Item 1. Financial Statements (Unaudited)
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Condensed Consolidated Balance Sheets
|
|
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
(Note 2)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
237,435
|
|
|
$
|
27,009
|
|
Accounts Receivable
|
|
|
255
|
|
|
|
437
|
|
Deposits and Prepaid Expenses
|
|
|
50,989
|
|
|
|
51,422
|
|
Refundable Taxes Receivable
|
|
|
7,149
|
|
|
|
45,207
|
|
Government Grants and Investment Tax Credits Receivable
|
|
|
39,702
|
|
|
|
80,080
|
|
|
|
|
335,530
|
|
|
|
204,155
|
|
Long-Term Assets
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
61,016
|
|
|
|
67,827
|
|
Patents, net
|
|
|
123,118
|
|
|
|
110,031
|
|
|
|
|
184,134
|
|
|
|
177,858
|
|
Total Assets
|
|
$
|
519,664
|
|
|
$
|
382,013
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
873,516
|
|
|
$
|
786,135
|
|
Funds Held in Trust for Redemption of Class B Common Shares
|
|
|
4
|
|
|
|
4
|
|
Due to Shareholders
|
|
|
▬
|
|
|
|
100,000
|
|
Advance Payable
|
|
|
200,262
|
|
|
|
▬
|
|
Current Portion of Capital Lease Obligation
|
|
|
▬
|
|
|
|
2,627
|
|
Notes Payable, net of debt discount
|
|
|
22,900
|
|
|
|
▬
|
|
Derivative Liability on Notes Payable
|
|
|
64,219
|
|
|
|
▬
|
|
|
|
|
1,160,901
|
|
|
|
888,766
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Debentures Payable
|
|
|
204,633
|
|
|
|
▬
|
|
|
|
|
204,633
|
|
|
|
▬
|
|
Total Liabilities
|
|
|
1,365,534
|
|
|
|
888,766
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
Preferred stock; par value $.0001 per share,
|
|
|
|
|
|
|
|
|
50,000,000 shares authorized, none issued
|
|
|
▬
|
|
|
|
▬
|
|
Common stock; par value $.00001 per share;
|
|
|
|
|
|
|
|
|
150,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
32,499,239 common shares and
|
|
|
|
|
|
|
|
|
24,176,927 exchangeable shares issued and
|
|
|
|
|
|
|
|
|
outstanding as at April 30, 2013 and October 31, 2012, respectively
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
42,132,258
|
|
|
|
42,036,498
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during development stage
|
|
|
(42,480,889
|
)
|
|
|
(42,039,223
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(157,127
|
)
|
|
|
(166,637
|
)
|
|
|
|
|
|
|
|
|
|
Total deficiency attributable to CardioGenics Holdings Inc.
|
|
|
(505,215
|
)
|
|
|
(168,819
|
)
|
Non-controlling interest
|
|
|
(340,655
|
)
|
|
|
(337,934
|
)
|
Total deficiency
|
|
|
(845,870
|
)
|
|
|
(506,753
|
)
|
Total liabilities and deficiency
|
|
$
|
519,664
|
|
|
$
|
382,013
|
|
See notes to condensed consolidated financial statements.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Condensed Consolidated Statements of Operations (unaudited)
|
For the Three and Six Months Ended April 30, 2013 and 2012 and Cumulative from November 20,
1997 (Date of Inception) to April 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
For the three months Ended
|
|
|
For the six months Ended
|
|
|
Inception) to
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
▬
|
|
|
$
|
▬
|
|
|
$
|
▬
|
|
|
$
|
1,136
|
|
|
$
|
10,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization of Property and Equipment
|
|
|
3,443
|
|
|
|
4,539
|
|
|
|
6,967
|
|
|
|
9,094
|
|
|
|
226,711
|
|
Amortization of Patent Application Costs
|
|
|
1,695
|
|
|
|
1,260
|
|
|
|
3,429
|
|
|
|
2,560
|
|
|
|
22,722
|
|
Write-off of Patent Application Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
239,530
|
|
General and Administrative
|
|
|
92,915
|
|
|
|
187,325
|
|
|
|
205,647
|
|
|
|
361,488
|
|
|
|
8,622,678
|
|
Write-off of Goodwill
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,780,214
|
|
Research and Product Development, Net of Investment Tax Credits
|
|
|
95,042
|
|
|
|
192,694
|
|
|
|
198,486
|
|
|
|
348,738
|
|
|
|
4,348,819
|
|
Cost of Settlement of Lawsuit
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
1,753,800
|
|
Total operating expenses
|
|
|
193,095
|
|
|
|
385,818
|
|
|
|
414,529
|
|
|
|
721,880
|
|
|
|
27,994,474
|
|
Operating Loss
|
|
|
(193,095
|
)
|
|
|
(385,818
|
)
|
|
|
(414,529
|
)
|
|
|
(720,744
|
)
|
|
|
(27,984,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense and Bank Charges (Net)
|
|
|
32,892
|
|
|
|
6,015
|
|
|
|
36,716
|
|
|
|
9,485
|
|
|
|
2,195,024
|
|
Loss (Gain) on Change in Fair Value of Derivative Liability
|
|
|
(10,781
|
)
|
|
|
▬
|
|
|
|
(10,781
|
)
|
|
|
▬
|
|
|
|
12,410,242
|
|
Loss (Gain) on Foreign Exchange Transactions
|
|
|
(4,116
|
)
|
|
|
2,238
|
|
|
|
3,923
|
|
|
|
(19,126
|
)
|
|
|
194,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income)
|
|
|
17,995
|
|
|
|
8,253
|
|
|
|
29,858
|
|
|
|
(9,641
|
)
|
|
|
14,799,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(211,090
|
)
|
|
|
(394,071
|
)
|
|
|
(444,387
|
)
|
|
|
(711,103
|
)
|
|
|
(42,783,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Subsidiary
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
90,051
|
|
Loss from Discontinued Operations
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
(127,762
|
)
|
Net Loss
|
|
|
(211,090
|
)
|
|
|
(394,071
|
)
|
|
|
(444,387
|
)
|
|
|
(711,103
|
)
|
|
|
(42,821,544
|
)
|
Net Loss attributable to non-controlling interest
|
|
|
(1,231
|
)
|
|
|
(2.368
|
)
|
|
|
(2,721
|
)
|
|
|
(4,431
|
)
|
|
|
(340,655
|
)
|
Net Loss attributable to CardioGenics Holdings Inc.
