Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K - QUESTCOR PHARMACEUTICALS INC | a8-kaproforma.htm |
| EX-99.1 - EXHIBIT - QUESTCOR PHARMACEUTICALS INC | exhibit991.htm |
| EX-22.3 - EXHIBIT - QUESTCOR PHARMACEUTICALS INC | exhibit223.htm |
| EX-1 - EXHIBIT INDEX - QUESTCOR PHARMACEUTICALS INC | exhibitindex.htm |
| EX-99.3 - EXHIBIT - QUESTCOR PHARMACEUTICALS INC | exhibit993proformafinancia.htm |
Exhibit 99.2
BioVectra Inc.
Consolidated Interim Balance Sheet
(Unaudited)
As at November 30, 2012 and November 30, 2011
2012 | 2011 | |||||
Assets (notes 8 and 9) | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 4,539,160 | $ | 5,203,241 | ||
Accounts receivable (note 2) | 5,974,873 | 3,703,749 | ||||
Income taxes receivable | 716,771 | 4,007 | ||||
Inventory (note 3) | 10,924,856 | 7,339,652 | ||||
Prepaid expenses | 334,987 | 221,127 | ||||
Construction deposits | — | 671,418 | ||||
Total current assets | 22,490,647 | 17,143,194 | ||||
Investment tax credits | 1,696,659 | 465,852 | ||||
Investments and advances, less current portion (note 4) | 2 | 2 | ||||
Property and equipment (notes 5 and 7) | 27,338,232 | 26,062,206 | ||||
Intangible assets (note 6) | 58,472 | 28,651 | ||||
Total assets | 51,584,012 | 43,699,905 | ||||
Liabilities | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | 2,190,924 | 1,907,397 | ||||
Construction payable | — | 1,198,188 | ||||
Customer deposits | 1,699,281 | 1,296,797 | ||||
Current portion of obligations under capital leases | 41,073 | — | ||||
Current portion of long-term debt | 450,170 | 439,447 | ||||
Current portion of funded long-term debt | 1,254,488 | — | ||||
5,635,936 | 4,841,829 | |||||
Customer deposits, less current portion | 2,062,500 | 2,245,325 | ||||
Obligations under capital leases, less current portion (note 7) | 65,002 | — | ||||
Long-term debt, less current portion (note 8) | 3,870,088 | 4,323,075 | ||||
Funded long-term debt (note 9) | 12,928,423 | 9,374,348 | ||||
24,561,949 | 20,784,577 | |||||
Contingent liabilities (note 10) | ||||||
Shareholders’ Equity | ||||||
Capital stock (note 11) | 12,251,650 | 13,001,650 | ||||
Retained earnings | 14,770,413 | 9,913,678 | ||||
Total shareholders' equity | 27,022,063 | 22,915,328 | ||||
Total liabilities and shareholders' equity | $ | 51,584,012 | $ | 43,699,905 | ||
(1)
BioVectra Inc.
Consolidated Interim Statement of Retained Earnings
(Unaudited)
For the 3 month period ended November 30, 2012 and November 30, 2011
2012 | 2011 | |||||
Retained earnings - September 1 | $ | 13,725,821 | $ | 10,738,403 | ||
Net earnings (loss) for the period | 1,144,123 | (719,100) | ||||
14,869,944 | 10,019,303 | |||||
Dividends - Class A preferred shares | 99,531 | 105,625 | ||||
Retained earnings - November 30 | $ | 14,770,413 | $ | 9,913,678 | ||
(2)
BioVectra Inc.
