UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended May 31, 2018
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to ______
Commission file number 000-54500
Cell MedX Corp.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
38-3939625 (I.R.S. Employer Identification No.) |
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123 W. Nye Ln, Suite 446 Carson City, NV (Address of principal executive offices) |
89706 (Zip Code) |
Registrant’s telephone number, including area code: (844) 238-2692
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
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None |
N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $0.001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
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 last 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange Act.
Larger accelerated filer |
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Accelerated filer |
[ ] |
Non-accelerated filer |
[ ] |
Smaller reporting company |
[X] |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $8,151,172 based on average of closing bid and ask for Cell MedX Corp. shares on November 30, 2017.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
Class |
Outstanding at September 13, 2018 |
common stock - $0.001 par value |
44,282,749 |
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Contents
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PART I
FORWARD LOOKING STATEMENTS
Unless the context otherwise requires, all references in this report to “Cell MedX,” “the Company,” “we,” “us,” or “our” are to Cell MedX Corp., collectively with its wholly owned subsidiary Cell MedX (Canada) Corp.
The information in this Annual Report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports we file with the Securities and Exchange Commission.
The forward-looking statements in this Form 10-K for the fiscal year ended May 31, 2018, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.
All forward-looking statements are made as of the date of the filing of this Form 10-K and we disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. We may, from time to time, make oral forward-looking statements. We strongly advise that the above paragraphs and the risk factors described in this Annual Report and in our other documents filed with the United States Securities and Exchange Commission should be read for a description of certain factors that could cause our actual results to materially differ from those in the oral forward-looking statements. We disclaim any intention or obligation to update or revise any oral or written forward-looking statements whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS.
GENERAL
We were incorporated as Plandel Resources, Inc. under the laws of the State of Nevada on March 19, 2010. On March 24, 2014, we changed our name to Sports Asylum, Inc. and on September 30, 2014, we changed our name to Cell MedX Corp. to reflect our new business direction.
On November 25, 2014, we completed the acquisition of a proprietary method for the application of bioelectric signaling to treat diabetes and related ailments (the “eBalance Technology”). With our acquisition of the eBalance Technology, we have shifted our business direction to the discovery, development and commercialization of therapeutic and non-therapeutic products that promote general wellness and alleviate complications associated with medical conditions including, but not limited to, diabetes, Parkinson’s disease, and high blood pressure.
On April 26, 2016, we formed a subsidiary, Cell MedX (Canada) Corp., (the “Subsidiary”) under the laws of the Province of British Columbia, in anticipation of increased business activity in Canada. As of the day of this Annual Report on Form 10-K the Subsidiary is engaged in manufacturing and further development of eBalance Technology.
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BUSINESS OF CELL MEDX
eBalance Technology Acquisition
We acquired our proprietary technology for the use of microcurrents for the treatment of diabetes and related ailments, which we call eBalance Technology, on November 25, 2014, when we entered into a Technology Purchase Agreement with Jean Arnett and Bradley Hargreaves (the “Purchase Agreement”).
Pursuant to the Purchase Agreement, Ms. Arnett and Mr. Hargreaves sold to us all of their respective rights, title and interests in and to the eBalance Technology. In consideration for the sale of the eBalance Technology, we paid to Ms. Arnett and Mr. Hargreaves a total of $100,000 and issued to each of Ms. Arnett and Mr. Hargreaves options for the purchase of up to 10,000,000 shares (20,000,000 shares in total) of our common stock at an initial exercise price of $0.05 per share (the “Options”) of which Options to acquire up to 2,500,000 shares of our common stock vested on August 26, 2015.
On September 26, 2016, we entered into a letter agreement (the “Letter Agreement”) with Ms. Arnett and Mr. Hargreaves to, among other things, cancel Options to acquire up to 17,500,000 shares of our Common stock, representing unvested portion of the Options granted to Ms. Arnett and Mr. Hargreaves as at September 26, 2016.
eBalance Technology
eBalance Technology is based on the science of bioelectric signals, their affect on epigenetic events within human body, and ability to modify and affect the behavior of cells, tissue, and organs. Based on this technology Cell MedX is developing a radically different and very promising family of devices whose core technology demarcates it from the approaches currently in use and those in the “future advances” pipeline as reflected in current medical literature.
Microcurrent delivery devices used for the treatment of diabetic neuropathy and poor wound healing in diabetics have been in the marketplace for decades. However, the eBalance Technology can be distinguished from those devices, which have a limited utility and are not designed to treat diabetes at its core - the underlying metabolic disorder that leads to hyperglycemia and its sequelae. It is hoped that devices incorporating the eBalance Technology will effect changes much further “upstream” in the pathophysiology or natural history of diabetes. Not a “me too” device, nor an incremental improvement in an established realm, devices based on the eBalance Technology could, if proven through diligent research and development, open a new category of diabetes care.
The eBalance Technology is intended to expand the traditional healthcare model of managing diabetes, high blood pressure, Parkinson’s as well as some other pathological diseases, by enabling patients to manage their symptoms using a biosignal generating device that is simple to use, causes no discomfort, and can easily be incorporated into any lifestyle.
It is expected that the eBalance Technology will form the basis for a product line that will be available to aid in the management of diabetes mellitus (both Type 1 and Type 2), its complications, high blood pressure and some other pathologies, both as a professional clinic-based device and as a home use device.
A research and development plan adopted by the Company includes a series of investigations that allow to move the product from a prototype stage through a series of refinements and enhancements to achieve the safety and efficacy objectives of the device(s) upon which a set of claims intended for FDA, Health Canada and European Medical CE approval through the rigorous Pre-Market Approval (PMA) process is being constructed. The clinical observational trial the Company finalized during its Fiscal 2018 (the “Clinical Study”), and future planned clinical trials (see “Clinical Trials”, below) will allow us to define the final marketing claims for our eBalance products, and will become the foundation for sales & marketing efforts in subsequent phases. The results of the Clinical Study and our in-house observations of the effects of the eBalance technology on human body, suggested that our claims should not only focus on overall diabetes management, reductions in average blood sugar (HbA1C) as well as other markers that denote the degree and quality of blood sugar control, but can also encompass pain management, blood pressure control, and alleviation of symptoms associated with Parkinson’s disease.
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Scientific Foundations
Ion flows and transmembrane gradients produced by ion channels and pumps are key regulators of cell proliferation, migration, and differentiation. Instructive roles for bioelectrical gradients in embryogenesis, regeneration, and neoplasm are being revealed.
The application of electromagnetic forces to human tissues to effect biologic change has been explored since the 19th century. A good deal of that was wishful thinking or deliberate deception. However, recent advances in molecular biology and imaging technology have allowed insight into the sources and downstream consequences of ion flows in complex organisms. In complement to the current focus on molecular genetics and stem cell biology, artificial modulation of bioelectrical signals in somatic tissues is a powerful modality that might result in profound advances in understanding and augmentation of regenerative capacity. Molecular bioelectricity and its role in cell-to-cell signaling and epigenetics (altering cell behavior without altering genes) provides a new pathway to discovery of technologies that can counteract the effects of many diseases.
Many cells in the human body are “electrically excitable” including those involved with production of chemical signals that affect blood sugar. One example of such a cell of the endocrine type is the L cell, which resides in the gut and secretes cell glucagon-like peptide-1 (GLP-1), glucagon-like peptide-2 (GLP-2), peptide YY (PYY) and oxyntomodulin. GLP-1 is an enteric hormone that stimulates insulin secretion and improves glycaemia in Type 2 diabetes. There is evidence that in Type 2 diabetes these cells become “unsynchronized”. Growing these cells in tissue culture and subjecting them to specific electrical signals can act to resynchronize their chemical activity, and alter their behavior as a “dispersed” metabolic organ. This serves as an illustration of how endogenous ion flows may serve as key epigenetic regulators of cell behavior, and suggests that bioelectric mechanisms might be harnessed at a whole organism level to cause functional regenerative changes. It is possible that the eBalance Technology may affect these processes, although that has yet to be established.
Market Opportunity - Diabetes and its Complications
Diabetes is a severe and debilitating disease with profound consequences, both for the individual and for society. The complications of diabetes are devastating, and the economic costs of care comprise a substantial portion of health care budgets. Despite the best efforts of the scientific community to devise a cure, the incidence of diabetes is on the rise. According to the information published by International Diabetes Association (“IDA”) in its Diabetes Atlas [1] , in 2015 there were 415 million people living with diabetes worldwide and a further 318 million people were at high risk of developing diabetes. These numbers were expected to grow to 642 million and 481 million, respectively, by 2040. It is estimated that each year 86,000 new cases of juvenile diabetes are being diagnosed.
Diabetes mellitus (DM) is a heterogeneous group of metabolic disorders characterized by hyperglycemia (high blood sugar levels) with impaired metabolism of carbohydrate, fat and proteins resulting from defects in insulin secretion, insulin action, or both. Diabetes is one of the world’s oldest diseases with the syndrome being discovered centuries ago. The worldwide increase in the prevalence of diabetes has highlighted the need for increased research efforts into treatment options for both the disease itself and its associated complications.
Type 1 diabetes is caused by destruction of the insulin secreting (beta) cells of the pancreas. The pathogenesis involves autoimmune processes that lead to an absolute insulin deficiency. Type 2 diabetes is caused by a combination of genetic and non-genetic factors that result in insulin resistance and insulin deficiency. Non-genetic factors include increasing age, high caloric intake, obesity, central adiposity, sedentary lifestyle, and low birth weight. This group comprises approximately 90-95% of cases in the diabetes syndrome.
Chronic hyperglycemia leads to various metabolic, hormonal, and physiologic alterations in the body, which further develop a number of secondary complications, resulting in the major increases in morbidity and mortality seen with all types of diabetes. Diabetes dramatically increases the risk of cardiovascular problems, such as coronary artery disease, chest pain (angina), heart attack, stroke, narrowing of arteries (atherosclerosis) and high blood pressure.
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[1] International Diabetes Federation. (2015). IDF Diabetes Atlas - Seventh Edition, 12 and 52.
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High blood sugar over time can injure the walls of the tiny blood vessels (capillaries) that nourish nerves, especially in the legs, causing tingling, numbness, burning or pain. Gradually, all sensation can be lost. Nerve damage in the feet or poor blood flow to the feet increases the risk of various foot complications. In diabetics, minor wounds easily become serious infections, which may heal poorly. Severe damage might require toe, foot or leg amputation.
Diabetes can damage the blood vessels of the retina (diabetic retinopathy), potentially leading to blindness. It also increases the risk of other serious vision conditions, such as cataracts and glaucoma. Diabetic hypertension is a major contributor to kidney failure or irreversible end-stage kidney disease, which often requires dialysis or a kidney transplant.
Damage to the nerves that control digestion can cause problems with nausea, vomiting, diarrhea or constipation. For men, erectile dysfunction may be an issue. Diabetes may leave people more susceptible to a variety of skin disorders, including bacterial and fungal infections. Type 2 diabetes may increase the risk of Alzheimer's disease.
Expansion of Disease Focus
Given the size of the market for diabetes control and management, the current eBalance Technology has significant potential of success based solely on treating complications caused by diabetes. However, in order to capture a larger market share, the Company is looking into developing more specialized software / treatment options which will allow the Company to continue to grow its market share to allow to sustain the constant revenue streams. The Company anticipates that it will commence development of specialized software to target other ailments such as gout, hypertension, heart disease, neurological disorders, and depression, among others. As at the date of this Annual Report on Form 10-K, the Company has not determined the timeframe for rolling out such expansion, however, based on the in-house observations of the effects of the eBalance Therapy on human body, as well as positive response from the Clinical Study subjects, we feel that additional stress on research and fine-tuning of our eBalance devices to treat pain and control blood pressure would become a near-term priority.
High blood pressure is the number one risk factor for stroke and a major risk factor for developing a heart disease. Pain is perhaps the number one reason people seek professional medical help and take medications; it is what tells the brain that something is wrong and is caused in part by insufficient electrical charge in cells. Since eBalance therapy helps restore electrical charges to cells it allows for the rapid reduction or elimination of pain from many sources.
Empirical Modeling
The first-in-human observations took place over many years and were carefully documented. The results of these observations lead to the belief that a specific device with a specific set of bioelectric signals of known waveform, frequency, amplitude, pulse, and duration, accompanied by sensing circuits that respond to fluctuations in the body’s response, in a closed feedback loop, produced cumulative effects that led to remarkable global effects in functional aspects of living in a person who had lived with Type 1 diabetes since age 10. Casual trials in another person with longstanding diabetes, Type 2 in this case, yielded findings of a similar nature in a limited time frame. These observations were followed by broader observational studies by Cell MedX’s team.
Effects observed in these observational studies include subjective reports of diminished fatigue, improved cognition, diminished neuropathic limb pain, improved sleep, reduction in swelling of extremities, improved skin appearance in color and texture, and a reduction in visual disturbance. Objective measures included healing of wounds, control of blood pressure leading to discontinuation or reduction of medication, and greatly improved control of blood sugars with remarkable diminution in HbA1C (which reflects average blood sugar over months). Remarkably, in the context of Type 1 Diabetes with other potential variables remaining the same, insulin requirements diminished to a considerable degree.
Clinical Trials
During January through March 2015, we carried out a preliminary Pilot Trial (the “Pilot Trial”), which was designed to examine the short term metabolic impact of a single treatment with eBalance Technology on two diabetic subjects. Pre- and post-treatment blood samples from each subject were sent for extensive metabolic pathway analysis at the University of Alberta Metabolomics Unit.
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From those studies we observed alterations in several pathways, which are known to be deficient in persons with diabetes. The results of the Pilot Trial were notable in that significant shifts in metabolites related to blood sugar handling and disposal occurred in a very short time frame, with the only intervening variable being a 10-minute treatment with eBalance Technology.
The findings from the Pilot Trial were then used to inform further experimentation, including selection of metabolic end points for testing during a Phase IB clinical trial, which we started preparations for in July 2015. Due to shortage in available funding, we decided to temporarily postpone the Phase IB clinical Trial.
During the fourth quarter of our fiscal 2016 we engaged Nutrasource Diagnostics Inc. (“Nutrasource”) to commence observational clinical trial in Canada (“Clinical Study”) to assess and quantify eBalance technology’s ability to alter key metabolic pathways while targeting improved blood sugar control.
During our Fiscal 2017, the Company, with the assistance of Nutrasource, secured the main research facility in Hamilton, Ontario, completed and submitted for review by the ethics board the investigational protocol as well as informed consent documentation.
Based on finalized investigational protocol the Clinical Study was structured to assess the impact of three months of the eBalance therapy, as an adjunct treatment, on HbA1c in thirty (30) Type 1 and Type 2 diabetics. The secondary endpoints of the Clinical Study were defined to observe changes from baseline and medical history of each Clinical Study subject in the following;
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Insulin sensitivity
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Diabetic neuropathy
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Diabetic foot pain and numbness
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Wound healing
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Blood pressure
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Kidney function
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Any other changes reported by patients
The Company received Health Canada ’ s approval to commence the Clinical Study on January 12, 2017. The approval from the Ethics Review Board was received on January 30, 2017. With all required approvals in place, Dr. Richard Tytus, the Lead Investigator on the Study, and his team at Hamilton Medical Research Group commenced screening for qualified subjects in late February of 2017.
In-patient phase of the Clinical Study was completed on July 24, 2017, and a final clinical report was submitted to Health Canada for final approval on January 19, 2018.
All 30 subjects (100%) taking part in the Clinical Study followed through to completion. The treatment was considered safe for the purposes of the Clinical Study. There were no significant treatment-related adverse events or negative abnormalities in routine hematology, biochemistry, vital signs or physical findings for the duration of the Clinical Study.
The Clinical Study resulted in several encouraging trends spanning a vast array of areas including HbA1c and secondary efficacy endpoints as noted above.
Diabetes
As mentioned above, the Clinical Study, tested the effectiveness of the eBalance therapy as an adjunct treatment for diabetes and related complications in Type 1 and Type 2 diabetics over three months. The results of the Clinical Study show that after three months of eBalance treatments, average fasting blood glucose levels declined by 12.3% from 10.5 to 9.2 millimoles per litre. Plasma insulin declined by 46.7% from 168 to 78 picomoles per litre. These results indicate that, on average, the blood glucose uptake was increased and that less insulin was required to achieve that uptake. HbA1c levels declined by 0.16% from 8.36% to 8.20%. A longer double-blind, placebo controlled study may be conducted in the future to determine if the HbA1c levels would be further reduced over a period of time that is longer than the life span of red blood cells.
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Blood pressure
After seven weeks of treatments, systolic pressure, the higher amount of pressure in the arteries during the contraction of the heart muscle, declined by 9.6% from 142 to 128 millimeters of mercury and stabilized at the lower level through to the end of the Clinical Study. During the same period, diastolic pressure, the pressure in the arteries when the heart muscle is between beats, and which is usually represented by a lower number, declined by 10.4% from 78 to 70 millimeters of mercury and also remained at the lower level. The Company has been encouraged to undertake further studies on subjects with higher blood pressures to determine if a proportional effect is obtained.
Pain and numbness
Neuropathy is nerve damage that can occur with diabetes as a result of high blood glucose levels and high blood pressure. The damage most often affects the extremities and causes pain, tingling or numbness in the hands, arms, legs and feet. Only two subjects suffered from pain at the beginning of the Clinical Study and both reported feeling either less pain or reduced coldness or numbness in their extremities. These findings support the Company’s in-house informal observation and testing results with a number of people who have used eBalance device. Future studies may recruit subjects who are experiencing pain and loss of feeling.
Kidney function (Nephropathy)
Nephropathy is damage caused to the small blood vessels in the kidneys by high blood glucose levels and high blood pressure that prevents them from functioning properly or even causes them to fail completely. When the blood vessels in the kidneys are injured, the kidneys cannot clean the blood properly. The body will retain more water and salt than it should, which can result in weight gain and edema. The decrease in eGFR (estimated glomerular filtration rate) observed in the Clinical Study and a reduction in edema seen in our informal testing may warrant further investigation to assess the effect of eBalance treatments on kidney function in diabetics.
Product Development
On October 1, 2015, we entered into a development agreement with Mr. Claudio Tassi (the “Development Agreement”) for the development of the first eBalance Professional Series Device (the “Prototype”). Based on the Development Agreement we agreed to pay Bioformed Aestetic SL ( “ Bio4Med ” ), a company Mr. Tassi is a director of, $12,848 (EURO € 12,000) and, upon successful completion of the development of the first eBalance Prototype, issue to Mr. Tassi 100,000 shares of our common stock. We received the first Prototype in November 2015.
