Pacific Therapeutics Ltd. (Form: 20FR12B, Received: 06/17/2013 10:34:46)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

_________________________________________

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

x	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

o	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ____________

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report _____________

Commission file number [ ]

_________________________________________

PACIFIC THERAPEUTICS LTD.

(Exact name of registrant as specified in its charter)

N/A

(Translation of registrant’s name into English)

British Columbia, Canada

(Jurisdiction of incorporation or organization)

409 Granville Street, Suite #1500

Vancouver, BC, V6C-1T2 Canada

(Address of principal executive offices)

Tel: 604-738-1049

Fax: 604-738-1094

(Name, Telephone, E-Mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered:
26,586,825 CLASS A COMMON SHARES, NO PAR VALUE		Canadian National Stock Exchange

_________________________________________

Securities registered or to be registered pursuant to Section 12(g) of the Act:

NONE

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

NONE

Indicate the number of outstanding shares of each of the Company’s classes of capital or common stock as of the close of the period covered by the annual report: 22,586,825 Class A Common Shares, no par value as of December 31, 2012.

Indicate by check mark if the registrant is a well-known seasoned Company, as defined in Rule 405 of the Securities Act.

YES o NO x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YES o NO o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES o NO x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site: www.pacifictherapeutics.com, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 in the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

x	International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

o Item 17 x Item 18

If this is an annual report indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act:

YES o NO o

PACIFIC THERAPEUTICS LTD.

Table of Contents

	Page
PART I	1
Item 1. Identity of Directors, Senior Management and Advisors	1
Item 2. Offer Statistics and Expected Timetable	1
Item 3. Key Information	1
Item 4. Information on the Company	13
Item 5. Operating and Financial Review	29
Item 6. Directors, Senior Management and Employees	37
Item 7. Major Shareholders and Related Party Transactions	46
Item 8. Financial Information	46
Item 9. The Offer and Listing	47
Item 10. Additional Information	47
Item 11. Quantitative and Qualitative Disclosures about Market Risk	55
Item 12. Description of Securities Other Than Equity Securities	55

PART II	55
Item 13. Defaults, Dividend Arrearages and Delinquencies	55
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	55
Item 15. Controls and Procedures	55
Item 16A. Audit Committee Financial Experts	56
Item 16B. Code of Ethics	56
Item 16C. Principal Accountant Fees and Services	56
Item 16D. Exemptions from the Listing Standards for Audit Committees	56
Item 16E. Purchases of Equity Securities by the Company and Affiliated Purchasers	56
Item 16F. Change in Registrant’s Certifying Accountant	56
Item 16G. Corporate Governance	56

PART III	57
Item 17. Financial Statements	57
Item 18. Financial Statements	57
Item 19. Exhibits	57
SIGNATURES	58

iii

Part I

Brief Introduction

Pacific Therapeutics Ltd. (the “Company”, “Issuer” or “PTL”) is a British Columbia, Canada corporation, incorporated on September 12, 2005. It is a reporting Company in British Columbia and Ontario, and its shares are listed for trading on the Canadian National Stock Exchange (“CNSX”).

Item 1. Identity of Directors, Senior Management and Advisers

A.	Directors and Senior Management.

The term of office of the Company’s directors expires annually at the time of the Company’s annual general meeting. The term of the office of the officers expires at the discretion of the Company’s directors. Below is a list of the Company’s directors and senior management:

Name	Title in the Company	Date of Appointment to Office
Douglas H. Unwin, B.SWc., MBA	President, CEO, Director	September 12, 2005
Douglas Wallis, CA	Director	May 10, 2011
M. Greg Beniston, LLB	Chairman	Chairman since October 31, 2007; Corporate Secretary: from September 2005 to October 31, 2007
Wendi Rodrigueza, PhD	Director	November 5, 2009
Derick Sinclair, CA	CFO and Corporate Secretary	Chief Financial Officer since September 1, 2007; Corporate Secretary since October 31, 2007

Please also see Item 6 of this Form 20-F for more information about the directors and senior management.

B. Advisers.

The Company’s outside legal counsel is Hunter Taubman Weiss LLP, at 130 w. 42 nd Street, Suite 1050, New York, NY 10023; Tel: (212) 732-7184.

C. Auditors.

The Company’s auditors are LEED Advisors Inc. Chartered Accountants at 302-2626 Croydon Drive, Surrey, BC V3S 0S8; Tel: (604) 538-1611.

Item 2. Offer Statistics and Expected Timetable

Not Applicable

Item 3. Key Information

A.	Selected financial data For the Years Ended December 31, 2012, 2011 and 2010

The following selected information should be read in conjunction with the Company’s financial statements, and notes, filed with this Form 20-F. This information, and all other financial information in this Form 20-F, is stated in Canadian dollars unless otherwise noted.

The financial information is presented on the basis of International Financial Reporting Standards. With respect to the Company’s financial statements, there are no material differences from applying these principles compared to applying United States generally accepted accounting principles.

Item 3. Key Information - continued

Period ended	FYE 2012 (IFRS)	FYE 2011 (IFRS)	FYE 2010 (IFRS)
Net Sales	$Nil	$Nil	$Nil
Net loss and Comprehensive Loss	($605,468)	($463,768)	($318,100)
Basic and diluted loss per share	($0.03)	($0.03)	($0.02)
Weighted average shares	21,637,193	18,172,472	16,350,054

Period ended	FYE 2012 (IFRS)	FYE 2011 (IFRS)	FYE 2010 (IFRS)
Total assets	$206,533	$422,178	$119,919
Net Assets	($430,990)	($166,309)	($295,050)
Share capital	$1,995,716	$1,765,754	$1,133,136
Contributed surplus	$206,212	$162,052	$136,110
Deficit accumulated during the development stage	($2,662,918)	($2,094,115)	($1,564,296)
Common Shares Issued	22,586,825	20,989,157	15,930,452
Dividends	$Nil	$Nil	$Nil

Selected Financial Data for the Quarters Ended March 31, 2013, 2012 and 2011

The financial information reported herein has been prepared in accordance with IFRS. The Company uses the Canadian dollar (CDN) as its reporting currency. Selected un-audited financial data for interim operations of the Company for the three months ended March 31, 2013, March 31, 2012 and March 31, 2011 is presented below :

Selected Statement of Operations Data

Period ended	Three Months ended March 31, 2013 (1)	Three Months ended March 31, 2012 (1)	Three Months ended March 31, 2011 (1)
Total revenues	$Nil	$Nil	$Nil
Net and Comprehensive loss	($174,535)	($147,137)	($83,845)
Basic loss per share	($0.01)	($0.01)	($0.01)
Diluted loss per share	($0.01)	($0.01)	($0.01)
Weighted average shares	23,526,825	20,966,447	16,306,604

(1) Financial data for the quarter prepared using IFRS

Selected Balance Sheet Data

Period ended	March 31, 2013 (1)	December 31, 2012
Cash & Equivalents	$7,220	$9,854
Current assets	$64,941	$108,107
Property and equipment (net of depreciation)	$4,009	$4,864
Patents & Licenses (net of amortization)	$52,125	$93,562
Total Assets	$121,075	$206,533
Current liabilities	$671,600	$637,523
Non-Current liabilities	$Nil	$Nil
Total liabilities	$671,600	$637,523
Working Capital/(deficit)	$606,659	$529,416

(1)

Financial data prepared using IFRS

Item 3. Key Information - continued

Cash and equivalents decreased in the first three months by $2,634 from $9,854 on December 31, 2012 to $7,220 as of March 31, 2013.

Cash and equivalents increased in the first three months by $1,127 from $6,094 on December 31, 2011 to $7,221 as of March 31, 2012. Restricted cash decreased by $300,000 from $300,000 December 31, 2011 to $Nil on March 31, 2012. This restricted cash was held in escrow under the Irrevocable Subscription Agreements. The cash was returned to subscribers on January 31, 2012 when the Irrevocable Subscription Agreements were terminated.

B.	Capitalization and indebtedness.

The following table sets forth our capitalization as of March 31, 2013 and December 31, 2012. This table should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our financial statements and related notes included elsewhere in this Registration Statement on Form 20-F.

	As of March 31, 2013(1)		As of December 31, 2012
Current Liabilities:
Accounts payable and accruals:	$	671,600	$	637,523
Non-Current Liabilities:	$	Nil	$	Nil
Equity:
Common shares	$	2,078,686	$	1,995,716
Subscriptions Received	$	Nil	$	Nil
Contributed Surplus	$	208,242	$	206,212
Accumulated deficit	$	2,837,453	$	(2,662,918	)
Total equity	$	550,525	$	(430,990	)
Liabilities and equity:	$	121,075	$	206,533

(1)

Financial statements for the period ended March 31, 2013 prepared by management not audited.

C.	Reasons for the offer and use of proceeds.

Not Applicable.

D.	Forward-Looking Statement and Risk factors.

Forward-Looking Statements

This Form 20-F and the documents to which we refer you contain forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including those described in “Risk Factors” below. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this Form 20-F, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us.

Item 3. Key Information - continued

Risk Factors

An investment in the Common Shares of the Company must be considered highly speculative due to the nature of the Company’s business. The risk and uncertainties below are not the only risks and uncertainties the Company may have. Additional risks and uncertainties not presently known to the Company or that the Company currently considers immaterial may also impair the business, operations and future prospects of the Company and cause the price of the Common Shares to decline. If any of the following risks actually occur, the business of the Company may be harmed and its financial condition and results of operations may suffer significantly. In addition to the risks described elsewhere and the other information in this Form 20-F, the Company notes the following risk factors:

Issuer Risk - Risks that are specific to the Company

Insufficient Funds to Accomplish the Company's Business Objectives

The Company remains under constant working capital pressures. As of March 31, 2013, the Company had a working capital deficit of $606,659. In the near future, potential revenues cannot support existing and upcoming expenses or other capital requirements. When the current funding has been expended, the Company will require and is planning for additional funding. There is no assurance that this funding will be available when required by the Company and/or available on suitable terms. Furthermore, the Company expects negative operating cash flows for the immediately foreseeable future.

Substantial Capital Requirements for Research and Development

The Company anticipates that it may make substantial research and development expenditures for clinical trials in the future. As the Company has no operating revenue being generated from its research and development activities, the Company does not expect to generate any revenue in the near future and may have limited ability to expend the capital necessary to undertake or complete future research and development work. There can be no assurance that debt or equity financing will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to the Company. Moreover, future activities may require the Company to alter its capitalization significantly. If the Company is unable to obtain additional financing, it may be unable to complete the development and commercialization of PTL-202 and PTL-303 or continue its research and development programs.

Unanticipated Costs and Delays

The Company may be subject to unanticipated costs or delays that would accelerate its need for additional capital or increase the costs of individual clinical trials. If the Company is unable to raise additional capital when required or on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its product candidates. The Company may also be required to:

•

seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or

•

relinquish or license on unfavorable terms its rights to technologies or product candidates that it otherwise would seek to develop or commercialize itself.

Uncertainty of Additional Financing

The Company does not have the existing capital resources to fund operations to complete a pivotal bio-availability study of PTL-202 providing information for future development studies. The Company anticipates that it will need to raise additional capital, through private placements or public offerings of its equity or debt securities, in addition to the capital on hand, to complete the long-term development and commercialization of its current product candidates. The inability of the Company to access sufficient additional capital for its operations could have a material adverse effect on the Company’s financial condition, results of operations or prospects. In particular, failure to obtain such financing on a timely basis could cause the Company to miss certain acquisition opportunities and reduce or terminate its business.

Item 3. Key Information - continued

Dilution

To date the Company’s sources of cash have been limited primarily to proceeds from the founders, friends and retail investors. It is likely that the Company will enter into more agreements to issue Common Shares and warrants and options to purchase Common Shares.

The impact of the issuance of a significant amount of Common Shares from the exercise of the Company’s outstanding warrants and options could place downward pressure on the market price of the Common Shares.

The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, its shareholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants, such as limitations on the Company’s ability to incur additional indebtedness, limitations on its ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct business.

No History of Sales or Profits

The Company does not have a history of earnings or profit, has never had any products available for commercial sale and has not generated any revenue from product sales. The Company does not anticipate that it will generate revenue from the sale of products for the foreseeable future and has not yet submitted any products for approval by regulatory authorities. The Company continues to incur research and development and general and administrative expenses related to its operations. There is no assurance that in the future the Company will develop revenues, operate profitably or provide a return on investment. Therefore, investors should not invest on the expectation of receiving dividends or any guaranteed return on their investment of any nature. The Company is expected to continue to incur losses for the foreseeable future and expects these losses to increase as it continues research activities and development of its product candidates, seeks regulatory approvals for its product candidates, and acquires rights to additional products for development. If the Company’s product candidates fail in clinical trials or do not gain regulatory approval, or if its product candidates do not achieve market acceptance, the Company may never become profitable. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods.

No History of Paying Dividends

An increase in the market price of the Company’s Common Shares, which is uncertain and unpredictable, may be an investor’s sole source of gain from an investment in the Company’s Common Shares. An investment in the Company’s Common Shares may not be appropriate for investors who require dividend income.

No dividends have been paid on the Company's Common Shares since inception and there is no assurance that such dividends will be earned or paid in the future. For the foreseeable future, the Company expects to re-invest in its operations all cash flow that might otherwise be available for distribution to shareholders in the form of cash dividends. While the payment of stock dividends is an alternative, there is no assurance that these will be paid in the foreseeable future. The Company does not anticipate paying any dividends on the Shares in the foreseeable future. As a result, capital appreciation, if any, of the Company’s Common Shares will be the shareholder’s sole source of gain for the foreseeable future.

Influence of Principal Shareholders

As at the date of this filing, Directors and Officers will own approximately 20.7% of the issued and outstanding Common Shares of the Company. As a result, these shareholders, together or individually will have the ability to control or influence the outcome of most corporate actions requiring shareholder approval, including the election of directors of the Company and the approval of certain corporate transactions. The concentration of ownership of the Company may also have the effect of delaying or preventing a change in control of the Company.

Commercializing of Drug Candidates

In order to successfully commercialize drugs, the Company must enter into collaborations with partners to develop a capable sales, marketing and distribution infrastructure. The Company intends to enter into partnering, co-promotion and other distribution arrangements to commercialize products in most markets. However, the Company may not be able to enter into collaborations on acceptable terms, if at all, and may face competition in its search for partners with whom to collaborate. If the Company is unable to develop collaborations with one or more partners to perform these functions, it may not be able to successfully commercialize its products, which could cause the Company to cease operations.

Item 3. Key Information - continued

Dependence on the Success of PTL-202

PTL-202, the Company’s lead product candidate, has been tested in pre-clinical models of lung Fibrosis. These tests indicate that PTL-202 may be an effective drug to treat Pulmonary Fibrosis. PTL-202 was cleared by regulators to begin Phase 1 clinical trials during 2012. This drug/drug interaction trial was concluded in September 2012.

In order to market PTL-202, the Company, in conjunction with its collaborators, will have to conduct additional clinical trials, including bioequivelency, Phase 2 proof of principal clinical trials as well as Phase 3 clinical trials, to demonstrate safety and efficacy. The Company has not initiated any Phase 2 or Phase 3 clinical trials with any of its product candidates. If the proposed clinical trials generate safety concerns or demonstrate a lack of efficacy, or competitive products developed by third parties show significant benefit in the indications in which the Company is developing product candidates, any planned clinical trial may be delayed, altered or not initiated and PTL-202 may never receive regulatory approval or be successfully commercialized.

The Company’s other product candidate, PTL-303, has only been tested in cellular assays to determine a signal as a possible drug candidate. PTL-303 has not been tested in animals or humans.

Even if the Company’s product candidates receive regulatory approval, the Company or its collaborators may not be successful in marketing them for a number of reasons, including the introduction by competitors of more clinically-effective or cost-effective alternatives or failure in the Company or collaborator’s sales and marketing efforts.

Any failure to obtain approval of PTL-202 or PTL-303, and successfully commercialize them, would have a material and adverse impact on the Company’s business, which could cause the Company to cease operations.

Reliance on the Company’s management

Investors will in large part entrust their funds to the directors, management, and other professional advisors in whose judgment investors must depend with only limited information about their specific evaluation of the “sound business reasons” on which any reallocation of funds would be based. The Company's financing and enterprise acquisition/development policies and practices may be changed at the discretion of the Board of Directors. Persons who are not willing to rely on the Company’s management and/or Directors should not purchase the Company’s Shares.

Attraction and Retention of the Company’s Management

The Company will need to expand and effectively manage its managerial, operational, financial, development and other resources in order to successfully pursue its research, development and commercialization efforts of existing and future product candidates. The Company's success depends on its continued ability to attract, retain and motivate highly qualified management, pre-clinical and clinical personnel. The loss of the services of any of the Company’s senior management could delay or prevent the commercialization of its product candidates. Although the Company has entered into an employment agreement with Douglas H. Unwin, its Chief Executive Officer, the agreement permits Mr. Unwin to terminate his employment with the Company at any time, subject to providing the Company with advance written notice.

The Company may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified personnel among specialty pharmaceutical, biotechnology, pharmaceutical and other businesses. If the Company is not able to attract and retain the necessary personnel to accomplish its business objectives, the achievement of its development objectives, its ability to raise additional capital and its ability to implement its business strategy may be significantly reduced. In particular, if the Company loses any members of its senior management team, it may not be able to find suitable replacements in a timely fashion, or at all, and the business may be harmed as a result.

Use of Contract Personnel

From time to time the Company will need to contract additional personnel to continue its expansion. The Company uses scientific, clinical and regulatory advisors extensively to assist in formulating its development and clinical strategies. These advisors are not the Company’s employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to the Company. In addition, these advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with the Company’s. If the Company is unable to contract the correct personnel, it may be unable to implement or complete its product development programs, resulting in the inability to commercialize its product candidates or generate sufficient revenue to continue in business.

Item 3. Key Information - continued

Dependence on key employees, suppliers or agreements

Executive management of the Company's business is primarily provided by the Company's CEO, CFO, and Board of Directors. At this stage of its corporate development, the Company has necessarily limited the establishment of extensive administrative and operating infrastructure. Instead, the Company may rely, for necessary skills, on external adviser/consultants with extensive senior level management experience in such fields as formulation, drug development, pharmaceutical regulations, finance, manufacturing, marketing, law, and investment. The future success of the Company is very dependent upon the ongoing availability and commitment of its directors, officers and advisor consultants, not all of whom are or will be bound by formal contractual employment agreements. The absence of these formal contractual relationships may be considered to represent an area of risk.

Dependence on Third Parties to Conduct Clinical Trials

The Company will hire third parties to conduct clinical trials. If these third parties do not perform as contracted or expected, the Company may not be able to obtain regulatory approval for its drug candidates, preventing the Company from becoming profitable.

The Company relies on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct its pre-clinical research and clinical trials. Although the Company relies on these third parties to conduct its clinical trials, it is responsible for ensuring that each of its clinical trials is conducted in accordance with its investigational plan and protocol, as approved by the FDA and non-U.S. regulatory authorities. Moreover, the FDA and non-U.S. regulatory authorities require the Company to comply with regulations and standards, commonly referred to as Good Clinical Practices (“GCPs”), for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the clinical trial subjects are adequately informed of the potential risks of participating in clinical trials.

The Company’s reliance on third parties does not relieve it of the above responsibilities and regulatory requirements. If the third parties conducting the Company’s clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to GCPs or for any other reason, the Company may need to enter into new arrangements with alternative third parties, and its clinical trials may be extended, delayed or terminated. In addition, a failure by third parties to perform their obligations in compliance with GCPs may cause the Company’s clinical trials to fail to meet regulatory requirements, which may require the Company to repeat its clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, the Company may be unable to obtain regulatory approval for or commercialize its current and future product candidates.

Marketing and Distribution Risk

If the Company is unable to develop its sales and marketing and distribution capability on its own or through collaborations with marketing partners, it will not be successful in commercializing its product candidates. The Company currently does not have a marketing staff nor a sales or distribution organization. The Company does not intend to develop a sales or distribution organization internally.

The Company currently does not have marketing, sales or distribution capabilities. The Company has decided to collaborate with third parties that have direct sales forces and established distribution systems, either to augment or substitute in lieu of its own sales force and distribution systems. To the extent that the Company enters into co-promotion or other licensing arrangements, its product revenue is likely to be lower than if the Company directly marketed or sold its products, when and if it has any. In addition, any revenue received will depend in whole or in part upon the efforts of such third parties, which may not be successful and will generally not be within the Company’s control. If the Company is unable to enter into such arrangements on acceptable terms or at all, it may not be able to successfully commercialize its existing and future product candidates. If the Company is not successful in commercializing its existing and future product candidates, either on its own or through collaborations with one or more third parties, future product revenue will suffer and the Company may incur significant additional losses.

Item 3. Key Information - continued

Industry Risk - Risks faced by the Company because of the industry in which it operates

Research and Development

The Company is developing new, proprietary substances, methods and processes intended to enhance the therapeutic effects of existing drugs in the treatment of diseases characterized by progressive Fibrosis. The existing drugs that form the basis of the Company’s efforts to develop new substances, methods and processes are well known, yet any scientific evidence that may exist to support the feasibility of the Company’s goals is not conclusive. If the Company is not successful in developing and marketing any new drugs, combinations of existing drugs or reformulation and repurposing of existing approved drugs it may never generate revenues and the business may fail.

Clinical Trial Design

The Company’s business strategy is to combine, reformulate and repurpose existing drugs for the treatment of new indications, and these new drug combinations or formulations may have the ability to treat many indications. The Company may incorrectly assess the market opportunities of an indication or may incorrectly estimate or fail to fully appreciate the scientific and technological difficulties associated with treating a specific indication. Furthermore, the quality and robustness of the results and data of any clinical study the Company conducts will depend upon the selection of a patient population for clinical testing. If the selected population is not representative of the intended population, further clinical testing of product candidates or termination of research and development activities related to the selected indication may be required. The Company’s ability to commence clinical testing or the choice of clinical development path could compromise business prospects and prevent the achievement of revenue.

Product Failure in Clinical Trials

Clinical trials may fail to adequately demonstrate the safety and efficacy of product candidates. The Company will be required to demonstrate with substantial evidence through well-controlled clinical trials that its product candidates are safe and effective for use in a diverse population before the Company can seek regulatory approvals for their commercial sale. Negative results from clinical trials will prevent the commercialization of a drug candidate. If the Company cannot show that its product candidates are both safe and effective in clinical trials, it will need to re-evaluate its strategic plans.

Positive results from pre-clinical studies and early clinical trials should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other non-U.S. regulatory authorities, despite having progressed through initial clinical trials.

Even after the completion of Phase 3 clinical trials, the FDA or other non-U.S. regulatory authorities may disagree with the Company’s clinical trial design and its interpretation of data, and may require the Company to conduct additional clinical trials to demonstrate the efficacy of its product candidates.

Regulatory Risk and Market Approval

Any products that the Company develops will be subject to extensive government regulations relating to development, clinical trials, manufacturing and commercialization. In the United States, for example, the drug combinations that the Company intends to develop and market are regulated by the FDA under its new drug development and review process. Before any therapeutic products can be marketed, the sponsor company must obtain clearance from the FDA by submitting an investigational new drug application, then by successfully completing human testing under three phases of clinical trials, and finally by submitting a new drug application.

The time required to obtain approvals for drug combinations or reformulations from the FDA and other agencies in foreign locales with similar processes is unpredictable. There is no assurance that the Company will ever receive regulatory approval to use its proprietary drug combinations or reformulations as human therapeutics. If such regulatory approval is not obtained, the Company may never become profitable.

Item 3. Key Information - continued

Failure to Receive Regulatory Approval f or Clinical Trials

The Company’s clinical development programs for PTL-202 and PTL-303 may not receive regulatory approval for clinical trials if the Company fails to demonstrate that they are safe and effective in pre-clinical trials. Consequently, failure to obtain necessary approvals from the FDA or similar non-U.S. regulatory agencies to operate clinical trials for the Company’s product candidates could result in delays to the Company’s product development efforts.

Manufacture and Supply of Drug Candidates

The Company does not own or operate manufacturing facilities, and it depends on third-party contract manufacturers for production of its product candidates. The Company has no experience in drug formulation or manufacturing, and it lacks the resources and the capability to manufacture any of its product candidates. Product candidates have been purchased in limited quantities for pre-clinical studies from scientific supply houses. For Phase 1 and 2 clinical trials of PTL-202, the Company will need to obtain additional quantities of active pharmaceutical ingredients. The Company will need to contract with a manufacturer for a supply of PTL-303 for pre-clinical, and Investigational New Drug-enabling toxicology studies and initial clinical trials (Phase 1 and 2). If, in the future, one of the Company’s product candidates is approved for commercial sale, the Company or its collaborator will need to manufacture that product candidate in commercial quantities. The Company cannot guarantee that the third-party manufacturers with which it has previously contracted will have sufficient capacity to satisfy future manufacturing needs of PTL-202 or PTL-303, or that the Company will be able to negotiate additional purchases of active pharmaceutical ingredients or drug products from these or alternative manufacturers on terms favourable to the Company, or at all.

Third party manufacturers may fail to perform under their contractual obligations, or may fail to deliver the required commercial quantities of bulk active ingredients or finished product on a timely basis and at commercially reasonable prices. Any performance failure on the part of the Company’s contract manufacturers could delay clinical development or regulatory approval of the Company’s product candidates or commercialization of its future product candidates, depriving the Company of potential product revenue and resulting in additional losses.

If the Company is required to identify and qualify an alternate manufacturer, it may be forced to delay or suspend its clinical trials, regulatory submissions, required approvals or commercialization of its product candidates, which may cause it to incur higher costs and could prevent the successfully commercializing its product candidates. If the Company is unable to find one or more replacement manufacturers capable of production at a reasonably favourable cost, in enough volume, of adequate quality, and on a timely basis, the Company would likely be unable to meet demand for its product candidates and its clinical trials could be delayed or it could lose potential revenue. The Company’s ability to replace an existing active pharmaceutical ingredient manufacturer may be difficult because the number of potential manufacturers may be limited and the FDA or non-US regulator must approve any replacement manufacturer before it can begin manufacturing the Company’s product candidates. Such approval would require new testing and compliance inspections. It may be difficult or impossible for the Company to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all.

The Company expects to continue to depend on third-party contract manufacturers for the foreseeable future. The Company’s product candidates require precise, high quality manufacturing. Any of the Company’s contract manufacturers will be subject to ongoing periodic unannounced inspection by the FDA and non-U.S. regulatory authorities to ensure strict compliance with current Good Manufacturing Practice (“cGMP”), and other applicable government regulations and corresponding standards. If the Company’s contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with cGMP regulations, the Company may experience manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for the Company’s product candidates, cost overruns or other problems that could seriously harm its business.

Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. Additionally, any third party manufacturers the Company retains to manufacture its product candidates on a commercial scale must pass an FDA or non-US regulator pre-approval inspection for conformance to the cGMPs before the Company can obtain approval of its product candidates. If the Company is unable to successfully increase the manufacturing capacity for a product candidate in conformance with cGMPs, the regulatory approval or commercial launch of any related products may be delayed or there may be a shortage in supply.

Market Acceptance of the Company’s Products

Even if the Company receives the necessary regulatory approvals to commercially sell its drug candidates, the success of these candidates will depend on their acceptance by physicians and patients, and reimbursement among other things.

Item 3. Key Information - continued

In the United States and elsewhere, the Company’s product revenues will depend principally upon the reimbursement rates established by third-party payors, including government health administration authorities, managed-care providers, public health insurers, private health insurers and other organizations. These third-party payors are increasingly challenging the price, and examining the cost effectiveness, of medical products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs, pharmaceutical products or product indications. The Company may need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of products. Such clinical trials may require the Company to commit a significant amount of management time, financial and other resources. If reimbursement of the Company’s product candidates is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, the Company’s revenues could be reduced.

In some countries other than the United States, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to government controls. In these countries, obtaining pricing approval from government authorities can take six to twelve months or longer after the receipt of regulatory marketing approval of a product for an indication. To obtain reimbursement or pricing approval in some countries, the Company may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. The Company’s revenues could be reduced if reimbursement of a product candidate is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

Canadian, US, European and other foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and the Company expects that there will continue to be, federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, the Medicare Prescription Drug Improvement and Modernization Act of 2003 reforms the way Medicare will cover and reimburse for pharmaceutical products. The legislation expands Medicare coverage for drug purchases by the elderly and eventually will introduce a new reimbursement methodology based on average sales prices for certain drugs. In addition, the new legislation provides authority for limiting the number of outpatient drugs that will be covered in any therapeutic class. As a result of the new legislation and the expansion of federal coverage of drug products, the Company expects that there will be additional pressure to contain and reduce costs.

The Medicaid program and state healthcare laws and regulations in the USA may also be modified to change the scope of covered products and/or reimbursement methodology. Cost control initiatives could decrease the established reimbursement rates that the Company receives for any products in the future, which would limit its revenues and profitability. Legislation and regulations affecting the pricing of pharmaceutical products, including PTL-202 and PTL-303, may change at any time, which could further limit or eliminate reimbursement rates for PTL-202 or other product candidates.

If the Company’s drug candidates fail to gain market acceptance, it may be unable to generate sufficient revenue to continue in business.

Failure to Obtain Regulatory Approval Outside the United States

The Company intends to market certain of its existing and future product candidates in non-North American markets. In order to market its existing and future product candidates in the European Union and many other non-North American jurisdictions, the Company must obtain separate regulatory approvals. The Company has had no interactions with non-North American regulatory authorities, and the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.

Approval by the FDA or other regulatory authorities does not ensure approval by regulatory authorities in other countries, and approval by one or more non-North American regulatory authorities does not ensure approval by regulatory authorities in other countries or by the FDA. The non-North American regulatory approval process may include all of the risks associated with obtaining FDA approval. The Company may not obtain non-North American regulatory approvals on a timely basis, if at all. In addition, the Company may not be able to file for non-North American regulatory approvals and may not receive necessary approvals to commercialize its existing and future product candidates in any market. If such regulatory approval is not obtained, the Company may never become profitable.

Item 3. Key Information - continued

Product Liability

The use of the Company’s drug candidates in clinical trials and the sale of any products for which regulatory approval is obtained may expose the Company to product liability claims from consumers, health care providers, pharmaceutical companies or other entities. Any claim brought against the Company may cause the diversion of resources from normal operations or cause the Company to cease the sale, distribution and marketing of its products that have received regulatory approval. This may cause the Company to cease operations.

Intellectual Property Rights

The Company’s commercial success will depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of its proprietary technology and information as well as successfully defending third-party challenges to its proprietary technology and information. The Company will be able to protect its proprietary technology and information from use by third parties only to the extent that valid and enforceable patents, trade secrets or regulatory protection cover them and the Company has exclusive rights to utilize them. The ability of the Company’s licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining the Company’s future.

Reliance on Licensors to Maintain Patent Rights

The Company’s commercial success may also depend, in part, on maintaining patent rights that have been licensed related to products that the Company may market in the future. Since the Company will not fully control the patent prosecution of any licensed patent applications, it is possible that the licensors will not devote the same resources or attention to the prosecution of the licensed patent applications as the Company would if it controlled the prosecution of the applications. The licensor may not pursue and successfully prosecute any potential patent infringement claim, may fail to maintain their patent applications, or may pursue any litigation less aggressively than the Company would. Consequently, the resulting patent protection, if any, may not be as strong or comprehensive.

Uncertainty of Patent Protection

The patent positions of life science companies including specialty pharmaceutical companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of the Company’s intellectual property rights. Therefore, the Company cannot predict with any certainty the range of claims that may be allowed or enforced in its patents or in-licensed patents.

Reliance on Trade Secrets

The Company also relies on trade secrets to protect its technology, especially where the Company does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While the Company seeks to protect confidential information, in part, through confidentiality agreements with employees, consultants, contractors, or scientific and other advisors, they may unintentionally or wilfully disclose the Company’s confidential information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If the Company is not able to maintain patent or trade secret protection on its technologies and product candidates, then the Company may not be able to exclude competitors from developing or marketing competing products, and the Company may not be able to operate profitability.

Intellectual Property Infringement Claims

There has been, and there will continue to be, significant litigation and demands for licenses in the life sciences industry regarding patent and other intellectual property rights. Although the Company anticipates having a valid defence to any allegation that its current product candidates, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, the Company cannot be certain that a third party will not challenge this position in the future. Other parties may own patent rights that the Company might infringe with its drug candidates, products or other activities, and the Company’s competitors or other patent holders may assert that the Company’s products and the methods employed are covered by their patents. These parties could bring claims against the Company causing substantial litigation expenses and, if successful, may require payment of substantial damages. Some of the Company’s potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, the Company could be forced to stop or delay its research, development, manufacturing or sales activities. Any of these costs could cause the Company to go out of business.

Item 3. Key Information - continued

Licensed Patent Rights

The Company has licensed patents and plans to license technologies and other patents if it believes it is necessary or useful to use third party intellectual property to develop its products, or if its product development threatens to infringe upon the intellectual property rights of third parties. The Company may be required to pay license fees or royalties or both to obtain such licenses, and there is no guarantee that such licenses will be available on acceptable terms, if at all. Even if the Company is able to successfully obtain a license, the rights may be non-exclusive, which would give the Company’s competitors’ access to the same intellectual property it has rights to, which could prevent the Company from commercializing a product.

The Company’s licensors may terminate the license. Without protection for the intellectual property that is licensed, other companies may be able to offer substantially similar products for sale, the Company may not be able to market or sell the planned products or generate any revenues.

Licenses and Permits to Operate

The operations of the Company may require licenses and permits from various governmental authorities, in both domestic and foreign jurisdictions. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out its research and development of its projects. Without these licenses and permits the Company may not be able to market or sell the planned products or generate any revenues.

Competition

The pharmaceutical industry is intensely competitive in all its phases, and the Company competes with other companies that have greater financial resource and technical facilities. Competition could adversely affect the Company’s ability to acquire suitable projects in the future.

Significant and increasing competition exists for pharmaceutical opportunities internationally. There are a number of large established pharmaceutical companies with substantial capabilities and far greater financial and technical resources than the Company. The Company may be unable to acquire additional attractive pharmaceutical development opportunities on terms it considers acceptable and there can be no assurance that the Company's research and development programs will yield any new drugs or result in any commercially viable compounds or technologies.

Conflicts of Interest

Certain of the directors and officers of the Company will be engaged in, and will continue to engage in, other business activities on their own behalf and on behalf of other companies (including life science companies) and, as a result of these and other activities, such directors and officers may become subject to conflicts of interest. The British Columbia Business Corporation Act (“BCBCA”) provides that in the event that a director has a material interest in a contract or proposed contract or agreement that is material to the Company, the director shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement, subject to and in accordance with the BCBCA. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the BCBCA. To the knowledge of the management of the Company, there are no existing or potential material conflicts of interest between the Company and a proposed director or officer of the Company except as otherwise disclosed herein.

Foreign Currency Risk

A substantial portion of the Company’s expenses and future revenues may be incurred in foreign currencies. The Company’s business will be subject to risks typical of an international business including, but not limited to, differing tax structures, regulations and restrictions and general foreign exchange rate volatility. Fluctuations in the exchange rate between the Canadian dollar and such other currencies may have a material effect on the Company’s + business, financial condition and results of operations and could result in downward pressure for the Company’s products or in losses from currency exchange rate fluctuations. The Company does not actively hedge against foreign currency fluctuations.

Item 3. Key Information - continued

Public Company Risk - Risks related to the Company’s shares being listed on a stock exchange

Price Volatility of Publicly Traded Securities

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experiences wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any quoted market for the Common Shares will be subject to market trends generally, notwithstanding any potential success of the Company in creating revenues, cash flows or earnings. The value of the Company’s Common Shares will be affected by such volatility.

An active public market for the Common Shares might not develop or be sustained. If an active public market for the Common Shares does not develop, the liquidity of a shareholder’s investment may be limited and the share price may decline below the initial price shareholders paid for their shares.

Certain Canadian Laws Could Delay or Deter a Change of Control

Limitations on the ability to acquire and hold the Company’s Common Shares may be imposed by the C ompetition Act (Canada). This legislation permits the Commissioner of Competition (Canada) to review any acquisition of a significant interest in the Company. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada.

The Investment Canada Act (Canada) subjects an acquisition of control of a company by a non-Canadian to government review if the value of the Company’s assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be a net benefit to Canada.

Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for the Company’s shareholders to sell their Common Shares.

The Company is at Risk of Securities Class Action Litigation

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for the Company because biotechnology, specialty pharmaceutical and biopharmaceutical companies have experienced significant stock price volatility in recent years. If the Company faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm the Company’s business.

Item 4. Information on the Company

A.	History and development of the company.

Name and Incorporation

The Company was incorporated under the British Columbia Business Corporations Act (“BCBCA”) on September 12, 2005 as “Pacific Therapeutics Ltd.”.

The head office of the Company is located at Suite 1500, 409 Granville Street, Vancouver, British Columbia, V6C 1T2, and the registered and records office of the Company is located at Suite 1023, 409 Granville Street, Vancouver, British Columbia, V6C 1T2. The Company’s phone number is (604) 738-1049 and its web site is www.pacifictherapeutics.com . The information on our website does not form a part of this Form 20-F.

The Company is a reporting Company in British Columbia and Ontario and its shares were listed for trading on the Canadian National Stock Exchange on November 16, 2011.

Item 4. Information on the Company - continued

Inter-Corporate Relationships

The Company does not have any inter-corporate relationships.

Significant Acquisitions and Dispositions

Other than the potential licensing of a technology for oral disintegration, the Company has not completed any acquisitions or dispositions since its date of incorporation and is not currently in negotiations with respect to any potential material acquisitions or dispositions..

Operating and Financial Review and Prospects

From inception through to December 31, 2012, the Company incurred total expenses in the development of its intellectual property of $1,836,405, which includes $548,204 of research and development expenses (research and development expenses on the financial statements have been offset by $53,277 in funding from the Industrial Research Assistance Program (“IRAP”) and $187,427 in Scientific Research and Experimental Development ("SR&ED") tax credits), $398,431 of professional fees and $889,770 of wages and benefits.

B.	Business overview

Business Strategy

The Company is focused on combing, reformulating and repurposing approved drugs. It is initially developing drugs for diseases of progressive excessive scarring, including Idiopathic Pulmonary Fibrosis, Liver Cirrhosis, Pulmonary Fibrosis associated with Scleroderma and Post Lung Transplant Bronchiolitis Obliterans. The Company assumes the clinical, regulatory and commercial development activities of its product candidates and advances them through the regulatory and clinical pathways toward commercial approval. This strategy reduces the risk, time and cost of developing therapies for Fibrosis by avoiding the risks associated with basic research and using compounds with unknown safety and toxicity. The Company leverages its expertise to manage and perform critical steps in drug development including the design and conduct of clinical trials, the development and execution of intellectual property strategies, the recruitment and selection of development partners and the interaction with drug regulatory authorities.

Its strategy includes reformulating approved drugs to increase efficacy and patient compliance, and completing the further clinical testing, manufacturing and other regulatory requirements sufficient to seek marketing authorizations via the filing of a New Drug Application (“NDA”) with the FDA and/or a potential Marketing Application Authorization (“MAA”) with the European Medicines Evaluation Agency (“EMEA”) or similar marketing authorizations by regulators in other countries including Canada.

The main elements of the Company’s strategy are as follows:

1) Identification of Product Candidates

The Company performs scientific evaluations and market assessments of drugs and drug combinations and research from academics and other drug development companies. As part of this process, the Company will evaluate the clinical and pre-clinical research and the intellectual property rights associated with the potential products and research to determine the commercial potential of the product candidate.

The Company intends to mitigate the risks associated with development and commercialization of drug candidates by targeting drug candidates that:

• are combinations of already approved compounds;

• have well established safety records;

• have potential to be reformulated to a once a day oral dose;

• have potential to be reformulated to an oral dissolving technology;

• are already marketed in countries other than the United States or Europe; and

• have pre-clinical animal data or clinical data of potential efficacy in Fibrosis additional indications.

Item 4. Information on the Company - continued

The Company has initially focused on Fibrosis indications as it believes there is a large unmet medical need in this area. As an example, Idiopathic Pulmonary Fibrosis (IPF) affects more than 130,000 Americans (IPF Summit 2011). An estimated 48,000 cases of IPF are diagnosed annually (Am J Respir Crit Care Med. 2006;174(7):810-816). In addition, patients with IPF have poor prognosis; an estimated 40,000 people die each year from IPF. Further, there are no FDA approved treatments for IPF (IPF Summit 2011).

The Company has developed the Scientific and Advisory Board (“SAB”) to support this strategy. The members of both of this group are very experienced in the clinical development of drug candidates for Pulmonary Fibrosis, lung transplant, airway disease and Scleroderma. In the future, the Company may develop product candidates for other indications but the current strategy is to leverage the expertise and skills the Company has in Fibrosis, particularly Idiopathic Pulmonary Fibrosis.

2) In-licensing

In identifying a promising product candidate, the Company seeks to negotiate a license to the rights for the candidate from the holder of those rights. Typically the goal is to secure licenses that permit the Company to conduct further research, development and clinical trials as well as engage in additional intellectual property protection. The Company will also seek terms that provide it with the rights to further licensing of manufacturing and marketing rights to any resulting products. This process is known as in-licensing.

3) Product Development

Upon securing the appropriate rights to the product candidate, the Company will advance the candidate through the regulatory and commercialization pathways for marketing approval in major markets. This process includes implementing intellectual property strategies, formulation and reformulation strategies, making regulatory submissions, conducting or managing clinical trials, and performing or managing the collection, collation and interpretation of clinical and field data and the submission of this data to relevant regulatory authorities.

4) Partnering

To enhance its capabilities to develop and market its product candidates, the Company may enter into agreements or partnerships with companies that have formulation, drug development, sales or marketing expertise, or all of the above. Entering into such an agreement may provide cash to develop other products or advance other products in the Company’s portfolio. In addition, entering into a partnership with a company that has complementary skills and using that company’s expertise to further accelerate development of its product candidates, may enhance the returns to the Company from the product candidate.

5) Outsourcing

In order to optimize return on investment and the development of product candidates, the Company uses a virtual company business model which includes outsourcing all non-core business activities. Factors that the Company considers to determine core and non-core activities include:

• Infrastructure cost

• Operating cost

• Frequency of use

• Regulatory protocol

• Requirement for third party verification

• Capacity

• Quality control

Management has determined that having its own laboratory and staff for conducting infrequent pre-clinical studies is not a core capacity that is required and, therefore, it has to develop relationships with labs that it may outsource this work to. In order to maintain quality control, these projects are managed very closely by the Company’s staff and the Company develops all protocols for the completion of this work. Other functions the Company has decided to outsource include analytical assay development, formulation, clinical trials and manufacturing. It is currently more cost-effective to outsource these tasks due to the Company’s sporadic requirements. As these requirements become less sporadic the Company may develop internal capabilities to complete currently outsourced tasks.

Item 4. Information on the Company - continued

6) Principal Products

•

PTL-202

The Company’s lead product candidate, PTL-202, is a combination of drugs that have been separately approved for marketing by the FDA for sale in the United States. In animal trials, the combination was more effective than either of its components at reducing indicators of Fibrosis. The Company is planning to complete development of a once a day pill of the combination using proprietary in licensed technologies. The Company conducted a drug/drug interaction study in 2012 and plans to conduct a bioequivalence study in 2013 with PTL-202 in humans.

The Company found a combination of two compounds developed in France that showed efficacy in human Fibrosis. The efficacy of this combination to prevent further Fibrosis in humans was confirmed in two separate independent proofs of principal Phase 2 clinical trials in Radiation Induced Fibrosis. The Company took one of the compounds, Pentoxifylline, and combined it with a powerful antioxidant and then conducted experiments in a mouse. These experiments showed that the new combination was effective at reducing the progression of the Fibrosis in the mouse lung. This new combination is being developed as the Company’s lead drug candidate, PTL-202. A provisional patent was filed in the United States by the Company in October 2007 to cover the composition of matter and method of use of this combination. In October 2008, the Company filed an application under the Patent Cooperation Treaty based on the above provisional application. The Company received a positive preliminary examination of the PCT application in the spring of 2009. During 2012 the patent prosecution continued and the Company filed Reponses to patent examiners in Europe and the US.

The combination has now been formulated into a once a day tablet and the drugs included in PTL-202 have been successfully tested in a drug/drug interaction study in humans in 2012.

•

PTL-303

The Company’s other product candidate, PTL-303, is a combination of drugs including one that has been approved for use in Japan and other jurisdictions. This combination may have a wide range of uses, including treating, preventing and reducing disorders of progressive scarring in humans.

The Company does not have any funds allocated for the further development of PTL-303 at this time.

The composition, including a cytokine modifier and anti-oxidant which is a precursor of Glutathione, was investigated for its antifibrotic activity by employing two In Vitro collagen synthesis assays. The Company discovered that the combination PTL-303 brings about substantial synergistic anti-fibrotic effects in a TGF-Beta1 mediated collagen synthesis assay, when compared to the individual drugs.

The composition can be administered in any convenient manner, such as a pill, or inhalation, and may be formulated for injection.

A provisional patent titled “Composition and Method for Treating Fibrosis” was filed by the Company with the United States patent office on October 29, 2008. The application number is 61/109,446. A PCT application covering the technology of PTL-303 was filed by the Company in October 2009.

7) Oral Dissolving Technology

The Company has executed a letter of intent with Globe Labs Ltd. Of Vancouver, BC for the potential in-license of an oral dissolving tablet technology. The technology may be used for the delivery of up to three different compounds. The initial use of the technology maybe for the delivery of sildenafil citrate for the treatment of erectile dysfunction.

Principal Products

1) PTL-202

Once a Day Formulation Combination of Pan-phosphodiesterase inhibitor, Pentoxifylline, with N-acetylcysteine

Idiopathic Pulmonary Fibrosis (“IPF”) is a long term, progressive form of lung disease characterized by progressive buildup of scar tissue on the supporting framework (interstitium) of the lungs. The term Idiopathic is used only when the cause of the Fibrosis is unknown. Despite extensive investigation, the cause of IPF remains unknown. The disease involves abnormal and excessive deposition of scar tissue (Fibrosis) in the Pulmonary Interstitium (mainly the walls of the Alveoli) with minimal associated inflammation (Figure 1). The symptoms initially develop slowly. The most common symptom is progressive difficulty in breathing, but also includes dry cough.

Item 4. Information on the Company - continued

Figure 1 - Human Airways

The Company’s lead product, PTL-202, is a combination of two compounds designed to treat IPF: Pentoxifylline (PTX) and NAC (N-acetylcysteine). The Company has completed pre-clinical studies on PTL-202, development of a pill that can be taken once a day and completed a drug/drug interaction study in humans in 2012. A pivotal bio-equivalency study is planned for 2013 and maybe followed by a Phase 2 Proof-of-Principle clinical trial beginning in 2014.

Therapeutic Approach

The combination of drugs in PTL-202 is intended to stop the progression of IPF by reducing the amount of several messenger molecules that are known to be associated with scarring. In addition, the combination has anti-oxidant properties that protect the lung cells from further damage caused by the Fibrosis.

PTX increases the diameter of blood vessels and enhances blood flow. PTX has been successfully and safely used for many years for treatment of vascular diseases such as cramping in the leg.

There is growing evidence that PTX is an anti-inflammatory and may inhibit scarring in the lung.

NAC (N-acetylcysteine), the second compound in the PTL-202 combination, has been shown in animals to prevent some of the effects of IPF, including the progressive deterioration of patients.

Pre-clinical Studies

The Company has conducted a number of pre-clinical studies using PTL-202 for the treatment of lung Fibrosis in a mouse. The Company believes that these studies show that PTL-202 has the potential to be a safe and effective treatment for IPF.

Item 4. Information on the Company - continued

The Company conducted proof-of-concept animal studies to evaluate the relative efficacy of stand-alone or combination treatments of PTX and NAC in lung Fibrosis. In the initial experiment, wet lung weight was measured under various treatments. From this early experiment, it was determined that PTL-202 may be more effective than its separate components.

In further pre-clinical experiments, PTL-202 treatment was more effective than either PTX or NAC alone on lung Fibrosis in mice. In addition, treatment with PTL-202 caused a significant reduction in TNF-alpha in the lung fluid. This finding indicates that PTL-202 may act by reducing the amount of TNF-alpha. TNF-alpha is thought to stimulate the formation of scar tissue. Moreover, there were no deaths or abnormal reactions with a daily administration of PTL-202 during the experiments, indicating a lack of side effects which is consistent with the data from earlier clinical trials in humans for PTX and NAC separately.

The results of these extensive pre-clinical studies suggest that PTL-202 may be safe and effective agent for the treatment of Pulmonary Fibrosis.

DEVELOPMENT PLANS OF PTL-202

Formulation Development

The goal of the Company is to develop a pill containing both drugs that only needs to be taken once per day. Existing, marketed, modified release versions of the drugs will be evaluated as a simple daily or twice daily fixed dose combination formulation. Given, the preliminary dose ranges/strengths of 600-1200mg of PTX combination with 600mg-1200mg NAC once a day, the physical size for an ingestible tablet will be a barrier to success. Current formulation of PTX, with Vitamin E rather than NAC, in a Phase 2 study has shown inhibition of messenger molecules and a reduction in scar tissue. Both PTX and NAC are water soluble molecules, with short resident time in the bloodstream. This high water solubility presents a challenge to once-a-day administration as both molecules are rapidly absorbed and metabolized quickly by the body. The goal from a development perspective is to deliver an appropriately formulated controlled release product, reducing the absolute amount of drug per tablet needed to achieve a clinically effective blood level. To accomplish this goal formulation development prototypes will target release of the drugs to provide sustained levels of the drug in the blood.

A controlled release formulation of PTL-202, a fixed dose combination of pentoxifylline (PTX) and N-acetylcysteine (NAC), for the potential treatment of idiopathic pulmonary fibrosis (IPF), Liver Cirrhosis and other fibrotic diseases was completed in 2012.

Phase 1: Clinical Studies

The Company has completed the initial clinical study of PTL-202. The study was a drug/drug interaction study. This study, conducted in humans was intended to determine if any new by products are created by the combination of the drugs in PTL-202 and to determine if the combination is bio-equivalent to its generic counter parts. The study included 12 healthy males. The bio-analytical portion (PK assay development and good laboratory practice validation) of the above-mentioned study was completed by a lab contracted by the Company. Therefore, following the Company’s stated business strategy, the Company acted as a sponsor of the study and the CROs were hired to execute the objectives of the study. Successful completion of this Phase 1 study of PTL-202 is a major milestone because as many as 30% of Phase 1 drug trials are failures.

A further pivotal bio-equivalency study is planned for 2013. This study would include up to 20 individuals and take about 2 months to complete.

Phase 2: Proof- of-Concept in Humans

The proposed Phase 2 study is a proof-of-concept or proof-of-relevance trial. The proposed study utilizes principles of adaptive design approach and has two interconnected parts. The proof-of-concept trial will be designed to assess the safety and efficacy of PTL-202 in patients with IPF. Study patients will receive formulated PTL-202 or individual components of PTL-202. Neither the patient or the physician will know if they are getting PTL-202 or a component.

The objectives of the study are:

•

To evaluate the safety and tolerability of 12 months of treatment with PTL-202 in patients with IPF versus placebo and individual components of PTL-202 (PTX and NAC);

•

To compare changes in forced vital volume capacity in IPF patients treated with PTL-202 versus treatment with PTX and NAC alone and placebo;

Item 4. Information on the Company - continued

•

To compare changes in the following parameters in IPF patients treated with PTL-202;

•

Diffusion capacity for carbon monoxide;

•

Extent and nature of IPF-related abnormalities on high resolution CT; and

•

To compare quality of life evaluations in IPF patients treated with PTL-202 and individual components of PTL-202 versus placebo.

The cost to complete the Phase 2 study is estimated at $8 million. Additional funds will be required to complete this phase of the development of PTL-202. On completion of this proof-of-principal study the Company will look to out-license PTL-202 to a larger company capable of completing the development and commercialization of PTL-202. Such additional funds would likely be raised through a private placement of securities. There is no assurance that such funding will be available. See also “Risk Factors” in this filing.

2) PIPELINE PRODUCT: PTL-303

Fixed Dose Combination of TGF-β Inhibitor and NAC - Pre-clinical

The Company has completed In Vitro studies of this combination that have confirmed the compounds method of action. This data has been included in the provisional patent application for PTL-303 to support the composition of matter and methods claims.

The Company does not have any funds allocated for the further development of PTL-303 at this time.

In the future, as funds are available, the Company will initiate animal studies using lung Fibrosis in mice to generate additional data to assess the efficacy of PTL-303. The pre-clinical work will also focus on the delivery of the compound to the liver and the efficacy of the compound in a liver Fibrosis model.

Efficacy in the liver Fibrosis model will lead to further Investigational New Drug application (IND) enabling studies when funds are available.

Manufacturing

The Company has limited experience in, and does not own facilities for, manufacturing any products or product candidates. The Company, in partnership with IntelGenx Corp. (IntelGenx), will utilize contract manufacturers to produce clinical supplies of any components of its products that are not commercially available. Although the Company intends to continue to rely on contract manufacturers to produce certain of its products for both clinical and commercial supplies, the Company and IntelGenx will oversee the production of those products.

Sales, Marketing and Distribution

The Company currently has no sales or distribution capabilities and limited marketing capabilities. In order to commercialize its products, the Company must develop sales, marketing and distribution capabilities or make arrangements with other parties to perform these services for us. The Company’s intention is to out-license its products once Phase 2 testing has been completed. It is anticipated the licensee will have the capability to market, sell and distribute the Company’s products.

Intellectual Property

We believe we are developing a valuable portfolio of intellectual property rights to protect the technologies, inventions and improvements that we believe are significant to our business, which includes patent applications in the United States, Europe and Canada.

Our success in the specialty pharmaceutical industry depends in substantial part on effective management of both intellectual property assets and infringement risks. In particular, we must be able to protect our own intellectual property as well as minimize the risk that any of our products infringes on the intellectual property rights of others.

We enter into agreements with all our employees involved in research and development, under which all intellectual property during their employment belongs to us, and they waive all relevant rights or claims to such intellectual property. All our employees involved in research and development are also bound by a confidentiality obligation, and have agreed to disclose and assign to us all inventions conceived by them during their term of employment. Despite measures we take to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or our proprietary technology or to obtain and use information that we regard as proprietary. If we fail to protect our intellectual property rights, it could harm our business and competitive position. For more information, see “Risk Factors” in this Form 20-F.

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The Company has filed the below patent:

Patent Cooperation Treaty Patent Application No. PCT/CA2008/001880

Filed 23 October 2008

COMPOSITIONS AND METHODS FOR TREATING FIBROPROLIFERATIVE DISORDERS

The patent is filed under the Patent Cooperation Treaty in Canada, the United States and Europe.

Specialized Skills and Knowledge

All aspects of the Company’s business require specialized skills and knowledge. Such skills and knowledge include pre-clinical research, clinical drug development, regulatory, intellectual property management, business development, licensing, legal, corporate finance and accounting. Below is a list of the Company’s consultants and advisors.

Dr. Lola Maksumova MD, PhD - Consultant, Former VP of Drug Development Dr. Maksumova joined the Company in June 2007 as Vice President of Drug Development and held that position until November 2008. She rejoined the Company as a part time consultant in January 2009. Dr. Maksumova brings many years of bio-medical research experience, an understanding of disease processes in the areas of inflammation and Fibrosis, and expertise in cell signaling of immune disorders. Prior to her current position, Dr. Maksumova worked as Senior Scientist with Chemokine Therapeutics. Dr. Maksumova is a co-inventor of PTL-202 and PTL-303. Dr. Maksumova earned her medical degree from Tashkent Medical School and PhD in Medical Biochemistry from Hamamatsu University School of Medicine, Japan. Her professional training includes post-doctoral fellowships at Virginia Mason Research center in Seattle (2001) and with the Faculty of Medicine at University of British Columbia (2002-2006). Dr. Maksumova is compensated on an hourly basis for the time she spends consulting for the Issuer.

Scientific Advisory Board (“SAB”)

The members of the Company’s strategic advisory board, none of whom are officers or employees, provide advice, assistance and consultation in the fields of drug development, clinical trials and Fibrosis. The SAB consists of clinical advisors considered to be known opinion leaders in their respective fields, and they offer the Company advice and feedback regarding the following:

• the Company’s drug development programs;

• the opportunities provided by unmet needs and market opportunities; and

• the existence of new products and technologies among other things.

The following is a brief biography of each of the Company’s Pulmonary Fibrosis and Bronchiolitis Obliterans clinical advisors, which includes a description of each individual’s credentials and recent professional experience.

Daryl Knight, Ph.D. Dr. Darryl Knight is a professor at University of Newcastle, Australia. Dr. Knight obtained his PhD at the University of Western Australia in 1993 and did post-doctoral training at the University of British Columbia. From 1997 to 2001 he was a Senior Research Officer in the Asthma & Allergy Research Institute of the University of Western Australia and was Head of the Experimental Biology division of the Institute from 2002 to 2004. He was also an Adjunct Senior Lecturer in the Department of Medicine at the University of Western Australia. Dr. Daryl Knight was the Canada Research Chair in Airway Disease and Associate Director of the James Hogg iCAPTURE Centre for Cardiovascular and Pulmonary Research. He was a tenured Professor of Pharmacology and Therapeutics at the University of British Columbia, Vancouver. Dr Knight sits on the Respiratory Science Grant Review panel at the CIHR, the Basic Science Review Panel of the Canadian Lung Association and is on the editorial board of 5 Respiratory Journals.

Ganesh Raghu MD, FCCP, FACP Dr. Ganesh Raghu MD, FCCP, FACP is a specialist in Idiopathic Pulmonary Fibrosis (IPF). He is a professor of Pulmonary Medicine at the University Of Washington Medical Centre and a Director of the Lung transplant program there. He has conducted several clinical trials for the treatment of IPF with antifibrotic drugs. His current research interests include quality of life measures in IPF and lung transplantation, as well as the treatment of rejection and infection in lung transplants. Dr. Raghu received his M.D. in 1973 from Mysore Medical College, University of Mysore, Mysore, India. He Interned at University Hospitals, University of Mysore in 1974 and was a resident in General Medicine and Chest Medicine, Hartlepool General Hospital and Postgraduate Medical Center (University of Newcastle Upon Tyne), Hartlepool, England in 1977. In 1980 he conducted his residency in Internal Medicine at State University of New York in Buffalo. He was the Chief Medical Resident at the State University of New York, Buffalo from 1980 to 1981. Dr. Raghu moved to Seattle in 1983 to complete fellowships in Pulmonary and Critical Care Medicine as well as Lung Cell Biology at the University of Washington.

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Dr. Andreas Zuckermann, MD Dr. Zuckermann’s specialties include heart and lung transplantation. He is a Staff Surgeon in the Department of Cardiothoracic Surgery at University of Vienna in Austria and Co-Director of the Cardiac Transplantation Program there. He is also a Director the International Society for Heart and Lung Transplantation. He has been involved in over 170 thoracic transplantations and has conducted clinical research in post-transplant patients. His current interests are focused on heart lung transplantation and beating heart transplants. Dr. Zuckermann received his MD from Vienna Medical School, University of Vienna in 1991. From 1991 – 1993 he was the transplant coordinator in the Department of Cardiothoracic Surgery at the University of Vienna. From 1993 to 2000 prior to his appointment as a Staff Surgeon he trained in Cardio-thoracic surgery at St. Polten Hospital in Vienna where he assisted in over 30 lung transplants.