Consolidated Interim Statement of Earnings
(Unaudited)
For the 3 month period ended November 30, 2012 and November 30, 2011
2012 | 2011 | |||||
Sales | $ | 6,985,091 | $ | 3,867,752 | ||
Cost of sales (note 12) | ||||||
Materials, supplies and freight, net of applied overheads | 584,404 | 823,755 | ||||
Wages and levies | 1,891,616 | 1,441,245 | ||||
Other manufacturing costs | 1,075,431 | 790,750 | ||||
Amortization | 778,790 | 388,523 | ||||
Total cost of sales | 4,330,241 | 3,444,273 | ||||
Gross profit | 2,654,850 | 423,479 | ||||
Expenses (note 12) | ||||||
Non-manufacturing wages and levies | 676,890 | 608,368 | ||||
Interest on funded long-term debt | 144,779 | — | ||||
Commissions | 135,216 | 75 | ||||
Utilities | 132,500 | 123,750 | ||||
Office supplies | 56,386 | 28,618 | ||||
Advertising and donations | 55,321 | 61,486 | ||||
Insurance | 50,760 | 38,970 | ||||
Laboratory purchases | 47,153 | 32,343 | ||||
Consulting | 44,204 | 74,157 | ||||
Interest on long-term debt | 36,068 | 39,869 | ||||
Travel and accommodations | 28,842 | 32,390 | ||||
Professional fees | 22,886 | 14,713 | ||||
Communications | 18,522 | 24,179 | ||||
Bank charges and interest | 14,462 | 6,055 | ||||
Staff training and memberships | 10,732 | 27,906 | ||||
Miscellaneous | 4,097 | 4,648 | ||||
Amortization | 31,909 | 25,052 | ||||
1,510,727 | 1,142,579 | |||||
Net earnings (loss) for the period (note 13a) | $ | 1,144,123 | $(719,100) | |||
(3)
BioVectra Inc.
Consolidated Interim Statement of Cash Flows
(Unaudited)
For the 3 month period ended November 30, 2012 and November 30, 2011
2012 | 2011 | |||
Cash provided by (used in) | ||||
Operating activities | ||||
Net earnings (loss) for the period | $1,144,123 | $(719,100) | ||
Item not affecting cash | ||||
Amortization | 810,699 | 413,575 | ||
1,954,822 | (305,525) | |||
Net change in non-cash working capital items (note 15) | (782,713) | 2,363,624 | ||
1,172,109 | 2,058,099 | |||
Financing activities | ||||
Dividends on Class A preferred shares | (99,531) | (105,625) | ||
Increase in funded long-term debt | — | 2,064,285 | ||
Repayment of funded long-term debt | (305,071) | — | ||
Repayment of long-term debt and capital leases | (122,629) | (108,507) | ||
(527,231) | 1,850,153 | |||
Investing activities | ||||
Purchase of property and equipment | (472,038) | (463,242) | ||
Purchase construction in progress | — | (3,646,212) | ||
Grants received - AIF and Tech PEI | — | 24,270 | ||
(472,038) | (4,085,184) | |||
Increase (decrease) in cash and cash equivalents | 172,840 | (176,932) | ||
Cash and cash equivalents - September 1 | 4,366,320 | 5,380,173 | ||
Cash and cash equivalents - November 30 | $4,539,160 | $5,203,241 | ||
Supplementary disclosure | ||||
Interest received | $186 | $188 | ||
Interest paid | $195,495 | $46,112 | ||
Dividends paid | $99,531 | $105,625 | ||
(4)
BioVectra Inc.
Notes to Consolidated Interim Financial Statements
(Unaudited)
November 30, 2012
1 | Summary of significant accounting policies |
Basis of accounting
These consolidated interim financial statements have been prepared in accordance with Canadian accounting standards for private enterprises.
The consolidated interim financial statements include the accounts of the company and its wholly-owned subsidiary, BioVectra Inc. (USA), both having November 30, 2012 period ends. Inter-company balances and transactions have been eliminated upon consolidation.
Revenue recognition
Revenue is recognized when ownership has been transferred to the customer and ultimate collection is reasonably assumed at the time of performance.
Preferred shares
The company has preferred shares issued in a tax planning arrangement, and accordingly, is presenting these shares at equity at their par value and any related dividends paid thereon as a charge to retained earnings.
Income taxes
The company accounts for income taxes on the taxes payable basis, and thereby does not report future income taxes.
Cash and cash equivalents
Cash and cash equivalents are comprised of company bank accounts.