On December 4, 2015, we executed a non-binding letter of intent (“LOI”) with Mr. Tassi and Bio4Med. The LOI contemplated that (i) we will enter into a technology development and license agreements with Mr. Tassi and Bio4Med to continue development of therapeutic devices based on the eBalance Technology; (ii) upon approval of the first Prototype, we will place an order for the production of 25 devices; and (iii) Mr. Tassi will provide his services for an initial term of four months commencing on December 4, 2015.
On December 15, 2015, as contemplated under the LOI, we ordered the first batch which consisted of 25 eBalance Pro devices with the same configuration as the original Prototype, which were manufactured in early 2016. These devices were designed as a stand-alone unit, controlled by proprietary software installed in an external computer specifically designed to be used with the eBalance device. Once internally tested, the devices were distributed to selected clinics and practitioners as well as used directly by the Company in our in-house observations to see the effects of the eBalance Therapy on the human body.
After several months of testing, we received a feedback from the clinicians and participants, which allowed for further refinement of the devices, which were limited to aesthetics and ease of use. The Company ordered from Bio4Med 20 units of the second generation eBalance device, which were received in December 2016. These devices were also distributed to practitioners for observations and further testing.
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In early 2017 the management decided to discontinue negotiations with Bio4Med on technology development and license agreements, as contemplated under the LOI, and chose to move manufacturing of the eBalance devices to North America. The decision to move to Canada was the outcome of further research we had done on potential markets, tax implications of manufacturing the devices in Europe versus in Canada, cross border transfer pricing, availability of raw material and the control of the production processes. As such, in the fourth quarter of our Fiscal 2017, we entered into a production agreement with an ISO 9001 certified manufacturing facility in Coquitlam, BC, and selected North American suppliers for sourcing essential components.
In August of 2017 we entered into negotiations with Brek Technologies Inc. (“Brek”), a privately held company, to acquire a microcurrent technology, which compliments the microcurrent technology developed by us for our eBalance Pro devices. The negotiations were finalized on September 6, 2018, by the execution of a intellectual property royalty agreement, whereby we agreed to acquire certain developments and improvements for our eBalance devices developed by Brek in exchange for a perpetual royalty of USD$350 or CAD$350, depending on the currency the revenue is generated in, for each device sold, distributed, or licensed whether through a distributor, sales representative or directly by the Company.
On October 16, 2017, we entered into a production development agreement (the “Development Agreement”) with Western Robotics Ltd. (“Western Robotics”) with an objective to enhance our eBalance Pro Wellness device based on the new findings that became evident as part of the Clinical Study and the Company’s ongoing in-house observations. The Company agreed to pay Western Robotics CAD$250,000 as non-refundable engineering fee.
In order to continue our manufacturing in Canada and move forward with further development and improvements of our devices based on the eBalance Technology, we will require additional capital. We are planning to raise this capital through debt or equity financing or through a combination of both.
Medical Device Regulations and Government Approvals
The manufacture, packaging, marketing and importing of medical devices is heavily regulated in the United States, Canada and Europe. Further, we expect that any other countries in which we may seek to sell or market devices based on the eBalance Technology will similarly have an extensive regulatory environment.
The U.S. Food and Drug Administration’s (FDA) Center for Devices and Radiological Health (CDRH) is responsible for regulating firms that manufacture, repackage, re-label and/or import medical devices sold in the United States. Health Canada’s Health Products and Food Branch Inspectorate is responsible for regulating the manufacture, labeling, packaging, distribution and import of medical devices sold in Canada.
Prior to selling any devices based on the eBalance Technology for the treatment in the United States or Canada, we will be required to make applications to obtain approval from the FDA and Health Canada, respectively. The type of application and complexity of the procedures for obtaining FDA and Health Canada approval will depend upon the classification of the devices that we develop under the provisions of the United States Food and Drugs Act of 1906, as amended, and the Food and Drugs Act (Canada), as amended, respectively, and related regulations.
To assist us with the certifications we have partnered with several providers specializing in the certification process for medical devices, who are assisting us with our pre-market 510K application with FDA and Class 2 certification with Health Canada. It is expected that both certifications will be secured in the third quarter of our Fiscal 2018. Due to the globalization of medical device certification standards, the current certification work will also allow the Company to start selling its devices to Brazil, Australia, Japan and Europe.
Third Party Payers / Private Insurers
Reimbursement for medical devices through Medicare and Medicaid in the U.S., and through health protectorates in other nations, is not guaranteed. Third party private payers or private insurers typically follow the lead of government healthcare providers. A decision as to whether a device or treatment is covered involves extensive negotiations and is typically predicated on the concept of health cost savings. If the device can be shown to reduce health care costs through prevention of expensive complications of diabetes, such applications for approvals would be more favorably reviewed.
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Marketing Plans
Once approved for marketing, we intend to market eBalance devices incorporating the eBalance Technology through authorized dealers and distributors of medical equipment to professional / institutional users. With the limited number of eBalance devices currently being built, the Company’s marketing team has established that leasing the devices to various clinics on per-treatment basis would provide the best return on investment, and will allow for the opportunity to collect recurring revenue.
As of the date of this Annual Report on Form 10-K we have specified several geographical zones, which we are planning to assign to certain distributors. On September 10, 2018, the Company entered into a non-binding letter of intent (the “LOI”) with Live Current Media, Inc. (“LIVC”), an arms-length party, for worldwide distribution rights to eBalance devices for home-based usage. Pursuant to the LOI, we agreed to enter into discussions with LIVC to arrive at the definitive agreement within a period of 90 days from the execution of the LOI. As consideration for the signing of the LOI, LIVC advanced us $250,000 as a one-time refundable deposit.
Competition
The current market for treatments that assist in the control and management of diabetes and its complications is highly competitive. However, since our technology is based on the microcurrent therapy, which is not traditionally used for management of diabetes, direct competition for eBalance Technology is not well defined.
Indirect competitors include a multitude of pharmaceutical companies that produce insulin and other various drugs to maintain and prevent diabetes related complications; companies producing glucose monitoring devices.
Competitors in microcurrent therapy would include BodiHealth Systems, focusing on pain relief market in US; Electromedical Products International, Inc., the company that developed Alpha-Stim® PPM, which treats and alleviates acute, chronic or postoperative pain using microcurrent therapy.
Patents/Trade Marks/Licenses/Franchises/Concessions/Royalty Agreements or Labor Contracts
Our eBalance Technology is not patented. As of the date of the filing of this Annual Report on Form 10-K, we are in the process of determining the best possible options for securing the proprietary technology represented by the eBalance Technology.
To secure the use of the term “eBalance” during the year ended May 31, 2018 we applied for trademark protection in Canada, the Unites States, Europe and the UK.
On September 6, 2018, we entered into an IP Royalty Agreement with an IP Vendor. Pursuant to the IP Royalty Agreement the Company agreed to acquire certain additional developments and improvements for its eBalance devices that were developed by the IP Vendor in exchange for a perpetual royalty of USD$350 or CAD$350, depending on the currency the revenue is generated in, for each device sold, distributed or licensed whether through a distributor, sales representative or by the Company itself.
Also on September 6, 2018, we entered into a Royalty Agreement with Mr. Richard Jeffs, our former major shareholder. Pursuant to the Royalty Agreement, the Company agreed to pay Mr. Jeffs, in perpetuity, a 10% royalty on the revenue the Company receives from its distributors or end-users introduced to the Company by Mr. Jeffs.
Number of Total Employees and Number of Full Time Employees
We currently have no employees other than our executive officers, who provide their services as independent consultants. We contract for the services of medical and technical staff we require to administer our observational studies and the clinical trials, as well as other consultants on “as needed” basis.
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ITEM 1A. RISK FACTORS.
There is a high degree of risk associated with buying our common stock. Prospective investors should carefully read this Annual Report on Form 10-K and consider the following risk factors when deciding whether to purchase our shares. These are speculative stocks and should be purchased by only those who can afford to lose their entire investment.
The risk factors outlined below are some of the known, substantial, material and potential risks that could adversely affect our business, financial condition, operating results and common share value. We cannot assure that we will successfully address these or any unknown risks and a failure to do so can have a negative impact on your investment. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.
Risks Associated with our Company and our Industry
We operate in a highly competitive market. We face competition from large, well established medical device manufacturers and pharmaceutical companies in the market for treating and managing diabetes and related ailments. Many of these companies are very well accepted by health practitioners and have significant resources, and we may not be able to compete effectively.
The market for treatment and management of diabetes and related ailments is intensely competitive, subject to rapid change and significantly affected by new product introductions. We compete indirectly with large pharmaceutical and medical device companies, such as Bayer Corp., Becton Dickinson Corp., LifeScan Inc., a division of Johnson & Johnson, the MediSense Inc. and TheraSense Inc. These competitors’ products are based on traditional healthcare model and are well accepted by health practitioners and patients. If these companies decide to penetrate our target market they could threaten our position in the market.
We are subject to numerous governmental regulations which can increase our costs of developing the eBalance Technology and products based on this technology.
Our products will be subject to rigorous regulation by the FDA, Health Canada and numerous international, supranational, federal, and state authorities. The process of obtaining regulatory approvals to market a medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, our products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that we will remain in compliance with applicable FDA, Health Canada and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and postmarketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns.
Changes in the health care regulatory environment may adversely affect our business.
A number of the provisions of the U.S. Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and its amendments changed access to health care products and services and established new fees for the medical device industry. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. We cannot predict the timing or impact of any future rulemaking.
9
Inability to protect and enforce our intellectual property rights could adversely affect our financial results.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to our business. An inability to defend, protect and enforce our intellectual property rights could adversely affect our financial results, even if we are successful in developing and marketing products based on the eBalance Technology. In addition, an adverse outcome in any litigation or interference proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. In addition, a finding that any of our intellectual property rights are invalid could allow our competitors to more easily and cost-effectively compete. Thus, an unfavorable outcome in any patent litigation or interference proceeding could have a material adverse effect on our business, financial condition or results of operations.
The cost to us of any patent litigation or interference proceeding could be substantial. Uncertainties resulting from the initiation and continuation of patent litigation or interference proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and interference proceedings could also absorb significant management time.
Competitors' intellectual property may prevent us from selling our products or have a material adverse effect on our future profitability and financial condition.
Competitors may claim that our technology infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require us to enter into license agreements. We cannot guarantee that we would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject us to significant damages or an injunction preventing the manufacture, sale or use of our product. Any of these events could have a material adverse effect on our profitability and financial condition.
Our research and development efforts may not result in the development of commercially successful products based on our eBalance Technology, which may hinder our profitability and future growth.
We continue to further research our eBalance Technology and development products based on the technology. In order to develop commercially marketable products, we will be required to commit substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. We must make ongoing substantial expenditures without any assurance that our efforts will be commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. Planned products may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.
Even if we successfully develop marketable products or commercially develop our current technology, we may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations.
Innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether our products under development will be launched, whether we will be able to develop, license, or otherwise acquire new products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, causing our revenues and operating results to suffer.
New products and technological advances by our competitors may negatively affect our results of operations.
Our products face intense competition from our competitors. Competitors' products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than our products. We cannot predict with certainty the timing or impact of the introduction of competitors' products.
10
Significant safety concerns could arise for our products, which could have a material adverse effect on our revenues and financial condition.
Health care products typically receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety issues are reported, we may be required to amend the conditions of use for a product. For example, we may be required to provide additional warnings on a product's label or narrow its approved intended use, either of which could reduce the product's market acceptance. If serious safety issues arise with our product, sales of the product could be halted by us or by regulatory authorities. Safety issues affecting suppliers' or competitors' products also may reduce the market acceptance of our products.
Inability to attract and maintain key personnel may cause our business to fail.
Success depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the healthcare industry to recruit and retain competent employees and consultants. If we cannot maintain qualified personnel to meet the needs of our anticipated growth, we could face material adverse effects on our business and financial condition.
We are recently formed, lack an operating history and to date have generated only minimal revenues. If we cannot increase our revenues to start generating profits, our investors may lose their entire investment.
We are a recently formed company and to date have generated only minimal revenues. No profits have been made to date and if we fail to make any then we may fail as a business and an investment in our common stock will be worth nothing. We have a very limited operating history and thus our progress as well as potential future success cannot be reasonably estimated. Success has yet to be proven and financial losses should be expected to continue in the near future and at least until such time that we enter commercial production of devices based on the eBalance Technology, of which there is no assurance. As a new business, we face all the risks of a ‘start-up’ venture including unforeseen costs, expenses, problems, and management limitations and difficulties. Since inception, we have accumulated deficit of $6,050,841 and there is no guarantee, that we may ever be able to turn a profit or locate additional opportunities, hire additional management and other personnel.
We need to acquire additional financing or our business will fail.
We must obtain additional capital or our business will fail. In order to continue development of our eBalance Technology and to successfully complete observational and clinical trials, we must secure more funds. Currently, we have very limited resources and have already accumulated a deficit; aside from the refundable deposit we have received from Live Current Media Inc. as consideration for LOI, we have no immediate sources of financing. Financing may be subject to numerous factors including investor sentiment, acceptance of our technology and so on. We may also have to borrow large sums of money that require substantial capital and interest payments.
Risks related to our stock
We expect to raise additional capital through the offering of more shares, which will result in dilution to our current shareholders.
Raising additional capital through future offerings of common stock is expected to be necessary for our Company to continue. However there is no guarantee that we will be successful in raising additional capital. Issuance of additional stock will increase the total number of shares issued and outstanding resulting in decrease of the percentage interest held by each of our shareholders.
There is a limited market for our common stock meaning that our shareholders may not be able to resell their shares.
Our common stock currently has a limited market which may restrict shareholders’ ability to resell their stock or use their stock as collateral. Thus, the shareholders may have to sell their shares privately which may prove very difficult. Private sales are more difficult and often give lower than anticipated prices.
11
Should a larger public market develop for our stock, future sales of shares may negatively affect their market price.
Even if a larger market develops, the shares may be sparsely traded and have wide share price fluctuations. Liquidity may be low despite there being a market, making it difficult to get a return on the investment. The price also depends on potential investor’s feelings regarding the results of our operations, the competition of other companies’ shares, our ability to generate future revenues, and market perception about future of microcurrent technologies.
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.
Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
·
contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
·
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;
·
contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
·
contains a toll-free telephone number for inquiries on disciplinary actions;
·
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
·
contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
We have not paid nor anticipate paying cash dividends on our common stock.
We have not declared any dividends on our common stock during the past two fiscal years or at any time in our history. The Nevada Revised Statutes (the “NRS”), provide certain limitations on our ability to declare dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
12
(a)
we would not be able to pay our debts as they become due in the usual course of business; or
(b)
except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution.
We do not expect to declare any dividends in the foreseeable future as we expect to spend any funds legally available for the payment of dividends on the development of our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our principal executive office is located at 123 W. Nye Ln, Suite 446, Carson City, NV 89706. Our Subsidiary’s principle office is located at 820 - 1130 West Pender Street, Vancouver, BC V6E 4A4. Other than these offices, we do not currently maintain any other facilities, and do not anticipate the need for maintaining other facilities at any time in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our properties or assets are the subject of any pending legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
Quotations for our common stock are entered on the OTC Link alternative trading system on the OTCQB marketplace under the symbol “CMXC”. The table below gives the high and low bid information for each fiscal quarter for the last two fiscal years. The bid information was obtained from OTC Markets Group Inc. and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
HOLDERS OF RECORD
As of September 10, 2018, we had approximately 48 holders of record, according to a shareholders’ list provided by our transfer agent as of that date. The number of registered shareholders does not include the beneficial owners of common stock held in street name. The transfer agent for Cell MedX’s common stock is Pacific Stock Transfer Company with an address at 6725 Via Austi Pkwy, Suite 300 Las Vegas, NV 89119 and their telephone number is 702-361-3033.
DIVIDENDS
We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends in the foreseeable future. We plan to retain our earnings, if any, to provide funds for the expansion of our business.
Our Articles of Incorporation and Bylaws do not contain any restrictions limiting our ability to declare dividends. Section 78.288 of the Nevada Revised Statutes prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
(a)
we would not be able to pay our debts as they become due in the usual course of business; or
(b)
our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution.
RECENT SALES OF UNREGISTERED SECURITIES
During our fiscal year ended May 31, 2018, and up to the date of the filing of this Annual Report on Form 10-K we had the following unregistered sales of our equity securities:
·
On August 24, 2017, we granted options to purchase up to 300,000 common shares of the Company to our CFO and up to 1,750,000 common shares of the Company to our consultants. The options vested immediately and may be exercised at a price of $0.35 per share for a period of five years expiring on August 24, 2022.
14
The fair values of the options granted to the CFO and to consultants were calculated to be $89,556 and $522,407, respectively, and were determined using the Black-Scholes Option pricing model at the grant date.
The options were granted pursuant to the provisions of Regulation S of the United States Securities Act of 1933, as amended (the “Act”) to the persons who are not residents of the United States and are otherwise not “U.S. Persons” as that term is defined in Rule 902(k) of Regulation S of the Act.
·
On October 12, 2017, we closed our non-brokered private placement offering (the “ Offering ” ) at a price of $0.25 per unit (each "Unit"), by issuing 1,480,000 Units for total gross proceeds of $370,000.
Each Unit sold under the Offering consisted of one common share and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
The Units were issued pursuant to the provisions of Regulation S of the United States Securities Act of 1933, as amended (the “ Act ” ) to the persons who are not residents of the United States and are otherwise not “ U.S. Persons ” as that term is defined in Rule 902(k) of Regulation S of the Act.
·
On October 12, 2017, we completed our debt restructuring initiative by converting a total of $459,282 we owed under our notes payable and $120,254 under services payable into 2,318,144 shares of our common stock at $0.25 per share.
1,837,128 shares were issued pursuant to the provisions of Regulation S of the United States Securities Act of 1933, as amended (the “Act”) to the persons who are not residents of the United States and are otherwise not “U.S. Persons” as that term is defined in Rule 902(k) of Regulation S of the Act. Remaining 481,016 shares issued to a director of the Company were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D.
·
On February 7, 2018, we agreed to convert the CAD$75,000 deposit we received on distribution contract into 240,000 units of our common stock at a price of $0.25 per unit consisting of one common share and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year. The units were issued pursuant to the provisions of Regulation S of the United States Securities Act of 1933, as amended (the “Act”) to the persons who are not residents of the United States and are otherwise not “U.S. Persons” as that term is defined in Rule 902(k) of Regulation S of the Act.
PENNY STOCK RULES
The SEC has adopted regulations that regulate broker-dealer practices in connection with transactions in “penny stocks.” “Penny stocks” are generally defined as being any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. The application of the “penny stock” rules may affect your ability to resell our securities.
15
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10(f) of Regulation SK and are not required to provide the information required under this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K constitute "forward-looking statements". These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis" and elsewhere in this Form 10-K. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”).