James R. Seibold, MD, FACP, FACR Dr. Seibold is the past Director of the Scleroderma Program University of Michigan. He had been on the faculty of UMDNJ from 1980-2004 where he had served as Chief of the Division of Rheumatology, Director of the Clinical Research Center and as the W.H. Conzen Chair of Clinical Pharmacology. Author of more than 300 scientific publications, his medical practice specializes in Scleroderma, Raynaud’s phenomenon and interventional research in the rheumatologic diseases. He has received multiple awards from arthritis and Scleroderma patient organizations. Dr. Seibold is currently the President of the Scleroderma Clinical Trials Consortium.

Competitive Conditions

Current Therapies for Idiopathic Pulmonary Fibrosis

In North America the current therapy for Idiopathic Pulmonary Fibrosis is based on the premise that recruitment and activation of inflammatory cells leads to the progressive development of IPF. However, massive doses of immunosuppressive agents meant to decrease the number or activity of inflammatory cells do not alter the development of IPF. Instead, patients develop serious side effects leading to a shortened lifespan. Since the current therapy is not successful, there is an urgent need to develop alternative potent, non-toxic, long lasting therapy for these unmet medical needs. PTL-202 works by inhibiting messenger molecules that are active in the development of IPF, specifically TNF-alpha.

Until recently treatment for IPF in North America consists of using immunosuppressants and anti-oxidants. In an attempt to minimize side effects many patients are prescribed drugs to prevent GI side effects, osteoporosis and infection. A clinical study during 2012 concluded that this treatment using immunosuppressants was actually harmful to IPF patients. Supplemental oxygen is prescribed to patients who are unable to maintain a satisfactory amount of oxygen in the blood. This treatment remains unsatisfactory as the median survival is 2 – 4 years once diagnosis is made and the 5 year survival rate ranges from 20% – 40% (Olson AL, Swigris JJ, Lezotte DC, Norris JM, Wilson CG, Brown KK. “Mortality from pulmonary fibrosis increased in the United States from 1992 to 2003”. Am J Respir Crit Care Med. 2007;176(3):277-284).

InterMune Inc.’s (“InterMune”) Pirfenidone represents the most advanced therapy being developed to treat IPF. Pirfenidone is a synthetic small molecule that is orally available for the prevention of fibrotic lesions in general. Pirfenidone has gastrointestinal side effects and will darken the skin and cover from the sun is required with its use. In contrast to PTL-202, Pirfenidone works by reducing the activity of an enzyme.

Both InterMune and Shinogi & Co., Ltd. (“Shinogi”) have conducted Phase 3 trials of Pirfenidone to treat IPF. InterMune has recently received approval to market Pirfenidone for IPF in the European Union and Canada, Shinogi recently received approval to market Pirfenidone for IPF in Japan. Pirfenidone is currently undergoing clinical trials for uterine fibrosis (PhII), scleroderma (PhII), proliferative vitreoretinopathy (PhII), multiple sclerosis (PhII), liver fibrosis (PhII), wound healing (PhI), and benign prostatic hyperplasia (PhI). Pirfenidone is not approved for use in either the United States. There are no therapies for IPF approved in the United States.

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Current Therapies for Scleroderma

Treatment of Scleroderma is directed toward the individual feature(s) affecting different areas of the body:

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Aggressive treatment of elevations in blood pressure have been extremely important in preventing kidney failure;

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Blood-pressure medications, such as captopril, are frequently used; and

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Serious inflammation of the lungs (alveolitis) can require immune suppression with cyclophosphamide (Cytoxan) along with prednisone.

Additionally, medications are used to suppress the overly active immune system that seems to be spontaneously causing the disease in organs affected. Medications used for this purpose include penicillamine, azathioprine, and methotrexate. The optimal treatment of Scleroderma lung disease is an area of active research. Stem-cell transplantation is being explored as a possible option. There are no effective treatments for lung fibrosis associated with Scleroderma.

No medication has been found to be universally effective for all patients with scleroderma. In an individual patient, the illness may be mild and not require treatments. In some, the disease is ravaging and relentless. Lung fibrosis in Scleroderma may be fatal. PTL-202’s main focus in Scleroderma is treating patients with lung fibrosis.

Current Therapies for Post Lung Transplant Bronchiolitis Obliterans

The current therapy for Post Lung Transplant Bronchiolitis Obliterans (“PLT-BO”) is based on the same premise as in IPF, recruitment and activation of inflammatory cells leads to the development and progression of PLT-BO. However, massive doses of immunosuppressive agents meant to decrease the number or activity of inflammatory cells do not alter the course of IPF or PLT-BO. Instead, patients develop serious side effects leading to a shortened lifespan. There are no FDA-approved treatments for IPF. Despite these advances, optimal therapy for IPF remains elusive and has yet to be identified (http://www.ipfsummit.org/pdf/Needs-Assessment.pdf)

Competing IPF Drugs Currently Under Development

ACTIVE PHASE III CLINICAL TRIALS

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BIBF 1120 - Manufactured by Boehringer Ingelheim: A Phase III, double-blind trial in patients with PF to investigate the effect of Oral BIBF 1120, 150 mg Twice Daily, on Annual Forced Vital Capacity Decline. A primary outcome measure will be the annual rate of decline in in FVC over 32 weeks;

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Cyclosporine Inhalation Solution (CIS) - Manufactured by APT Pharmaceuticals - (For lung transplant recipients only): A Phase III multi-center, randomized, controlled study to demonstrate the efficacy and safety of cyclosporine inhalation solution (CIS) in Improving Bronchiolitis Obliterans Syndrome-Free Survival Following Lung Transplantation. The study seeks to demonstrate the efficacy and safety of CIS in improving survival, and preventing BOS when given prophylactically to lung transplant recipients in addition to their standard immunosuppressive regimen. The study is no longer recruiting patients;

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Pirfenidone - Manufactured by InterMune: A Phase III, double-blind, placebo-controlled trial to evaluate the treatment effect of pirfenidone on change in a lung function measure (percent predicted forced vital capacity, or %FVC) and to evaluate the safety of treatment with pirfenidone compared with placebo; and

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Thalomid (Thalidomide) - Manufactured by Celgene: A Phase III, double-blind, placebo-controlled safety and efficacy study investigating the Treatment of Chronic Cough in Idiopathic Pulmonary Fibrosis with Thalidomide. Please visit www.clinicaltrials.gov and search "IPF" for a complete description of this trial, including inclusion/exclusion criteria. The study is sponsored by Johns Hopkins Medical Center (Baltimore, MD).

ACTIVE PHASE II CLINICAL TRIALS

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CNTO 888 (Manufactured by Centocor, Inc.): A Phase 2, Multicenter, Multinational, Randomized, Double-Blind, Placebo-Controlled, Parallel-Group, Dose-Ranging Study Evaluating the Efficacy and Safety of CNTO 888 Administered Intravenously. The primary objective is to determine the efficacy (as measured by pulmonary function) and safety of CNTO 888 in patients with IPF. The secondary outcome measures are to assess the effect of CNTO 888 on measures of disease progression, patient reported outcomes, functional capacity and health-related quality of life, and to assess the pharmacokinetics and pharmacodynamics of CNTO 888 in IPF. The study began recruiting patients in October, 2008, with a goal of recruiting 120 patients. Patients will be in the study for about 74 weeks;

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FG-3019 (Manufactured by FibroGen, Inc.): A Phase II study of FG-3019 (therapeutic antibody against connective tissue growth factor) for patients with IPF. The study is a Phase 2a, Open-Label, Single Arm Study to Evaluate the Safety, Tolerability, and Efficacy of FG-3019 in Subjects With Idiopathic Pulmonary Fibrosis;

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Interferon alpha (Amarillo Biosciences): A Phase II, randomized, double-blind, placebo-controlled trial to determine whether interferon-alpha, delivered in low doses via orally dissolving lozenges given 3 times per day for 4 weeks, can reduce the frequency and severity of chronic cough in patients with COPD or IPF. Cough frequency will be assessed via 24-hour digital audio recordings made prior to entry, and at weeks 2 and 4 of treatment. Patients will also complete questionnaires regarding cough frequency, duration and intensity, QOL, dyspnea, and antitussive medication usage weekly during treatment. The study is seeking 80 patients however it is only recruiting patients at Texas Tech University (Lubbock, TX). THIS IS TEMPORARILY ON HOLD; and

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STX-100 (Stromedix, Inc.): STX-100 is a monoclonal antibody being developed for the treatment of idiopathic pulmonary fibrosis (IPF). This multi-center, randomized, double-blind, placebo-controlled study will evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of STX-100 in patients with IPF. The study began recruitment in Q4 11 and will enroll patients at sites across the United States.

ACTIVE PHASE I CLINICAL TRIALS

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GS 6624 (formerly AB0024) - Developed by Gilead Sciences, Inc. Phase 1 drug candidate (humanized monoclonal antibody targeting the human LOXL2 protein) for patients with IPF. An ongoing Phase 1 study is designed to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of GS 6624 in adult patients with IPF;

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IW001 - Manufactured by Immuneworks. A Phase I study of the safety and tolerability of 3 doses of IW001 per day in patients with IPF over a 24 week treatment period. To explore the biologic effects of IW001 on T-cell and B-cell reactivity. This study will also explore relationships between Collagen V reactivity and clinical measures of lung function in patients with IPF. This study is now recruiting; and

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PRM-151 - Manufactured by Promedior, Inc. A Phase 1b study of the safety, tolerability, pharmacokinetics, and pharmacodynamics of IV PRM-151 in patients with idiopathic pulmonary fibrosis has initiated in the US and the Netherlands. This study is now recruiting patients. PRM-151 is being developed for potential therapeutic uses to prevent, treat, and reduce fibrosis in a number of disease settings.

Economic Dependence

The Company’s business is substantially dependent on its own patent applications to use intellectual property protected by patent, trade secret and know-how owned by the Company. It is not expected that the Company’s business will be affected in the current financial year by the termination of the Dalhousie license.

The Company’s business is substantially dependent on contracts to purchase the major part of its requirements for research and development services for the development of assays, formulation, pre-clinical research, clinical research and/or raw materials and manufactured product upon which its business depends. The Company expects that its business will be affected in the current financial year by the negotiation of new contracts and renegotiation or termination of contracts or sub-contracts.

Seasonality

Not Applicable

Insurance

We maintain commercial general liability insurance coverage to cover product liability claims arising from the use of our products. We also maintain liability insurance to cover specific clinical trials risks. Our insurance coverage, however, may not be sufficient to cover any claim for product liability.

We are subject to product liability exposure and have limited insurance coverage. Any product liability claims or potential safety-related regulatory actions could damage our reputation and materially and adversely affect our business, financial condition and results of operations.

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We also provide directors’ and officers’ liability and company reimbursement insurance to cover all of our directors and officers against losses arising from claims we indemnify for. Our current officers and directors insurance coverage expires on July 22, 2013. We plan to renew the insurance upon its expiration.

Facilities

See Item 4D, “Information on the Company — Property, Plant and Equipment.”

Legal Proceedings

We are not currently a party to any material legal proceeding. From time to time, we may bring against others or be subject to various claims and legal actions arising in the ordinary course of business.

Regulation

Government Regulations

The current and future operations and research and development activities of the Company are or will be subject to various laws and regulations in the countries in which the Company conducts or plans to conduct activities, including but not limited to the United States, Canada and the European Union. These laws and regulations govern the research, development, sale and marketing of pharmaceuticals, taxes, labor standards, occupational health and safety, toxic substances, chemical products and materials, waste management and other matters relating to the pharmaceutical industry. Permits, registrations or other authorizations may also be required to maintain operations and to carry out the Company’s future research and development activities, and these permits, registrations or authorizations will be subject to revocation, modification and renewal.

Governmental authorities have the power to enforce compliance with lease conditions, regulatory requirements and the provisions of required permits, registrations or other authorizations, and violators may be subject to civil and criminal penalties including fines, injunctions, or both. The failure to obtain or maintain a required permit may also result in the imposition of civil and criminal penalties, and third parties may have the right to sue to enforce compliance.

The Company expects to be able to comply with all applicable laws and regulations and does not believe that such compliance will have a material adverse effect on its competitive position. The Company has obtained and intends to obtain all permits, licenses and approvals required by all applicable regulatory agencies to maintain current operations and to carry out future research and development activities.

U.S. Pharmaceutical Regulatory Agency

Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture and marketing of pharmaceuticals. All of the Company’s product candidates will require regulatory approval by government agencies prior to commercialization. In particular, product candidates are subject to rigorous pre-clinical testing and clinical trials and other premarketing approval requirements of the FDA and regulatory authorities in other countries. Various federal, state and foreign statutes and regulations govern the manufacturing, safety, labeling, storage, record-keeping and marketing of pharmaceutical products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. When and if regulatory approval is obtained for any of the Company’s product candidates, the approval may be limited in scope, which may significantly limit the indicated uses for which the product candidates may be marketed, promoted and advertised. In addition, approved pharmaceuticals and manufacturers are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on the manufacture, sale or use of approved pharmaceuticals or in their withdrawal from the market.

Pre-clinical Studies

Before testing any compounds with potential therapeutic value in human subjects in the United States, stringent governmental requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Pre-clinical testing results obtained from these studies, including tests in several animal species, are submitted to the FDA as part of an investigational new drug application, or IND, and are reviewed by the FDA prior to the commencement of human clinical trials. These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial trials in human volunteers.

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Clinical Trials

If a company wants to conduct clinical trials in the United States to test a new drug in humans, an IND must be prepared and submitted to the FDA. The IND becomes effective if not rejected or put on clinical hold by the FDA within 30 days of filing the application. The IND process can result in substantial delay and expense.

Clinical Trial Phases

Clinical trials typically are conducted in three sequential phases, Phases 1, 2 and 3, with Phase 4 trials potentially conducted after marketing approval. These phases may be compressed, may overlap or may be omitted in some circumstances.

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Phase 1 clinical trials: After an IND becomes effective, Phase 1 human clinical trials can begin. These trials evaluate a drug’s safety profile and the range of safe dosages that can be administered to healthy volunteers or patients, including the maximum tolerated dose that can be given to a trial subject. Phase 1 trials also determine how a drug is absorbed, distributed, metabolized and excreted by the body, and duration of its action.

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Phase 2 clinical trials: Phase 2 clinical trials are generally designed to establish the optimal dose, to evaluate the potential effectiveness of the drug in patients who have the target disease or condition and to further ascertain the safety of the drug at the dosage given in a larger patient population.

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Phase 3 clinical trials: In Phase 3 clinical trials, the drug is usually tested in a controlled, randomized trial comparing the investigational new drug to a control (which may be an approved form of therapy) in an expanded and well-defined patient population and at multiple clinical sites. The goal of these trials is to obtain definitive statistical evidence of safety and effectiveness of the investigational new drug regime as compared to control in defined patient populations with a given disease and stage of illness.

New Drug Application

After completion of clinical trials, if there is substantial evidence that the drug is both safe and effective, a New Drug Application, is prepared and submitted for the FDA to review. The New Drug Application must contain all of the essential information on the drug gathered to that date, including data from pre-clinical studies and clinical trials, and the content and format of a New Drug Application must conform with all FDA regulations and guidelines. Accordingly, the preparation and submission of a New Drug Application is an expensive and major undertaking for a company.

The FDA reviews all New Drug Applications submitted before it accepts them for filing and may request additional information from the sponsor rather than accepting a New Drug Application for filing. In such an event, the New Drug Application must be submitted with the additional information and, again, is subject to review before filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the New Drug Application. By law, the FDA has 180 days in which to review the New Drug Application and respond to the applicant. The review process is often significantly extended by the FDA through requests for additional information and clarification. The FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved and the scope of any approval. The FDA is not bound by the recommendation, but gives great weight to it. If the FDA evaluations of both the New Drug Application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be satisfied in order to secure final approval. If the FDA’s evaluation of the New Drug Application submission or manufacturing facility is not favorable, the FDA may refuse to approve the New Drug Application or issue a not approvable letter.

Fast Track Designation and Priority Review

The FDA’s fast track program is intended to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for their condition. Under the fast track program, the sponsor of a new drug may request the FDA to designate the drug for a specific indication as a fast track product

at any time during the clinical development process.

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In some cases, the FDA may designate a product for priority review. A product is eligible for priority review, or review within a targeted six-month time frame from the time a New Drug Application is accepted for filing, if the product provides a significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. The Company regularly assesses its products for fast track potential but cannot guarantee any of its products will receive a priority review designation, or if a priority designation is received, that review or approval will be faster than conventional FDA procedures.

Orphan Drug Designation

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, such as IPF. If the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for up to seven years after receiving FDA approval.

When appropriate, the Company will seek orphan status for certain indications that may be treated with its products.

Other Regulatory Requirements

Any products manufactured or distributed under FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with current good manufacturing practices and regulations which impose procedural and documentation requirements upon drug developers and each third party manufacturer they utilize.

The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers from communicating on the subject of off-label use.

European Union

Clinical Trials

In common with the United States, the various phases of pre-clinical and clinical research in the European Union are subject to significant regulatory controls. The regulatory controls on clinical research in the European Union are now largely harmonized following the implementation of the Clinical Trials Directive 2001/20/EC, or CTD. Compliance with the national implementations of the CTD has been mandatory from May 1, 2004. However, variations in the member state review agencies continue to exist, particularly in the small number of member states that have yet to implement the CTD fully.

All member states currently require regulatory and independent ethics committee approval of interventional clinical trials. European regulators and ethics committees also require the submission of adverse event reports during a study and a copy of the final study report.

Marketing Authorization

In the European Union, approval of new medicinal products can be obtained through the mutual recognition procedure or the centralized procedure. The mutual recognition procedure entails initial assessment by the national authorities of a single member state and subsequent review by national authorities in other member states based on the initial assessment. The centralized procedure entails submission of a single Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMEA”) leading to an approval that is valid in all European Union member states. EMEA approval is required for certain medicinal products, such as biotechnology products and certain new chemical entities, and optional, or available at the EMEA’s discretion for other new chemical entities or innovative medicinal products with novel characteristics.

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Under the centralized procedure, an MAA is submitted to the EMEA. Two European Union member states are appointed to conduct an initial evaluation of each MAA. These countries each prepare an assessment report, which are then used as the basis of a scientific opinion of the Committee for Medicinal Products for Human Use (“CHMP”). If this opinion is favorable, it is sent to the European Commission which drafts a decision. After consulting with the member states, the European Commission adopts a decision and grants a marketing authorization, which is valid throughout the European Union and confers the same rights and obligations in each of the member states as a marketing authorization granted by that member state.

The European Union expanded its membership by ten in May 2004. Two more countries joined on January 1, 2007. Several other European countries outside of the European Union, particularly those intending to accede to the European Union, accept European Union review and approval as a basis for their own national approval.

Advertising

In the European Union, the promotion of prescription medicines is subject to intense regulation and control, including a prohibition on direct-to-consumer advertising. Some jurisdictions require that all promotional materials for prescription medicines be subjected to either prior internal or regulatory review and approval.

Data Exclusivity

For applications filed after October 30, 2005, European Union regulators offer eight years data exclusivity during which generic drug manufacturers cannot file abridged applications. This is followed by two years market exclusivity during which generic applications may be reviewed and approved but during which generic drug manufacturers cannot launch products.

Other Regulatory Requirements

If a marketing authorization is granted for the Company’s products in the European Union, the holder of the marketing authorization will be subject to ongoing regulatory obligations. A holder of a marketing authorization for the Company’s products is legally obliged to fulfill a number of obligations by virtue of its status as a Marketing Authorization Holder. While the associated legal responsibility and liability cannot be delegated, the Marketing Authorization Holder can delegate the performance of related tasks to third parties, provided that this delegation is appropriately documented. A Marketing Authorization Holder can therefore either ensure that it has adequate resources, policies and procedures to fulfill its responsibilities, or can delegate the performance of some or all of its obligations to others, such as distributors or marketing partners.

The obligations of a Marketing Authorization Holder include:

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Manufacturing and Batch Release: Marketing Authorization Holders should guarantee that all manufacturing operations comply with relevant laws and regulations, applicable good manufacturing practices, with the product specifications and manufacturing conditions set out in the marketing authorization and that each batch of product is subject to appropriate release formalities;

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Pharmaco-vigilance: Marketing Authorization Holders are obliged to monitor the safety of products post-approval and to submit to the regulators safety reports on an expedited and periodic basis. There is an obligation to notify regulators of any other information that may affect the risk benefit ratio for the product;

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Advertising and Promotion: Marketing Authorization Holders remain responsible for all advertising and promotion of its products in the relevant jurisdiction, including promotional activities by other companies or individuals on their behalf. Some jurisdictions require that a Marketing Authorization Holder subject all promotional materials to either internal or prior regulatory review and approval;

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Medical Affairs/Scientific Service: Marketing Authorization Holders are required to have a function responsible for disseminating scientific and medical information on its medicinal products, predominantly to healthcare professionals, but also to regulators and patients;

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Legal Representation and Distributor Issues: Marketing Authorization Holders are responsible for regulatory actions or inactions of their distributors and agents, including the failure of distributors to provide a Marketing Authorization Holder with safety data within a timeframe that allows the Marketing Authorization Holder to fulfill its reporting obligations; and

•

Preparation, Filing and Maintenance of the Application and Subsequent Marketing Authorization: Marketing Authorization Holders have general obligations to maintain appropriate records, to comply with the marketing authorization’s terms and conditions, to submit renewal applications and to pay all appropriate fees to the authorities. There are also general reporting obligations, such as an obligation to inform regulators of any information that may lead to the modification of the marketing authorization dossier or product labeling, and of any action to suspend, revoke or withdraw an approval or to prohibit or suspend the marketing of a product.

The Company may hold marketing authorizations for products in its own name, or appoint an affiliate or a collaboration partner to hold the marketing authorization on its behalf. Any failure by a Marketing Authorization Holder to comply with these obligations may result in regulatory action against the Marketing Authorization Holder and its approvals and ultimately threaten our ability to commercialize our products.

Canada

In Canada, applications for a marketing authorization, known as a notice of compliance, are submitted to the Health Canada Therapeutic Products Directorate, which is the federal regulatory body that oversees the approval of pharmaceutical products for human use. Under the Food and Drugs Act (Canada) and the regulations there under, a manufacturer must present substantive scientific evidence of a product’s safety, efficacy and quality. At present, Health Canada targets 355 days for application review and approvals. Once the application is approved and the applicant receives a notice of compliance, the applicant has the right to sell the product in Canada.

In addition to regulations in the United States, Europe and Canada, the Company is subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future product candidates in other jurisdictions.

Approvals Outside of the United States, Canada and the European Union

The Company and its products will also be subject to a wide variety of foreign regulations governing development, manufacture and marketing. Whether or not FDA approval or European marketing authorization has been obtained, approval of a product by the comparable regulatory authorities of other foreign countries must still be obtained prior to manufacturing or marketing the product in those countries. The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval or a European marketing authorization. The Company cannot assure investors that clinical trials conducted in one country will be accepted by other countries or that approval in one country will result in approval in any other country.

C. Organizational structure

Not Applicable.

D. Property, plant and equipment.

As we operate as a virtual company and we have no products approved for marketing, and no research and development facilities or manufacturing plant, we therefore have no PP&E relating to manufacturing equipment at this time. However, we do have minimal amounts of lab equipment, computer equipment, furniture and fixtures and leasehold improvements relating to our head office. See the financial statements for the fiscal year ended December 31, 2012 included in this Form 20-F. Our head office is located at 1500 – 409 Granville St. in Vancouver BC, Canada.

Item 5. Operating and Financial Review and Prospects

A. Operating Results

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our financial statements for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010, and the quarter ended March 31, 2013, together with the notes thereto. The Company’s financial statements for the years ended December 31, 2012, December 31, 2011 and the opening statement of financial position as at January 1, 2011, as well as the financial statements for the quarter ended March 31, 2013, have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion contains forward-looking statements that involve certain risks and uncertainties. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. See Item 3.D, “Key Information — Risk Factors”.

The Company’s net loss for the year ended December 31, 2012, totaled $605,468 or $0.03 per share (FYE 2011 – $463,768 or $0.03 per share, FYE 2010 - $318,100 or $0.02 per share). The main contributor to this increased loss in 2012 is the increase in research and development, advertising and promotion and investor relations as well as the incurrence of a loss on the derivative liability.

The net loss and comprehensive loss from operations of $174,535 for the three months ended March 31, 2013 increased when compared to the loss and comprehensive loss from operations of $147,137 for the three months ended March 31, 2012. The increased loss is largely due to an increase in advertising and promotion, investor relations and professional fees in the three month period ended March 31, 2013 as compared to the three month period ended March 31, 2012. These increased expenses were offset by a decrease in interest expense of $78,400 in the three months ended March 31, 2013.

The net loss and comprehensive loss from operations of $147,137 for the three months ended March 31, 2012 increased when compared to the loss and comprehensive loss from operations of $83,845 for the three months ended March 31, 2011. The increased loss is largely due to an increase in interest expense of $63,549 in the three month period ended March 31, 2012 as compared to the three month period ended March 31, 2011.

Revenues

The Company has not generated any revenue from the sale of drug therapies. The Company has not recognized any revenue since inception through March 31, 2013. The Company does not expect to receive any revenues until after the completion of the Phase 2 trial of PTL-202. The Company expects to complete this trial by the end of 2015.

As the focus of management during the first three months of 2013 was on preparing for further clinical trials of PTL-202, no revenues were realized.

The Company’s revenues will be earned through upfront payments from licenses, milestone payments included in-licenses and royalty income from licenses. The Company’s revenues will depend on out licensing the Company’s drug candidates to suitable development and commercialization partners and its partners’ abilities to successfully complete clinical trials and commercialize the Company’s drug candidates worldwide.

General and Administrative Expenses

General and administrative costs consist primarily of personnel related costs, non-intellectual property related legal costs, accounting costs and other professional and administrative costs associated with general corporate activities.

During the three months ended March 31, 2013, the total general and administrative costs were $112,175 as compared to the six months ended March 31, 2012 during which period the total general and administrative costs were $68,737. The increased loss is largely due to an increase in advertising and promotion of $19,158, investor relations of $17,750 and professional fees of $6,903 in the three month period ended March 31, 2013 as compared to the three month period ended March 31, 2012.

Item 5. Operating and Financial Review and Prospects - continued

During the three months ended March 31, 2012, the total general and administrative costs were $68,737 as compared to the six months ended March 31, 2011 during which period the total general and administrative costs were $68,994.

From 2013 and beyond, as PTL-202 begins clinical development and as operations are developed to move PTL-202 and other drug candidates through the clinical trial process, general and administrative expenses will increase. Increases in personnel costs, professional fees and contract services will make up a significant portion of these planned expenditures.

Intellectual Property and Intangible Assets

All license and option fees paid to licensors for intellectual property licenses are accrued to intangible assets on the Company’s financial statements. In addition, any expenses for intellectual property protection including patent lawyers services fees and any filing fees with government agencies or the World Intellectual Property Organization are accrued to intangible assets. This cost will decrease in the twelve months following the date of this prospectus as no new filings are anticipated.

Interest Income

Interest income consists of interest earned on the Company’s cash and cash equivalents. There was interest income in 2012 of $Nil (2011 - $Nil, 2010 – $Nil). The interest income for the quarter ended March 31, 2013 was $Nil.

Profits

At this time, the Company is not anticipating profit from operations. Until such time as the Company is able to realize profits from the out licensing of products under development, the Company will report an annual deficit and will rely on its ability to obtain equity and/or debt financing to fund on-going operations. For information concerning the business of the Company, please see “Item 4. Information on the Company”.

Contributed Surplus, which arises from the recognition of the estimated fair value of stock options and warrants, was $206,212 for fiscal year 2012, compared with $162,052 for fiscal year 2011 and $136,110 for fiscal year 2010.

Contributed Surplus for the quarter ended March 31, 2013 was $208,242, compared with $206,212 for the year ended December 31, 2012. The increase in contributed surplus was due to the issuance of stock options to officers and directors.

As a result of the net and comprehensive loss for the fiscal year 2012 of $605,468 (compared with $463,768 for fiscal year 2011 and $318,100 for fiscal year 2010), the deficit as of December 31, 2012 increased to $2,662,918 from $2,094,115 as of December 31, 2011, for an increase of $568,803. The deficit as of December 31, 2011 increased to $2,094,115 from $1,564,296 as of December 31, 2010, for an increase of $529,819.

The Company’s deficit for the quarter ended March 31, 2013 was $174,535, compared with $147,137 for the quarter ended March 31, 2012. The increased loss is largely due to an increase in advertising and promotion of $19,158, investor relations of $17,750 and professional fees of $6,903 in the three month period ended March 31, 2013 as compared to the three month period ended March 31, 2012.

During the fiscal year 2012, the Company’s net cash provided by financing activities increased to $315,518, compared with $282,578 for fiscal year 2011 and $224,940 for fiscal year 2010.

The Company’s net cash provided by financial activities for the quarter ended March 31, 2013 was $37,422, compared with $34,000 for the quarter ended March 31, 2012.

At present, the Company’s operations do not generate cash inflows and its financial success after 2012 is dependent on management’s ability to continue to obtain sufficient funding to sustain operations through the development stage and successfully bring the Company’s technologies to the point that they may be out licensed so that the Company achieves profitable operations. The research and development process can take many years and is subject to factors that are beyond the Company’s control.

Item 5. Operating and Financial Review and Prospects - continued

In order to finance the Company’s future research and development and to cover administrative and overhead expenses in the coming years the Company may raise money through equity sales. Many factors influence the Company’s ability to raise funds, including the Company’s track record, and the experience and caliber of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of research activities. Management believes it will be able to raise equity capital as required in the long term, but recognizes there will be risks involved that may be beyond their control. Should those risks fully materialize, it may not be able to raise adequate funds to continue its operations.

Comparison of Years Ended December 31, 2012 and 2011

	December 31, 2012 $	December 31, 2011 $	Change $	Change %
Revenue	Nil	Nil	0	N/A
Research and Development *	50,941	Nil	50,941	N/A
Wages and Benefits	169,327	121,297	48,030	40%
Professional Fees	87,465	112,809	(25,344)	(22%)
Advertising and Promotion	43,637	7,795	35,842	460%
Investor Relations	51,950	Nil	51,950	N/A
General and Administrative	37,802	25,114	12,688	51%
Insurance	24,948	14,628	10,320	71%
Rent and Occupancy Cost	17,743	16,273	1,470	9%
Interest Expense (Income)	104,378	122,503	(18,125)	(15%)
Other Expense	17,277	43,349	(26,072)	(60%)
Net and Comprehensive Loss	$605,468	$463,768	$141,700	31%

* The Research and Development expense for 2011 is Nil because all research and development during the year was carried out by our partner on the development of PTL-202, IntelGenx Corp.

Comparison of Quarters Ended March 31, 2013 and 2012

Period ended	Three Months ended March 31, 2012 (1)	Three Months ended March 31, 2012 (1)	Three Months ended March 31, 2011 (1)
Total revenues	$Nil	$Nil	$Nil
Net and Comprehensive loss	($174,535)	($147,137)	($83,845)
Basic loss per share	($0.01)	($0.01)	($0.01)
Diluted loss per share	($0.01)	($0.01)	($0.01)
Weighted average shares	23,526,825	20,966,447	16,306,604

(1)

Financial statements for the period ended March 31, 2013 prepared by management, not audited

Critical Accounting Estimates

The Company’s accounting policies are presented in Note 3 of the December 31, 2012 audited financial statements. The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) requires management to select accounting policies and make estimates. Such estimates may have a significant impact on the financial statements. Actual amounts could differ materially from the estimates used and, accordingly, affect the results of the operations. These include:

•

the assumptions used for the determinations of the timing of future income tax events;

•

the carrying values of property, plant and equipment, intangible assets such as technology licenses and patents, derivative liability, convertible note, and the valuation of stock-based compensation expense.

Item 5. Operating and Financial Review and Prospects - continued

Changes in Accounting Policies including Initial Adoption

The Company has adopted IFRS, as of January 1, 2010, as discussed in Note 2(a) of the December 31, 2012 Financial Statements.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, amounts due to shareholders, shareholder demand loan, the liability portion of the convertible note and the derivative liability. Cash and cash equivalents are classified as financial assets. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from financial instruments. The fair value of cash and cash equivalents and accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity or capacity for prompt liquidation.

Accounts payable and accrued liabilities, amounts due to shareholders, shareholder demand loan, the liability portion of the convertible note and the derivative liability are classified as financial liabilities. Accounts payable and accrued liabilities, shareholder demand loan, balances due to shareholder and the liability portion of the convertible note are recognized initially at fair value, and subsequently stated at amortized cost. The derivative financial liability is initially measured at fair value, with subsequent measurement to fair value at the end of each reporting period.

Foreign exchange risk is the risk arising from changes in foreign currency fluctuations. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency rates. It is the opinion of management that the foreign exchange risk to which the Company is exposed is minimal.

Limitations of Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

B. Liquidity and Capital Resources.

Overview

The Company is a development stage company and therefore has no regular cash inflows. Selected financial data pertaining to liquidity and capital resources for the fiscal years ended December 31, 2012 and December 31, 2011, and the quarters ended March 31, 2013 and March 31, 2012, is presented below.

Item 5. Operating and Financial Review and Prospects - continued

Comparison of Years Ended December 31, 2012 and 2011

Period ended	December 31, 2012 $	December 31, 2011 $	$ Change between two periods	%Change between two periods
Cash and Cash Equivalents	$9,854	$6,094	$3,760	62%
Current Assets	$108,107	$325,189	($217,082)	(67%)
Current Liabilities	$637,523	$182,071	$455,452	250%
Working Capital	($529,416)	$143,118	($672,534)	(470%)
Accumulated Deficit	$2,662,918	$2,094,115	$568,803	27%
Cash used in Operations	$304,983	$284,361	$20,622	7%
Cash flows from Financing Activities	315,518	$282,578	$32,940	12%
Interest Income	$Nil	$Nil	$Nil	0%

As of December 31, 2012, the Company had cash and cash equivalents of $9,854 (compared with $6,094 for fiscal year 2011 and $30,457 for fiscal year 2010) and working capital of ($529,416) (compared with $143,118 for fiscal year 2011 and $144,062 for fiscal year 2010). Working capital is calculated as current assets less current liabilities.

Cash and cash equivalents increased by $3,760 between fiscal year 2012 and fiscal year 2011 due to an increase in financing during the period.

Comparison of Quarters Ended March 31, 2013 and 2012

Period Ended	March 31, 2013	March 31, 2012
Cash and Cash Equivalents	$7,220	$7,221
Current Assets	$64,941	$23,927
Current Liabilities	$671,600	$411,387
Working Capital	($606,659)	($387,460)
Accumulated Deficit	$2,837,453	$2,241,252
Cash used in Operations	$38,026	$32,873
Cash flows from Financing Activities	$37,422	$34,000
Interest Income	$Nil	$30

As of March 31, 2013, the Company had cash and cash equivalents of $7,220 (compared with $7,221 for the period ended March 31, 2012) and a working capital deficiency of $(606,659) (compared with $(387,460) for the period ended March 31, 2012). Working capital is defined as current assets less current liabilities.

The Company’s cash inflows from financing activities comprised proceeds from issue of shares, exercise of warrants, a promissory note and a decrease in a shareholder short term loan during the first three months ended March 31, 2013 totaling $37,422 (compared with $34,000 for the period ended March 31, 2012, and $85,067 for the period ended March 31, 2011).

Cash utilized in operating activities during the three months ended March 31, 2013 was $38,026 (compared with $32,873 for the quarter ended March 31, 2012). This difference was mostly due to an increase in general and administrative expenses, a loss on derivative liability of $18,950 and prepaid expenses of $39,780.

As of March 31, 2013, the Company’s share capital was $2,078,686 comprising 24,386,825 issued and outstanding Common Shares and $Nil issued and outstanding Series II Preferred Shares (compared with $1,775,754 for the quarter ended March 31, 2012, comprising 21,055,823 issued and outstanding Common Shares and Nil issued and outstanding Class B Preferred Series II shares, and Nil Class B Series I preferred shares). The Company’s shares were split at a ratio of 1.5 new shares for every 1 existing share on December 30, 2010.

Contributed Surplus as of March 31, 2013 is $208,242 (compared with $173,616 for the quarter ended March 31, 2012). An increase in contributed surplus is attributable to the issuance of finders’ warrants and stock based compensation.

As a result of the net loss for the period ending March 31, 2013 of $174,534 (compared with $147,137 for the quarter ended March 31, 2012, and $83,845 for the quarter ended March 31, 2011), the deficit as of March 31, 2013 increased to $2,837,453 compared with $2,241,252 as of March 31, 2012.

Item 5. Operating and Financial Review and Prospects - continued

Operating Activities

Cash utilized in operating activities during fiscal year 2012 was $304,983 (compared with $284,361 for fiscal year 2011 and $249,357 for fiscal year 2010). The increase in cash utilized in operations during fiscal year 2012 as compared to fiscal year 2011 was due to an increase in advertising and promotion, research and development and investor relations. This increase was offset by a decrease in expenses for Professional Fees. The increase in cash utilized in operations during fiscal year 2011 as compared to fiscal year 2010 was due to an increase in professional fees related to the company becoming a reporting Company. This increase in the fiscal year 2011 was offset by reductions in wages and benefits, travel, research and development, as well as computer expenses.

Cash utilized in operating activities during the quarter ended March 31, 2013 was $38,026, compared with $32,873 for the quarter ended March 31, 2012.

Investing Activities

Investing activities primarily include additions to fixed assets and intangible assets. Net cash used in investing activities was $6,775, $22,580 and $30,713 in fiscal year ended December 31, 2012, 2011 and 2010, respectively.

In 2012, 2011 and 2010 the investing activities represent mainly investment in patents and the development of intellectual property.

Net cash used in investing activities during the quarter ended March 31, 2013 was $2,030, compared with $Nil for the quarter ended March 31, 2012. The increase was due to the increases in patent expenses.

Financing Activities

The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrants and warrant exercises for cash during fiscal year ended December 31, 2012 totaling $315,518. The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrant exercises, re-pricing of shares for cash and cash subscriptions received under the terms of the irrevocable subscription agreements during fiscal year ended December 31, 2011 totaling $282,578, compared with $224,940 for fiscal year ended December 31, 2010. Cash from financing activities increased by $32,940 between fiscal year 2012 and fiscal year 2011 and increased by $57,638 between fiscal year 2011 and fiscal year 2010.

Cash from financing activities during the quarter ended March 31, 2013 was $37,422, compared with $34,000 for the quarter ended March 31, 2012.The change is due to the issuance of finders warrants related to a financing in the quarter ended March 31, 2013.

As part of the CNSX listing requirements no more than 20% of the issued and outstanding shares of a company listed on the exchange may be “Builders Shares”. Builders Shares include any share issued at a price of less than $0.02 per share. In order to meet this listing requirement, the founders of the Company contributed $Nil in fiscal year 2012 to re-price common shares to $0.02 per share (compared with $41,600 for fiscal year 2011 and $57,000 for fiscal year 2010. The founders originally purchased the shares that were repriced for $0.001 per share. $41,600 for fiscal year ended 2011 is included in the Company’s Financing Activities in its financial statements.

Capital Expenditures

Capital expenditures include $6,200 to acquire laboratory equipment in 2012, $Nil in 2011 and $Nil in 2010.

There were no capital expenditures during the quarters ended March 31, 2013 or 2012.

C. Research and Development

Research and development expense consists primarily of salaries for management of research contracts and research contracts for pre-clinical studies, clinical studies and assay development as well as the development of clinical trial protocols and application to government agencies to conduct clinical trials, including consulting services fees related to regulatory issues and business development expenses related to the identification and evaluation of new drug candidates. Research and development costs are expensed as they are incurred.

Item 5. Operating and Financial Review and Prospects - continued

Comparison of Years Ended December 31, 2012, 2011 and 2010

From inception through to December 31, 2011, the Company incurred total expenses in the development of its intellectual property of $1,836,405, which includes $548,204 of research and development expenses (research and development expenses on the financial statements have been offset by $53,277 in IRAP funding and $187,427 in SR&ED tax credits), $398,431 of professional fees and $889,770 of wages and benefits.

From inception through to December 31, 2012, the Company incurred total expenses in the development of its intellectual property of $1,410,503, which includes $507,264 of research and development expenses (research and development expenses on the financial statements have been offset by $53,277 in IRAP funding and $187,427 in SR&ED tax credits), $226,746 of professional fees and $676,493 of wages and benefits.

		Year ended December 31, 2012			Year ended December 31, 2011		Year ended December 31, 2010
Research and Development Expenses
Personnel, Consulting, and Stock-based Compensation	$	Nil		$	Nil	$	15,461
License Fees and Subcontract research	$	51,790		$	Nil	$	8
Facilities and Operations	$	5,659		$	Nil	$	Nil
Less: Government contributions	$	($6,508	)	$	Nil	$	Nil
Total	$	50,941		$	Nil	$	15,469

The increase in research expense in 2012 is due to the initiation of clinical trials of PTL-202. The fees paid to the contract research operation for the drug/drug interaction trial in India was $47,134. There is no research and development expense for 2011 as all research and development was conducted by IntelGenx Corp. under the agreement the Company has with them.

The decrease in R&D expenses in fiscal year 2011 as compared to fiscal year 2010 is a reflection of the development of the bio-analytical assay for Pentoxifylline and NAC in fiscal year ended December 31, 2010. In fiscal year 2010 the R&D expense for personnel, consulting and stock based compensation was offset by $10,000 that was received from a potential development partner on the signing of a letter of intent for the development of PTL-202.

Comparison of Quarters Ended March 31, 2013 and 2012

		Three Months ended March 31 , 2013		Three Months ended March 31 , 2012		Three Months ended March 31, 2011
Research and Development Expenses	$
Personnel, Consulting, and Stock-based Compensation	$	Nil	$	10,441	$	Nil
License Fees and Subcontract research	$	Nil	$	Nil	$	Nil
	$		$		$
Facilities and Operations	$	Nil	$	Nil	$	Nil
Less: Government contributions	$	Nil	$	6,508	$	Nil
Total	$	Nil	$	3,933	$	Nil

Item 5. Operating and Financial Review and Prospects - continued

The increase in R&D expenses in the first three months ended March 31, 2012 is a reflection of the Company’s contributions to the development and commercialization agreement with IntelGenx. The Company’s R&D efforts in the first three months ended March 31, 2012 were focused on completing of the formulation of PTL-202 under the IntelGenx Development and Commercialization Agreement. Since the signing of the Development and Commercialization Agreement, IntelGenx has been working on the formulation of PTL-202.

For the three months ended March 31, 2013 research and development costs were $Nil, compared with $3,933 for the three months ended March 31, 2012 and $Nil for the three months ended March 31, 2011. The research and development costs for the three months ended March 31, 2012 were composed of $10,441 that was paid to IntelGenx under the development and commercialization agreement. This expense was offset by a $6,508 government grant.

Research and development expenses of approximately $531,000 are required for the pivotal trial scale-up and process development. An additional $250,000 will be required for the pivotal clinical trial of the formulated product. The results of this work may provide the information required for a regulatory submission to move PTL-202 into a phase 2 study. The cost of the regulatory submission is budgeted at $125,000.

Additional financing will be required to complete the development and commercialize PTL-202. There is no assurance that such financing will be available or that the Company will have the capital to complete this proposed development and commercialization.

The Company was able to complete the formulation, drug/drug interaction study of PTL-202, analyzing the blood samples and analyzing the data from the drug/drug interaction trial in 2012 as planned. The Company’s clinical development studies and regulatory considerations relating to PTL-202 are subject to risks and uncertainties that may significantly impact its expense estimates and development schedules, including:

•

the scope, rate of progress and cost of the development of PTL-202;

•

uncertainties as to future results of the pivotal bio equivalency study of PTL-202;

•

the Company’s ability to enroll subjects in clinical trials for current and future studies;

•

the Company’s ability to raise additional capital; and

•

the expense and timing of the receipt of regulatory approvals.

In addition to the formulation and clinical development plans for PTL-202 the Company may begin development of PTL-303 for the treatment of Liver Cirrhosis. The Company will only be able to begin development of PTL-303 if additional funds are available. There is no guarantee that these funds will be available to the Company and, if they are available, they may not be available on acceptable terms. Development of PTL-303 may significantly impact the Company’s expense projections and development timelines.

D. Trend Information

Other than as disclosed elsewhere in this Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2010 to December 31, 2012 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

F. Tabular Disclosure of Contractual Obligations

The Company has no known contractual obligations specified in Item 5.F.1 as of the latest fiscal year end balance sheet date, other than the license agreement with Dalhousie University which was cancelled on January 9, 2013.

Item 6. Directors, Senior Management and Employees

Directors and Senior Management

The following table sets forth certain information relating to our directors and executive officers as of June 14, 2013:

Name and Position	Principal Occupation for Past Five Years	Date of Appointment to Office	Common Shares Held	Percentage of Common Shares Outstanding (2)
Douglas H. Unwin, B.Sc., BA President, CEO, Director	President & CEO of the Company since September 2005	September 12, 2005	4,608,167	17%
Douglas Wallis Director, CA	Partner, Smyth Ratcliffe Chartered Accountants	May 10, 2011	350,510	1.3%
M. Greg Beniston, BA, LLB Chairman	Senior Legal Counsel, CHC Helicopter May 2006 to present, Sole Practitioner , January 2004 to present	Chairman since October 31, 2007; Corporate Secretary: from September 2005 to October 31, 2007	300,000	1.1%
Wendi Rodrigueza, PhD Director	VP Product Development, ProNAi Therapeutics, Inc . September 2006 to present, Director Project Management, Novartis September 2005, to September 2008, Sr.	November 5, 2009	100,000	0.4%
Derick Sinclair, CA CFO and Corporate Secretary	CFO, Cadan Resource Corporation , May 2007 to present, CFO Madeira Minerals Ltd 2009 to present, CFO Viscount Mining Ltd 2010 to present.	Chief Financial Officer since September 1, 2007; Corporate Secretary Since October 31, 2007	235,510	0.9%

The Company’s Audit Committee consists of Doug Unwin, Greg Beniston and Douglas Wallis.

The Company’s Compensation Committee consists of Doug Unwin, Greg Beniston and Douglas Wallis.

The following is a brief description of the background of the key management, directors and the promoters of the Company:

Douglas H. Unwin, B.Sc., MBA President and Chief Executive Officer& Director - Mr. Unwin is the Company’s founder and has served as President and Chief Executive Officer since the Company’s inception in September 2005. Mr. Unwin graduated from the University of British Columbia with a B.Sc. in Biology in 1981. In 1985 he graduated from the University of Saskatchewan with a Master’s in Business Administration. He is a full time employee of the Company and devotes the majority of his working hours to the Company’s business. Mr. Unwin is responsible for the Company’s overall strategic direction and the implementation of that strategy. He is based at the Company’s head office in Vancouver, British Columbia. Mr. Unwin is an experienced executive with 27 years of diverse experience including 22 years as an entrepreneur in life sciences, aquaculture and telecommunications. He has spent his last 12 years focused on life science start-ups, technology commercialization and venture capital financing. Mr. Unwin was an associate with Neuro Discovery Inc. a venture capital company focused on investing in therapies for neurological disorders. During his tenure Mr. Unwin reviewed numerous business plans and assisted in the structuring of investments. Prior to founding the Company, Mr. Unwin was the CEO of Med BioGene Inc. a start-up medical device company.

Derick Sinclair, B.Comm., CA Chief Financial Officer - Mr. Sinclair, is an experienced CFO having worked with US and Canadian public and private companies for over 20 years. He is a contractor and devotes approximately 15% of his time to the Company. His duties with the Company include, bookkeeping, financial management and reporting, assisting the CEO where necessary and liaising between the board and the Company’s auditors. Mr. Sinclair began his accounting career in 1982 as an auditor with KPMG Peat Marwick Thorne. He received his CA designation in 1985 and his Bachelor of Commerce (Honours) University of Windsor in 1982. From 1985 to 2003, Mr. Sinclair was employed by BC Rail and its subsidiaries and their successors. He began at BC Rail as a Manager in General Accounting rising in 1998 to the role of CFO & VP Administration Westel Telecommunications Ltd. Mr. Sinclair currently operates DR Financial Services Limited focused on providing controller services to small and medium size public companies. He is also CFO of Cadan Resources Corporation, Madeir Minerals Ltd, and Viscount Mining Ltd publicly traded exploration companies on the TSX Venture Exchange.

Item 6. Directors, Senior Management and Employees - continued

M. Greg Beniston, BA, LLB Chairman Of the Board & Director - Mr. Beniston, is an experienced counsel with expertise in technology, corporate/commercial, securities, corporate governance and aviation. Mr. Beniston received his BA (Honours) with a major in Commerce from Simon Fraser University in 1979. Greg received his LLB from the University of British Columbia in 1987. Mr. Beniston devotes less than 10% of his time to the affairs of the Company. He was Legal Counsel and Corporate Secretary for Xillix Technologies Corp. (TSX) a cancer imaging company from 1993 until 2000 and was Vice President Legal and Corporate Secretary of MDSI Mobile Data Solutions Inc. (TSX, NASDQ) from 1996 to 2003. Since 2007 Mr. Beniston has been employed by The CHC Helicopter Group Of Companies as Senior Legal Counsel. Mr. Beniston also served as the Company’s Corporate Secretary from inception through October 2007.

Douglas Wallis, CA Director - A Chartered Accountant for over 30 years, Doug Wallis specializes in work with Canadian and US public companies. Doug received his CA after completing a five-year post-secondary education articling program. His work involves everything from assisting in the structure of initial public offerings to comprehensive audit services. Doug's extensive experience in accounting and the rules of professional conduct are also highly valued at Smythe Ratcliffe LLP. As a partner heavily involved in Professional Standards, he brings a commitment to integrity, professionalism and quality that permeates throughout the entire leadership team. Previously, Doug was the Director of Professional Advisory Services, Institute of Chartered Accountants of BC. Mr. Wallis devotes less than 10% of his time to the affairs of the Company. Besides his work at Smythe Ratcliffe, Doug is the Past Chairman of the Board for the Canadian Network for International Surgery (CNIS).

Wendi Rodrigueza, PhD. Director – Dr. Rodrigueza brings over 16 years of drug development experience to the Company’s Board of Directors. Ms. Rodrigueza devotes less than 10% of her time to the affairs of the Company.From 1994 – 1998 she conducted post doctorate fellow studies at Thomas Jefferson University and The Medical College of Pennsylvania. Wendi received her Ph.D. from the University of British Columbia in 1994. From 1998 to 2003, she was employed by Esperion Therapeutics Inc. culminating in the position of Director, Product Development. Dr. Rodrigueza was a co-inventor of the technology Esperion was founded on. Esperion was sold to Pfizer Global Research and Development for $1.3 billion in 2003. She is currently VP of Drug Development for ProNAi Therapeutics and since 2003 has been a consultant to several companies including CuraGen Corporation and Novartis Institute of Biomedical Research.

Other Reporting Company Experience

The following table sets out the directors, officers and promoters of the Company that are, or have been within the last five years, directors, officers or promoters of other companies that are or were reporting companies in any Canadian jurisdiction:

Name of Director, Officer or Promoter	Name of Reporting Company	Exchange	Position	Period
Derick Sinclair, CA	Cadan Resources Corporation	TSX Venture	CFO	May 2007 - Present
Derick Sinclair, CA	Madeira Minerals Ltd.	NEX	CFO	May 2009 - Present

B. Compensation.

Remuneration and Borrowing

The Board of Directors may determine remuneration to be paid to the directors. The Compensation Committee assists the Board of Directors in reviewing and approving the compensation structure for the directors. The Board of Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of the Company or of any third party.

Item 6. Directors, Senior Management and Employees - continued

Compensation of Directors and Executive Officers

In 2012, we paid aggregate cash compensation of approximately $169,327 to our directors and executive officers as a group. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors.

We provide directors and officer’s liability and company reimbursement insurance to cover all of our directors and officers against losses arising from claims we indemnify for. Our current insurance coverage will expire on July 23, 2013. We plan to renew the insurance upon its expiration.

2005 Stock Option Plan

The Stock Option Plan was approved by the Company’s Board of Directors in November 2005. The purpose of the Stock Option Plan is to assist the Company in attracting, retaining and motivating directors, officers, employees and consultants of the Company and of its affiliates and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company through options granted under the 2005 Stock Option Plan to purchase Common Shares. If, as and when the Common Shares of the Company are listed on a stock exchange, the Stock Option Plan will be subject to the review and approval of the stock exchange.

The Stock Option Plan will be administered by the Compensation Committee of the Company, which will have full and final authority with respect to the granting of all options thereafter.

The Common Shares available for issuance under the 2005 plan generally vest over an 18-month period from the date granted. The Options are exercisable for up to 5 years. In December 2007 the directors approved an amendment to the 2005 plan to increase the maximum aggregate number of Common Shares issuable under the 2005 plan to 850,000 Common Shares. In December 2008, the Board of Directors approved an amendment to the 2005 plan to increase the maximum aggregate number of Common Shares issuable under the 2005 plan to 1,250,000 Common Shares. The plan was also amended to increase the maximum exercise period to 7 years. In November 2009, the Board of Directors approved an amendment to the 2005 plan to increase the maximum aggregate number of Common Shares issuable under the 2005 plan to 1,350,000 Common Shares. Due to the stock split of the Company’s equity of 1.5 to 1, the maximum aggregate number of Common Shares issuable under the 2005 plan increased to 1,875,000 Common Shares.

Options may be granted under the 2005 Stock Option Plan as the Compensation Committee may from time to time designate. The exercise prices shall be determined by the Compensation Committee. Options may be exercised up to 90 days following cessation of the optionee’s position with the Company, provided that if the cessation of office, directorship, or technical consulting arrangement was by reason of death, the option may be exercised within a maximum period of one year after such death, subject to the expiry date of such option. Options will expire not later than the date which is seven years from the date of grant. Options granted under the Stock Option Plan are not transferable or assignable other than by will or other testamentary instrument or pursuant to the laws of succession. The Compensation Committee of the Company may, in its absolute discretion, impose such limitations or conditions on the exercise or vesting of any options granted under the Stock Option Plan as it deems appropriate, including limiting the number of Common Shares for which any option may be exercised during any period as may be specified by the Compensation Committee.

2012 Stock Option Plan

The Company’s Board of Directors will adopt a new stock option plan, effective as of the issue of a receipt for the final prospectus, the purpose of which will be to provide incentives to attract, retain and motivate executive officers, directors and employees whose present and future contributions are important to the Company. Subject to regulatory approval, the maximum number of the Company’s Common Shares reserved for issuance pursuant to stock options granted under the stock option plan will, at any time, be 10% of the number of Common Shares then outstanding. The number of the Company’s Common Shares that may be issued to any one person shall not exceed 5% of the Common Shares issued and outstanding on a non-diluted basis. The price at which the Company’s Common Shares may be issued under the stock option plan will be determined from time to time by the Company’s Board of Directors in compliance with the rules and policies of any stock exchange upon which the Company’s Common Shares are listed. The vesting of options granted under the stock option plan will be determined by the Board of Directors at the time of the grant. Options granted under the stock option plan may be exercisable over a maximum period of 5 years. They will generally have a term of 5 years and vest over four years, 25% on each of the first four anniversaries of the date of grant, provided the optionee is in continuous service to the Company. The Board of Directors may amend the terms of the stock option plan from time to time, to the extent permitted by the stock option plan and any rules and policies of any stock exchange on which the Common Shares are listed, or terminate it at any time. If the Company accepts any offer to amalgamate, merge or consolidate with any other company (other than a wholly-owned subsidiary) or if holders of greater than 50% of the Company’s Common Shares accept an offer made to all or substantially all of the holders of the Company’s Common Shares to purchase in excess of 50% of our current issued and outstanding Common Shares, any then-unvested options will automatically vest in full.

Item 6. Directors, Senior Management and Employees - continued

This stock option plan was approved by shareholders on May 14, 2012 at the Company’s Annual General Meeting.

Equity Compensation Plan Information as of December 31, 2012

Plan Category	Column (a) Number of securities to be issued upon exercise of outstanding options	Column (b) Weighted-average exercise price of outstanding options	Column (c) Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	1,675,000	0.17	583,682
Equity compensation plans not approved by security holders	Nil	N/A	Nil
Total	1,675,000	0.17	583,682

Outstanding Options as of June 14, 2013

Holders (current and former positions)	No. of Shares Under Option	Exercise Price	Expiry Date
Directors, who are also officers
Douglas H. Unwin (CEO & President, Director)	375,000 75,000 150,000 100,000	$0.27 $0.10 $0.10 $0.10	March 5, 2015 July 3, 2017 December 21, 2017 April 4, 2018

Directors
M. Greg Beniston (Chairman of the Board)	150,000 75,000 150,000 50,000	$0.27 $0.10 $0.10 $0.10	October 31, 2014 July 3, 2017 December 21, 2017 April 4, 2018

Doug Wallis (Director)	100,000 50,000	$0.10 $0.10	July 3, 2017 April 4, 2018

Wendi Rodrigueza (Director)	150,000 50,000	$0.27 $0.10	November 4, 2014 April 4, 2018

Officers, who are not also directors
Derick Sinclair (CFO)	150,000 100,000	$0.10 $0.10	December 21, 2017 April 4, 2018

Consultants
Monita Farris (Consultant)	25,000	$0.10	July 3, 2017

Darryl Knight (Consultant)	100,000	$0.10	July 3, 2017

James Siebold (Consultant)	100,000	$0.10	July 3, 2017

Lola Maksumova (Consultant, Former VP of Drug Development)	75,000	$0.27	June 1, 2015
Total Options	2,025,000

Item 6. Directors, Senior Management and Employees - continued

Employment Agreements

The Company entered into an employment agreement with Mr. Unwin effective as of January 1, 2010. This is the only employment agreement the Company has entered into. Under the agreement, Mr. Unwin is to receive an annual base salary of $160,000, subject to increases at the discretion of the Company’s Board of Directors. Mr. Unwin is also eligible for a discretionary performance bonus as determined by the Company’s Board of Directors. Under the agreement, other than in the event of a change in control of the Company, Mr. Unwin may terminate his employment at any time by giving three months prior written notice of the effective date of his resignation. If the Company terminates Mr. Unwin’s employment without cause, the Company is obligated to pay to him a lump sum of up to 12 months of his then current base salary plus such other sums owed for arrears of salary, vacation pay and any performance bonus. The Company is also obligated to maintain Mr. Unwin’s benefits during the notice period. If Mr. Unwin obtains a new source of remuneration for personal services, the payment of benefits will cease six months from the date of termination of his employment, excluding the notice period.

As of March 1, 2011 Mr. Unwin voluntarily reduced his annual base salary to $120,000. This reduction will remain in place until January 31, 2013. On June 1, 2011, Mr. Unwin took a further annual base salary reduction to $100,000. As of February 1, 2012, Mr. Unwin’s salary has been returned to $160,000 per year.

As of March 1, 2011 Mr. Sinclair voluntarily reduced his base annual fee to $18,000. This reduction remained in place until January 31, 2013. Mr. Sinclair’s base annual fee was returned to $36,000 as of February 1, 2012.

