Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
CardioGenics
Inc. (“CardioGenics”) was incorporated on November 20, 1997 in the Province of Ontario, Canada, and carries on the
business of development and commercialization of diagnostic test products to the In Vitro Diagnostics testing market. CardioGenics
has several test products that are in various stages of development.
CardioGenics’
business is that of a development-stage company, with a limited history of operations and whose revenues, to date, have been primarily
comprised of grant revenue and Scientific Research Tax Credits from government agencies. There can be no assurance that the Company
will be successful in obtaining regulatory approval for the marketing of any of the existing or future products that the Company
will succeed in developing.
In
the opinion of management, the unaudited condensed interim consolidated financial statements reflect all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the condensed interim consolidated financial position of CardioGenics
Holdings Inc. and its subsidiaries under generally accepted accounting principles in the United States (“US GAAP”)
as of January 31, 2016, their results of operations and cash flows for the three months ended January 31, 2016 and 2015, and the
changes in deficiency for the three months ended January 31, 2016. CardioGenics Holdings Inc. and its subsidiaries are referred
to together herein as the “Company”. Pursuant to rules and regulations of the SEC, certain information and disclosures
normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from these consolidated
financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these
condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements,
notes to consolidated financial statements and the other information in the audited consolidated financial statements of the Company
as of October 31, 2015 (the “Audited Financial Statements”) included in the Company’s Form 10-K that was previously
filed with the SEC on February 26, 2016 and from which the October 31, 2015 consolidated balance sheet was derived.
The
results of the Company’s operations for the three months ended January 31, 2016 are not necessarily indicative of the results
of operations to be expected for the full year ending October 31, 2016.
The
accompanying condensed interim consolidated financial statements have been prepared using the accounting principles generally
accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
The
Company has incurred operating losses and has experienced negative cash flows from operations since inception. The Company has
an accumulated deficit at January 31, 2016 of approximately $49.7 million. The Company has not yet established an ongoing source
of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The Company has funded its
activities to date almost exclusively from debt and equity financings. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company will continue to require substantial funds to continue research and development, including preclinical studies and clinical
trials of its products, and to commence sales and marketing efforts, if the FDA and other regulatory approvals are obtained. In
order to meet its operating cash flow requirements, management’s plans include financing activities such as private placements
of its common stock and issuances of convertible debt instruments. Management is also actively pursuing industry collaboration
activities including product licensing and specific project financing.
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
While
the Company believes it will be successful in obtaining the necessary financing to fund its operations and manage costs, there
are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The accompanying
condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence.
|
|
3.
|
Summary
of Significant Accounting Policies
.
|
Derivative
Instruments
The
Company’s derivative liabilities are related to embedded conversion features of the Notes Payable. For derivative instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued
at each reporting date, with changes in fair value recognized in earnings each reporting period. The Company uses the Black-Scholes
model to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end
of each reporting period, in accordance with Accounting Standards Codification (“ASC”) 815. Derivative instrument
liabilities are classified in the condensed consolidated balance sheet as current or non-current based on whether or not the net-cash
settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Based
on the Company’s evaluation, management has concluded that there are no significant tax positions requiring recognition
in the condensed interim consolidated financial statements.
The
Company has incurred losses in Canada since inception, which have generated net operating loss carryforwards for income tax purposes.
The net operating loss carryforwards arising from Canadian sources as of January 31, 2016 approximated $7,730,000, which will
expire from 2016 through 2035. All fiscal years except 2015 have been assessed as filed by Canadian tax authorities.
A
research and development tax credit for 2012 for which the Company received a refund of $81,460 is being refuted by Canadian taxation
authorities. The Company is disputing the position taken by the taxation authorities, but has established a reserve for possible
repayment.
As
of January 31, 2016, the Company had net operating loss carryforwards from US sources of approximately $45,409,000 available to
reduce future Federal taxable income which will expire from 2019 through 2035. Returns for the years 2008 through 2015 are yet
to be filed.
For
the three months ended January 31, 2016 and 2015, the Company’s effective tax rate differs from the statutory rate principally
due to the net operating losses for which no benefit was recorded.
On November 4, 2015, a third party
loaned the Company $214,194 for a term of one year at an interest rate of 10% per annum.
On
November 19, 2012, the Company entered into an agreement (“Line”) with JMJ Financial (“Lender”) whereby
the Company may borrow up to $350,000 from the Lender in increments of $50,000. The Line is subject to an original issue discount
of $50,000. Advances under the Line (“Notes”) have a maturity date of one year from the date of the advance. If the
advance is repaid within three months, the advance is interest free. If not repaid within three months, the advance may not be
repaid before maturity and carries interest at 5%. The Lender has the right at any time to convert all or part of the outstanding
principal and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the
Company at a price equal to the lesser of $0.23 and 60% of the lowest trade price in the 25 trading days previous to the conversion.