General
The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.
Results of Operation
|
Year Ended May 31, |
Percentage Increase / |
|||
|
2018 |
2017 |
(Decrease) |
||
Sales |
$ |
- |
$ |
6,220 |
(100.0)% |
Cost of goods sold |
|
- |
|
(4,051) |
(100.0)% |
Gross margin |
|
- |
|
2,169 |
(100.0)% |
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
Amortization |
|
- |
|
123,046 |
(100.0)% |
Consulting fees |
|
773,473 |
|
284,655 |
171.7% |
General and administrative expenses |
|
235,307 |
|
400,298 |
(41.2)% |
Research and development costs |
|
418,319 |
|
297,043 |
40.8% |
Stock-based compensation |
|
108,472 |
|
117,483 |
(7.7)% |
Total operating expenses |
|
1,535,571 |
|
1,222,525 |
25.6% |
Other items |
|
|
|
|
|
Accretion expense |
|
- |
|
(22,972) |
(100.0)% |
Gain on forgiveness of debt |
|
- |
|
22,944 |
(100.0)% |
Interest |
|
(11,227) |
|
(29,062) |
(61.4)% |
Net loss |
$ |
(1,546,798) |
$ |
(1,249,446) |
23.8% |
16
Revenues
Our revenue during the years ended May 31, 2018 and 2017 was associated with the operations of our former wholly owned subsidiary, Avyonce Cosmedics Inc. (“Avyonce”), which we divested in January 2017. The revenue consisted of sales of spa equipment and consumable products. Due to the current concentration on research and development of our eBalance Technology and devices based on this technology, and to a small market share, we do not expect to have significant operating revenue in the near future.
Operating Expenses
During the year ended May 31, 2018, our operating expenses increased by 25.6% from $1,222,525 incurred during the year ended May 31, 2017, to $1,535,571 incurred during the year ended May 31, 2018. The most significant changes were as follows:
·
During the year ended May 31, 2018, our consulting fees increased by $488,818, from $284,655 we incurred during the year ended May 31, 2017 to $773,473 we incurred during the year ended May 31, 2018. The increase was mainly associated with a fair market value of the options to acquire up to 1,750,000 shares of our common stock we granted to our consultants for business development services.
·
Our research and development fees for the year ended May 31, 2018, increased by $121,276 from $297,043 we incurred during the year ended May 31, 2017, to $418,319 we incurred during the year ended May 31, 2018. The higher research and development fees during the current period were associated with our development agreement with Western Robotics, whom we engaged to assist us with enhancement of our eBalance Pro Wellness device. We paid Western Robotics $97,010 (CAD$125,000), and agreed to pay further CAD$125,000 upon approval and completion of the third generation eBalance Pro Device. In addition, we reclassified $151,448 in amortization fees charged on earlier eBalance prototype devices to research and development costs.
·
Our stock-based compensation for the year ended May 31, 2018, decreased by $9,011, from $117,483 we incurred during the year ended May 31, 2017, to $108,472 we incurred during the year ended May 31, 2018. The stock-based compensation included $89,556 (2017 - $Nil) in fair market value of the options to acquire up to 300,000 shares of our common stock we granted to Ms. Silina pursuant to the stock option agreement with her, and $18,916 (2017 - $105,883) in fair market value of the options to acquire up to 2,400,000 shares of our common stock we granted to Dr. Sanderson pursuant to his option agreement with us. The stock-based compensation for the year ended May 31, 2017, also included $11,600 in fair market value of the options to acquire up to 2,500,000 shares of our common stock we granted to Mr. McEnulty pursuant to the stock option agreement with him.
·
Our general and administrative fees for the year ended May 31, 2018, decreased by $164,991, or 41.2%, from $400,298 we incurred during the year ended May 31, 2017, to $235,307 we incurred during the year ended May 31, 2018. The largest factors that contributed to this change were associated with decreased corporate communication fees of $5,654 (2017 - $218,341), travel and entertainment expenses of $8,766 (2017 - $31,658), professional fees of $11,062 (2017 - $20,737), and office expenses of $8,869 (2017 - $15,938). These decreases were in part offset by increased management fees of $120,658 (2017 - $55,200), as a direct result of us appointing a new CEO and director, Mr. Owen, who resigned from all his positions with the Company effective April 30, 2018, and by increased accounting and audit fees of $31,149 (2017 - $29,940). Our foreign exchange expense increased by $22,449 to $20,720, as compared to $1,729 loss we incurred during the year ended May 31, 2017.
·
During the year ended May 31, 2017, we recorded $123,046 in amortization on our equipment we use in observations and research and development. During the year ended May 31, 2018, we reclassified $151,448 in amortization expense to research and development fees.
17
Other Items
·
During the year ended May 31, 2018, we accrued $11,227 (2017 - $29,062) in interest associated with the outstanding notes payable. Of this interest, $5,973 (2017 - $7,919) was accrued on notes payable we issued to Mr. Jeffs, a former major shareholder.
·
During the year ended May 31, 2017, we recorded $22,972 in accretion expense which resulted from the difference between the 6% stated interest rate and the 77.51% implied interest rate we used to determine the fair value of the proceeds we received pursuant to the $50,000 term loan with Mr. Jeffs. The term loan was fully accreted as at March 3, 2017, as such, we did not record any accretion expense during the year ended May 31, 2018.
·
During the year ended May 31, 2017, we recorded $22,944 as gain on forgiveness of debt with Rizalina Raneses, the former officer and a former major shareholder of the Company.
Liquidity and Capital Resources
Working Capital
|
Year Ended May 31, |
Percentage Increase / |
|||
|
2018 |
2017 |
(Decrease) |
||
Current assets |
$ |
45,259 |
$ |
100,157 |
(54.8)% |
Current liabilities |
|
1,118,677 |
|
1,463,055 |
(23.5)% |
Working capital deficit |
$ |
(1,073,418) |
$ |
(1,362,898) |
(21.2)% |
As of May 31, 2018, we had a cash balance of $8,200, a working capital deficit of $1,073,418 and cash flows used in operations of $449,427 for the year then ended. During the year ended May 31, 2018, we funded our operations with $370,000 we received from subscriptions to the units of our common stock, which we issued on October 12, 2017, $34,840 (CAD$45,000) we received from Mr. Jeffs, a former major shareholder, and $6,000 we received from an unrelated party. See “ Net Cash Provided By Financing Activities ”.
We did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the year ended May 31, 2018. The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under our remaining notes payable. There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under these notes and advances payable, or to service our other debt obligations. If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources. The outcome of these matters cannot be predicted with any certainty at this time and raises substantial doubt that we will be able to continue as a going concern.
Cash Flows
|
Year Ended May 31, |
|||
|
2018 |
2017 |
||
Cash flows used in operating activities |
$ |
(449,427) |
$ |
(754,059) |
Cash flows used in investing activities |
|
- |
|
(110,234) |
Cash flows provided by financing activities |
|
388,136 |
|
904,226 |
Effects of foreign currency exchange on cash |
|
1,997 |
|
- |
Net increase (decrease) in cash during the period |
$ |
(59,294) |
$ |
39,933 |
18
Net Cash Used in Operating Activities
Net cash used in operating activities during the year ended May 31, 2018, was $449,427. This cash was primarily used to cover our cash operating expenses of $700,132, to increase our inventory by $6,016, and current assets by $1,407. In addition, we used our cash to reduce our accrued liabilities by $59,600. These uses of cash were offset by increases in our accounts payable and amounts due to related parties of $146,316 and $111,824, and $59,588 in unearned revenue associated with a deposit we received on eBalance distribution contract, which we have converted to units of our common stock on February 7, 2018.
Net cash used in operating activities during the year ended May 31, 2017, was $754,059. This cash was primarily used to cover our cash operating expenses of $985,625 and to increase our inventory by $4,318. These uses of cash were offset by decrease in our other current assets of $9,486, and by increases in our accounts payable and accrued liabilities of $85,303 and $42,675, respectively. In addition, we recorded $51,259 in unearned revenue associated with the deposits we received on the eBalance Pro Wellness devices, and $47,161 increase in amounts due to related parties.
Non-cash transactions
During the year ended May 31, 2018, our net loss was affected by the following expenses that did not have any impact on cash used in operations:
·
$108,472 in stock-based compensation, of which $89,556 was associated with the fair value of the options to purchase up to 300,000 shares of our common stock we granted to Ms. Silina, our CFO, as compensation for her services; and $18,916 was associated with the fair value of the options to purchase up to 2,400,000 shares of our common stock we granted to Dr. Sanderson, our Chief Medical Officer;
·
$522,407 in fair value of option to acquire up to 1,750,000 shares our common stock we issued for consulting services;
·
$197,263 in research and development fees associated with the cost of the prototype eBalance devices we expensed during the year ended May 31, 2018, as we did not foresee any future economic benefit from these devices, which were originally capitalized and amortized over a two-year period.
·
$11,227 in interest we accrued on the outstanding notes payable. Of this interest, $5,973 was accrued on the notes payable we issued to Mr. Jeffs, a former major shareholder. We also recorded $776 (2017 - $Nil) in financing fees associated with notes payable we issued to Mr. Jeffs.
·
$6,521 in unrealized foreign exchange, which resulted from fluctuations of Canadian dollar and European Euro denominated transactions.
During the year ended May 31, 2017, our net loss was affected by the following expenses that did not have any impact on cash used in operations:
·
$117,483 in stock-based compensation, of which $105,883 was associated with the fair value of the options to purchase up to 2,400,000 shares of our common stock we granted to Dr. Sanderson as compensation for his appointment as our Chief Medical Officer; and $11,600 was associated with the fair value of the options to purchase up to 2,500,000 shares of our common stock we granted to Mr. Frank McEnulty, our CEO and former President;
·
$29,062 in interest we accrued on the outstanding notes payable. Of this interest, $7,919 was accrued on the notes payable we issued to Mr. Jeffs, our former major shareholder;
19
·
$22,972 in accretion expense which resulted from the difference between the 6% stated interest rate and the 77.51% implied interest rate we used to determine the fair value of the proceeds we received pursuant to the $50,000 term loan with Mr. Jeffs (as of the date of the filing of this Annual Report on Form 10-K, the term loan is in default); and
·
$123,046 in amortization expense we recorded on the equipment we use in our research of the eBalance Technology.
The above non-cash expenses were offset by $22,944 we recorded as forgiveness of debt with Rizalina Raneses, the former officer and a former major shareholder of the Company, and by $5,798 in unrealized foreign exchange, which resulted from fluctuations of Canadian dollar denominated transactions.
Net Cash Provided by Financing Activities
During the year ended May 31, 2018, we borrowed a total of $34,840 (CAD$45,000) from a former major shareholder and $6,000 from an unrelated party. The loans are unsecured and payable on demand. The loan for a total of CAD$25,000 we received from Mr. Jeffs bears interest at 6% per annum, compounded monthly. The remaining CAD$20,000 we received from Mr. Jeffs, as part of the loan agreements with him, bear interest at 12% per annum, compounded monthly, and were subject to financing fees totaling $776 (CAD$1,000). In addition to the loans, we received $350,000 from subscriptions to the units of our common stock under the Offering, which we closed on October 12, 2017. During the same period we repaid net of $22,704 in non-interest bearing advances with an unrelated party.
On September 15, 2017, we received a notice from Mr. Jeffs that he had assigned the rights to $7,984 due to him under the demand notes payable and $54,516 due to him under the Term Loan to two unaffiliated parties. The assignees notified the Company of their intention to convert the debt acquired by them from Mr. Jeffs into the shares of the Company’s common stock as part of the proposed debt restructuring initiative (the “Debt Restructuring”), which we completed on October 12, 2017.
On February 8, 2017, we converted CAD$75,000 associated with a deposit on eBalance distribution contract we received in the first quarter of our Fiscal 2018 to units of our common stock at $0.25 per unit. The cash deposit we received was originally recorded as unearned revenue in net cash used in operating activities.
During the year ended May 31, 2017, we borrowed a total of $375,000 and $33,696 (CAD$45,000) from unrelated parties and $104,129 (CAD$136,500) from our former major shareholder. These loans are unsecured, payable on demand and bear interest at 6% per annum, compounded monthly. In addition to the loans, we received $33,901 in non-interest bearing advances from an unrelated party. During the same period we received $357,500 from subscriptions to the units of our common stock under the Offering, which we closed on October 12, 2016.
Net Cash Used in Investing Activities
We did not have any investing activities during the year ended May 31, 2018.
During the year ended May 31, 2017, we paid $110,234 for the equipment which is being used in our observational studies and further research and development of our eBalance Technology, of this amount $96,217(Euro 89,040) was associated with the manufacturing of our second generation eBalance Pro wellness devices.
Going Concern
The notes to our audited consolidated financial statements at May 31, 2018, disclose our uncertain ability to continue as a going concern. Our current business operations are in an early development stage and as such, we were able to generate only minimal revenue from the operations. Our research and development plans for the near future will require large capital expenditures, which we are planning to mitigate through equity or debt financing, or by requiring upfront deposits from our potential distributors, once we begin commercial production of our eBalance devices.
20
We have accumulated a deficit of $6,050,841 since inception and increased sales will be required to fund and support our operations. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our audited consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. We have applied our critical accounting policies and estimation methods consistently.
Principals of consolidation
The consolidated financial statements include the accounts of Cell MedX Corp. and our Subsidiary. On consolidation we eliminate all intercompany balances and transactions.
Foreign currency translations and transactions
Our functional and reporting currency is the United States dollar. We translate foreign denominated monetary assets and liabilities into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
The functional currency of our Subsidiary is the Canadian dollar. On consolidation, the Subsidiary translates the assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translates revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income. As of the date of this Annual Report on Form 10-K we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.
Revenue recognition
We recognize the revenue when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.
Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.
21
Research and development costs
We expense all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.
Accounts receivable
Receivables represent valid claims against debtors for services provided or goods sold on or before the balance sheet date and are reduced to their estimated net realizable value. An allowance for doubtful accounts is based on an assessment of the collectability of all past due accounts. At May 31, 2018 and 2017, our allowance for doubtful accounts was $Nil.
Long-lived assets
In accordance with ASC 360, “Property, Plant, and Equipment”, we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to:
·
significant decreases in the market price of the asset;
·
significant adverse changes in the business climate or legal factors;
·
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;
·
current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and
·
current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.
Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over 2 years.
Stock options and other share-based compensation
For equity awards, such as stock options, total compensation cost is based on the grant date fair value and for liability awards, such as stock appreciation rights, total compensation cost is based on the settlement value. We recognize the stock-based compensation expense for all awards over the service period required to earn the award, which is the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement.
Fair value of financial instruments
Our financial instruments include cash, amounts receivable, accounts payable, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values due to their short maturities.
22
Concentration of credit risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and accounts receivable and prepaid expenses.
At May 31, 2018, we had $8,200 in cash on deposit with a large chartered Canadian bank. As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions. We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash.
Recent accounting standards and pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to have a significant impact on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f) of Regulation SK and are not required to provide the information required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements |
|
|
|
|
Page No. |
Financial Statements |
|
F-1 |
|
F-2 |
|
Consolidated Statements of Operations for the years ended May 31, 2018 and 2017 |
F-3 |
Consolidated Statement of Stockholders’ Deficit for the years ended May 31, 2018 and 2017 |
F-4 |
Consolidated Statements of Cash Flows for the years ended May 31, 2018 and 2017 |
F-5 |
F-6 |
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Cell MedX Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cell MedX Corp. (the "Company") as of May 31, 2018 and 2017, the related consolidated statements of operations, stockholders' deficit and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
“DMCL”
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
We have served as the Company’s auditor since 2015.
Vancouver, Canada
September 13, 2018
F-1
CELL MEDX CORP.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
|
|
May 31, 2018 |
|
May 31, 2017 |
||
|
|
|
|
|
||
ASSETS |
|
|
|
|
||
|
|
|
|
|
||
Current assets |
|
|
|
|
||
Cash |
|
$ |
8,200 |
|
$ |
67,494 |
Inventory |
|
|
10,793 |
|
|
8,161 |
Other current assets |
|
|
26,266 |
|
|
24,502 |
Total current assets |
|
|
45,259 |
|
|
100,157 |
|
|
|
|
|
|
|
Equipment |
|
|
- |
|
|
193,571 |
Total assets |
|
$ |
45,259 |
|
$ |
293,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
Accounts payable |
|
$ |
594,716 |
|
$ |
447,600 |
Accrued liabilities |
|
|
20,600 |
|
|
80,200 |
Due to related parties |
|
|
334,317 |
|
|
342,847 |
Notes and advances payable |
|
|
117,459 |
|
|
541,298 |
Unearned revenue |
|
|
51,585 |
|
|
51,110 |
Total liabilities |
|
|
1,118,677 |
|
|
1,463,055 |
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000 shares authorized; 44,282,749 and 40,244,605 shares issued and outstanding at May 31, 2018 and 2017, respectively |
|
|
44,283 |
|
|
40,245 |
Additional paid-in capital |
|
|
4,916,201 |
|
|
3,294,224 |
Reserves |
|
|
14,400 |
|
|
- |
Accumulated deficit |
|
|
(6,050,841) |
|
|
(4,504,043) |
Accumulated other comprehensive income |
|
|
2,539 |
|
|
247 |
Total stockholders' deficit |
|
|
(1,073,418) |
|
|
(1,169,327) |
Total liabilities and stockholders' deficit |
|
$ |
45,259 |
|
$ |
293,728 |
The accompanying notes are an integral part of these audited consolidated financial statements.