Change in Control Agreements

As part of his Employment Agreement, the Company entered into a change of control agreement with Mr. Unwin effective as of January 1, 2010. This is the only change of control agreement the Company has entered into. In the event of a potential change in control and until 12 months after a change in control, unless Mr. Unwin terminates his employment with the Company for good reason, Mr. Unwin will continue to diligently carry out his duties and obligations under his employment agreement. If within 12 months following a change of control of the Company, Mr. Unwin terminates his employment for good reason, or the Company terminates his employment other than for cause, the Company is obligated to pay to Mr. Unwin a lump sum equal to 12 months of his then current base salary plus other sums owed for arrears of salary, vacation pay and any performance bonus. In such case, The Company is also obligated to maintain Mr. Unwin’s benefits for the 12-month period and his unvested stock options will immediately vest.

Board Practices

Duties of Directors

Under British Columbia law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interest. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our Board of Directors include, among others:

•

convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

•

issuing authorized but unissued shares and redeem or purchase outstanding shares of our company;

•

declaring dividends and distributions;

•

appointing officers and determining the term of office and compensation of officers;

•

exercising the borrowing powers of our company and mortgaging the property of our company; and

•

approving the transfer of shares of our company, including the registering of such shares in our share register.

Item 6. Directors, Senior Management and Employees - continued

Qualification

There is no shareholding qualification for directors.

Board Committees

Our Board of Directors has established an Audit Committee and a Compensation Committee.

AUDIT COMMITTEE

The Audit Committee has various responsibilities as set forth in Multilateral Instrument 52-110 (“MI 52-110”). The Audit Committee oversees the accounting and financial reporting practices and procedures of the Company and the audits of the Company’s financial statements. The principal responsibilities of the Audit Committee include: (i) overseeing the quality, integrity and appropriateness of the internal controls and accounting procedures of the Company, including reviewing the Company’s procedures for internal control with the Company’s auditors and Chief Financial Officer; (ii) reviewing and assessing the quality and integrity of the Company’s internal and external reporting processes, its annual and quarterly financial statements and related management discussion and analysis, and all other material continuous disclosure documents; (iii) establishing separate reviews with management and external auditors of significant changes in procedures or financial and accounting practices, difficulties encountered during auditing, and significant judgments made in management's preparation of financial statements; (iv) monitoring compliance with legal and regulatory requirements related to financial reporting; (v) reviewing and pre-approving the engagement of the auditor of the Company and independent audit fees; and (vi) assessing the Company’s accounting policies, and considering, approving, and monitoring significant changes in accounting principles and practices recommended by management and the auditor.

Audit Committee Charter

A copy of the Charter of the Audit Committee is attached to this Form 20-F as Exhibit 11.2.

Composition of the Audit Committee

As noted above, the members of the Audit Committee are Douglas Unwin, Greg Beniston and Douglas Wallis, all of whom are considered independent pursuant to NI 52-110, except Mr. Unwin who is also an officer of the Company. All members of the Audit Committee are considered to be financially literate.

A member of the Audit Committee is independent if the member has no direct or indirect material relationship with the Company. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.

A member of the Audit Committee is considered financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company.

Relevant Education and Experience

Please see above for the biographies of Douglas Unwin, Greg Beniston and Douglas Wallis.

Audit Committee Oversight

The Audit Committee has not made any recommendations to the Board to nominate or compensate any external auditor.

Reliance of Certain Exemptions

The Company’s auditors have not provided any material non-audit services.

The Company is relying on the exemptions provided for in Section 6.1 of NI 52-110 in respect of the composition of its Audit Committee and in respect of certain of its reporting obligations under NI 52-110.

Item 6. Directors, Senior Management and Employees - continued

Pre-Approval Policies on Certain Exemptions

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.

Compensation Committee

Our Compensation Committee consists of Mr. Beniston, Mr. Wallis and Mr. Unwin. Mr. Beniston is the chairman of our Compensation Committee. Our Board of Directors has determined that Mr. Wallis and Mr. Beniston are “independent directors” within the meaning of NYSE Manual Section 303A.

Our Compensation Committee is responsible for, among other things:

•

reviewing and approving corporate goals and objectives relevant to the compensation of our co-chief executive officers, evaluating the performance of our co-chief executive officers in light of those goals and objectives, and setting the compensation level of our co-chief executive officers based on this evaluation;

•

reviewing and making recommendations to our Board of Directors regarding our compensation policies and forms of compensation provided to our directors and officers;

•

reviewing and making recommendations to our co-chief executive regarding the compensation level, share-based compensation and bonuses for our officers other than our co-chief executive officers;

•

reviewing and determining cash and share-based compensation for our directors;

•

administering our equity incentive plans in accordance with the terms thereof; and

•

such other matters that are specifically delegated to the Compensation Committee by our Board of Directors from time to time.

Corporate Governance

General

Effective June 30, 2005, NI 58-101 and NP 58-201 were adopted in each of the provinces and territories of Canada. NI 58-101 requires companies to disclose the corporate governance practices that they have adopted. NP 58-201 provides guidance on corporate governance practices.

The Board believes that good corporate governance improves corporate performances and benefits all shareholders. The Canadian Securities Administrators (“CSA”) have adopted NP 58-201, which provides non-prescriptive guidelines on corporate governance practices for reporting companies such as the Company. In addition, the CSA have implemented NI 58-101, which prescribes certain disclosure by the Company of its corporate governance practices. This section sets out the Company’s approach to corporate governance and addresses the Company’s compliance with NI 58-101.

Composition of the Board

The Board of Directors facilitates its exercise of independent supervision over management by ensuring that the Board is composed of a majority of independent directors. Directors are considered to be independent if they have no direct or indirect material relationship with the Company. A “material relationship” is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a director’s independent judgment. The Board has four directors, three of which are considered to be independent. Mr. Beniston, Mr. Wallis, and Ms. Rodrigueza are considered to be independent directors for the purposes of NI 58-101, and Mr. Unwin is not considered to be independent as he is also a senior officer of the Company.

The mandate of the Board is to act in the best interests of the Company and to supervise management. The Board is responsible for approving long-term strategic plans and annual operating budgets recommended by management. Board consideration and approval is also required for material contracts and business transactions, and all debt and equity financing transactions. Any responsibility which is not delegated to management or to the committees of the Board remains with the Board. The Board meets on a regular basis consistent with the state of the Company’s affairs and also from time to time as deemed necessary to enable it to fulfill its responsibilities.

The Chairman of the Board is Mr. Greg Beniston, LLB, who is an independent director.

Directorship

None of the directors of the Company is also a director of other reporting companies (or equivalent) in a Canadian or foreign jurisdiction as of the date of this listing statement.

Item 6. Directors, Senior Management and Employees - continued

Position Descriptions

The Board has not developed written position descriptions for the chair or the chair of any board committees or for the CEO. Given the size of the Company’s infrastructure and the existence of only a small number of officers, the Board does not feel that it is necessary at this time to formalize position descriptions in order to delineate their respective responsibilities.

Meetings of Independent Directors

The Board has appointed two committees, the Audit Committee and the Compensation Committee. The Audit committee is comprised of a majority of independent directors and meets regularly. Additional information concerning the committee is found in ‘ Audit Committee ’ above and in the disclosure below in this ‘ Corporate Governance ’ section.

The Compensation Committee is comprised of two independent directors plus the CEO. This committee meets as required. The members of the Compensation Committee are Mr. Beniston, Mr. Wallis and Mr. Unwin.

Orientation and Continuing Education

When new directors are appointed, they receive orientation, commensurate with their previous experience, on the Company’s technologies, product candidates, business and industry and on the responsibilities of directors. New directors also receive historical public information about the Company and the mandates of the committees of the Board. Board meetings may also include presentations by the Company’s management and employees to give the directors additional insight into the Company’s business. In addition, new directors are encouraged to visit and meet with management on a regular basis and to pursue continuing education opportunities where appropriate.

Ethical Business Conduct

The Board has approved a Code of Business Conduct and Ethics (the “Code”, filed herewith as Exhibit 11.1) to be followed by the Company’s directors, officers, employees and principal consultants and those of its subsidiaries. The Code is also to be followed, where appropriate, by the Company’s agents and representatives, including consultants where specifically required. The purpose of the Code is to, among other things, promote honest and ethical conduct, avoid conflicts of interest, protect confidential or proprietary information and comply with the applicable government laws and securities rules and regulations. In the event that a director, officer or employee departs from the Code, the Company is authorized to file a material change report. The board does not actively monitor compliance with the Code, but requires prompt notification of apparent or actual breaches so that it may investigate and take action. The Code has been circulated to all employees.

When proposed transactions or agreements in which directors or officers may have an interest, material or not, are presented to the Board, such interest is disclosed and the persons who have such an interest are excluded from all discussion on the matter and are not allowed to vote on the proposal.

Nomination of Directors

The Company does not have a formal process or committee for proposing new nominees for election to the Board of Directors. The nominees are generally the result of recruitment efforts by the Board members, including both formal and informal discussions among Board members.

Compensation

The Board has established a Compensation Committee. The Compensation Committee is responsible for reviewing the adequacy and form of compensation paid to the Company’s executives and key employees, and ensuring that such compensation realistically reflects the responsibilities and risks of such positions. In fulfilling its responsibilities, the Board evaluates the performance of the chief executive officer and other senior management in light of corporate goals and objectives, and makes recommendations with respect to compensation levels based on such evaluations.

Item 6. Directors, Senior Management and Employees - continued

Other Board Committees

Other than the Audit Committee and Compensation Committee described in this Form 20-F, the Board has no other committees.

Assessments

The Board regularly assesses its own effectiveness and the effectiveness and contribution of each Board committee member and Director.

Interested Transactions

A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.

D. Employees

As of December 31, 2012 the Company had the following number of employees and contractors:

Location	Full Time Employees	Contractors
Vancouver, British Columbia	1	1

The Company utilizes consultants and contractors to carry on many of its activities and, in particular, to supervise and conduct pre-clinical scientific experiments, assay development and validation. In addition, the Company’s Chief Financial Officer is a contractor not a full time employee. Other functions the Company has decided to outsource include assay development, formulation, clinical trials and manufacturing. It is currently more cost-effective to outsource these functions due to the Company’s sporadic requirements. As the Company expands its activities, it is probable that it will hire additional employees. In addition, contractors and employees may move between locations from time to time as conditions and business opportunities warrant.

E. Share Ownership.

As of June 14, 2013, the Company has 26,586,825 shares of Common stock outstanding.

The following table sets forth, as of June 14, 2013: (a) the names of each beneficial owner of more than five percent (5%) of our Common Stock known to us, the number of shares of Common Stock beneficially owned by each such person, and the percent of our Common Stock so owned before and after the Share Exchange; and (b) the names of each director, executive officer and significant employee, the number of shares our Common Stock beneficially owned, and the percentage of our Common Stock so owned, by each such person, and by all of our directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of our Common Stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of Common Stock, except as otherwise indicated. Individual beneficial ownership also includes shares of Common Stock that a person has the right to acquire within 60 days from June 14, 2013.

Name and Municipality of Residence and Position	Common Shares Held		Percentage of Common Shares Outstanding (2)	Percentage of Votes Held
Douglas H. Unwin North Vancouver, BC President, CEO, Director (1)	4,608,167	(3)(4)	17%	17%
Douglas Wallis Vancouver, BC Director (1)	350,510		1.3%	1.3%
M. Greg Beniston, BA, LLB Vancouver, BC Chairman (1)	300,000		1.1%	1.1%
Wendi Rodrigueza Boston, Mass Director	100,000		0.4%	0.4%
Derick Sinclair, CA North Vancouver, BC CFO and Corp. Secretary	235,510		0.9%	0.9%
Directors and Officers as a Group	5,594,187		21%	21%

Item 6. Directors, Senior Management and Employees - continued

(1)	Members of the Audit and Compensation Committee.

(2)	The calculations are based on 26,586,825 shares of Common Stock issued and outstanding as of June 14, 2013.

(3)	1,155,000 shares of these are held by Donna Armstrong, Mr. Unwin’s spouse.

(4)	1,660,500 shares of these are held by Douglas Cove Capital Corp., a company owned jointly between Douglas H. Unwin and his spouse Donna Armstrong.

Item 7. Major Shareholders and Related Party Transactions

A . Major Shareholders.

Please refer to Item 6.E, “Directors, Senior Management and Employees — Share Ownership”.

B. Related Party Transactions.

Transactions with related parties are in the normal course of operations and are measured at the exchange amount, which is the consideration agreed to by the parties. During the years ended December 31, 2012, December 31, 2011, December 31, 2010, the Company entered into the following transactions with related parties:

During the year ended December 31, 2012, the CEO of the Company exercised 66,666 common share purchase warrants, at $0.15 per share, for 66,666 common shares, for total proceeds of $10,000 (FYE 2011- 7,500, FYE 2010-Nil);

Of the $300,000 in subscription proceeds from the Irrevocable Subscription Agreements received by the Company with an Irrevocable Subscription Agreement dated January 31, 2011, $75,000 was received from directors and officers of the Company, compared with $Nil for fiscal year 2010;

The Company incurred accounting fees for the year ended December 31, 2012, to a company controlled by its CFO, in the amount of $18,000, compared with $21,000 for the fiscal year 2011 and $36,000 for fiscal year 2010;

A listing requirement of the CNSX is that no more than 20% of the outstanding shares may have an issue price of less than $0.02. In order to meet this listing requirement, a former director and the Company’s CEO and a company controlled by the Company’s CEO, during the year ended December 31, 2012, paid $Nil (compared with $41,600 in fiscal year 2011 and $57,000 for fiscal year 2010) to re-price pre-split common shares from $0.001 per share to $0.02 per share;

925,000 options to purchase shares of the Company were granted in the year ended December 31, 2012, compared with Nil in fiscal years of 2011 and 2010;

The Company incurred legal fees from a consultant and director of the Company in the amount of $3,200 for the year ended December 31, 2012, compared with $7,934 for fiscal year 2011 and $5,684 for fiscal year 2010; and

The Company incurred salaries, directors fees and other benefits relating to directors and officers of the company in the amount of $146,723 for the year ended December 31, 2012, compared with $115,433 for fiscal year 2011 and $159,709 for fiscal year 2010.

There are no amounts due to the Company from companies that have directors in common with the Company or have a partner who is a director of the Company.

There were no amounts due to the Company from shareholders in the two most recent fiscal years.

C . Interests of Experts and Counsel.

Not applicable.

Item 8. Financial Information

A . Financial statements and other financial information.

We have appended financial statements filed as part of this Form 20-F. See Item 18, “Financial Statements.”

Item 9. The Offer and Listing

A. Offer and Listing Details

The Company’s shares are listed for trading on the Canadian National Stock Exchange under the symbol of “PT”.

The quarterly high and low sale prices for our ordinary shares for the two most recent full financial years and any subsequent period are:

Quarters Ended	High Sales Price		Low Sales Price
December 31, 2011	$	0.25	$	0.15
March 31, 2012	$	0.20	$	0.10
June 30, 2012	$	0.19	$	0.07
September 30, 2012	$	0.17	$	0.09
December 31, 2012	$	0.17	$	0.03
March 31, 2013	$	0.08	$	0.04

On June 14, 2013, the closing price of our stock was $0.075 per share.

B. Plan of Distribution

Not applicable.

C. Markets

Please see “Offer and Listing Details” above in this Item 9.

D. Selling Shareholders

Not applicable.

E. Dilution

Not Applicable.

F. Expense of the Issue

Not Applicable.

Item 10. Additional Information

A. Share Capital

As of June 14, 2013, the Company has the following shares authorized and issued:

Class of Share	Number of Authorized Shares	Number of Issued Shares
Class A common shares without par value	Unlimited	26,586,825
Class B Series I preferred shares without par value	1,500,000	NIL
Class B Series II preferred shares without par value	1,000,000	NIL

Item 10. Additional Information - continued

Class A Common Shares

The holders of Common Shares are entitled to receive notice of and to attend and vote at all meetings of shareholders of the Issuer and each Common Share shall confer the right to one vote in person or by proxy at all meetings of the shareholders of the Issuer. The holders of the Common Shares, are entitled to receive dividends as and when declared by the directors and, subject to the rights of holders of any shares ranking in priority to or on a parity with the Common Shares, to participate ratably in any distribution of property or assets upon the liquidation, winding-up or other dissolution of the Issuer.

Class B Series I Preferred Shares

Each Series I Class B Preferred Share automatically converted into one (1) Common Share when the Common Shares of the Issuer were listed for trading on the CNSX.

In the event of a change in control of the Issuer involving greater than fifty percent (50%) of the issued and outstanding Common Shares of the Company at a valuation of less than $0.40 per share, or the liquidation, dissolution or wind-up of the Issuer or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the Series I Preferred Shares shall be entitled to receive, in preference and priority to any payment or distribution to the holders of the Common Shares or any other class of shares ranking junior to the Series I Preferred Shares, an amount equal to $0.20 per share, together with all accrued and unpaid dividends thereon. After payment to the holders of the Series I Preferred Shares of the amounts so payable to them, they shall be entitled to share in any further distribution of the property or assets of the Issuer. There are no Series I Preferred shares issued.

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Issuer, the holders of the Series I Preferred Shares shall be entitled to receive any dividends declared and payable by the Issuer on the Series I Preferred Shares. No dividend shall be declared or paid or set apart for the Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart. No dividend has been declared on the Series I Preferred Shares.

Class B Series 2 Preferred Shares

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Series II Preferred Shares shall be entitled to receive any dividends declared and payable by the Issuer on the Series II Preferred Shares. No dividend shall be declared or paid or set apart for the Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares and all Series II Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart. A 12% annual cumulative dividend shall be paid on the Series II Preferred Shares. This dividend shall be paid “in-kind” to the holders in the form of Common Shares of the Issuer converted at the Transaction Price at the time of a Transaction. For greater certainty, any unpaid cumulative dividend(s) due to the holders of Series II Preferred Shares shall be paid to the holders at the time of the Transaction in that number Common Shares equal to the amount of any unpaid cumulative dividend(s) due to the holders divided by the Transaction Price. No fractional shares shall be issued upon the granting of any dividend in-kind of Common Shares. There are no Series 2 Preferred Shares issued.

Each Series II Preferred Share automatically converted upon the listing of the Issuers Common Shares on the CNSX.

Each Series II Preferred Share converted into Common Shares at the Conversion Rate plus one-half (1/2) of a purchase warrant in the capital of the Issuer where one (1) full Series II Purchase Warrant may be exercised at the Transaction Price for a period of two (2) years from its date of issue to purchase one (1) Common Share. No fractional shares shall be issued under any conversion into Common Shares.

Item 10. Additional Information - continued

Stock Options:

As of December 31, 2012 and 2011, the following stock options of the Company were outstanding:

Expiry Date	Exercise Price		2012		2011
January 31, 2012	$	0.27		-		225,000
May 1, 2012	$	0.27		-		150,000
June 1, 2012	$	0.27		-		75,000
October 14, 2012	$	0.20		-		300,000
December 1, 2012	$	0.27		-		150,000
October 31, 2014	$	0.27		150,000		150,000
November 4, 2014	$	0.27		150,000		150,000
March 5, 2015	$	0.27		375,000		375,000
June 1, 2015	$	0.27		75,000		75,000
July 3, 2017	$	0.10		475,000		-
December 21, 2017	$	0.10		450,000		-
Balance on December 31				1,675,000		1,650,000

Warrants

As of June 14, 2013, the following share purchase warrants were issued and outstanding:

Date of Issue	Date of Expiration	Exercise Price		No. of Shares
November 15, 2011	November 15, 2013 (1)	$	0.15		602,223
January 31, 2011	February 1, 2014* (1)	$	0.15		2,473,334
February 28, 2011	February 28, 2014* (1)	$	0.25		60,000
May 16, 2011	May 16, 2014* (1)	$	0.15		600,000
June 20, 2012	June 20, 2014 (2)	$	0.22		56,666
June 20, 2012	June 20, 2014 (3)	$	0.22		732,670
September 21, 2012	September 21, 2014 (2)	$	0.22		741,666
September 21, 2012	September 21, 2014 (2)	$	0.22		5,500
February 12, 2013	February 12, 2015 (2)	$	0.22		900,000
February 12, 2013	February 12, 2015 (2)	$	0.22		100,000
February 12, 2013	September 24, 2014 (2)	$	0.22		200,000
May 1, 2013	May 1, 2015 (2)	$	0.22		1,100,000
May 1, 2013	May 1, 2015 (2)	$	0.22		100,000
Total:					7,672,059

* On January 18, 2013 the warrants with expiration dates of January 31, 2013, February 28, 2013 and May 16, 2013 were all extended by one year to expire on the same days in 2014.

(1)

The content of the warrant is filed herewith as Exhibit 2.2;

(2)

The content of the warrant is filed herewith as Exhibit 2.3; and

(3)

The content of the warrant is filed herewith as Exhibit 2.4.

B. Memorandum and Articles of Association

The Company’s Articles of Incorporation are filed herewith as Exhibit 1.1

C. Material Contracts

Except as otherwise disclosed in this Form 20-F, the Company has no other material contracts. The following are the material contracts of the Company entered into since September 12, 2005 and still in effect:

(a)	Employment Agreement with the CEO, dated January 1, 2010 (filed herewith as Exhibit 4.1);

(b)	Directors and Officers Insurance with an effective date of January 23, 2012;

(c)	Co-development and Licensing Agreement with IntelGenx Corp., dated February 28, 2010 (filed herewith as Exhibit 4.3). This agreement supersedes the Letter of Intent between the parties dated November 23, 2010;

(d)	Letter of Intent with Globe Labs Ltd., dated November 22, 2012; and

(e)	Form 46-201 Escrow Agreement, dated August 30, 2011 (filed herewith as Exhibit 4.2);

Item 10. Additional Information - continued

Escrow Agreements

The Company is classified as an “emerging issuer” under National Policy 46-201. An “emerging issuer” is one that does not meet the “established issuer” criteria based on the Issuer being an “emerging issuer”, the Escrowed Securities (as hereinafter defined) will be subject to a three year escrow.

If the Company achieves “established issuer” status during the term of the 46-201 Escrow Agreement (as hereinafter defined), it will ‘graduate’, resulting in a catch-up release and an accelerated release of any securities remaining in escrow under the 18 month schedule applicable to established issuers as if the Company had originally been classified as an established issuer.

The Principals of the Company and holders of Shares having an issuance price of less than $0.02 per share have entered into an escrow agreement dated August 30, 2011 (the “46-201 Escrow Agreement”) among the Company, the Transfer Agent, the Principals of the Company and holders of shares having an issuance price of less than $0.02 per share (collectively with the Principals, the “Escrow Holders”), as required pursuant to the policies of the CNSX. The Escrow Holders will agree to deposit in escrow their shares (the “Escrowed Securities”) with the Transfer Agent. Under the 46-201 Escrow Agreement, 10% of the Escrowed Securities will be released from escrow on the Listing Date (the “Initial Release”) and an additional 15% will be released on the dates which are 6 months, 12 months, 18 months, 24 months, 30 months and 36 months following the Initial Release.

Pursuant to the terms of the Escrow Agreement, the Escrowed Securities may not be transferred or otherwise dealt with during the term of the 46-201 Escrow Agreement unless the transfers or dealings within escrow are:

(1)	transfers to continuing or, upon their appointment, incoming directors and senior officers of the Company or of a material operating subsidiary, with approval of the Issuer’s Board;

(2)	transfers to an RRSP or similar trustee plan provided that the only beneficiaries are the transferor or the transferor’s spouse, children or parents;

(3)	transfers upon bankruptcy to the trustee in bankruptcy; and

(4)	pledges to a financial institution as collateral for a bona fide loan, provided that upon a realization the securities remain subject to escrow.

Tenders of Escrowed Securities to a take-over bid are permitted provided that, if the tenderer is a Principal of the successor corporation upon completion of the take-over bid, securities received in exchange for tendered Escrow securities are substitute in escrow on the basis of the successor corporation’s escrow classification.

Where the Common Shares of the Issuer which are required to be held in escrow are held by a non-individual (a “holding company”), each holding company pursuant to the 46-201 Escrow Agreement, has agreed, or will agree, not to carry out any transactions during the currency of the 46-201 Escrow Agreement which would result in a change of control of the holding company, without the consent of the Exchange. Any holding company must sign an undertaking to the Exchange that, to the extent reasonably possible, it will not permit or authorize any issuance of securities or transfer of securities could reasonably result in a change of control of the holding company. In addition, the Exchange may require an undertaking from any control person of the holding company not to transfer the shares of that company.

D. Exchange Controls

There are no laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of our shares of common stock.

E. Taxation

Canada

Canadian Federal Income Tax Information for United States Residents

The following is a discussion of material Canadian federal income tax considerations generally applicable to holders of our common shares who, for purposes of the Income Tax Act (Canada) and the regulations thereunder, or the Canadian Tax Act:

Item 10. Additional Information - continued

deal at arm’s length and are not affiliated with us;

hold such shares as capital property;

do not use or hold (and will not use or hold) and are not deemed to use or hold our common shares, in or in the course of carrying on business in Canada;

have not been at any time residents of Canada; and

are, at all relevant times, residents of the United States, or U.S. Residents, under the Canada-United States Income Tax Convention (1980), or the Convention.

TAX MATTERS ARE VERY COMPLICATED AND THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR SITUATION. THE SUMMARY OF MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES.

THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX LAWS OF ANY PROVINCE OR TERRITORY WITHIN CANADA. ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES ARE ENCOURAGED TO CONSULT WITH THEIR OWN TAX ADVISERS ABOUT THE TAX CONSEQUENCES TO THEM HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING ANY CONSEQUENCES OF PURCHASING, OWNING OR DISPOSING OF OUR COMMON SHARES ARISING UNDER CANADIAN FEDERAL, CANADIAN PROVINCIAL OR TERRITORIAL, U.S. FEDERAL, U.S. STATE OR LOCAL TAX LAWS OR TAX LAWS OF JURISDICTIONS OUTSIDE THE UNITED STATES OR CANADA.

This summary is based on the current provisions of the Canadian Income Tax Act, proposed amendments to the Canadian Income Tax Act publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”), and the provisions of the Convention as in effect on the date hereof. No assurance can be given that the Proposed Amendments will be entered into law in the manner proposed, or at all. No advance income tax ruling has been requested or obtained from the Canada Revenue Agency to confirm the tax consequences of any of the transactions described herein.

This summary is not exhaustive of all possible Canadian federal income tax consequences for U.S. Residents, and other than the Proposed Amendments, does not take into account or anticipate any changes in law, whether by legislative, administrative, governmental or judicial decision or action, nor does it take into account Canadian provincial, U.S. or foreign tax considerations which may differ significantly from those discussed herein. No assurances can be given that subsequent changes in law or administrative policy will not affect or modify the opinions expressed herein.

A U.S. Resident will not be subject to tax under the Canadian Tax Act in respect of any capital gain on a disposition of our common shares unless such shares constitute “taxable Canadian property”, as defined in the Canadian Tax Act, of the U.S. Resident and the U.S. Resident is not eligible for relief pursuant to the Convention. Our common shares will not constitute “taxable Canadian property” if, at any time during the 60-month period immediately preceding the disposition of the common shares, the U.S. Resident, persons with whom the U.S. Resident did not deal at arm’s length, or the U.S. Resident together with all such persons, did not own 25% or more of the issued shares of any class or series of shares of our capital stock. In addition, the Convention generally will exempt a U.S. Resident who would otherwise be liable to pay Canadian income tax in respect of any capital gain realized by the U.S. Resident on the disposition of our common shares, from such liability provided that the value of our common shares is not derived principally from real property situated in Canada, Canadian Resource Property and Canadian Timber Resource Property. However, where the US resident and purchaser are related the purchaser must generally report the transaction to the Canada Revenue Agency within 30 days of the transaction date to benefit from the Convention. The Convention may not be available to a U.S. Resident that is a U.S. LLC which is not subject to tax in the U.S.

Item 10. Additional Information - continued

Amounts in respect of our common shares paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends to a U.S. Resident will generally be subject to Canadian non-resident withholding tax at the rate of 25%. Currently, under the Convention the rate of Canadian non-resident withholding tax will generally be reduced to:

5% of the gross amount of dividends if the beneficial owner is a company that is resident in the U.S. and that owns at least 10% of our voting shares; or

15% of the gross amount of dividends if the beneficial owner is some other resident of the U.S.

Generally, the Convention does not apply to US resident LLC’s that are fiscally transparent. However, the Convention may apply to afford reduced withholding tax rates on dividends attributed to a US resident member of a US resident fiscally transparent LLC to the extent of the dividend being consider to have been received by that member.

United States Federal Income Tax Information for United States Holders.

The following is a general discussion of material U.S. federal income tax consequences of the ownership and disposition of our common shares by U.S. Holders (as defined below). This discussion is based on the United States Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect at the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion only addresses the tax consequences for U.S. Holders that will hold their common shares as a “capital asset” and does not address U.S. federal income tax consequences that may be relevant to particular U.S. Holders in light of their individual circumstances or U.S. Holders that are subject to special treatment under certain U.S. federal income tax laws, such as:

tax-exempt organizations and pension plans;

persons subject to alternative minimum tax;

banks and other financial institutions;

insurance companies;

partnerships and other pass-through entities (as determined for United States federal income tax purposes);

broker-dealers;

persons who hold their common shares as a hedge or as part of a straddle, constructive sale, conversion transaction, and other risk management transaction; and

persons who acquired their common shares through the exercise of employee stock options or otherwise as compensation.

As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that is:

an individual citizen or resident of the United States;

a corporation, a partnership or entity treated as a corporation or partnership for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States or any political subdivision thereof;

an estate the income of which is subject to U.S. federal income taxation regardless of its source; and

a trust if both: a United States court is able to exercise primary supervision over the administration of the trust; and one or more United States persons have the authority to control all substantial decisions of the trust.

TAX MATTERS ARE VERY COMPLICATED AND THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR SITUATION. THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.

NOTE THAT THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX LAWS OF ANY STATE OR LOCAL GOVERNMENT WITHIN THE UNITED STATES. ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS ABOUT THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES.

Item 10. Additional Information - continued

Ownership of Shares

The gross amount of any distribution received by a U.S. Holder with respect to our common shares generally will be included in the U.S. Holder’s gross income as a dividend to the extent attributable to our current and accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s shares, the remainder will be taxed as capital gain (the taxation of capital gain is discussed under the heading “Sale of Shares” below).

For taxable years beginning before January 1, 2009, dividends received by non-corporate U.S. Holders from a qualified foreign corporation are taxed at the same preferential rates that apply to long-term capital gains. A foreign corporation is a “qualified foreign corporation” if it is eligible for the benefits of a comprehensive income tax treaty with the United States (the income tax treaty between Canada and the United States is such a treaty) or the shares with respect to which such dividend is paid is readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market). Notwithstanding satisfaction of one or both of these conditions, a foreign corporation is not a qualified foreign corporation if it is a passive foreign investment company (“PFIC”) for the taxable year of the corporation in which the dividend is paid or the preceding taxable year. (Whether a foreign corporation is a PFIC is discussed below under the heading “Passive Foreign Investment Companies”). A foreign corporation that is a PFIC for any taxable year within a U.S. person’s holding period generally is treated as a PFIC for all subsequent years in the U.S. person’s holding period. Although we have not been, are not now, and do not expect to be a PFIC, and we don’t expect to pay dividends, you should be aware of the following matters in the event that we do become a PFIC and do pay dividends.

If we were to become a PFIC, then U.S. Holders who acquire our common shares may be treated as holding shares of a PFIC throughout their holding period for the purpose of determining whether dividends received from us are dividends from a qualified foreign corporation. As a consequence, dividends received by U.S. Holders may not be eligible for taxation at the preferential rates applicable to long-term capital gains.

If a distribution is paid in Canadian dollars, the U.S. dollar value of such distribution on the date of receipt is used to determine the amount of the distribution received by a U.S. Holder. A U.S. Holder who continues to hold such Canadian dollars after the date on which they are received, may recognize gain or loss upon their disposition due to exchange rate fluctuations. Generally such gains and losses will be ordinary income or loss from U.S. sources.

U.S. Holders may deduct Canadian tax withheld from distributions they receive for the purpose of computing their U.S. federal taxable income (or alternatively a credit may be claimed against the U.S. Holder’s U.S. federal income tax liability as discussed below under the heading “Foreign Tax Credit”). Corporate U.S. Holders generally will not be allowed a dividend received deduction with respect to dividends they receive from us.

Foreign Tax Credit

Generally, the dividend portion of a distribution received by a U.S. Holder will be treated as income in the passive income category for foreign tax credit purposes. Subject to a number of limitations, a U.S. Holder may elect to claim a credit against its U.S. federal income tax liability (in lieu of a deduction) for Canadian withholding tax deducted from its distributions. The credit may be claimed only against U.S. federal income tax attributable to a U.S. Holder’s passive income that is from foreign sources.

If we were to become a qualified foreign corporation with respect to a non-corporate U.S. Holder, dividends received by such U.S. Holder will qualify for taxation at the same preferential rates that apply to long-term capital gains. In such case, the dividend amount that would otherwise be from foreign sources is reduced by multiplying the dividend amount by a fraction, the numerator of which is the U.S. Holder’s preferential capital gains tax rate and the denominator of which is the U.S. Holder’s ordinary income tax rate. The effect is to reduce the dividend amount from foreign sources, thereby reducing the U.S. federal income tax attributable to foreign source income against which the credit may be claimed. Canadian withholding taxes that cannot be claimed as a credit in the year paid may be carried back to the preceding year and then forward 10 years and claimed as a credit in those years, subject to the same limitations referred to above.

The rules relating to the determination of the foreign tax credit are very complex. U.S. Holders and prospective U.S. Holders should consult their own tax advisors to determine whether and to what extent they would be entitled to claim a foreign tax credit.

Item 10. Additional Information - continued

Sale of Shares

Subject to the discussion of the “passive foreign investment company” rules below, a U.S. Holder generally will recognize capital gain or loss upon the sale of our shares equal to the difference between: (a) the amount of cash plus the fair market value of any property received; and (b) the U.S. Holder’s adjusted tax basis in such shares. This gain or loss generally will be capital gain or loss from U.S. sources, and will be long-term capital gain or loss if the U.S. Holder held its shares for more than 12 months. Generally, the net long-term capital gain of a non-corporate U.S. Holder from the sale of shares is subject to taxation at a top marginal rate of 15%. A Capital gain that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to certain limitations.

Passive Foreign Investment Companies

We will be a PFIC if, in any taxable year either: (a) 75% or more of our gross income consists of passive income; or (b) 50% or more of the value of our assets is attributable to assets that produce, or are held for the production of, passive income. Subject to certain limited exceptions, if we meet the gross income test or the asset test for a particular taxable year, our shares held by a U.S. Holder in that year will be treated as shares of a PFIC for that year and all subsequent years in the U.S. Holder’s holding period, even if we fail to meet either test in a subsequent year.

If we were a PFIC in the future, gain realized by a U.S. Holder from the sale of PFIC Shares and certain dividends received on such shares would be subject to tax under the excess distribution regime, unless the U.S. Holder made one of the elections discussed below. Under the excess distribution regime, federal income tax on a U.S. Holder’s gain from the sale of PFIC Shares would be calculated by allocating the gain ratably to each day the U.S. Holder held its shares. Gain allocated to years preceding the first year in which we were a PFIC in the U.S. Holder’s holding period, if any, and gain allocated to the year of disposition would be treated as gain arising in the year of disposition and taxed as ordinary income. Gain allocated to all other years would be taxed at the highest tax rate in effect for each of those years. Interest for the late payment of tax would be calculated and added to the tax due for each of the PFIC Years, as if the tax was due and payable with the tax return filed for that year. A distribution that exceeds 125% of the average distributions received on PFIC Shares by a U.S. Holder during the 3 preceding taxable years (or, if shorter, the portion of the U.S. Holder’s holding period before the taxable year) would be taxed in a similar manner.

A U.S. Holder may avoid taxation under the excess distribution regime by making a qualified electing fund (“QEF”) election. For each year that we would meet the PFIC gross income test or asset test, an electing U.S. Holder would be required to include in gross income, its pro rata share of our net ordinary income and net capital gains, if any. The U.S. Holder’s adjusted tax basis in our shares would be increased by the amount of such income inclusions. An actual distribution to the U.S. Holder out of such income generally would not be treated as a dividend and would decrease the U.S. Holder’s adjusted tax basis in our shares. Gain realized from the sale of our shares covered by a QEF election would be taxed as a capital gain. U.S. Holders will be eligible to make QEF elections, only if we agree to provide to the U.S. Holders, which we do, the information they will need to comply with the QEF rules. Generally, a QEF election should be made by the due date of the U.S. Holder’s tax return for the first taxable year in which the U.S. Holder held our shares that includes the close of our taxable year for which we met the PFIC gross income test or asset test. A QEF election is made on IRS Form 8621.

A U.S. Holder may also avoid taxation under the excess distribution regime by timely making a mark-to-market election. An electing U.S. Holder would include in gross income the increase in the value of its PFIC Shares during each of its taxable years and deduct from gross income the decrease in the value of its PFIC Shares during each of its taxable years. Amounts included in gross income or deducted from gross income by an electing U.S. Holder are treated as ordinary income and ordinary deductions from U.S. sources. Deductions for any year are limited to the amount by which the income inclusions of prior years’ exceed the income deductions of prior years. Gain from the sale of PFIC Shares covered by an election is treated as ordinary income from U.S. sources while a loss is treated as an ordinary deduction from U.S. sources only to the extent of prior income inclusions. Losses in excess of such prior income inclusions are treated as capital losses from U.S. sources. A mark-to-market election is timely if it is made by the due date of the U.S. Holder’s tax return for the first taxable year in which the U.S. Holder held our shares that includes the close of our taxable year for which we met the PFIC gross income test or asset test. A mark-to-market election is also made on IRS Form 8621.

As noted above, a PFIC is not a qualified foreign corporation and hence dividends received from a PFIC are not eligible for taxation at preferential long-term capital gain tax rates. Similarly, ordinary income included in the gross income of a U.S. Holder who has made a QEF election or a market-to-market election, and dividends received from corporations subject to such election, are not eligible for taxation at preferential long-term capital gain rates. The PFIC rules are extremely complex and could, if they apply, have significant, adverse effects on the taxation of dividends received and gains realized by a U.S. Holder. Accordingly, prospective U.S. Holders are strongly urged to consult their tax adviser concerning the potential application of these rules to their particular circumstances.

Item 10. Additional Information - continued

Controlled Foreign Corporation

Special rules apply to certain U.S. Holders that own stock in a foreign corporation that is classified as a “controlled foreign corporation” (“CFC”). We do not expect to be classified as a CFC. However, future ownership changes could cause us to become a CFC. Prospective U.S. Holders are urged to consult their tax advisor concerning the potential application of the CFC rules to their particular circumstances.

Information Reporting and Backup Withholding

United States information reporting and backup withholding requirements may apply with respect to distributions to U.S. Holders, or the payment of proceeds from the sale of shares, unless the U.S. Holder: (a) is an exempt recipient (including a corporation); (b) complies with certain requirements, including applicable certification requirements; or (c) is described in certain other categories of persons. The backup withholding tax rate is currently 28%. Any amounts withheld from a payment to a U.S. Holder under the backup withholding rules may be credited against any U.S. federal income tax liability of the U.S. Holder and may entitle the U.S. Holder to a refund.

F. Dividends and Paying Agents

Not applicable.

G. Statements by Experts

Not applicable.

H. Documents on Display

Not applicable.

I. Subsidiary Information

None.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 12. Description of Securities Other Than Equity Securities

Not applicable.

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15. Controls and Procedures

Not applicable.

Item 16A. Audit Committee Financial Experts

A Chartered Accountant for over 30 years, Doug Wallis specializes in work with Canadian and US public companies. This work involves everything from assisting in the structure of initial public offerings to comprehensive audit services. Doug’s extensive experience in accounting and the rules of professional conduct are also highly valued at Smythe Ratcliffe. Previously, Doug served as the Director of Professional Advisory Services for the Institute of Chartered Accountants of BC.

Item 16B. Code of Ethics

Our Board of Directors has approved a Code of Business Conduct and Ethics, which is filed herewith as Exhibit 11.1.

Item 16C. Principal Accountant Fees and Services

Audit fees for the year ended December 31, 2012 were $25,725.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Company and Affiliated Purchasers

None.

Item 16F. Change in Registrant’s Certifying Accountant

None.

Item 16G. Corporate Governance

Not applicable.

For information regarding the Company’s corporate governance, please refer to “Item 6. Directors, Senior Management and Employees – Corporate Governance.”

Part III

Item 17. Financial Statements

In lieu of responding to this item, we have responded to Item 18 of this annual report.

Item 18. Financial Statements

The Company’s audited financial statements for fiscal year ended December 31, 2012 and unaudited financial statements for the quarter ended March 31, 2013 are filed as Exhibit 15.3 and Exhibit 15.5, respectively, with this Form 20-F. All of the financial information is presented herein in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

Item 19. Exhibits

Exhibit Number	Description of Exhibit

1.1	Articles of Incorporation
2.1	Form of Promissory Note
2.2	Form of Warrant
2.3	Form of Warrant
2.4	Form of Warrant
4.1	Employment Agreement by and between the Company and Doug Unwin, dated January 1, 2010
4.2	Form of Agreement for Escrow Arrangements under National Policy 46-201 Escrow for Initial Public Offerings , dated August 30, 2011
4.3	Development and Commercialization Agreement by and between the Company and IntelGenx Corp, dated February 28, 2011
11.1	Code of Business Conduct and Ethnics
11.2	Charter of Audit Committee
12.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Independent Auditor’s Report
15.2	Consent of Independent Registered Public Accounting Firm
15.3	Annual Financial Statements as of December 31, 2012 and 2011
15.4	Management’s Discussion and Analysis for the year ended December 31, 2012
15.5	(Unaudited) Quarterly Financial Statements as of March 31, 2013

SIGNATURE

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.

	PACIFIC THERAPEUTICS LTD

Date: June 14, 2013	By:	/s/ Douglas H. Unwin
	Name: Douglas H. Unwin
	Title: Chief Executive Officer

	By:	/s/ Derick Sinclair
	Name: Derick Sinclair
	Title: Chief Financial Officer

5 8

Exhibit 1.1

PACIFIC THERAPEUTICS LTD.

(the “Company”)

ARTICLES

1.	Interpretation

2.	Shares and Share Certificates

3.	Issue of Shares

4.	Share Registers

5.	Share Transfers

6.	Transmission of Shares

7.	Purchase of Shares

8.	Borrowing Powers

9.	Alterations

10.	Meetings of Shareholders

11.	Proceedings at Meetings of Shareholders

12.	Votes of Shareholders

13.

Directors

14.	Election and Removal of Directors

15.	Alternate Directors

16.	Powers and Duties of Directors

17.	Disclosure of Interest of Directors

18.	Proceedings of Directors

19.	Executive and Other Committees

20.

Officers

21.	Indemnification

22.	Dividends and Reserves

23.	Documents, Records and Reports

24.

Notices

25.

Seal

26.	Prohibitions

27.	Special Rights and Restrictions

1.	Interpretation

1.1	Definitions

In these Articles, unless the context otherwise requires:

(1)	“board of directors” , “directors” and “board” mean the directors or sole director of the Company for the time being;

(2)	“Business Corporations Act” means the Business Corporations Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;

(3)	“legal personal representative” means the personal or other legal representative of the shareholder;

(4)	“registered address ” of a shareholder means the shareholder’s address as recorded in the central securities register;

(5)	“seal” means the seal of the Company, if any.

1.2	Business Corporations Act and Interpretation Act Definitions Applicable

The definitions in the Business Corporations Act and the definitions and rules of construction in the Interpretation Act , with the necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as if they were an enactment. If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles. If there is a conflict between these Articles and the Business Corporations Act , the Business Corporations Act will prevail.

2.	Shares and Share Certificates

2.1	Authorized Share Structure

The authorized share structure of the Company consists of shares of the class or classes and series, if any, described in the Notice of Articles of the Company.

2.2	Form of Share Certificate

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act .

2.3	Shareholder Entitled to Certificate or Acknowledgment

Each shareholder is entitled, without charge, to (a) one share certificate representing the shares of each class or series of shares registered in the shareholder’s name or (b) a non-transferable written acknowledgment of the shareholder’s right to obtain such a share certificate, provided that in respect of a share held jointly by several persons, the Company is not bound to issue more than one share certificate and delivery of a share certificate for a share to one of several joint shareholders or to one of the shareholders’ duly authorized agents will be sufficient delivery to all.

2.4	Delivery by Mail

Any share certificate or non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate may be sent to the shareholder by mail at the shareholder’s registered address and neither the Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because the share certificate or acknowledgement is lost in the mail or stolen.

2.5	Replacement of Worn Out or Defaced Certificate or Acknowledgement

If the directors are satisfied that a share certificate or a non-transferable written acknowledgment of the shareholder’s right to obtain a share certificate is worn out or defaced, they must, on production to them of the share certificate or acknowledgment, as the case may be, and on such other terms, if any, as they think fit:

(1)	order the share certificate or acknowledgment, as the case may be, to be cancelled; and

(2)	issue a replacement share certificate or acknowledgment, as the case may be.

2.6	Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment

If a share certificate or a non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate is lost, stolen or destroyed, a replacement share certificate or acknowledgment, as the case may be, must be issued to the person entitled to that share certificate or acknowledgment, as the case may be, if the directors receive:

(1)	proof satisfactory to them that the share certificate or acknowledgment is lost, stolen or destroyed; and

(2)	any indemnity the directors consider adequate.

2.7	Splitting Share Certificates

If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s name two or more share certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the share certificate so surrendered, the Company must cancel the surrendered share certificate and issue replacement share certificates in accordance with that request.

2.8	Certificate Fee

There must be paid to the Company, in relation to the issue of any share certificate under Articles 2.5, 2.6 or 2.7, the amount, if any and which must not exceed the amount prescribed under the Business Corporations Act , determined by the directors.

2.9	Recognition of Trusts

Except as required by law or statute or these Articles, no person will be recognized by the Company as holding any share upon any trust, and the Company is not bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or fraction of a share or (except as by law or statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the shareholder.

3.	Issue of Shares

3.1	Directors Authorized

Subject to the Business Corporations Act and the rights of the holders of issued shares of the Company, the Company may issue, allot, sell or otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices (including any premium at which shares with par value may be issued) that the directors may determine. The issue price for a share with par value must be equal to or greater than the par value of the share.

3.2	Commissions and Discounts

The Company may at any time pay a reasonable commission or allow a reasonable discount to any person in consideration of that person purchasing or agreeing to purchase shares of the Company from the Company or any other person or procuring or agreeing to procure purchasers for shares of the Company.

3.3

Brokerage

The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of its securities.

3.4	Conditions of Issue

Except as provided for by the Business Corporations Act , no share may be issued until it is fully paid. A share is fully paid when:

(1)	consideration is provided to the Company for the issue of the share by one or more of the following:

(a)

past services performed for the Company;

(b)

property;

(c)

money; and

(2)	the value of the consideration received by the Company equals or exceeds the issue price set for the share under Article 3.1.

3.5	Share Purchase Warrants and Rights

Subject to the Business Corporations Act , the Company may issue share purchase warrants, options and rights upon such terms and conditions as the directors determine, which share purchase warrants, options and rights may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or created by the Company from time to time.

4.	Share Registers

4.1	Central Securities Register

As required by and subject to the Business Corporations Act , the Company must maintain in British Columbia a central securities register. The directors may, subject to the Business Corporations Act , appoint an agent to maintain the central securities register. The directors may also appoint one or more agents, including the agent which keeps the central securities register, as transfer agent for its shares or any class or series of its shares, as the case may be, and the same or another agent as registrar for its shares or such class or series of its shares, as the case may be. The directors may terminate such appointment of any agent at any time and may appoint another agent in its place.

4.2	Closing Register

The Company must not at any time close its central securities register.

5.	Share Transfers

5.1	Registering Transfers

A transfer of a share of the Company must not be registered unless:

(1)	a duly signed instrument of transfer in respect of the share has been received by the Company;

(2)	if a share certificate has been issued by the Company in respect of the share to be transferred, that share certificate has been surrendered to the Company; and

(3)	if a non-transferable written acknowledgment of the shareholder’s right to obtain a share certificate has been issued by the Company in respect of the share to be transferred, that acknowledgment has been surrendered to the Company.

5.2	Form of Instrument of Transfer

The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company’s share certificates or in any other form that may be approved by the directors from time to time.

5.3	Transferor Remains Shareholder

Except to the extent that the Business Corporations Act otherwise provides, the transferor of shares is deemed to remain the holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.

5.4	Signing of Instrument of Transfer

If a shareholder, or his or her duly authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in the written acknowledgments deposited with the instrument of transfer:

(1)	in the name of the person named as transferee in that instrument of transfer; or

(2)	if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.

5.5	Enquiry as to Title Not Required

Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share certificate for such shares.

5.6	Transfer Fee

There must be paid to the Company, in relation to the registration of any transfer, the amount, if any, determined by the directors.

6.	Transmission of Shares

6.1	Legal Personal Representative Recognized on Death

In case of the death of a shareholder, the legal personal representative, or if the shareholder was a joint holder, the surviving joint holder, will be the only person recognized by the Company as having any title to the shareholder’s interest in the shares. Before recognizing a person as a legal personal representative, the directors may require proof of appointment by a court of competent jurisdiction, a grant of letters probate, letters of administration or such other evidence or documents as the directors consider appropriate.

6.2	Rights of Legal Personal Representative

The legal personal representative has the same rights, privileges and obligations that attach to the shares held by the shareholder, including the right to transfer the shares in accordance with these Articles, provided the documents required by the Business Corporations Act and the directors have been deposited with the Company.

7.	Purchase of Shares

7.1	Company Authorized to Purchase Shares

Subject to Article 7.2, the special rights and restrictions attached to the shares of any class or series and the Business Corporations Act , the Company may, if authorized by the directors, purchase or otherwise acquire any of its shares at the price and upon the terms specified in such resolution.

7.2	Purchase When Insolvent

The Company must not make a payment or provide any other consideration to purchase or otherwise acquire any of its shares if there are reasonable grounds for believing that:

(1)	the Company is insolvent; or

(2)	making the payment or providing the consideration would render the Company insolvent.

7.3	Sale and Voting of Purchased Shares

If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by the Company, it:

(1)	is not entitled to vote the share at a meeting of its shareholders;

(2)	must not pay a dividend in respect of the share; and

(3)	must not make any other distribution in respect of the share.

8.	Borrowing Powers

The Company, if authorized by the directors, may:

(1)	borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

(2)	issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;

(3)	guarantee the repayment of money by any other person or the performance of any obligation of any other person; and

(4)	mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

9.	Alterations

9.1	Alteration of Authorized Share Structure

Subject to Article 9.2 and the Business Corporations Act , the Company may either by ordinary resolution, and where permitted by the Business Corporations Act, by director’s resolution:

(1)	create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

(2)	increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established;

(3)	subdivide or consolidate all or any of its unissued, or fully paid issued, shares;

(4)	if the Company is authorized to issue shares of a class of shares with par value:

(a)

decrease the par value of those shares; or

(b)

if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

(5)	change all or any of its unissued, or fully paid issued, shares with par value into shares without par value or any of its unissued shares without par value into shares with par value;

(6)	alter the identifying name of any of its shares; or

(7)	otherwise alter its shares or authorized share structure when required or permitted to do so by the Business Corporations Act .

9.2	Special Rights and Restrictions

Subject to the Business Corporations Act , the Company may either by ordinary resolution and where permitted by the Business Corporations Act, by director’s resolution:

(1)	create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or

(2)	vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.

9.3	Change of Company Name

The directors may, by resolution, authorize an alteration of its Notice of Articles in order to change the Company’s name or adopt or change any translation of that name.

9.4	Other Alterations

If the Business Corporations Act does not specify the type of resolution and these Articles do not specify another type of resolution, the Company may by ordinary resolution alter these Articles.

10.	Meetings of Shareholders

10.1	Annual General Meetings

Unless an annual general meeting is deferred or waived in accordance with the Business Corporations Act , the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual reference date at such time and place as may be determined by the directors.

10.2	Resolution Instead of Annual General Meeting

If all the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article 10.2, select as the Company’s annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.

10.3	Calling of Meetings of Shareholders

The directors may, whenever they think fit, call a meeting of shareholders.

10.4	Notice for Meetings of Shareholders

The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:

(1)	if and for so long as the Company is a public company, 21 days;

(2)	otherwise, 10 days.

10.5	Record Date for Notice

The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. The record date must not precede the date on which the meeting is held by fewer than:

(1)	if and for so long as the Company is a public company, 21 days;

(2)	otherwise, 10 days.

If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.6	Record Date for Voting

The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.7	Failure to Give Notice and Waiver of Notice

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.

10.8	Notice of Special Business at Meetings of Shareholders

If a meeting of shareholders is to consider special business within the meaning of Article 11.1, the notice of meeting must:

(1)	state the general nature of the special business; and

(2)	if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:

(a)

at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and

(b)

during statutory business hours on any one or more specified days before the day set for the holding of the meeting.

11.	Proceedings at Meetings of Shareholders

11.1	Special Business

At a meeting of shareholders, the following business is special business:

(1)	at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;

(2)	at an annual general meeting, all business is special business except for the following:

(a)

business relating to the conduct of or voting at the meeting;

(b)

consideration of any financial statements of the Company presented to the meeting;

(c)

consideration of any reports of the directors or auditor;

(d)

the setting or changing of the number of directors;

(e)

the election or appointment of directors;

(f)

the appointment of an auditor;

(g)

the setting of the remuneration of an auditor, unless such remuneration has already been set for the ensuing year by the directors pursuant to Article 16.2;

(h)

business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;

(i)

any other business which, under these Articles or the Business Corporations Act , may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

11.2	Special Majority

The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.

11.3

Quorum

Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.

11.4	One Shareholder May Constitute Quorum

If there is only one shareholder entitled to vote at a meeting of shareholders:

(1)	the quorum is one person who is, or who represents by proxy, that shareholder, and

(2)	that shareholder, present in person or by proxy, may constitute the meeting.

11.5	Other Persons May Attend

The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.

11.6	Requirement of Quorum

No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum need not be present throughout the meeting.

11.7	Lack of Quorum

If, within one-half hour from the time set for the holding of a meeting of shareholders, a quorum is not present:

(1)	in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and

(2)	in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.

11.8	Lack of Quorum at Succeeding Meeting

If, at the meeting to which the meeting referred to in Article 11.7(2) was adjourned, a quorum is not present within one-half hour from the time set for the holding of the meeting, the person or persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the meeting constitute a quorum.

11.9

Chair

The following individual is entitled to preside as chair at a meeting of shareholders:

(1)	the chair of the board, if any; or

(2)	if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.

11.10

Selection of Alternate Chair

If, at any meeting of shareholders, there is no chair of the board or president present within 15 minutes after the time set for holding the meeting, or if the chair of the board and the president are unwilling to act as chair of the meeting, or if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting, the directors present must choose one of their number to be chair of the meeting or if all of the directors present decline to take the chair or fail to so choose or if no director is present, the shareholders entitled to vote at the meeting who are present in person or by proxy may choose any person present at the meeting to chair the meeting.

11.11

Adjournments

The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

11.12

Notice of Adjourned Meeting

It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.

11.13

Decisions by Show of Hands or Poll

Subject to the Business Corporations Act , every motion put to a vote at a meeting of shareholders will be decided on a show of hands unless a poll, before or on the declaration of the result of the vote by show of hands, is directed by the chair or demanded by at least one shareholder entitled to vote who is present in person or by proxy.

11.14

Declaration of Result

The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting. A declaration of the chair that a resolution is carried by the necessary majority or is defeated is, unless a poll is directed by the chair or demanded under Article 11.13, conclusive evidence without proof of the number or proportion of the votes recorded in favour of or against the resolution.

11.15

Motion Need Not be Seconded

No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.

11.16

Casting Vote

In case of an equality of votes, the chair of a meeting of shareholders shall have, either on a show of hands or on a poll, a second or casting vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

11.17

Manner of Taking Poll

Subject to Article 11.18, if a poll is duly demanded at a meeting of shareholders:

(1)	the poll must be taken:

(a)

at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs; and

(b)

in the manner, at the time and at the place that the chair of the meeting directs;

(2)	the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and

(3)	the demand for the poll may be withdrawn by the person who demanded it.

11.18

Demand for Poll on Adjournment

A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.

11.19

Chair Must Resolve Dispute

In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the dispute, and his or her determination made in good faith is final and conclusive.

11.20

Casting of Votes

On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

11.21

Demand for Poll

No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

11.22

Demand for Poll Not to Prevent Continuance of Meeting

The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.

11.23

Retention of Ballots and Proxies

The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted at the meeting, and, during that period, make them available for inspection during normal business hours by any shareholder or proxyholder entitled to vote at the meeting. At the end of such three month period, the Company may destroy such ballots and proxies.

11.24

Meetings of Shareholders by Telephone or Other Communications Medium

A shareholder may participate in a meeting of the shareholders in person or by telephone if all shareholders participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other. A shareholder may participate in a meeting of the shareholders by a communications medium other than telephone if all shareholders participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other. A shareholder who participates in a meeting of shareholders in a manner contemplated by this Article 11.24 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner .

12.	Votes of Shareholders

12.1	Number of Votes by Shareholder or by Shares

Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint shareholders under Article 12.3:

(1)	on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote on the matter has one vote; and

(2)	on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder and may exercise that vote either in person or by proxy.

12.2	Votes of Persons in Representative Capacity

A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.

12.3	Votes by Joint Holders

If there are joint shareholders registered in respect of any share:

(1)	any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or

(2)

if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.

12.4	Legal Personal Representatives as Joint Shareholders

Two or more legal personal representatives of a shareholder in whose sole name any share is registered are, for the purposes of Article 12.3, deemed to be joint shareholders.

12.5	Representative of a Corporate Shareholder

If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:

(1)	for that purpose, the instrument appointing a representative must:

(a)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(b)

be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting;

(2)	if a representative is appointed under this Article 12.5:

(a)

the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and

(b)

the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.

Evidence of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.6	Proxy Provisions Do Not Apply to All Companies

If and for so long as the Company is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply, Articles 12.7 to 12.15 apply only insofar as they are not inconsistent with any securities legislation in any province or territory of Canada or in the federal jurisdiction of the United States or in any states of the United States that is applicable to the Company and insofar as they are not inconsistent with the regulations and rules made and promulgated under that legislation and all administrative policy statements, blanket orders and rulings, notices and other administrative directions issued by securities commissions or similar authorities appointed under that legislation.

12.7	Appointment of Proxy Holders

Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint one or more (but not more than five) proxy holders to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

12.8	Alternate Proxy Holders

A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

12.9	When Proxy Holder Need Not Be Shareholder

A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a proxy holder if:

(1)	the person appointing the proxy holder is a corporation or a representative of a corporation appointed under Article 12.5;

(2)	the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting; or

(3)

the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and vote at the meeting.

12.10

Deposit of Proxy

A proxy for a meeting of shareholders must:

(1)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(2)	unless the notice provides otherwise, be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting.