Unless agreed in writing by the parties, at no time will the Lender convert any amount owing under the Line into common stock
that would result in the Lender owning more than 4.99% of the common stock outstanding. On June 22, 2015, the Company and the
Lender entered into a settlement agreement, whereby in exchange for the remaining indebtedness of $77,235, the Company agreed
that on the 15th of each month commencing July 2015 and ending June 2016, the Company would either pay the lender $6,436 or issue
to the lender common shares in the equivalent dollar amount at a price equal to the average closing price of the common stock
in the five trading days prior to the scheduled payment date. During the three months ended January 31, 2016, the Company issued
a total of 447,694 common shares for three installments.
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
On
May 23, 2014, the Company issued promissory notes (the “LG Notes”) to LG Capital Funding, LLC and Adar Bays, LLC (collectively
the “Holders”) in the amount of $52,500 each bearing interest at 8% annually due May 23, 2015. The LG Notes and accrued
interest may be converted into shares of the Common Stock of the Company at a 42% discount to the lowest closing bid with a 12
day look back.
On
December 15, 2014, the Company received $52,500 from LG Capital in exchange for a note payable bearing interest at 8% due in one
year, convertible into shares of the Company’s common stock at a 42% discount from the lowest closing price of the common
shares over the prior 15 days. As of January 31, 2016, all but $16,500 of the notes have been converted to common shares.
On
July 31, 2015, the Company received $55,250 from Auctus, LLC in exchange for a note payable bearing interest at 8% due in nine
months, convertible into shares of the Company’s common stock at a 45% discount from the lowest closing price of the common
shares over the prior 15 days.
On
August 14, 2015, the Company received $27,500 from Iliad Research & Trading, L.P. in exchange for a note payable bearing interest
at 10% due in one year, convertible into shares of the Company’s common stock at a 40% discount from the lowest closing
price of the common shares over the prior 15 days.
On
October 13, 2015, the Company received $27,500 from Chicago Ventures in exchange for a note payable bearing interest at 10% due
in one year, convertible into shares of the Company’s common stock at a 40% discount from the lowest closing price of the
common shares over the prior 15 days.
On
November 20, 2015, the Company received $50,000 from Bay Private Equity Inc. in exchange for a note payable bearing interest at
8% due in one year, convertible into shares of the Company’s common stock at a 45% discount from the lowest closing price
of the common shares over the prior 15 days.
On
November 25, 2015, the Company received $160,500 from FirstFire Opportunities Fund LLP in exchange for a note payable bearing
interest at 4% due in six months, convertible into shares of the Company’s common stock at a 60% discount from the lowest
closing price of the common shares over the prior 15 days.
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
A
summary of the Notes Payable at January 31, 2016 and October 31, 2015 follows:
|
|
|
January 31, 2016
|
|
|
October 31, 2015
|
|
|
Convertible Note Payable, due December 15, 2015
|
|
$
|
16,500
|
|
|
$
|
16,500
|
|
|
Convertible Notes Payable, due May 23, 2016
|
|
|
160,500
|
|
|
|
-
|
|
|
Convertible Note Payable, due June 23, 2016
|
|
|
35,616
|
|
|
|
54,925
|
|
|
Convertible Note Payable, due July 31, 2016
|
|
|
55,250
|
|
|
|
55,250
|
|
|
Convertible Note Payable, due August 14, 2016
|
|
|
27,500
|
|
|
|
27,500
|
|
|
Convertible Note Payable, due October 9, 2016
|
|
|
27,500
|
|
|
|
27,500
|
|
|
Convertible Note Payable, due November 20, 2016
|
|
|
50,000
|
|
|
|
-
|
|
|
Debt Discount - value attributable to conversion feature attached to
notes, net of accumulated amortization of $164,302 and $72,614
|
|
|
(208,564
|
)
|
|
|
(109,061
|
)
|
|
Total
|
|
|
164,302
|
|
|
|
72,614
|
|
|
Less: Current portion
|
|
|
164,302
|
|
|
|
72,614
|
|
|
Total Long-term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
As
described in further detail in Note 7, “Derivative Liabilities”, the Company determines the fair value of the embedded
derivatives and records them as a discount to the Notes and as a derivative liability. Upon conversion of the Notes to Common
Stock, any remaining unamortized discount is charged to financing expense.
|
|
7.
|
Derivative
Liabilities
|
The
Notes meet the definition of a hybrid instrument, as defined in ASC 815. The hybrid instrument is comprised of a i) a debt instrument,
as the host contract and ii) an option to convert the debentures into common stock of the Company, as an embedded derivative.