Inventory
Inventory of production materials and supplies and work-in-process is valued at the lower of cost, determined on the average cost basis, and market. Finished goods are valued at the lower of cost determined on an average cost basis and market. For finished goods and work-in-process, market is defined as net realizable value; for raw materials and supplies, market is defined as replacement cost.
(5)
Amortization
Amortization of property and equipment and intangible assets is calculated as follows:
Basis of Calculation | Rate | ||
Land improvements | Declining balance | 4 | % |
Buildings | Declining balance | 4%, 5% and 10% | |
Equipment | Declining balance | 20 | % |
Automotive | Declining balance | 30 | % |
Computer hardware | Declining balance | 20 | % |
Computer software | Straight-line | 50 | % |
Patents, licenses and trademarks | Straight-line | 5.9% and 20% | |
Building - 2012 expansion | Straight-line | 10 | % |
Equipment - 2012 expansion | Straight-line | 10 | % |
Amortization is calculated at one-half of the normal annual rates in the year the property and equipment is placed in service.
Foreign operations
The accounts of the integrated foreign subsidiary are translated into Canadian dollars on the following basis:
Monetary assets and liabilities at the exchange rate prevailing at the balance sheet date; |
Non-monetary assets and liabilities at the exchange rate prevailing on the transaction date; |
Revenue and expenses at average monthly exchange rates for the year. |
Foreign currency transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate prevailing at the balance sheet date. Exchange differences are included in earnings as they arise. Revenues and expenses denominated in foreign currencies are translated at the monthly exchange rate.
Government assistance
Investment tax credits and other government assistance received towards the acquisition of property and equipment are recorded as deferred credits and are amortized on the same basis as the related asset.
The company also receives government assistance with regard to operations and these amounts are recorded directly against the corresponding expense account.
Use of estimates
The preparation of these consolidated interim financial statements in conformity with Canadian accounting standards for private enterprises requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the current period. Significant items subject to such estimates and assumptions include the valuation of accounts receivable, inventory, and the estimated useful life of property and equipment. Actual results could differ from those estimates.
Financial instruments
(a) | Measurement of financial instruments |
BioVectra Inc.’s financial instruments consist of cash and cash equivalents, accounts receivable, investments and advances, accounts payable and accrued liabilities, customer deposits, long-term debt, funded long-term debt and obligations under capital leases.
(6)
The company initially measures its financial assets and financial liabilities at fair value adjusted by, in the case of a financial instrument that will not be measured subsequently at fair value, the amount of transaction costs directly attributable to the instrument. This fair value amount is then deemed to be the amortized cost of the financial instrument.
The company subsequently measures all its financial assets and financial liabilities at amortized cost.
(b) | Impairment |
Financial assets measured at amortized cost are tested for impairment when there are indicators of possible impairment. When a significant adverse change has occurred during the period in the expected timing or amount of future cash flows from the financial asset or group of assets, a write-down is recognized in net earnings. The write-down reflects the difference between the carrying amount and the higher of:
i) | The present value of the cash flows expected to be generated by the asset or group of assets; |
ii) | The amount that could be realized by selling the asset or group of assets; |
iii) | The net realizable value of any collateral held to secure repayment of the asset or group of assets. |
When events occurring after the impairment confirm that a reversal is necessary, the reversal is recognized in net earnings up to the amount of the previously recognized impairment.
