Incurred during the period
Tax credits and grants
Less: Amount deferred
Amortization of deferred
development costs
Write-off of deferred
development costs
Expense for the period
$
685,354
$
185,615
$
745,033
$
138,010
Deferred development costs:
Deferred development costs,
beginning of period
$ 1,185,073
$
575,096
$
814,416
$
368,912
Deferred developments costs,
for the period
Amortization of deferred
development costs
Write-off for the period
Deferred development costs,
1,444,704
763,646
1,840,789
(106,351)
(93,155)
(13,496)
(140,173)
(106,351)
(118,583)
459,000
(13,496)
–
end of period
$ 2,430,271
$ 1,185,073
$ 2,430,271
$
814,416
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 8
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
7. Other assets:
December 31,
1998
1997
September 30,
1997
Deferred start-up costs
Advance on royalties (note 5 (b))
$ 2,678,853
187,410
$ 1,790,261
195,932
$ 1,732,137
187,410
$ 2,866,263
$ 1,986,193
$ 1,919,547
8. Long-term debt:
December 31,
1998
1997
September 30,
1997
Bank loan, bearing interest at prime rate
plus 2%, payable in 12 monthly capital
in
installments of $29,050 starting
September 1998 and in 60 monthly
capital installments of $35,000, with a
final
$1,050,000,
secured by a first ranking hypothec of
$4,200,000 on the building and by a
first ranking moveable hypothec of
$5,400,000 on all moveable assets,
maturing in September 2004
installment
of
Due to shareholders, bearing no interest,
payable from January 2000
Balance of sale due
to Vétoquinol
Canada Inc., bearing interest at 10%
and payable in 39 monthly capital
installments of $25,000, secured by a
moveable hypothec on equipment and
tools, maturing in March 2002
Balance on
to Lorus
sale due
Therapeutics Inc., bearing no interest,
payable
capital
installment of $30,500, beginning
March 1, 1999, maturing in August
2000
18 monthly
in
$ 3,383,800
$ 2,000,000
$ 2,000,000
1,000,000
118,378
118,378
975,000
1,275,000
1,350,000
549,000
–
–
Balance to carry forward
5,907,800
3,393,378
3,468,378
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 9
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
8. Long-term debt (continued):
Balance brought forward
$ 5,907,800
$ 3,393,378
$ 3,468,378
December 31,
1998
1997
September 30,
1997
Bank loan, bearing interest at prime rate
plus 2.5%, payable in 39 monthly
capital and
installments of
$9,328, maturing in March 2002
interest
Bank note payable, secured by Fonds
d’aide aux entreprises, non-interest
bearing during the exemption period
ending in May 2001, thereafter bearing
interest at prime plus 2.25%, payable
in 60 monthly capital installments of
$3,333 beginning June 15, 2001,
maturing in May 2006
Loan
to small businesses, bearing
interest at prime rate plus 3%, payable
in monthly capital
installments of
$4,263, secured by a moveable
hypothec of $300,000 on equipment,
maturing in July 2001
Obligations under capital leases, payable
in
of
approximately $579, maturing at
different dates until October 2000
installments
monthly
321,528
–
–
200,000
200,000
200,000
123,620
174,774
187,561
27,103
6,580,051
37,693
3,805,845
40,178
3,896,117
Current portion of long-term debt
1,070,832
428,406
378,146
$ 5,509,219
$ 3,377,439
$ 3,517,971
(a) The bank debt is secured by a moveable hypothec on accounts receivable and inventories
(Section 427 of the Bank Act of Canada). As at December 31, 1998, the bank debt included
a bank indebtedness in US dollars for a total of Cdn$3,012,162 secured by commercial
paper of Cdn$3,000,000.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 10
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
8. Long-term debt (continued):
(b) The principal repayments on capital leases and long-term debt for the next five years are as
follows:
1999
2000
2001
2002
2003
December 31, 1998
Capital leases
Long-term debt
$
11,699
15,404
–
–
–
$ 1,070,832
2,189,785
870,517
560,844
459,996
9. Share capital:
Authorized and without par value:
Unlimited number of Subordinate voting shares, participating, carrying one vote per share
20,000,000 Multiple voting shares, participating, carrying ten votes per share, convertible at
the option of the holders or automatically converted upon their sale to a third party by their
holder into an equal number of Subordinate voting shares
An unlimited number of Preferred shares, no par value, issuable in one or several series
Issued and fully paid:
24,782,656 Subordinate voting shares
(1997 - 4,059,622)
15,448,863 Multiple voting shares
(1997 - 18,200,000)
391,667 warrants (b) (i)
December 31,
1998
1997
September 30,
1997
$ 34,359,006
$ 6,177,656
$ 6,177,656
1,852,223
–
2,701,550
1,175,001
2,701,550
–
$ 36,211,229
$10,054,207
$ 8,879,206
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 11
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
9. Share capital (continued):
(a) Share capital reorganization:
On May 19, 1998, the Company filed Articles of Amendment in order to modify its share
capital as presented above by renaming its outstanding Class A and D shares as
Subordinate voting and Multiple voting shares respectively and to create an unlimited
number of preferred shares.