F-2
CELL MEDX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
|
|
Year Ended May 31, |
||||
|
|
2018 |
|
2017 |
||
|
|
|
|
|
||
Revenue |
|
|
|
|
||
Sales |
|
$ |
- |
|
$ |
6,220 |
Cost of goods sold |
|
|
- |
|
|
4,051 |
Gross margin |
|
|
- |
|
|
2,169 |
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Amortization |
|
|
- |
|
|
123,046 |
Consulting fees |
|
|
773,473 |
|
|
284,655 |
General and administrative expenses |
|
|
235,307 |
|
|
400,298 |
Research and development costs |
|
|
418,319 |
|
|
297,043 |
Stock-based compensation |
|
|
108,472 |
|
|
117,483 |
Total operating expenses |
|
|
1,535,571 |
|
|
1,222,525 |
|
|
|
|
|
|
|
Other items |
|
|
|
|
|
|
Accretion expense |
|
|
- |
|
|
(22,972) |
Gain on forgiveness of debt |
|
|
- |
|
|
22,944 |
Interest |
|
|
(11,227) |
|
|
(29,062) |
Net loss |
|
|
(1,546,798) |
|
|
(1,249,446) |
|
|
|
|
|
|
|
Unrealized foreign exchange translation loss |
|
|
2,292 |
|
|
(1,300) |
Comprehensive loss |
|
$ |
(1,544,506) |
|
$ |
(1,250,746) |
|
|
|
|
|
|
|
Net loss per common share |
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.04) |
|
$ |
(0.03) |
|
|
|
|
|
|
|
Weighted average number of shares outstanding - basic and diluted |
|
|
42,310,992 |
|
|
36,859,737 |
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
CELL MEDX CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
|
|
|
Obligation |
Additional |
|
|
Accumulated Other |
|
|||||||
|
Common Stock |
to Issue |
Paid-in |
|
Deficit |
Comprehensive |
|
||||||||
|
Shares |
Amount |
Shares |
Capital |
Reserves |
Accumulated |
Income |
Total |
|||||||
|
|
|
|
|
|
|
|
|
|||||||
Balance - May 31, 2016 |
31,000,000 |
$ |
31,000 |
$ |
75,000 |
$ |
1,734,498 |
$ |
- |
$ |
(3,254,597) |
$ |
1,547 |
$ |
(1,412,552) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
- |
|
- |
|
- |
|
117,483 |
|
- |
|
- |
|
- |
|
117,483 |
Shares issued for cash |
2,383,333 |
|
2,383 |
|
- |
|
355,117 |
|
- |
|
- |
|
- |
|
357,500 |
Shares issued for debt |
6,711,272 |
|
6,712 |
|
- |
|
194,626 |
|
- |
|
- |
|
- |
|
201,338 |
Loss on debt settlement |
- |
|
- |
|
- |
|
805,353 |
|
- |
|
- |
|
- |
|
805,353 |
Issuance of shares subscribed |
150,000 |
|
150 |
|
(75,000) |
|
74,850 |
|
- |
|
- |
|
- |
|
- |
Gain on divesting of subsidiary |
- |
|
- |
|
- |
|
12,297 |
|
- |
|
- |
|
- |
|
12,297 |
Net loss for the year ended May 31, 2017 |
- |
|
- |
|
- |
|
- |
|
- |
|
(1,249,446) |
|
- |
|
(1,249,446) |
Translation to reporting currency |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(1,300) |
|
(1,300) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - May 31, 2017 |
40,244,605 |
|
40,245 |
|
- |
|
3,294,224 |
|
- |
|
(4,504,043) |
|
247 |
|
(1,169,327) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
- |
|
- |
|
- |
|
108,472 |
|
- |
|
- |
|
- |
|
108,472 |
Options issued for consulting fees |
- |
|
- |
|
- |
|
522,407 |
|
- |
|
- |
|
- |
|
522,407 |
Shares issued for cash |
1,480,000 |
|
1,480 |
|
- |
|
368,520 |
|
- |
|
- |
|
- |
|
370,000 |
Shares issued for debt |
2,318,144 |
|
2,318 |
|
- |
|
577,218 |
|
- |
|
- |
|
- |
|
579,536 |
Units issued on conversion of deposits |
240,000 |
|
240 |
|
- |
|
45,360 |
|
14,400 |
|
- |
|
- |
|
60,000 |
Net loss for the year ended May 31, 2018 |
- |
|
- |
|
- |
|
- |
|
- |
|
(1,546,798) |
|
- |
|
(1,546,798) |
Translation to reporting currency |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
2,292 |
|
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - May 31, 2018 |
44,282,749 |
$ |
44,283 |
$ |
- |
$ |
4,916,201 |
$ |
14,400 |
$ |
(6,050,841) |
$ |
2,539 |
$ |
(1,073,418) |
The accompanying notes are an integral part of these audited consolidated financial statements.
F-4
CELL MEDX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
|
Year Ended May 31, |
||||
|
2018 |
2017 |
|||
|
|
|
|
||
Cash flows used in operating activities: |
|
|
|
||
Net loss |
$ |
(1,546,798) |
|
$ |
(1,249,446) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
Accretion expense |
|
- |
|
|
22,972 |
Accrued interest on notes payable |
|
11,227 |
|
|
29,062 |
Amortization |
|
- |
|
|
123,046 |
Consulting fees - non-cash |
|
522,407 |
|
|
- |
Financing fees - non-cash |
|
776 |
|
|
- |
Gain on forgiveness of debt |
|
- |
|
|
(22,944) |
Unrealized foreign exchange |
|
6,521 |
|
|
(5,798) |
Research and development |
|
197,263 |
|
|
- |
Stock-based compensation |
|
108,472 |
|
|
117,483 |
Changes in operating assets and liabilities: |
|
|
|
|
|
Inventory |
|
(6,016) |
|
|
(4,318) |
Other current assets |
|
(1,407) |
|
|
9,486 |
Accounts payable |
|
146,316 |
|
|
85,303 |
Accrued liabilities |
|
(59,600) |
|
|
42,675 |
Unearned revenue |
|
59,588 |
|
|
51,259 |
Due to related parties |
|
111,824 |
|
|
47,161 |
Net cash flows used in operating activities |
|
(449,427) |
|
|
(754,059) |
|
|
|
|
|
|
Cash flows used in investing activities: |
|
|
|
|
|
Acquisition of equipment |
|
- |
|
|
(110,234) |
Net cash used in investing activities |
|
- |
|
|
(110,234) |
|
|
|
|
|
|
Cash flows provided by financing activities: |
|
|
|
|
|
Advances (repaid) payable |
|
(22,704) |
|
|
33,901 |
Proceeds from notes payable |
|
40,840 |
|
|
512,825 |
Proceeds from subscription to shares |
|
370,000 |
|
|
357,500 |
Net cash provided by financing activities |
|
388,136 |
|
|
904,226 |
|
|
|
|
|
|
Effects of foreign currency exchange on cash |
|
1,997 |
|
|
- |
Increase (decrease) in cash |
|
(59,294) |
|
|
39,933 |
Cash, beginning |
|
67,494 |
|
|
27,561 |
Cash, ending |
$ |
8,200 |
|
$ |
67,494 |
|
|
|
|
|
|
Non-cash financing transactions: |
|
|
|
|
|
Settlement of debt with shares |
$ |
579,536 |
|
$ |
- |
Units issued on conversion of deposits |
$ |
60,000 |
|
$ |
- |
The accompanying notes are an integral part of these audited consolidated financial statements.
F-5
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
MAY 31, 2018
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Cell MedX Corp. (the “Company”) was incorporated under the laws of the State of Nevada. On April 26, 2016, the Company formed a subsidiary, Cell MedX (Canada) Corp. (“Cell MedX Canada”) under the laws of the province of British Columbia.
The Company is in an early development stage focusing on the discovery, development and commercialization of therapeutic and non-therapeutic products that promote general wellness and alleviate complications associated with medical conditions including, but not limited to, diabetes, Parkinson’s disease, and high blood pressure.
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2018, the Company has not achieved profitable operations and has accumulated a deficit of $6,050,841. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and are presented in US dollars.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary, Cell MedX Canada. On consolidation, all intercompany balances and transactions are eliminated.
Reclassifications
Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current period’s presentation. These reclassifications had no net effect on the consolidated results of operations or financial position for any period presented.
Accounting estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-6
Foreign currency translations and transactions
The Company’s functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
The functional currency of Cell MedX Canada is the Canadian dollar. On consolidation, the subsidiary translates its assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translates its revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income/loss. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Revenue recognition
Revenue is recognized when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.
Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.
Research and development costs
The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.
F-7
Long-lived assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over two years. At May 31, 2018, the Company expensed the equipment as part of its research and development costs as future economic benefit of the equipment could not be readily determined.
Fair value measurements
The book value of cash, other current assets, accounts payable, accrued liabilities, notes and advances payable, due to related parties, and unearned revenue approximate their fair values due to the short term maturity of those instruments. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 -
quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 -
observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 -
assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended May 31, 2018 and 2017.
Stock options and other stock-based compensation
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees are recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share purchase options and the binomial option pricing model to determine the fair value of all stock based awards classified as liabilities. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
Recent accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
F-8
NOTE 3 - RELATED PARTY TRANSACTIONS
Amounts due to related parties, other than notes payable to related parties (Note 8) at May 31, 2018 and 2017:
|
May 31, 2018 |
|
May 31, 2017 |
||
Due to the former Chief Executive Officer (“CEO”) and director (2) |
$ |
54,275 |
|
$ |
-- |
Due to a director and former CEO and President (Notes 8 and 9) |
|
32,400 |
|
|
109,453 |
Due to the Chief Financial Officer (“CFO”) |
|
20,790 |
|
|
9,777 |
Due to the Vice President (“VP”), Technology and Operations |
|
59,035 |
|
|
55,781 |
Due to the former Chief Medical Officer |
|
81,059 |
|
|
81,059 |
Due to the former VP, Corporate Strategy |
|
86,758 |
|
|
86,777 |
Due to related parties |
$ |
334,317 |
|
$ |
342,847 |
These amounts are unsecured, due on demand and bear no interest.
During the years ended May 31, 2018 and 2017, the Company had the following transactions with related parties:
|
May 31, 2018 |
|
May 31, 2017 |
||
Management fees incurred to the former CEO and director(2) |
$ |
65,458 |
|
$ |
-- |
Management fees incurred to a director and former CEO and President |
|
43,200 |
|
|
43,200 |
Stock-based compensation incurred to the director and the former CEO and President |
|
-- |
|
|
11,600 |
Management fees incurred to the CFO |
|
12,000 |
|
|
12,000 |
Stock-based compensation incurred to the CFO (Note 9) |
|
89,556 |
|
|
-- |
Consulting fees incurred to the former VP, Corporate Strategy(1) |
|
-- |
|
|
32,649 |
Consulting fees incurred to the VP, Technology and Operations(1) |
|
47,067 |
|
|
47,614 |
Stock-based compensation incurred to the Chief Medical Officer |
|
18,916 |
|
|
105,883 |
Accrued interest expense incurred to a former significant shareholder (Note 8) |
|
5,973 |
|
|
7,919 |
Accretion expense associated with a loan agreement entered into with a former significant shareholder (Note 8) |
|
-- |
|
|
22,972 |
Total transactions with related parties |
$ |
282,170 |
|
$ |
283,837 |
(1)
On September 26, 2016, the Company entered into a letter agreement (the “Letter Agreement”) with Jean Arnett, the former VP of Corporate Strategy and a director, and Brad Hargreaves, the VP of Technology and Operations and a director, to cancel the unvested portion of the options granted to Ms. Arnett and Mr. Hargreaves by the Company (Note 9). In addition, the Company renegotiated its consulting arrangements with Ms. Arnett and Mr. Hargreaves. Based on the Letter Agreement, the Company has agreed to pay each of Ms. Arnett and Mr. Hargreaves CAD$5,000 per month, beginning effective August 1, 2016, for duration of six months.
On January 23, 2017, Ms. Jean Arnett resigned as the VP of Corporate Development and as a director of the Company.
The Company continues to pay Mr. Hargreaves CAD$5,000 per month for his consulting services which can be cancelled at any time.
(2)
On May 3, 2018, the Company entered into an agreement with Dr. Owen, its former CEO and a director, to extinguish the debt to Dr. Owen, in the amount of CAD$69,998. Pursuant to the agreement, the Company agreed to the following:
(i)
if the payment is made no later than May 17, 2018, a one-time cash payment of CAD$35,000 and a conversion of up to CAD$10,000 owed to Dr. Owen into common stock of the Company at then current private placement price; or
(ii)
if the payment cannot be made prior to May 17, 2018, the series of 12 monthly payments of CAD$5,833.17 each, and a conversion of up to CAD$15,000 owed to Dr. Owen into common stock of the Company at then current private placement price.
F-9
NOTE 4 - EQUIPMENT
During the year ended May 31, 2017, the Company received 20 eBalance Pro wellness devices. The Company paid the developer $96,217 ( € 89,040) for the devices. At May 31, 2018, the Company expensed the full cost of the equipment as part of its research and development costs.
|
May 31, 2018 |
|
May 31, 2017 |
||
Book value, beginning of the year |
$ |
193,571 |
|
$ |
207,083 |
Changes during the year |
|
(193,571) |
|
|
109,534 |
Amortization |
|
-- |
|
|
(123,046) |
Book value, end of the year |
$ |
-- |
|
$ |
193,571 |
NOTE 5 - INVENTORY
As at May 31, 2018, the inventory consisted of supplies held for resale valued at $10,793 (May 31, 2017 - $4,683) and work in progress valued at $Nil (May 31, 2017 - $3,478).
NOTE 6 - OTHER CURRENT ASSETS
As at May 31, 2018, other current assets consisted of $23,915 in prepaid expenses (May 31, 2017 - $19,743) and $2,351 in receivables associated with GST the Company paid on the taxable supplies (May 31, 2017 - $4,759).
NOTE 7 - UNEARNED REVENUE
During the year ended May 31, 2018, the Company received a $59,588 (CAD$75,000) deposit on a distribution contract.
During the year ended May 31, 2017, the Company received $40,000 and $11,259 (CAD$15,000) in deposits on its eBalance Pro devices.
On February 7, 2018, the Company agreed to convert the CAD$75,000 deposit it received during the year ended May 31, 2018, into 240,000 units at a price of $0.25 per unit. Each unit consisted of one common share and one share purchase warrant exercisable for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
As at May 31, 2018, the Company had recorded a total of $51,585 (2017 - $51,110) in unearned revenue comprised of the deposits on the eBalance Pro devices the Company received during the Fiscal 2017.
NOTE 8 - NOTES AND ADVANCES PAYABLE
The tables below summarize the short-term loans and advances outstanding as at May 31, 2018 and 2017:
As at May 31, 2018 |
||||||||
Principal Outstanding |
Interest Rate per Annum |
|
Accrued Interest |
|
Total Book Value |
|||
$ |
6,000 |
6% |
Non-convertible |
$ |
225 |
|
$ |
6,225 |
|
95,570 |
6%-12% |
Related party |
|
4,066 |
|
|
99,636 |
|
11,598 |
0% |
Advances |
|
-- |
|
|
11,598 |
$ |
113,168 |
|
|
$ |
4,291 |
|
$ |
117,459 |
F-10
Loan agreements
During the year ended May 31, 2018, the Company entered into a number of loan agreements with Mr. Richard Jeffs (“Mr. Jeffs”), a former major shareholder, for a total of $34,840 (CAD$45,000) (May 31, 2017 - $104,209). The CAD$25,000 received on July 12, 2017, bears interest at 6% per annum, is unsecured and is payable on demand. The two loans for a total of CAD$20,000 (CAD$10,000, each) received on April 5, 2018 and May 9, 2018, bear interest at 12% per annum, are unsecured and are payable on demand (the “2018 Jeffs Loans”). To secure the 2018 Jeffs Loans, the Company agreed to the financing fees of CAD$500 per each 2018 Jeffs Loan. The financing fees bear interest at 12% per annum from the day the funds were advanced. The financing fees become payable concurrently with a demand to repay the 2018 Jeffs Loans.
During the year ended May 31, 2018, the Company entered into a loan agreement for $6,000 (2017 - $408,696) with an arms-length party. The loan bears interest at 6% per annum, is unsecured and payable on demand.
Term loan with Richard Jeffs
On March 3, 2016, the Company entered into a loan agreement (the “Term Loan Agreement”) with Mr. Jeffs for a loan in the principal amount of $50,000 maturing March 3, 2017, with interest payable at a rate of 6% per annum (the “Term Loan”). As additional consideration for the Term Loan, the Company issued to Mr. Jeffs share purchase warrants (the “Warrants”) for the purchase of up to 2,000,000 shares of the Company’s common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share if exercised during the fifth year. The Warrants were determined to be detachable from the debt instrument, as the debt instrument did not have to be surrendered to exercise the Warrants. Pursuant to the guidance provided by ASC 470-20-25-2, proceeds from the Term Loan were allocated to the principal and stock purchase warrants based on the relative fair values of the two elements. The portion of the proceeds allocated to the Warrants was $25,000 and was recorded to additional paid-in capital.
The Term Loan had an effective interest rate of 77.51%, which was due primarily to the recording of non-cash accretion interest.
At March 3, 2016, the fair value of Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:
|
At March 3, 2016 |
Expected Warrant Life |
5 years |
Risk-Free Interest Rate |
1.33% |
Expected Dividend Yield |
Nil |
Expected Stock Price Volatility |
16% |
On September 15, 2017, the Company received a notice from Mr. Jeffs informing the Company of the assignment of rights to the Term Loan and interest accrued thereon to two unaffiliated parties. The assignees notified the Company of their intention to convert the debt acquired by them from Mr. Jeffs into the shares of the Company’s common stock as part of the debt restructuring, which was completed on October 12, 2017 (Note 9).
Debt settlement
On October 12, 2017, the Company completed its debt restructuring, by issuing a total of 1,837,128 shares on conversion of $459,282 in debt owed under the notes payable (Notes 3 and 9).
F-11
On October 12, 2016, as part of its non-brokered private placement offering (the “2017 Offering”), the Company settled a total of $1,006,691 owed under the notes payable (the “Debt”), which consisted of $949,001 in principal and $57,690 in accrued interest. The Debt was converted to 6,711,272 units of the Company’s common stock at $0.15 per unit (Note 9).
Advances payable
During the year ended May 31, 2018, the Company repaid $22,704 (net of $9,936 advanced during the period) in non-interest bearing advances. These advances were unsecured and payable on demand. As at May 31, 2018, a total of $11,598 was due and payable on account of non-interest bearing advances (2017 - $34,323).
Interest expense
During the year ended May 31, 2018, the Company recorded $11,227 (2017 - $29,062) in interest expense associated with its liabilities under the notes payable. Of this amount $741 (2017 - $775) was associated with interest recorded on the Term Loan with Mr. Jeffs and $5,232 (2017 - $7,144) with demand notes payable issued to Mr. Jeffs.
NOTE 9 - SHARE CAPITAL
In January 2015 the Company received a subscription to 150,000 units (each a “Unit”) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consisted of one share of the Company’s common stock and one warrant for the purchase of one additional share of the Company’s common stock, exercisable at a price of $1.00 per share, expiring on December 31, 2015. The Company issued the shares on September 20, 2016. Since the expiration date of the warrants had passed, the warrants were not issued.
On October 12, 2016, the Company closed its non-brokered private placement offering (the “2017 Offering”) at a price of $0.15 per unit, by issuing 2,383,333 units for cash proceeds of $357,500 and 6,711,272 units to the holders of the Company’s notes payable (Note 8) for debt settlement of $1,006,691. Each unit sold under the 2017 Offering consisted of one common share of the Company and one share purchase warrant expiring on October 12, 2021, and entitling the holder to purchase one additional common share for a period of five years after closing at an exercise price of $0.50 per share if exercised during the first year, $0.75 per share if exercised during the second year, $1.00 per share if exercised during the third year, $1.25 per share if exercised during the fourth year, and at $1.50 per share if exercised during the fifth year.