A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.11

Validity of Proxy Vote

A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:

(1)	at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(2)	by the chair of the meeting, before the vote is taken.

12.12

Form of Proxy

A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair of the meeting:

[name of company]

(the “Company”)

The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person, [name] , as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Company to be held on [month, day, year] and at any adjournment of that meeting.

Number of shares in respect of which this proxy is given (if no number is specified, then this proxy if given in respect of all shares registered in the name of the shareholder):

Signed [month, day, year]

_______________________

[Signature of shareholder]

_______________________

[Name of shareholder—printed]

12.13

Revocation of Proxy

Subject to Article 12.14, every proxy may be revoked by an instrument in writing that is:

(1)	received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(2)	provided, at the meeting, to the chair of the meeting.

12.14

Revocation of Proxy Must Be Signed

An instrument referred to in Article 12.13 must be signed as follows:

(1)	if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her legal personal representative or trustee in bankruptcy;

(2)	if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative appointed for the corporation under Article 12.5.

12.15

Production of Evidence of Authority to Vote

The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

13.

Directors

13.1	Number of Directors

The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognized under the Business Corporations Act . The number of directors, excluding additional directors appointed under Article 14.8, is set at:

(1)	if the Company is a public company, the greater of three and the most recently set of:

(a)

the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(b)

the number of directors set under Article 14.4;

(2)	if the Company is not a public company, the most recently set of:

(a)

the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(b)

the number of directors set under Article 14.4.

13.2	Change in Number of Directors

If the number of directors is set under Articles 13.1(1)(a) or 13.1(2)(a):

(1)	the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number;

(2)	if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of directors up to that number contemporaneously with the setting of that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.

13.3	Directors’ Acts Valid Despite Vacancy

An act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required under these Articles is in office.

13.4	Qualifications of Directors

A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.

13.5	Remuneration of Directors

The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by director’s resolution. That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.

13.6	Reimbursement of Expenses of Directors

The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.

13.7	Special Remuneration for Directors

If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.

13.8	Gratuity, Pension or Allowance on Retirement of Director

Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

14.	Election and Removal of Directors

14.1	Election at Annual General Meeting

At every annual general meeting and in every unanimous resolution contemplated by Article 10.2:

(1)	the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board of directors consisting of the number of directors for the time being set under these Articles; and

(2)	all the directors cease to hold office immediately before the election or appointment of directors under paragraph (1), but are eligible for re-election or re-appointment.

14.2	Consent to be a Director

No election, appointment or designation of an individual as a director is valid unless:

(1)	that individual consents to be a director in the manner provided for in the Business Corporations Act ;

(2)	that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director; or

(3)	with respect to first directors, the designation is otherwise valid under the Business Corporations Act .

14.3	Failure to Elect or Appoint Directors

If:

(1)

the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 10.2, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act ; or

(2)	the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 10.2, to elect or appoint any directors;

then each director then in office continues to hold office until the earlier of:

(3)	the date on which his or her successor is elected or appointed; and

(4)	the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.

14.4	Places of Retiring Directors Not Filled

If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not re-elected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to complete the number of directors for the time being set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors for the time being set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.

14.5	Directors May Fill Casual Vacancies

Any casual vacancy occurring in the board of directors may be filled by the directors.

14.6	Remaining Directors Power to Act

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the Business Corporations Act , for any other purpose.

14.7	Shareholders May Fill Vacancies

If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

14.8	Additional Directors

Notwithstanding Articles 13.1 and 13.2, between annual general meetings or unanimous resolutions contemplated by Article 10.2, the directors may appoint one or more additional directors, but the number of additional directors appointed under this Article 14.8 must not at any time exceed:

(1)	one-half of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

(2)	in any other case, one-half of the number of the current directors who were elected or appointed as directors other than under this Article 14.8.

Any director so appointed ceases to hold office immediately before the next election or appointment of directors under Article 14.1(1), but is eligible for re-election or re-appointment.

14.9	Ceasing to be a Director

A director ceases to be a director when:

(1)	the term of office of the director expires;

(2)	the director dies;

(3)	the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or

(4)	the director is removed from office pursuant to Articles 14.10 or 14.11.

14.10

Removal of Director by Shareholders

The Company may remove any director before the expiration of his or her term of office by special resolution. In that event, the shareholders may elect, or appoint by ordinary resolution, a director to fill the resulting vacancy. If the shareholders do not elect or appoint a director to fill the resulting vacancy contemporaneously with the removal, then the directors may appoint or the shareholders may elect, or appoint by ordinary resolution, a director to fill that vacancy.

14.11

Removal of Director by Directors

The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.

15.	Alternate Directors

15.1	Appointment of Alternate Director

Any director (an “appointor”) may by notice in writing received by the Company appoint any other director (an “appointee”) to be his or her alternate to act in his or her place at meetings of the directors or committees of the directors at which the appointor is not present.

15.2	Notice of Meetings

Every alternate director so appointed is entitled to notice of meetings of the directors and of committees of the directors of which his or her appointor is a member and to attend and vote as a director at any such meetings at which his or her appointor is not present.

15.3	Alternate for More Than One Director Attending Meetings

A director may be appointed as an alternate director by more than one director, and an alternate director:

(1)	will be counted in determining the quorum for a meeting of directors once for each of his or her appointors and, once more in his own capacity as a director;

(2)	has a separate vote at a meeting of directors for each of his or her appointors and, an additional vote in his own capacity as a director;

(3)	will be counted in determining the quorum for a meeting of a committee of directors once for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, once more in that capacity;

(4)	has a separate vote at a meeting of a committee of directors for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, an additional vote in that capacity.

15.4	Consent Resolutions

Every alternate director, if authorized by the notice appointing him or her, may sign in place of his or her appointor any resolutions to be consented to in writing.

15.5	Alternate Director Not an Agent

Every alternate director is deemed not to be the agent of his or her appointor.

15.6	Revocation of Appointment of Alternate Director

An appointor may at any time, by notice in writing received by the Company, revoke the appointment of an alternate director appointed by him or her.

15.7	Ceasing to be an Alternate Director

The appointment of an alternate director ceases when:

(1)	his or her appointor ceases to be a director and is not promptly re-elected or re-appointed;

(2)	the alternate director dies;

(3)	the alternate director resigns as an alternate director by notice in writing provided to the Company or a lawyer for the Company;

(4)	the alternate director resigns in his own capacity as a director or ceases to be qualified to act as a director; or

(5)	his or her appointor revokes the appointment of the alternate director.

15.8	Remuneration and Expenses of Alternate Director

The Company may reimburse an alternate director for the reasonable expenses that he or she incurred for acting in such capacity, and the alternate director is entitled to receive from the Company such proportion, if any, of the remuneration otherwise payable to the appointor as the appointor may from time to time direct.

16.	Powers and Duties of Directors

16.1	Powers of Management

The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company.

16.2	Appointment of Attorney of Company

The directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these Articles and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill vacancies in, any committee of the directors, to appoint or remove officers appointed by the directors and to declare dividends) and for such period, and with such remuneration and subject to such conditions as the directors may think fit. Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorney as the directors think fit. Any such attorney may be authorized by the directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in him or her.

16.3	Remuneration of Auditor

The directors may, by resolution, set the remuneration of the Company’s auditors for the ensuing yea, prior to any Meeting of Shareholders.

17.	Disclosure of Interest of Directors

17.1	Obligation to Account for Profits

A director or senior officer who holds a disclosable interest (as that term is used in the Business Corporations Act ) in a contract or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Business Corporations Act .

17.2	Restrictions on Voting by Reason of Interest

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

17.3	Interested Director Counted in Quorum

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.

17.4	Disclosure of Conflict of Interest or Property

A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the Business Corporations Act .

17.5	Director Holding Other Office in the Company

A director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

17.6	No Disqualification

No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of the Company in which a director is in any way interested is liable to be voided for that reason.

17.7	Professional Services by Director or Officer

Subject to the Business Corporations Act , a director or officer, or any person in which a director or officer has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such person is entitled to remuneration for professional services as if that director or officer were not a director or officer.

17.8	Director or Officer in Other Corporations

A director or officer may be or become a director, officer or employee of, or otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Business Corporations Act , the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other person.

18.	Proceedings of Directors

18.1	Meetings of Directors

The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine.

18.2	Voting at Meetings

Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting shall have a second or casting vote.

18.3	Chair of Meetings

The following individual is entitled to preside as chair at a meeting of directors:

(1)	the chair of the board, if any;

(2)	in the absence of the chair of the board, the president, if any, if the president is a director; or

(3)	any other director chosen by the directors if:

(a)

neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting;

(b)

neither the chair of the board nor the president, if a director, is willing to chair the meeting; or

(c)

the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.

18.4	Meetings by Telephone or Other Communications Medium

A director may participate in a meeting of the directors or of any committee of the directors in person or by telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other. A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by this Article 18.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner .

18.5	Calling of Meetings

Either one of the Chairman or Chief Executive Officer or any two directors may, and the secretary or an assistant secretary of the Company, if any, on the request of such aforementioned persons must, call a meeting of the directors at any time.

18.6	Notice of Meetings

Other than for meetings held at regular intervals as determined by the directors pursuant to Article 18.1, reasonable notice of each meeting of the directors, specifying the place, day and time of that meeting must be given to each of the directors and the alternate directors by any method set out in Article 24.1 or orally or by telephone.

18.7	When Notice Not Required

It is not necessary to give notice of a meeting of the directors to a director or an alternate director if:

(1)	the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed, or is the meeting of the directors at which that director is appointed; or

(2)	the director or alternate director, as the case may be, has waived notice of the meeting.

18.8	Meeting Valid Despite Failure to Give Notice

The accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director or alternate director, does not invalidate any proceedings at that meeting.

18.9	Waiver of Notice of Meetings

Any director or alternate director may send to the Company a document signed by him or her waiving notice of any past, present or future meeting or meetings of the directors and may at any time withdraw that waiver with respect to meetings held after that withdrawal. After sending a waiver with respect to all future meetings and until that waiver is withdrawn, no notice of any meeting of the directors need be given to that director and, unless the director otherwise requires by notice in writing to the Company, to his or her alternate director, and all meetings of the directors so held are deemed not to be improperly called or constituted by reason of notice not having been given to such director or alternate director.

18.10

Quorum

The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be a majority or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

18.11

Validity of Acts Where Appointment Defective

Subject to the Business Corporations Act , an act of a director or officer is not invalid merely because of an irregularity in the election or appointment or a defect in the qualification of that director or officer.

18.12

Consent Resolutions in Writing

A resolution of the directors or of any committee of the directors may be passed without a meeting:

(1)	in all cases, if a majority of the directors entitled to vote on the resolution consents to it in writing; or

(2)	in the case of a resolution to approve a contract or transaction in respect of which a director has disclosed that he or she has or may have a disclosable interest, if a majority of the other directors who are entitled to vote on the resolution consents to it in writing.

A consent in writing under this Article may be by signed document, fax, email or any other method of transmitting legibly recorded messages. A consent in writing may be in two or more counterparts which together are deemed to constitute one consent in writing. A resolution of the directors or of any committee of the directors passed in accordance with this Article 18.12 is effective on the date stated in the consent in writing or on the latest date stated on any counterpart and is deemed to be a proceeding at a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors that satisfies all the requirements of the Business Corporations Act and all the requirements of these Articles relating to meetings of the directors or of a committee of the directors.

19.	Executive and Other Committees

19.1	Appointment and Powers of Executive Committee

The directors may, by resolution, appoint an executive committee consisting of the director or directors that they consider appropriate, and this committee has, during the intervals between meetings of the board of directors, all of the directors’ powers, except:

(1)	the power to fill vacancies in the board of directors;

(2)	the power to remove a director;

(3)	the power to change the membership of, or fill vacancies in, any committee of the directors; and

(4)	such other powers, if any, as may be set out in the resolution or any subsequent directors’ resolution.

19.2	Appointment and Powers of Other Committees

The directors may, by resolution:

(1)	appoint one or more committees (other than the executive committee) consisting of the director or directors that they consider appropriate;

(2)	delegate to a committee appointed under paragraph (1) any of the directors’ powers, except:

(a)

the power to fill vacancies in the board of directors;

(b)

the power to remove a director;

(c)

the power to change the membership of, or fill vacancies in, any committee of the directors; and

(d)

the power to appoint or remove officers appointed by the directors; and

(3)	make any delegation referred to in paragraph (2) subject to the conditions set out in the resolution or any subsequent directors’ resolution.

19.3	Obligations of Committees

Any committee appointed under Articles 19.1 or 19.2, in the exercise of the powers delegated to it, must:

(1)	conform to any rules that may from time to time be imposed on it by the directors; and

(2)	report every act or thing done in exercise of those powers at such times as the directors may require.

19.4	Powers of Board

The directors may, at any time, with respect to a committee appointed under Articles 19.1 or 19.2:

(1)	revoke or alter the authority given to the committee, or override a decision made by the committee, except as to acts done before such revocation, alteration or overriding;

(2)	terminate the appointment of, or change the membership of, the committee; and

(3)	fill vacancies in the committee.

19.5	Committee Meetings

Subject to Article 19.3(1) and unless the directors otherwise provide in the resolution appointing the committee or in any subsequent resolution, with respect to a committee appointed under Articles 19.1 or 19.2:

(1)	the committee may meet and adjourn as it thinks proper;

(2)

the committee may elect a chair of its meetings but, if no chair of a meeting is elected, or if at a meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the meeting;

(3)	a majority of the members of the committee constitutes a quorum of the committee; and

(4)	questions arising at any meeting of the committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting shall have a second or casting vote.

20.

Officers

20.1	Directors May Appoint Officers

The directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time, terminate any such appointment.

20.2	Functions, Duties and Powers of Officers

The directors may, for each officer:

(1)	determine the functions and duties of the officer;

(2)	entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit; and

(3)	revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.

20.3	Qualifications

No officer may be appointed unless that officer is qualified in accordance with the Business Corporations Act . One person may hold more than one position as an officer of the Company. Any person appointed as the chair of the board or as a managing director must be a director. Any other officer need not be a director.

20.4	Remuneration and Terms of Appointment

All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the directors thinks fit and are subject to termination at the pleasure of the directors, and an officer may in addition to such remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity.

21.	Indemnification

21.1	Definitions

In this Article 21:

(1)	“eligible penalty” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding;

(2)

“eligible proceeding” means a legal proceeding or investigative action, whether current, threatened, pending or completed, in which a director, former director or alternate director of the Company (an “eligible party”) or any of the heirs and legal personal representatives of the eligible party, by reason of the eligible party being or having been a director or alternate director of the Company:

(a)

is or may be joined as a party; or

(b)

is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;

(3)	“expenses” has the meaning set out in the Business Corporations Act .

21.2	Mandatory Indemnification of Directors and Former Directors

Subject to the Business Corporations Act , the Company must indemnify a director, former director or alternate director of the Company and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in respect of that proceeding. Each director and alternate director is deemed to have contracted with the Company on the terms of the indemnity contained in this Article 21.2.

21.3	Indemnification of Other Persons

Subject to any restrictions in the Business Corporations Act , the Company may indemnify any person.

21.4	Non-Compliance with Business Corporations Act

The failure of a director, alternate director or officer of the Company to comply with the Business Corporations Act or these Articles does not invalidate any indemnity to which he or she is entitled under this Part.

21.5	Company May Purchase Insurance

The Company may purchase and maintain insurance for the benefit of any person (or his or her heirs or legal personal representatives) who:

(1)	is or was a director, alternate director, officer, employee or agent of the Company;

(2)	is or was a director, alternate director, officer, employee or agent of a corporation at a time when the corporation is or was an affiliate of the Company;

(3)	at the request of the Company, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity;

(4)	at the request of the Company, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity;

against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position.

22.

Dividends

22.1	Payment of Dividends Subject to Special Rights

The provisions of this Article 22 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.

22.2	Declaration of Dividends

Subject to the Business Corporations Act , the directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

22.3	No Notice Required

The directors need not give notice to any shareholder of any declaration under Article 22.2.

22.4	Record Date

The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date must not precede the date on which the dividend is to be paid by more than two months. If no record date is set, the record date is 5 p.m. on the date on which the directors pass the resolution declaring the dividend.

22.5	Manner of Paying Dividend

A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways.

22.6	Settlement of Difficulties

If any difficulty arises in regard to a distribution under Article 22.5, the directors may settle the difficulty as they deem advisable, and, in particular, may:

(1)	set the value for distribution of specific assets;

(2)	determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of all parties; and

(3)	vest any such specific assets in trustees for the persons entitled to the dividend.

22.7	When Dividend Payable

Any dividend may be made payable on such date as is fixed by the directors.

22.8	Dividends to be Paid in Accordance with Number of Shares

All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

22.9	Receipt by Joint Shareholders

If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

22.10

Dividend Bears No Interest

No dividend bears interest against the Company.

22.11

Fractional Dividends

If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

22.12

Payment of Dividends

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to the person and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.

22.13

Capitalization of Surplus

Notwithstanding anything contained in these Articles, the directors may from time to time capitalize any surplus of the Company and may from time to time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.

23.	Accounting Records

23.1	Recording of Financial Affairs

The directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the Business Corporations Act .

23.2	Inspection of Accounting Records

Unless the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled to inspect or obtain a copy of any accounting records of the Company.

24.

Notices

24.1	Method of Giving Notice

Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by any one of the following methods:

(1)	mail addressed to the person at the applicable address for that person as follows:

(a)

for a record mailed to a shareholder, the shareholder’s registered address;

(b)

for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class;

(c)

in any other case, the mailing address of the intended recipient;

(2)	delivery at the applicable address for that person as follows, addressed to the person:

(a)

for a record delivered to a shareholder, the shareholder’s registered address;

(b)

for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class;

(c)

in any other case, the delivery address of the intended recipient;

(3)	sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

(4)	sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;

(5)	physical delivery to the intended recipient.

24.2	Deemed Receipt of Mailing

A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 24.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.

24.3	Certificate of Sending

A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 24.1, prepaid and mailed or otherwise sent as permitted by Article 24.1 is conclusive evidence of that fact.

24.4	Notice to Joint Shareholders

A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.

24.5	Notice to Trustees

A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:

(1)	mailing the record, addressed to them:

(a)

by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

(b)

at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or

(2)	if an address referred to in paragraph (1)(b) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

25.

Seal

25.1	Who May Attest Seal

Except as provided in Articles 25.2 and 25.3, the Company’s seal, if any, must not be impressed on any record except when that impression is attested by the signatures of:

(1)	any two directors or officers;

(2)	if the Company only has one director, that director; or

(3)	any one or more directors or officers or persons as may be determined by the directors.

25.2	Sealing Copies

For the purpose of certifying under seal a certificate of incumbency of the directors or officers of the Company or a true copy of any resolution or other document, despite Article 25.1, the impression of the seal may be attested by the signature of any director or officer.

25.3	Mechanical Reproduction of Seal

The directors may authorize the seal to be impressed by third parties on share certificates or bonds, debentures or other securities of the Company as they may determine appropriate from time to time. To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are, in accordance with the Business Corporations Act or these Articles, printed or otherwise mechanically reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing the seal and the chair of the board or any senior officer together with the secretary, treasurer, secretary-treasurer, an assistant secretary, an assistant treasurer or an assistant secretary-treasurer may in writing authorize such person to cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the use of such dies. Share certificates or bonds, debentures or other securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the seal impressed on them.

26.	Prohibitions

26.1	Definitions

In this Article 26:

(1)	“designated security” means:

(a)

a voting security of the Company;

(b)

a security of the Company that is not a debt security and that carries a residual right to participate in the earnings of the Company or, on the liquidation or winding up of the Company, in its assets; or

(c)

a security of the Company convertible, directly or indirectly, into a security described in paragraph (a) or (b);

(2)	“security” has the meaning assigned in the Securities Act (British Columbia);

(3)	“voting security” means a security of the Company that:

(a)

is not a debt security, and

(b)

carries a voting right either under all circumstances or under some circumstances that have occurred and are continuing.

26.2	Application

Article 26.3 does not apply to the Company if and for so long as it is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply.

26.3	Consent Required for Transfer of Shares or Designated Securities

No share or designated security may be sold, transferred or otherwise disposed of without the consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

27.	Special Rights and Restrictions

27.1	Unlimited Amount

The Company is authorized to issue an unlimited number of Class A Common Shares and an unlimited number of Class B Preferred Shares.

27.2	Class A Common Shares

The Class A Common Shares (the “Common Shares”) shall have the following rights, privileges, restrictions and conditions:

27.2.1

Voting Rights

The holders of the Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders of the Company and shall have one vote for each Common Share held.

27.2.2

Dividends

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Common Shares shall be entitled to receive any dividends declared and payable by the Company on the Common Shares.

27.2.3

Distribution Rights

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Common Shares shall be entitled to receive the remaining property of the Company upon the liquidation, dissolution or winding-up of the Company.

27.3	Class B Preferred Shares

The Class B Preferred Shares shall have the following rights, privileges, restrictions and conditions:

27.3.1

Class B Preferred Shares issuable in series

The Class B Preferred Share may at any time and from time to time be issued in one or more series.

27.3.2

Terms of Each Series

Subject to the Business Corporations Act (the “Act”), the Company may fix by director’s resolution, before issue, the number of Class B Preferred Shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the Class B Preferred Shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) and the means of determining such dividends, the dates of payment, any redemption or purchase rights and the terms and conditions attaching thereto, any conversion rights, and any rights upon liquidation, dissolution or winding-up of the Company, any sinking fund or other provisions, the whole to be subject to the filing of a Notice of Alteration under the Act and creation of amendment to these Articles setting forth the designation, rights, privileges, restrictions and conditions attaching to the Class B Preferred Shares of the series.

27.3.3

Ranking of Preferred Shares

The Class B Preferred Shares of each series shall, with respect to the payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, rank on a parity with the Class B Preferred Shares of every other series and be entitled to preference over the Class A Common Shares and over any other shares of the Company ranking junior to the Class B Preferred Shares. If any amount of cumulative dividends (whether or not declared) or declared non-cumulative dividends or any amount payable on any such distribution of assets constituting a return of capital in respect of the preferred shares of any series is not paid in full, the Class B Preferred Shares of that series shall participate rateably with the Class B Preferred Shares of every other series in respect of such dividends and amounts.

27.4	Class B Series I Preferred Shares

The first series of Class B Preferred Shares shall be designated as Class B Series I Preferred Shares (the “Series I Preferred Shares”). The rights, privileges, restrictions and conditions attaching to the Series I Preferred Shares are as follows:

27.4.1

Voting Rights

The holders of the Series I Preferred Shares shall be entitled to receive notice of and to attend all meetings of shareholders of the Company (other than a separate meeting of the holders of another class of shares), and shall have one vote for each Series I Preferred Share held. The formalities to be observed with respect to the calling and conduct of any meeting of holders of the Series I Preferred Shares, including the giving of notice and the record dates therefore, the quorum therefor, the procedure and voting thereat, shall mutatis mutandis be those from time to time prescribed by the Articles of the Company with respect to a meeting of shareholders.

27.4.2

Dividends

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Series I Preferred Shares shall be entitled to receive any dividends declared and payable by the Company on the Series I Preferred Shares. No dividend shall be declared or paid or set apart for the Class A Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart.

27.4.3

Distribution Rights

In the event of a change in control of the Company involving greater than fifty percent (50%) of the issued and outstanding Common Shares of the Company at a valuation of less than $0.60 per share, or the liquidation, dissolution or winding-up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, the holders of the Series 1 Preferred Shares shall be entitled to receive, in preference and priority to any payment or distribution to the holders of the Class A Common Shares or any other class of shares ranking junior to the Series I Preferred shares, an amount equal to $0.30 per share equal, together with all accrued and unpaid dividends thereon. After payment to the holders of the Series I Preferred shares of the amounts so payable to them, they shall be entitled to share in any further distribution of the property or assets of the Company.

27.4.4

Conversion Rights up to and including January 30, 2011

The holders of the Series I Preferred Shares shall have the right at any time up to and including January 30, 2011 to convert each fully paid Series I Preferred Shares into one unit of the Company. Each unit (the “Unit”) shall consist of one (1) Common Share and one-half (1/2) of a purchase warrant (the “Purchase Warrant”) in the capital of the Company where one (1) full warrant may be exercised at an exercise price of $0.40 up to and including January 30, 2011 to purchase a Common Share.

Each Series 1 Preferred Share shall be automatically converted into one (1) Unit upon either of the following events occurring on or before January 30, 2011:

(a)

the Common Shares becoming listed for trading on a recognized stock exchange; or

(b)

the sale of Common Shares to an arm’s length third party(s) at a valuation of $1.20 per share or higher.

Each Purchase Warrant will automatically expire, if unexercised by no later than January 30, 2011. No fractional Common Shares shall be issued when a Purchase Warrant is exercised.

27.4.5

Conversion Rights after January 30, 2011

The holders of the Series I Preferred Shares shall have the right at any time after January 30, 2011 to convert each fully paid Series I Preferred Shares into one (1) Common Share.

Each Series 1 Preferred Share shall be automatically converted into one (1) Common Share upon either of the following events occurring at any time after January 30, 2011:

(a)

the Common Shares becoming listed for trading on a recognized stock exchange; or

(b)

the sale of Common Shares to an arm’s length third party(s) at a valuation of $1.20 per share or higher.

The conversion rights provided by Articles 27.4.4 and 27.4.5 hereof may be exercised by notice in writing delivered to the registered office of the Company accompanied by the certificates representing the Series I Preferred shares and Purchase Warrants in respect of which the holder desires to exercise such right of conversion.

27.4.6

Anti-dilution Provisions

If the Class A Common Shares or the Series I Preferred Shares are at any time subdivided, consolidated, converted (except for a conversion of Series I Preferred Shares into Units of Class A Common Shares and Common Share Purchase Warrants under these Articles) or exchanged for a greater or lesser number of shares of the same or another class, appropriate adjustment shall be made in the rights and conditions attached to the Class A Common Shares and the Series I Preferred Shares so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

27.4.7

Information Rights

The holders of the Series I Preferred Shares shall be entitled to receive the same information from the Company as provided to the holders of the next subsequently issued series of Class B Preferred Shares.

27.5	Class B Series II Preferred Shares

The second series of Class B Preferred Shares shall be designated as Class B Series II Preferred Shares (the “Series II Preferred Shares”). The rights, privileges, restrictions and conditions attaching to the Series II Preferred Shares are as follows:

27.5.1

Voting Rights

The holders of the Series II Preferred Shares shall be entitled to receive notice of and to attend all meetings of shareholders of the Company (other than a separate meeting of the holders of another class of shares), and shall have one vote for each Series II Preferred Share held. The formalities to be observed with respect to the calling and conduct of any meeting of holders of the Series II Preferred Shares, including the giving of notice and the record dates therefore, the quorum therefor, the procedure and voting thereat, shall mutatis mutandis be those from time to time prescribed by the Articles of the Company with respect to a meeting of shareholders.

27.5.2

Dividends

Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Series II Preferred Shares shall be entitled to receive any dividends declared and payable by the Company on the Series II Preferred Shares. No dividend shall be declared or paid or set apart for the Class A Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares and all Series II Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart. A 12% annual cumulative dividend shall be paid on the Series II Preferred Shares. This dividend shall be paid “in-kind” to the holders in the form of Class A Common Shares of the Company converted at the Transaction Price at the time of a Transaction (as both are defined in Article 27.5.3). For greater certainty, any unpaid cumulative dividend(s) due to the holders in accordance with this Article 27.5.2. shall be paid to the holders at the time of the Transaction in that number Class A Common Shares equal to the amount of any unpaid cumulative dividend(s) due to the holders divided by the Transaction Price (without discount). No fractional shares shall be issued upon the granting of any dividend in-kind of Class A Common Shares.

27.5.3

Conversion Rights

Each Series II Preferred Share shall be automatically converted upon either of the following events occurring (the “Transaction”):

(a)

an initial public offering of the Class A Common Shares;

(b)

the Class A Common Shares becoming listed for trading on a recognized stock exchange or quotation service; or

(c)

a change in control of the Company involving greater than fifty percent (50%) of the issued and outstanding Class A Common Shares and Class B Preferred Shares.

Each Series II Preferred Share shall convert into Class A Common Shares at the conversion rate defined below (the “Series II Conversion”) plus one-half (1/2) of a purchase warrant (the “Series II Purchase Warrant”) in the capital of the Company where one (1) full Series II Purchase Warrant may be exercised at the Transaction Price for a period of two (2) years from its date of issue to purchase one (1) Class A Common Share. The Transaction Price shall mean the price or deemed value of the Class A Common Shares paid by a third party in connection with the Transaction or the price of the Class A Common Shares paid by a third party in any financing that occurs as a component of, or in connection with, the Transaction (as the case may be). The Series II Conversion shall mean the number of Class A Common Shares which could be purchased by a holder with the aggregate subscription proceeds received by the Company for the holder’s Series II Preferred Shares at a price equal to the Transaction Price less twenty-five percent (25%). No fractional shares shall be issued under any conversion into Class A Common Shares.

27.5.4

Anti-dilution Provisions

If the Class A Common Shares or the Series I Preferred Shares or the Series II Preferred Shares are at any time subdivided, consolidated, converted (except for a conversion of either the Series I Preferred Shares into Units of Class A Common Shares and Common Share Purchase Warrants or the Series II Purchase Warrants into Class A Common Shares as contemplated by these Articles ) or exchanged for a greater or lesser number of shares of the same or another class, appropriate adjustment shall be made in the rights and conditions attached to the Class A Common Shares, the Series I Preferred Shares and the Series II Preferred Shares so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

27.5.5

Information Rights

The holders of the Series II Preferred Shares shall be entitled to receive the same information from the Company as provided to the holders of each of the other issued series of Class B Preferred Shares.

- END -

Exhibit 2.1

FORM OF PROMISSORY NOTE

$[ ]	September 24, 2012

FOR VALUE RECEIVED, PACIFIC THERAPEUTICS LTD, , a British Columbia corporation, (the “Borrower”), hereby promises to pay to or to the order of [NAME OF CREDITOR] (the “Creditor”), a businessman residing at Suite 1209 - 409 Granville Street, Vancouver, British Columbia, on September 24, 2013 (the “Maturity Date.”) or on such earlier date as the principal hereof becomes payable in accordance with the following provisions, the principal sum of [AMOUNT] ($_____) , in lawful money of Canada (the “Principal Amount”), and promises to pay interest on the Principal Amount from the date hereof until such Principal Amount is paid in full and both before and after maturity and/or default and judgment at a rate of one percent (1.0%) per month and payable quarterly. Interest shall be calculated hereunder without deduction or allowance in respect of deemed reinvestment of interest or otherwise. Any interest payable hereunder which is not paid when due shall bear interest at the aforesaid rate during the period in arrears.

If any of the following shall occur and be continuing:

(a)

the Borrower shall fail to pay any amount of interest hereunder when due and payable and 3 days shall have elapsed after written notice of such failure has been given to the Borrower by the Creditor;

(b)

the entry by a court having jurisdiction of:

(i)

a decree or order for relief in respect of the Borrower in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or similar law; or

(ii)

a decree or order adjudging the Borrower a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, compromise, or composition of or in respect of the Borrower under any applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official of the Borrower or of any substantial part of the property of the Borrower, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any other such decree or order unstayed and in effect for a period of 30 consecutive days; or

(iii)

the commencement by the Borrower of a voluntary case of proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of any other case of proceeding to be adjudicated a bankrupt or insolvent, or the consent of the Borrower to the entry of a decree or order for relief in respect of the Borrower in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceedings against it, or the filing by the Borrower of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by the Borrower to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Borrower or of any substantial part of the property of the Borrower, or the making by the Borrower of any assignment for the benefit of creditors, or the admission by the Borrower in writing of its inability to pay its debts generally as they become due,

then in such event, the Creditor may, by written notice to the Borrower, declare all amounts hereunder immediately due and payable, whereupon the principal hereof plus all accrued interest hereon shall become due and payable.

Conversion at Option of the Creditor

The Creditor may, at its option, at any time within the period of the Promissory Note and up to 5 days following the Maturity Date by delivering a written notice thereof to the Borrower, convert all or part of the Principal Amount of the Promissory Note then outstanding, together with any and all accrued and unpaid interest thereon, into Units in the capital of the Borrower. Each Unit shall consist of one (1) common share in the capital of the Company and one (1) purchase warrant, each warrant being exercisable for one (1) common share in the capital of the Company for a period of two (2) years from the warrant issue date. Subject to regulatory approval, the conversion price of the Common Shares to be issued as part of the Unit will be calculated based on weighted average closing price of the Company’s common shares on the Canadian National Stock Exchange (CNSX:PT) for the ten (10) trading days immediately preceding the Unit’s conversion date, less twenty-five (25%). Subject to regulatory approval, the exercise price of the purchase warrants to be issued as part of the Unit will be calculated based on weighted average closing price of the Company’s common shares on the Canadian National Stock Exchange (CNSX:PT) for the ten (10) trading days immediately preceding the Unit’s conversion date, plus twenty-five (25%).

Corporate Changes

If, at any time after the date hereof and prior to the Maturity Date, there is a capital reorganization of the Common Shares or a merger or consolidation of the Borrower with or into another corporation in which the Borrower is not the surviving corporation, or the sale of the Borrower’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation or sale, lawful provision will be made so that the Creditor shall thereafter be entitled to receive, upon the conversion of the Promissory Note in accordance with its terms, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation to which the Creditor would have been entitled in such capital reorganization, merger, consolidation or sale if the Common Shares issued pursuant to the conversion had been issued before such reorganization, merger, consolidation or sale. The Borrower shall notify the Creditor of any such reorganization, merger, consolidation or sale or reclassification, split, subdivision or combination of shares not later than the effective date thereof.

If the Borrower, at any time after the date hereof and prior to the Maturity Date, subdivides or combines its Common Shares, then the number of Common Shares deliverable to the Creditor upon the conversion of the Promissory Note in accordance with its terms will be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.

Repayable at Option of the Borrower

The Borrower may, at its option, upon the issuance of any news release concerning the results of its first clinical trial for its PTL-202 drug at any time within the period of the Promissory Note and up to ten (10) days following the date of the news release, by delivering a written notice thereof to the Creditor, repay all of the Principal Amount of the Promissory Note then outstanding, together with any and all accrued and unpaid interest thereon in cash, and by issuing the Creditor 200,000 purchase warrants in the capital of the Company. Subject to regulatory approval each warrant being exercisable for one (1) common share in the capital of the Company for a period of two (2) years from the warrant issue date at an exercise price equal to the weighted average closing price of the Company’s common shares on the Canadian National Stock Exchange (CNSX:PT) for the ten (10) trading days immediately preceding the date of the written notice, plus twenty-five (25%).If the Borrower exercises this option in the first three (3) months of the Promissory Note period, it shall pay the Creditor three (3) months of accrued and unpaid Interest.

In consideration for the Creditor loaning the Principal Amount to the Borrower under this Promissory Note, the Borrower shall issue the Creditor 200,000 purchase warrants in the capital of the Company, each warrant being exercisable for one (1) common share in the capital of the Company for a period of two (2) years from the warrant issue date at an exercise price of $0.22 per share .

If the Borrower is in default under this Promissory Note, it shall pay any and all costs and expenses reasonably incurred by the Creditor in connection with the enforcement hereof or the collection of the Principal Amount and the accrued interest then outstanding hereunder, including, without limitation, all legal fees and disbursements reasonably incurred by the Creditor.

Failure to exercise any right the Creditor may have or be entitled to in the event of any default hereunder shall not constitute a waiver of such right or any other right in the event of any subsequent default.

Both principal and interest hereon are payable in lawful money of Canada to the Creditor at its address described above, or as otherwise directed by the Creditor.

The Borrower hereby waives presentment for acceptance and payment, including applicable grace periods, demand, notice of dishonor and protest, or a further notice of any kind and agrees that it shall remain liable in respect hereof as if presentment, demand, notice of dishonor and protest had been duly made or given.

Time is of the essence of this Promissory Note and each of the obligations evidenced hereby.

Any notices, requests, demands or other communications required or permitted to be sent hereunder or under any related document shall be delivered personally, sent by telefax, sent by overnight courier or mailed by registered or certified mail, return receipt requested, to such address as set out on page one of this Promissory Note or such other address either party hereto shall from time to time notify the other, and shall be deemed to have been received on the day of personal delivery, when sent by telefax on the day when confirmation is received, one (1) business day after deposit with an overnight domestic courier or five (5) days after deposit in the mail, as the case may be.

This Promissory Note shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein.

The Creditor shall not transfer or assign this Promissory Note, or any interest herein with the prior written consent of the Borrower, which consent will not be unreasonably withheld.

This Promissory Note shall ensure to the benefit of the Creditor, its successors and permitted assigns, and shall be binding on the Borrower and its successors.

DATED as of the 24th day of September, 2012.

	PACIFIC THERAPEUTICS LTD .
	(the “Borrower”)


	Authorized Signatory

Exhibit 2.2

UNLESS PERMITTED BY SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [ ].

THE WARRANTS EVIDENCED HEREBY ARE EXERCISABLE ON OR BEFORE 5:00 P.M. (VANCOUVER TIME) ON [ ], AFTER WHICH TIME THE WARRANTS EVIDENCED HEREBY SHALL BE DEEMED TO BE VOID AND OF NO FURTHER FORCE OR EFFECT.

Certificate No: [ ]

No. of shares Purchase Warrants: [ ]

SHARE PURCHASE WARRANTS

PACFIC THERAPEUTICS LTD.

This is to Certify That, FOR VALUE RECEIVED, [Name of Investor] of [Address] ( the “Holder”) is entitled to purchase, subject to the provisions of these share purchase warrants (the “Warrants”), from Pacific Therapeutics Ltd., a corporation incorporated under the Business Corporations Act (British Columbia) (the “Corporation”), up to [Number] common shares of the Corporation (the “Warrant Shares”) for a period of two years at a purchase price of $[ ] per Warrant Share (the “Exercise Price”) until [Date]. The Holder may exercise these Warrants at any time from the date hereof until 5:00 p.m. Vancouver Time on [Date] (the “Exercise Period”).

This Warrant is subject to the following terms and conditions:

1. Exercise . The rights represented by this Warrant may be exercised by the Holder, in whole or in part, by written election, in the form set forth below, by the surrender of this Warrant (properly endorsed if required) at the principal office of the Company, by payment to it by cash, certified check or bank draft of the Warrant Exercise Price for the shares to be purchased and by delivery of a subscription agreement, an investment letter and/or similar documents acceptable to the Company. The shares so purchased shall be deemed to be issued as of the close of business on the date on which this Warrant has been exercised by payment to the Company of the Warrant Exercise Price. Certificates for the shares so purchased, bearing an appropriate restrictive legend, shall be delivered to the Holder within 15 days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new warrant representing the number of shares, if any, with respect to which this Warrant has not been exercised shall also be delivered to the Holder hereof within such time. No fractional shares shall be issued upon the exercise of this Warrant.

2. Shares . All shares that may be issued upon the exercise of the rights represented by this Warrant shall, upon issuance, be duly authorized and issued, fully paid and non-assessable shares. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant a sufficient number of Class A Common Shares to provide for the exercise of the rights represented by this Warrant.

3. Adjustment . The Warrant Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this Section 3:

(a) If the Company at any time divides the outstanding shares of its Class A Common Shares into a greater number of shares (whether pursuant to a stock split, stock dividend or otherwise), and conversely, if the outstanding shares of its common stock are combined into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such division or combination shall be proportionately adjusted to reflect the reduction or increase in the value of each such common share.

(b) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of the Company’s Class A Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for such shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Holder shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the common shares of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, other securities or assets as would have been issued or delivered to the Holder if the Holder had exercised this Warrant and had received such common shares immediately prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation, merger or sale unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed to the Holder at the last address of the Holder appearing on the books of the Company the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase.

(c) If the Company takes any other action, or if any other event occurs, which does not come within the scope of the provisions of Section 3(a) or 3(b), but which should result in an adjustment in the Warrant Exercise Price and/or the number of shares subject to this Warrant in order to fairly protect the purchase rights of the Holder, an appropriate adjustment in such purchase rights shall be made by the Company.

(d) Upon each adjustment of the Warrant Exercise Price, the Holder shall thereafter be entitled to purchase, at the Warrant Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

(f) Upon any adjustment of the Warrant Exercise Price, the Company shall give written notice thereof to the Holder stating the Warrant Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

4. No Rights as Shareholder . This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company.

5. Non -Transferable . This Warrant and all rights hereunder may not be transferred or assigned in whole or in part.

6. Notices . All demands and notices to be given hereunder shall be delivered or sent by first class mail, postage prepaid; in the case of the Company, addressed to its corporate headquarters, Suite 1500-409 Granville Street, Vancouver, B.C. V6C 1T2 until a new address shall have been substituted by like notice; and in the case of the Holder, addressed to the Holder at the address written below, until a new address shall have been substituted by like notice.

7. Governing Law. This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the Province of British Columbia, excluding that body of law applicable to conflicts of laws.

IN WITNESS WHEREOF , the Company has caused this Warrant to be executed on [date].

	PACFIC THERAPEUTICS LTD.

	By:
		Authorized Signatory

WARRANT EXERCISE CERTIFICATE

In connection with the exercise by the undersigned (the “Subscriber”) of a warrant to purchase ____________ Class A Common Shares of Pacific Therapeutics Ltd. (the “Shares”), the Subscriber hereby represents and warrants to the Company as follows:

(a)	the Subscriber acknowledges that the Shares are being acquired pursuant to an exemption of the securities laws in the province in which the Subscriber resides;

(b)	it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares and it is able to bear the economic risk of loss of its entire investment;

(c)	it is acquiring the Shares for its own account, for investment purposes only and not with a view to any resale, distribution or other disposition of the Shares in violation of any applicable securities laws; and

(d)	upon the issuance thereof, the certificates representing the Shares will bear a legend in substantially the following form:

Unless permitted under securities legislation, the holder of this security must not trade the security before the date that is 4 months and a day after the later of (I) the date the securities are issued, and (II) the date the issuer becomes a reporting issuer in any province or territory.

Dated this ______ day of __________________, 20___.


(Name of Subscriber - please print)			(Official Capacity or Title - Please Print)


By:
(Authorized Signature)			(Please print name of individual whose signature appear

Exhibit 2.3

UNLESS PERMITTED BY SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [DATE].

THE WARRANTS EVIDENCED HEREBY ARE EXERCISABLE ON OR BEFORE 5:00 P.M. (VANCOUVER TIME) ON [DATE], AFTER WHICH TIME THE WARRANTS EVIDENCED HEREBY SHALL BE DEEMED TO BE VOID AND OF NO FURTHER FORCE OR EFFECT.

Certificate No: [ ]

No. of shares Purchase Warrants: [ ]

SHARE PURCHASE WARRANTS

PACFIC THERAPEUTICS LTD.

This is to Certify That, FOR VALUE RECEIVED, [Name of Investor] of [Address] (the “Holder”), is entitled to purchase, subject to the provisions of these share purchase warrants (the “Warrants”), from Pacific Therapeutics Ltd., a corporation incorporated under the Business Corporations Act (British Columbia) (the “Corporation”), up to [Number] common shares of the Corporation (the “Warrant Shares”) for a period of two years at a purchase price of $[ ] per Warrant Share (the “Exercise Price”) until [Date]. The Holder may exercise these Warrants at any time from the date hereof until 5:00 p.m. Vancouver Time on [Date] (the “Exercise Period”).

1. EXERCISE OF WARRANTS .

These Warrants may be exercised in whole or in part at any time or from time to time during the Exercise Period. However, if such day is a day on which banking institutions in the city of Vancouver are authorized by law to close, then on the next succeeding day which shall not be such a day. These Warrants may be exercised by presentation and surrender hereof to the Corporation at its principal office with the Purchase Form attached hereto as Schedule “A” duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of the Warrants, but not later than five (5) business days following the receipt of good and available funds, the Corporation shall issue and send to the Holder a Direct Registration Advice statement or certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder. If these Warrants should be exercised in part only, the Corporation shall, upon surrender of these Warrants for cancellation, execute and deliver new Warrants evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder.

2. RESERVATION OF SHARES . The Corporation covenants and agrees that the Warrant Shares that may be issued upon due exercise of these Warrants will, upon issuance, be duly and validly issued, fully paid and non-assessable and no personal liability will attach to the holder thereof. The Corporation further covenants and agrees that during the Exercise Period, the Corporation will at all times have authorized and reserved a sufficient number of its common shares to provide for the exercise of these Warrants

3. FRACTIONAL SHARES . No fractional Warrant Shares or script representing fractional Warrant Shares shall be issued upon the exercise of these Warrants. With respect to any fraction of a Warrant Share called for upon any exercise hereof, such fraction shall be rounded down to the nearest whole Warrant Share.

4. TRANSFER, EXCHANGE, OR LOSS OF WARRANTS. The Warrants are transferrable only if the transfer is pre-approved in writing by the Corporation. These Warrants are exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Corporation for other warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares purchasable hereunder. Upon receipt by the Corporation of evidence satisfactory to it of the loss, theft, destruction or mutilation of these Warrants, and upon surrender and cancellation of these Warrants, if mutilated, the Corporation will execute and deliver new Warrants of like tenor and date.

5. RIGHTS OF THE HOLDER . These Warrants shall not entitle the Holder to any voting rights or any other rights, or subject the Holder to any liabilities, as a shareholder of the Corporation.

6. ANTI-DILUTION PROVISIONS .

6.1 The acquisition rights in effect at any date attaching to the Warrants shall be subject to adjustment from time to time as follows:

(a)

if and whenever at any time during the Exercise Period, the Corporation shall:

(i)

subdivide, redivide or change its outstanding common shares into a greater number of shares; or

(ii)

reduce, combine or consolidate its outstanding common shares into a smaller number of shares,

the Exercise Price of each Warrant shall be adjusted immediately after the effective date of such subdivision, redivision, change, reduction, combination or consolidation, by multiplying the Exercise Price then in effect by a fraction of which the numerator shall be the total number of common shares outstanding immediately prior to such date and the denominator shall be the total number of common shares outstanding immediately after such date. Such adjustment shall be made successively whenever any event referred to in this subsection shall occur. If and whenever at any time after the date hereof during the Exercise Period any of the events set out above shall occur and the occurrence of such event results in an adjustment of the Exercise Price, then the number of Warrant Shares purchasable pursuant to this Warrant shall be adjusted contemporaneously with the adjustment of the Exercise Price by multiplying the number of Warrant Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator of which shall be the Exercise Price resulting from such adjustment;

(b)

if and whenever at any time during the Exercise Period, there is a reclassification of the common shares or a capital reorganization of the Corporation other than as described in subsection 6.1(a) or a consolidation, amalgamation or merger of the Corporation with or into any other body corporate, trust, partnership or other entity, or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other body corporate, trust, partnership or other entity, the Holder of these Warrants, if it has not exercised its right of acquisition as to the effective date of such reclassification, capital reorganization, consolidation, amalgamation, merger, sale or conveyance, upon the exercise of such right thereafter, shall be entitled to receive and shall accept, in lieu of the number of Warrant Shares that the Holder of these Warrants would otherwise be entitled to acquire, the number of shares or other securities or property of the Corporation or of the body corporate, trust, partnership or other entity resulting from such merger, amalgamation or consolidation, or to which such sale or conveyance may be made, as the case may be, that the Holder of these Warrants would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, merger, sale or conveyance, if, on the record date or the effective date thereof, as the case may be, the Holder of these Warrants had been the registered holder of the number of common shares sought to be acquired by it. Any new Direct Registration Advice statement or certificate issued by the Corporation, any successor to the Corporation or such purchasing body corporate, partnership, trust or other entity shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 6 and which shall apply to successive reclassification, reorganizations, amalgamations, consolidations, mergers, sales or conveyances;

(c)

if and whenever at any time during the Exercise Period, the Corporation shall fix a record date or if a date of entitlement to receive is otherwise established (any such date being hereinafter referred to in this Subsection (c) as the “ record date ”) for the issuance of rights, options or warrants to all or substantially all the holders of the outstanding common shares of the Corporation entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase common shares of the Corporation or securities convertible into or exchangeable for common shares at a price per share or, as the case may be, having a conversion or exchange price per share less than 95% of the Fair Market Value (as hereinafter defined) on such record date, the Exercise Price shall be adjusted immediately after such record date to reflect the event discussed in this Subsection (c); common shares owned by or held for the account of the Corporation or any subsidiary of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that any rights or warrants are not so issued or any such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price which would then be in effect based upon the number of common shares or conversion or exchange rights contained in convertible or exchangeable securities actually issued upon the exercise of such rights or warrants, as the case may be.

For the purposes of the foregoing, the “ Fair Market Value ” of the common shares at any date shall be the volume weighted average price per share for any 20 consecutive trading days (which may be selected by the directors of the Corporation) commencing not more than 45 trading days and not less than five trading days before such date on the TSX Venture Exchange or, if the Common Shares are not then listed on the TSX Venture Exchange, then on such other stock exchange on which the Common Shares are then listed as may be selected by the directors of the Corporation or, if the common shares are not then listed on a stock exchange, on the over-the-counter market; the weighted average price shall be determined by dividing the aggregate of the closing sales prices of all such shares sold on such exchange or market, as the case may be, during the said 20 consecutive trading days by the total number of shares so sold; provided that, if there is no market for the common shares during all or part of such period during which the Fair Market Value thereof would otherwise be determined, the Fair Market Value in respect of a common share shall in respect of all or such part of the period be determined by a nationally recognized accounting firm chosen by the Corporation.

(d)

the adjustments provided for in this Section 6 are cumulative. After any adjustment pursuant to this Section, the term “Warrant Shares” where used in this Certificate shall be interpreted to mean securities of any class or classes which, as a result of such adjustment and all prior adjustments pursuant to this Section, the Holder of these Warrants is entitled to receive upon the exercise of these Warrants, and the number of Warrant Shares indicated by any exercise made pursuant to a Warrant shall be interpreted to mean the number of Warrant Shares or other property or securities the Holder of these Warrants is entitled to receive, as a result of such adjustment and all prior adjustments pursuant to this Section, upon the full exercise of a Warrant.

6.2 All shares of any class or other securities which the Holder of these Warrants is at the time in question entitled to receive on the exercise of these Warrants, whether or not as a result of adjustments made pursuant to this Section 6, shall, for the purposes of the interpretation of this Certificate, be deemed to be shares which the Holder of these Warrants is entitled to acquire pursuant to such Warrants.

6.3 As a condition precedent to the taking of any action which would require an adjustment in any of the acquisition rights pursuant to any of the Warrants, including the number of Warrant Shares which are to be received upon the exercise thereof, the Corporation shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation or a successor company has unissued and reserved in its authorized capital and may validly and legally issue as fully paid and non-assessable all the shares which the holders of such Warrants are entitled to receive on the full exercise thereof in accordance with the provisions hereof.

6.4 The Corporation shall not be required to deliver Direct Registration Advice statements or certificates for Warrant Shares while the share transfer books of the Corporation are properly closed prior to any meeting of shareholders, for the payment of dividends or for any other purpose and in the event of the surrender of any Warrant in accordance with the provisions hereof and the making of any subscription and payment for the Warrant Shares called for thereby during any such period, delivery of Direct Registration Advice statements or certificates for Warrant Shares may be postponed for not more than five business days after the date of the re-opening of said share transfer books. Any such postponement of delivery of Direct Registration Advice statements or certificates shall be without prejudice to the right of the Holder, if the Holder has surrendered the same and made payment during such period, to receive such Direct Registration Advice statements or certificates for the Warrant Shares called for after the share transfer books have been re-opened.

7. NOTICES TO HOLDERS OF WARRANTS . So long as these Warrants shall be outstanding, (a) if the Corporation shall pay any dividend or make any distribution upon its common shares, or (b) if the Corporation shall offer to the holders of common shares for subscription or purchase by them any share of any class or any other rights or (c) if any capital reorganization of the Corporation, reclassification of the capital of the Corporation, consolidation or merger of the Corporation with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Corporation to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Corporation shall be effected, then in any such case, the Corporation shall cause to be mailed by certified mail to the Holder, at least 15 days prior the date specified in (i) or (ii) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights or (ii) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of common shares or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

8. CHANGE; WAIVER . Subject to the approval of the TSX Venture Exchange, or any successor exchange or other stock exchange on which the Corporation’s common shares may be listed (the Exchange”), the provisions of these Warrants may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by the Corporation and the holders of at least a majority of the Warrants then outstanding.

9. RESTRICTIONS ON EXERCISE . The Warrants represented hereby and securities which may be acquired hereunder have not been and will not be registered under the United States Securities Act of 1933, as amended (the “1933 Act”) or the securities laws of any state of the United States, and the Warrants represented hereby may not be exercised in the United States or by or on behalf of any U.S. Person (as defined in Regulation S under the 1933 Act) unless an exemption is available from the registration requirements under the 1933 Act. A Holder who is a U.S. Person may meet the requirements for such exemption if: (i) the Holder represents that it is “accredited investor” as defined in Rule 501 of Regulation D under the 1933 Act, who was the original purchaser of the Warrants from the Corporation at the time it was a U.S. Person, or (ii) the Holder represents that it is the original purchaser of the Warrants from the Corporation that is exercising the Warrant in an “off shore transaction” (as defined in Regulation S under the 1933 Act); provided that the Corporation may require further information from the Holder to confirm such status, and in any event, reserves the right to refuse the exercise of the Warrants, if such exercise would not comply with the 1933 Act or applicable state laws. If the Corporation refuses the exercise on the basis that it would not comply with the 1933 Act or applicable state laws, or if the Holder hereof is a U.S. Person and is not the original purchaser of the Warrants from the Corporation, the Corporation will accept a request for the exercise of the Warrants upon the Holder furnishing an opinion of counsel of recognized standing in form and substance satisfactory to the Corporation to the effect that such exercise of the Warrants can lawfully be made without registration or qualification under United States federal or state laws.

10. RESTRICTIONS ON UNDERLYING SHARES . If this Warrant is exercised within the United States or by or on behalf of a U.S. person (except a U.S. Person exercising the Warrant in an “off shore transaction” (as defined in Regulation S under the 1933 Act)), the Holder understands that upon the original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the 1933 Act or applicable U.S. state laws and regulations, the Direct Registration Advice statements or certificates representing the Warrant Shares, and all securities issued in exchange therefor or in substitution thereof, will bear a legend in substantially the following form:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF CADAN RESOURCES CORPORATION (THE “CORPORATION”) THAT SUCH SECURITIES WILL NOT BE OFFERED, SOLD PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT, FOR SO LONG AS THE CORPORATION REMAINS A “FOREIGN ISSUER” AS DEFINED IN SUCH REGULATION S, OR (C) IN A TRANSACTION THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND ALL APPLICABLE STATE LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE CORPORATION, AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL.”

provided, that if any Warrant Shares are being sold under clause (B) above, at a time when the Corporation is a “foreign issuer” as defined in Rule 902 under the 1933 Act, the legend set forth above may be removed by providing a declaration to the Corporation in such form as the Corporation may from time to time prescribe or accept, to the effect that the sale of the Warrant Shares is being made in compliance with Rule 904 of Regulation S under the 1933 Act; and provided, further, that, if any Warrant Shares are being transferred otherwise than pursuant to Rule 144 of the 1933 Act, the legend may be removed by delivery to the registrar and transfer agent of the Corporation of an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, to the effect that such legend is no longer required under applicable requirements of the 1933 Act or state securities laws.

11. LEGENDING . Any Direct Registration Advice statement or certificate representing Warrant Shares issued upon the exercise of the Warrants prior to the date which is four months and one day after the date hereof will bear the following legend in addition to any legend that may be required pursuant to Exchange policies:

"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE JANUARY 22, 2013."

provided that at any time subsequent to the date which is four months and one day after the date hereof any Direct Registration Advice statement or certificate representing such Common Shares may be exchanged for a Direct Registration Advice statement or certificate bearing no such legends.

12. GENERAL .

12.1 The headings in this Certificate are for reference only and do not constitute terms of the Certificate.

12.2 Whenever the singular or masculine is used in this Certificate the same shall be deemed to include the plural or the feminine or the body corporate as the context may require.

12.3 This Certificate shall ensure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.

12.4 This Certificate shall be subject to, governed by, and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

12.5 All references herein to monetary amounts are references to lawful money of Canada.

IN WITNESS WHEREOF, the Corporation has caused these Warrants to be executed this [ ] day of [ ].

	PACIFIC THERAPEUTICS LTD.

	By:
		Authorized Signatory

Schedule “A”

Purchase Form

(1) The undersigned hereby irrevocably elects to exercise Warrants to purchase _______________________ shares (“Shares”) of Pacific Therapeutics Ltd. (the “Corporation”) (or such number of shares or other securities or property to which the undersigned is entitled in lieu thereof or in addition thereto under the provisions of the Warrants).

(2) The undersigned encloses herewith a bank draft, certified check or money order in the amount of $_________________ payable to the Corporation in payment of the exercise price determined under, and on the terms specified in, the Warrants.

(3) The undersigned hereby acknowledges that they will receive a Direct Registration Advice statement confirming the issuance of the Shares, unless written instructions are provided to the Corporation requesting the Shares be in certificate form.

(4) The undersigned hereby irrevocably directs that the said Warrant Shares be issued and delivered as follows:

Name(s) in Full	Address(es)	Number of Warrant Shares

(5) The undersigned represents, warrants and certifies as follows (check only on one of the following boxes):

A. o	The undersigned holder (i) at the time of exercise of these Warrants is not in the United States; (ii) is not a U.S. resident and is not exercising these Warrants on behalf of a U.S. resident; and (iii) did not execute or deliver this Purchase Form in the United States, its territories or lands.

B. o

The undersigned holder has delivered to the Corporation (or any successor thereto) an opinion of counsel (which will not be sufficient unless it is from counsel of recognized standing and in form and substance satisfactory to the Corporation and its counsel) to the effect that an exemption from the registration requirements of the 1933 Act and applicable state securities laws is available for the exercise of the Warrants, and the undersigned is acquiring the shares for investment purposes and not with a view to resale, distribution or other disposition of the Warrant Shares in violation of United States securities laws.

The undersigned holder understands that unless Box A above is checked and agreed to by the Corporation, the Direct Registration Advice statements or certificates representing the Shares will bear a legend restricting transfer without registration under the 1933 Act and applicable state securities laws unless an exemption from registration is available.

If any Shares are to be issued to a person or persons other than the undersigned holder, the undersigned holder must pay all applicable transfer taxes or other government charges.

Dated:
			Signature of Holder (or Authorized Signatory if a corporation)


			Print name (and title if applicable)

A-1

Exhibit 2.4

THIS WARRANT AND THE COMMON SHARES ACQUIRABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER ANY SECURITIES ACT OR THE SECURITIES LAWS OF ANY PROVINCE OR STATE. THIS WARRANT MAY NOT BE EXERCISED UNLESS THE WARRANT AND THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH JURISDICTION OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE.

PACFIC THERAPETICS LTD.