The embedded derivatives derive their value based on the underlying fair value of the Company’s common stock. The embedded
derivatives are not clearly and closely related to the underlying host debt instrument since the economic characteristics and
risk associated with these derivatives are based on the common stock fair value.
The
Company determines the fair value of the embedded derivatives and records them as a discount to the Notes and a derivative liability.
The Company has recognized a derivative liability of $499,952 at January 31, 2016. Accordingly, changes in the fair value of the
embedded derivatives are immediately recognized in earnings and classified as a gain or loss on the embedded derivative financial
instrument in the accompanying condensed consolidated statements of operations. The Company recorded a gain of $54,634 in the
fair value for the three months ended January 31, 2016.
The
Company estimated the fair value of the embedded derivatives using a Black Scholes model with the following assumptions: conversion
price $0.012 - $0.022 per share according to the agreements; risk free interest rate of .11%; expected life of up to 1 year; expected
dividend of zero; a volatility factor of 194% to 278%, as of January 31, 2016. The expected lives of the instruments are equal
to the contractual term of the conversion option. The expected volatility is based on the historical price volatility of the Company’s
common stock. The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related
conversion option. The dividend yield represents anticipated cash dividends to be paid over the expected life of the conversion
option.
|
|
8.
|
Fair
Value Measurements
|
As
defined by the ASC, fair value measurements and disclosures establish a hierarchy that prioritizes fair value measurements based
on the type of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels
of hierarchy are described below:
|
|
●
|
Level
1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
|
|
●
|
Level
2: Inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly; these
include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are
observable at commonly-quoted intervals.
|
|
|
|
|
|
|
●
|
Level
3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market
activity.
|
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
The
following table summarizes the financial liabilities measured at fair value on a recurring basis as of January 31, 2016, segregated
by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active
|
|
|
Significant Other
|
|
|
|
|
|
|
|
|
Total Increase
(Reduction)
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Significant
|
|
|
|
|
|
in Fair Value
|
|
|
Balance Sheet
|
|
Identical Assets or
|
|
|
Inputs
|
|
|
Unobservable
|
|
|
January 31, 2016
|
|
|
Recorded at
|
|
|
Location
|
|
Liabilities (Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Total
|
|
|
January 31, 2015
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
499,952
|
|
|
$
|
499,952
|
|
|
$
|
(54,634
|
)
|
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liability, or derivative
liabilities related to the senior secured convertible notes and warrants, for the three months ended January 31, 2016 and 2015.
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
344,086
|
|
|
$
|
201,260
|
|
|
Additions to derivative instruments
|
|
|
210,500
|
|
|
|
179,820
|
|
|
Change in fair value of derivative liabilities
|
|
|
(54,634
|
)
|
|
|
652,348
|
|
|
Settlements
|
|
|
-
|
|
|
|
(385,699
|
)
|
|
Balance at end of period
|
|
$
|
499,952
|
|
|
$
|
647,729
|
|
|
|
9.
|
Stock-Based
Compensation
|
Stock-based
employee compensation related to stock options for the three months ended January 31, 2016 and 2015 amounted to $-0-.
The
following is a summary of the common stock options granted, forfeited or expired and exercised under the Plan:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding – October 31, 2014
|
|
|
30,000
|
|
|
$
|
0.90
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding – October 31, 2015
|
|
|
30,000
|
|
|
$
|
0.90
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding – January 31, 2016
|
|
|
30,000
|
|
|
$
|
0.90
|
|
Options
typically vest immediately at the date of grant. As such, the Company does not have any unvested options or unrecognized compensation
expense at January 31, 2016.