On October 12, 2017, the Company closed its non-brokered private placement offering (the “2018 Offering”) at a price of $0.25 per Unit, by issuing 1,480,000 Units for total gross proceeds of $370,000. Each Unit sold under the 2018 Offering consisted of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year.
On October 12, 2017, the Company completed its debt restructuring initiative by converting a total of $459,282 the Company owed under its notes payable and $120,254 under services payable to its director, former CEO and President into 2,318,144 shares of the Company’s common stock at $0.25 per share.
On February 7, 2018, the Company agreed to convert the CAD$75,000 deposit it received on distribution contract into 240,000 units of its common stock at a price of $0.25 per unit consisting of one common share of the Company and one share purchase warrant entitling the holder to purchase one additional common share for a period of three years after closing at an exercise price of $0.50 per share if exercised during the first year, $1.00 per share if exercised during the second year, and $1.50 per share if exercised during the third year. The Company recorded $14,400 as reserve, representing the difference between the fair market value of the Company’s common stock on the day of conversion, being $0.19 per share, and the value of the units issued at conversion, being $0.25 per unit.
F-12
Options
On August 24, 2017, the board of directors of the Company granted options to purchase up to 300,000 common shares of the Company to its CFO and up to 1,750,000 common shares of the Company to its consultants. The options vested immediately and may be exercised at a price of $0.35 per share for a period of five years expiring on August 24, 2022.
The fair values of the options granted to the CFO and to the consultants were calculated to be $89,556 and $522,407, respectively, and were determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
|
At August 24, 2017 |
Expected Life of Options |
5 years |
Risk-Free Interest Rate |
1.78% |
Expected Dividend Yield |
Nil |
Expected Stock Price Volatility |
187% |
The changes in the number of stock options outstanding during the years ended May 31, 2018 and 2017 are as follows:
|
Year ended May 31, 2018 |
|
Year ended May 31, 2017 |
||||
|
Number of options |
Weighted average exercise price |
|
Number of options |
Weighted average exercise price |
||
Options outstanding, beginning |
7,550,000 |
$ |
0.35 |
|
25,050,000 |
$ |
0.14 |
Options granted |
2,050,000 |
$ |
0.35 |
|
-- |
|
n/a |
Options expired |
(150,000) |
$ |
0.20 |
|
-- |
|
n/a |
Options cancelled |
-- |
$ |
n/a |
|
(17,500,000) |
$ |
0.05 |
Options outstanding, ending |
9,450,000 |
$ |
0.35 |
|
7,550,000 |
$ |
0.35 |
Options exercisable, ending |
9,450,000 |
$ |
0.35 |
|
6,950,000 |
$ |
0.32 |
Details of options outstanding and exercisable as at May 31, 2018, are as follows:
Exercise price |
Grant date |
Number of options outstanding and exercisable |
$0.05 |
November 25, 2014 |
2,500,000 |
$0.67 |
January 13, 2015 |
2,400,000 |
$0.35 |
August 5, 2015 |
2,500,000 |
$0.35 |
August 24, 2017 |
2,050,000 |
|
|
9,450,000 |
At May 31, 2018, the weighted average remaining contractual life of the stock options outstanding and exercisable was 3.02 years.
Warrants
The changes in the number of warrants outstanding during the years ended May 31, 2018 and 2017 are as follows:
|
Year ended May 31, 2018 |
|
Year ended May 31, 2017 |
Warrants outstanding, beginning |
11,094,605 |
|
2,000,000 |
Warrants issued |
1,720,000 |
|
9,094,605 |
Warrants outstanding, ending |
12,814,605 |
|
11,094,605 |
F-13
Details of warrants outstanding as at May 31, 2018, are as follows:
Exercise price |
Grant Date |
Number of warrants exercisable |
$0.40 during the period from March 3, 2018 to March 3, 2019 $0.60 during the period from March 3, 2019 to March 3, 2020 $0.75 during the period from March 3, 2020 to March 3, 2021 |
March 3, 2016 |
2,000,000 |
$0.75 up to October 12, 2018 $1.00 during the period from October 12, 2018 to October 12, 2019 $1.25 during the period from October 12, 2019 to October 12, 2020 $1.50 during the period from October 12, 2020 to October 12, 2021 |
October 12, 2016 |
9,094,605 |
$0.50 up to October 12, 2018 $1.00 during the period from October 12, 2018 to October 12, 2019 $1.50 during the period from October 12, 2019 to October 12, 2020 |
October 12, 2017 |
1,480,000 |
$0.50 up to February 7, 2019 $1.00 during the period from February 7, 2019 to February 7, 2020 $1.50 during the period from February 7, 2020 to February 7, 2021 |
February 7, 2018 |
240,000 |
|
|
12,814,605 |
At May 31, 2018, the weighted average life and price of the warrants was 3.17 years and $0.66, respectively.
NOTE 10 - INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
May 31, 2018 |
|
May 31, 2017 |
||
Net loss |
$ |
(1,546,798) |
|
$ |
(1,249,446) |
Statutory tax rate |
|
21% |
|
|
34% |
Expected income tax recovery |
|
(333,000) |
|
|
(423,000) |
Permanent differences and other |
|
549,000 |
|
|
40,000 |
Effect of foreign exchange |
|
-- |
|
|
(1,000) |
Change in valuation allowance |
|
(216,000) |
|
|
384,000 |
Income tax recovery |
$ |
-- |
|
$ |
-- |
The Company’s tax-effected future income tax assets and liabilities are estimated as follows:
|
May 31, 2018 |
|
May 31, 2017 |
||
Deferred income tax assets (liabilities) |
|
|
|
||
Losses carried forward |
$ |
799,000 |
|
$ |
1,035,000 |
Equipment |
|
71,000 |
|
|
50,000 |
Less: Valuation allowance |
|
(870,000) |
|
|
(1,085,000) |
Net deferred income tax assets |
$ |
-- |
|
$ |
-- |
At May 31, 2018 and 2017, the Company has recorded a valuation allowance for the aggregate of its tax assets as management believes it is more likely than not that the deferred tax asset will not be realized.
As at May 31, 2018, the Company had net operating loss carry forwards in the United States of approximately $3,603,000 to reduce future federal and state taxable income. These losses may be carried forward indefinitely.
As at May 31, 2018, the Company also had non-capital loss carry forwards of approximately $166,000 to reduce future Canadian taxable income. These losses expire in 2037 and 2038.
The Company is not currently subject to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax adjustments, if accepted, that would result in a material change to its financial position.
F-14
NOTE 11 - SUBSEQUENT EVENTS
Loan Agreements
Subsequent to the year ended May 31, 2018, the Company received $15,338 (CAD$20,000) under loan agreements with Mr. Jeffs. The loans bear interest at 12% per annum, are unsecured, non-convertible and payable on demand. To secure the loans, the Company agreed to the financing fees of CAD$500 per each loan. The financing fees bear interest at 12% per annum from the day the funds were advanced. The financing fees become payable concurrently with a demand to repay the loans.
Letter of Intent for Worldwide Distribution Rights
Subsequent to the year ended May 31, 2018, the Company entered into a non-binding letter of intent (the “LOI”) with an arms-length party (the “Distributor”) for worldwide distribution rights to eBalance devices for home-based usage. Pursuant to the LOI, the Company and the Distributor have entered into negotiations aimed at obtaining a definitive agreement within a 90-day period. As consideration for the signing of the LOI, the Distributor agreed to advance to the Company $250,000 as a one-time refundable deposit, which the Company will be required to pay back should the LOI expire without execution of the definite agreement.
Royalty Agreements
Subsequent to the year ended May 31, 2018, the Company entered into an intellectual property royalty agreement (the “IP Royalty Agreement”) with and arms-length party (the “IP Vendor”). Pursuant to the IP Royalty Agreement the Company agreed to acquire certain additional developments and improvements for its eBalance devices that were developed by the IP Vendor in exchange for a perpetual royalty of USD$350 or CAD$350, depending on the currency the revenue is generated in, for each device sold, distributed or licensed whether through a distributor, sales representative or by the Company itself.
Subsequent to the year ended May 31, 2018, the Company entered into a royalty agreement (the “Royalty Agreement”) with a third party. Pursuant to the Royalty Agreement, the Company agreed to pay the third party, in perpetuity, a 10% royalty on the revenue the Company receives from its distributors or end-users introduced to the Company by the Vendor.
F-15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
In connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of May 31, 2018. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms due to lack of segregation of duties.
Management’s Report on Internal Controls over Financial Reporting
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, it was found that the internal controls cannot be relied upon due to lack of segregation of duties.
24
Our independent auditors have not issued an attestation report on management’s assessment of our internal control over financial reporting. As a result, this Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
Changes in Internal Controls
As of the end of the period covered by this report, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, our results of operations.
ITEM 9B. OTHER INFORMATION
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Each of our directors holds office until the earlier of (i) our next annual meeting of our stockholders, (ii) that director’s successor has been elected and qualified, or (iii) that director resigns. Each of our executive officers are appointed by our Board of Directors and holds office until he resigns or is removed by the Board.
Our management team is listed below:
Name |
Age |
Positions |
Frank McEnulty |
61 |
Chief Executive Officer, Director, and former President |
Yanika Silina |
40 |
Chief Financial Officer, Treasurer, Corporate Secretary and Director |
Bradley Hargreaves |
59 |
Vice President, Technology and Operations and Director |
George Adams |
67 |
Director |
Set forth below is a brief description of the background and business experience of each of our executive officers and directors:
Mr. McEnulty has served as a director of our Company since March 6, 2014, and as our Chief Executive Officer and President from March 6, 2014 until December 1, 2017. Mr. McEnulty was reappointed our CEO on September 12, 2018. Prior to closing our acquisition of the eBalance Technology, on November 25, 2015, Mr. McEnulty also served as our Chief Financial Officer, Treasurer and Secretary. Mr. McEnulty is an experienced executive with an extensive background in finance and accounting. In addition to his entrepreneurial activities, Mr. McEnulty teaches Finance and Management at California State University, Long Beach. Since 1996, Mr. McEnulty has been the President and CEO of Meghan Matthews, Inc., a private investment company. Since 2004, Mr. McEnulty has also been a member of the board and compensation committee for Ojai Oil Company. Ojai Oil Company currently trades on the OTC Pink marketplace. Since September 2014 until January 2015 Mr. McEnulty has been the director of Madison Technologies, Inc. From 1989 through 1995, Mr. McEnulty was the Chief Operating Officer and Vice President of Finance for Tri-Five Property Management, a foreign owned real estate investment company. Mr. McEnulty received a Masters of Business Administration from the University of Southern California and a Bachelor of Science from California State University, Long Beach.
25
Ms. Silina has served as the Company’s Chief Financial Officer and Corporate Secretary since November 24, 2014, and as director since September 26, 2016. Ms. Silina is a Chartered Professional Accountant and holds a Diploma in Management Studies from Thompson Rivers University. Ms. Silina is currently CFO of Lifestyle Delivery Systems Inc. (CSE: LDS), and a director of Kesselrun Resources Ltd., a reporting issuer listed on the TSX Venture Exchange (TSX.V: KES). Ms. Silina has previously held various management positions with other public companies listed on OTC Link alternative trading system and Canadian Securities Exchange.
Mr. Hargreaves’ background is in engineering, with two operations journeyman tickets and four year operations certification from Shell Canada. During the past nine years Mr. Hargreaves has researched the eBalance Technology and designed and improved treatment protocols for the treatment of disabilities and related ailments. Mr. Hargreaves provides his expertise and technical support to our research and development team and oversees the continuous development of the project from an engineering prospective. Mr. Hargreaves has been the director of operations and principal of XC Velle Institute Inc., a privately held technology and spa company, since 2009. From approximately 2002 to 2009, Mr. Hargreaves worked operations for a privately held spa company that at one point employed up to 15 employees.
Dr. Adams has served as a director of our Company since March 23, 2018. Dr. Adams brings with him a wealth of expertise in successfully developing and bringing medical devices to global markets. Dr. Adams is currently a Director and Chief Executive Officer of VentriPoint Diagnostics Ltd. (TSXV:VPT). Dr. Adams is a scientist and a serial entrepreneur with extensive public market experience. His previous positions include CEO of Amorfix Life Sciences (TSX:AMF), Chairman of Sernova Corp (TSXV:SVA) and President and CEO of the UT Innovations Foundation. Prior to this, Dr. Adams held research and executive positions with Boston Scientific Inc., Pfizer Inc., Corvita Canada Inc., University of Ottawa and Canadian Red Cross. Dr. Adams has been instrumental in founding over 32 companies who have raised $120 million and has been a Director of 10 venture capital funds, 10 start-up companies and two Centres of Excellence. Dr. Adams was awarded a World Economic Foundation Technology Pioneer for 2007 and TBI Company of the year in 2009. Dr. Adams has 124 scientific publications and is a reviewer for major scientific journals, federal granting agencies and Centres of Excellence. Dr. Adams obtained his BASc and MASc from the University of Waterloo and his PhD in Blood and Cardiovascular Disease, from McMaster University.
Significant Employees
We have no significant employees other than our officers and directors.
Family Relationships
Ms. Arnett, our former Vice President, Corporate Strategy, and Mr. Hargreaves are married to each other. There are no other family relationships between our executive officers or directors.
Involvement in Certain Legal Proceedings
During the past ten years, none of Cell MedX ’ s directors or officers has been:
·
a person against whom a bankruptcy petition was filed;
·
a general partner or executive officer of any partnership, corporation or business association against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
·
convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or commodities trading or banking activities;
26
·
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of (1) any court of competent jurisdiction, permanently or temporarily enjoining him or otherwise limiting him from acting, or (2) any Federal or State authority barring, suspending or otherwise limiting for more than 60 days his right to act, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, or to be associated with persons engaged in any such activity;
·
found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
·
found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
·
the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
·
any Federal or State securities or commodities law or regulation, or
·
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
·
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the SEC. Under the SEC regulations, Reporting Persons are required to provide us with copies of all forms that they file pursuant to Section 16(a). Based on our review of the copies of such forms received by us, the following persons have, during the fiscal year ended May 31, 2017, failed to file, on a timely basis, the reports required by Section 16(a) of the Exchange Act:
Name and Principal Position |
Number of Late Reports |
Transactions Not Timely Reported |
Known Failures to File a Required Form |
Richard Jeffs, Former major shareholder |
1 (1) |
1 |
nil |
George Adams, Director |
1 (2) |
nil |
1 |
(1)
Mr. Jeffs was late filing a report on Form 4 reflecting open market transaction that took place on August 3, 2017.
(2)
Dr. Adams was appointed as our director on March 23, 2018. Dr. Adams has not filed his Form 3 reflecting his status as a director of Cell MedX Corp.
27
Nomination Procedure for Directors
We do not have a standing nominating committee. Recommendations for candidates to stand for election as directors are made by our Board of Directors. In carrying out their responsibilities, the Board of Directors will consider candidates suggested by stockholders. If a stockholder wishes to formally place a candidate’s name in nomination, however, he or she must do so in accordance with the provisions of the Company’s Bylaws. Suggestions for candidates to be evaluated by the proposed directors must be sent to the Board of Directors, c/o Cell MedX Corp., 123 W. Nye Ln, Suite 446, Carson City, NV 89706.
Identification of Audit Committee
We do not have a separately-designated standing audit committee. Rather, our entire Board of Directors performs the required functions of an audit committee.
Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.
As of May 31, 2018, we did not have a written audit committee charter or similar document and have not adopted any specific policies or procedures for the engagement of non-audit services.
Audit Committee Financial Expert
Frank McEnulty, our Chief Executive Officer and a member of our Board of Directors qualifies as an “audit committee financial expert”, as defined by Item 407(d)(5) of Regulation S-K promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934. Notwithstanding the fact that Mr. McEnulty is not an independent director, we believe that his experience in analyzing and evaluating financial statements, as well as his prior experience being on the board of directors of other public companies will provide us with the guidance we need until we are able to expand our board to include independent directors who have the knowledge and experience to serve on an audit committee.
Code of Ethics
We have adopted a Code of Ethics that applies to all our executive officers and employees, including our CEO and CFO. Our Code of Ethics is attached as an exhibit to this Annual Report on Form 10-K. We believe that our Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the Code.
28
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation received by our Executive Officers for the past two fiscal years:
SUMMARY COMPENSATION TABLE
Name and principal position |
Year |
Salary |
Bonus |
Stock Awards |
Option Awards |
Non- Equity Incentive Plan Compensa tion |
Non- qualified Deferred Compen sation Earnings |
All other compensation |
Total |
|
|
($) |
($) |
($) |
($) |
($) |
($) |
($) |
($) |
Frank McEnulty CEO and former President |
2018 |
43,200 (1) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
43,200 |
2017 |
43,200 (1) |
Nil |
Nil |
11,600 (2) |
Nil |
Nil |
Nil |
54,800 |
|
|
|
|
|
|
|
|
|
|
|
Yanika Silina CFO |
2018 |
12,000 (1) |
Nil |
Nil |
89,556 (3) |
Nil |
Nil |
Nil |
101,556 |
2017 |
12,000 (1) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
12,000 |
|
|
|
|
|
|
|
|
|
|
|
Terrance Owen Former CEO and President |
2018 |
65,458 (4) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
65,458 |
2017 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
|
|
|
|
|
|
Dr. John Sanderson Former Chief Medical Officer |
2018 |
Nil |
Nil |
Nil |
18,916 (5) |
Nil |
Nil |
Nil |
18,916 |
2017 |
Nil |
Nil |
Nil |
105,883 |
Nil |
Nil |
Nil |
105,883 |
|
|
|
|
|
|
|
|
|
|
|
Bradley Hargreaves Vice President, Technology and Operations |
2018 |
47,067 (6) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
47,067 |
2017 |
47,614 (6) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
47,614 |
|
|
|
|
|
|
|
|
|
|
|
Jean Arnett Former Vice President, Corporate Strategy |
2018 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
2017 |
32,649 (6) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
32,649 |
(1)
We do not have any written compensation agreements with Mr. McEnulty or Ms. Silina. Mr. McEnulty and Ms. Silina are being compensated for management services based on verbal agreements between us and Mr. McEnulty and Ms. Silina who invoice us for their services at a monthly rate of $3,600 and $1,000, respectively.
(2)
Option awards represent the value assigned to the options to acquire up to 2,500,000 shares of our common stock issued pursuant to the Option Agreement with Mr. McEnulty.
(3)
Option awards represent the value assigned to the options to acquire up to 300,000 shares of our common stock issued pursuant to the Option Agreement with Ms. Silina.