NON-TRANSFERABLE WARRANT

TO PURCHASE CLASS A

COMMON SHARES

For value received, [Name of Investor] , including his/her/its successors or permitted assigns (the “Holder”) is entitled to purchase from Pacific Therapeutics Ltd., a British Columbia corporation (the “Company”), up to [Number] fully paid and non-assessable shares of the Company’s Class A Common Shares, without par value or such greater or lesser number of such shares as may be determined by application of the anti-dilution provisions of this Warrant, at the price of CAD$[ ] per share (the “Warrant Exercise Price”), subject to adjustments as noted below. This Warrant may be exercised by the Holder at any time or from time to time prior to the close of business until [Date] .

This Warrant is subject to the following terms and conditions:

3. Adjustment . The Warrant Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this Section 3:

4. No Rights as Shareholder . This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company.

5. Non -Transferable . This Warrant and all rights hereunder may not be transferred or assigned in whole or in part.

6. Notices . All demands and notices to be given hereunder shall be delivered or sent by first class mail, postage prepaid; in the case of the Company, addressed to its corporate headquarters, Suite 1023, 409 Granville Street, Vancouver, B.C. V6C 1T2 until a new address shall have been substituted by like notice; and in the case of the Holder, addressed to the Holder at the address written below, until a new address shall have been substituted by like notice.

IN WITNESS WHEREOF , the Company has caused this Warrant to be executed and delivered by a duly authorized officer.

Dated: [ ]

	PACFIC THERAPEUTICS LTD.

	By:
		Authorized Signatory

WARRANT EXERCISE CERTIFICATE

(a)	the Subscriber acknowledges that the Shares are being acquired pursuant to an exemption of the securities laws in the province in which the Subscriber resides;

(e)	it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares and it is able to bear the economic risk of loss of its entire investment;

(f)	it is acquiring the Shares for its own account, for investment purposes only and not with a view to any resale, distribution or other disposition of the Shares in violation of any applicable securities laws; and

(g)	upon the issuance thereof, the certificates representing the Shares will bear a legend in substantially the following form:

Dated this ______ day of __________________, 20___.


(Name of Subscriber - please print)			(Official Capacity or Title - Please Print)


By:
(Authorized Signature)			(Please print name of individual whose signature appears)

Exhibit 4.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT is dated effective this 1st day of January, 2010.

BETWEEN:

Pacific Therapeutics Ltd., a company incorporated pursuant to the laws of the Province of British Columbia and having a business office at Suite 1023 – 409 Granville Street, Vancouver, B.C., V6C 1T2

(the " Com p any ")

AND:

Douglas Harry Unw i n, a businessman residing at [Address]

( the "Employee ”)

WHEREAS:

A. The Company is engaged in the business of the development of biotechnology products; and

B. The Employee is presently employed, or is about to be employed, by the Company on the terms and conditions which are now set forth in this Agreement.

NOW THEREFORE THIS AGREEMENT WITNES S E S that for and in consideration of the Employee's continued employment, the premises and mutual covenants and agreements hereinafter contained, the sum of $1.00 of lawful money of Canada now paid by the Company to the Employee and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged) the parties hereto covenant and agree as follows:

1.0 Employment

1.1 The Company hereby employs the Employee in the positions of President and Chief Executive Officer.

1.2 The Employee shall report to the Board of Directors of The Company, and shall perform, observe and conform to such duties and instructions as from time to time are reasonably and lawfully assigned or communicated to the Employee and are consistent with the position.

1.3 Where the Employee is a new employee, the first three months of the Employee's employment with the Company shall constitute a probationary period so that the Company shall have an opportunity to determine the Employee's ability to perform the duties of and the suitability for that position. The Company may terminate the Employee's employment during the Probationary Period as provided for in section 6 herein.

1.4 Throughout the term of this Agreement the Employee shall:

	(a)	diligently, honestly and faithfully serve the Company and shall use all reasonable efforts to promote and advance the interests and goodwill of the Company;

	(b)	conduct himself at all times in a manner which is not materially prejudicial to the Company's interests; and

	(c)	devote substantially all of his business time to the business and affairs of the Company.

1.5 The Employee shall disclose all potential conflicts of interest and activities which could reasonably be seen to compete, indirectly or directly, with the trade or business of the Company, to the Board of Directors of the Company, as from time to time constituted (the "Board"). The Board shall determine, in its sole discretion, whether the activity in question constitutes a conflict of interest or competition with the Company. To the extent that the Board, acting reasonably, determines a conflict or competition exists, the Employee shall discontinue such activity forthwith or within such longer period as the Board agrees.

1.6 For the purposes of sections 1.4 and 1.5 hereof, the Employee includes any firm or company owned or controlled by the Employee.

1.7 It is understood and agreed that as the Company grows, the Employee's responsibilities may be changed to meet the needs of the Company, however, such responsibilities shall be those that are reasonably assigned to the Employee by the Board and are consistent with the Employee's position.

2.0 Compensation

2.1 In consideration of the services rendered by the Employee under this Agreement, the Company shall pay to the Employee the gross sum of $160,000.00 per annum in equal semi-monthly installments ("Base Salary"). Where the Employee is a new employee, on successful completion of the probationary period, the Employee's salary may be increased in the absolute discretion of the Company. Thereafter, increases to the Employee's Salary shall be in the absolute discretion of the Company.

2.2 The Employee shall be eligible to participate in any pension plan established by the Company for its executives or senior employees.

2.3 The Company shall have the right to deduct and withhold from the Employee's compensation any amounts required to be deducted and withheld under the applicable provincial or federal laws of Canada.

2.4 The Employee shall be eligible for an annual bonus as determined by the Company’s Board of Directors or compensation committee, (as applicable).

3.0 Benefits

3.1 Subject to the successful completion of the three (3) month Probationary Period and, subject to any eligibility requirements, the Employee shall be entitled to such benefits which the Company offers from time to time to similar employees (the “Benefits”).

3.2 The introduction and administration of the Benefits is within the Company's sole discretion, and the introduction, deletion or amendment of the Benefits shall not constitute a breach of this Agreement.

3.3 The Company will carry a $900,000.00 insurance policy on the life of the Employee payable to the Company as beneficiary. In the event of the Employees death and payment of the insurance monies to the Company, the Company will:

(a) If the Company is privately held purchase from the Employee’s estate and Mrs. Donna Armstrong, the Employee’s spouse, as many shares of the Company as can be purchased for $900,000.00 at a price per share equal to the last common share issue price in an arm’s length transaction. If the product of the number of shares owned by the Employee’s estate and Mr. Donna Armstrong multiplied by the last common share issue price is less than $900,000.00, then the price per share paid by the Company will be increased so that the total purchase price is $900,000.00;

(b) If the Company’s shares are publicly traded, purchase from the Employee’s estate and Mrs. Donna Armstrong, the Employee’s spouse, as many Common shares of the Company as can be purchased for $900,000.00 at a price per share equal to the weighted average of the Company’s common share’s trading price for the last five (5) days prior to the date of the Employee’s death. If the product of the number of shares owned by the estate and Donna Armstrong multiplied by the five day weighted average of the Company’s common share’s trading price for the last five (5) days prior to the date of the Employee’s death is less than $900,000.00, then the price per share paid by the Company will be increased so that the total purchase price is $900,000.00.

These shares purchased by the Company shall then be made available to the board of directors to use as an incentive to attract a new Chief Executive Officer and President.

4.0 Vacation

4.1 The Employee shall be entitled to an annual vacation of six (6) weeks per calendar year. The Employee shall not be permitted to accrue any unused vacation entitlements for use in a future calendar year. The timing of vacations shall be in accordance with the Company's policies and practices and with the Company's needs.

4.2 At the time of termination of this Agreement any accrued, but unused, vacation time for the then-current calendar year shall be paid out on a pro-rated basis or taken as time off, at the election of the Employee.

5.0 Term of Employment

5.1 Unless otherwise agreed between the parties, the term of employment of the Employee by the Company pursuant to the terms of this Agreement shall commence as of the date of this Agreement and shall continue until such time as this Agreement is terminated pursuant to section 6 herein.

6.0 Termination

6.1 The Company may terminate the Employee's employment at any time, with no notice, for cause.

6.2 If this Agreement and the Employee's employment are terminated for cause, no notice, salary, benefits or allowances shall be paid or payable to the Employee after or as a result of such termination except in respect of those amounts which were payable in respect of the period ending immediately prior to such termination.

6.3 The Company may terminate the Employee's employment, without cause or following a material adverse change without the Employee’s prior written consent, in his title, status, position, job function, compensation or reporting responsibilities (referred to as a constructive dismissal) by paying the following amounts:

(a) at any time after the 12th month and before the 24 month of employment, without cause, or by constructive dismissal by providing the Employee with a lump sum or continuance of salary of 9 months of his base salary and any accrued bonus payable at the time of his dismissal and a continuance of the Employee’s benefits for 1 year or until he becomes employed whichever is first;

(b) at any time after the 24th month of employment, without cause, or by constructive dismissal by providing the Employee with a lump sum or continuance of salary of 12 months of his base salary and any accrued bonus payable at the time of his dismissal, and a continuance of the Employee’s benefits for 1 year or until he becomes employed whichever is first.

6.4 The Employee may terminate this employment Agreement with the Company during the Probationary Period without notice. Thereafter the Employee may terminate this employment Agreement with the Company upon giving the Company three (3) months’ notice of resignation. Not Withstanding section 6.3, upon giving such notice by the Employee, or at any time thereafter, the Company shall have the right to elect to immediately terminate the Employee's employment, and upon such election, shall provide to the Employee a lump sum equal to the Base Salary only for three (3) months, or to such proportion of the time that remains outstanding at the time of the election.

6.5 In the event a change of control of the Company occurs that involves 50% or more of the Company’s voting shares, and within 12 months of any such change of control, the Employee may elect to be terminated by the Company in accordance with the provisions of clause 6.3 hereof. All non-vested stock options granted to the Employee by the Company shall automatically vest in the event of a change of control (as described herein).

7.0 Confidentiality and Company Property

7.1 The Employee understands and acknowledges that the Company is engaged in a continuous program of research, development and production relating to pulmonary Research and related products ("Business"). Because of the nature of the Business, the Employee's employment creates a relationship of confidence between the Employee and the Company with respect to certain information that gives the Company an advantage in its business and marketplace. In the course of carrying out and performing the Employee's duties and responsibilities to the Company, the Employee will obtain access to and be entrusted with Confidential and Proprietary Information (as hereinafter defined) relating to the Business and other affairs of the Company.

7.2 The term "Confidential and Proprietary Information" as used in this Agreement means all trade secrets, proprietary information and other data or information (and any tangible evidence, record or representation thereof), whether prepared, conceived or developed by an employee of the Company (including the Employee) or received by the Company from an outside source which is maintained in confidence by the Company or any of its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing, Confidential and Proprietary Information includes:

(a)

any information, ideas, improvements, know-how, concepts, research, inventions, innovations, products, services, sales, scientific or other formulas, systems, strategies, formulae, algorithms, patterns, processes, methods, machines, manufactures, compositions, processes, procedures, tests, treatments, developments, data, experimental software, libraries and routines, audio-visual displays technical specifications, technical data, designs, devices, patterns, concepts, computer programs, training or service manuals, plans for new or revised services or products or other plans, items or strategy methods on compilation of information, or works in process, or any Invention (as defined in Section 8 below), or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form) that relate to the Business or affairs of the Company or its subsidiary or affiliated companies, or that result from its marketing, research and/or development activities;

(b)

any information relating to the relationship of the Company with any consultants, collaborators, associates, clients, customers, suppliers, principals, contacts or prospects of the Company and any information relating to the requirements, specifications, proposals, orders, contracts or transactions of or with any such consultants, collaborators, associates, clients, customers, suppliers, principals, contacts or prospects of the Company. Including but not limited to client lists;

(c)

any sales plan, price schedule, product literature, user documentation, technical documentation, marketing material, plan or survey, business plan or opportunity, product or service development plan or specification, business proposal; and

(d)

any information relating to the present Business or proposed business of the Company.

7.3 The Employee acknowledges and agrees that the Confidential and Proprietary Information is and will remain the exclusive property of the Company. The Employee also agrees that the Confidential and Proprietary Information:

(a)

constitutes a proprietary right which the Company is entitled to protect; and

(b)

constitutes information and knowledge not generally known to the trade.

7.4 The Employee understands that the Company has from time to time in its possession information belonging to others or which is claimed by others to be confidential or proprietary and which the Company has agreed to keep confidential. The Employee agrees that all such information shall be Confidential and Proprietary Information for the purposes of this Agreement.

7.5 For purposes of the copyright laws of Canada, to the extent, if any, that such laws are applicable to any Confidential and Proprietary Information, it shall be considered a work made for hire and the Company shall be considered the author thereof.

7.6 The Employee agrees to maintain securely and hold in strict confidence all Confidential and Proprietary Information received, acquired or developed by the Employee or disclosed to the Employee as a result of or in connection with the Employee's employment with the Company. The Employee agrees to continue to hold the Confidential and Proprietary Information in strict confidence at all times after the termination of the Employee's employment for whatever reason. The Employee will not disclose any of the Confidential and Proprietary Information to any person, firm or corporation, nor will the Employee use any of the Confidential and Proprietary Information for any purpose other than in the normal and proper course of the Employee's duties either during the term of the Employee's employment with the Company or at any time afterwards without the express written consent of the Company. The Employee will use the Employee's best efforts to protect and safeguard Confidential and Proprietary Information from, without limitation, loss, theft, destruction or seizure.

7.7 The Employee agrees that documents, copies, records and other materials made or received by the Employee that pertain to the Business and affairs of the Company or its subsidiary or affiliated companies, including all Confidential and Proprietary Information and which are in the Employee's possession or under the Employee's control are the property of the Company and that the Employee will return same and any copies of them to the Company forthwith upon the termination of the Employee's employment or at any time immediately upon the request of the Company.

7.8 The restrictive obligations set forth above shall not apply to the disclosure or use of any information which:

	(a)	is or later becomes publicly known under circumstances involving no breach of this Agreement by the Employee;
	(b)	is already known to the Employee outside his work for the Company at the time of receipt of the Confidential Information;
	(c)	is disclosed to a third party under an appropriate confidentiality agreement;
	(d)	is lawfully made available to the Employee by a third party;
	(e)	is independently developed by the Employee who has not been privy to the Confidential Information provided by the Company, or
	(f)	is required by law to be disclosed but only to the extent of such requirement and the Employee shall immediately notify in writing the Chief Executive Officer of the Company upon receipt of any request for such disclosure.

7.9 The Employee represents and warrants that he has not brought and will not bring with him to the Company any materials or use, while performing his duties for the Company, any materials or documents of a former employer which are not generally available to the public. The Employee understands that, while employed by the Company, the Employee shall not breach any obligation or confidence or duty the Employee may have to a former employer and the Employee agrees that the Employee will fulfill all such obligations during the Employee's employment with the Company.

7.10 The Employee represents and warrants that the Employee will not use or cause to be incorporated in any of the Employee's work product any data software, information, designs, techniques or know-how which the Employee or the Company does not have the right to use.

7.11 The provisions of this section 7 shall survive the termination of this Agreement.

8.0 Inventions

8.1 The Employee agrees that all Confidential and Proprietary Information and all other discoveries, inventions, ideas, concepts, processes, products, protocols, treatments, methods, tests and improvements, algorithms, computer programs, or parts thereof, conceived, developed, reduced to practice or otherwise made by the Employee either alone or with others, and in any way relates to the present or proposed programs, services, products or Business of the Company, or to task assigned to the Employee during the period of the Employee's employment by the Company, whether or not conceived, developed, reduced to practice or made during the Employee's employment (collectively "Inventions"), and any and all services and products which embody, emulate or employ any such Invention shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks, service marks and reproduction rights to, and other proprietary rights in, each such Invention, whether or not patentable or copyrightable, shall belong exclusively to the Company. For purposes of the copyright laws of Canada, to the extent, if any, that such laws are applicable to such Invention or any such service or product, it shall be considered a work made for hire and the Company shall be considered the author thereof.

8.2 The Employee will promptly disclose to the Company, or any persons designated by it, all Inventions.

8.3 The Employee hereby assigns to the Company or its nominee, their successors or assigns, all the Employee's rights, title and interest in and to the Inventions.

8.4 The Employee hereby waives for the benefit of the Company and its successors and assigns all the Employee's moral rights in respect of the Inventions.

8.5 The Employee further agrees to assist the Company in every proper way (but at the Company's expense) to obtain and from time to time to enforce patents or copyrights in respect of the Inventions in any and all countries, and to that end the Employee will execute all documents for use in applying for, obtaining and enforcing patents and copyrights on such Inventions as the Company may desire, together with any assignments of such Inventions to the Company or persons designated by it. The Employee's obligation to assist the Company in obtaining and enforcing patents and copyrights for the Inventions in any and all countries shall continue beyond the termination of the Agreement.

8.6 In the event that the Company is unable for any reason whatsoever to secure the Employee's signature to any lawful and necessary document required to apply for or execute any patent, copyright, trademark or other applications with respect to any Invention (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), the Employee hereby irrevocably appoints the Company and its duly authorized officers and agents as the Employee's agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by the Employee.

8.7 The Employee hereby represents and warrants that the Employee is subject to no contractual or other restriction or obligation, which will in any way limit the Employee's activities on behalf of the Company. The Employee hereby represents and warrants to the Company that the Employee has no continuing obligations to any previous employer (a) with respect to any previous invention, discovery or other item of intellectual property or (b) which require the Employee not to disclose any information or data to the Company.

8.8 The provisions of this section 8 shall survive the termination of this Agreement.

9.0 Remedies

9.1 The Employee acknowledges and agrees that a breach by the Employee of any of the covenants contained in sections 7 and 8 of this Agreement herein shall result in damages to the Company and that the Company could not be adequately compensated for such damages by a monetary award. Accordingly, in the event of any such breach, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, temporary or permanent injunction, to cure any such breach, or as may be appropriate, to ensure compliance with the provisions of this agreement.

10.0 Property Rights of the Company

10.1 Notwithstanding anything else in this Agreement, it is expressly acknowledged and understood by the Employee that all the work product of the Employee while engaged by the Company pursuant to the terms hereof shall vest in the Company absolutely and notwithstanding the generality of the foregoing, all software, product information, improvements, notes, documents, correspondence, produced by the Employee during the term of employment hereunder shall belong absolutely to the Company. The Employee further agrees to execute without further consideration any assignments, conveyances, other documents and assurances as may be necessary to effect the intent of this provision. Notwithstanding the generality of the foregoing, the Company acknowledges that intellectual property, know-how and the like known by or in possession of the Employee as of or prior to the Employee becoming an employee of the Company is hereby expressly excluded from the foregoing restrictions.

11.0 Non-Competition

11.1 The Employee agrees that following the termination of his employment with the Company for any reason, he shall not, within Canada, the United States of America and the countries comprising the European Economic Union, for a period of twelve (12) months from the date of such termination (without the prior written consent of the Company) either individually or in partnership, or in conjunction with any person or persons, firm, association, syndicate, company or corporation as principal, agent, director, officer, employee, consultant, investor or in any other manner whatsoever carry on or be engaged in or be concerned with or interested in, or advise, lend money to, guarantee the debts or obligations of or permit his name or any part thereof to be used or employed by any person or persons, firm, association, syndicate, company or corporation, engaged in or concerned with any business that is engaged in the field of Pulmonary Fibrosis therapy research and development.

11.2 The Employee acknowledges that a breach by the Employee of any of the covenants contained in section 1.4 and section 11 herein shall result in damages to the Company and that the Company could not be adequately compensated for such damages by a monetary award. Accordingly, in the event of any such breach, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled as a matter of right to apply to a Court of competent jurisdiction for such relief by way of restraining order, temporary or permanent injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement.

11.3 The Employee agrees that all documents, copies, records and other materials made or received by the Employee and which are in his possession or under his control that pertain to the business and affairs of the Company are the property of the Company and shall be returned to the Company by the Employee forthwith upon the termination of this Agreement or at any time during the term hereof immediately upon the request of the Company.

11.4 The Employee hereby agrees that all restrictions in this Agreement are reasonable and valid and all defenses to the strict enforcement thereof by the Company are hereby waived by the Employee and that provisions of this section 11 shall survive the termination of this Agreement.

12.0 Employment Standards

12.1 In the event that the minimum standards in the Em ployment Standards A ct, as it exists from time to time, are more favorable to the Employee in any respect, including but not limited to the provisions herein in respect of notice of termination, minimum wage or vacation entitlement than provided for herein, the provisions of the Employment Standards Act shall apply.

13.0 General Provisions

13.1 In this Agreement, unless context otherwise requires, words Importing the singular include the plural and vice versa, and words importing gender include all genders.

13.2 The headings and the clauses of this Agreement have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Agreement or any of its provisions.

13.3 This Agreement may not be assigned by either party. This Agreement shall ensure to the benefit of the parties and shall be binding upon the successors of the Company.

13.4 The waiver of the Company of a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee.

13.5 This Agreement constitutes the entire agreement between the parties hereto relating to the employment of the Employee and supersedes any and all employment agreements or understandings, oral or written, between the Company and the Employee and any such prior agreements relating to the employment of the Employee by the Company are hereby terminated and cancelled.

13.6 This Agreement shall not be amended except in writing signed by both parties.

13.7 In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Agreement shall not be affected by such determination and shall remain in full force and effect to the fullest extent permitted by law.

13.8 The Employee shall, upon the reasonable request of the Company, make, do, execute or cause to be made, done or executed, all such further and lawful acts, deeds, things, documents and assurances of whatsoever nature and kind for the better or more perfect or absolute performance of the terms, conditions and intent of this Agreement.

13.9 Every notice, request, demand or direction (each for the purposes of this section, a "notice") to be given pursuant to this Agreement by any party to another shall be in writing and shall be delivered in person or sent by registered mail postage prepaid or by facsimile addressed as applicable as follows:

If to the Employee at:

[address]

If to the Company at:

409 Granville Street, Suite 1023

Vancouver, B.C. V6C 1T2

Attn: Chairman

Facsimile: (604) 738-1094

or at such other address as specified by the particular party by notice to the other.

13.10 Any notes delivered or sent in accordance with section 13.9 will be deemed to have been given and received:

(a) if personally delivered, on the day of delivery,

(b) if by registered mail, on the earlier of the day of receipt and the fifth (5th) business day after the day of mailing, or

If a notice is sent by registered mail and mail service is interrupted between the point of mailing and the destination by strike, slow down, force majeure or other cause within three (3) days before or after the time of mailing, the notice will not be deemed to be received until actually received, and the party sending the notice will use any other service which has not been so interrupted or will deliver the notice in order to ensure prompt receipt.

13.11 A reference to a statute includes all regulations made pursuant thereto, all amendments to the statute or regulations in force from time to time, and any statute or regulation which supplements or supersedes such statute or regulations.

13.12 All sums of money which are referred to in this Agreement are expressed in lawful money of Canada.

13.13 Time is of the essence of this Agreement.

13.14 This Agreement shall be governed and construed in accordance with the laws of the Province of British Columbia, excluding its choice of law rules.

14.0 Independent Legal Advice

14.1 The Employee acknowledges that this Agreement has been prepared by the Company's solicitors and acknowledges that the Employee has had sufficient time to review this Agreement thoroughly, that the Employee has read and understood the terms of this Agreement and that the Employee has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first above written.

DOUGLAS H. UNWIN

signed “Douglas Unwin ”

PACIFIC THERAPEUTICS LTD.

Signed “Greg Benisto n ”

Per: Authorized Signatory

Exhibit 4.2

Form of Agreement for Escrow Arrangements under National Policy 46-201 Escrow for Initial Public Offerings

TABLE OF CONTENTS

PART	TITLE

PART 1	ESCROW		3
	1.1	Appointment of Escrow Agent	3
	1.2	Deposit of Escrow Securities in Escrow	3
	1.3	Direction to Escrow Agent	3

PART 2	RELEASE OF ESCROW SECURITIES		4
	2.1	Release Schedule for an Established Issuer	4
	2.2	Release Schedule for an Emerging Issuer	4
	2.3	Delivery of Share Certificates for Escrow Securities	6
	2.4	Replacement Certificates	6
	2.5	Release upon Death	6

PART 3	EARLY RELEASE ON CHANGE OF ISSUER STATUS		6
	3.1	Becoming an Established Issuer	6
	3.2	Release of Escrow Securities	6
	3.3	Filing Requirements	7
	3.4	Amendment of Release Schedule	7

PART 4	DEALING WITH ESCROW SECURITIES		7
	4.1	Restriction on Transfer, etc.	7
	4.2	Pledge, Mortgage or Charge as Collateral for a Loan	7
	4.3	Voting of Escrow Securities	7
	4.4	Dividends on Escrow Securities	8
	4.5	Exercise of Other Rights Attaching to Escrow Securities	8

PART 5	PERMITTED TRANSFERS WITHIN ESCROW		8
	5.1	Transfer to Directors and Senior Officers	8
	5.2	Transfer to Other Principals	8
	5.3	Transfer upon Bankruptcy	9
	5.4	Transfer upon Realization of Pledged, Mortgaged or Charged Escrow Securities	9
	5.5	Transfer to Certain Plans and Funds	10
	5.6	Effect of Transfer Within Escrow	10

PART 6	BUSINESS COMBINATIONS		10
	6.1	Business Combinations	10
	6.2	Delivery to Escrow Agent	10
	6.3	Delivery to Depositary	10
	6.4	Release of Escrow Securities to Depositary	11
	6.5	Escrow of New Securities	11
	6.6	Release from Escrow of New Securities	11

PART 7	RESIGNATION OF ESCROW AGENT		12
	7.1	Resignation of Escrow Agent	12

PART 8	OTHER CONTRACTUAL ARRANGEMENTS		12

PART 9	NOTICES		12
	9.1	Notice to Escrow Agent	12
	9.2	Notice to Issuer	13
	9.3	Deliveries to Securityholders	13
	9.4	Change of Address	13
	9.5	Postal Interruption	13

PART 10	GENERAL		13
	10.1	Interpretation – “holding securities”	13
	10.2	Further Assurances	13
	10.3	Time	13
	10.4	Incomplete IPO	14
	10.5	Jurisdiction	14
	10.6	Consent of Securities Regulators to Amendment	14
	10.7	Governing Laws	14
	10.8	Counterparts	14
	10.9	Singular and Plural	14
	10.10	Language	14
	10.11	Benefit and Binding Effect	14
	10.12	Entire Agreement	14
	10.13	Successor to Escrow Agent	14

Schedule “A”			A-1

Schedule “B”			B-1

FORM 46-201F1

ESCROW AGREEMENT

THIS AGREEMENT is made as of the 30th day of August, 2011

AMONG:

Pacific Therapeutics Ltd. (the “Issuer” )

AND:

Valiant Trust Company (the “Escrow Agent” )

AND:

EACH OF THE UNDERSIGNED SECURITYHOLDERS OF THE ISSUER

(a “Securityholder” or “you” )

(collectively, the “Parties” )

This Agreement is being entered into by the Parties under National Policy 46-201 Escrow for Initial Public Offerings (the Policy ) in connection with the Issuer becoming a reporting issuer in British Columbia and the proposed listing of its class A common shares on the Canadian National Stock Exchange.

For good and valuable consideration, the Parties agree as follows:

PART 1

ESCROW

1.1	Appointment of Escrow Agent

The Issuer and the Securityholders appoint the Escrow Agent to act as escrow agent under this Agreement. The Escrow Agent accepts the appointment.

1.2	Deposit of Escrow Securities in Escrow

(1) You are depositing the securities (escrow securities) listed opposite your name in Schedule “A” with the Escrow Agent to be held in escrow under this Agreement. You will immediately deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of these securities which you have or which you may later receive.

(2) If you receive any other securities ( additional escrow securities) :

(a) as a dividend or other distribution on escrow securities;

(b) on the exercise of a right of purchase, conversion or exchange attaching to escrow securities, including securities received on conversion of special warrants;

(d) from a successor issuer in a business combination, if Part 6 of this Agreement applies, you will deposit them in escrow with the Escrow Agent. You will deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of those additional escrow securities. When this Agreement refers to escrow securities, it includes additional escrow securities.

(3) You will immediately deliver to the Escrow Agent any replacement share certificates or other evidence of additional escrow securities issued to you.

1.3 Direction to Escrow Agent

The Issuer and the Securityholders direct the Escrow Agent to hold the escrow securities in escrow until they are released from escrow under this Agreement.

PART 2

RELEASE OF ESCROW SECURITIES

2.1 Release Schedule for an Established Issuer

2.1.1

Usual case

If the Issuer is an established issuer (as defined in section 3.3 of the Policy) and you have not sold any escrow securities in a permitted secondary offering, your escrow securities will be released as follows:

On ________, 2___, the date the Issuer’s securities are listed on a Canadian exchange (the listing date)	1/4 of your escrow securities
6 months after the listing date	1/3 of your remaining escrow securities
12 months after the listing date	1/2 of your remaining escrow securities
18 months after the listing date	your remaining escrow securities

*In the simplest case, where there are no changes to the escrow securities initially deposited and no additional escrow securities, then the release schedule outlined above results in the escrow securities being released in equal tranches of 25%.

2.1.2

Alternate meaning of “listing date”

If the Issuer is an established issuer, an alternate meaning for listing date is the date the Issuer completes its IPO if the Issuer’s securities are listed on a Canadian exchange immediately before its IPO.

2.1.3

If there is a permitted secondary offering

(1) If the Issuer is an established issuer and you have sold in a permitted secondary offering 25% or more of your escrow securities, your escrow securities will be released as follows:

For delivery to complete the IPO	All escrow securities sold by you in the permitted secondary offering
6 months after the listing date	1/3 of your remaining escrow securities
12 months after the listing date	1/2 of your remaining escrow securities
18 months after the listing date	your remaining escrow securities

*In the simplest case, where there are no changes to the remaining escrow securities upon completion of the permitted secondary offering and no additional escrow securities, the release schedule outlined above results in the remaining escrow securities being released in equal tranches of 33 1/3%.

(2) If the Issuer is an established issuer and you have sold in a permitted secondary offering less than 25% of your escrow securities, your escrow securities will be released as follows:

For delivery to complete the IPO	All escrow securities sold by you in the permitted secondary offering
On the listing date	1/4 of your original number of escrow securities less the escrow securities sold by you in the permitted secondary offering
6 months after the listing date	1/3 of your remaining escrow securities
12 months after the listing date	1/2 of your remaining escrow securities
18 months after the listing date	your remaining escrow securities

2.1.4

Additional escrow securities

If you acquire additional escrow securities, those securities will be added to the securities already in escrow, to increase the number of remaining escrow securities. After that, all of the escrow securities will be released in accordance with the applicable release schedule in the tables above.

2.2	Release Schedule for an Emerging Issuer

2.2.1

Usual case

If the Issuer is an emerging issuer (as defined in section 3.3 of the Policy) and you have not sold any escrow securities in a permitted secondary offering, your escrow securities will be released as follows:

On _______, 2011, the date the Issuer’s securities are listed on a Canadian exchange (the listing date)	1/10 of your escrow securities
6 months after the listing date	1/6 of your remaining escrow securities
12 months after the listing date	1/5 of your remaining escrow securities
18 months after the listing date	1/4 of your remaining escrow securities
24 months after the listing date	1/3 of your remaining escrow securities
30 months after the listing date	1/2 of your remaining escrow securities
36 months after the listing date	your remaining escrow securities

*In the simplest case, where there are no changes to the escrow securities initially deposited and no additional escrow securities, the release schedule outlined above results in the escrow securities being released in equal tranches of 15% after completion of the release on the listing date.

2.2.2

Alternate meaning of “listing date”

If the Issuer is an emerging issuer, an alternate meaning for listing date is the date the Issuer completes its IPO if:

(a) the Issuer’s securities are not listed on a Canadian exchange immediately after its IPO; or

(b) the Issuer’s securities are listed on a Canadian exchange immediately before its IPO.

2.2.3

If there is a permitted secondary offering

(1) If the Issuer is an emerging issuer and you have sold in a permitted secondary offering 10% or more of your escrow securities, your escrow securities will be released as follows:

For delivery to complete the listing	All escrow securities sold by you in the permitted secondary offering
6 months after the listing date	1/6 of your remaining escrow securities
12 months after the listing date	1/5 of your remaining escrow securities
18 months after the listing date	1/4 of your remaining escrow securities
24 months after the listing date	1/3 of your remaining escrow securities
30 months after the listing date	1/2 of your remaining escrow securities
36 months after the listing date	your remaining escrow securities

(2) If the Issuer is an emerging issuer and you have sold in a permitted secondary offering less than 10% of your escrow securities, your escrow securities will be released as follows:

For delivery to complete the listing	All escrow securities sold by you in the permitted secondary offering
On the listing date	1/10 of your original number of escrow securities less the escrow securities sold by you in the permitted secondary offering
6 months after the listing date	1/6 of your remaining escrow securities
12 months after the listing date	1/5 of your remaining escrow securities
18 months after the listing date	1/4 of your remaining escrow securities
24 months after the listing date	1/3 of your remaining escrow securities
30 months after the listing date	1/2 of your remaining escrow securities
36 months after the listing date	your remaining escrow securities

2.2.4

Additional escrow securities

2.3	Delivery of Share Certificates for Escrow Securities

The Escrow Agent will send to each Securityholder any share certificates or other evidence of that Securityholder’s escrow securities in the possession of the Escrow Agent released from escrow as soon as reasonably practicable after the release.

2.4	Replacement Certificates

If, on the date a Securityholder’s escrow securities are to be released, the Escrow Agent holds a share certificate or other evidence representing more escrow securities than are to be released, the Escrow Agent will deliver the share certificate or other evidence to the Issuer or its transfer agent and request replacement share certificates or other evidence. The Issuer will cause replacement share certificates or other evidence to be prepared and delivered to the Escrow Agent. After the Escrow Agent receives the replacement share certificates or other evidence, the Escrow Agent will send to the Securityholder or at the Securityholder’s direction, the replacement share certificate or other evidence of the escrow securities released. The Escrow Agent and Issuer will act as soon as reasonably practicable.

2.5	Release upon Death

(1) If a Securityholder dies, the Securityholder’s escrow securities will be released from escrow. The Escrow Agent will deliver any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent to the Securityholder’s legal representative.

(2) Prior to delivery the Escrow Agent must receive:

(a) a certified copy of the death certificate; and

(b) any evidence of the legal representative’s status that the Escrow Agent may reasonably require.

PART 3

EARLY RELEASE ON CHANGE OF ISSUER STATUS

3.1 Becoming an Established Issuer

If the Issuer is an emerging issuer on the date of this Agreement and, during this Agreement, the Issuer:

(a) lists its securities on The Toronto Stock Exchange Inc.;

(b) becomes a TSX Venture Exchange Inc. (TSX Venture) Tier 1 issuer; or

(c) lists or quotes its securities on an exchange or market outside Canada that its “principal regulator” under National Policy 43-201 Mutual Reliance Review System for Prospectuses and Annual Information Forms (in Quebec under Staff Notice, Mutual Reliance Review System for Prospectuses and Annual Information Forms ) or, if the Issuer has only filed its IPO prospectus in one jurisdiction, the securities regulator in that jurisdiction, is satisfied has minimum listing requirements at least equal to those of TSX Venture Tier 1,

then the Issuer becomes an established issuer.

3.2 Release of Escrow Securities

(1) When an emerging issuer becomes an established issuer, the release schedule for its escrow securities changes.

(2) If an emerging issuer becomes an established issuer 18 months or more after its listing date, all escrow securities will be released immediately.

(3) If an emerging issuer becomes an established issuer within 18 months after its listing date, all escrow securities that would have been released to that time, if the Issuer was an established issuer on its listing date, will be released immediately. Remaining escrow securities will be released in equal installments on the day that is 6 months, 12 months and 18 months after the listing date.

3.3 Filing Requirements

Escrow securities will not be released under this Part until the Issuer does the following:

(a) at least 20 days before the date of the first release of escrow securities under the new release schedule, files with the securities regulators in the jurisdictions in which it is a reporting issuer

(i) a certificate signed by a director or officer of the Issuer authorized to sign stating

(A) that the Issuer has become an established issuer by satisfying one of the conditions in section 3.1 and specifying the condition, and

(B) the number of escrow securities to be released on the first release date under the new release schedule, and

(ii) a copy of a letter or other evidence from the exchange or quotation service confirming that the Issuer has satisfied the condition to become an established issuer; and

(b) at least 10 days before the date of the first release of escrow securities under the new release schedule, issues and files with the securities regulators in the jurisdictions in which it is a reporting issuer a news release disclosing details of the first release of the escrow securities and the change in the release schedule, and sends a copy of such filing to the Escrow Agent.

3.4 Amendment of Release Schedule

The new release schedule will apply 10 days after the Escrow Agent receives a certificate signed by a director or officer of the Issuer authorized to sign

(a) stating that the Issuer has become an established issuer by satisfying one of the conditions in section 3.1 and specifying the condition;

(b) stating that the release schedule for the Issuer’s escrow securities has changed;

(c) stating that the Issuer has issued a news release at least 10 days before the first release date under the new release schedule and specifying the date that the news release was issued; and

(d) specifying the new release schedule.

PART 4

DEALING WITH ESCROW SECURITIES

4.1 Restriction on Transfer, etc.

Unless it is expressly permitted in this Agreement, you will not sell, transfer, assign, mortgage, enter into a derivative transaction concerning, or otherwise deal in any way with your escrow securities or any related share certificates or other evidence of the escrow securities. If a Securityholder is a private company controlled by one or more principals (as defined in section 3.5 of the Policy) of the Issuer, the Securityholder may not participate in a transaction that results in a change of its control or a change in the economic exposure of the principals to the risks of holding escrow securities.

4.2 Pledge, Mortgage or Charge as Collateral for a Loan

You may pledge, mortgage or charge your escrow securities to a financial institution as collateral for a loan, provided that no escrow securities or any share certificates or other evidence of escrow securities will be transferred or delivered by the Escrow Agent to the financial institution for this purpose. The loan agreement must provide that the escrow securities will remain in escrow if the lender realizes on the escrow securities to satisfy the loan.

4.3	Voting of Escrow Securities

You may exercise any voting rights attached to your escrow securities.

4.4 Dividends on Escrow Securities

You may receive a dividend or other distribution on your escrow securities, and elect the manner of payment from the standard options offered by the Issuer. If the Escrow Agent receives a dividend or other distribution on your escrow securities, other than additional escrow securities, the Escrow Agent will pay the dividend or other distribution to you on receipt.

4.5	Exercise of Other Rights Attaching to Escrow Securities

You may exercise your rights to exchange or convert your escrow securities in accordance with this Agreement.

PART 5

PERMITTED TRANSFERS WITHIN ESCROW

5.1 Transfer to Directors and Senior Officers

(1) You may transfer escrow securities within escrow to existing or, upon their appointment, incoming directors or senior officers of the Issuer or any of its material operating subsidiaries, if the Issuer’s board of directors has approved the transfer.

(2) Prior to the transfer the Escrow Agent must receive:

(a) a certified copy of the resolution of the board of directors of the Issuer approving the transfer;

(b) a certificate signed by a director or officer of the Issuer authorized to sign, stating that the transfer is to a director or senior officer of the Issuer or a material operating subsidiary and that any required approval from the Canadian exchange the Issuer is listed on has been received;

(d) copies of the letters sent to the securities regulators described in subsection (3) accompanying the acknowledgement; and

(e) a transfer power of attorney, completed and executed by the transferor in accordance with the requirements of the Issuer’s transfer agent.

(3) At least 10 days prior to the transfer, the Issuer will file a copy of the acknowledgement with the securities regulators in the jurisdictions in which it is a reporting issuer.

5.2 Transfer to Other Principals

(1) You may transfer escrow securities within escrow:

(a) to a person or company that before the proposed transfer holds more than 20% of the voting rights attached to the Issuer’s outstanding securities; or

(b) to a person or company that after the proposed transfer

(i) will hold more than 10% of the voting rights attached to the Issuer’s outstanding securities, and

(ii) has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries.

(2) Prior to the transfer the Escrow Agent must receive:

(a) a certificate signed by a director or officer of the Issuer authorized to sign stating that

(i) the transfer is to a person or company that the officer believes, after reasonable investigation, holds more than 20% of the voting rights attached to the Issuer’s outstanding securities before the proposed transfer, or

(ii) the transfer is to a person or company that

(A) the officer believes, after reasonable investigation, will hold more than 10% of the voting rights attached to the Issuer’s outstanding securities, and

(B) has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries after the proposed transfer, and

(iii) any required approval from the Canadian exchange the Issuer is listed on has been received;

(b) an acknowledgment in the form of Schedule “B” signed by the transferee;

(d) a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer’s transfer agent.

(3) At least 10 days prior to the transfer, the Issuer will file a copy of the acknowledgement with the securities regulators in the jurisdictions in which it is a reporting issuer.

5.3 Transfer upon Bankruptcy

(1) You may transfer escrow securities within escrow to a trustee in bankruptcy or another person or company entitled to escrow securities on bankruptcy.

(2) Prior to the transfer, the Escrow Agent must receive:

(a) a certified copy of either

(i) the assignment in bankruptcy filed with the Superintendent of Bankruptcy, or

(ii) the receiving order adjudging the Securityholder bankrupt;

(b) a certified copy of a certificate of appointment of the trustee in bankruptcy;

(c) a transfer power of attorney, completed and executed by the transferor in accordance with the requirements of the Issuer’s transfer agent; and

(d) an acknowledgment in the form of Schedule “B” signed by:

(i) the trustee in bankruptcy, or

(ii) on direction from the trustee, with evidence of that direction attached to the acknowledgment form, another person or company legally entitled to the escrow securities.

(3) Within 10 days after the transfer, the transferee of the escrow securities will file a copy of the acknowledgment with the securities regulators in the jurisdictions in which the Issuer is a reporting issuer.

5.4 Transfer Upon Realization of Pledged, Mortgaged or Charged Escrow Securities

(1) You may transfer within escrow to a financial institution the escrow securities you have pledged, mortgaged or charged under section 4.2 to that financial institution as collateral for a loan on realization of the loan.

(2) Prior to the transfer the Escrow Agent must receive:

(a) a statutory declaration of an officer of the financial institution that the financial institution is legally entitled to the escrow securities;

(b) a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer’s transfer agent; and

5.5 Transfer to Certain Plans and Funds

(1) You may transfer escrow securities within escrow to or between a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or other similar registered plan or fund with a trustee, where the annuitant of the RRSP or RRIF, or the beneficiaries of the other registered plan or fund are limited to you and your spouse, children and parents, or, if you are the trustee of such a registered plan or fund, to the annuitant of the RRSP or RRIF, or a beneficiary of the other registered plan or fund, as applicable, or his or her spouse, children and parents.

(2) Prior to the transfer the Escrow Agent must receive:

(a) evidence from the trustee of the transferee plan or fund, or the trustee’s agent, stating that, to the best of the trustee’s knowledge, the annuitant of the RRSP or RRIF, or the beneficiaries of the other registered plan or fund do not include any person or company other than you and your spouse, children and parents;

(b) a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer’s transfer agent; and

5.6 Effect of Transfer Within Escrow

After the transfer of escrow securities within escrow, the escrow securities will remain in escrow and released from escrow under this Agreement as if no transfer has occurred on the same terms that applied before the transfer. The Escrow Agent will not deliver any share certificates or other evidence of the escrow securities to transferees under this Part 5.

PART 6

BUSINESS COMBINATIONS

6.1 Business Combinations

This Part applies to the following (business combinations) :

(a) a formal take-over bid for all outstanding equity securities of the Issuer or which, if successful, would result in a change of control of the Issuer

(b) a formal issuer bid for all outstanding equity securities of the Issuer

(d) an amalgamation

(e) a merger

(f) a reorganization that has an effect similar to an amalgamation or merger

6.2 Delivery to Escrow Agent

You may tender your escrow securities to a person or company in a business combination. At least five business days prior to the date the escrow securities must be tendered under the business combination, you must deliver to the Escrow Agent:

(a) a written direction signed by you that directs the Escrow Agent to deliver to the depositary under the business combination any share certificates or other evidence of the escrow securities and a completed and executed cover letter or similar document and, where required, transfer power of attorney completed and executed for transfer in accordance with the requirements of the depositary, and any other documentation specified or provided by you and required to be delivered to the depositary under the business combination; and

(b) any other information concerning the business combination as the Escrow Agent may reasonably request.

6.3 Delivery to Depositary

As soon as reasonably practicable, and in any event no later than three business days after the Escrow Agent receives the documents and information required under section 6.2, the Escrow Agent will deliver to the depositary, in accordance with the direction, any share certificates or other evidence of the escrow securities, and a letter addressed to the depositary that

(a) identifies the escrow securities that are being tendered;

(b) states that the escrow securities are held in escrow;

(c) states that the escrow securities are delivered only for the purposes of the business combination and that they will be released from escrow only after the Escrow Agent receives the information described in section 6.4;

(d) if any share certificates or other evidence of the escrow securities have been delivered to the depositary, requires the depositary to return to the Escrow Agent, as soon as practicable, any share certificates or other evidence of escrow securities that are not released from escrow into the business combination; and

(e) where applicable, requires the depositary to deliver or cause to be delivered to the Escrow Agent, as soon as practicable, any share certificates or other evidence of additional escrow securities that you acquire under the business combination.

6.4 Release of Escrow Securities to Depositary

The Escrow Agent will release from escrow the tendered escrow securities when the Escrow Agent receives a declaration signed by the depositary or, if the direction identifies the depositary as acting on behalf of another person or company in respect of the business combination, by that other person or company, that:

(a) the terms and conditions of the business combination have been met or waived; and

(b) the escrow securities have either been taken up and paid for or are subject to an unconditional obligation to be taken up and paid for under the business combination.

6.5 Escrow of New Securities

If you receive securities (new securities) of another issuer (successor issuer) in exchange for your escrow securities, the new securities will be subject to escrow in substitution for the tendered escrow securities if, immediately after completion of the business combination:

(a) the successor issuer is not an exempt issuer (as defined in section 3.2 of the Policy);

(b) you are a principal (as defined in section 3.5 of the Policy) of the successor issuer; and

(c) you hold more than 1% of the voting rights attached to the successor issuer’s outstanding securities (In calculating this percentage, include securities that may be issued to you under outstanding convertible securities in both your securities and the total securities outstanding.)

6.6 Release from Escrow of New Securities

(1) As soon as reasonably practicable after the Escrow Agent receives:

(a) a certificate from the successor issuer signed by a director or officer of the successor issuer authorized to sign

(i) stating that it is a successor issuer to the Issuer as a result of a business combination and whether it is an emerging issuer or an established issuer under the Policy, and

(ii) listing the Securityholders whose new securities are subject to escrow under section 6.5, the escrow securities of the Securityholders whose new securities are not subject to escrow under section 6.5 will be released, and the Escrow Agent will send any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent in accordance with section 2.3.

(2) If your new securities are subject to escrow, unless subsection (3) applies, the Escrow Agent will hold your new securities in escrow on the same terms and conditions, including release dates, as applied to the escrow securities that you exchanged.

(3) If the Issuer is

(a) an emerging issuer, the successor issuer is an established issuer, and the business combination occurs 18 months or more after the Issuer’s listing date, all escrow securities will be released immediately; and

(b) an emerging issuer, the successor issuer is an established issuer, and the business combination occurs within 18 months after the Issuer’s listing date, all escrow securities that would have been released to that time, if the Issuer was an established issuer on its listing date, will be released immediately. Remaining escrow securities will be released in equal instalments on the day that is 6 months, 12 months and 18 months after the Issuer’s listing date.

PART 7

RESIGNATION OF ESCROW AGENT

7.1 Resignation of Escrow Agent

(1) If the Escrow Agent wishes to resign as escrow agent, the Escrow Agent will give written notice to the Issuer.

(2) If the Issuer wishes to terminate the Escrow Agent as escrow agent, the Issuer will give written notice to the Escrow Agent.

(3) If the Escrow Agent resigns or is terminated, the Issuer will be responsible for ensuring that the Escrow Agent is replaced not later than the resignation or termination date by another escrow agent that is acceptable to the securities regulators having jurisdiction in the matter and that has accepted such appointment, which appointment will be binding on the Issuer and the Securityholders.

(4) The resignation or termination of the Escrow Agent will be effective, and the Escrow Agent will cease to be bound by this Agreement, on the date that is 60 days after the date of receipt of the notices referred to above by the Escrow Agent or Issuer, as applicable, or on such other date as the Escrow Agent and the Issuer may agree upon (the “resignation or termination date”), provided that the resignation or termination date will not be less than 10 business days before a release date.

(5) If the Issuer has not appointed a successor escrow agent within 60 days of the resignation or termination date, the Escrow Agent will apply, at the Issuer’s expense, to a court of competent jurisdiction for the appointment of a successor escrow agent, and the duties and responsibilities of the Escrow Agent will cease immediately upon such appointment.

(6) On any new appointment under this section, the successor Escrow Agent will be vested with the same powers, rights, duties and obligations as if it had been originally named herein as Escrow Agent, without any further assurance, conveyance, act or deed. The predecessor Escrow Agent, upon receipt of payment for any outstanding account for its services and expenses then unpaid, will transfer, deliver and pay over to the successor Escrow Agent, who will be entitled to receive, all securities, records or other property on deposit with the predecessor Escrow Agent in relation to this Agreement and the predecessor Escrow Agent will thereupon be discharged as Escrow Agent.

(7) If any changes are made to Part 8 of this Agreement as a result of the appointment of the successor Escrow Agent, those changes must not be inconsistent with the Policy and the terms of this Agreement and the Issuer to this Agreement will file a copy of the new Agreement with the securities regulators with jurisdiction over this Agreement and the escrow securities.

PART 8

OTHER CONTRACTUAL ARRANGEMENTS

[Intentionally left blank]

PART 9

NOTICES

9.1 Notice to Escrow Agent

Documents will be considered to have been delivered to the Escrow Agent on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand during normal business hours or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Valiant Trust Company

600 – 750 Cambie St.

Vancouver, BC

V6B 0A2

Ramie Lousa

(604) 681-3067

9.2 Notice to Issuer

Documents will be considered to have been delivered to the Issuer on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand during normal business hours or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Pacific Therapeutics Ltd.

1023 – 409 Granville St.

Vancouver, BC

V6C 1T2

Douglas Unwin

(604) 738-1094

9.3 Deliveries to Securityholders

Documents will be considered to have been delivered to a Securityholder on the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the address on the Issuer’s share register.

Any share certificates or other evidence of a Securityholder’s escrow securities will be sent to the Securityholder’s address on the Issuer’s share register unless the Securityholder has advised the Escrow Agent in writing otherwise at least ten business days before the escrow securities are released from escrow. The Issuer will provide the Escrow Agent with each Securityholder’s address as listed on the Issuer’s share register.

9.4 Change of Address

(1) The Escrow Agent may change its address for delivery by delivering notice of the change of address to the Issuer and to each Securityholder.

(2) The Issuer may change its address for delivery by delivering notice of the change of address to the Escrow Agent and to each Securityholder.

(3) A Securityholder may change that Securityholder’s address for delivery by delivering notice of the change of address to the Issuer and to the Escrow Agent.

9.5 Postal Interruption

A Party to this Agreement will not mail a document it is required to mail under this Agreement if the Party is aware of an actual or impending disruption of postal service.

PART 10

GENERAL

10.1 Interpretation - “holding securities”

When this Agreement refers to securities that a Securityholder “holds”, it means that the Securityholder has direct or indirect beneficial ownership of, or control or direction over, the securities.

10.2 Further Assurances

The Parties will execute and deliver any further documents and perform any further acts reasonably requested by any of the Parties to this Agreement which are necessary to carry out the intent of this Agreement.

10.3 Time

Time is of the essence of this Agreement.

10.4 Incomplete IPO

If the Issuer does not complete its IPO and has become a reporting issuer in one or more jurisdictions because it has obtained a receipt for its IPO prospectus, this Agreement will remain in effect until the securities regulators in those jurisdictions order that the Issuer has ceased to be a reporting issuer.

10.5 Governing Laws

The laws of British Columbia (the “Principal Regulator”) and the applicable laws of Canada will govern this Agreement.

10.6 Jurisdiction

The securities regulator in each jurisdiction where the Issuer files its IPO prospectus has jurisdiction over this Agreement and the escrow securities.

10.7 Consent of Securities Regulators to Amendment

Except for amendments made under Part 3, the securities regulators with jurisdiction must approve any amendment to this Agreement and will apply mutual reliance principles in reviewing any amendments that are filed with them. Therefore, the consent of the Principal Regulator will evidence the consent of all securities regulators with jurisdiction.

10.8 Counterparts

The Parties may execute this Agreement by fax and in counterparts, each of which will be considered an original and all of which will be one agreement.

10.9 Singular and Plural

Wherever a singular expression is used in this Agreement, that expression is considered as including the plural or the body corporate where required by the context.

10.10 Language

This Agreement has been drawn up in the English language at the request of all Parties.

10.11 Benefit and Binding Effect

This Agreement will benefit and bind the Parties and their heirs, executors, administrators, successors and permitted assigns and all persons claiming through them as if they had been a Party to this Agreement.

10.12 Entire Agreement

This is the entire agreement among the Parties concerning the subject matter set out in this Agreement and supersedes any and all prior understandings and agreements.

10.13 Successor to Escrow Agent

Any corporation with which the Escrow Agent may be amalgamated, merged or consolidated, or any corporation succeeding to the business of the Escrow Agent will be the successor of the Escrow Agent under this Agreement without any further act on its part or on the part or any of the Parties, provided that the successor is recognized as a transfer agent by the Canadian exchange the Issuer is listed on (or if the Issuer is not listed on a Canadian exchange, by any Canadian exchange) and notice is given to the securities regulators with jurisdiction.

The Parties have executed and delivered this Agreement as of the date set out above.

Valiant Trust Company [Escrow Agent]

____________________________________________

Authorized signatory

____________________________________________

Authorized signatory

Pacific Therapeutics Ltd. [Issuer]

____________________________________________

Authorized signatory

Doug Unwin CEO & President

Authorized signatory

If the Securityholder is an individual:

Signed, sealed and delivered by

[Securityholder] in the presence of:

____________________________________________

Signature of Witness

___________________________________________

Name of Witness

)

) ____________________________

) [Securityholder]

)

If the Securityholder is not an individual:

[Securityholder]

_____________________________________________

Authorized signatory

_____________________________________________

Authorized signatory

Schedule “A” to Escrow Agreement

Securityholder

Name: [ ]

Securities:

Class or description	Number	Certificate(s) (if applicable)

A-1

Schedule “B” to Escrow Agreement

Acknowledgment and Agreement to be Bound

I acknowledge that the securities listed in the attached Schedule “A” (the “escrow securities”) have been or will be transferred to me and that the escrow securities are subject to an Escrow Agreement dated August 30, 2011 (the “Escrow Agreement”).

For other good and valuable consideration, I agree to be bound by the Escrow Agreement in respect of the escrow securities, as if I were an original signatory to the Escrow Agreement.

Dated at Vancouver, BC on August 30, 2011.

Where the transferee is not an individual:

[ ]

_________________________________________

Authorized signatory

_________________________________________

Authorized signatory

Where the transferee is an individual:

Signed, sealed and delivered by

[ ] in the presence of:

____________________________________________

Signature of Witness

___________________________________________

Name of Witness

)

) ____________________________

) [Transferee]

)

B-1

Exhibit 4.3

DEVELOPMENT AND COMMERCIALISATION AGREEMENT

THIS DEVELOPMENT AND COMMERCIALISATION AGREEMENT (this " Agreement ") is made and entered into as of February 28, 2011 (the " Effective Date "), by and between IntelGenx Corp., a Canadian corporation (" lntelGenx "), and Pacific Therapeutics Ltd., a Canadian company (" Pacific"). IntelGenx and Pacific each may be referred to herein individually as a "Party," or collectively as the "Parties".

WHEREAS, each party is the sole and exclusive owner or Licensee of certain intellectual property and other patent rights relating to the development of a certain Product (as such term is defined herein);

WHEREAS, Pacific wishes IntelGenx to undertake the formulation development of the Product, all as more fully set forth herein;

WHEREAS, Pacific desires to secure a license from IntelGenx to use IntelGenx' Patent Rights and Technology and knowhow to further the Product;

WHEREAS , IntelGenx and Pacific wish to set forth in the Agreement the terms upon which IntelGenx may enter into an agreement with the Commercial Partner for the purpose of permitting the Commercial Partner to commercialize, distribute or otherwise exploit the Product, Patents Rights and/or Licensed Know How; and

WHEREAS, the license to be granted shall be granted on a worldwide basis all as more fully set out below.

NOW THEREFORE, THIS AGREEMENT WITNESSETH THAT , in consideration of the mutual promises and covenants hereinafter contained, the Parties hereto agree as follows:

DEFINITIONS

"Affiliate" of a Party means any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Party. For purposes of this definition only, "control" and, with correlative meanings, the terms "controlled by" and "under common control with" will mean the possession, directly or indirectly, of the power to direct the management or policies of an entity, whether through the ownership of fifty percent or more of the voting securities of the other organization or entity or by contract relating to voting rights or corporate governance.

"Confidential Information" shall mean any confidential or proprietary information of either Party, without regard to form, including without limitation any and all product technology, manufacturing processes, product design, product development, product cost and pricing information, business plans or proposals, manufacturing procedures, formulas, Technology, Know-How, processes, customer lists, marketing information and strategies, financial information, drawings, specifications, prototypes, pictures, parts, discoveries, inventions, concepts, ideas, materials, goods, equipment or apparatus, techniques, vendors, distributors, improvements, chemical structures, formulas, amino acid or nucleic acid sequences or about development plans, intellectual property strategies, regulatory strategies, unpublished patents, information about speculations regarding compound functionality or suitability, any information of either Party without regard to form that constitutes a trade secret under applicable law, and any other information which the disclosing Party maintains as confidential or proprietary.

"Commercialisation" shall mean the commercial distribution and/or commercial promotion of the Product for sale.

"Commercial Capabilities" shall mean possessing the means, financial and otherwise, to ensure the timely completion of all activities, necessary for the Commercialisation of the Product. "Commercial Partner" shall mean Pacific and/or any party or parties responsible for the Commercialisation of Products.

"Commercial Revenue" shall mean all revenue derived by Pacific, within one calendar year, from Net Sales and/or Sublicense Sales Royalties.

"External Costs" shall mean all costs, excluding Internal Costs, incurred or accrued during the Project.

"Field of Use" shall mean oral delivery of the Product.

"Infringement" shall mean any infringement, imitation, dilution, distortion, misappropriation or other unauthorized use or conduct in violation or derogation of the rights in question. "Infringement Allegation" shall mean any allegation of Infringement by a third party or that the activities contemplated herein, or the use, or otherwise, of the IntelGenx Intellectual Property, Project Intellectual Property, Pacific Intellectual Property as related to the Project, Project related intellectual property, Patent Rights and the Licensed Patents, violate a third party's intellectual property rights.

"lntelGenx Intellectual Property" shall mean, all intellectual property owned, licensed, invented, created, or developed by IntelGenx whether existing immediately prior to the Effective Date or developed, discovered or otherwise obtained or acquired thereafter, owned or controlled by IntelGenx (or otherwise to the extent IntelGenx has rights therein, thereto or there under), and shall include all rights in such independently developed, discovered or otherwise obtained, owned, licensed or controlled: (i) invention disclosures, patents, patent applications, continuation applications, continuation-in-part applications, divisional applications, provisional applications, supplementary protection certificates, inventors' certificates, any corresponding foreign patent applications to any of the foregoing, and all patents that may be granted or that may have been granted on any of the foregoing, including reissues, re-examination and extensions; (ii) Know How, trade secrets, discoveries, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, and protocols and information; (iii) copyrightable works, copyrights and application, registrations and renewals; (v) all other proprietary rights; and (vi) all copies and tangible embodiments of any or more of the foregoing.