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
Outstanding
warrants are as follows:
|
|
|
January 31, 2016
|
|
|
October 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit
in August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $0.30 per common share
up to and including August 23, 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011,
entitling the holder to purchase 1 common share in the Company at an exercise price of $0.50 per common share up to and including
August 23, 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011,
entitling the holder to purchase 1 common share in the Company at an exercise price of $0.75 per common share up to and including
August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011,
entitling the holder to purchase 1 common share in the Company at an exercise price of $1.00 per common share up to and including
August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011,
entitling the holder to purchase 1 common share in the Company at an exercise price of $0.75 per common share up to and including
August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to debenture holders February 2013 entitling the holders to purchase
1 common share in the Company at an exercise price of $0.25 per common share up to and including February 27, 2016
|
|
|
600,000
|
|
|
|
600,000
|
|
|
Issued to debenture holders May 2013 entitling the holders to purchase 1
common share in the Company at an exercise price of $0.15 per common share up to and including June 3, 2016
|
|
|
750,000
|
|
|
|
750,000
|
|
|
Issued to debenture holders June 2013 entitling the holders to purchase
1 common share in the Company at an exercise price of $0.15 per common share up to and including June 3, 2016
|
|
|
232,500
|
|
|
|
232,500
|
|
|
Issued to consultants in August 5, 2013 entitling the holders to purchase
1 common share in the Company at an exercise price of $0.15 per common share up to and including August 4, 2023
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
Issued to consultants in August 5, 2013 entitling the holders to purchase
1 common share in the Company at an exercise price of $0.10 per common share up to and including August 4, 2023
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
Issued to consultant in September 3, 2013 entitling the holder to purchase
1 common share in the Company at an exercise price of $0.50 per common share up to and including July 31, 2018
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to shareholder October 29, 2013 entitling the holder to purchase
1 common share in the Company at an exercise price of $0.15 per common share up to and including October 29, 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Issued to shareholder November 7, 2013 entitling the holder to purchase
1 common share in the Company at an exercise price of $0.15 per common share up to and including November 7, 2016
|
|
|
125,000
|
|
|
|
125,000
|
|
|
Total Warrants outstanding
|
|
|
8,457,500
|
|
|
|
8,457,500
|
|
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
|
|
11.
|
Issuance
of Common Stock
|
During
the three months ended January 31, 2016, the Company issued the following common shares:
|
Issued on settlement of notes payable
|
|
|
447,694
|
|
|
Issued for cash consideration of $7,279
|
|
|
205,000
|
|
|
|
|
|
652,694
|
|
The
following table sets forth the computation of weighted-average shares outstanding for calculating basic and diluted loss per share:
|
|
|
Three Months Ended
January 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic
|
|
|
116,716,036
|
|
|
|
74,095,036
|
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
Weighted-average shares - diluted
|
|
|
116,716,036
|
|
|
|
74,095,036
|
|
Basic
and diluted loss per share for the three months ended January 31, 2016 and 2015 have been computed by dividing the net loss available
to common stockholders for each respective period by the weighted-average shares outstanding during that period. All outstanding
options, warrants and shares to be issued upon the exercise of the outstanding convertible notes representing 34,870,971 and 29,074,285
incremental shares, respectively, have been excluded from the three months ended January 31, 2016 and 2015 computations of diluted
earnings per shares as they are antidilutive given the net losses generated.
|
|
13.
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
For
the Three Months Ended
January 31,
|
|
|
Cash paid during the period for:
|
|
2016
|
|
|
2015
|
|
|
Interest
|
|
$
|
3,264
|
|
|
$
|
6,344
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable
|
|
$
|
19,309
|
|
|
$
|
137,821
|
|
|
Settlement of derivative liability
|
|
$
|
-
|
|
|
$
|
385,699
|
|
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
On
November 4, 2015, the Company, through 2489528 Ontario Inc., an Ontario corporation and indirect subsidiary of the Company (“Acquisition
Sub”), Plasticap Corporation, an Ontario corporation (“Plasticap”) and 1731861 Ontario Inc., an Ontario corporation
(“173 Corp”) entered into an asset purchase agreement, dated as of November 2, 2015, pursuant to which Acquisition
Sub was to acquire all of the assets of Plasticap and 173 Corp (collectively, the “Sellers”) (the “Asset Purchase
Agreement”).
In
consideration for the sale of the assets by the Sellers, the Company is to issue to the Sellers, or their nominees, (i) a convertible
debt instrument, in the original principal amount of ten million Canadian dollars (CDN$10,000,000), which shall bear interest
at a rate of 8% (the “Convertible Debt”); (ii) twenty million (20,000,000) shares of the Company’s common stock,
par value $0.00001 (the “Common Stock”), which shares shall not be registered for resale by the Company and shall
be subject to the rights and restrictions of Rule 144 of the Securities Act of 1933 (“Rule 144”); and (iii) a warrant
to purchase ten million (10,000,000) shares of Common Stock, which warrant shall have a term of three (3) years, be exercisable
on a net cashless basis at an exercise price of $0.50 per share, not be registered for resale by Seller and be subject to the
rights and restrictions of Rule 144 (the “Warrant”). In addition, Acquisition Sub will assume two million nine-hundred
thousand Canadian dollars (CDN $2,900,000) in secured debt from the Sellers (the “Secured Debt”) as part of the consideration.