(4)
On December 1, 2017, we entered into a management consulting agreement with Dr. Owen. Under the terms of the Agreement, Dr. Owen agreed to act as our Chief Executive Officer an director for the term of one year, expiring on November 30, 2018, and renewing automatically for consecutive 1-year terms. Dr. Owen was to be paid a consulting fee of CAD$16,666 per month. Dr. Owen resigned from all his positions with the Company on April 30, 2018.
(5)
Option awards represent the value assigned to the options to acquire up to 2,400,000 shares of our common stock issued pursuant to the Management Consulting Agreement with Dr. Sanderson.
(6)
Represents amounts paid or accrued to Ms. Arnett and Mr. Hargreaves for consulting services pursuant to the Consulting Agreements, which were verbally amended during the Fiscal 2016 and further amended in September of 2016, among Ms. Arnett, Mr. Hargreaves and us.
29
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table provides information concerning unvested stock awards for each of our named executive officers, as that term is defined in Item 402(m)(2) of Regulation S-K as of our fiscal year end of May 31, 2018.
OPTION AWARDS |
|||||
Name and Position |
No. of Securities Underlying Unexercised Options (#) Exercisable |
No. of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price |
Option Vesting Date |
Option Expiration Date |
|
|
|
|
|
|
Frank McEnulty |
500,000 |
- |
$0.35 |
Aug. 5, 2015 |
Aug. 5, 2020 |
Chief Executive Officer |
500,000 |
- |
$0.35 |
Oct. 1, 2015 |
Oct. 1, 2020 |
|
500,000 |
- |
$0.35 |
Jan. 1, 2016 |
Jan. 1, 2021 |
|
500,000 |
- |
$0.35 |
Apr. 1, 2016 |
Apr. 1, 2021 |
|
500,000 |
- |
$0.35 |
Jul. 31, 2016 |
Jul. 31, 2021 |
|
|
|
|
|
|
Yanika Silina |
300,000 |
- |
$0.35 |
Aug. 24, 2017 |
Aug. 23, 2022 |
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
Bradley Hargreaves (1) |
1,250,000 |
- |
$0.05 |
Aug. 26, 2015 |
Aug. 26, 2020 |
Vice President, Technology and Operations |
|
|
|
|
|
|
|
|
|
|
|
Dr. Sanderson |
200,000 |
- |
$0.67 |
Mar. 31, 2015 |
Mar. 31, 2020 |
Former Chief Medical Officer |
200,000 |
- |
$0.67 |
Jun. 30, 2015 |
Jun. 30, 2020 |
|
200,000 |
- |
$0.67 |
Sept. 30, 2015 |
Sept. 30, 2020 |
|
200,000 |
- |
$0.67 |
Dec. 31, 2015 |
Dec. 31, 2020 |
|
200,000 |
- |
$0.67 |
Mar. 31, 2016 |
Mar. 31, 2021 |
|
200,000 |
- |
$0.67 |
Jun. 30, 2016 |
Jun. 30, 2021 |
|
200,000 |
- |
$0.67 |
Sept. 30, 2016 |
Sept. 30, 2021 |
|
200,000 |
- |
$0.67 |
Dec. 31, 2016 |
Dec. 31, 2021 |
|
200,000 |
- |
$0.67 |
Mar. 31, 2017 |
Mar. 31, 2022 |
|
200,000 |
- |
$0.67 |
Jun. 30, 2017 |
Jun. 30, 2022 |
|
200,000 |
- |
$0.67 |
Sept. 30, 2017 |
Sept. 30, 2022 |
|
200,000 |
- |
$0.67 |
Dec. 31, 2017 |
Dec. 31, 2022 |
Jean Arnett (1) |
1,250,000 |
- |
$0.05 |
Aug. 26, 2015 |
Aug. 26, 2020 |
Former Vice President, Corporate Strategy |
|
|
|
|
|
(1)
On November 24, 2014, we issued to each of Ms. Arnett and Mr. Hargreaves options for the purchase of up to 10,000,000 (20,000,000 shares in total) of our common stock at an exercise price of $0.05 per share (the “Arnett/Hargreaves Options”). Vesting of the Arnett/Hargreaves Options was subject to certain conditions based on the design, initiation and completion of clinical trials for the eBalance Technology. On November 30, 2014, we amended the terms of the Arnett/Hargreaves Options to re-define the clinical trials to be conducted. On August 26, 2015 we determined that requirements for vesting of the first 2,500,000 shares of our common stock were substantially reached allowing Ms. Arnett and Mr. Hargreaves exercise their options to acquire up to 1,250,000 shares of our common stock.
On September 26, 2016, we entered into a letter agreement (the “Letter Agreement”) with Jean Arnett and Brad Hargreaves to, among other things, cancel the unvested portion of the options granted to Ms. Arnett and Mr. Hargreaves pursuant to those separate Option Agreements between us and Ms. Arnett, and Mr. Hargreaves, each dated for reference November 25, 2014 (the “Cancelled Options”). The Cancelled Options had previously entitled Ms. Arnett and Mr. Hargreaves to collectively acquire up to 17,500,000 common shares of the Company (8,750,000 shares, each) at an initial price of $0.05 per share.
30
Executive Officer Employment / Consulting Agreements
Aside from the agreements described below, there are no employment agreements between us and any other named executive officers, and there are no employment agreements or other compensating plans or arrangements with regard to any named executive officers which provide for specific compensation in the event of resignation, retirement, other termination of employment or from a change of control of Cell MedX or from a change in a named executive officer’s responsibilities following a change in control.
Frank McEnulty and Yanika Silina
We do not have any written compensation agreements with Mr. McEnulty or Ms. Silina. Mr. McEnulty and Ms. Silina are being compensated for management services based on verbal agreements between us and Mr. McEnulty and Ms. Silina who invoice us for their services at a monthly rate of $3,600 and $1,000, respectively.
On August 5, 2015, we granted to Mr. McEnulty, options to purchase up to 2,500,000 shares of our common stock. The options granted to Mr. McEnulty are exercisable at $0.35 per share and vest in equal installments of 500,000 shares each, with options for the first 500,000 shares vesting on the grant date. The remaining options vested on October 1, 2015, January 1, 2016, April 1, 2016 and July 1, 2016, respectively, and expire on the 5th year anniversary of the applicable vesting date, subject to certain early termination provisions, upon death, or if Mr. McEnulty ceases to act for us in any capacity either voluntarily or as a result of a termination or removal for cause.
On August 24, 2017, we granted to Ms. Silina, options to purchase up to 300,000 shares of our common stock. The options granted to Ms. Silina are exercisable at $0.35 per share, vested immediately upon grant, and expire on August 24, 2022.
Dr. Terrance Owen
On December 1, 2017, we entered into a management consulting agreement (the “Consulting Agreement”) with Dr. Terrance Owen. Under the terms of the Consulting Agreement, Dr. Owen agreed to act as our Chief Executive Officer for the term of one year, expiring on November 30, 2018, and renewing automatically for consecutive 1-year terms. We agreed to pay Dr. Owen a consulting fee of CAD$16,666 per month.
On May 3, 2018, we accepted Dr. Terry Owen’s resignation from all his positions with the Company effective April 30, 2018. The resignation of Dr. Owen was not due to any disagreements relating to our operations, policies or practices. As at April 30, 2018, we were indebted to Dr. Owen in the amount of CAD$69,998 for his services under the Consulting Agreement. We agreed to extinguish the debt to Dr. Owen by making a one-time cash payment of CAD$35,000, if paid by May 17, 2018, or in series of 12 monthly payments of CAD$5,833.17 each if payment can’t be made prior to May 17, 2018. In addition to the cash payment, we gave Dr. Owen an opportunity to convert up to $10,000 owed to him into the shares of our common stock at the then current private placement price, in case the cash payment is made on or before May 17, 2018, and up to CAD$15,000 should we choose to repay our debt in 12 monthly installments. As of the date of this Annual Report on Form 10-K we have not made the payments towards extinguishing the debt, and Dr. Owen has not exercised his conversion rights.
Dr. John Sanderson
As of the filing of this Annual Report of Form 10-K our Management Consulting Agreement with Dr. Sanderson (the “Sanderson Agreement”) has expired.
Jean Arnett and Bradley Hargreaves
On September 26, 2016, as part of our Letter Agreement with Ms. Arnett and Mr. Hargreaves we renegotiated our consulting arrangements and agreed to pay Ms. Arnett and Mr. Hargreaves each CAD$5,000 per month, beginning effective August 1, 2016, for duration of six (6) months. On January 23, 2017, Ms. Jean Arnett resigned as our Vice President, Corporate Development and as our director. Mr. Hargreaves continues to provide his services based on a verbal agreement to extend his consulting arrangements on a month-to-month basis at the rate of CAD$5,000 per month.
31
DIRECTOR COMPENSATION
The following table sets forth the compensation paid to our directors during our May 31, 2018 and 2017 fiscal years, other than directors who were also named executive officers as that term is defined in Item 402(m)(2). Compensation paid to directors who were also named executive officers during our May 31, 2018 fiscal year is set out in the tables above.
Name and principal position |
Year |
Salary |
Bonus |
Stock Awards |
Option Awards |
Non- Equity Incentive Plan Compensa tion |
Non- qualified Deferred Compen sation Earnings |
All other compensation |
Total |
|
|
($) |
($) |
($) |
($) |
($) |
($) |
($) |
($) |
Dr. George Adams |
2018 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
2017 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
As of the date of this Annual Report on Form 10-K we do not have any compensation arrangements with Dr. George Adams for acting as a member of our Board of Directors. We anticipate, however, the compensation, once finalized, will commensurate with that received by other directors, including participation in grants of stock options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.
The following tables set forth certain information concerning the number of shares of our common stock owned beneficially as of September 13, 2018, by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following tables does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding. As of September 13, 2018, there were 44,282,749 shares of our common stock issued and outstanding.
32
Security Ownership of Certain Beneficial Owners (greater than 5%)
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Owner |
Percent of Class |
Common Stock |
Jean Arnett 904-1616 Bayshore Drive Vancouver, BC V6G 3L1 |
6,250,000 (1) |
13.73% |
Common Stock |
Brad Hargreaves 904-1616 Bayshore Drive Vancouver, BC V6G 3L1 |
6,250,000 (2) |
13.73% |
Common Stock |
Richard Norman Jeffs 11750 Fairtide Road, Ladysmith, BC V9G 1K5 |
4,516,126 (3) |
9.76% |
Common Stock |
City Group LLC 1201 Orange Street Suite 600 Wilmington, DE 19801 |
3,797,294 (6) |
8.22% |
Common Stock |
Canen Capital Corp. 1177 W. Hastings Street Suite 1920 Vancouver, BC V6E 2K3 |
3,291,916 (7) |
7.17% |
Common Stock |
Tradex Capital Corp 1177 W. Hastings Street Suite 1920 Vancouver, BC V6E 2K3 |
3,511,576 (8) |
7.67% |
Security Ownership of Management
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Owner |
Percent of Class |
Common Stock |
Frank McEnulty Chief Executive Officer, President and Director 123 W. Nye Ln, Suite 446 Carson City, NV 89706 |
2,981,016 (4) |
6.37% |
Common Stock |
Yanika Silina Chief Financial Officer, Treasurer, Secretary and Director 820 - 1130 West Pender Street, Vancouver, BC V6E 4A4 |
350,000 (5) |
0.79% |
Common Stock |
Brad Hargreaves Vice President, Technology and Operations and Director 904-1616 Bayshore Drive Vancouver, BC V6G 3L1 |
6,250,000 (2) |
13.73% |
Common Stock |
George Adams Director 7535 Conservation Rd Guelph, ON N1H 6J1 |
Nil |
Nil |
Common Stock |
Directors and Executive Officers (as a group) |
9,581,016 |
19.82% |
33
(1)
6,250,000 shares listed as being held by Ms. Arnett include options to purchase 1,250,000 shares of our common stock at an exercise price of $0.05 per share.
(2)
6,250,000 shares listed as being held by Mr. Hargreaves include options to purchase 1,250,000 shares of our common stock at an exercise price of $0.05 per share.
(3)
4,516,126 shares listed as being held by Mr. Jeffs include warrants to purchase up to 2,000,000 shares of our common stock exercisable at a price of $0.40 per share if exercised no later than on March 3, 2019, $0.60 per share if exercised during the period from March 3, 2019 to March 3, 2020 and $0.75 per share during the period from March 3, 2020 to March 3, 2021.
(4)
2,981,016 shares listed as being held by Mr. McEnulty include options to purchase up to 2,500,000 shares of our common stock exercisable at a price of $0.35 per share.
(5)
350,000 shares listed as being held by Ms. Silina include options to purchase up to 300,000 shares of our common stock at an exercise price of $0.35 per share.
(6)
3,797,294 shares listed as being held by City Group LLC include warrants to purchase up to 1,898,647 shares of our common stock at an exercise price of $0.75 per share if exercised no later than on October 12, 2018, $1.00 per share if exercised during the period from October 12, 2018 to October 12, 2019, $1.25 per share if exercised during the period from October 12, 2019 to October 12, 2020, and $1.50 if exercised during the period from October 12, 2020 to October 12, 2021.
(7)
3,291,916 shares listed as being held by Canen Capital Corp. include warrants to purchase up to 1,645,958 shares of our common stock at an exercise price of $0.75 per share if exercised no later than on October 12, 2018, $1.00 per share if exercised during the period from October 12, 2018 to October 12, 2019, $1.25 per share if exercised during the period from October 12, 2019 to October 12, 2020, and $1.50 if exercised during the period from October 12, 2020 to October 12, 2021.
(8)
3,511,576 shares listed as being held by Tradex Capital Corp. include warrants to purchase up to 1,500,000 shares of our common stock at an exercise price of $0.75 per share if exercised no later than on October 12, 2018, $1.00 per share if exercised during the period from October 12, 2018 to October 12, 2019, $1.25 per share if exercised during the period from October 12, 2019 to October 12, 2020, and $1.50 if exercised during the period from October 12, 2020 to October 12, 2021.
Equity Compensation Plans
The following table sets forth certain information concerning all equity compensation plans previously approved by stockholders and all previous equity compensation plans not previously approved by stockholders, as of May 31, 2018, our most recent fiscal year end:
Equity Compensation Plan Information
Plan Category |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) |
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Equity Compensation Plans Approved By Security Holders |
None |
Not Applicable |
None |
Equity Compensation Plans Not Approved By Security Holders (1) |
9,450,000 |
$0.35 |
None |
(1)
At May 31, 2018 we had the following individual compensation arrangements under which we issued options to purchase shares of our common stock:
34
·
Pursuant to our Technology Purchase Agreement, dated for reference November 24, 2014, we issued to each of Ms. Arnett and Mr. Hargreaves options for the purchase of up to 10,000,000 (20,000,000 shares in total) of our common stock at an exercise price of $0.05 per share. On September 26, we canceled the unvested portion of the options granted to Ms. Arnett and Mr. Hargreaves. The Cancelled Options had previously entitled Ms. Arnett and Mr. Hargreaves to collectively acquire up to 17,500,000 common shares of the Company (8,750,000 shares, each) at an initial price of $0.05 per share. Detailed description of the Options we granted to Ms. Arnett and Mr. Hargreaves has been disclosed in Item 11. Executive Compensation.
·
On January 13, 2015, we granted to Dr. Sanderson non-transferrable options to purchase up to 2,400,000 shares of our common stock at an exercise price of $0.67 per share. The options vested quarterly starting on March 31, 2015 in equal portions of 200,000 shares per vesting period, and expire on the 5 th year anniversary of the applicable vesting date, subject to early termination provisions in the event that Dr. Sanderson ceases to act for us in any capacity.
·
On August 5, 2015, we granted to Mr. McEnulty non-transferrable options to purchase up to 2,500,000 shares of our common stock at an exercise price of $0.35 per share. These options vested in equal installments of 500,000 shares each, with options for the first 500,000 shares vesting on the grant date. The remaining options vested on October 1, 2015, January 1, 2016, April 1, 2016 and July 1, 2016, respectively, and expire on the 5th year anniversary of the applicable vesting date, subject to certain early termination provisions, upon death, or if Mr. McEnulty ceases to act for us in any capacity either voluntarily or as a result of a termination or removal for cause.
·
On August 24, 2017, we granted to Ms. Silina non-transferrable options to purchase up to 300,000 shares of our common stock at an exercise price of $0.35 per share. The options vested immediately and expire on August 24, 2022.
Changes in Control
We are not aware of any arrangements that might result in a change in control of our Company subsequent to the date of this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Director Independence
Our common stock is quoted on the OTC Link alternative trading system on the OTCQB marketplace, which does not have director independence requirements. In determining whether any of our directors are independent, we have applied the definition of “independent director” in Section 803 of the NYSE MKT Company Guide. We have determined that, under that definition, as of the date of this Annual Report on Form 10-K, Dr. George Adams is an independent director.
Transactions with Related Persons
Since June 1, 2017, the directors, executive officers, or holders of more than 5% of our common stock, or members of their immediate families, as described below, have completed transactions with us in which they had direct or indirect material interests that exceeded the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years.
Frank McEnulty
As at May 31, 2018, we were indebted to Mr. McEnulty, our CEO, President and a member of our Board of Directors, in the amount of $32,400 on account of unpaid management fees and reimbursable expenses. On August 24, 2017, Mr. McEnulty agreed to convert the total of $120,254 owed to him as of August 24, 2017, into 481,016 restricted shares of the Company’s common stock at the deemed price of $0.25 per share. The conversion was agreed to as part of the Company’s debt restructuring initiative more fully describer in Item 5 of Part II of this Annual Report on Form 10-K, entitled “Recent Sales Of Unregistered Securities”.
35
Yanika Silina
As at May 31, 2018, we were indebted to Ms. Silina, our CFO, Treasurer and Corporate Secretary in the amount of $20,790 on account of unpaid management fees and reimbursable expenses. On August 24, 2017, we granted to Ms. Silina options to purchase up to 300,000 shares of our common stock at an exercise price of $0.35 per share. The options vested on grant and expire on August 24, 2022.
Mr. Hargreaves
As at May 31, 2018, we were indebted to Mr. Hargreaves in the amount of $59,035 for unpaid consulting fees and reimbursable expenses.
Dr. John Sanderson, MD
As at May 31, 2018, we were indebted to Dr. Sanderson, our Chief Medical Officer in the amount of $81,059 on account of unpaid consulting fees and reimbursable expenses.
Dr. Terrance Owen
As at May 31, 2018, we were indebted to Dr. Owen, our former Chief Executive Officer in the amount of $54,275 on account of unpaid consulting fees and reimbursable expenses.