(b) Share issuance:
(i) As set forth in a prospectus dated August 14, 1998, 861,667 Subordinate voting shares
have been issued following the exercise of the 391,667 special warrants by their holders.
These special warrants were issued, on December 19, 1997, for a net proceeds of
$1,082,751, net of agents’ fees and estimated issuance expenses. The Company has
granted to the agents a non-assignable option to purchase up to 43,083 Subordinate
voting shares at a price of $3 per share at any time until December 19, 1999.
(ii) In August 1998, the shareholders of SPEQ ProMetic Pharma Inc., a non-controlling
shareholder of ProMetic Pharma Inc., exercised their rights to exchange their shares of
SPEQ ProMetic Pharma Inc. for 3,525,000 Subordinate voting shares of the Company.
(iii) As set forth in a prospectus dated July 10, 1998, the Company issued 8,750,000
Subordinate voting shares at a price of $2 per share, for net proceeds of $15,462,500
after deducting underwriters fees and issuance expenses.
(iv) On May 6, 1998, 9017-3618 Québec Inc., a non-controlling shareholder of ProMetic
Pharma Inc., exercised its rights to exchange for one Subordinate voting share of the
Company, one Class A share of 9017-3618 Québec Inc., for a total of 975,000
Subordinate voting shares.
The same corporation also exercised its right to purchase 975,000 Subordinate voting
shares of the Company at $1.10 per share on April 26, 1998.
(v) During the year, certain shareholders exercised their rights to purchase 650,000
Subordinate voting shares of the Company at a price of $1.10 per share.
(vi) During the year, the Company issued 1,035,250 Subordinate voting shares for a total
consideration of $1,635,250.
(vii) During the year, 2,751,137 Multiple voting shares were converted into Subordinate
voting shares.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 12
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
9. Share capital (continued):
(c) Share purchase options and warrants:
The Company established a share option plan for its directors, officers and employees. The
plan provides that the aggregate number of shares reserved for issuance at any time under
the plan and any other employee incentive plans may not exceed 1,500,000 shares. The
Board of Directors has approved that a maximum of 756,911 options be granted for the
purchase of 756,911 Subordinate voting shares.
10. Commitments:
The Company has commitments under various operating leases for warehouse space, office
space and equipment. The minimum annual payments for the next five years are as follows:
1999
2000
2001
2002
2003
2004 and thereafter
11. Contingency:
December 31,
1998
$
714,740
715,215
646,149
409,928
208,608
54,058
$ 2,748,698
ProMetic Pharma Inc. has an outstanding claim from a former employee for an approximate
amount of $180,000. In the opinion of management, this claim is without substantial merit and is
not provided for in the financial statements.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 13
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
12. Financial instruments:
(a) Fair values:
The carrying amount of marketable securities, accounts receivable, bank indebtedness,
accounts payable and accrued liabilities approximates the fair value because of the near-
term maturity of these instruments. The carrying amount of the Company’s floating rate
long-term debt approximates its fair value because it bears interest at current market floating
rates. The balance of sale has an estimated fair value of $1,486,000, $1,311,000 and
$1,436,000, respectively as at December 31, 1998 and 1997 and as at September 30, 1997.
These amounts have been estimated using discounted cash flow based on the Company’s
current borrowing rates (prime rate plus 2%) available for similar type of borrowing
arrangements with comparable terms and maturities.
(b) Credit risk:
The Company reviews a new customer’s credit history before extending credit and conducts
regular reviews of its existing customers’ credit performance. The Company generally does
not require collateral, but may obtain, in many cases, credit insurance coverage from the
Export Development Corporation (EDC). For the 12-month period and for the transition year
ended December 31, 1998, approximately 45% and 43% respectively of the Company’s
sales were derived from four American distributors.
(d) Foreign currency rate risk:
The Corporation receives a substantial part of its revenues in US dollars, whereas the
majority of its expenses are incurred in Canadian dollars. The Corporation does not possess
nor issue financial instruments for hedging or trading purposes.
13. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits rather than four
to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other
date, resulting in errors when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be experienced before,
on, or after January 1, 2000, and , if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could affect the
Company’s ability to conduct normal business operations. It is not possible to ascertain that all
aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 14
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
14. Related party transactions:
The Company entered into the following transactions with related parties:
12-month
periods ended
December 31,
1998
1997
Transition
year ended
December 31,
1998
(15 months)
Year ended
September 30,
1997
(12 months)
$
–
$
561,835
$
–
$
561,835
207,171
147,503
108,651
35,912
–
–
–
–
–
9,596
60,000
150,000
207,171
296,764
108,651
63,853
–
–
–
–
–
9,596
60,000
150,000
Sales
Research and
development
expenditures
Deferred development
costs
Consultating fees
Raw material purchases
Rent
Interest on long-term debt
15. Income taxes:
The Company has unutilized tax loss carry forwards and unamortized share issue expenses for
which no tax benefit has been reflected in the financial statements. These items may be used to
reduce taxable income and income taxes in future years. As at December 31, 1998, amounts
and expiry dates are as follows:
Tax loss carry forwards expiring in 2002
Tax loss carry forwards expiring in 2003
Tax loss carry forwards expiring in 2004
Tax loss carry forwards expiring in 2005
Tax loss carry forwards expiring in 2006
Share issue expenses to be amortized over 2 years
Share issue expenses to be amortized over 3 years
Share issue expenses to be amortized over 4 years
Federal
Provincial
$
200,529
2,370,307
5,422,184
7,479,293
1,799,712
62,268
454,497
1,764,964
$
200,529
831,844
1,976,035
7,479,293
1,799,712
62,268
454,497
1,764,964
$19,553,754
$14,569,142
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 15
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
16. Segmented information:
The Company is an integrated pharmaceutical company which develops, manufactures and
markets injectable and non-injectable generic products (Pharmaceutical) and pharmaceutical
protein separation and purification media (Biotechnology).
The Company manages the pharmaceutical and biotechnology segments separately, since each
one requires different technology, production and marketing practices and strategies. The
Company evaluates its operation segments’ performance based on operating income or loss
before financial expenses.
The accounting policies of each segment are the same as those described in the summary of
significant accounting policies.
12-month
periods ended
December 31,
1998
1997
$ 8,058,841
1,795,992
182,704
10,037,537
$ 1,985,279
118,016
50,050
2,153,345
Transition
year ended
December 31,
1998
(15 months)
$ 8,568,124
1,830,863
186,865
10,585,852
Year ended
September 30,
1997
(12 months)
$ 2,035,937
103,683
60,276
2,199,896
4,944,758
1,545,231
1,010,202
7,500,191
27,083,951
3,734,369
5,556,051
36,374,371
6,791,752
2,806,398
109,356
9,707,506
459,672
27,787
14,505
501,964
3,120,955
1,388,779
517,697
5,027,431
9,913,487
999,659
517,103
11,430,249
503,287
9,326
29,365
541,978
380,518
4,223
960
385,701
5,759,655
1,891,488
1,164,974
8,816,117
27,083,951
3,734,369
5,556,051
36,374,371
6,881,906
2,836,775
117,239
9,835,920
549,736
28,890
16,010
594,636
3,073,296
1,261,935
370,806
4,706,037
9,484,771
2,631,440
–
12,116,211
583,472
7,585
26,254
617,311
394,303
3,120
960
398,383
Net sales:
Pharmaceutical
Biotechnology
Other
Operating loss before
financial expenses:
Pharmaceutical
Biotechnology
Corporate and other
Assets:
Pharmaceutical
Biotechnology
Corporate and other
Addition to capital assets:
Pharmaceutical
Biotechnology
Corporate and other
Depreciation:
Pharmaceutical
Biotechnology
Corporate and other
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 16
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
16. Segmented information (continued):
Sales by geographic segment are as follows:
12-month
periods ended
December 31,
1998
1997
Transition
year ended
December 31,
1998
(15 months)
Year ended
September 30,
1997
(12 months)
United States
Canada
$ 8,130,405
1,907,132
$
732,137
1,421,208
$ 8,256,965
2,328,887
$
681,968
1,517,928
$10,037,537
$ 2,153,345
$10,585,852
$ 2,199,896
Assets by geographic segment are as follows:
Canada
United States
United Kingdom
December 31,
1998
1997
September 30,
1997
(12 months)
$23,487,660
9,508,674
3,378,037
$10,799,009
631,240
–
$11,774,161
342,050
–
$36,374,371
$11,430,249
$12,116,211
PROMETIC LIFE SCIENCES INC.
(Formerly Innovon Life Sciences Holdings Limited)
Notes to Consolidated Financial Statements, page 17
12-month periods ended December 31, 1998 and 1997 and the transition year ended December 31,
1998, with comparative figures for the year ended September 30, 1997
17. Business acquisition:
Effective November 1, 1998, the Company acquired all the outstanding shares of Affinity
Chromatography Limited, the non-controlling shareholder of ProMetic BioSciences Inc., by the
issuance of 1,200,000 Subordinate Voting Shares. The Company now owns the worldwide rights
to the proprietary protein purification technology. The Company completed this transaction in
January 1999. The acquisition was accounted for using the purchase method. Operating results
from the effective date of acquisition are included in these financial statements.
Details of the acquisition are as follows:
Fair value of net assets acquired:
Current assets
Capital assets
Current liabilities
Long-term debt
Cash consideration
Issuance of shares
Total consideration
18. Comparative figures:
$ 1,313,898
2,633,514
(915,940)
(246,152)
$ 2,785,320
$
385,320
2,400,000
$ 2,785,320
Comparative figures have been reclassified in order to conform with the current year’s
presentation.