"lntelGenx Revenue" shall mean all revenue derived by IntelGenx, within one calendar year, from Net Sales and/or Sublicense Sales Royalties.

"Internal Costs" shall mean the costs listed in the R&D costs portion of the R&D Budget, up to a maximum of CAD $181,500 (CAD one hundred and eighty one thousand five hundred dollars) plus a ten percent contingency.

"Licensed Application" shall mean the use of Patent Rights solely for purpose of selling, offering for sale and importing a combination product containing pentoxifylline and n acetylcysteine in the Field of Use.

"Licensed Know-How" means all information (other than that contained in the Patents) whether patentable or not and physical objects related to the Product, including but not limited to Product data, Product-related results and information, including, but not limited to, clinical data, analytical test results, non-clinical pharmacology and safety data, other R&D data, Regulatory Documentation, manufacturing and formulation information of a like nature, all provided that the Licensed Know-How is known to, generated by, vested in (or licensed to) and/or controlled by IntelGenx, including, without limitation, the Licensed Know-How.

"Licensed Patents" shall mean IntelGenx Intellectual Property solely relating to the Product and US Patent Application 2007/0190144 and all corresponding know-how, patents, patent applications, continuation applications, continuation-in-part applications, divisional applications, provisional applications, supplementary protection certificates, inventors' certificates, any corresponding foreign patent applications to any of the foregoing, and all patents that may be granted or that may have been granted on any of the foregoing, including reissues, re examination and extensions worldwide.

"Licensed Patents Disputes" shall mean any and all controversies, disputes or claims arising out of, in connection with, or in relation to the interpretation, performance, non-performance, validity or breach of any agreement related to the Project or otherwise arising out of, or in any way related to the Product and/or Licensed Patents, including, without limitation, any and all claims based on contract, tort, statute or constitution.

"Licensed Processes" shall mean the processes claimed in Patent Rights.

"Marketing Approval" shall mean the obtaining of all necessary regulatory approvals (excluding the obtainment of pricing reimbursement approval) required from the applicable regulatory authority in the territory in order to commercially sell or market the Product for human consumption in such territory, and satisfaction of any related regulatory registration and notification requirements.

"Net Sales" means amounts actually received by the Commercial Partner or its Affiliates in respect of all revenue received, less, and following recovery of, the following items (collectively, the "Recognized Deductions") as considered under International Accounting Standards (IFRS):

(i)

allowances or credits granted to and taken by customers (including wholesalers) for rejections, returns (including as a result of recalls), and prompt payment and trade, cash and volume discounts or resulting from inventory management

(ii)

amounts incurred resulting from government mandated rebate programmes (or any agency thereof);

(iii)

freight, transport, packing and insurance charges;

(iv)

taxes, including value added tax, tariffs or import/export or customs, duties; rebates, charge backs and discounts paid or credited;

"Pacific Intellectual Property" shall mean, all intellectual property owned, licensed, invented, created, or developed by Pacific independently of IntelGenx, and whether existing immediately prior to the Effective Date or developed, discovered or otherwise obtained or acquired thereafter, owned or controlled by Pacific (or otherwise to the extent Pacific has rights therein, thereto or there under), and shall include all rights in such independently developed, discovered or otherwise obtained, owned, licensed or controlled: (i) invention disclosures, patents, patent applications, continuation applications, continuation-in-part applications, divisional applications, provisional applications, supplementary protection certificates, inventors' certificates, any corresponding foreign patent applications to any of the foregoing, and all patents that may be granted or that may have been granted on any of the foregoing, including reissues, re examination and extensions; (ii) Licensed Know-How, trade secrets, discoveries, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, and protocols and information; (iii) copyrightable works, copyrights and application, registrations and renewals; (v) all other proprietary rights; and (vi) all copies and tangible embodiments of any or more of the foregoing.

"Patent Rights" shall mean inventions described in the Licensed Patents, the inventions described and claimed therein, and any divisions, continuations, continuations-in-part, or reissues thereof.

"Proceeding" shall mean any action, suit, arbitration, or other alternate dispute resolution mechanism, or investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether civil, administrative, investigative or criminal including, without limitation, any appeal there from.

"Product" shall mean products claimed in Patent Rights or products made in accordance with or by means of Licensed Processes, Licensed Application or any product containing or embodying any invention claimed in Patent Rights.

"Project" shall mean the project contemplated by this Agreement whereby the Parties will develop Product.

"Regulatory Authority" means any applicable government entity regulating or otherwise exercising authority with respect to the development and Commercialisation of a Product.

"Regulatory Documentation" means all applications, registrations, licenses, authorizations and approvals (including all Marketing Approvals), all correspondence submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority), all supporting documents and all clinical studies and tests, including the manufacturing batch records for Product to be assigned, relating to a Product, and all data contained in any of the foregoing, including all regulatory drug lists, advertising and promotion documents, adverse event files and complaint files.

"Sublicense" means a sublicense from Pacific to a third party under the License granted pursuant to this Agreement and the term "Sublicensee" shall be construed accordingly. "Sublicense Sales Royalties" means all sales royalties, milestones, income and all cash or equivalents to which value can be assigned directly and/or indirectly actually received by Pacific from third party marketing Sublicensees (and/or any further Sublicensees thereof) in respect of the Product.

"Technology" shall mean any and all information or Patent Rights supplied by IntelGenx to Pacific.

2. DEVELOPMENT RESPONSIBILITIES AND DECISION-MAKING

2.1 Development. The Parties shall, following the Effective Date, undertake the co- development of the Product as more fully set forth herein below.

2.1.1 IntelGenx Development Costs and Responsibilities. IntelGenx shall perform the development of the Product in accordance with the provisions of the development programme, and budget attached hereto as Annex 1.1 (the "R&D Programme"). The budget set forth in the R&D Programme shall be referred to herein as the "R&D Budget". IntelGenx will be responsible, solely, for all Internal Costs.

IntelGenx shall at all times retain all manufacturing rights related to the Licensed Application and/or Product and shall, in furtherance to Sections 3.4 and 5.1, be responsible, at Pacific's cost, for carrying out all manufacturing activities related to the Product, either itself or, subject to approval by Pacific, such approval not to be unreasonably withheld, delayed or conditioned, through a qualified third party manufacturer. Notwithstanding the provisions in section 2.1.2,

Notwithstanding the foregoing and/or all text or content to the contrary set forth herein, IntelGenx shall, other than Internal Costs and/or in the event that Inte1Genx exercises it Transfer Option as provided in Section 2.4, have no financial obligation in relation to the Product.

2.1.2 Pacific's Costs and Responsibilities. Pacific shall be responsible for all External Costs. For the avoidance of doubt, Pacific shall, subject to Sections 2.1, 2.4, 3.4 and 5.1, be responsible financially and/otherwise for all activities not listed in the R&D Programme, necessary for the successful Commercialisation of the Product.

2.2 Third Party Obligations. All royalty and other payment obligations existing under any agreement entered into by either Party or any other obligation undertaken by either Party required to be paid to third parties in respect of the Commercialisation of the Product shall be the burden of the Commercial Partner. In addition, if additional license(s) to intellectual property are necessary to enable the Parties to exercise the License, and the receipt of or license to use such additional intellectual property requires payment of royalties, settlement payments, awards or any other payments made to and taken by any third party on account of the use of such third party's intellectual property shall be the burden of the Commercial Partner.

2.3 Further Development . Within ninety (90) days of the completion of a pilot biostudy and delivery of the final report on the results of the pilot biostudy("Further Development Option Deadline"), Pacific shall have, upon verification of Pacific's Commercial Capabilities and written notification to IntelGenx, the option to continue, at its expense, any further development of the Product deemed necessary for commercialisation of the Product whilst being, subject to Sections 3.4 and 5.1 solely responsible financially and/or otherwise for the timely completion of all activities, necessary for the commercialisation of the Product, and, for the avoidance of doubt, with all royalty obligations as per Section 8, responsibilities as per Section 2 and license grants as per Section 5, described herein remaining in effect ("Further Development Option"). In the event that Pacific elects to exercise its Further Development Option, and the Parties will enter into good faith negotiations to finalize a development and supply agreement. Notwithstanding the foregoing IntelGenx shall at all times retain all manufacturing rights related to the Licensed Application and/or Product and shall, in furtherance to Sections 3.4 and 5.1, be responsible, at Pacific's cost, upon receipt by IntelGenx of a Purchase order for product from the Commercial Partner, for carrying out all manufacturing activities related to the Product, either itself or, subject to approval by Pacific, such approval not to be unreasonably withheld, delayed or conditioned, through a qualified third party manufacturer.

In the event that Pacific elects not to exercise its Further Development Option, or in the event that Pacific is unable to provide reasonable evidence by the Further Development Option Deadline of Pacific's Commercial Capabilities, Pacific shall immediately send IntelGenx written notification of such. This notice is deemed as an offer by Pacific to IntelGenx, to fully transfer title, interest, ownership and/or control of the Project and all intellectual property and intellectual property rights related thereto. IntelGenx shall the have the right, at its sole discretion to accept full title, interest, ownership and/or control thereto and complete, at its own expense, all activities necessary to successfully commercialize the Product, without liability to Pacific as to the result of any actions taken by IntelGenx, its Affiliates, licensee(s) and/or any sublicensee ("Transfer Option"). Notwithstanding any text to the contrary set forth herein, in the event that IntelGenx exercises its Transfer Option Pacific shall, other than costs incurred before IntelGenx exercises its Transfer Option, have no further financial responsibility or involvement in further development of the Project.

In the event that IntelGenx elects not to exercise its Transfer Option, this Agreement shall terminate, and Pacific shall, within forty five (45) days of Pacific receiving written notification oflntelGenx' decision not to exercise its Transfer Option, pay IntelGenx an amount equal to the Internal Costs. Notwithstanding termination of the Agreement, all royalty obligations shall continue.

2.4 Ownership of Regulatory Application. In the event that Pacific exercises its Further Development Option, Pacific will pay the relevant fees to the Regulatory Authority and will file the application and act as the applicant during the regulatory review process.

3. LICENSE GRANT

3.1 Scope of License . Subject to all the terms and conditions of this Agreement, IntelGenx hereby grants to Pacific, an exclusive worldwide, perpetual (subject to termination in accordance with the terms hereof) license under the Patents and the Licensed Know-How, with such exclusivity being limited to the right to and for the sole purpose the Licensed Application ("License").

3.2 Sublicenses . The License granted to Pacific under this Agreement is, subject to IntelGenx' approval, sublicensable in whole or in part, to third parties in arm’s length transactions. Pacific shall give IntelGenx written notice of any intended Sublicense, including the name of the Sublicensee and the material terms thereof. IntelGenx agrees that it cannot unreasonably withhold, delay or condition approval to any proposed Sublicense hereunder. Any sublicense by the Parties of the rights granted to such Party under this Agreement shall be consistent with the terms of this Agreement, shall contain provisions necessary to effectuate the terms of this Agreement and shall include an obligation for the Sublicensee to comply with obligations similar to those of this Agreement.

3.3 Limitations on Other Licenses . During the term of this Agreement, IntelGenx shall not grant any rights or licenses to any Patents or Licensed Know-How, or transfer any data or know-how to any third party that conflict with lntelGenx' obligations under this Agreement and the rights granted to Pacific under this Agreement.

3.4 Manufacturing. For the avoidance of doubt, IntelGenx reserves the right to grant manufacturing privileges for the Product such a grant being subject to, in the event that Pacific exercises its Further Development Option, Pacific's approval, such approval not to be unreasonably withheld.

4. DATA TRANSFER

4.1 Data Transfer. Upon and following the successful and valid execution of this Agreement, IntelGenx shall reasonably provide to Pacific, at no cost to Pacific, all the pertinent information it has about the Product including, but not limited to, all Patents, know-how, and R&D data as relevant for the development, marketing approval, marketing and other Commercialisation of the Product.

4.2 Assistance . IntelGenx undertakes to reasonably assist, at Pacific's cost, in a technical transfer of Licensed Know-How to a contract manufacturing organization chosen by IntelGenx and approved by Pacific, such approval not to be unreasonably withheld.

5. DECISION MAKING

5.1 The Parties hereto shall jointly take all key decisions regarding the development and Commercialisation of the Product, subject to the following:

5.1.1 IntelGenx shall bear primary responsibility for the development of the Product in accordance of the R&D programme and shall have a deciding vote in respect of development and manufacturing decisions regarding the Product development during the R&D Programme

5.1.2 Pacific shall bear primary responsibility for the licensing, clinical testing of the Product, Commercialisation and partnering of the Product and shall have a deciding vote in respect to regulatory and partnering/licensing/Commercialisation decisions relating to the Product.

5.1.3 IntelGenx shall have the deciding vote on matters pertaining to R&D Programme and manufacturing decisions and Pacific shall have the deciding vote on matters pertaining to regulatory [see 5.1.2] and partnering/licensing/Commercialisation decisions, all as described in Section 5.1 above.

6. DILIGENCE

IntelGenx will make a good faith, continuous and diligent effort to allocate all appropriate resources to prepare, initiate and complete its development responsibilities within the R&D Budget and the timeframe agreed for the R&D Programme.

7. REPORTS

7.1 IntelGenx shall keep Pacific reasonably informed with respect to activities and progress regarding the development of the Product. Specifically IntelGenx will report to Pacific at the completion of the following activities as defined in the R&D Programme Pre-development Activities Analytical Characterization Pre-formulation trials Formulation development Pilot BioStudy.

7.2 Upon Exercise of the Further Development Option Pacific agrees as follows:

7.2.1 Commercialisation Reports. Within thirty (30) days following the close of each calendar quarter following the completion of the R&D Programme and exercise of the Further Development Option, Pacific will provide IntelGenx with a quarterly report with respect to activities and progress regarding its responsibilities, the commercialisation, sublicensing, and government approvals of Product.

7.2.2 First Commercial Sale Report. To report to IntelGenx the date of the first commercial sale of the Product, together with the name of the country in which such first commercial sale occurred.

7.2.3 Revenue Reports . To deliver to IntelGenx a revenue report with respect to each calendar quarter within thirty (30) days of the expiration of such calendar quarter, detailing in a manner to be mutually agreed the following: the amount of Net Sales and Sublicense Sales Royalties received from Product, including the Recognized Deductions applicable in computing Net Sales and the deductions applicable in computing Sublicense Sales Royalties, and the total Royalties due based on Net Sales and Sublicense Sales Royalties.

7.3 Any and all information, data or reports supplied by Pacific pursuant to the provisions of this Section 7 shall be treated as Pacific's Confidential Information.

7.4 If this Agreement is terminated for any reason, Pacific shall deliver a final report and associated revenue sharing payment to IntelGenx within sixty (60) days after such termination. Following termination, Pacific shall have no further reporting obligations.

8 FINANCIAL PROVISIONS

8.1 Revenue Sharing. The Commercial Partner will pay IntelGenx an amount equal to seven percent (7%) on the first $5,000,000 of Net Sales received annually and 5% of Net Sales above the first $5,000,000" Notwithstanding the foregoing, IntelGenx shall, in the event it exercises its Transfer Option, pay Pacific an amount equal to seven percent (7%) on the first $5,000,000 oflntelGenx Revenue and five percent (5%) of lntelGenx Revenue above the first $5,000,000.

8.2 Due Dates for Payment. All payments due pursuant to the provisions of Section 8.1 above shall be due and payable to IntelGenx on a calendar quarterly basis within fifteen (15) days following the submission of the relevant quarterly revenue report but no earlier than ten (10) business days following receipt of a relevant invoice from IntelGenx.

8.3 Any amounts due to IntelGenx under this Agreement will be paid in Canadian dollars, by wire transfer in immediately available funds to an account designated in writing at least fifteen (15) days in advance by IntelGenx.

8.4 Currency; Foreign Payments. If any currency conversion will be required in connection with the calculation of any payment hereunder, such conversion will be made by using the exchange rate for the purchase of U.S. dollars as published in The Wall Street Journal, Eastern Edition, on the date of the payment.

8.5 No Warranty.

8.5.1 For the avoidance of doubt, nothing contained in this Agreement shall be construed as a warranty by the Commercial Partner that any Commercialisation to be carried out by it in connection with this Agreement will actually achieve its aims or any other results and the Commercial Partner makes no warranties whatsoever as to any results to be achieved in consequence of the carrying out of any such Commercialisation. Furthermore, The Commercial Partner makes no representation to the effect that the Commercialisation of the Product, or any part thereof, will succeed, or that it shall be able to sell the Product in any quantity.

8.5.2 For the avoidance of doubt, nothing contained in this Agreement shall be construed as a warranty by IntelGenx that any activities carried out by IntelGenx in connection with this Agreement will actually achieve its aims or any other results and IntelGenx makes no warranties whatsoever as to any results to be achieved in consequence of the carrying out of any such activities. Furthermore, IntelGenx makes no representation to the effect that any clinical trials and/or any other activities required for an approval from any Regulatory Authority to market and/or sell the Product, or any part thereof, will succeed, or that the Commercial Partner shall be able to sell the Product in any quantity.

9 RECORD RETENTION AND AUDIT

9.1 Record Retention. Pacific will maintain (and will ensure that its Affiliates maintain) complete and accurate books, records and accounts that fairly reflect Net Sales and/or Sublicense Sales Royalties, in sufficient detail to confirm the accuracy of any payments required hereunder, which books, records and accounts will be retained for two (2) years after the end of the period to which such books, records and accounts pertain.

9.2 Audit. IntelGenx will have the right, at its own cost, to have an independent certified public accounting firm of nationally recognized standing, reasonably acceptable to Pacific and who agrees to be bound by a customary undertaking of confidentiality (including an undertaking not to disclose to IntelGenx any information other than the results of its audit), have access during normal business hours, and upon reasonable prior written notice, to the Commercial Partner's records together with any disclosure necessary to explain the same as may be reasonably necessary to verify the accuracy of Net Sales, Royalties and/or Sublicense Sales Royalties, as applicable, for any fiscal year ending not more than twenty-four (24) months prior to the date of such request provided, however, that IntelGenx will not have the right to conduct more than one such audit in any calendar year or more than one such audit covering any given time period. Any such audit shall not unreasonably interfere with the business of the Commercial Partner and shall be completed within a reasonable time. Any amounts determined pursuant to any such audit to have been overpaid or underpaid shall promptly be refunded or paid as applicable. In the event that any such audit reveals an underpayment to lntelGenx of more than five percent (5%), the Commercial Partner shall reimburse IntelGenx for the expense of such audit. As a condition to such audit, the independent public accountant selected shall execute a written agreement, reasonably satisfactory in form and substance to both Parties, to maintain in confidence all information obtained during the course of any such audit except for disclosure as necessary for the above purpose and all reasonable documents will be delivered to the auditor under these confidential terms. Additionally no auditor may be employed on a contingency basis.

9.3 Confidentiality. Both Parties will treat all information subject to review under this Section 9 in accordance with the confidentiality provisions provided herein.

10. REPRESENTATIONS AND WARRANTIES

10.1 By Both Parties. Each Party hereby represents, warrants and covenants to the other Party as of the Effective Date as follows:

10.1.1 Corporate Authority. Such Party (a) has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder, and (b) has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and is enforceable against it in accordance with its terms subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity.

10.1.2 Consents and Approvals. Excluding any required regulatory approvals from Regulatory Authorities, and subject to the approvals referenced in Sections 8.8 and 8.9 above, such Party has obtained all necessary consents, approvals and authorizations from any federal, state provincial, local or foreign government or subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to any federal, state, provincial, local or foreign government with jurisdiction over the subject matter of the transactions and/or activities contemplated by this Agreement ("Governmental Authority") and other parties required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder.

10.1.3 Conflicts. The execution and delivery of this Agreement and the performance of such Party's obligations hereunder, (a) do not conflict with or violate any requirement of applicable law or any provision of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable, in any material way, and (b) do not conflict with, violate, or breach or constitute a default or require any consent not already obtained under, any contractual obligation or court or administrative order by which such Party is bound.

10.2 By IntelGenx. IntelGenx hereby further represents, warrants, and covenants to Pacific as of the Effective Date as follows:

I 0.2.1 IP Ownership. IntelGenx has the sole legal and/or beneficial title to and ownership of the Patents and to the Licensed Know-How as is necessary to grant the License to Pacific pursuant to this Agreement, and the Patents and the Licensed Know-How are free and clear of any liens, encumbrances or third party rights.

10.2.2 No Conflicting Grants. IntelGenx has not and during the term of this Agreement shall not, grant any rights to the Patents or the Licensed Know-How that conflict with the rights granted to Pacific hereunder, and no third party has any rights whatsoever (including the right to receive royalties or any other compensation) under the Patents or the Licensed Know-How for the Product.

10.2.3 Third Party Actions . The exercise of the License in the Field of Use by Pacific will not, to the best of IntelGenx' knowledge, infringe upon the patent or other intellectual property rights of any third party, and no actions, suits, claims, disputes, or proceedings concerning the Patents, the Licensed Know-How or the Product are currently pending or have been threatened, that could have an adverse effect on the Product or could impair IntelGenx' ability to perform its obligations under this Agreement. Furthermore, there are no legal suits or proceedings by a third party (including without limitation employees or former employees of IntelGenx) contesting the ownership or validity of the Patents, the Licensed Know How or the Product or any part thereof, and if IntelGenx shall become aware of any such third party, IntelGenx shall immediately notify Pacific of such, and IntelGenx undertakes to effect any payments required (including the payment of royalties or other compensation) to be made to such third party, and to hold Pacific harmless from, and indemnify and defend Pacific against, any such claims or payments.

11 LIMITATION OF LIABILITY.

Except in the case of willful or fraudulent misrepresentation under Section 10 and indemnification for payments to third parties under Section 15, in no event shall either Party be liable to the other or any of its Affiliates for any consequential, incidental, indirect, special, punitive or exemplary damages (including, without limitation, lost profits, business or goodwill) suffered or incurred by such other Party or its Affiliates, whether based upon a claim or action of contract, warranty, negligence or tort, or otherwise, arising out of this Agreement.

12 PATENTS

12.1 Intellectual Property Ownership. All Product-related intellectual property solely developed by IntelGenx either prior to the Effective Date, or at any time after the Effective Date, shall be owned by IntelGenx, and licensed to Pacific pursuant to the License exclusivity granted herein. All Project-related intellectual property invented, created, conceived or developed, as a direct result of the development of the Products shall be owned by the party whose employees make or generate the intellectual property ("Project Intellectual Property"). If the sole inventor of the Project Intellectual Property is any IntelGenx Parties, it shall be considered IntelGenx Intellectual Property and shall be subject to the licensing terms set forth herein. If the sole inventor of the Project Intellectual Property is any Pacific Parties, it shall be considered Pacific Intellectual Property and shall be subject to the licensing terms set forth herein. Intellectual property jointly developed by the Parties in the context of the development of the Product will be jointly owned (the "Joint IP") and IntelGenx' portion of same shall be included in the License granted hereunder. Each Party shall have the right to use such Joint IP in respect to products other than the Product, provided that such other product do not compete with the Product or with any other Product of the other Party; and provided further that neither party shall grant any exclusive rights to, or otherwise dispose of its portion of the Joint IP, without the prior written consent of the other party; other than (i) an assignment or transfer in connection with a merger of such Party or a sale of all or substantially all of its assets or shares and (ii) Pacific's right to sublicense its portion of the Joint IP in the context of a sublicensing transaction under the License. Employees of IntelGenx, whether serving as advisors or consultants to Pacific or serving Pacific in any other capacity, shall be considered employees of IntelGenx for the purpose of determining ownership of intellectual property. Notwithstanding the foregoing, other than as provided in Section 3.1, Pacific shall not be granted any ownership or other rights in or to the IntelGenx Intellectual Property. IntelGenx shall not be granted any ownership or other rights in or to the Pacific Intellectual Property.

12.2 Patent Prosecution And Maintenance

12.2.1 Prosecution. IntelGenx undertakes to prosecute and maintain the Patents using counsel of its choice in the jurisdictions to the extent such jurisdictions are decided after conferring with Pacific. IntelGenx will provide Pacific with copies of all relevant documentation so that Pacific will be informed of the continuing prosecution and may comment upon such documentation sufficiently in advance of any initial deadline for filing a response, provided, however, that if Pacific has not commented upon such documentation in a reasonable time for IntelGenx to sufficiently consider Pacific's comments prior to a deadline with the relevant government patent office, or IntelGenx must act to preserve the Patents, IntelGenx will be free to act without consideration of Pacific's comments, if any.

12.2.2 Pacific's Requests. IntelGenx shall use reasonable efforts to amend any Patent application to include claims or any other changes reasonably requested by Pacific to protect the Product contemplated to be sold under this Agreement. Moreover, IntelGenx will cooperate in the preparation, filing, prosecution, and maintenance of the Patents, including (a) promptly executing all papers and instruments and requiring employees to execute such papers and instruments as reasonable and appropriate so as to enable Pacific to file, prosecute, and maintain the Patents in any country; and (b) promptly informing Pacific of matters that may affect the preparation, filing, prosecution, or maintenance of any Patents.

12.2.3 Patent Prosecution Costs. lntelGenx shall bear the costs of preparing, filing, prosecuting and maintaining all patent applications contemplated by Section 12.2.1, provided, however that Pacific shall pay all costs and expenses incurred in making amendments or changes required by Pacific, provided such amendments or changes have been expressly and specifically requested from IntelGenx in advance and in writing by Pacific and provided all such costs and expenses have been pre-approved in writing by Pacific. Costs associated with Joint IP patent applications shall be shared equally.

12.2.4 Co-operation. The Parties will provide reasonable assistance to each other, including providing access to relevant documents and other evidence, making its employees available at reasonable business hours, and joining the action to the extent necessary to allow the prosecuting and maintaining Party to prosecute and maintain the relevant Patent.

12.3 Patent Enforcement

12.3.1 Infringement Notice . Each party shall promptly notify the other party upon learning of any Infringement Allegation or Licensed Patent Dispute. IflntelGenx or Pacific determines that any Licensed Patent or Patent Right is being infringed by a third party's activities and that such infringement could affect the exercise of the License under this Agreement, it will promptly notify the other Party in writing. In addition, if IntelGenx or Pacific determines that any Licensed Know-How is being misappropriated by a third party's activities and that such misappropriation could affect the exercise of the License under this Agreement, it will promptly notify the other Party in writing.

If Pacific has exercised the Further Development Option, Pacific will have the sole, exclusive and first right but not the obligation to remove such infringement and/or misappropriation and to control all litigation to remove such infringement and/or misappropriation relating to the Product in the Field of Use, all as Pacific shall deem appropriate in its sole discretion. IntelGenx shall provide notice to Pacific of its decision to co-defend (at Pacific's cost) within sixty (60) calendar days from the date the relevant Proceeding (as hereinafter defined) becomes known to IntelGenx. In the event Pacific does, at its discretion, undertake any infringement or misappropriation action and IntelGenx does not co-defend, Pacific will provide IntelGenx with copies of all relevant documentation so that IntelGenx will be informed of the continuing action and may comment upon such documentation. Pacific shall not be permitted to settle any threatened, pending or completed or any claim, issue or matter therein, on behalf oflntelGenx, without the prior written consent oflntelGenx, such consent not to be unreasonably withheld, delayed or conditioned.

For the avoidance of doubt, IntelGenx shall have no obligation or be responsible, financially and/or otherwise, for the enforcement of the Patent Rights, as related to any Product, subject to indemnity in 10.2.3

12.3.2 Co-operation. The Parties will provide reasonable assistance to each other, including providing access to relevant documents and other evidence, making its employees available at reasonable business hours.

12.3.3 Recovery. Any amounts recovered in connection with or as a result of any action contemplated by Sections 12.3.2 whether by settlement or judgment, will be used to reimburse the Parties for their reasonable costs and expenses in making such recovery, and any remainder received by IntelGenx or Pacific will be treated as Sublicense Sales Royalties and payments will be due in respect of same pursuant to this Agreement.

12.4 Patent Infringement

12.4.1 License. In the event that Pacific determines that the manufacturing, use or Commercialisation of the Product or any other action authorized under the License or any part thereof, is such that it is commercially reasonable to seek a license to the intellectual property rights of any third party, Pacific shall, upon IntelGenx' approval, such approval not to be unreasonably withheld, be entitled to enter into negotiations with such third party in order to reach an agreement according to which Pacific shall obtain a license or other applicable right or a waiver from such party with respect to such intellectual property rights.

12.4.2 Claim -Rights and Procedures. In the event that either IntelGenx or Pacific, become aware of any Infringement Allegation, notice of an Infringement Allegation shall promptly be given to the other Party. Notwithstanding the foregoing IntelGenx shall in no way be responsible, financially and/or otherwise for, or be obligated in any way, in the defense of any Infringement Allegations by a third party that the use of the License in the Licensed Application violates a third party's intellectual property rights. All expenses costs, fees, damages, losses, and royalties or other amounts paid in settlement incurred in connection with the defence of such an Infringement Allegation shall in no way be the burden and/or responsibility of IntelGenx but shall be the sole burden and/or responsibility of the Commercial Partner.

12.4.3 I n the event of an Infringement Allegation wherein IntelGenx is sued independently of Pacific, IntelGenx shall, at its sole discretion, have the first right to defend any such Infringement Allegation(s) using counsel of its choice. Pacific shall be responsible for all cost related thereto, join IntelGenx or replace IntelGenx as the defendant in the suit as may be necessary or advisable by IntelGenx' legal counsel, and Pacific will make available its employees and relevant records to assist in and to provide evidence for such suit. All expenses, fees (including reasonable legal fees and expenses), damages, losses and royalties or other amounts paid in settlement and/or incurred in connection with the defence of any Infringement Allegation shall be the burden of Pacific. In the event that the Commercial Partner is solely financially responsible for any Proceeding other than the defense of any Infringement Allegation, all royalties and/or other amounts paid in settlement, and/or recovered in connection with such shall be the sole benefit and/or responsibility of the Commercial Partner.

Neither Party shall, without the consent of the other Party, enter into any settlement or compromise or consent to any judgment in respect of any claim and/or Proceeding related to rights licensed to Pacific under this Agreement, unless such settlement, compromise or consent includes an unconditional release of the other Party from all liability arising out of the claim, if any, and does not otherwise limit or impair the other Party's rights.

13 CONFIDENTIALITY

13.1 Disclosure and Use Restriction. The Parties agree that during the Term of this Agreement and thereafter, each Party will keep completely confidential and will not publish, submit for publication or otherwise disclose, and will not use for any purpose except for the purposes contemplated by this Agreement, any Confidential Information (as such term is defined below) received from the other Party.

13.2 Confidential Information. Information or know-how of a Party shall not be deemed Confidential Information of such Party for purposes of this Agreement if such information or know-how:

(i) was already known to the receiving Party, other than under an obligation of confidentiality or non-use, at the time of disclosure to such receiving Party;

(ii) was generally available or known to parties reasonably skilled in the field to which such information or know-how pertains, or was otherwise part of the public domain, at the time of its disclosure to such receiving Party;

(iii) became generally available or known to parties reasonably skilled in the field to which such information or know-how pertains, or otherwise became part of the public domain, after its disclosure to such receiving Party through no fault of the receiving Party;

(iv) was disclosed to such receiving Party, other than under an obligation of confidentiality or non-use, by a third party who had no obligation to the disclosing Party not to disclose such information or know-how to others; or

(v) was independently discovered or developed by such receiving Party, as evidenced by their written records, without the use of Confidential Information belonging to the disclosing Party and prior to any subsequent disclosure by the receiving Party.

All Licensed Know-How shall be deemed to be Confidential Information of lntelGenx; provided that Pacific shall be entitled to disclose and use any Licensed Know-How in the exercise of its rights under this Agreement.

13.3 Authorized Disclosure. Notwithstanding the provisions of Section 13.1 above, a Party shall be entitled to disclose the Confidential Information of the other Party hereto to the extent that such disclosure is:

(i) made in response to a valid order of a court of competent jurisdiction; provided, however, that such Party will first (to the extent practicably possible) have given notice to such other Party and given such other Party a reasonable opportunity to quash such order and to obtain a protective order requiring that the Confidential Information and documents that are the subject of such order be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; and provided further that if a disclosure order is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such court or governmental order will be limited to that information which is legally required to be disclosed in response to such court or governmental order;

(ii) otherwise required by law; provided, however, that the disclosing Party will provide such other Party with notice of such disclosure in advance thereof to the extent practicably possible and to the extent permitted, will redact from such disclosure the other party’s Confidential Information or designate the same as trade secret;

(iii) made by such Party to any Regulatory Authority or Governmental Authority as necessary for the development or Commercialisation of a Product, including the Product, in a country, as required in connection with any filing, application or request for Regulatory Approval or as required by applicable securities laws and regulations, subject to the limitations in Section 13.3(ii);

(iv) made by such Party in connection with the performance of this Agreement, to Sublicensees, Affiliates, directors, officers, employees, consultants, representatives or agents, each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Agreement;

(v) made by such Party in the course of submitting financial accounts to relevant authorities as per local statutory requirements or to existing or potential acquirers; existing or potential collaborators; investment bankers; existing or potential investors, merger candidates, partners, venture capital firms or other financial institutions or investors for purposes of obtaining financing; or, bona fide strategic potential partners; each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Agreement; or

(vi) a general description of the Product made by a Party to its shareholders and to potential investors with the aim of securing the financing needed to continue the development of the Product.

14 PRESS RELEASES

Press releases or other similar public communication by either Party relating to the terms of this Agreement (but not, for the avoidance of doubt, unless reference is made to the other Party or the terms of this Agreement, with respect to activities in exercise of its rights under this Agreement) will be approved in advance by the other Party, which approval will not be unreasonably withheld or delayed. Notwithstanding the foregoing, those communications required by applicable law, regulation or securities exchange rule (including, but not limited to, a public offering prospectus), disclosures of information for which consent has previously been obtained, and information of a similar nature to that which has been previously disclosed publicly with respect to this Agreement, will not require advance approval, but will be provided to the other Party as soon as practicable after the release or communication thereof. For the avoidance of doubt, the Parties may issue press releases regarding the fact that this Agreement has been signed and the nature of the agreement so long as they do not describe the specific provisions hereof without approval from the other party.

15 INDEMNIFICATION

15.1 Indemnification of IntelGenx. Pacific will defend and hold IntelGenx and its directors, officers, Affiliates, employees and agents ("lntelGenx Parties") hannless, from and against any and all liability, Proceedings, suits, investigations, claims or demands by a third party to the extent arising from or occurring as a result of or in connection with (a) the negligence or willful misconduct on the part of Pacific in performing any activity contemplated by this Agreement or (b) a breach by Pacific of any representations, warranties, or covenants set forth in this Agreement; except to the extent arising from the (i) negligence or willful misconduct on the part of an IntelGenx Party; or (ii) breach by IntelGenx of any representations, warranties or covenants set forth in this Agreement.

15.2 lntelGenx Insurance. During the Term of this Agreement, IntelGenx shall maintain insurance coverage for general liability and property damage, including sufficient insurance covering IntelGenx' indemnification obligations to Pacific, in an amount no less than $1,000,000 per occurrence, with an aggregate annual limit of$2,000,000, and shall provide evidence of such insurance to Pacific.

15.3 Indemnification of Pacific. IntelGenx will defend and hold Pacific, its Affiliates, and their respective directors, officers, employees and agents ("Pacific Parties"), harmless, from and against any and all liability, suits, investigations, claims or demands by a third party to the extent arising from or occurring as a result of or in connection with (a) negligence or willful misconduct on the part of IntelGenx or (b) breach by IntelGenx of any representations, warranties, or covenants set forth in this Agreement, except to the extent the liability or loss arises from or occurs as a result of or in connection with (i) negligence or willful misconduct on the part of a Pacific Party; or (ii) breach by Pacific of any representations, warranties, or covenants set forth in this Agreement.

15.4 Pacific Insurance. During the Term of this Agreement, Pacific shall maintain insurance coverage for general liability and property damage, including sufficient insurance covering Pacific's indemnification obligations to IntelGenx, in an amount no less than $1,000,000 per occurrence, with an aggregate annual limit of$2,000,000, and shall provide evidence of such insurance to IntelGenx.

15.5 Conditions to Indemnity. Each Party's agreement to indemnify and hold the other harmless is conditioned upon the indemnified Party (i) providing written notice to the indemnifying Party of any claim, demand or action arising out of the indemnified activities within thirty (30) days after the indemnified Party has knowledge of such claim, demand or action, (ii) permitting the indemnifying Party to assume full responsibility to investigate, prepare for and defend against any such claim or demand, (iii) assisting the indemnifying Party, at the indemnifying Party's expense, in the investigation of, preparation of and defense of any such claim or demand; and (iv) the indemnifying Party not compromising or settling such claim or demand without the indemnified Party's prior written consent, unless such settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Party a complete release from all liability in respect of such claim or litigation; provided that, if the Party entitled to indemnification fails to promptly notify the indemnifying Party pursuant to the foregoing clause (i), the indemnifying Party shall only be relieved of its indemnification obligation to the extent it is prejudiced by such failure and provided further that the indemnified Party is not obligated to notify the indemnifying Party of claims, demands and/or actions made directly against the indemnifying Party only. Notwithstanding the foregoing, if in the reasonable judgment of the indemnified Party, such suit or claim involves an issue or matter which could have a materially adverse affect on the business, operations or assets of the indemnified Party, the indemnified Party may waive its rights to indemnity under this Agreement and control the defense or settlement thereof, but in no event shall any such waiver be construed as a waiver of any indemnification rights such indemnified Party may have at law or in equity.

16 TERM AND TERMINATION

16.1 Term. Unless earlier terminated in accordance with the provisions of Section 2.4 or Section 16, the term of this Agreement (the "Term") commences upon the Effective Date and will continue until terminated in accordance with the terms hereof.

16.2 Termination.

16.2.1 Termination for Breach . Failure by a Party to comply with any of its material obligations contained herein will entitle the Party not in default to give to the defaulting Party notice specifying the nature of the material breach, requiring the defaulting Party to make good or otherwise cure such material breach, providing specific actions that the defaulting Party could take to cure such material breach, and stating its intention to invoke the provisions of Section 16.2 if such material breach is not cured. If such material breach is not cured within ninety (90) days after the receipt of such notice (or, if such material breach cannot be cured within such ninety (90) day period, if the defaulting Party does not commence actions to cure such material breach within such period and thereafter diligently continue such actions), the Party not in default will be entitled, without limiting any of its other rights conferred on it by this Agreement (except as expressly set forth herein), to terminate this Agreement by providing written notice to the breaching Party.

Notwithstanding anything to the contrary herein, in the event of termination of the Agreement by IntelGenx as a result of Pacific's material breach of this Agreement, and without derogating from any oflntelGenx' other rights at law, IntelGenx shall have the right to continue any and/or all activities contemplated in under and/or by this Agreement, terminate all rights granted to Pacific, continue utilizing the Patents and the Know-How for the exploitation of the Products, with the right to set-off, from any sums due to Pacific hereunder, amounts equivalent to any damage caused to IntelGenx as a result of Pacific breach hereunder.

Notwithstanding anything to the contrary herein, in the event of termination of the Agreement by Pacific as a result oflntelGenx' material breach of this Agreement, and without derogating from any of Pacific's other rights at law, Pacific shall have the right to continue any and/or all activities contemplated in under and/or by this Agreement, terminate all rights, other than the royalty obligations set forth herein, granted to IntelGenx, continue utilizing the Patents and the Know-How for the exploitation of the Products.

16.2.2 Voluntary Termination. Pacific may forthwith terminate this Agreement upon the occurrence of any of the following events:

(a)

IntelGenx fails to perform any of its obligations hereunder or makes any material misrepresentation in this Agreement, which, if capable of being cured, has not been cured within ninety (90) days after written notice by Pacific (in which Pacific specifies the nature of such failure or misrepresentation);

(b)

IntelGenx enters into any compromise with creditors or a general agreement for referral of payment with its creditor;

(c)

IntelGenx makes or suffers to be made any transfer to any person, trustee, receiver, liquidator, or referee for the benefit of creditors;

(d)

IntelGenx files a voluntary petition in bankruptcy; and

(e)

An involuntary petition in bankruptcy is filed against IntelGenx and not dismissed within 60 days of filing.

IntelGenx shall in furtherance of and in addition to the provisions of Sections 16.2.1 and 16.2.3, be entitled, in its sole discretion, to terminate this Agreement upon the occurrence of any of the following events:

(a)

Pacific fails to perform any of its obligations hereunder or makes any material misrepresentation in this Agreement, which has not been cured within ninety (90) days after written notice by IntelGenx (in which IntelGenx specifies the nature of such failure or misrepresentation);

(b)

Pacific enters into any compromise with creditors or a general agreement for referral of payment with its creditor;

(c)

Pacific makes or suffers to be made any transfer to any person, trustee, receiver, liquidator, or referee for the benefit of creditors;

(d)

Pacific files a voluntary petition in bankruptcy; and

(e)

An involuntary petition in bankruptcy is filed against Pacific and not dismissed within sixty (60) days of filing.

16.2.3 Termination for Convenience. IntelGenx shall be entitled, in its sole discretion, to terminate this Agreement at any time on thirty (30) days written notice to Pacific, without the need to pay Pacific any compensation in respect of such termination, in which case the License granted under this Agreement shall immediately terminate. Pacific shall have no right to terminate this Agreement other than for cause in accordance with the provisions of Section 16.2.1 above. Payment obligations by Pacific under this Agreement incurred or accrued prior to the termination would remain in effect until completed. For the avoidance of doubt, in the event that lnteiGenx terminates this Agreement pursuant to this section, 16.2.3, IntelGenx shall not be entitled to reimbursement of Internal Costs.

16.3 Consequences of Termination

16.3.1 License. Upon early termination of this Agreement, all rights granted to Pacific under Section 3.1 will terminate; provided that Pacific shall have a period of one hundred eighty (180) days after the date of termination to sell-off all previously made Product, subject to Royalties and Sublicense Sale Royalties on such sales being duly paid to IntelGenx. Upon termination of this Agreement all sublicenses granted by Pacific shall, at IntelGenx' sole discretion, either terminate or, unless termination is due to breach by IntelGenx or pursuant to Section 16.2.2, be automatically transferred to IntelGenx upon written request from IntelGenx. For the greater certainty, any agreement with a Sublincensee shall be consistent with this Agreement.

16.3.2 Return of Information and Materials. Upon early termination of this Agreement, each Party will return to the other all Confidential Information of the other Party (except one copy of which may be retained for archival and compliance purposes), Each Party will return to the other Party or its designee all Licensed Know-How and any other tangible materials received by the Party under this Agreement and the Party will further waive and actively deregister or assign as requested by the other Party, all Patent right registrations made hereunder.16.3.3

16.2.3 Accrued Rights. Termination or expiration of this Agreement for any reason will be without prejudice to any rights or financial compensation that will have accrued to the benefit of a Party prior to such termination or expiration. Such termination or expiration will not relieve a Party from obligations that are expressly indicated to survive the termination or expiration of this Agreement.

16.3.4 Survival. Sections 2.3, 3.4, 7.3, 7.4, 9, 11, 12.1, 13, 15, 16.3 and 17.11, and 17.3 of this Agreement will survive expiration or termination of this Agreement for any reason.

16.3.5 Further Development. In the event that IntelGenx exercises its Transfer Option Pacific shall not, directly or indirectly, work outside of this Project, either alone or with any third party, on the development of a combination product containing both pentoxifylline and n-acetylcystein, for a period of twenty (20) years from the Effective Date of this Agreement, whether by carrying on or engaging in or being concerned with or interested in or advising, lending money to, guaranteeing the debts or obligations of or permitting its name or any part thereof to be used or employed by, any person engaged in or concerned with or interested in any business that is directly competitive with the a combination product containing both pentoxifylline and n-acetylcystein.

17 MISCELLANEOUS

17.1 Assignment. Without the prior written consent of the other Party hereto, neither Party will sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties hereunder; provided, however, that (i) either Party hereto may assign or transfer this Agreement or any of its rights or obligations hereunder without the consent of the other Party to any Affiliate, or to any third party successor in interest with which it has merged or consolidated, or to which it has transferred all or substantial part of its assets or stock to which this Agreement relates. Any purported assignment or transfer in violation of this Section 17.1 will be void ab initio and of no force or effect.

17.2 Severability. Should any term or provision of this Agreement be or become invalid or unenforceable or should this Agreement contain an omission, the validity or enforceability of the remaining terms or provisions shall not be affected. In such case, subject to the next following sentence, the Parties shall immediately commence to negotiate in good faith in order to replace the invalid or unenforceable term or provision by such other valid or enforceable term or provision which comes as close as possible to the original intent and effect of the invalid or unenforceable term or provision, or respectively, to fill the omission by inserting such term or provision which the Parties would have reasonably agreed to, if they had considered the omission at the date hereof. In the event that any term or provision as aforesaid is invalid, void or unenforceable by reason of its scope, duration or area of applicability or some similar limitation as aforesaid, then the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision so that they shall be enforceable to the maximum scope, duration, area or applicability permitted by applicable law which shall not exceed those specified in this Agreement or to replace such term or provision with a term or provision that comes closest to expressing the intention of the invalid or unenforceable term or provision.

17.3 Governing Law. This Agreement shall be governed by and construed in accordance with Ontario law, without reference to any rules of conflicts of laws. All disputes arising out of or related to this Agreement, and any remedies relating thereto, shall be construed, governed, interpreted, and applied in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable in the Province of Ontario, without resort to conflict of law principles, except that questions affecting the construction, validity, and effect of any patent shall be determined by the law of the country in which the patent shall have been granted. The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from and shall not govern the rights and obligations of the Parties under this Agreement. Any actions or Proceedings with respect to, arising directly or indirectly in connection with, out of, related to, or from this Agreement or any other document referred to in this Agreement shall be litigated in courts having situs in the Province of Ontario Each Party hereby submits to the exclusive jurisdiction of any provincial or federal court located in the Province of Ontario, and hereby waives any rights it may have to transfer or change the jurisdiction or venue of any litigation brought against it by any Party in accordance with this Section. Furthermore, to the maximum extent permitted by law, each Party hereby waives any and all objections or defenses to the jurisdiction of such courts, including forum non-conveniens.

This Section 17.3 shall not prohibit a Party from seeking injunctive relief from a court of competent jurisdiction in the event of a breach or prospective breach of this Agreement by the other Party, which would cause irreparable harm to the first Party.

17.4 Notices. All notices or other communications that are required or permitted hereunder will be in writing and delivered personally with acknowledgement of receipt, sent by electronic mail (provided receipt is acknowledged), facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier as provided herein), sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

If to IntelGenx, to:

IntelGenx Corp.

6425 Abrams

Ville St-Laurent (Quebec) H4S 1X9

Canada

Fax: +1 514-331-0436

If to Pacific, to:

Pacific Therapeutics Ltd.

409 Granville Street

Suite #1023

Vancouver, BC V6C1T2 Canada

or to such other address as the Party to who notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication will be deemed to have been given (i) when delivered, if personally delivered, (ii) on the business day (on the receiving end) after dispatch, if sent by nationally-recognized overnight courier (third business day if sent internationally), (iii) on the third business day following the date of mailing, if sent by mail (fifth business day if sent internationally) and (iv) on the first business day (on the receiving end) after being sent by facsimile or by if sent by electronic mail followed by facsimile. It is understood and agreed that this Section 17.4 is not intended to govern the day-to-day business communications necessary between the Parties in performing their duties, in due course, under the terms of this Agreement.

17.5 Entire Agreement; Modifications. This Agreement sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all prior agreements, understanding, promises and representations, whether written or oral, with respect thereto, including the term sheet executed between the Parties dated April19, 2010, are superseded hereby. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein. No amendment, modification, release or discharge will be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties.

17.6 Relationship of the Parties. It is expressly agreed that the Parties will be independent contractors of one another and that the relationship between the Parties will not constitute a partnership, joint venture or agency.

17.7 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver will be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. Any such waiver will not be deemed a waiver of any other right or breach hereunder.

17.8 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

17.9 No Third Party Beneficiaries. The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they will not be construed as conferring any rights on any other parties.

17.10 Fu rther Assurances. Each Party will duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary to carry out the provisions and purposes of this Agreement.

17.11 Restriction on Development . Subject to Sections 2.4 and 16, neither Party shall, directly or indirectly, work outside of this Project, either alone or with any third party not currently involved with the Project, on the development of a combination product containing both pentoxifylline and n-acetylcystein, for a period of seven (7) years from the Effective Date of this Agreement, whether by carrying on or engaging in or being concerned with or interested in or advising, lending money to, guaranteeing the debts or obligations of or permitting its name or any part thereof to be used or employed by, any person engaged in or concerned with or interested in any business that is directly competitive with the a combination product containing pentoxifylline and n-acetylcystein.

17.12 Force Majeure. Neither party shall be responsible to the other for failure or delay in performing any of its obligations under this Agreement or for other non- performance hereof but only to the extent that such delay or non-performance is occasioned by a cause beyond the reasonable control and without fault or negligence of such party, including, but not limited to earthquake, fire, flood, explosion, discontinuity in the supply of power, court order or governmental interference, act of God, strike or other labour trouble, act of war or terrorism and provided that such party will inform the other party as soon as is reasonably practicable and that it will entirely perform its obligations immediately after the relevant cause has ceased its effect. If any such force majeure event continues for a continuous period of three (3) months, the Party whose performance is not prevented by such event may terminate this Agreement with immediate effect by providing the other Party with written notice.

17.13 Language. The parties have requested that this Agreement and all communications and documents relating hereto be expressed in the English language. Les parties ont exige que la presente convention ainsi que tous les documents s'y rattachant soient rediges dans Ia langue anglaise.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

IntelGenx Corp.

Signature: /s/ Paul A. Simmons

Name: Paul A. Simmons

Title: CFO

Pacific Therapeutics Ltd.

Signature: /s/ Doug Unwin

Name: Doug Unwin

Title: CEO

Exhibit 11.1

PACIFIC THERAPEUTICS LTD.

CODE OF BUSINESS CONDUCT AND ETHICS AND COMPLIANCE PROGRAM

The upholding of a strong sense of ethics and integrity is of the highest importance to Pacific Therapeutics Ltd., (the “Company”) and critical to its success in the business environment. The Company’s Code of Business Conduct and Ethics and Compliance Program embodies the Company’s commitment to such ethical principles and sets forth the responsibilities to the Company to its shareholders, employees, consultants, customers, lenders and other stakeholders. The Company’s Code of Business Conduct and Ethics and Compliance Program addresses general business ethical principles, conflicts of interests, special ethical obligations for employees with financial reporting responsibilities, insider trading laws, reporting of any unlawful or unethical conduct, political contributions and other relevant issues.

GENERAL PRINCIPLES

It is the Company’s firm belief that effective business relationships can only be built on mutual trust and fair dealing. The Company, and all its directors, officers and employees to whom the Company’s Code of Business Conduct and Ethics and Compliance Program is applicable, will conduct themselves in accordance with the standards established herein.

The Company’s Code of Business Conduct and Ethics and Compliance Program outlines the fundamental principles of legal and ethical business conduct as adopted by the Board of Directors of the Company. It is not intended to be a comprehensive list addressing all legal or ethical issues that may confront the Company’s personnel. Hence, it is essential that all personnel subject to the Company’s Code of Business Conduct and Ethics and Compliance Program employ good judgement in the application of the principles contained herein.

CONFLICTS OF INTEREST

Directors, officers and employees of the Company are expected to make decisions and take actions based on the best interests of the Company, as a whole, and not based on personal relationships or benefits. Generally, a “conflict of interest” is an activity that is inconsistent with or opposed to the best interest of the Company or one, which gives the appearance of impropriety. As conflicts of interest can compromise the ethical behaviour of Company personnel, they should be avoided.

Employees should avoid any relationship, which would create a conflict of interest. Employees are expected to disclose such relationships and conflicts to their immediate supervisors. Conflicts of interest involving those with whom the Company does business should also be disclosed in writing to such third parties. The Board of Directors or an appropriate committee must approve any waivers of conflicts of interest.

Members of the Board of Directors are to disclose any conflicts of interest and potential conflicts of interest to the entire Board of Directors as well as the committees on which they serve. Directors are to recuse themselves from participation in any decision of the Board or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest.

Set forth below is specific guidance in respect to certain conflicts of interest situations. As it is not possible to list all conflicts of interest situations, it is the responsibility of the individual, ultimately, to avoid and properly address any situation involving a conflict of interest or potential conflict of interest. Company personnel who wish to obtain clarification of the Company’s conflicts of interest principles or further guidance with respect to the proper handling of any specific situation should consult his or her immediate supervisor, the Company’s corporate secretary or the Company’s outside legal counsel.

Interest in Other Businesses : All of the Company’s directors, officers and employees and their family members must avoid any direct or indirect relationship with third parties with whom the Company has relationships which would involve a conflict of interest or a potential conflict of interest or compromise the individual’s loyalty to the Company. Permission must be obtained from the Company’s president before any such individual commences an employment, business or consulting relationship with third parties with whom the Company has relationships.

Outside Directorships : All of the Company’s directors, officers and employees may serve on the boards of directors of other profit-making organisations so long as those other companies are not in direct competition with the Company. Direct competition does not include being in the same type of resource industry business as the Company, and directors, officers and employees are not obliged to refer to the Company every opportunity they may have in the Company’s area of the resource industry.

Individuals who serve as directors of other companies may retain any compensation earned from that outside directorship without accounting for it to the Company. Individuals may receive compensation (whether in the form of cash, stock or options) for service on a board of director of another business organization if such service is at the request of the Company or in connection with the investment of the Company in such business organization, so long as the individual discloses the compensation to the Company. All individuals must excuse themselves from any matter pertaining to the Company and the business organization of which they are directors.

Proper Payments : All individuals should pay for and receive only that which is proper. Company personnel should not make improper payments for the purposes of influencing another’s acts or decisions and should not receive any improper payments or gifts from others for the purposes influencing the decisions or actions of Company’s personnel. No individual should give gifts beyond those extended in the context of normal business circumstances. Company personnel must observe all government restrictions on gifts and entertainment.

Supervisory Relationships : Supervisory relationships with family members present special workplace issues. Accordingly, Company personnel should where possible avoid a direct reporting relationship with a family member. If such a relationship exists or occurs, the individuals involved must report the relationship in writing to the Board of Directors.

FINANCIAL REPORTING RESPONSIBILITIES

As a public company, it is of critical importance that the Company’s filings with the Securities and Exchange Commission and other relevant regulatory authorities be accurate and timely. Hence, all Company personnel are obligated to provide information to ensure that the Company’s publicly filed documents are complete and accurate. All Company personnel must take this responsibility seriously and provide prompt and accurate answers and responses to inquiries related to the Company’s public disclosure requirements.

The Chief Executive Officer/President and the Chief Financial Officer of the Company have the ultimate responsibilities of ensuring the integrity of the filings and disclosure made by the Company as required by the rules and regulations of the Securities and Exchange Commission and other relevant regulatory authorities. In the performance of their duties relating to the Company’s public disclosure obligations, the Chief Executive Officer/President and Chief Financial Officer and all Company personnel must:

Act with honesty and integrity

Provide information that is accurate, complete, objective, fair and timely

Comply with rules and regulations of federal, state and local governments and other relevant public and private regulatory authorities

Act in good faith with due care, competence and due diligence

Respect the confidentiality of information acquired in the course of the performance of one’s duties

Promote ethical and proper behavior in the work environment

Report to the Chairman of the Audit Committee any conduct that the individual believes to be a violation of law of the Company’s Code of Business Conduct and Ethics

INSIDER TRADING

It is the policy of the Company to prohibit the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of material nonpublic information in securities trading. It is not possible to define all categories of material information. However, information should be regarded as material if there is a reasonable likelihood that it would be considered important to an investor in making an investment decision regarding the purchase or sale of the Company’s securities. Nonpublic information is information that has not been previously disclosed to the general public and is otherwise not available to the general public. While it may be difficult to determine whether particular information is material, there are various categories of information that are particularly sensitive and, as a general rule, should always be considered material. In addition, material information may be positive or negative. Examples of such information may include:

Financial results

Projections of future earnings or losses

Major acquisitions or write-offs

Joint ventures with third parties

Research, exploration or development milestones

News of a pending or proposed merger or acquisition

News of the disposition of material assets

Impending bankruptcy or financial liquidity problems

Resource discoveries of a material nature

Significant pricing changes

Stock splits or consolidations

New equity or debt offerings

Significant litigation exposure due to actual or threatened litigation

Changes in senior management

Capital investment plans

Changes in dividend policy

Trading on Material Nonpublic Information: With certain limited exceptions, no officer or director of the Company, no employee of the Company or its subsidiaries and no consultant or contractor to the Company or any its subsidiaries and no members of the immediate family or household of any such person, shall engage in any transaction involving a purchase or sale of the Company’s securities, including any offer to purchase or offer to sell, during any period commencing with the date he or she possesses material nonpublic information concerning the Company, and ending at the close of business on the second day following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material. The term “trading day” shall mean a day on which the TSX Venture Exchange is open for trading.

Tipping: No insider shall disclose material nonpublic information to any other person (including family members) where such information may be used by such person to his or her profit by trading in the securities of companies to which such information relates, nor shall such insider or related person make recommendations or express opinions on the bases of material nonpublic information as to trading in the Company’s securities.

Regulation FD (Fair Disclosure) implemented by the Securities and Exchange Commission provides that when the Company, or a person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the Company’s securities who may well trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or unintentional; for intentional selective disclosure, the Company must make public disclosures simultaneously; for a non-intentional disclosure the Company must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.

It is the policy of the Company that all communications with the press be handled through the Company president.

Confidentiality of Nonpublic Information: Nonpublic information relating to the Company is the property of the Company and the unauthorized disclosure of such information is strictly forbidden.

Applicability of Insider Trading Regulations to Securities of Other Companies: The insider trading guidelines described herein also apply to material nonpublic information relating to other companies, including the Company’s customers, vendors or suppliers (“business partners”), when that information is obtained in the course of employment with, or other services performed on behalf of the Company. All employees and consultants should treat material nonpublic information about the Company’s business partners with the same care as is required with respect to information relating directly to the Company.

Duty to Report Inappropriate and Irregular Conduct

All employees and consultants, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the Company, consistent with generally accepted accounting principles and both federal and state securities laws. Any employee or consultant who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to their immediate supervisor and to the Company’s Audit Committee. Any failure to report inappropriate or irregular conduct of others is a severe disciplinary matter. It is against Company policy to retaliate against any individual who reports in good faith the violation or potential violation of the Company’s Code of Business Conduct and Ethics and Compliance Program of another.

ENVIRONMENTAL AND OPERATIONS INSSUES

The Company will use reasonable efforts to comply with best practices as they relate to resource exploration environmental issues. In particular Company officials will where practical seek guidance from knowledgeable participants and obtain governmental or other regulatory guidelines on environmental conduct of mining operations so as to be familiar with and follow as much as practicable such guidelines.