(c) | Risks |
Transacting in financial instruments exposes the company to certain financial risks and uncertainties. These risks include:
i) | Interest rate risk: The company is exposed to interest rate risk due to the variable rate interest on their operating lines. Changes in the bank lending rates can cause fluctuations in cash flows and interest expense. The company does not use any derivatives to manage this risk. |
ii) | Credit risk: The company is exposed to credit risk in connection with the collection of its accounts receivable. The company mitigates this risk by performing continuous evaluation of its accounts and loans receivables. |
iii) | Exchange rate risk: The company is exposed to exchange rate risk on sales and purchases that are denominated in a currency other than the functional current of the company. The foreign currency of these transactions on a net basis are primarily denominated are in US$. The company mitigates this risk through including price adjustment clauses based upon fluctuations in the dollars outside of an agreed upon range, by switching customers from a US$ billing currency to Canadian dollars and through a series of foreign exchange option commitments as indicated in note 14(b). The net foreign exchange gain during the three month period ending November 30, 2012 is $8,259 (2011 - $223,038) and is included in sales. |
iv) | Liquidity risk: The company’s exposure to liquidity risk is dependent on the sale of inventory, collection of accounts receivable or raising of funds to meet commitments and sustain operations. The company controls liquidity risk by management of working capital, cash flows and availability of borrowing facilities. |
2 | Accounts receivable |
2012 | 2011 | |||||
Trade | $ | 5,184,609 | $ | 2,778,277 | ||
Grants and miscellaneous | 606,805 | 717,659 | ||||
GST receivable | 183,459 | 207,813 | ||||
$ | 5,974,873 | $ | 3,703,749 | |||
3 | Inventory |
2012 | 2011 | |||||
Production materials and supplies | $ | 2,734,968 | $ | 2,237,197 | ||
Work-in-process | 6,227,033 | 2,667,252 | ||||
Finished goods | 1,962,855 | 2,435,203 | ||||
$ | 10,924,856 | $ | 7,339,652 | |||
4 | Investments and advances |
(7)
2012 | 2011 | |||||
Investment in and advances to Diagnostic Chemicals | ||||||
Limited de Mexico S.A. de C.V. and its shareholders - at cost | $ | 215,001 | $ | 235,001 | ||
Provision for investment and advances | (215,000) | (235,000) | ||||
1 | 1 | |||||
Investment in Oncolix Inc. | 1,049,328 | 739,394 | ||||
Provision for investment in Oncolix Inc. | (1,049,327) | (739,393) | ||||
1 | 1 | |||||
$ | 2 | $ | 2 | |||
5 | Property and equipment |
2012 | 2011 | |||||||||||
Cost $ | Accumulated Amortization $ | Net $ | Net $ | |||||||||
Property and equipment | ||||||||||||
Land and land improvements | $ | 250,911 | $ | 51,512 | $ | 199,399 | $ | 204,255 | ||||
Buildings | 13,790,266 | 5,883,620 | 7,906,646 | 8,247,924 | ||||||||
Equipment | 29,111,685 | 21,935,198 | 7,176,487 | 7,479,000 | ||||||||
Building - 2012 expansion | 9,175,077 | 535,213 | 8,639,864 | — | ||||||||
Equipment - 2012 expansion | 8,374,941 | 488,538 | 7,886,403 | — | ||||||||
Automotive | 25,138 | 3,923 | 21,215 | 2,823 | ||||||||
Computer hardware and software | 1,456,326 | 1,119,116 | 337,210 | 279,476 | ||||||||
Construction in progress | — | — | — | 12,647,480 | ||||||||
62,184,344 | 30,017,120 | 32,167,224 | 28,860,958 | |||||||||
Deferred credits | 9,943,142 | 5,114,150 | 4,828,992 | 2,798,752 | ||||||||
$ | 52,241,202 | $ | 24,902,970 | $ | 27,338,232 | $ | 26,062,206 | |||||
6 Intangible assets
2012 | 2011 | |||||||||||
Cost $ | Accumulated amortization $ | Net $ | Net $ | |||||||||
Patents, licenses and trademarks | $ | 313,661 | $ | 255,189 | $ | 58,472 | $ | 28,651 | ||||
Amortization of $6,635 (2011 - $1,182) was expensed on intangible assets during the period.
7 | Obligations under capital lease |
2012 | 2011 | |||||
Total minimum lease payments, non-interest bearing, due January 2015, payable in monthly instalments of $2,731 including principal and interest | $ | 65,537 | $ | — | ||
Total minimum lease payments, including interest, due June 2017, payable in monthly instalments of $692 including principal and interest | 40,538 | — | ||||
106,075 | — | |||||
Less: Current portion | 41,073 | — | ||||
$ | 65,002 | $ | — | |||
(8)
Certain equipment is pledged as security for the capital leases.