On May 3, 2018, we accepted Dr. Terry Owen’s resignation from all his positions with the Company effective April 30, 2018. The resignation of Dr. Owen was not due to any disagreements relating to our operations, policies or practices. As at April 30, 2018, we were indebted to Dr. Owen in the amount of CAD$69,998 for his services under the Consulting Agreement. We agreed to extinguish the debt to Dr. Owen by making a one-time cash payment of CAD$35,000, if paid by May 17, 2018, or in series of 12 monthly payments of CAD$5,833.17 each if payment can’t be made prior to May 17, 2018. In addition to the cash payment, we gave Dr. Owen an opportunity to convert up to $10,000 owed to him into the shares of our common stock at the then current private placement price, in case the cash payment is made on or before May 17, 2018, and up to CAD$15,000 should we choose to repay our debt in 12 monthly installments. As of the date of this Annual Report on Form 10-K we have not made the payments towards extinguishing the debt, and Dr. Owen has not exercised his conversion rights.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for Cell MedX’s audit of annual financial statements and for review of financial statements included in Cell MedX’s Form 10-Q’s or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
2018 - $39,170 - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
2017 - $29,940 - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of Cell MedX’s financial statements and are not reported in the preceding paragraph:
2018 - $Nil - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
2017 - $Nil - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
36
Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were:
2018 - $1,050 - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
2017 - $Nil - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) were:
2018 - $Nil - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
2017 - $Nil - Dale Matheson Carr-Hilton Labonte, L.L. P. Chartered Accountants
Approval Policies and Procedures
We do not have a separately standing audit committee. As such, our entire board of directors acts as our audit committee. Our Board of Directors annually reviews the qualifications of our principal accountant and approves their engagement as our principal accountant prior to their engagement. All of the non-audit services provided by our principal accountant were either pre-approved by our Board of Directors prior to engagement of the principal accountant for those services, or were approved by our Board of Directors prior to completion of their audit of our annual financial statements.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.
Financial Statements
The financial statements of Cell MedX Corp. have been included in Item 8 above.
Financial Statement Schedules
All schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15.
Exhibits
All Exhibits required to be filed with the Form 10-K are included in this Annual Report or incorporated by reference to Cell MedX Corp.’s previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 000-54500.
Exhibit Number |
|
Description of Document |
|
Articles of Incorporation (2) |
|
|
Articles of Merger - Sports Asylum, Inc. and Plandel Resources, Inc. (5) |
|
|
Articles of Merger - Cell MedX Corp. and Sports Asylum, Inc. (5) |
|
|
Bylaws (1) |
|
|
Specimen Stock Certificate (1) |
|
|
Letter Agreement dated August 29, 2014 among Sports Asylum, Inc., Jean Arnett, Brad Hargreaves and XC Velle Institute Inc. (4) |
|
|
Consulting Agreement dated September 1, 2014 among Sports Asylum, Inc. and Jean Arnett. |
|
|
Consulting Agreement dated September 1, 2014 among Sports Asylum, Inc. and Brad Hargreaves. |
37
Exhibit Number |
|
Description of Document |
|
Technology Purchase Agreement dated October 16, 2014 among Cell MedX Corp., Jean Arnett, and Brad Hargreaves. (6) |
|
|
First Amendment Agreement dated October 28, 2014 to that Technology Purchase Agreement dated October 16, 2014 among Cell MedX Corp., Jean Arnett, and Brad Hargreaves. (7) |
|
|
Second Amendment Agreement dated November 13, 2014 to that Technology Purchase Agreement dated October 16, 2014 among Cell MedX Corp., Jean Arnett, and Brad Hargreaves. (8) |
|
|
Non-Qualified Stock Option Agreement dated November 25, 2014 among Cell MedX Corp. and Jean Arnett. (9) |
|
|
Non-Qualified Stock Option Agreement dated November 25, 2014 among Cell MedX Corp. and Brad Hargreaves. (9) |
|
|
First Amendment to Stock-Option Agreement dated February 28, 2014 to that Non-Qualified Stock Option Agreement dated November 25, 2014 among Cell MedX Corp. and Jean Arnett. (9) |
|
|
First Amendment to Stock-Option Agreement dated February 28, 2014 to that Non-Qualified Stock Option Agreement dated November 25, 2014 among Cell MedX Corp. and Brad Hargreaves. (9) |
|
|
Management Consulting Agreement dated January 13, 2015 among Cell MedX Corp., and Dr. John Sanderson, MD. (10) |
|
|
Stock Option Agreement dated December 12, 2014 among Cell MedX Corp. and Dr. John Sanderson, MD. (10) |
|
|
Stock Option Agreement dated August 5, 2015 among Cell MedX Corp. and Frank E. McEnulty.(11) |
|
|
eBalance Prototype Development Agreement dated October 1, 2015 among Cell MedX Corp., and Claudio Tassi. (12) |
|
|
Non-binding Letter of Intent dated December 4, 2015 to Enter into Development Agreement and License Agreement among Cell MedX Corp., Claudio Tassi, and Bioformed Aesthetic S.L. (13) |
|
|
Loan Agreement and Note Payable dated February 4, 2016, among Cell MedX Corp., and Tradex Capital Corp. |
|
|
Loan Agreement and Note Payable dated March 2, 2016, among Cell MedX Corp., and Tradex Capital Corp. |
|
|
Loan Agreement dated March 3, 2016 between Richard Norman Jeffs and Cell MedX Corp. (14) |
|
|
Loan Agreement and Note Payable dated March 10, 2016, among Cell MedX Corp., and Tradex Capital Corp. (15) |
|
|
Loan Agreement and Note Payable dated March 30, 2016, among Cell MedX Corp., and Tradex Capital Corp. (16) |
|
|
Loan Agreement and Note Payable dated March 31, 2016 among Cell MedX Corp., and Richard N. Jeffs. (16) |
|
|
Loan Agreement and Note Payable dated April 29, 2016, among Cell MedX Corp., and Richard N. Jeffs. (16) |
|
|
Loan Agreement and Note Payable dated June 1, 2016, among Cell MedX Corp., and Tradex Capital Corp. (16) |
|
|
Loan Agreement and Note Payable dated June 2, 2016, among Cell MedX Corp., and Richard N. Jeffs. (16) |
|
|
Loan Agreement and Note Payable dated June 29, 2016, among Cell MedX Corp., and Tradex Capital Corp. (16) |
|
|
Loan Agreement and Note Payable dated June 30, 2016, among Cell MedX Corp., and Richard N. Jeffs. (16) |
|
|
Loan Agreement and Note Payable dated August 8, 2016, among Cell MedX Corp., and Richard N. Jeffs. (16) |
|
|
Loan Agreement and Note Payable dated August 22, 2016, among Cell MedX Corp., and Tradex Capital Corp. (16) |
|
|
Letter Agreement dated September 26, 2016, between Jean Arnett, Brad Hargreaves and Cell MedX Corp. (17) |
|
|
Loan Agreement and Note Payable dated January 6, 2017, among Cell MedX Corp., and Richard N. Jeffs. (18) |
38
Exhibit Number |
|
Description of Document |
|
Loan Agreement and Note Payable dated February 7, 2017, among Cell MedX Corp., and Richard N. Jeffs. (19) |
|
|
Loan Agreement and Note Payable dated February 27, 2017, among Cell MedX Corp., and Richard N. Jeffs. (19) |
|
|
Loan Agreement and Note Payable dated January 11, 2017, among Cell MedX Corp., and Perla Capital Inc. (19) |
|
|
Loan Agreement and Note Payable dated January 13, 2017, among Cell MedX Corp., and Perla Capital Inc. (19) |
|
|
Loan Agreement and Note Payable dated February 14, 2017, among Cell MedX Corp., and Perla Capital Inc. (19) |
|
|
Loan Agreement and Note Payable dated March 8, 2017, among Cell MedX Corp., and Tradex Capital Corp. (19) |
|
|
Loan Agreement and Note Payable dated April 18, 2017, among Cell MedX Corp., and Perla Capital Inc. (19) |
|
|
Loan Agreement and Note Payable dated May 5, 2017, among Cell MedX Corp., and Tradex Capital Corp. (19) |
|
|
Loan Agreement and Note Payable dated July 12, 2017, among Cell MedX Corp., and Richard N. Jeffs. (20) |
|
|
Stock Option Agreement dated August 24, 2017 among Cell MedX Corp. and Yanika Silina (20) |
|
|
Stock Option Agreement dated August 24, 2017 among Cell MedX Corp. and Da Costa Management Corp. (20) |
|
|
Stock Option Agreement dated August 24, 2017 among Cell MedX Corp. and John Giovanni Di Cicco (20) |
|
|
Product Development Agreement for eBalance dated October 16, 2017, among Cell MedX Corp. and Western Robotics Ltd. (21) |
|
|
Management Consulting Agreement between Dr. Terrance Owen and Cell MedX Corp. dated effective as of December 1, 2017. (22) |
|
|
Loan Agreement and Note Payable dated April 5, 2018, among Cell MedX Corp., and Richard N. Jeffs. |
|
|
Loan Agreement and Note Payable dated May 8, 2018, among Cell MedX Corp., and Richard N. Jeffs. |
|
|
Intellectual Property Royalty Agreement between Cell MedX Corp. and Brek Technologies Inc., dated for reference September 6, 2018. |
|
|
Royalty Agreement between Cell MedX Corp. and Mr. Richard Norman Jeffs, dated for reference September 6, 2018. |
|
|
Letter of Intent between the Company and Live Current Media, Inc. dated for reference September 10, 2018. |
|
|
Code of Ethics (3) |
|
|
List of Significant Subsidiaries |
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
101 |
|
The following materials from this Quarterly Report on Form 10-K for the years ended May 31, 2018 and 2017 formatted in XBRL (extensible Business Reporting Language): |
|
|
(1) Consolidated Balance Sheets at May 31, 2018 and 2017. |
|
|
(2) Unaudited Condensed Interim Consolidated Statements of Operations for the years ended May 31, 2018 and 2017. |
|
|
(3) Unaudited Condensed Interim Consolidated Statement of Stockholders’ Deficit as at May 31, 2018. |
|
|
(4) Unaudited Condensed Interim Consolidated Statements of Cash Flows for the years ended May 31, 2018 and 2017. |
39
(1)
Filed as an exhibit to the Company’s Registration Statement on Form S-1 filed with SEC on July 13, 2010
(2)
Filed as an exhibit to the Company’s Amendment No. 1 to Registration Statement on Form S-1 filed with SEC on October 13, 2010
(3)
Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with SEC on August 26, 2014
(4)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on September 5, 2014
(5)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 9, 2014
(6)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on October 17, 2014
(7)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on November 3, 2014
(8)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on November 18 , 2014
(9)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2014
(10)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 13, 2015
(11)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015
(12)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 14, 2016
(13)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 15, 2015
(14)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2016
(15)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on April 14, 2016
(16)
Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on September 13, 2016
(17)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2016
(18)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on April 14, 2017
(19)
Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on August 29, 2017
(20)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 17, 2017
(21)
Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 16, 2018
(22)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on December 5, 2017.
40
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, Cell MedX Corp. has caused this report to be signed on its behalf by the undersigned duly authorized persons.
|
CELL MEDX CORP. |
|
|
|
|
|
|
|
|
|
|
Date: September 13, 2018 |
By: |
/s/ Frank E. McEnulty |
|
|
Name: |
Frank E. McEnulty |
|
|
Title: |
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: September 13, 2018 |
By: |
/s/ Yanika Silina |
|
|
Name: |
Yanika Silina |
|
|
Title: |
Chief Financial Officer |
|
|
|
(Principal Accounting Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of Cell MedX Corp. and in the capacities and on the dates indicated have signed this report below.
Signature |
Title |
Date |
|
|
|
/s/ Frank E. McEnulty Frank McEnulty |
Chief Executive Officer, President (Principal Executive Officer) and Member of the Board of Directors |
September 13, 2018 |
|
|
|
/s/ Yanika Silina Yanika Silina |
Chief Financial Officer, (Principal Financial Officer and Principal Accounting Officer) Corporate Secretary, Treasurer and Member of the Board of Directors |
September 13, 2018 |
|
|
|
/s/ Bradley Hargreaves Bradley Hargreaves |
Vice President, Technology and Operations and Member of the Board of Directors |
September 13, 2018 |
|
|
|
/s/ George Adams George Adams |
Member of the Board of Directors |
September 13, 2018 |
41
LIST OF SIGNIFICANT SUBSIDIARIES
Subsidiary Name |
State of Incorporation |
Cell MedX (Canada) Corp. |
British Columbia |
CELL MEDX CORP.
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank McEnulty, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ending May 31, 2018 of Cell MedX Corp.;
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;
4.
The registrant’s other certifying officer(s) 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an 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(s) 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 the 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: September 13, 2018
/s/ Frank McEnulty
Frank McEnulty
Chief Executive Officer
CELL MEDX CORP.
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yanika Silina, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ending May 31, 2018 of Cell MedX Corp.;
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;
4.
The registrant’s other certifying officer(s) 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an 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(s) 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 the 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: September 13, 2018
/s/ Yanika Silina
Yanika Silina
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cell MedX Corp. (the “Company”) on Form 10-K for the period ending May 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank McEnulty, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 13, 2018
/s/Frank McEnulty
Frank McEnulty
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cell MedX Corp. (the “Company”) on Form 10-K for the period ending May 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yanika Silina, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 13, 2018
/s/ Yanika Silina
Yanika Silina
Chief Financial Officer
EXHIBIT 10.45
LOAN AGREEMENT
April 5, 2018
Richard N. Jeffs (the “Lender”) of 11750 Fairtide Road, Ladysmith, BC V9G 1K5, advanced CDN$10,000 (the “Principal Sum”) to Cell MedX Corp. (the “Borrower”) of 123 W. Nye Ln, Suite 446, Carson City, NV 89706. The Lender advanced the funds on April 5, 2018.
The Borrower agrees to repay the Principal Sum on demand, together with interest calculated and compounded monthly at the rate of 12% per year (the “Interest”) from April 5, 2018 (the “Effective Date”). The Borrower agrees to pay an administrative fee of $500 for securing the loan; the administrative fee shall be added to Principal Sum and will accumulate interest at the same terms as the Principal Sum.
The Borrower is liable for repayment of the Principal Sum, accrued Interest, the administrative fee, and any additional costs that the Lender incurs in trying to collect the Principal Sum and the Interest.
The Borrower will evidence the debt and its repayment of the Principal Sum and the Interest with a promissory note in the attached form.
LENDER |
|
BORROWER |
Richard N. Jeffs |
|
Cell MedX Corp. |
|
|
|
Per: |
|
Per: |
|
|
|
|
|
|
/s/ Richard N. Jeffs |
|
/s/ Yanika Silina |
Richard N. Jeffs |
|
Yanika Silina, CFO |
PROMISSORY NOTE
Principal Amount: CAD$10,000 |
April 5, 2018 |
Cell MedX Corp., (the “Borrower”) promises to pay on demand to the order of Richard N. Jeffs (the “Lender”) the sum of $10,000 lawful money of Canada (the “Principal Sum”) together with the administrative fee of $500 and interest accrued on the Principal Sum and administrative fee calculated from April 5, 2018 (“Effective Date”) both before and after maturity, default and judgment at the Interest Rate as defined below.
For the purposes of this promissory note, Interest Rate means 12 per cent per year. Interest at the Interest Rate must be calculated and compounded monthly not in advance from and including the Effective Date (for an effective rate of 12.68% per annum calculated monthly), and is payable together with the Principal Sum when the Principal Sum is repaid.
The Borrower may repay the Principal Sum and the Interest in whole or in part at any time.
The Borrower waives presentment, protest, notice of protest and notice of dishonour of this promissory note.
BORROWER
Cell MedX Corp.
Per:
/s/ Yanika Silina
Yanika Silina, CFO
EXHIBIT 10.46
LOAN AGREEMENT
May 8, 2018
Richard N. Jeffs (the “Lender”) of 11750 Fairtide Road, Ladysmith, BC V9G 1K5, advanced CDN$10,000 (the “Principal Sum”) to Cell MedX Corp. (the “Borrower”) of 123 W. Nye Ln, Suite 446, Carson City, NV 89706. The Lender advanced the funds on May 8, 2018.
The Borrower agrees to repay the Principal Sum on demand, together with interest calculated and compounded monthly at the rate of 12% per year (the “Interest”) from May 8, 2018 (the “Effective Date”). The Borrower agrees to pay an administrative fee of $500 for securing the loan; the administrative fee shall be added to Principal Sum and will accumulate interest at the same terms as the Principal Sum.
The Borrower is liable for repayment of the Principal Sum, accrued Interest, the administrative fee, and any additional costs that the Lender incurs in trying to collect the Principal Sum and the Interest.
The Borrower will evidence the debt and its repayment of the Principal Sum and the Interest with a promissory note in the attached form.
LENDER |
|
BORROWER |
Richard N. Jeffs |
|
Cell MedX Corp. |
|
|
|
Per: |
|
Per: |
|
|
|
|
|
|
/s/ Richard N. Jeffs |
|
/s/ Yanika Silina |
Richard N. Jeffs |
|
Yanika Silina, CFO |
PROMISSORY NOTE
Principal Amount: CAD$10,000 |
May 8, 2018 |
Cell MedX Corp., (the “Borrower”) promises to pay on demand to the order of Richard N. Jeffs (the “Lender”) the sum of $10,000 lawful money of Canada (the “Principal Sum”) together with the administrative fee of $500 and interest accrued on the Principal Sum and administrative fee calculated from May 8, 2018 (“Effective Date”) both before and after maturity, default and judgment at the Interest Rate as defined below.
For the purposes of this promissory note, Interest Rate means 12 per cent per year. Interest at the Interest Rate must be calculated and compounded monthly not in advance from and including the Effective Date (for an effective rate of 12.68% per annum calculated monthly), and is payable together with the Principal Sum when the Principal Sum is repaid.
The Borrower may repay the Principal Sum and the Interest in whole or in part at any time.
The Borrower waives presentment, protest, notice of protest and notice of dishonour of this promissory note.
BORROWER
Cell MedX Corp.
Per:
/s/ Yanika Silina
Yanika Silina, CFO
Intellectual Property Royalty Agreement
THIS ROYALTY AGREEMENT , effective as of September 6, 2018 is between Cell MedX Corp. including any of its subsidiaries (“Cell MedX”) and Brek Technologies Inc. (“Brek”)
Background
A.
Cell MedX is the owner and developer of eBalance microcurrent devices intended for therapeutic purposes. It intends to distribute its eBalance devices through distributors, sales reps and or the Company..
B.
Cell MedX’s first devices were built under contract in Europe. The contractor failed and refused to deliver the devices, technology and data that were specified in the contract for which Cell MedX had paid the contractor.
C.
Brek undertook to develop the technology and a mother board and delivered source code for both firmware and software to Cell MedX. Cell MedX used this intellectual property to manufacture its first beta device in Canada..