All employees, consultants and subcontractors of the Company will be given strict instructions to follow all environmental laws applicable to the operations of the Company at all times. All employees, consultants and subcontractors will be encouraged to report any violation of such laws to the President upon their first opportunity.

POLITICAL CONTRIBUTIONS

No assets of the Company, including the time of Company personnel, the use of Company premises or equipment and direct or indirect monetary payments, may be contributed to any political candidate, political action committees, political party or ballot measure without the written permission of the president of the Company.

COMPLIANCE PROGRAM

In order to implement the principles of the Company’s Code of Business Conduct and Ethics and to establish a Compliance Program, the Company has adopted the following policies:

Size of the Board: The Board will periodically review the appropriate size of the Board.

Independent Directors: It is the policy of the Company that where possible at least one of the directors will be non-employees and non-officers of the Company and will otherwise meet the appropriate standards of independence. In determining independence, the Board will consider the definition of “independence” under the relevant rules and regulations of the Securities and Exchange Commission and stock exchange or market on which the Company’s shares are listed for trading. The Company acknowledges that as a small, venture stage company it may be difficult to attract independent directors and may operate with non-independent directors.

Management Directors: The Board anticipates that the Company’s Chief Executive Officer/President will be nominated annually to serve on the Board. The Board may also nominate other members of management.

Chair; Lead Independent Director: The Board will periodically appoint a Chair. Both independent and management directors, including the Chief Executive Officer/President, are eligible for appointment as the Chair. The Chair or one of the independent directors (if the Chair is not an independent director) may be designated by the Board to be the “lead independent director.” The lead independent director may periodically help schedule or conduct separate meetings of the independent directors.

Selection of Board Nominees: The Board will be responsible for the selection of candidates for the nomination of all Board members. The Nominating and Corporate Governance Committee, if constituted, shall recommend candidates for election to the Board.

Board Membership Criteria: The Board’s policy is to encourage selection of directors who will contribute to the Company’s overall corporate goals of responsibility to its shareholders and other stakeholders.

Independent Directors’ Discussions: It is the policy of the Board that the independent directors, under the direction of the lead independent director, may meet separately without management directors at least once per year to discuss such matters as the independent directors may consider appropriate. The Company’s independent auditors, outside legal counsel, finance staff, legal staff and other employees may be invited to attend.

Access to Information: The Board encourages the presentation at meetings by managers who can provide additional insight into matters being discussed. The Company’s executive management will afford each Board member full access to the Company’s records, information, employees, outside auditors and outside counsel.

Board Committees: The Board shall have two standing committees, the Audit Committee and the Nominating/Corporate Governance Committee. From time to time, the Board may establish additional committees.

Committee Member Selection: The Board will designate the members and Chairs of each committee. The membership of the Audit Committee, the Compensation Committee and the Nomination/Corporate Governance Committee shall meet all applicable criteria of the rules and regulations of the Securities and Exchange Commission and the stock exchange or market on which the Company’s shares are listed for trading.

Committee Functions: The Board of Directors shall adopt a Committee Charter for each of the Audit Committee and the Nomination/Corporate Governance Committee which shall provide the structure and guiding principles of such committees. The full authority and responsibilities of each committee are fixed by resolution of the full Board of Directors and the Committee Charter. The following is a brief summary of the authority of each committee:

Audit Committee. Review the Company’s financial procedures and controls; monitor financial reporting and select and meet with independent auditors.

Nominating and Corporate Governance Committee. Recommend to the full Board candidates for election to the Board and changes to governance policies.

Insider Trading Compliance: The Board of Directors intend to adopt an Insider Trading Compliance Program for the purposes of educating and ensuring that all subject persons are fully aware of the rules and regulations of the Securities and Exchange Commission with respect to insider trading. The Company will, within reason, endeavour to make the Company’s outside legal counsel available to Company personnel with respect to any insider trading questions or issues.

Financial Reporting; Legal Compliance and Ethics: The Board’s governance and oversight functions do not relieve the Company’s executive management of its primary responsibility of preparing financial statements which accurately and fairly present the Company’s financial results and condition, the responsibility of each executive officer to fully comply with applicable legal and regulatory requirements or the responsibility of each executive officer to uphold the ethical principles adopted by the Company.

Corporate Communications: Management has the primary responsibility to communicate with investors, the press, employees and other stakeholders on a timely basis and to establish policies for such communication.

Access to Outside Counsel: The Company will, within reason, endeavor to provide Company personnel access to the Company’s outside legal counsel with respect to any matter which may arise relating to the Company’s Code of Business Conduct and Ethics and Compliance Program.

Exhibit 11.2

PACIFIC THERAPEUTICS LTD.

(the “Company”)

AUDIT COMMITTEE CHARTER

General

Primary responsibility for the Company’s financial reporting obligations, information systems, financial information disclosure, risk management and internal controls is vested in management and overseen by the Board.

The Audit Committee is a standing committee of the Board, the primary function of which is to assist the Board in fulfilling its financial oversight responsibilities, which will include monitoring the quality and integrity of the Company’s financial statements and the independence and performance of the Company’s external auditor, acting as a liaison between the Board and the Company’s auditor, reviewing the financial information that will be publicly disclosed and reviewing all audit processes and the systems of internal controls management and the Board have established.

Composition and Process

1.	The Audit Committee will be comprised of a minimum of three directors. All of the members of the Audit Committee will be independent, as that term is defined in National Instrument 52 – 110 Audit Committees , unless otherwise exempted by NI 52 - 110.

2.	Audit Committee members will be appointed by the Board on an annual basis for a one-year term and may serve any number of consecutive terms, which are encouraged to ensure continuity of experience.

All members of the Audit Committee will be financially literate, with financial literacy being the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.

4.	The Chair of the Audit Committee will be appointed by the Board on an annual basis for a one-year term and may serve any number of consecutive terms. The Audit Committee Chair will arrange for an alternate chair if he or she is planning to be absent.

The Audit Committee Chair will, in consultation with management, the external auditor and internal auditor (if any), establish the agenda for Audit Committee meetings and ensure that properly prepared agenda materials are circulated to the members with sufficient time for review prior to the meeting. The external auditor will also receive notice of all meetings of the Audit Committee. The external auditor will be entitled to attend and speak at each meeting of the Audit Committee concerning the Company’s annual audited financial statements, and any other meeting at which the Audit Committee feels it is necessary or appropriate. The Audit Committee may employ a list of prepared questions and considerations as a portion of its review and assessment process.

The Audit Committee will meet a minimum of four times per year, at least once per quarter, and may call special meetings as required. A quorum at meetings of the Audit Committee will be a majority of its members if comprised of an odd number of members and one half of its members if comprised of an even number of members. The Audit Committee may hold its meetings, and members of the Audit Committee may attend meetings, by telephone or video conference call.

7.	At all meetings of the Audit Committee every question will be decided by a majority of the votes cast. In case of an equality of votes, the Audit Committee Chair will not be entitled to a casting vote.

8.	The minutes of Audit Committee meetings will accurately record the decisions reached and will be distributed to Audit Committee members with copies to the Board, the CEO, the CFO and the external auditor.

9.	The CEO, CFO, any other director or any other person may attend and participate in meetings of the Audit Committee, if invited.

Authority

·	The Audit Committee will have unrestricted access to the Company’s personnel and documents and will be provided with the resources necessary to carry out its responsibilities.

·	The Audit Committee will have direct communication channels with the external auditor and internal auditor (if any).

The Audit Committee will have the authority to retain (or terminate) any outside counsel, advisors or consultants it determines necessary to assist it in discharging its functions, independently of the Board, Chair or CEO. The Audit Committee will be provided with the necessary funding to compensate any counsel, advisors or consultants it retains.

·	The Audit Committee will enquire about potential claims, assessments and other contingent liabilities.

·	The Audit Committee will periodically review with management depreciation and amortisation policies, loss provisions and other accounting policies for appropriateness and consistency.

·	The Audit Committee will, through the Audit Committee Chair, report to the Board following each meeting on the major discussions and decisions made by the Audit Committee, and will report annually to the Board on the Audit Committee’s responsibilities and how it has discharged them.

Relationship with External Auditor

The Audit Committee will establish effective communication processes with management and the external auditor so it can objectively monitor the quality and effectiveness of the external auditor’s relationship with the Audit Committee and management.

The Audit Committee will review and discuss with the external auditor any disclosed relationships or services that may impact the objectivity and independence of the external auditor and, if necessary, obtain a formal written statement from the external auditor setting forth all relationships between the external auditor and the Company.

The Audit Committee will take, or recommend that the Board take, appropriate action to oversee the independence of the external auditor.

The Company’s external auditor must report directly to the Audit Committee.

The Audit Committee must recommend to the Board:

(a)

the external auditor to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company; and

(b)

the compensation of the external auditor.

Unless otherwise permitted by NI 52-110, the Audit Committee must pre-approve all non-audit services to be provided by the external auditor, together with estimated fees, and consider the impact, if any, on the independence of the external auditor. The Audit Committee may delegate to one or more of its independent members the authority to pre-approve non-audit services, but no such delegation may be made to management of the Company. The pre-approval of non-audit services by any independent member of the Audit Committee to whom such authority has been granted must be presented to the Audit Committee at its first scheduled meeting following such pre-approval. Non-audit services will include, without limitation, the following:

Bookkeeping or other services related to the Company’s accounting records or financial statements.

Financial information systems design and implementation.

Appraisal or valuation services, fairness opinions or contributions-in-kind reports.

Actuarial services.

Internal audit outsourcing services.

Management functions.

Human resources.

Broker or dealer, investment adviser or investment banking services.

Legal services.

Expert services unrelated to the audit, including tax planning and consulting.

The Audit Committee is directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditor regarding financial reporting.

The Audit Committee will implement structures and procedures as it deems necessary to ensure that it meets with the external auditor on a regular basis independent of management.

Relationship with Internal Auditor (if such position exists)

1.	The Audit Committee will review:

The internal auditor’s terms of reference.

The plan and budget for preparation of the internal audit, including financial and operational activities.

Material reports issued by the internal auditor and management’s response to those reports.

2.	The Audit Committee will approve the reporting relationship of the internal auditor to ensure appropriate segregation of duties is maintained and the internal auditor has direct access to the Audit Committee.

3.	The Audit Committee will ensure the internal auditor’s involvement with financial reporting is co-ordinated with the activities of the external auditor.

4.	If no internal audit function exists, the Audit Committee will regularly review the need for such a function.

Accounting Systems, Internal Controls and Procedures

The Audit Committee will obtain reasonable assurance from discussions with and/or reports from management and reports from the external auditor that accounting systems are reliable and that the prescribed internal controls are operating effectively for the Company, its subsidiaries and affiliates. The Audit Committee will review and consider any recommendations made by the external auditor, together with management’s response, and the extent to which recommendations made by the external auditor have been implemented.

2.	The Audit Committee will ensure that adequate procedures are in place for the review of the Company’s disclosure of financial information extracted or derived from the Company’s financial statements and will periodically assess the adequacy of those procedures.

3.	The Audit Committee will review and discuss with management and the external auditor the clarity and completeness of the Company’s financial and non-financial disclosures made pursuant to applicable continuous disclosure requirements.

4.	The Audit Committee will review and discuss with management and the external auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.

5.	The Audit Committee will review and discuss with management and the external auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.

6.	The Audit Committee will review with the external auditor the quality of the Company’s generally accepted accounting principles and direct the external auditor’s examinations to particular areas.

7.	The Audit Committee will discuss with management and the external auditor the Company’s underlying accounting policies and key estimates and judgments to ensure they are considered to be the most appropriate in the circumstances, within the range of acceptable options and alternatives.

8.	The Audit Committee will review the procedures of the internal and external auditors to ensure the combined evaluating and testing of the Company’s controls are comprehensive, well-co-ordinated, cost effective and appropriate to relevant risks and business activities.

The Audit Committee will review all control weaknesses and deviations identified by management, the internal auditor or the external auditor together with management’s response, and review with the external auditor their opinion of the qualifications and performance of the key financial and accounting executives.

10.	The Audit Committee will review and discuss with management and the external auditor any proposed changes in major accounting policies and the financial impact thereof, and will from time to time benchmark the Company’s accounting policies to those followed in its industry.

11.	The Audit Committee will review and discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, which will include without limitation a review of:

(a)

The appetite for financial risk as set forth by management and the Board.

(b)

The Company’s policies for the management of significant financial risk.

(c)

Management’s assessment of the significant financial risks facing the Company.

(d)

Management’s plans, processes and programs to manage and control financial risk.

12.

The Audit Committee will establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

13.	The Audit Committee will review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Company.

14.	The Audit Committee will review the Company’s insurance policies, including directors’ and officers’ coverage, and make recommendations to the Board.

15.	The Audit Committee will establish a periodic review procedure to ensure that the external auditor complies with the Canadian Public Accountability Regime under National Instrument 52 – 108 Auditor Oversight .

Financial Disclosure Responsibilities

The Audit Committee will review and make recommendations on, prior to presentation to the Board for approval and the Company’s dissemination to the public, all material financial information required to be disclosed by securities regulations. In fulfilling this responsibility, the Audit Committee will, without limitation, review:

The Company’s annual and quarterly financial statements (including those of any subsidiaries and affiliates of the Company), management discussion and analysis and news releases, disclosing financial results and any prospectus, annual information form, offering memorandum or other disclosure documents containing financial information extracted or derived from its financial statements.

The Company’s financial reporting procedures and internal controls to be satisfied that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from its financial statements, other than disclosure described in the previous paragraph, and periodically assessing the adequacy of those procedures.

Disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process of the Company’s financial statements about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls.

Other Responsibilities

·	Review with the external auditor and, if necessary, legal counsel, any litigation, claim or contingency, including tax assessments, that could have a material effect upon the financial position of the Company and the manner in which these matters are being disclosed in the financial statements.

·	Investigate fraud, illegal acts or conflicts of interest.

·	Discuss selected issues with legal counsel, the external auditor or management, or conduct special reviews or other assignments from time to time as requested by the Board, or by management with the Board’s approval.

·	Review loans made by the Company to its directors, officers, employees and consultants.

·	The Audit Committee will review and assess its effectiveness, contribution and these Terms of Reference annually and recommend any proposed changes thereto to the Board.

Procedures for Receipt of Complaints and Submissions Relating to Accounting Matters

The Audit Committee will inform all employees, at least annually, of the Complaints Officer designated from time to time by the Audit Committee to whom complaints and submissions can be made regarding accounting, internal accounting controls or auditing matters or issues of concern regarding questionable accounting or auditing matters. The Audit Committee Chairman shall act as the Complaints Officer.

The Complaints Officer will keep any complaints or submissions received and the identity of employees making complaints or submissions confidential and only communicate same to the Audit Committee or the Chair of the Audit Committee.

The Complaints Officer will report to the Audit Committee as frequently as he or she deems appropriate, but in any event no less frequently than on a quarterly basis prior to the quarterly meeting of the Audit Committee called to approve interim and annual financial statements of the Company.

Upon receipt of a report from the Complaints Officer, the Audit Committee will discuss the report and take such steps as the Audit Committee may deem appropriate.

The Complaints Officer will retain a record of a complaint or submission received for a period of six years following resolution of the complaint or submission.

EXHIBIT 12.1

I, Douglas H. Unwin, certify that:

1.	I have reviewed this annual report on Form 20-F of Pacific Therapeutics Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the resistant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 14, 2013

	By:	/s/ Douglas H. Unwin
		Name: Douglas H. Unwin
		Title: Chief Executive Officer

EXHIBIT 12.2

I, Derick Sinclair, certify that:

1.	I have reviewed this annual report on Form 20-F of Pacific Therapeutics Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 14, 2013

	By:	/s/ Derick Sinclair
		Name: Derick Sinclair
		Title: Chief Financial Officer

EXHIBIT 13.1

Section 906 Certification by Principal Executive Officer

In connection with the Annual Report of Pacific Therapeutics Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas H. Unwin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 14, 2013

	By:	/s / Douglas H. Unwin
		Name: Douglas H. Unwin
		Title: Chief Executive Officer

EXHIBIT 13.2

Section 906 Certification by Principal Financial Officer

In connection with the Annual Report of Pacific Therapeutics Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Derick Sinclair, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 14, 2013

		/s/ Derick Sinclair
		Name: Derick Sinclair
		Title: Chief Financial Officer

Exhibit 15.1

INDEPENDENT AUDITORS' REPORT

To the Shareholders of:

Pacific Therapeutics Ltd.

Report on the Financial Statements

We have audited the accompanying financial statements of Pacific Therapeutics Ltd., which comprise the statements of financial position as at December 31, 2012, and December 31, 2011 and the statements of comprehensive loss, changes in equity and statement of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of 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 financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and Public Company Accounting Oversight Board (United States) auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Pacific Therapeutics Ltd. as at December 31, 2012 and December 31, 2011, and its financial performance and its cash flows for the years then ended, in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates that the Company incurred a net loss of $605,468 during the year ended December 31, 2012 and, as of that date, the Company's current liabilities exceeded its total current assets by $529,416. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

/s/ Leed Advisors Inc.

Chartered Accountants

Surrey, British Columbia

April 29, 2013

Exhibit 15.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion of our report dated April 29, 2013, with respect to the statement of financial position of Pacific Therapeutics Ltd as of December 31, 2012, and the statements of comprehensive loss, changes in equity and statement of cash flows for the year then ended, which report appears in Form 20-F of Pacific Therapeutics Ltd.

/s/ Leed Advisors Inc.

Leed Advisors Inc.

Chartered Accountants

Surrey, British Columbia

June 14, 2013

Exhibit 15.3

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

PACIFIC THERAPEUTICS LTD.

Statements of Financial Position

(Expressed in Canadian Dollars)

AS AT:	December 31, 2012			December 31, 2011
	$			$
ASSETS
CURRENT
Cash and cash equivalents		9,854			6,094
Restricted cash (Note 5)		-			300,000
Harmonized sales tax recoverable		809			13,976
Prepaid expenses		97,444			5,119
		108,107			325,189
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT (Note 6)		4,864			6,358
INTANGIBLE ASSETS (Note 7)		93,562			90,631
		206,533			422,178

LIABILITIES
CURRENT
Accounts payable and accrued liabilities		341,872			161,771
Convertible note (Note 11)		16,739			-
Derivative liability (Note 11)		30,889			-
Shareholder demand loan (Note 10)		45,553			20,300
Due to shareholders (Note 10)		202,470			-
		637,523			182,071
NON-CURRENT LIABILITIES
Irrevocable subscriptions (Note 8)		-			230,481
Due to shareholders (Note 10)		-			175,935
		-			406,416
SHAREHOLDERS' DEFICIENCY
Share capital (Note 12)		1,995,716			1,765,754
Subscriptions received (Note 12)		30,000			-
Contributed surplus		206,212			162,052
Deficit accumulated during the development stage		(2,662,918	)		(2,094,115	)
		(430,990	)		(166,309	)
		206,533			422,178

Nature and Continuance of Operations (Note 1) and Commitments (Note 16)

Subsequent Events (Note 17)

On behalf of the Board:

“Douglas H. Unwin”		Director		“Doug Wallis”		Director
Douglas H. Unwin				Doug Wallis

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

Statements of Comprehensive Loss

(Expressed in Canadian Dollars)

FOR THE YEAR ENDING DECEMBER 31,	2012		2011
Expenses	$		$
Advertising and promotion		43,637		7,795
Amortization of property and equipment		2,819		1,810
Amortization of intangible assets		3,944		3,489
Bank charges and interest		665		3,301
Computer		2,130		250
Insurance		24,948		14,628
Investor relations		51,950		-
Office and miscellaneous		4,471		12,294
Professional fees		87,465		112,809
Rent and occupancy costs		17,743		16,273
Repairs		414		-
Research and development		50,941		-
Telephone and utilities		2,314		1,854
Transfer agent		7,915		2,116
Travel		13,130		-
Wages and benefits		169,327		121,297
		483,813		297,916

Interest expense
ISA interest incurred (Note 8)	3,002	38,250
ISA-accretion of deemed discount (Note 8)	69,519	42,980
Shareholder loan accretion of deemed discount (Note 10)	26,535	15,318
Class B Series I Preferred Shares accretion of deemed discount		25,955
Amortization of discount on convertible note (Note 11)	4,422
Interest expense on convertible note (Note 11)	900
	104,378	122,503

Other Expenses (Income)
Gain on disposal of property and equipment	(1,425	)	-
Loss on conversion of Series I Preferred Shares	-		43,349
Loss on derivative liability (Note 11)	18,641		-
Other expense	61


Net Loss and Comprehensive Loss			(605,468	)			(463,768	)


Loss per share Basic and Diluted	$	(0.03	)	$	(0.03	)
Weighted average number of common shares outstanding		21,637,193			18,172,472

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars)

	Number of common shares		Number of Series II Preferred shares			Share capital $			Share Subscriptions received		Contributed surplus $			Deficit $			Total $
Balance at December 31, 2010		15,930,452		203,250			1,133,136					136,110			(1,564,296	)		(295,050	)
Loss for the period		-		-			-			-		-			(463,768	)		(463,768	)
Exercise of common share warrants @ $0.10		300,000		-			30,000			-		-			-			30,000
Common shares issued under Irrevocable Subscription Agreements		750,000		-			112,500			-		-			-			112,500
Common shares issued under Irrevocable Subscription Agreements		357,142		-			49,999			-		-			-			49,999
Series I Preference Shares converted @ $0.20		1,500,000		-			300,000			-		-			-			300,000
Class B Series II Preference Shares converted to common shares		1,791,563		(203,250	)		66,051			-		-			(66,051	)		-
Repricing of common shares		-		-			41,600			-		-			-			41,600
Share issue costs		-		-			(21,532	)		-		-			-			(21,532	)
Common shares issued for cash @ $0.15		250,000		-			37,500			-		-			-			37,500
Common shares issued to settle debt		110,000		-			16,500			-		-			-			16,500
Discount on shareholder loans		-		-			-			-		20,078			-			20,078
Stock based compensation		-		-			-			-		5,864			-			5,864
Balance at December 31, 2011		20,989,157		-			1,765,754			-		162,052			(2,094,115	)		(166,309	)
Loss for the period		-		-			-			-		-			(605,468	)		(605,468	)
Exercise of common share warrants @ $0.15		66,666		-			10,000			-		-			-			10,000
Common shares issued for cash @ $0.15		1,531,002		-			229,651			-		-			-			229,651
Subscriptions received for 600,000 shares @ $0.05				-			-			30,000		-			-			30,000
Transfer from contributed surplus on expiry of options		-		-			-			-		(36,665	)		36,665			-
Share issue costs		-		-			(9,689	)		-		-			-			(9,689	)
Warrant reserve		-		-			-			-		5,799			-			5,799
Stock based compensation		-		-			-			-		75,026			-			75,026
Balance at December 31, 2012		22,586,825		-			1,995,716			30,000		206,212			(2,662,918	)		(430,990	)

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Cash Flow

(Expressed in Canadian Dollars)

For 12 months ending December 31,	2012			2011
	$			$
Cash flows used in operating activities
Net loss and Comprehensive loss		(605,468	)		(463,768	)
Adjustments for items not affecting cash
Amortization of property and equipment		2,819			1,810
Amortization of intangible assets		3,944			3,489
Amortization of deemed discounts on ISAs, Class B series I preferred shares, shareholder loans, and convertible note		100,476			84,253
Loss on conversion of series I preferred shares		-			43,349
Stock based compensation		75,026			5,864
Loss on derivative liability		18,641			-
Gain on disposal of property plant and equipment		(1,425	)		-
Other expense		61			-
Changes in non-cash working capital balances
Harmonized sales tax recoverable		13,167			(8,657	)
Prepaid expenses		(92,325	)		(684	)
Security deposit		-			(2,400	)
Unearned revenue		-			(2,600	)
Accounts payable and accrued liabilities		180,101			54,983
		(304,983	)		(284,361	)
Cash flows used in investing activities
Additions to property and equipment		(6,200	)		-
Disposals of property and equipment		6,300			-
Additions to intangible assets		(6,875	)		(22,580	)
		(6,775	)		(22,580	)
Cash flows from financing activities
Issue of common shares for cash		220,265			109,100
Subscriptions received		30,000			-
Exercise of warrants		10,000			-
Promissory note		30,000			-
Shareholder demand loan		25,253			15,269
Due to shareholders		-			108,210
ISA proceeds from partial draw down of funds		-			49,999
		315,518			282,578
Change in cash and cash equivalents		3,760			(24,363	)
Cash and cash equivalents, beginning of period		6,094			30,457
Cash and cash equivalents, end of period		9,854			6,094

Non-Cash Financing Transactions	$			$
Debt settled with common stock		7,500			-
Warrants issued for finder fees		365			-
Shares issued for finder fees		8,500			-

The accompanying notes are an integral part of these financial statements.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

1. NATURE AND CONTINUANCE OF OPERATIONS

Pacific Therapeutics Ltd. ("the Company" or "PTL") was incorporated under the laws of the Province of British Columbia, Canada on September 12, 2005. The Company is a development stage company focused on developing proprietary drugs to treat certain types of lung disease including fibrosis. On October 14, 2011, the Company became a reporting company in British Columbia and was approved by the Canadian National Stock exchange (“CNSX”) and opened for trading on November 16, 2011.

PTL has financed its cash requirements primarily from share issuances and payments from research collaborators. The Company's ability to realize the carrying value of its assets is dependent on successfully bringing its technologies to market and achieving future profitable operations, the outcome of which cannot be predicted at this time. It will be necessary for the Company to raise additional funds for the continuing development of its technologies.

The financial statements have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and settlement of liabilities in the ordinary course of business. The Company is subject to risks and uncertainties common to drug discovery companies, including technological change, potential infringement on intellectual property of and by third parties, new product development, regulatory approval and market acceptance of its products, activities of competitors and its limited operating history. All of these factors create uncertainty in the Company's ability to successfully bring its technologies to market, to achieve future profitable operations and to realize the carrying value of its assets. Given these uncertainties, there is significant doubt as to the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION

(a) Statement of Compliance

These financial statements of the Company for the years ending December 31, 2012, and the comparative year 2011, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These financial statements were approved and authorized for issue by the Board of Directors on April 29, 2013.

(b) Basis of Presentation

These financial statements were prepared on a historical cost basis and are presented in Canadian dollars which is the Company’s functional currency. All financial information has been rounded to the nearest dollar.

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting periods. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

3. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in the preparation of these financial statements:

(a) Cash and cash equivalents

Cash and cash equivalents are comprised of cash on hand, deposits in banks and highly liquid investments having original terms to maturity of 90 days or less.

(b) Loss per share

Basic loss per share is calculated based on the weighted average number of shares outstanding during the period. The treasury stock method is used for determining the dilutive effect of options and warrants issued in calculating diluted earnings per share. Under this method, the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the year. For the periods presented, this calculation proved to be anti-dilutive, and therefore diluted per share amounts do not differ from basic share amounts. The loss per share on the statement of comprehensive loss for 2012 and 2011, on a retrospective basis, reflects the stock dividend on the conversion of the Class B Series II Preferred Shares to Class A common Shares, that took place on November 16, 2011.

Research costs are expensed in the period incurred. Development costs are expensed in the period incurred unless the Company believes a development project meets the criteria for deferral and amortization. No such costs have been deferred as at December 31, 2012 and December 31, 2011. Scientific Research and Experimental Development ("SR&ED") tax credits are recorded on a cash basis due to the uncertainty surrounding final approval of the SR&ED tax credit application. Tax credits received are recorded as a reduction in research and development costs incurred in the year.

(d) Property and equipment

Property and equipment is recorded at cost. Amortization is recorded annually at rates calculated to write off the assets over their estimated useful lives as follows:

Computer equipment

Furniture and fixtures

Lab equipment

Leasehold improvements

45% diminishing balance

20% diminishing balance

50% diminishing balance

straight-line over the term of the lease

In the year of acquisition, these rates are reduced by one-half.

(e) Technology licenses and patent costs

Technology licenses acquired from third parties that include licenses and rights to technologies are initially recorded at fair value based on consideration paid and amortized on a straight-line basis over the estimated useful life of the underlying technologies.

Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the useful lives of the underlying technologies and patents, usually for a period not exceeding 15 years.

Management evaluates the recoverability of technology licenses and patents on an annual basis based on the expected utilization of the underlying technologies. If the estimated net recoverable value for each cash-generating unit, calculated based on undiscounted future cash flows, is less than the carrying value, the asset is written down to its fair value. The amounts shown for technology licenses and patent costs do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialization of products based on these rights.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

(f) Impairment

Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may be less than its recoverable amount. Management uses judgment to estimate these inputs and any changes to these inputs could have a material impact on the impairment calculation. For impairment testing, non-financial assets that do not generate independent cash flows are grouped together into cash-generating units (CGUs), which represent the levels at which largely independent cash flows are generated. An impairment loss is recognized in earnings to the extent that the carrying value of an asset, CGU or group of CGU’s exceeds its estimated recoverable amount. The recoverable amount of an asset, CGU or group of CGU’s is the greater of its value in use and its fair value less cost to sell. Value in use is calculated as the present value of the estimated future cash flows discounted at appropriate discount rates. An impairment loss relating to a specific asset reduces the carrying value of the asset. An impairment loss relating to a group of CGU’s is allocated on a pro-rata basis to reduce the carrying value of the assets in the units comprising the group. A previously recognized impairment loss related to non-financial assets is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss related to non-financial assets is reversed if there is a subsequent increase in the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying value does not exceed the carrying value that would have been determined, net of depreciation or amortization, if no loss had been recognized.

(g) Share-based payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The amount recognized as an expense is adjusted to reflect the number of awards expected to vest. The offset to the recorded cost is to share-based payments reserve. Consideration received on the exercise of stock options is recorded as share capital and the related share-based payments reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from share-based payments reserve. For those options that expire or are forfeited after vesting, the recorded value is transferred to deficit.

(h) Income taxes

The Company uses the balance sheet method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets result from unused loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(i) Financial instruments

(a)

Financial assets

The Company classifies its financial assets in the following categories: held-to-maturity, fair value through profit or loss (“FVTPL”), loans and receivables, and available-for-sale (“AFS”). The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at recognition.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

Fair value through profit or loss

Financial assets are classified as FVTPL when the financial asset is held-for-trading or it is designated as FVTPL. A financial asset is classified as FVTPL when it has been acquired principally for the purpose of selling in the near future; it is a part of an identified portfolio of financial instruments that the Company manages and has an actual pattern of short-term profit-taking or if it is a derivative that is not designated and effective as a hedging instrument. Upon initial recognition, attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Cash is included in this category of financial assets.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are initially recognized at the transaction value and subsequently carried at amortized cost, less any impairment losses. The company has no assets classified as loans and receivables.

Held-to-maturity

Held-to-maturity financial assets are recognized on a trade-date basis and are initially measured at fair value using the effective interest rate method. The Company has no assets classified as held-to-maturity.

Available-for-sale

AFS financial assets are non-derivatives that are either designated as available-for-sale or not classified in any of the other financial asset categories. Changes in the fair value of AFS financial assets, other than impairment losses, are recognized as other comprehensive income and classified as a component of equity. The Company has no assets classified as AFS.

(b)

Financial liabilities

The Company classifies its financial liabilities in the following categories:

Borrowings and other financial liabilities

Borrowings and other financial liabilities are classified as current or non-current based on their maturity date. Compound instruments are bifurcated and presented in the financial statements in their component parts using the fair value method. Financial liabilities include accounts payable and accrued liabilities, shareholder demand loan, balances due to shareholders, the liability portion of the convertible note, and the derivative liability.

Borrowings and other non-derivative financial liabilities of the company are recognized initially at fair value, net of transaction costs incurred, and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in the income statement over the period to maturity using the effective interest method. Derivative financial liabilities of the company are initially measured at fair value, with subsequent remeasurement to fair value at the end of each reporting period.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

4. RECENT ACCOUNTING PRONOUNCEMENTS

At the date of authorization of these financial statements, the IASB has issued a number of new and revised standards and interpretations, which are not yet effective for the relevant reporting periods.

IFRS 9 Financial Instruments

In November 2009, the IASB issued, and subsequently revised in October 2010, IFRS 9 as a first phase in its ongoing project to replace IAS 39 Financial Instruments: Recognition and Measurement . IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted.

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. The standard also adds guidance on the classification and measurement of financial liabilities. Management has not yet determined the potential impact the adoption of IFRS 9 will have on the Company’s consolidated financial statements.

IFRS 10 Consolidated Financial Statements

In May 2011, the IASB issued IFRS 10, which is to be applied retrospectively, and is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.

IFRS 10 replaces Standing Interpretations Committee (“SIC”) 12 Consolidation – Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements . IFRS 10 eliminates the current risk and rewards approach and establishes control as the single basis for determining the consolidation of an entity. The standard provides guidance on how to apply the control principles in a number of situations, including agency relationships and holding potential voting rights. Management has not yet determined the potential impact that the adoption of IFRS 10 will have on the Company’s consolidated financial statements.

IFRS 12 Disclosure of Interests in Other Entities

In May 2011, the IASB issued IFRS 12, which is to be applied retrospectively, and is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.

IFRS 12 outlines the required disclosures for interests in subsidiaries and joint arrangements. The new disclosures require information that will assist financial statement users to evaluate the nature, risks and financial effects associated with an entity’s interests in subsidiaries and joint arrangements. Management has not yet determined the potential impact that the adoption of IFRS 12 will have on the Company’s consolidated financial statements.

IFRS 13 Fair Value Measurement

In May 2011, the IASB issued IFRS 13, which is to be applied prospectively, and is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.

IFRS 13 defines fair value, provides a framework for measuring fair value and includes disclosure requirements for fair value measurements. IFRS 13 will be applied in most cases when another IFRS requires (or permits) fair value measurement. Management has not yet determined the potential impact that the adoption of IFRS 13 will have on the Company’s consolidated financial statements.

Other

In June 2011, the IASB issued amendments to IAS 1 to revise the way in which other comprehensive income is presented. The Company does not believe the changes resulting from the amended standard will have an impact on its consolidated financial statements. The amended standard is effective for annual periods beginning on or after July 1, 2012.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

In June 2011, the IASB issued amendments to IAS 19 Employee Benefits with revised requirements for pensions and other post-retirement benefits, termination benefits and other changes. The Company does not believe the changes resulting from these amendments are relevant to its consolidated financial statements. The amended standard is effective for annual periods beginning on or after January 1, 2013.

In June 2011, the IASB issued amendments to IFRS 7 Financial Instruments: Disclosures . The Company does not believe the changes resulting from these amendments are relevant to its consolidated financial statements. The amended standard is effective for annual periods beginning on or after July 1, 2011.

In May 2011, the IASB issued IFRS 11 Joint Arrangements , in addition to IFRS 10 and IFRS 12 discussed above. The Company does not believe the changes resulting from this new standard are relevant to its consolidated financial statements. IFRS 11 is effective for annual periods beginning on or after January 1, 2013.

5. RESTRICTED CASH

The Company has restricted cash at December 31, 2012 of $Nil (2011 - $300,000) which consisted of funds held in an escrow account, pursuant to the terms of the Irrevocable Subscription Agreements (“ISAs”) with investors. On January 31, 2013 the ISAs were cancelled and the cash returned to the investors.

6. PROPERTY AND EQUIPMENT

Cost

Balance at:	Computer Equipment		Furniture and Fixtures			Leasehold Improvements			Lab Equipment		Total
January 1, 2011	$	5,876	$	8,093		$	8,330			-	$	22,299
Additions		-		-			-			-		-
Disposals		-		-			-			-		-
December 31, 2011	$	5,876	$	8,093		$	8,330			-	$	22,299

January 1, 2012	$	5,876	$	8,093		$	8,330			-	$	22,299
Additions		-		-			-			6,200		6,200
Disposals		-		(8,093	)		(8,330	)		-		(16,423	)
December 31, 2012	$	5,876	$	-		$	-		$	6,200	$	12,076

Amortization

Balance at:	Computer Equipment		Furniture and Fixtures			Leasehold Improvements			Lab Equipment		Total
January 1, 2011	$	5,169	$	4,364		$	4,598			-	$	14,131
Amortization for the year		318		746			746			-		1,810
December 31, 2011	$	5,487	$	5,110		$	5,344			-	$	15,941

January 1, 2012	$	5,487	$	5,110		$	5,344			-	$	15,941
Disposals		-		(5,657	)		(5,891	)				(11,548	)
Amortization for the year		175		547			547			1,550		2,819
December 31, 2012	$	5,662	$	-		$	-		$	1,550	$	7,212

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

Carrying amounts

At January 1, 2011	$	707	$	3,729	$	3,732		-	$	8,168
At December 31, 2011	$	389	$	2,983	$	2,986		-	$	6,358

At January 1, 2012	$	389	$	2,983	$	2,986		-	$	6,358
At December 31, 2012	$	214	$	-	$	-	$	4,650	$	4,864

7. INTANGIBLE ASSETS

Cost

	Technology Licenses (i)		Patents (ii)		Total
Balance at January 1, 2011	$	30,738	$	46,632	$	77,370
Additions		11,772		10,808		22,580
Disposals		-		-		-
Balance at December 31, 2011	$	42,510	$	57,440	$	99,950

Balance at January 1, 2012	$	42,510	$	57,440	$	99,950
Additions		-		6,875		6,875
Disposals		-		-		-
Balance at December 31, 2012	$	42,510	$	64,315	$	106,825

Amortization

	Technology Licenses (i)		Patents (ii)		Total
Balance at January 1, 2011	$	-	$	5,830	$	5,830
Amortization for the year		-		3,489		3,489
Balance at December 31, 2011	$	-	$	9,319	$	9,319

Balance at January 1, 2012	$	-	$	9,319	$	9,319
Amortization for the year		-		3,944		3,944
Balance at December 31, 2012	$	-	$	13,263	$	13,263

Carrying amounts

At January 1, 2011	$	30,738	$	40,802	$	71,540
At December 31, 2011	$	42,510	$	48,121	$	90,631

At January 1, 2012	$	42,510	$	48,121	$	90,631
At December 31, 2012	$	42,510	$	51,052	$	93,562

(i)

On April 25, 2007, the Company entered into a license agreement with Dalhousie University (“Dalhousie”). The license covers Pentoxifylline and Functional Derivatives/Metabolites and its applications. The fields of use include pulmonary indications and radiation induced fibrosis. The company has paid license fees to date of $42,510 (2011 – $42,510) to secure this license which is to be credited towards future royalties. As part of the agreement the Company must make milestone payments of up to $825,000 to Dalhousie based on patient enrolment, clinical studies, and regulatory approval for sale of the product as well as a $25,000 payment into the patent fund maintained by Dalhousie, details of which are further explained in Note 16, Commitments.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

(ii)

The Company is currently pursuing a patent application for the compositions and methods of treating fibro proliferative disorders. Costs of this application incurred to date are $64,315 (2011 - $57,440). The application is still pending as at December 31, 2012, however due to a finite life of the patent which begins from the date of application; the Company is amortizing these costs over the expected life of the patent.

(iii)

In 2012, in accordance with the Company’s policy on impairment testing, per Note 2(f), the Company concluded that no impairment in its intangible asset values existed and consequently no impairment loss was recognized in the year.

8. IRREVOCABLE SUBSCRIPTION AGREEMENTS (“ISA”)

On January 26, 2011, the Company received $275,000 which was placed in trust. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreement and Escrow Agreement between the Company and the investors and the trustee with an effective date of January 31, 2011.

As a bonus, for placing the subscription funds in trust, the Company issued 550,000 Class A common shares based on 20% of the principal value of the subscription. The bonus shares were allocated a value of $82,500 based on a fair value of $0.15 per share. In addition, the Company issued 2,200,000 common share purchase warrants with an exercise price of $0.15 with a term of two years. The shares and warrants were issued as of the effective date of the irrevocable subscription and escrow agreements.

On February 2, 2011, the Company received a further $25,000 in subscription funds. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreement and Escrow Agreement between the Company and the investors and the trustee with an effective date of January 31, 2011. In addition, the Company also issued 200,000 common share purchase warrants with an exercise price of $0.15 per warrant and a term of two years. The shares and warrants were issued as of the effective date of the Irrevocable Subscription Agreement and Escrow Agreement.

As a bonus for placing the subscription funds in trust, the Company issued 50,000 Class A common shares based on 20% of the principal value of the subscription. The bonus shares were allocated a value of $7,500 based on a fair value of $0.15 per share. These $25,000 of funds are callable on demand. On November 15, 2011, the investor terminated their participation in the ISA, and their funds were returned to them.

On May 16, 2011, the Company received a further $75,000 in subscription funds. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreement and Escrow Agreement between the Company and the investors and the trustee with an effective date of May 16, 2011.

As a bonus for placing the subscription funds in trust, the Company issued 150,000 Class A common shares based on 20% of the principal value of the subscription. The bonus shares were allocated a value of $22,500 based on a fair value of $0.15 per share. In addition, the Company issued 600,000 common share purchase warrants with an exercise price of $0.15 per warrant and a term of two years. The shares and warrants were issued as of the effective date of the Irrevocable Subscription Agreements and Escrow Agreement.

The terms of the Irrevocable Subscription Agreements are as follows:

The funds are to be placed into trust until the issuance of a draw down notice from the company or termination of the agreement.

ii)

The funds are callable and the investor may terminate participation in the facility and withdraw their funds from the trust account any time after January 1, 2013 if the company’s common shares are not listed for trading on the CNSX, except for the $25,000 of funds contributed by an investor on February 2, 2011, which are callable on demand, and were returned to the investor in December 2011 and are no longer outstanding at year end.

iii)

The funds are also retractable and the Company may terminate the investor's subscription at any time by returning the investor's invested funds and accrued interest.

iv)

The funds in the escrow account accrue interest at 1% per month.

As a bonus, the Company will issue Class A common shares based on 20% of each investor's investment.

vi)

The Company will also issue 200,000 purchase warrants for each $25,000 invested. Each whole warrant will entitle the investor to purchase one Class A common share for a period of two years at an exercise price of $0.15 per share.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

vii)

The Company may, at its option from time to time put to the investors (on a pro-rata basis), $50,000 of its Class A common shares by way of a private placement over the 24-month period from the closing date. Each put will be at a subscription price equal to the greater of a) $0.10 per share and b) the CNSX closing price for the Class A common shares prior to the dissemination of a news release disclosing the private placement, less the maximum discount prescribed by CNSX policies. All funds will remain in the trust account until such shares are put to the funder or the agreement is terminated.

On December 14, 2011, the Company completed a private placement under the terms of the ISA, selling 357,142 common shares at a price of $0.14 per share to participating subscribers to the ISA, for aggregate proceeds of $49,999, released from trust to the Company for their general use, per the terms of the ISA agreement draw-down feature, and subtracted from the ISA liability balance outstanding.

On January 31, 2012, The Company terminated the Irrevocable Subscription Agreements entered into by the Company on January 31, 2011 and May 16, 2011. Termination of these agreements eliminated 3,000,000 shares that were reserved for issue improving the Company’s capital structure and resulted in the return of the $300,000 of funds held in escrow to the investors as a result of the termination of the ISA’s. The termination also eliminated the 1% per month interest expense on the money that was held in trust as well as transaction costs associated with issuing shares associated with the draw downs.

During the year ended December 31, 2012, the Company recorded total interest expense of $72,521 (2011 - $81,230) on the ISAs, for the one month period prior to its cancellation on January 31, 2012, inclusive of 1% interest per month recorded on the ISA funds held in escrow of $3,002 (2011-$38,250), and accretion of the amount allocated to bonus shares, i.e., the (“deemed discount”) of $69,519 (2011-$42,980).

ISA continuity schedule	2012			2011
Principal amount of ISA received from investors	$	-		$	375,000
Amount allocated to Bonus shares (“Deemed Discount)		-			(112,500	)
Net amount allocated to ISA		230,481			262,500
Amount returned to investor on demand		-			(25,000	)
Draw down on funds		-			(49,999	)
Accretion of deemed discount		69,519			42,980
Termination of ISA		(300,000	)		-
Net carrying amount	$	-		$	230,481

9. INCOME TAXES

The reconciliation of income tax attributable to continuing operations computed at the statutory tax rate of 25.0% (2011 – 26.5%) to income tax expense is:

	2012			2011
Income tax benefit at Canadian statutory rates	$	(151,367	)	$	(122,899	)
Other items		46,307			20,366
Tax rate variation		(26,360	)		175,450
Change in temporary difference		10,283			(12,483	)
Unused tax losses and tax offsets not recognized		121,137			(60,434	)
	$	-		$	-

Deferred taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Deferred tax assets are evaluated periodically and if realization is not considered likely, a valuation allowance is provided.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

(a) Deferred tax asset and liabilities:

	2012			2011
Deferred tax assets (liabilities):
Operating loss carry-forwards	$	517,512		$	446,976
Property and equipment		284			893
Intangible assets		(8,711	)		(4,282	)
Derivative liability		(7,722	)		-
Convertible note		(3,315	)		-
		498,048			443,587
Valuation allowance		(498,048	)		(443,587	)
Net deferred tax asset	$	-		$	-

(b) Loss carry-forwards:

The Company has accumulated non-capital losses of approximately $2,069,000 which will expire as follows:

2014	$	23,000
2025		137,000
2026		444,000
2027		135,000
2028		262,000
2029		283,000
2030		286,000
2031		116,000
2032		383,000
	$	2,069,000

The Company has undepreciated capital cost of $49,928 [2011 - $68,299] available to be deducted against future taxable income.

10. DUE TO SHAREHOLDERS

(a) Shareholder demand loan

Shareholders of the Company are owed $45,553 (2011 - $20,300) consisting of short term amounts loaned to the company that are unsecured, non-interest bearing, and payable on demand.

(b) Due to shareholders

Due to shareholder balances are unsecured and non-interest bearing, with a fixed repayment date of January 1, 2013. Due to the January 1, 2013 repayment date, the balance was presented as a current liability of $202,470 (2011 - $Nil) as at December 31, 2012, and as a long term liability in 2011. This loan is carried on the face of the financial statements at amortized cost using a discount rate of 15%. See continuity schedule below:

	2012			2011

Principal amount of shareholder loan liability	$	202,470		$	202,470
Less discount allocated to contributed surplus		(41,260	)		(41,853	)
Shareholder loan outstanding (net of discount)		161,480			160,617
Accretion of discount		41,260			15,318
Net carrying amount	$	202,470		$	175,935

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

11. CONVERTIBLE NOTES

On September 24, 2012 the Company issued a convertible note (“the Note”) with a face value of $30,000 plus 200,000 two year $0.22 warrants (the “Bonus Warrants”) for $30,000 in cash. The Note has a term of one year and is repayable by the Company at any time. The holder of the Note may convert the whole note or any portion into units at any time. Each unit will consist of 1 common share (the “Share Option”) and 1 warrant (the “Warrant Option”), with each warrant option exercisable to acquire an additional common share for a period of 2 years from the date the warrant was issued. Subject to regulatory approval the conversion price per unit will be at a 25% discount to the ten day weighted average price of the Company’s shares at the date of conversion. Subject to regulatory approval the exercise price per Warrant Option will be at a 25% premium to the ten day weighted average price of the Company’s shares at the date of conversion. Each Bonus Warrant is exercisable to acquire an additional common share for a period of two years from the closing date at a price of $0.22. The Note accrues interest at the rate of 1% per month, payable in quarterly installments.

The fair value of the Bonus Warrants and Share Options were determined using the Black-Scholes pricing model. The Black-Scholes pricing model is based on several subjective assumptions including the expected life of the option and expected future stock price volatility. Changes in these assumptions can materially affect the estimated fair value of the Company’s stock options. The estimated fair value of the Bonus Warrants was calculated on the grant date as $13,238. The estimated fair value of the share options was calculated on the grant date as $18,232.

The fair value of the warrant options was determined using the Geske pricing model. The Geske pricing model is based on several subjective assumptions including the expected life of the option and expected future stock price volatility. Changes in these assumptions can materially affect the estimated fair value of the Company’s stock options. The estimated fair value of the warrant options was calculated on the grant date as $11,600.

Upon initial recognition, the Company bifurcated the $30,000 proceeds between the component parts of the convertible note using the relative fair value method as follows at September 24, 2012:

		Estimated Value				Allocation of Proceeds
Current Liabilities
Convertible Loan	Face value of note	$	30,000	41	%	$	12,317
Derivative Liability	Share Option		18,232	25	%		7,485
Derivative Liability	Warrant Option		11,600	16	%		4,763
Contributed Surplus
Warrant Reserve	Bonus Warrants		13,238	18	%		5,435
		$	73,070	100	%	$	30,000

The discount on the component parts of the convertible note are accredited as interest expense over the one year term of the note. As at December 31, 2012, the derivative liability was remeasured to fair value. This resulted in a loss on derivative liability being recognized on the face of the financial statements of $18,641 (2011- $Nil).

12. SHARE CAPITAL

Authorized

Unlimited

Class A common shares without par value

1,500,000

Class B Series I preferred shares without par value

1,000,000

Class B Series II preferred shares without par value

Issued

22,586,825

Class A common shares without par value

NIL

Class B Series I preferred shares without par value

NIL

Class B Series II preferred shares without par value

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

Class A Common Shares

On January 15, 2011, the Company re-priced 4,800,000 Class A common shares, 4,500,000 Class A common shares originally issued for proceeds of $0.0133 per share to $0.02 per share, for which total proceeds of $30,000 was received as a result of the re-pricing and 300,000 Class A common shares originally issued for proceeds of $0.0007 per share to $0.02 per share, for which total proceeds of $5,800 was received as a result of the re-pricing.

On January 26, 2011, under the terms of the ISA agreement, the Company issued 550,000 Class A common shares at a fair value price per share of $0.15 (Note 8). The Company also issued 2,200,000 common share purchase warrants with an exercise price of $0.15 per warrant until January 26, 2013.

On January 31, 2011, the Company completed a private placement of 140,000 units at $0.15 per unit for gross proceeds of $21,000. Each unit comprises of one common share and one warrant to purchase one common share at $0.25 per share exercisable until January 31, 2013.

On February 2, 2011, under the terms of the ISA agreement, the Company issued 50,000 Class A common shares at a fair value price per share of $0.15 (Note 8). The Company also issued 200,000 common share purchase warrants with an exercise price of $0.15 per share until February 2, 2013.

On February 28, 2011, the Company re-priced 300,000 Class A common shares originally issued for proceeds of $0.0007 per share to $0.02 per share. Total proceeds of $5,800 were received as a result of the re-pricing.

On February 28, 2011 the Company completed a private placement of 60,000 units at $0.15 per unit for gross proceeds of $9,000. Each unit comprises of one common share and one warrant to purchase one common share at $0.25 per share exercisable until February 28, 2013. The Company paid $750 in finder’s fees related to $7,500 of the funds raised.

On May 16, 2011, under the terms of the ISA agreement, the Company issued 150,000 Class A common shares at a fair value price of $0.15 (Note 8). The Company also issued 600,000 common share purchase warrants with an exercise price of $0.15 per share until May 16, 2013.

On July 21, 2011 the Company completed a private placement of 50,000 common shares at $0.15 per share, for gross proceeds of $7,500.

On July 27, 2011 the Company completed a private placement of 110,000 common shares at $0.15 per share in exchange for debt, for a total of issued share capital of $16,500.

On November 16, 2011 the company issued 1,500,000 common shares on conversion of 1,500,000 Class B Series I Preferred Shares with a total subscription price of $300,000.

On November 16, 2011, the Company triggered the automatic conversion clause in the Class B Series II preferred shares agreement, on becoming listed on a National Stock exchange (the “CNSX.”) Each Series II Class B preferred share entitled the holder to a 12% annual cumulative dividend payable "in kind" with Class A common shares. Per the Series II Class B Preferred Shares agreement, the shares automatically converted into Class A Common Shares at a price equal to the transaction price less 25%, plus a one-half (1/2) warrant to purchase a common share, upon the Company listing on a National Stock Exchange. On November 16, 2011, the company issued 1,791,563 common shares on the conversion of 203,250 Class B Series II Preferred Shares with a total subscription price inclusive of $135,500 of the stated value of the shares, and accumulated “in kind” dividends of $66,051. In addition, 602,222 warrants were issued upon conversion. Each one (1) full purchase warrant (the "Series II Purchase Warrant") may be exercised to purchase one (1) Class A Common Share, at the transaction price, for a period of two (2) years from the date of issue.

On December 13, 2011 the company completed a drawdown of $49,999 under the Irrevocable Subscription Agreements, by way of a private placement. The company issued 357,142 shares at $0.14 per share per the private placement.

On January 31, 2012 66,666 common share warrants with an exercise price of $0.15 were exercised by an officer of the company for 66,666 common shares and proceeds of $10,000.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

On June 20, 2012, the Company completed a private placement of 732,670 units at $0.15 per unit for gross proceeds of $109,900. Each unit is comprised of one common share and one warrant to purchase one common share at $0.22 per share exercisable until June 20, 2014.

On June 20, 2012, certain finders were issued 56,667 units with the same terms as in the foregoing, which were valued at $8,500.

On September 21, 2012, the Company completed a private placement of 741,666 units at $0.15 per unit for gross proceeds of $111,250. Each unit is comprised of one common share and one warrant to purchase one common share at $0.22 per share exercisable until September 21, 2014.

SHARE SUBSCRIPTIONS RECEIVED

In December 2012, the Company received $30,000 for a share subscription for 600,000 units at $0.05 per unit. Each unit is comprised of one common share and one half of one warrant. Each whole warrant has an exercise price of $0.22 and expires in two years. These units were issued subsequent to year end.

Stock options and share based compensation:

As of December 31, 2012, the Company had 1,675,000 (2011 - 1,650,000) stock options outstanding, of which 1,650,000 (2011 - 1,550,000) are exercisable, at a weighted average exercise price of $0.24 (2011 - $0.25) per common share, and expiring at various dates from October 31, 2014 to December 15, 2017.

As of December 31, 2012 and 2011, the following stock options were outstanding:

Expiry Date	Exercise Price $		2012		2011
31-Jan-12		0.27		-		225,000
1-May-12		0.27		-		150,000
1-Jun-12		0.27		-		75,000
14-Oct-12		0.20		-		300,000
1-Dec-12		0.27		-		150,000
31-Oct-14		0.27		150,000		150,000
4-Nov-14		0.27		150,000		150,000
5-Mar-15		0.27		375,000		375,000
1-Jun-15		0.27		75,000		75,000
3-Jul-17		0.10		475,000		-
21-Dec-17		0.10		450,000		-
Balance at December 31	$	0.17		1,675,000		1,650,000

The options outstanding and exercisable as of December 31, 2012, have a weighted average remaining contractual life of 3.5 years (2011 – 1.7 years). Stock option activity was as follows:

	2012					2011
	Options Outstanding			Exercise Price $		Options Outstanding			Exercise Price $
Balance at January 1		1,650,000		$	0.25		1,875,000		$	0.25
Exercised		-			-		-			-
Expired/Cancelled		(1,000,000	)		0.24		(225,000	)		0.22
Issued		1,025,000			0.10		-			-
Balance at December 31		1,675,000		$	0.17		1,650,000		$	0.25

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

The fair value of share based awards is determined using the Black-Scholes option pricing model. The model utilizes certain subjective assumptions including the expected life of the option and expected future stock price volatility. Changes in these assumptions can materially affect the estimated fair value of the Company’s stock options.

The company used the Black-Scholes pricing model for multiple stock option grants occurring in the year. The assumptions used in the Black-Scholes option pricing model for employees and directors and consultants were:

	2012			2011
Dividend yield		0	%		0	%
Expected volatility		91%-112	%		47	%
Risk free interest rate		1.19	%	1.4% and 1.8%
Expected life in years		2-3			1 - 4
Fair value per share	$	0.04 -$0.11		$	0.05
Forfeiture rate		4	%		4	%

Warrants

As of December 31, 2012 and 2011, the following share purchase warrants were issued and outstanding:

Expiry Date	Exercise Price $		2012		2011
1-Mar-12	$	0.15		-		28,200
1-Feb-13	$	0.15		2,473,334		2,540,000
28-Feb-13	$	0.15		60,000		60,000
16-May-13	$	0.15		600,000		600,000
15-Nov-13	$	0.15		602,223		602,223
20-Jun-14	$	0.22		732,670		-
19-Jun-14	$	0.22		56,666		-
21-Sep-14	$	0.22		747,166		-
Balance at December 31				5,272,059		3,830,423

The warrants outstanding and exercisable at December 31, 2012, have a weighted average remaining contractual life of 0.6 years (2011 – 1.3 years). Warrant activity was as follows:

	2012					2011
	Warrants Outstanding			Exercise Price $		Warrants Outstanding			Exercise Price $
Balance at January 1		3,830,423		$	0.16		1,009,267		$	0.20
Exercised		(66,666	)		0.15		(300,000	)		0.10
Expired		(28,200	)		0.10		(681,067	)		0.25
Issued		1,536,502			0.22		3,802,223			0.16
Balance at December 31		5,272,059		$	0.18		3,830,423		$	0.16

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

13. CAPITAL DISCLOSURE

The Company considers its capital under management to be comprised of shareholders’ equity and any debt that it may issue. As at December 31, 2012 the Company’s shareholders’ deficiency was $430,990 (2011 - $166,309). The Company’s outstanding issued debt includes a Due to shareholders’ long-term loan of $Nil (2011 - $175,935), Due to shareholder demand loan of $45,533 (2011-$20,300), a Due to shareholders short term loan of $202,470 (2011-$Nil). Irrevocable subscriptions of $Nil (2011-$230,481) convertible note of $16,739 (2011-$Nil) and derivative liability of $30,889 (2011-$Nil). The Company’s objectives when managing capital are to maintain financial strength and to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels. The Company is not subject to any capital restrictions. There has been no change in the Company’s objectives in managing its capital.

14. RELATED PARTY TRANSACTIONS AND BALANCES

All transactions with related parties are in the normal course of operations. Amounts due to or from related parties are in the normal course of operations.

Details of the transactions between the Company and its related parties are disclosed below:

(a) Related Party Transactions

	2012		2011
Accounting fees paid to a shareholder of the Company	$	18,000	$	21,000
Legal fees incurred from a consultant and director of the Company	$	3,200	$	7,934

(b) Related Party Balances

	2012		2011
Amounts in accounts payable and accrued liabilities owing to a consultant and director of the Company for legal fees	$	18,575	$	14,991
Amount in accounts payable and accrued liabilities owing to a shareholder and director of the Company for unpaid salary and expenses	$	100,798	$	23,306
Amounts in accounts payable and accrued liabilities owing to a shareholder of the Company for accounting fees	$	22,917	$	3,360

Balances are due on demand with no fixed term, security or interest.

	2012		2011
Wages, salaries, and consulting fees	$	100,398	$	115,433
Share-based payments		42,390		5,864

Total key management personnel compensation	$	142,788	$	121,297

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

15. FINANCIAL INSTRUMENTS AND RISK

As of December 31, 2012, the Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, shareholder demand loan, short term and long term due to shareholder balances, a convertible note and a derivative liability. The convertible note has been bifurcated and presented in the financial statements using its component parts.

Information about fair value measurement of financial instruments is required to be disclosed using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The levels of the fair value hierarchy are defined as follows:

	Level 1	Quote prices (unadjusted) in active markets for identical assets or liabilities.
	Level 2	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly.
	Level 3	Inputs for assets or liabilities that are not based on observable market data.