The aggregate amount of lease payments required in the next five years is as follows:
Year ending August 31, 2013 | $ | 41,073 | |
2014 | 41,952 | ||
2015 | 17,365 | ||
2016 | 9,180 | ||
2017 | 6,112 | ||
8 Long-term debt
2012 | 2011 | |||||
3.3% term loan, due April 2013, payable in monthly instalments of $49,466 including principal and interest | $ | 4,320,258 | $ | 4,762,522 | ||
Less: Current portion | 450,170 | 439,447 | ||||
$ | 3,870,088 | $ | 4,323,075 | |||
The 3.3% term loan is secured by a general assignment providing a first charge over all accounts receivable and inventory, a general assignment of book debts, Section 427 security over inventory, a collateral mortgage conveying a first charge on the properties located at 29 McCarville Street and 17 Hillstrom Avenue, and a priority agreement with the other secured lender.
The lender has provided a letter indicating it will not demand payment prior to January 1, 2014, as long as the loan remains in good-standing. Therefore, the long-term debt has not been classified as a current liability.
The aggregate amount of principal payments required in the next five years, assuming renewed under similar terms and conditions, is as follows:
Year ending August 31, 2013 | $ | 450,170 | |
2014 | 485,096 | ||
2015 | 501,669 | ||
2016 | 518,585 | ||
2017 | 535,690 | ||
9 | Funded long-term debt |
2012 | 2011 | |||||
4% term loan, due February 2022, payable in quarterly instalments of $450,743 including principal and interest | $ | 14,182,911 | $ | — | ||
Prime + 1/4% construction financing loan, to be converted to a 10 year repayable term loan upon substantial completion of construction in progress | — | 9,374,348 | ||||
14,182,911 | 9,374,348 | |||||
Less: Current portion | 1,254,488 | — | ||||
$ | 12,928,423 | $ | 9,374,348 | |||
The following is pledged as security for the 4% term loan:
Promissory note for $14,800,000; and
GSA conveying a security interest in all present and after acquired personal property, subject to a priority agreement with the Bank of Montreal that provides the Bank of Montreal with a priority interest in all personal property to a maximum of $11,730,500, with the exception of the following that Prince Edward Island Century 2000 Fund Inc., a subsidiary of a crown corporation of the Province of Prince Edward Island, will have priority interest in:
Specific existing personal property (and insurance proceeds) located at the Aviation Avenue facility |
(9)
The personal property being acquired with this loan |
A collateral mortgage conveying a second charge on lands and buildings at 17 Hillstrom Avenue
A collateral mortgage conveying a second charge on lands and buildings at 29 McCarville Street |
A leasehold mortgage conveying a first fixed charge on buildings at 11 Aviation Avenue |
Postponement of claim regarding preferred shares except for permitted redemptions. |
The aggregate amount of principal required in the next five years is as follows:
Year ending August 31, 2013 | $ | 1,242,263 | |
2014 | 1,292,293 | ||
2015 | 1,344,764 | ||
2016 | 1,399,091 | ||
2017 | 1,456,438 | ||
The company has entered into a supply agreement with a customer to supply a pharmaceutical product for a period of ten years. As required in the agreement, the company was required to finance and construct a facility for the manufacturing of the pharmaceutical product. The company entered into a term loan agreement with Prince Edward Island Century 2000 Fund Inc. to finance $14,800,000 of the construction cost of the facility. Under the supply agreement, the customer agreed to reimburse the company for the quarterly financing payments of $450,743 during the term of the ten year loan.
10 Contingent liabilities
During the three month period ended November 30, 2012, the company received $190,236 (2011 - $276,330) in funding from the Atlantic Canada Opportunities Agency (ACOA) for two projects for a total cumulative funding to date of $2,984,758 (2011 - $,151,765). These two programs will provide contingently repayable funding, on a cost shared basis, to the company up to a maximum of $5,943,980.