The
Asset Purchase Agreement contains customary representations and warranties from the parties. Acquisition Sub and 173 Corp also
agreed to various post-closing undertakings described in Item 2. below.
On
November 4, 2015 and subject to post-closing undertakings, the Company, Acquisition Sub and the Sellers closed the sale and purchase
of all of the assets of the Sellers by Acquisition Sub, pursuant to the terms of the Asset Purchase Agreement. The assets acquired
by Acquisition Sub comprised all of the assets of the Sellers, which include, among others, the “Plasticap” trademark,
all furnishings, fixtures and equipment related to Plasticap’s specialty cap and closure manufacturing business and all
of the Sellers’ customer contracts, all as more particularly set forth in the Asset Purchase Agreement.
As
part of the closing, Acquisition Sub and 173 Corp agreed to various post-closing undertakings. The following undertakings have
yet to be completed and hence the sale has not closed and the notes and warrants above have not been issued, nor has the CDN $2,900,000
secured debt been assumed.
|
|
(i)
|
173
Corp undertakes that by January 31, 2016 it shall pay all the outstanding indebtedness of Bibby Financial Services located
at 4 Robert Speck Parkway, Unit 310, Mississauga, ON, L4Z 1S1.
|
|
|
|
|
|
|
(ii)
|
Following
the fulfilment of the undertaking specified in paragraph (i), which shall be considered fulfilled upon 173 Corp providing
Acquisition Sub with a copy of the check payable to Bibby Financial Services for the full amount of the indebtedness, 173
Corp undertakes to provide Acquisition Sub, or as it directs, with a full and comprehensive release against any future claims
Bibby Financial Services may have and a full indemnity against any future claims.
|
|
|
|
|
|
|
(iii)
|
Acquisition
Sub undertakes that it will advance up to fifty thousand Canadian dollars (CDN$50,000) as a deposit against any outstanding
claims Jacob Van Halteran may have through any security interests duly registered on any of the Sellers’ assets and
that the Sellers shall provide a full and comprehensive release of those security interests other than any rights that may
be asserted under the Asset Purchase Agreement specifying any assumed liabilities.
|
CardioGenics
Holdings Inc.
Notes
to Condensed Consolidated Financial Statements (unaudited)
January
31, 2016 and 2015
|
|
(iv)
|
A
Seller’s lender will be paid fifty thousand Canadian dollars (CDN$50,000) against the debt in 173 Corp.
|
|
|
|
|
|
|
(v)
|
Acquisition
Sub undertakes to pay from earnings received from time-to-time from its primary customer contract, based on a calculation
of 50% before interest, taxes, depreciation and amortization, amounts to reduce the principal amount of the Secured Debt to
zero by December 31, 2018. In the event, a residual balance exists, a balloon payment will be made to complete the payment.
After Acquisition Sub completes the payment obligation specified under this subparagraph, the Sellers undertake, acknowledge
and agree that the Acquisition Sub shall have no further responsibility to make any further payments on the balance of the
Secured Debt.
|
|
|
|
|
|
|
(vi)
|
Acquisition
Sub and 1646813 Ontario Limited undertake to enter into a new lease agreement for the premises located at 177 Crosby Avenue,
Richmond Hill, Ontario, effective November 2015, with an option for Acquisition Sub to purchase the premises on the following
terms:
|
The
term of the lease will be 5 years, with an option for an additional 5 years. Acquisition Sub has the option to acquire the building
until January 15, 2016, through a purchase of all of the outstanding shares of 1646813 Ontario Limited, the owner of the real
property and subject to refinancing the existing mortgages. In the event Acquisition Sub does not exercise the option, the lease
shall remain in force for the duration of the lease and the Convertible Debt will be reduced by one million (CDN$1,000,000) Canadian
dollars.
The
option for acquiring the real property has expired and therefore not in consideration any more. Further, the legal position of
both parties is being disputed and has currently not concluded. There are no guarantees that this acquisition will be consummated
and if it does, the terms might be different than stated above.
The
Company has advanced/loaned $283,371 to Acquisition Sub, Plasticap or 173 Corp from November 4, 2015 to March 18, 2016.
|
|
1.
|
In
March 2016, $12,872 in principal amount of JMJ Financial notes payable were settled with 572,448 common shares of the Company.
|
|
|
|
|
|
|
2.
|
In
March 2016, $12,760 in principal amount and $2,240 of accrued and unpaid interest of Auctus Fund, LLC notes payable were converted
to 1,250,000 common shares of the Company.
|
|
|
|
|
|
|
3.
|
In
March 2016, $15,125 in principal amount of Iliad Research & Trading, L.P. notes payable were converted to 1,361,386 common
shares of the Company.
|