D.
As a result, Cell MedX agreed to pay a royalty to Brek.
IN CONSIDERATION of the background recitals and $1 and other valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree that:
Definitions
1.
In this agreement:
(a)
Brek means Brek Technologies Inc., a British Columbia company.
(b)
CAD means Canadian dollars.
(c)
Company means Cell MedX Corp., a Nevada Compnay and any of its subsidiaries.
(d)
Device includes any eBalance or other microcurrent device that the Company develops or manufactures (either directly or by contract with any firm anywhere in the world) for any purpose that contains any of the Intellectual Property of the ebalance device V1.1 manufactured in Canada.
(e)
Distributor includes any person (including a partnership, company, corporation, or any other form of business organization or relationship) that the Company (or any of its subsidiaries) distributes Devices to..
(f)
Intellectual Property includes technology, mother board and source code for both firmware and software.
(g)
Royalty means the equivalent of 350 USD for each Device sold, licensed or distributed in anyway; except in Canada, in which case the Royalty is equal to 350 CAD.
(h)
USD means United States dollars.
2
Exhibits
2.
The following are attached as exhibits to this agreement:
(a)
Exhibit A: Bill of Sale
Royalty
3.
The Company will pay the Royalty to Brek in USD ; except in the case of Devices distributed in Canada , the Royalty will be paid in CAD.
4.
The Company will pay the Royalty to Brek on the 30 th day of the month following the month in which the Company distributed the Device; and will deliver by email at the same time a statement with the details of the Royalty calculations. [1]
5.
The Company does not intend to sell Devices. It intends to license or lease them to Distributors. If the Company at any time sells or otherwise disposes of a Device to a Distributor or any other person, then these devices are also part of the Royalty.
6.
Brek may audit any statement that the Company delivers under paragraph 4.
(a)
To exercise the audit right, Brek must give written notice of its intention to audit to the Company by the end of the month following the month in which it received the statement.
(b)
Brek may appoint any person to attend the audit personally-or send an accountant to perform the audit or attend with an account-during normal business hours at the offices of the Company in Vancouver BC, or wherever else the Company maintains the relevant accounting records.
(c)
If the audit discloses any discrepancy in the calculation of the Royalty paid to Brek that has resulted in Brek receiving less than the Royalty due, then the Company will pay the difference to Brek within 10 days.
(d)
If the audit discloses a discrepancy between the Royalty paid to Brek that is equal to or greater than a total of 25,000 USD , then the Company is liable for the costs of the audit and will reimburse Brek for its costs of the audit within 30 days of its receipt of a statement from Brek that includes invoices, receipts or other evidence of its costs.
7.
Brek may assign its right to the Royalty to other parties without the consent of the Company. Brek must inform the Company of any assignment; and the Company will thereafter pay the Royalty in the portions and to the parties whom Brek designates in writing. Any assignment includes all of Brek’s rights described in paragraphs 3 to 6 above and paragraphs 8 and 10 below.
_________________
[1] To determine the equivalent of 350USD, the Company will rely on the exchange rate published by [source] on [date].
3
Default
8.
Brek may declare that the Company is in default under this agreement if
(a)
the Company
(i)
fails to perform any of its obligations under this agreement,
(ii)
becomes insolvent or the subject of any insolvency proceeding, or
(iii)
is dissolved or liquidated, or
(b)
a receiver is appointed for any reason to take control of the Company’s assets.
9.
To declare default, Brek must deliver to the Company a notice of default setting out the grounds for the declaration of default.
10.
If the Company is in default under paragraph 8 above, then Brek is exclusively entitled to the Intellectual Property; and the Company will immediately deliver all of its rights and interests in the Intellectual Property and all improvements, versions, new technology and other enhancements that the Company has incorporated into Devices.
Representations and Warranties
11.
The Company represents and warrants that:
(a)
It is duly formed under the laws of Nevada and has the right and authority to make this agreement.
(b)
Its directors have approved this agreement.
(c)
It has entered no agreement with any party that conflicts or could conflict with this agreement.
(d)
It has received from Brek all of the Intellectual Property that is the subject of this agreement.
12.
Brek represents and warrants that:
(a)
It is duly formed under the laws of British Columbia and has the right and authority to make this agreement.
(b)
Its directors have approved this agreement.
(c)
It has entered no agreement with any party that conflicts or could conflict with this agreement and is not aware of any claims that have been or could be made to interfere with its ability to transfer the Intellectual Property and complete this agreement.
Other terms
13.
Time is of the essence of this agreement and of any amendment to it.
14.
If either party must perform under this agreement on a day that is not a business day in Vancouver BC, then the party must perform on the next business day in Vancouver BC.
4
15.
Notice
(a)
Any notice that must be given under this agreement must be in writing and delivered by hand or overnight courier or transmitted by fax or email to the following address, email address or fax number:
(i)
To Brek at:
Address: |
#820 - 1130 West Pender Street, Vancouver, B.C. V6E 4A4 |
Email: |
john@dacostacorp.com |
Fax: |
604-648-0517 |
(ii)
To the Company at:
Address: |
#820 - 1130 West Pender Street, Vancouver, B.C. V6E 4A4 |
Email: |
yana@cellmedx.com |
Fax: |
604-648-0517 |
(b)
Notice is deemed to have been received when it is delivered or transmitted if it is delivered or transmitted during normal business hours in Vancouver BC, or on the next business day if it is delivered or transmitted outside of normal business hours.
16.
This agreement is the entire agreement between the parties; and its terms may be waived or amended only in writing and signed by the parties. No waiver or amendment of any term operates to waive or amend any other term.
17.
This agreement does not create a partnership or joint venture or any other kind of business association between the parties and neither party has the power to bind the other in any way other than as set out in this agreement.
18.
The Company may form subsidiary business organizations in any jurisdiction to hold agreements with Distributors covering the distribution territories. The terms and conditions of this agreement are deemed to be between Brek and any subsidiary of the Company that enters an agreement with a Distributor that results in the distribution of a Device.
19.
Neither party may assign its interest in this agreement without the other party’s written consent, which cannot be withheld unreasonably; except that Brek may assign the Royalty rights under this agreement to third parties without written consent.
20.
This agreement is binding on and inures to the benefit of the parties and their respective successors and permitted assigns.
21.
Each party participated in the drafting of this agreement; and no presumption that either party or any other party drafted it applies in any interpretation, construction, or enforcement of this agreement.
5
22.
This agreement must be construed in accordance only with the laws of British Columbia and the jurisdiction of the courts of British Columbia.
23.
No finding by a court of competent jurisdiction that any provision of this agreement is invalid, illegal, or otherwise unenforceable operates to impair or affect the remaining provisions which remain effective and enforceable.
24.
This agreement may be signed in counterparts and delivered to the parties by any means; and the counterparts together are deemed to be one original document.
THE PARTIES’ SIGNATURES below are evidence of their agreement to the foregoing.
Cell MedX Corp.
/s/ Brad Hargreaves Brad Hargreaves, V.P. Technology and Operations |
Brek Technologies Inc.
/s/ John da Costa John da Costa, President |
6
Exhibit A
Bill of Sale
Firmware
Software
Schematics
Gerber Files
Motherboard Bill of Material
Intellectual Property Royalty Agreement
THIS ROYALTY AGREEMENT , effective as of September 6, 2018 is between Richard N. Jeffs and Cell MedX Corp. a Nevada corporation and or any subsidiaries (“Cell MedX”)
Background
A.
Cell MedX is the owner and developer of microcurrent devices for therapeutic purposes.
B.
Cell MedX intends to distribute its devices and products related to the devices through distributors, generating revenue from treatments administered through devices and sales of products to distributors and users.
C.
Having seen the benefits of the therapies realized by two of his siblings with type 1 diabetes who have used the devices, Rick Jeffs has been an enthusiastic supporter of Cell MedX since 2015, contributing both capital and his time and introducing potential distributors to the corporation.
D.
As a result, the corporation has agreed to pay a royalty to Mr. Jeffs on all revenue the corporation receives from any distributors that Mr. Jeffs has introduced to the corporation.
IN CONSIDERATION of the background recitals and $1 and other valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree that:
Definitions
1.
In this agreement:
(a)
Device means any microcurrent device that Cell MedX develops, manufactures or acquires for therapeutic or other use anywhere in the world (including any microcurrent device that Cell MedX develops for personal use by individual users).
(b)
Distributor means any person (including a partnership, company, corporation, or any other form of business organization or relationship) that Mr. Jeffs introduces to Cell MedX that Cell MedX (or any of its subsidiaries) authorizes to distribute its Devices and Products to Users.
(c)
Product means any ancillary product (including electrolyte, tools attachable to a Device for any purpose, and any other item that is used for a Treatment) that Cell MedX produces or offers for distribution or sale to a Distributor that a Distributor sells to a User.
(d)
Revenue means the gross proceeds that Cell MedX (or any of its subsidiaries) receives from Distributors or Users of its Devices generated by Treatment fees and sales of Products.
(e)
Treatment means a single treatment (not a series of treatments; if a series, then each individual treatment in the series is a single treatment) with a Device that is administered by a User.
2
(f)
Treatment fee means the fee that a Distributor charges a User for Treatment.
(g)
User includes any clinic or health practitioner who acquires a Device from a Distributor and administers Treatments; any other party who acquires a Device from a Distributor and is authorized or permitted to administer Treatments; and any person who acquires a Device from a Distributor for personal use
Distributors
2.
Mr. Jeffs has introduced potential Distributors to Cell MedX identified on attachment A and may continue to introduce potential Distributors. If any of these potential Distributors, whether directly or indirectly, or not yet introduced, enters an agreement with Cell MedX and becomes a Distributor, then Mr. Jeffs is entitled to a royalty.
Royalty
3.
The royalty is equal to 10% of all Revenue, payable in the currency of the Revenue in which Cell MedX received it.
4.
Cell MedX does not intend to sell Devices. It intends to lease or license them to Distributors. If Cell MedX at any time sells a Device to a Distributor or User without a Treatment fee payable, then the gross proceeds from the sale are included in Revenue and subject to the royalty.
5.
Cell MedX will pay the royalty to Mr. Jeffs on the 30th day of the month following the month in which Cell MedX received the Revenue; and will deliver by email at the same time a statement with the details of the Revenue and royalty calculations.
6.
Cell MedX will pay the royalty by wire or other form of electronic transfer to the account that Mr. Jeffs directs Cell MedX in writing. 7. Mr. Jeffs may audit any statement that Cell MedX delivers under paragraph 5.
(a)
To exercise the audit right, Mr. Jeffs must give written notice of his intention to audit to Cell MedX by the end of the month following the month in which he received the statement.
(b)
Mr. Jeffs may attend the audit personally-or send an accountant to perform the audit or attend with an account-during normal business hours at the offices of Cell MedX in Vancouver BC, or wherever else Cell MedX maintains the relevant accounting records.
(c)
If the audit discloses any discrepancy between the Revenue and the royalty paid to Mr. Jeffs that has resulted in Mr. Jeffs receiving less than the royalty due, then Cell MedX will pay the difference to Mr. Jeffs within 10 days.
3
(d)
If the audit discloses a discrepancy between the Revenue and the royalty paid to Mr. Jeffs that is equal to or greater than a total of 25,000 USD, then Cell MedX is liable for the costs of the audit and will reimburse Mr. Jeffs for his costs of the audit within 30 days of its receipt of a statement from Mr. Jeffs that includes invoices, receipts or other evidence of his costs.
Representations and Warranties
8.
Cell MedX represents and warrants the following:
(a)
It is duly formed under the laws of Nevada and that it has the right and authority to make this agreement.
(b)
It has entered no agreement with any party that conflicts or could conflict with this agreement.
Other terms
9.
Time is of the essence of this agreement and of any amendment to it.
10.
If either party must perform under this agreement on a day that is not a business day in Vancouver BC, then the party must perform on the next business day in Vancouver BC.
11.
Notice
(a)
Any notice that must be given under this agreement must be in writing and delivered by hand or overnight courier or transmitted by fax or email to the following address, fax number or email address
(i)
To Mr. Jeffs at rick@jeffsco.com
(ii)
To the CellMedX at yana@cellmedx.com
(b)
Notice is deemed to have been received when it is delivered or transmitted if it is delivered or transmitted during normal business hours in Vancouver BC, or on the next business day if it is delivered or transmitted outside of normal business hours.
12.
This agreement is the entire agreement between the parties; and its terms may be waived or amended only in writing and signed by the parties. No waiver or amendment of any term operates to waive or amend any other term.
13.
This agreement does not create a partnership or joint venture or any other kind of business association between the parties and neither party has the power to bind the other in any way other than as set out in this agreement.
4
14.
Cell MedX may form subsidiary business organizations in any jurisdiction to hold agreements with Distributors covering the distribution territories. The terms and conditions of this agreement are deemed to be between Mr. Jeffs and any subsidiary of Cell MedX that enters an agreement with a Distributor that results in a Distributor remitting Revenue directly to the subsidiary.
15.
Neither party may assign its interest in this agreement without the other party’s written consent, which cannot be withheld unreasonably; except that Mr. Jeffs may assign this agreement to a company formed for the purpose of holding and administering his interest in this agreement without written consent. If Mr. Jeffs wishes to sell this agreement to a 3rd party then Cell MedX will have a first right of refusal for 30 days.
16.
This agreement is binding on and inures to the benefit of the parties and their respective successors and permitted assigns.
17.
Each party participated in the drafting of this agreement; and no presumption that either party or any other party drafted it applies in any interpretation, construction, or enforcement of this agreement.
18.
This agreement must be construed in accordance only with the laws of British Columbia and the jurisdiction of the courts of British Columbia.
19.
No finding by a court of competent jurisdiction that any provision of this agreement is invalid, illegal, or otherwise unenforceable operates to impair or affect the remaining provisions which remain effective and enforceable.
20.
This agreement may be signed in counterparts and delivered to the parties by any means; and the counterparts together are deemed to be one original document.
THE PARTIES’ SIGNATURES below are evidence of their agreement to the foregoing.
Richard N. Jeffs Richard N. Jeffs |
Cell MedX Corp.
/s/ Brad Hargreaves Brad Hargreaves, V.P. Technology and Operations. |
5
Attachment A
Potential Distributors
Leigh Jeffs, Victoria, BC Canada
David Jeffs, Wittnau, Germany
Letter of Intent
This Letter of Intent (“LOI”) is between Live Current Media, Inc. located at 820 - 1130 West Pender Street, Vancouver, BC V6E 4A4, Canada (“LIVC”), and Cell MedX Corp. located at 123 W. Nye Ln, Suite 446 Carson City, NV (“CMXC”). For purposes of this LOI, LIVC and CMXC are referred to collectively as “the Parties.”
WHEREAS, CMXC is the manufacturer of a microcurrent medical device, namely the eBalance© device and;
WHEREAS, CMXC has identified two distribution market channels for sales of the eBalance© device, home based and individual rights (“Direct Rights”) and clinic, doctor and practitioner rights (“Wholesale Rights”) to use the eBalance© device to offer treatments to clients;
WHEREAS, CMXC now seeks to sell the worldwide Direct Rights to the eBalance© device and LIVC wishes to purchase these rights;
NOW, THEREFORE, in consideration of the mutual promises expressed herein, the sufficiency of which is acknowledged by the Parties, LIVC and CMXC agree as follows:
1.
Fee
LIVC will pay to CMXC the sum of US$250,000 on signing of this LOI. This fee will be repayable upon expiration of this LOI without execution of a definitive agreement.
2.
Term
This LOI will expire in 90 days following signing or upon being replaced by a definitive agreement signed by both Parties.
3.
Definitive Agreement
a.
The Parties agree that, within 90 days of the signing of this LOI, a definitive agreement will be signed which outlines the exact details of the purchase of the Direct Rights to the eBalance© device. The Direct Rights are described as any sale of an eBalance© unit to an individual for personal or family and friends use in their home or any variation thereof. These details will include:
i.
CMXC will assign the exclusive worldwide Direct Rights to market and distribute the eBalance© device to LIVC.
ii.
LIVC will guarantee to purchase from CMXC a minimum of 500 eBalance© units in the first 14 months after signing the definitive agreement and after receiving the first saleable device.
LIVC will guarantee to purchase from CMXC a minimum of 2,000 eBalance© units in the first 24 months after signing the definitive agreement and after receiving the first saleable device.
iii.
The eBalance© device will be sold for a maximum of US$3,000. LIVC will receive no part of this purchase price.
iv.
Direct Rights users will pay a maximum of US$20 per treatment.
v.
CMXC and LIVC will split the treatment fee evenly.
vi.
LIVC will have the right to sell eBalance© units to clinics, doctors and practitioners in any territory in which the rights have not already been purchased from CMXC by a third party. At the signing of this LOI, no Wholesale Rights have been sold by CMXC.
vii.
LIVC will have first right of refusal to purchase the Wholesale Rights for any territory with 30 days notice from CMXC after CMXC has agreed to a sale of the Wholesale Rights to a third party.
viii.
CMXC will be liable for the shipping and handling and credit card fee costs of all sales.
ix.
CMXC will guarantee all eBalance© devices and replace faulty.devices at their cost.
x.
eBalance© devices will be guaranteed and users may return them for a full refund within the first 120 days. This refund may be subject to a restocking and shipping and handling fee. Physically abused or damaged eBalance© devices will not be refunded.
xi.
eBalance© devices sold on a Wholesale Rights basis will be provided to practitioners free of charge.
xii.
CMXC and LIVC will work together immediately after signing of this LOI to ensure that the client usability software of the eBalance© device meets LIVC’s requirements.
xiii.
CMXC avers that the eBalance© device is electrically certified for home use, hospital use and clinic use.
xiv.
The Direct Rights apply to all upgrades and new devices developed by CMXC as long as the agreement is still in place.
xv.
Both Parties acknowledge that the price of new devices may be higher than the current price structure for the eBalance© device.
4.
Good Faith
Both Parties agree to work in good faith to complete the definitive agreement before expiration of this LOI.
5.
Applicable Law and Dispute Resolution
This Agreement shall be governed, interpreted and enforced in accordance with the laws of British Columbia. The Parties will attempt to resolve any dispute concerning this Agreement through good faith consultation and negotiation.
IN WITNESS WHEREOF , the Parties, through their respective authorized signatories, have caused this Letter of Intent to be duly executed this 10th day of September 2018.
Live Current Media Inc. |
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Cell MedX Corp. |
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By: /s/ David Jeffs |
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By: /s/ Brad Hargreaves |
Signature |
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Signature |
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Name: David Jeffs |
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Name: Brad Hargreaves |
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Title: CEO |
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Title: VP, Technology and Operations |
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Date: September 10, 2018 |
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Date: September 5, 2018 |