The fair value of cash and cash equivalents, accounts payable and accrued liabilities and shareholder demand loan approximate their carrying values because of the short term nature of these instruments. These are classified as level 1 in the fair value hierarchy.

The convertible note financial liability and due to shareholders short term and long term balances were initially recognized at fair value and subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in the income statement over the period to maturity using the effective interest rate method. Therefore the liabilities are classified as Level 2 in the fair value hierarchy.

The derivative liability was initially measured at fair value with subsequent remeasurement to fair value at the end of each reporting period. Because revaluation to fair value includes the use of valuation techniques, the derivative liability is classified as level 3 in the fair value hierarchy.

The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments in the management of foreign exchange, commodity price or interest rate market risks.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of cash and cash equivalents. To minimize the credit risk the Company places these instruments with a high credit quality financial institution.

Liquidity Risk

The Company ensures its holding of cash and cash equivalents is sufficient to meet its short-term general and administrative expenditures. All of the Company’s financial liabilities are subject to normal trade terms. The Company does not have investments in any asset-backed deposits. The Company’s liabilities as at December 31, 2012, are due as follows:

Liabilities Outstanding
On demand	$	354,761
0 – 30 days		19,913
31-90 days		130,793
365 days		132,056
Over 365 days		-
Total	$	637,523

Foreign Exchange Risk

The Company is not exposed to foreign exchange risk on its financial instruments.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Years Ended December 31, 2012 and 2011

Interest Rate Risk

As of December 31, 2012 the Company is not exposed to significant interest rate risk as its interest bearing debt is at fixed rates.

16. COMMITMENTS

The Company’s commitments are as follows:

(a)

On April 25, 2007, the Company entered into a license agreement with Dalhousie University ("Dalhousie"). The license covers Pentoxifylline and Functional Derivatives/Metabolites and its applications. The fields of use include pulmonary indications and radiation induced fibrosis.

The Company is required to make annual maintenance payments of $7,500 which are credited towards future royalties. In addition the Company must make milestone payments of up to $825,000 to Dalhousie based on patient enrolment, clinical studies, and regulatory approval for sale of the product as well as a $25,000 payment into the patent fund maintained by Dalhousie.

As further consideration under the Assignment Agreement, the Company is required to pay to Dalhousie a royalty on revenue earned from marketing, manufacturing, licensing, sale or distribution of the technology, improvements relating to the technology or products.

Under the terms of the license agreement, the Company was required to a) secure $2,000,000 in capital or debt financing by December 31, 2010, b) complete enrolment of a first patient in a Phase II clinical study and c) expend $200,000 per year in research and development related activities. The Company has received a waiver from Dalhousie for the requirement (a) and (b) above, and requirement (c) was amended to include a requirement that a first human subject be dosed by December 31, 2012 and initiation of a Phase II study by December 12, 2015.

17. SUBSEQUENT EVENTS

On January 9, 2013 the license agreement with Dalhousie University was terminated due to breach of contract for non-payment of maintenance amounts due.

On February 7, 2013 the Company completed a private placement of 1,800,000 units at $0.05 per unit for gross proceeds of $90,000, with $30,000 relating to the share subscription received before yearend (see Note 12). Each unit is comprised of one common share and one-half a purchase warrant, each warrant being exercisable for one common share at an exercise price of $0.22 until February 7, 2015.

On April 26, 2013, the Company announced it was proceeding with a non-brokered private placement for up to 4,000,000 units at $0.05 per unit for gross proceeds of up to $200,000. Each unit will be comprised of one common share and one-half a purchase warrant. Each whole warrant may be exercised for $0.22 to purchase one common share for a period of two years from closing. At the date of these financial statements, this private placement has not been completed.

Exhibit 15.4

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview

This Management’s Discussion and Analysis (“MD&A”) has been prepared as of April 29, 2013 and presents the operations of the Company for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010. The following information should be read in conjunction with the Company’s audited financial statements for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010 together with the notes thereto. The Company’s financial statements for the years ended December 31, 2012, December 31, 2011 and the opening balance sheet as at January 1, 2011 have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion contains forward-looking statements that involve certain risks and uncertainties.

Business Overview and Strategy

The Company is a development stage specialty pharmaceutical company. The Company is focused on developing late stage clinical therapies by reformulating and repurposing approved drugs and in-licensing novel compounds. The Company’s lead compound PTL-202 to treat lung fibrosis is a combination of already approved drugs with a well-established safety profile. The Company’s pipeline includes PTL-303, a novel drug for the treatment of Liver Cirrhosis. PTL-303 has shown efficacy in cellular assays.

The Company will continue to operate virtually, outsourcing all non-core activities such as pre-clinical research and clinical trials and manufacturing. The Company will continue to build core skills in managing clinical development of therapies, licensing and commercialization. The Company will use its skills, reformulating and repurposing approved drugs as well as taking in-licensed approved and late stage drug candidates through bio-equivalency and phase 2 human clinical trials. PTL-202 the Company’s lead product candidate is intended to treat rare fibrosis indications including Idiopathic Pulmonary Fibrosis, Liver Cirrhosis, Scleroderma Associated Pulmonary Fibrosis, Lung Transplant Rejection and others. The Company’s strategy is to sell or out-license its product candidates and technologies after completing Phase 2 clinical trial proof of principal studies or receiving marketing approval under FDA regulatory pathway 505 b (2). At this stage of development the value of product candidates has been maximized in relation to the capital spent to develop them.

Corporate Highlights

In 2012 the Company accomplished the following:

January 31, 2012 termination of the irrevocable subscription agreements entered into by the Company on January 31, 2011 and May 16, 2011;

March 29, 2012 the Company announced that it has been accepted as an exhibitor at the Vancouver Small-Cap Conference to be held on April 10, 2012 at the Vancouver Convention Center;

May 15, 2012 the Central Drugs Standard Control Organization (India’s pharmaceutical regulatory authority) approved the Company’s clinical trial protocol submitted by the company and given its permission to the company to go ahead with its initial clinical trial of PTL-202;

June 15, 2012, the Company entered into a contract with Vantage Communications Ltd. for advertising and media relations. The term of the contract is for 1 year;

June 22, 2012, the Company sold 732,670 units at a price of $0.15 per unit for aggregate proceeds of CAD $109,900. Each unit includes one common share and a warrant to purchase an additional common share for $0.22 for up to two years after the closing. On the same date, certain finders were issued 56,666 units, with the same terms as the forgoing, which were valued at $8,500;

July 5, 2012, the Company issued a total of 475,000 options to purchase common shares to directors, officers and consultants under the 2012 stock option plan as approved at the Company’s previous annual general meeting. The options may be exercised at a price of $0.10 per share for a period of 5 years;

August 22, 2012, 12 test subjects for the initial clinical trial PTL-202 were enrolled and initial dosing of healthy individuals commenced under the clinical trial protocol submitted to the Central Drugs Standard Control Organization (India’s pharmaceutical regulatory authority);

September 19, 2012, the Company sold 741,666 units at a price of $0.15 per unit for aggregate proceeds of CAD $111,250. Each unit consists of one common share in the capital of the Company and one share purchase warrant (the “warrants”), each warrant is exercisable to acquire an additional common share for a period of 2 years from the closing date at a price of $0.22;

September 24, 2012, the Company issued a promissory note for $30,000 (the “Note”, filed herewith as Exhibit 2.1) and 200,000 warrants (“Bonus Warrants”). Each Bonus Warrant is exercisable to acquire an additional common share for a period of 2 years from the closing date at a price of $0.22. The Note is for a period of one year and is repayable by the Company at any time. The holder of the Note may convert the whole Note or any portion into Units at any time. Each Unit will consist of 1 common share and 1 warrant, each warrant is exercisable to acquire an additional common share for a period of 2 years from the date the warrant was issued. Subject to regulatory approval, the conversion price per Unit will be at a 25% discount to the ten day weighted average price of the Company’s shares at the date of conversion. Subject to regulatory approval the exercise price per warrant will be at a 25% premium to the ten day weighted average price of the Company’s shares at the date of conversion;

November 13, 2012, the Company provided the results of the phase 1 trial of PTL-202 and an update on the development of PL-202 including future plans.

The Company initiated its first clinical trial of PTL-202 in August 2012. PTL-202 is a fixed dose combination of Pentoxifylline and NAC (the “Active Ingredients”). The development of PTL-202 is targeted at fibrosis including Idiopathic Pulmonary Fibrosis (“IPF”) and Bronchiolitis Obliterans (excessive scarring) associated with lung transplant and Liver Cirrhosis. IPF is responsible for more deaths annually than either prostate or breast cancer.

The trial was designed to test for interaction between the drugs combined in PTL-202. The trial indicated that when given in combination, to healthy males, plasma concentrations of Active Ingredients in PTL-202 is increased and therapeutic effects such as vasodilation are enhanced. Side effects were consistent with the increased concentrations. Given the positive result of this trial, the data from this trial will be used by the Company and its development partner, IntelGenx Corp. to fine tune the dosages and delivery profile in the formulated product. PTL-202 is being formulated using the proprietary AdVersa multi-layer controlled release technology from IntelGenx Corp. The combination of a proprietary dosage and delivery may eliminate potential competition from existing manufacturers of Pentoxifylline and NAC.

November 27, 2012, the Company signed a letter of intent to license an oral dissolving formulation (dissolves under the tongue) for drugs for erectile dysfunction (ED); and

December 21, 2012, the Company issued a total of 450,000 options to purchase common shares to directors and officers under the 2012 stock option plan as approved at the Company’s previous annual general meeting. The options may be exercised at a price of $0.10 per share for a period of 5 years.

In 2011 the Company accomplished the following:

January 15, 2011, the Company repriced 4,800,000 Class A common shares, consisting of 4,500,000 Class A common shares originally issued for proceeds of $0.0133 per share to $0.02 per share, for which total proceeds of $30,000 was received, as a result of the repricing an additional 300,000 Class A common shares originally issued for proceeds of $0.0007 per share to $0.02 per share, the Company received total proceeds of $5,800;

January 31, 2011, the Company completed a private placement of 140,000 units at $0.15 per unit. Each unit comprises of one common share and one warrant to purchase one common share at $0.25 per share exercisable for a period of two years;

January 31, 2011, 300,000 common share purchase warrants were exercised, and 300,000 common shares were issued, for total proceeds of $30,000;

January 26, 2011, the Company received $275,000 of subscription funds under the terms of the Company’s Irrevocable Subscription Agreements, which was placed in trust. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreements and Escrow Agreement. As a bonus for placing the subscription funds in trust, the Company issued 550,000 Class A common shares based on 20% of the principal value of the subscription and a deemed price per share of $0.15. The Company also issued warrants to purchase 2,200,000 common shares with an exercise price of $0.15 per warrant and a term of two years. The shares and warrants were issued as of the effective date of the Irrevocable Subscription Agreements and Escrow Agreement, January 31, 2011;

February 2, 2011, the Company received a further $25,000 in subscription funds under the terms of the Irrevocable Subscription Agreements which was placed in trust. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreements and Escrow Agreement between the Company and the investors and the trustee with an effective date of January 31, 2011. As a bonus for placing the subscription funds in trust, the Company issued 50,000 Class A common shares based on 20% of the principal value of the subscription and a deemed price per share of $0.15. The Company also issued warrants to purchase 200,000 common shares with an exercise price of $0.15 per warrant and a term of two years. The shares and warrants were issued as of the effective date of the Irrevocable Subscription Agreements and Escrow Agreement, January 31, 2011;

February 28, 2011, 300,000 Class A common shares controlled by a company owned by the Company’s CEO were re-priced from the post-split subscription price of $0.0007 per share to $0.02 per share for total proceeds of $5,800;

February 28, 2011, the Company completed a private placement of 60,000 units at $0.15 per unit. Each unit comprises of one common share and one warrant to purchase one common share at $0.25 per share exercisable for a period of two years;

February 28, 2011, the Company entered into the IntelGenx Development and Commercialization Agreement. This agreement supersedes the letter of intent between the companies. The agreement calls for the companies to collaborate in the formulation and bio-equivalency testing of PTL-202. The completion of this work will be a significant milestone for PTL-202 as it will include data from human testing. This data may provide the information required to decide to move PTL-202 in to further clinical testing;

May 16, 2011, the Company received $75,000 in subscription funds under the terms of the Irrevocable Subscription Agreements which was placed in trust. The release of the invested funds is governed by the terms of the Irrevocable Subscription Agreements and Escrow Agreement. As a bonus for placing the subscription funds in trust, the Company issued 150,000 Class A common shares based on 20% of the principal value of the subscription and a deemed price per share of $0.15. The Company also issued warrants to purchase 600,000 common shares with an exercise price of $0.15 per warrant and a term of two years. The shares and warrants were issued as of the effective date of May 16, 2011;

July 21, 2011, the Company’s CEO subscribed for 50,000 common shares at $0.15 per share for total proceeds of $7,500;

July 27, 2011, the Company settled $16,500 of accounts payable to service providers by issuing 110,000 shares at a deemed value of $0.15 per share;

Under the terms of the Dalhousie License Agreement, the Company was required to a) secure $2,000,000 in capital or debt financing by December 31, 2010, b) complete enrolment of a first patient in a Phase II clinical study and c) expend $200,000 per year in research and development related activities. As of December 31, 2010, the Company had not met any of the requirements of the agreement outlined above. During 2011, the Company received a waiver from Dalhousie for the requirement (a) and (b) above, and requirement (c) was amended to also include a requirement that a first human subject being dosed by December 31, 2012 and initiation of a Phase II study by December 12, 2015;

October 14, 2011, the Company’s prospectus was receipted by the British Columbia Securities Commission making the Company a reporting company in BC;

November 16, 2011, the Company’s outstanding Class B Series I and Series II preferred shares were converted to 3,291,563 common shares and 602,222 warrants to purchase common shares;

November 16, 2011, the Company’s shares began trading on The Canadian National Stock Exchange (“CNSX”);

During December the Company’s patent covering the technology in PTL-202 was published; and

December 13, 2011 the Company closed a private placement of $49,999 by way of a draw down on the irrevocable subscription agreements.

In 2010 the Company accomplished the following milestones:

January 1, 2010, the Company’s effective date of transition to IFRS;

January 25, 2010, the Company amended the Dalhousie License Agreement;

August 20, 2010, closed financing by way of offering memorandum increasing the public shareholder base above the 150 shareholders needed to list the Company’s shares on the Canadian National Stock Exchange (“CNSX”);

During the year the Company issued 404,000 pre-split Common Shares (606,000 post-split Common Shares) for a total of $95,500;

During the year, in order to meet CNSX listing requirements, the founders of the Company re-priced 3,000,000 Common Shares of the Company with an initial subscription price of $0.001 per share to $0.02 per share for total proceeds of $57,000; and

December 30, 2010, the Company split its equity to 1.5 new shares for each existing share. A total of 5,310,150 additional common shares were issued.

Product Development

PTL-202

September 2012, completed phase 1 drug/drug interaction study in humans;

2012, completed formulation of PTL-202 tablet;

2012 continued prosecution of PTL-202 patent;

January 2010, engaged Biopharmaceutical Research Inc. to develop assay for Pentoxifylline and N-Acetylcysteine;

April 2010, entered into national phase of patent prosecution for PTL-202;

June 18, 2010, signed letter of intent to out-license the United State rights to PTL-202; and

November 2010, entered into letter of intent with IntelGenx Corp. for the development and commercialization of PTL-202.

PTL-303

There has been no advancement of PTL-303 due to a lack of working capital.

Selected Annual Information

The financial information reported here has been prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise noted. The Company uses the Canadian dollar (CDN) as its reporting currency. Selected audited financial data for annual operations of the Company during the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010 are presented below:

Selected Statement of Comprehensive Loss Data

Period ended	FYE 2012 (IFRS)	FYE 2011 (IFRS)	FYE 2010 (IFRS)
Total revenues	$Nil	$Nil	$Nil
Net and Comprehensive loss	$(605,468)	$(463,768)	$(318,100)
Basic and diluted loss per share	$(0.03)	($0.03)	$ (0.02)
Weighted average shares	21,637,193	18,172,472	16,350,054

The net loss in fiscal year ended December 31, 2012 increased compared to fiscal year ended December 31, 2011 due to increases in advertising and promotion, investor relations and research and developments as well as derivative liability. The increases were partially offset by decreases in professional fees.

The loss from operations increased in fiscal year ended December 31, 2011 compared to fiscal year ended December 31, 2010 due to cost associated with becoming a reporting company and listing the company’s shares on the CNSX. Increases in interest expense also contributed to the increased loss in 2011.

Selected Statement of Financial Position Data

Period ended	Fiscal Year 2012 (IFRS)	Fiscal Year 2011 (IFRS)	Fiscal year 2010 (IFRS)
Cash	$9,854	$6,094	$30,457
Restricted Cash	$Nil	$300,000	$Nil
Current assets	$108,107	$325,189	$40,211
Property and equipment	$4,864	$6,358	$8,168
Intangible Assets	$93,562	$90,631	$71,540
Total assets	$206,533	$422,178	$119,919
Current liabilities	$637,523	$182,071	$184,273
Non-Current liabilities	$Nil	$406,416	$230,696
Total liabilities	$637,523	$588,487	$414,969
Working Capital	$(529,416)	$143,118	$(144,062)

Cash increased by $3,760 from fiscal year ended December 31, 2012 to $9,854 for fiscal year ended December 31, 2012, and decreased by $24,363 from $30,457 for fiscal year ended December 31, 2010 to $6,094 for fiscal year ended December 31, 2011. Current assets decreased by $217,082 in fiscal year ended December 31, 2012 as compared to fiscal year 2011, and increased by $284,978 from fiscal year 2010 to $325,189 in fiscal year 2011. Current liabilities increased by $455,452 in fiscal year 2012 as compared to fiscal year 2011, and decreased by $2,202 from fiscal year 2010 to $182,071 in fiscal year 2011. The overall increase in cash, decrease in current assets and increase in current liabilities contributed to a decrease in working capital of $672,534 from $143,118 in 2011 to a working capital deficit of $529,416 in 2012. These changes from 2011 were mainly due to the return of the $300,000 restricted cash balance on the termination of the irrevocable subscription agreements on January 31, 2012 and the reclassification of $175,935 due to shareholders from long-term liabilities in the year ended December 31, 2011 to current liabilities for the year ended December 31, 2012.

Summary of Quarterly Results

	December 31, 2012 $	September 31, 2012 $	June 30, 2012 $	March 31, 2012 $	December 31, 2011 $	September 31, 2011 $	June 30, 2011 $	March 31, 2011 $
Total Revenues	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Net Loss	(205,919)	(163,356)	(89,056)	(147,137)	(190,392)	(115,111)	(86,660)	(71,605)
Loss per Share basic and diluted	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)	(0.01)
Cash	9,854	36,004	2,486	7,221	6,094	4,720	3,099	8,557
Restricted Cash	Nil	Nil	Nil	Nil	300,000	375,000	375,000	300,000
Total Assets	206,533	280,629	197,091	119,505	422,178	495,078	493,702	406,277
Non-Current Liabilities	Nil	Nil	Nil	Nil	406,416	631,640	593,360	483,944

Results of Operations

	2012 $	2011 $	Change $	Change %
Revenue	Nil	Nil	0	N/A
Research and Development *	50,941	Nil	50,941	N/A
Wages and Benefits	169,327	121,297	48,030	40%
Professional Fees	87,465	112,809	-25,344	-22%
Advertising and Promotion	43,637	7,795	35,842	460%
Investor Relations	51,950	Nil	51,950	N/A
General and Administrative	37,802	25,114	12,688	51%
Insurance	24,948	14,628	10,320	71%
Rent and Occupancy Cost	17,743	16,273	1,470	9%
Interest Expense	104,378	122,503	-18,125	-15%
Other Expense	17,277	43,349	-26,072	-60%
Net and Comprehensive Loss	605,468	463,768	141,700	31%

* The Research and Development expense for 2011 is Nil because all research and development during the year was carried out by our partner on the development of PTL-202, IntelGenx Corp.

The Company’s net and comprehensive loss for the year ended December 31, 2012, totalled $605,468 or $0.03 per share (compared with $463,768 or $0.03 per share for fiscal year 2011, and $318,100 or $0.02 per share for fiscal year 2010). The main contributor to the increased loss in fiscal year 2012 is the increase in research and development, advertising and promotion and investor relations expenses as well as the loss on the derivative liability.

Revenues

The Company has no drug therapies approved or for sale and has not generated any revenue from the sale of drug therapies. The Company has not recognized any revenue since inception through December 31, 2012. The Company does not expect to receive any revenues until after the completion of the Phase 2 trial of PTL-202. The Company expects to complete this trial by the end of 2015.

Research & Development Expense

From inception through to December 31, 2012, the Company incurred total expenses in the development of its intellectual property of $1,836,405, which includes $548,204 of research and development expenses (research and development expenses on the financial statements have been offset by $53,277 in IRAP funding and $187,427 in SR&ED tax credits), $398,431 of professional fees and $889,770 of wages and benefits.

	Year ended December 31, 2012			Year ended December 31, 2011		Year ended December 31, 2010
Research and Development Expenses
Personnel, Consulting, and Stock-based Compensation	$	Nil		$	Nil	$	15,461
License Fees and Subcontract research	$	51,790			Nil		8
Facilities and Operations	$	5,659			Nil		Nil
Less: Government contributions	$	(6,508	)		Nil		Nil
Total	$	50,941		$	Nil	$	15,469

The increase in research expense in fiscal year 2012 is due to the initiation of clinical trials of PTL-202. The fee paid to the contract research operation for the drug/drug interaction trial in India was $47,134. There is no research and development expense for fiscal year 2011 as all research and development was conducted by IntelGenx Corp. under the agreement the Company has with them.

The decrease in R&D expenses in fiscal year 2011 as compared to fiscal year 2010 is a reflection of the development of the bio-analytical assay for Pentoxifylline and NAC in fiscal year ended December 31, 2010. In fiscal year 2010, the R&D expense for personnel, consulting and stock based compensation was offset by $10,000 that was received from a potential development partner on the signing of a letter of intent for the development of PTL-202. There was no R&D expense in fiscal year 2011 as all of the R&D was conducted by our development partner IntelGenx.

Research and development expenses of approximately $531,000 are required for the pivotal trial scale-up and process development and an additional $250,000 will be required for the pivotal clinical trial of the formulated product. The results of this work may provide the information required for a regulatory submission to move PTL-202 into a Phase 2 study. The cost of the regulatory submission is budgeted at $125,000.

The Company was able to complete the formulation, drug/drug interaction study of PTL-202, analyzing the blood samples and analyzing the data from the drug/drug interaction trial in fiscal year 2012 as planned. The Company’s clinical development studies and regulatory considerations relating to PTL-202 are subject to risks and uncertainties that may significantly impact its expense estimates and development schedules, including:

the scope, rate of progress and cost of the development of PTL-202;

uncertainties as to future results of the pivotal bio equivalency study of PTL-202;

the Company’s ability to enroll subjects in clinical trials for current and future studies;

the Company’s ability to raise additional capital; and

the expense and timing of the receipt of regulatory approvals.

General and Administrative Expenses

Intellectual Property and Intangible Assets

All license and option fees paid to licensors for intellectual property licenses are capitalized to intangible assets on the Company’s financial statements. In addition, any expenses for intellectual property protection including patent lawyers services fees, and any filing fees with government agencies or the WIPO are capitalized to intangible assets. These cost are expected to decrease in the twelve months following the date of this prospectus as no new filings are anticipated.

Interest Income

Interest income consists of interest earned on the Company’s cash and cash equivalents. There was no interest income in fiscal years of 2012, 2011 and 2010.

Profits

At this time, the Company is not anticipating profit from operations. Until such time as the Company is able to realize profits from the out licensing of products under development, the Company will report an annual deficit and will rely on its ability to obtain equity/or debt financing to fund on-going operations. For information concerning the business of the Company, please see “Item 4. Information on the Company ” .

Liquidity and Capital Resources and Outlook

The Company is a development stage company and therefore has no regular cash inflows. Selected financial data pertaining to liquidity and capital resources the fiscal years ended December 31, 2012 and December 31, 2011, is presented below.

Period ended	2012 $	2011 $	$ Change between two periods	% Change between two periods
Cash and Cash Equivalents	$9,854	$6,094	$3,760	62%
Current Assets	$108,107	$325,189	($217,082)	-67%
Current Liabilities	$637,523	$182,071	$455,452	250%
Working Capital	($529,416)	$143,118	($672,534)	-470%
Accumulated deficit	$2,662,918	$2,094,115	$568,803	27%
Cash used in operations	$304,983	$284,361	$20,622	7%
Cash flows from financing Activities	315,518	$282,578	$32,940	12%
Interest Income	$Nil	$Nil	$Nil	0%

As of December 31, 2012, the Company had cash and cash equivalents of $9,854 (compared with $6,094 for fiscal year ended December 31, 2011 and $30,457 for fiscal year ended 2010) and working capital of $(529,416) (compared with $143,118 for fiscal year ended December 31, 2011 and $144,062 for fiscal year ended December 31, 2010). Working capital is calculated as current assets less current liabilities.

Cash and cash equivalents increased by $3,760 between fiscal year 2012 and fiscal year 2011 due to an increase in financing during the period.

Working Capital decreased by $672,534 from fiscal year 2011 to fiscal year 2012 due to the decrease in restricted cash from the irrevocable subscription agreements upon the cancellation of those agreements and a reclassification of amounts due to shareholders from non-current to current liabilities. Total liabilities increased by $49,036 for the fiscal year ended December 31, 2012 when compared to the total liabilities as of the end of fiscal year 2011. The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrant exercises for cash, cash share subscriptions received, promissory note proceeds received, and amounts loaned to the Company from shareholders during fiscal year 2012 totalling $315,518. The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrant exercises, re-pricing of shares for cash and cash subscriptions received under the terms of the irrevocable subscription agreements during fiscal year 2011 totalling $282,578 (compared with $224,940 for fiscal year 2010). Cash from financing activities increased by $32,940 between fiscal year 2012 and fiscal year 2011 and increased by $57,368 between fiscal year 2011 and fiscal year 2010.

As part of the CNSX listing requirements no more than 20% of the issued and outstanding shares of a company listed on the exchange may be “Builders Shares”. Builders Shares include any share issued at a price of less than $0.02 per share. In order to meet this listing requirement the founders of the Company contributed $Nil for fiscal year 2012 to re-price common shares to $0.02 per share (compared with $41,600 for fiscal year 2011 and $57,000 for fiscal year 2010). The founders originally purchased the shares that were repriced for $0.001 per share. The amount of $41,600 for fiscal year 2011 is included in the Company’s Financing Activities in its financial statements.

Cash utilized in operating activities during fiscal year 2012 was $304,983 (compared with $284,361 for fiscal year 2011 and $249,357 for fiscal year 2010). The increase in cash utilized in operations during fiscal year 2012 as compared to fiscal year 2011 was due to an increase in advertising and promotion, research and development and investor relations. This increase was offset by a decrease in expenses for professional fees. The increase in cash utilized in operations during fiscal year 2011 as compared to fiscal year 2010 was due to an increase in professional fees related to the company becoming a reporting Company. This increase in fiscal year 2011 was partially offset by reductions in wages and benefits, travel, research and development, as well as computer expenses.

Interest income during the years of 2012, 2011 and 2010 was $Nil, respectively.

As of December 31, 2012, share capital was $1,995,716 comprising 22,586,825 issued and outstanding common shares and Nil issued and outstanding preferred shares (compared with $1,765,754 comprising 20,989,157 issued and outstanding common shares and Nil issued and outstanding preferred shares for fiscal year 2011, $1,133,136 comprising 15,930,452 issued and outstanding common shares and 203,250 issued and outstanding preferred shares for fiscal year 2010). The Company’s shares were split on 1.5 new shares for every 1 existing share on December 30, 2010. The Company intends to issue additional shares increasing its share capital to fund future research and development and operations.

Contributed surplus, which arises from the recognition of the estimated fair value of stock options and warrants, was $206,212 for fiscal year 2012 ($162,052 for fiscal year 2011 and $136,110 for fiscal year 2010).

As a result of the net and comprehensive loss for the fiscal year 2012 of $605,468 (compared with $463,768 for fiscal year 2011 and $318,100 for fiscal year 2010), the deficit as of December 31, 2012 increased to $2,662,918 from $2,094,115 as of December 31, 2011 which was an increase from $1,564,296 as of December 31, 2010.

During the fiscal year 2012, the Company’s net cash provided by financing activities increased to $315,518 (compared with $282,578 for fiscal year 2011 and $224,940 for fiscal year 2010).

At present, the Company’s operations do not generate cash inflows and its financial success after fiscal year 2012 is dependent on management’s ability to continue to obtain sufficient funding to sustain operations through the development stage and successfully bring the Company’s technologies to the point that they may be out licensed so that the Company achieves profitable operations. The research and development process can take many years and is subject to factors that are beyond the Company’s control.

In order to finance the Company’s future research and development and to cover administrative and overhead expenses in the coming years the Company may raise money through equity sales. Many factors influence the Company’s ability to raise funds, including the Company’s track record, and the experience and calibre of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of research activities. Management believes it will be able to raise equity capital as required in the long term, but recognizes there will be risks involved that may be beyond their control. Should those risks fully materialize, it may not be able to raise adequate funds to continue its operations.

Off Balance Sheet Arrangements

Transactions with Related Parties

During the year ended December 31, 2012 the Company received $Nil from two founders to re-price common shares to $0.02 per share (compared with $30,000 for fiscal year 2011 and $57,000 for fiscal year 2010);

During the year ended December 31, 2012, a company controlled by the CEO of the Company paid $Nil and re-priced Nil common shares owned by it to $0.02 per share (compared with $11,600 for fiscal year 2011 and $Nil for fiscal year 2010);

Of the $300,000 in subscription proceeds received by the Company pursuant to an Irrevocable Subscription Agreement dated January 31, 2011 , $75,000 was received from directors and officers of the Company (compared with $Nil in fiscal year 2010);

The Company incurred accounting fees for the year ended December 31, 2012, to a company controlled by its CFO, in the amount of $18,000 (compared with $21,000 for fiscal year 2011 and $36,000 for fiscal year 2010);

A listing requirement of the CNSX is that no more than 20% of the outstanding shares may have an issue price of less than $0.02. In order to meet this listing requirement, a former director and the Company’s CEO and a company controlled by the Company’s CEO during the year ended December 31, 2012, paid $Nil (compared with $41,600 for fiscal year 2011 and $57,000 for fiscal year 2010) to re-price pre-split common shares (compared with 3,200,000 shares for fiscal year 2011 and 3,000,000 shares for fiscal year 2010) from $0.001 per share to $0.02 per share;

The Company incurred legal fees from a consultant and director of the Company in the amount of $3,200 for the year ended December 31, 2012 (compared with $7,934 for fiscal year 2011 and $5,684 for fiscal year 2010);

The Company incurred salaries, directors fees and other benefits relating to directors and officers of the company in the amount of $169,327 for the year ended December 31, 2012 (compared with $121,297 for fiscal year 2011 and $159,709 for fiscal year 2010); and

On June 12, 2012 the Company issued 50,000 common shares to settle $7,500 of outstanding debt owing to a shareholder of the Company (compared with $Nil for both fiscal years of 2011 and 2010).

There are no amounts due to the Company from companies that have directors in common with the Company or have a partner who is a director of the Company.

There were no amounts due to the Company from shareholders in the last two fiscal years.

Fourth Quarter

The table below sets out the unaudited quarterly results for the fourth quarter ending December 31, 2012, December 31, 2011 and December 31, 2010.

(unaudited)	2012 Q4	2011 Q4	2010 Q4
Total Expenses	$205,919	$190,392	$80,446
Research and Development	$0	$0	$0
Net Loss	$(205,919)	$(190,392)	$(80,446)
Loss per share	$(0.01)	$(0.01)	$(0.01)

The net loss in the fourth quarter of 2012 of $205,919 increased compared to the fourth quarter 2011, $190,392 and increased from $80,446 in the fourth quarter of 2010. The increase in net loss for the fourth quarter ended December 31, 2012 as compared to the net loss for the fourth quarter ended December 31, 2011 is due to a reduction in professional fees associated with the listing of the company’s shares on the CNSX. The increase in the net loss between the 2010 and 2011 fiscal years was principally caused by an increase in interest expense.

Research and development expenditures are expected to increase in the 2013 fiscal year and beyond.

The Company does not anticipate earning any revenue in the foreseeable future.

Net loss, quarter over quarter is influenced by a number of factors including the scope and stage of clinical development and research. Consequently, expenses may vary from quarter to quarter. General and administrative expenses are dependent on the infrastructure required to support the clinical and business development activities of the Company. A material increase in research and development as well as general and administrative costs is anticipated over the short term, as the Company’s research and development and regulatory activities increase.

During the fourth quarter the Company, issued Nil common shares for total proceeds of $Nil (compared with $357,142 for fiscal year 2011 and $49,999 for fiscal year 2010).

Proposed Transactions

As at the date of this MD&A, other than a letter of intent to license a technology for the sublingual delivery of drugs there are no business or asset acquisitions or dispositions proposed other than those in the ordinary course of business before the Board for consideration.

Critical Accounting Estimates

The Company’s accounting policies are presented in Note 3 of the December 31, 2012 audited financial statements. The preparation of financial statements in accordance with IFRS requires management to select accounting policies and make estimates. Such estimates may have a significant impact on the financial statements. Actual amounts could differ materially from the estimates used and, accordingly, affect the results of the operations. These include:

the assumptions used for the determinations of the timing of future income tax events

the carrying values of intangible assets, technology license and patents, and other long lived assets

the valuation of stock-based compensation expense

the carrying value of a derivative liability

Changes in Accounting Policies including Initial Adoption

The Company has adopted IFRS, as of January 1, 2010, as discussed in Note 2 of the December 31, 2012 Financial Statements.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, shareholder demand loan, balances due to shareholders, the liability portion of the convertible note, and the derivative liability. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from financial instruments. Cash and cash equivalents amounts are classified as a financial asset and balances due to shareholders, and the liability portion of the convertible note are classified as financial liabilities and are carried at amortized cost. The derivative liability is carried at amortized cost with remeasurement to fair value at the end of each reporting period. The fair value of cash and cash equivalents, and accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity or capacity for prompt liquidation.

Limitations of Controls and Procedures

Please refer to “Item 15. Controls and Procedures” for more information of our controls and procedures.

Other MD&A Requirements

Additional Information in Relation to the Company

Additional information relating to the Company may be found in the Company’s audited financial statements for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010.

Additional Disclosure for Venture Issuers

The following table sets forth certain financial information for the Company, which has been derived from the Company’s financial statements for the years ended December 31, 2012, December 31, 2011, and December 31, 2010. This summary should be read in conjunction with the Company’s financial statements, including the notes thereto.

The following table details the Company’s expenditures for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010:

Expenditures	Year ended December 31, 2012		Year ended December 31, 2011		Year ended December 31, 2010
Net research costs expensed	$	50,941	$Nil		$	15,469
Professional Fees		87,465		112,809		67,444
Advertising and promotion		43,637		7,795		1,979
Investor Relations		51,950	Nil		Nil
Wages and benefits		169,327		121,297		159,709
Corporate costs		73,730		50,716		51,407
Depreciation and amortization		6,763		5,299		5,553
Interest expense (income)		104,378		122,503		26,549
Loss on conversion of series I Preferred Shares	Nil			43,349	Nil
Stock based compensation		75,026		5,864		3,000
Loss on derivative liability		18,641	Nil		Nil
Recovery of future income taxes	Nil		Nil		Nil
Net and Comprehensive Loss	$	605,468	$	463,768	$	291,553

Additional Disclosure for Venture Issuers Without Significant Revenue

Expensed Research and Development Costs

	Year ended December 31, 2012			Year ended December 31, 2011		Year ended December 31, 2010
Research and Development Expenses
Personnel, Consulting, and Stock-based Compensation	$	Nil		$	Nil	$	15,461
License Fees and Subcontract research	$	51,790		$	Nil	$	8
Facilities and Operations	$	5,659		$	Nil	$	Nil
Less: Government contributions	$	(6,508	)	$	Nil	$	Nil
Total	$	50,941		$	Nil	$	15,469

Subsequent Events

On January 9, 2013 the license agreement with Dalhousie University was terminated due to breach of contract for non-payment of maintenance amounts due.

On February 7, 2013 the Company completed a private placement of 1,800,000 units at $0.05 per unit for gross proceeds of $90,000, with $30,000 relating to the share subscription received before yearend. Each unit is comprised of one common share and one-half a purchase warrant, each warrant being exercisable for one common share at an exercise price of $0.22 until February 7, 2015.

Proposed Transactions

As at the date of this MD&A there are no transactions currently contemplated by the Company other than the potential in-license of the oral dissolving technology from Globe Labs Ltd.

Changes in Accounting Policies including Initial Adoption

The Company has adopted IFRS, as of January 1, 2010, as discussed in Note 2 of the December 31, 2012 Financial Statements.

Disclosure of Outstanding Share Data

The table below provides information concerning the designation and number of each class of equity securities for which there are securities outstanding as of the dates noted below:

Type of Security	Year ended December 31, 2012 (1)	Year ended December 31, 2011 (1)	Year ended December 31, 2010 (1)
Common Shares	22,586,825	20,989,157	15,930,452
Preferred Shares Series I (2)	Nil	Nil	1,500,000
Preferred Shares Series II (3)(4)	Nil	Nil	203,250
Options	1,675,000	1,650,000	1,875,000
Outstanding Warrants	5,272,058	3,830,422	1,009,267
Total	29,533,883	26,469,579	20,517,969

(1)

These share amounts include a 1.5 to 1 forward split of the Company’s equity as of December 30, 2010. Includes 600,000 bonus common shares issued on January 31, 2011 as an inducement for investors to enter into the Irrevocable Subscription Agreement. Includes 300,000 common shares issued on January 31, 2011 on the exercise of warrants. Includes 200,000 common shares issued as a part of a unit on January 31 and February 28, 2011. Includes 150,000 bonus common shares issued on May 16, 2011 as an inducement for investors to enter into the Irrevocable Subscription Agreements.

(2)

The Class B Preferred Shares Series I automatically converted to Common Shares on a 1–to–1 basis upon listing of the Common Shares on the Canadian National Stock Exchange on November 16, 2011.

(3)

The Class B Preferred Shares Series II automatically converted to Common Shares upon listing of the Common Shares on the Canadian National Stock Exchange. On November 16, 2011 each Series II Preferred Share converted into Common Shares at a 25% discount to the last share issue price $0.15/share. In addition for each common share issued on the conversion of each Series II Preferred Share, one-half of one warrant was issued.

(4)

The Class B Preferred Shares Series II converted to common shares upon listing of the common shares on the CNSX. The number of common shares issued on conversion assumed the initial listing price of the Common Shares was $0.15. Upon conversion the Company issued 1,791,563 Common Shares.

Exhibit 15.5

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

FINANCIAL STATEMENTS

Three month period ended March 31, 2013 and 2012

(Expressed in Canadian Dollars)

Unaudited – Prepared by Management

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection, 4.3 (3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of Pacific Therapeutics Ltd. (“the Company”) have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these interim financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review on interim financial statements by an entity’s auditor.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Financial Position

(Expressed in Canadian Dollars)

AS AT:	31-Mar-13			31-Dec-12
	$				$
ASSETS
CURRENT
Cash and cash equivalents		7,220			9,854
Harmonized sales tax recoverable		57			809
Prepaid expenses		57,664			97,444
		64,941			108,107
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT (Note 3)		4,009			4,864
INTANGIBLE ASSETS (Note 4)		52,125			93,562
		121,075			206,533

LIABILITIES
CURRENT
Accounts payable and accrued liabilities		374,577			341,872
Convertible note (Note 6)		21,161			16,739
Derivative liability (Note 6)		49,839			30,889
Shareholder demand loan (Note 5)		23,553			45,553
Due to shareholders (Note 5)		202,470			202,470
		671,600			637,523
SHAREHOLDERS' DEFICIENCY
Share capital (Note 7)		2,078,686			1,995,716
Subscriptions received (Note 7)		-			30,000
Contributed surplus		208,242			206,212
Deficit accumulated during the development stage		(2,837,453	)		(2,662,918	)
		(550,525	)		(430,990	)
		121,075			206,533

Nature and Continuance of Operations (Note 1) and Commitments (Note 10)

Subsequent Events (Note 11)

On behalf of the Board:

"Douglas H. Unwin"	Director		"Doug Wallis"	Director
Douglas H. Unwin			Doug Wallis

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Comprehensive Loss

(Expressed in Canadian Dollars)

FOR THE THREE MONTHS ENDING MARCH 31	2013			2012

Expenses
Advertising and promotion	$	20,101		$	943
Amortization of property and equipment		855			453
Amortization of intangible assets		957			957
Bank charges and interest		4,602			130
Computer		-			1,130
Insurance		4,180			3,961
Investor relations		22,500			4,750
Office and miscellaneous		1,943			430
Professional fees		15,753			8,850
Rent and occupancy costs		3,601			4,847
Research and development		-			3,933
Telephone and utilities		497			1,137
Transfer agent		1,450			55
Travel		736			-
Wages and benefits		35,000			37,161
	$	112,175		$	68,737

Interest expense
Interwest loan interest	$	900		$	3,001
ISA interest incurred		-			3,001
ISA-accretion of deemed discount		-			69,520
Shareholder loan accretion of deemed discount (Note 5)		-			5,909
Interest expense on convertible note (Note 6)		-			(30	)
	$	900		$	78,400
Other Expenses (Income)
Loss on derivative liability (Note 6)	$	18,950		$	-
Write-off of license (Note 4)		42,510			-

Net Loss and Comprehensive Loss	$	(174,535	)	$	(147,137	)

Loss per share Basic and Diluted	$	(0.01	)	$	(0.01	)
Weighted average number of common shares outstanding		23,526,825			18,172,472

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars)

	Number of common shares		Share capital			Share Subscriptions received		Contributed surplus			Deficit			Total
			$			$		$			$			$
Balance at December 31, 2011		20,989,157		1,765,754			-		162,052			(2,094,115	)		(166,309	)
Share subscriptions received		66,666		10,000			-		-			-			10,000
Stock based compensation		-		-			-		11,564			-			11,564
Loss for the period		-		-			-		-			(147,137	)		(147,137	)
Balance at March 31, 2012		21,055,823		1,775,754			-		173,616			(2,241.252	)		(291,882	)
Common shares issued for cash		789,336		118,401			-		-			-			118,401
Share issue costs		-		(8,500	)										(8,500	)
Loss for the period		-		-			-		-			(89.056	)		(89,056	)
Balance at June 30, 2012		21,845,159		1,885,655			-		173,616			(2,330,308	)		(271,037	)
Common shares issued for cash @ $0.15		741,666		111,250			-		-			-			111,250
Share issue costs		-		(825	)		-		-			-			(825	)
Stock based compensation		-		-			-		25,634			-			25,634
Loss for the period		-		-			-		-			(163,355	)		(163,355	)
Balance at September 30, 2012		22,586,825		1,996,080			-		199,250			(2,493,663	)		(298,333	)
Subscriptions received for 600,000 shares @ $0.05		-		-			30,000		-			-			30,000
Transfer from contributed surplus on expiry of options		-		-			-		(36,665	)		36,665			-
Share issue costs		-		(364	)		-		-			-			(364	)
Warrant reserve		-		-			-		5,799			-			5,799
Stock based compensation		-		-			-		37,828			-			37,828
Loss for the period		-		-			-		-			(205,920	)		(205,920	)
Balance at December 31, 2012		22,586,825		1,995,716			30,000		206,212			(2,662,918	)		(430,990	)

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars)

	Number of common shares		Share capital			Share Subscriptions received			Contributed surplus		Deficit			Total
			$			$			$		$			$
Balance at December 31, 2012		22,586,825		1,995,716			30,000			206,212		(2,662,918	)		(430,990	)
Common shares issued for cash @ $0.05		1,800,000		90,000			(30,000	)		-		-			60,000
Share issue costs		-		(7,030	)		-			2.030		-			(5,000	)
Loss for the period		-		-			-			-		(174,535	)		(174,535	)
Balance at March 31, 2013		24,386,825		2,078,686			-			208,242		(2,837,453	)		(550,525	)

The accompanying notes are an integral part of these financial statements.

PACIFIC THERAPEUTICS LTD.

(A Development Stage Company)

Statements of Cash Flow

(Expressed in Canadian Dollars)

For three months ending March 31,	2013			2012
	$				$
Cash flows used in operating activities
Net loss and Comprehensive loss		(174,535	)		(147,137	)
Adjustments for items not affecting cash
Amortization of property and equipment		855			453
Amortization of intangible assets		957			957
Amortization of deemed discounts on ISAs, Class B series I preferred shares, shareholder loans, and convertible note		-			75,429
Stock based compensation		-			11,564
Loss on derivative liability		18,950			-
Changes in non-cash working capital balances
Harmonized sales tax recoverable		752			12,426
Prepaid expenses		39,780			(10,037	)
Write-off of license		42,510			-
Accounts payable and accrued liabilities		32,705			23,472
		(38,026	)		(32,873	)
Cash flows used in investing activities
Additions to intangible assets		(2,030	)		-
		(2,030	)		-
Cash flows from financing activities
Issue of common shares for cash		82,970			10,000
Subscriptions received		(30,000	)		-
Issuance of finders’ warrants		2,030			-
Promissory note		4,422			-
Shareholder demand loan		(22,000	)		-
Due to shareholders		-			24,000
		37,422			34,000

Change in cash and cash equivalents		(2,634	)		1,127
Cash and cash equivalents, beginning of period		9,854			6,094
Cash and cash equivalents, end of period		7,220			7,221

The accompanying notes are an integral part of these financial statements.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

1. NATURE AND CONTINUANCE OF OPERATIONS

2. BASIS OF PRESENTATION

The unaudited condensed consolidated interim financial statements were authorized for issue on May 23, 2013 by the directors of the Company.

Statement of Compliance and conversion to International Financial Reporting Standards

These unaudited condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standard 34 “Interim Financial Reporting” (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS Interpretations Committee.

These unaudited condensed consolidated interim financial statements do not include all of the information required of a full annual financial report and should be read in conjunction with the annual financial statements of the Company for the year ended December 31, 2012.

3. PROPERTY AND EQUIPMENT

Cost

Balance at:	Computer Equipment		Furniture and Fixtures			Leasehold Improvements			Lab Equipment		Total
December 31, 2011	$	5,876	$	8,093		$	8,330			-	$	22,299
Additions		-		-			-			6,200		6,200
Disposals		-		(8,093	)		(8,330	)		-		(16,423	)
December 31, 2012	$	5,876	$	-		$	-		$	6,200	$	12,076
Additions		-		-			-			-		-
Disposals		-		-			-			-		-
March 31, 2013	$	5,876	$	-		$	-		$	6,200	$	12,076

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

Amortization

Balance at:	Computer Equipment		Furniture and Fixtures			Leasehold Improvements			Lab Equipment		Total
December 31, 2011	$	5,487	$	5,110		$	5,344			-	$	15,941
Disposals		-		(5,657	)		(5,891	)				(11,548	)
Amortization for the year		175		547			547			1,550		2,819
December 31, 2012	$	5,662	$	-		$	-		$	1,550	$	7,212
Disposals		-		-			-					-
Amortization for the period		80		-			-			775		855
March 31, 2013	$	5,742	$	-		$	-		$	2,325	$	8,067

Carrying amounts

At December 31, 2011	$	389	$	2,983	$	2,986		-	$	6,358
At December 31, 2012	$	214	$	-	$	-	$	4,650	$	4,864
At March 31, 2013	$	134	$	-	$	-	$	3,875	$	4,009

4. INTANGIBLE ASSETS

Cost

	Technology Licenses (i)		Patents (ii)		Total
Balance at December 31, 2011	$	42,510	$	57,440	$	99,950
Additions		-		6,875		6,875
Disposals		-		-		-
Balance at December 31, 2012	$	42,510	$	64,315	$	106,825
Additions	$	-	$	2,030	$	2,030
Disposals	$	-	$	-	$	-
Written-off	$	42,510	$	-	$	42,510
Balance at March 31, 2013	$	-	$	66,345	$	66,345

Amortization

	Technology Licenses (i)		Patents (ii)		Total
Balance at December 31, 2011	$	-	$	9,319	$	9,319
Amortization for the year		-		3,944		3,944
Balance at December 31, 2012	$	-	$	13,263	$	13,263
Amortization for the period		-		957		957
Balance at March 31, 2013	$	-	$	14,220	$	14,220

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

Carrying amounts

At December 31, 2011	$	42,510	$	48,121	$	90,631
At December 31, 2012	$	42,510	$	51,052	$	93,562
At March 31, 2013	$	-	$	52,125	$	52,125

(i)

On January 9, 2013 the technology license agreement with Dalhousie University was terminated due to breach of contract for non-payment of maintenance amounts due and the asset value was written-off.

(ii)

The Company is currently pursuing a patent application for the compositions and methods of treating fibro proliferative disorders. Costs of this application incurred to date are $66,345 (2012 - $64,315). The application is still pending as at March 31, 2013, however due to a finite life of the patent which begins from the date of application; the Company is amortizing these costs over the expected life of the patent.

5. DUE TO SHAREHOLDERS

(a) Shareholder demand loan

Shareholders of the Company are owed $23,553 as at March 31, 2013 (December 31, 2012 - $45,553) consisting of short term amounts loaned to the company that are unsecured, non-interest bearing, and payable on demand.

(b) Due to shareholders

Due to shareholder balances are unsecured and non-interest bearing, with a due date of January 1, 2013. The balance as at March 31, 2013 was $202,470 (December 31, 2012 - $202,470). This loan is in default and due on demand.

6. CONVERTIBLE NOTES

On September 24, 2012 the Company issued a convertible note (“the Note”) with a face value of $30,000 plus 200,000 two year $0.22 warrants (Bonus Warrants) for $30,000 in cash. The Note has a term of one year and is repayable by the Issuer at any time. The holder of the Note may convert the whole note or any portion into units at any time. Each unit will consist of 1 common share (the Share Option) and 1 warrant (the warrant option), with each warrant option exercisable to acquire an additional common share for a period of 2 years from the date the warrant was issued. Subject to regulatory approval the conversion price per unit will be at a 25% discount to the ten day weighted average price of the issuer’s shares at the date of conversion. Subject to regulatory approval the exercise price per warrant option will be at a 25% premium to the ten day weighted average price of the issuer’s shares at the date of conversion. Each bonus warrant is exercisable to acquire an additional common share for a period of two years from the closing date at a price of $0.22. The Note accrues interest at the rate of 1% per month, payable in quarterly installments.

The estimated fair value of the share options was calculated on the grant date as $18,232.

Upon initial recognition, the Company bifurcated the $30,000 proceeds between the component parts of the convertible note using the relative fair value method with $12,317 allocated to convertible loan, $12,248 to share and warrant option (derivative liability) and $5,435 to warrant reserve.

The discount on the component parts of the convertible note are accredited as interest expense over the one year term of the note. As at March 31, 2013 the derivative liability was re-measured to fair value. This resulted in a loss on derivative liability being recognized on the face of the financial statements of $18,950 (December 31, 2012 - $18,641).

	31-Mar-13			31-Dec-12
Fair value	$	30,000		$	30,000
Unamortized debt discounts
Bonus warrants		(2,717	)		(4,076	)
Share conversion		(2,381	)		(3,582	)
Option conversion		(3,741	)		(5,613	)
	$	21,161		$	16,729

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

7. SHARE CAPITAL

Authorized

Unlimited

Class A common shares without par value

1,500,000

Class B Series I preferred shares without par value

1,000,000

Class B Series II preferred shares without par value

Issued

24,386,825

Class A common shares without par value

NIL

Class B Series I preferred shares without par value

NIL

Class B Series II preferred shares without par value

Class A Common Shares

On January 31, 2012 66,666 common share warrants with an exercise price of $0.15 were exercised by an officer of the company for 66,666 common shares and proceeds of $10,000.

On June 20, 2012, the Company completed a private placement of 732,670 units at $0.15 per unit for gross proceeds of $109,901. Each unit is comprised of one common share and one warrant to purchase one common share at $0.22 per share exercisable until June 20, 2014.

On June 20, 2012, certain finders were issued 56,666 units with the same terms as in the foregoing, which were valued at $8,500.

On February 7, 2013 the Company completed a private placement of 1,800,000 units at $0.05 per unit for gross proceeds of $90,000, with $30,000 relating to the share subscription received before the 2012 yearend. Each unit is comprised of one common share and one-half a purchase warrant, each warrant being exercisable for one common share at an exercise price of $0.22 until February 7, 2015.

SHARE SUBSCRIPTIONS RECEIVED

In December 2012 the Company received $30,000 for a share subscription for 600,000 units as part of a private placement of 1,800,000 units that was completed on February 7, 2013. The Company paid issue costs of $5,000 and issued 40,000 warrants to acquire common shares at $0.22 until February 7, 2015 valued at $2,030.

Stock options and share based compensation:

At March 31, 2013, the Company had 1,675,000 (December 31, 2012 - 1,675,000) stock options outstanding, of which 1,675,000 (2012 - 1,650,000) are exercisable, at a weighted average exercise price of $0.18 (2012 - $0.18) per common share, and expiring at various dates from October 31, 2014 to December 21, 2017.

As at March 31, 2013 and December 31, 2012, the following stock options were outstanding:

Expiry Date	Exercise Price $		31-Mar-13		31-Dec-12
31-Oct-14		0.27		150,000		150,000
4-Nov-14		0.27		150,000		150,000
5-Mar-15		0.27		375,000		375,000
1-Jun-15		0.27		75,000		75,000
3-Jul-17		0.10		475,000		475,000
21-Dec-17		0.10		450,000		450,000
Balance	$	0.17		1,675,000		1,675,000

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

The options outstanding and exercisable at March 31, 2013, have a weighted average remaining contractual life of 3.3 years (2012 – 3.5 years). Stock option activity was as follows:

	2013 - 3 months				2012 - 12 months
	Options Outstanding		Exercise Price $		Options Outstanding			Exercise Price $
Balance at January 1		1,675,000	$	0.17		1,650,000		$	0.25
Exercised		-		-		-			-
Expired/Cancelled		-		-		(1,000,000	)		0.24
Issued		-		-		1,025,000			0.10
Balance at period end		1,675,000	$	0.17		1,675,000		$	0.17

There were no stock options granted in the quarter ended March 31, 2013.

Warrants

As at March 31, 2013, the following share purchase warrants were issued and outstanding:

Expiry Date	Exercise Price $		31-Mar-13		31-Dec-12
1-Feb-13	$	0.15		-		2,473,334
28-Feb-13	$	0.25		-		60,000
1-Feb-14	$	0.15		2,473,334		-
28-Feb-14	$	0.25		60,000		-
16-May-13	$	0.15		-		600,000
16-May-14	$	0.15		600,000		-
15-Nov-13	$	0.15		602,223		602,223
20-Jun-14	$	0.22		732,670		732,670
20-Jun-14	$	0.22		56,666		56,666
21-Sep-14	$	0.22		747,166		747,166
24-Sep-14	$	0.22		200,000		-
12-Feb-15	$	0.22		1,000,000		-
				6,472,059		5,272,059

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

The warrants outstanding and exercisable at March 31, 2013, have a weighted average remaining contractual life of 1.1 years (2012 – 0.6 years). Warrant activity was as follows:

	March 31, 2013					December 31, 2012
	Outstanding			Weighted Average Exercise Price ($)		Outstanding			Weighted Average Exercise Price ($)
Balance, January 1, 2013		5,272,059			0.18		3,830,423			0.16
Expired		-			0.15		(28,200	)		0.10
Exercised		-			0.15		(66,666	)		0.15
Modified		(3,133,334	)		0.15		-			-
Modified		3,133,334			0.15		-			-
Issued		1,200,000			0.22		1,536,502			0.22
Balance, March 31, 2013		6,472,059			0.18		5,272,059			0.18

8. RELATED PARTY TRANSACTIONS AND BALANCES

All transactions with related parties are in the normal course of operations. Amounts due to or from related parties are in the normal course of operations.

Details of the transactions between the Company and its related parties are disclosed below:

(a) Related Party Transactions

	Three months ended 31-Mar-2013		Three months ended 31-Mar-2012
Accounting fees paid to a shareholder of the Company	$	7,500	$	4,500
Legal fees incurred from a consultant and director of the Company	$	-	$	3,200

(b) Related Party Balances

	31-Mar-2013		31-Dec-2012
Amounts in accounts payable and accrued liabilities owing to a consultant and director of the Company for legal services	$	18,575	$	18,575

Amount in accounts payable and accrued liabilities owing to a shareholder and director of the Company for unpaid salary and expenses	$	141,166	$	100,798

Amounts in accounts payable and accrued liabilities owing to a shareholder of the Company for accounting services	$	31,917	$	22,917

Balances are due on demand with no fixed term, security or interest.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

	Three months ended 31-Mar-2013		Three months ended 31-Mar-2012
Wages, salaries, and consulting fees	$	35,000	$	25,597
Share-based payments		-		11,564

Total key management personnel compensation	$	35,000	$	37,161

9. FINANCIAL INSTRUMENTS AND RISK

As at March 31, 2013, the Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, shareholder demand loan, a convertible note and a derivative liability. The convertible note has been bifurcated and presented in the financial statements using its component parts.

The fair value of cash and cash equivalents, accounts payable and accrued liabilities and shareholder demand loans approximate their carrying values because of the short term nature of these instruments. These are classified as level 1 in the fair value hierarchy.

The derivative liability is measured at fair value at the end of each reporting period. Because revaluation at fair value includes the use of valuation techniques, the derivative liability is classified as level 3 in the fair value hierarchy.

Credit Risk

Liquidity Risk

Liabilities Outstanding
On demand	$	264,899
0 – 30 days		30,831
31-90 days		9,898
91-365 days		227,198
Over 365 days		138,774
Total	$	671,600

Foreign Exchange Risk

The Company is not exposed to foreign exchange risk on its financial instruments.

Interest Rate Risk

At March 31, 2013 the Company is not exposed to significant interest rate risk as its interest bearing debt is at fixed rates.

Pacific Therapeutics Ltd.

(A Development Stage Company)

Notes to Financial Statements

Three Months Ended March 31, 2013 and 2012

11. SUBSEQUENT EVENTS

On April 4, 2013, the Company issued 350,000 five year stock options to purchase common shares of the company at $0.10 per share to various employees and directors and consultants. The Company used the Black-Scholes pricing model to determine the value of the options granted. The assumptions used in the Black-Scholes option pricing model for the 350,000 options granted were:

Dividend yield		0	%
Expected volatility		254.04	%
Risk free interest rate		1.19	%
Expected life in years		5
Fair value per share	$	10

On May 1, 2013, the Company closed the second tranche of a non-brokered private placement and issued an additional 2,200,000 units at $0.05 per unit for gross proceeds of $110,000. When combined with the first tranche the Company has issued a total of 4,000,000 units for gross proceeds of $200,000. Each unit was comprised of one common share and one-half a purchase warrant. Each whole warrant may be exercised for $0.22 to purchase one common share for a period of two years from closing. The Company will pay finder’s fees of $6,000 and issue 260,000 finders warrants total to finders in the second tranche. He finders’ warrants have the same terms as the warrants that are part of the above Units.