In addition, the company has received a total of $6,969,525 (2011 - $6,969,525) in contingently repayable funding from ACOA for two programs that were completed in 2008 and 2010. During the fiscal year ended August 31, 2012, repayments of $79,218 (August 31, 2011 - $101,954) were accrued for repayment by the company under the terms and conditions of the programs, leaving net contingent liabilities of $6,691,976 (2011 - $6,771,195).
Under the terms of the assistance, the funds are contingently repayable on a royalty basis, based upon products commercialized as a result of the program. In the event products are not commercialized under the program or do not continue to generate revenue, the royalty agreement will be terminated without future obligation to the company.
11 | Capital stock |
Authorized
Unlimited redeemable Class A preferred shares with no par value
Unlimited Class B, C, D and E preferred shares with no par value. The Class D preferred shares are voting
Unlimited Class A, B, C and D common shares with no par value. The Class A common shares are voting
Issued | 2012 | 2011 | |||||
12,250,000 | Class A preferred shares (2011 - 13,000,000) | $ | 12,250,000 | $ | 13,000,000 | ||
1,250 | Class B preferred shares | 1,250 | 1,250 | ||||
312.5 | Class C preferred shares | — | — | ||||
300,000 | Class D preferred shares | 300 | 300 | ||||
8,700 | Class A common shares | 87 | 87 | ||||
1,299.99 | Class C non-voting common shares | 13 | 13 | ||||
$ | 12,251,650 | $ | 13,001,650 | ||||
During the fiscal year ended August 31, 2012, the company redeemed 750,000 Class A preferred shares at their book value of $750,000.
(10)
12 | Government assistance |
During the period, the company received government assistance totalling $190,226 (2011 - $276,330) relating to scientific research and other projects. The assistance received has been netted against the related expenditure accounts as follows:
2012 | 2011 | |||||
Materials, supplies and freight | $ | 85,223 | $ | 238,721 | ||
Wages and levies | 22,975 | 11,930 | ||||
Non-manufacturing wages and levies | 49,762 | 25,679 | ||||
Laboratory purchases | 32,266 | — | ||||
$ | 190,226 | $ | 276,330 | |||
As indicated in note 10, the assistance received is contingently repayable on a future royalty basis.
13 | Income taxes |
a) | No provision for income taxes has been booked during the period. |
b) | The company also has an amount of Scientific Research Tax Credits which have not been recognized as income. Once tax assessments have confirmed the eligibility of the various projects then the additional tax credits will be recognized as income. |
14 | Commitments |
a) | The company has entered into various operating commitments. The aggregate financial obligation over the next 5 years for these commitments is as follows: |
Year ending August 31, 2013 | $ | 188,191 | |
2014 | 188,191 | ||
2015 | 147,370 | ||
2016 | 130,230 | ||
2017 | 127,935 | ||
b) | The company has entered into the following series of foreign exchange option commitments: |
Number of Contracts | Contract Amount | Total Amount | Strike Amount | Trigger Price | |||||||||
$US | $ | $ | $ | ||||||||||
Dec. 2012 - May 2013 | 6 | $ | 200,000 | $ | 1,200,000 | $ | 1.0175 | $ | 1.0515 | ||||
The contracts allow the company the option of exercising the option of selling the contract to the bank at the strike price or, if the market exchange rate is higher than the strike price, of not exercising the option and instead selling the US dollars into the spot market. Included in these contracts is a trigger price that if the market exchange rate meets the trigger price at any point during the duration of the contract period, then the remaining options get converted into contracts at the strike price.
15 | Non-cash working capital items |
2012 | 2011 | ||
Decrease in accounts receivable | $545,828 | $2,049,744 | |
Decrease in accounts payable and accrued liabilities | (194,522) | (121,120) | |
Increase in customer deposits | 234,131 | 1,128,016 | |
Decrease in other operating assets | 514,619 | 250,906 | |
Increase in construction deposits and payables | — | (342,238) | |
Increase in inventory | (1,882,769) | (601,684) | |
$(782,713) | $2,363,624 | ||
(11)