|
|
$
|
(209,859
|
)
|
|
$
|
(391,703
|
)
|
|
$
|
(441,666
|
)
|
|
$
|
(706,672
|
)
|
|
$
|
(42,480,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Fully Diluted Net Loss per Common Share attributable to
CardioGenics Holdings Inc. Shareholders
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of Common Stock outstanding
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
CarioGenics Holdings Inc.
|
(A Development Stage Company)
|
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
|
For the Three and Six
Months Ended April 30, 2013 and 2012 and Cumulative from November 20,
1997 (Date of Inception) to April 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 20,
1997
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(Date of
Inception)
To April
30,
|
|
|
|
April 30
|
|
|
April 30
|
|
|
2013
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(209,859
|
)
|
|
$
|
(391,703
|
)
|
|
$
|
(441,666
|
)
|
|
$
|
(706,672
|
)
|
|
$
|
(42,480,889
|
)
|
Other comprehensive income (loss), currency translation adjustments
|
|
|
1,085
|
|
|
|
(22,206
|
)
|
|
|
9,510
|
|
|
|
12,651
|
|
|
|
(157,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(208,774
|
)
|
|
$
|
(413,909
|
)
|
|
$
|
(432,156
|
)
|
|
$
|
(694,021
|
)
|
|
$
|
(42,638,016
|
)
|
See notes to condensed consolidated financial statements.
CarioGenics Holdings Inc.
|
(A Development Stage Company)
|
Condensed Consolidated Statements of Changes in Deficiency
(unaudited)
|
For The Six Months Ended April 30, 2013 and Cumulative from November 20,
1997
(Date of Inception) to April 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
the
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
(Loss)
|
|
|
Interest
|
|
|
Deficiency
|
|
Balance November 1, 2012
|
|
|
56,676,166
|
|
|
$
|
543
|
|
|
$
|
42,036,498
|
|
|
$
|
(42,039,223
|
)
|
|
$
|
(166,637
|
)
|
|
$
|
(337,934
|
)
|
|
$
|
(506,753
|
)
|
Value of derivative associated with debentures issued in the period
|
|
|
|
|
|
|
|
|
|
|
95,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,760
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,721
|
)
|
|
|
(2,721
|
)
|
Comprehensive Income, currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,510
|
|
|
|
|
|
|
|
9,510
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(441,666
|
)
|
|
|
|
|
|
|
|
|
|
|
(441,666
|
)
|
Balance at April 30, 2013
|
|
|
56,676,166
|
|
|
$
|
543
|
|
|
$
|
42,132,258
|
|
|
$
|
(42,480,889
|
)
|
|
$
|
(157,127
|
)
|
|
$
|
(340,655
|
)
|
|
$
|
(845,870
|
)
|
See notes to condensed consolidated financial statements.
CarioGenics Holdings Inc.
|
(A Development Stage Company)
|
Condensed Consolidated
Statements of Cash Flows (unaudited)
|
Six Months Ended April 30, 2013 and 2012 and
|
Cumulative from November 20, 1997 (Date of Inception) to April 30, 2013
|
|
|
|
|
|
|
|
|
Cumulative from
|
|
|
|
|
|
|
|
|
|
November 20, 1997
|
|
|
|
Six Months Ended
|
|
|
(Date of Inception)
|
|
|
|
April 30
|
|
|
To April 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Loss for the Period
|
|
$
|
(444,387
|
)
|
|
$
|
(711,103
|
)
|
|
$
|
(42,821,544
|
)
|
Adjustments to reconcile consolidated net loss for the period to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization of Property and Equipment
|
|
|
6,967
|
|
|
|
9,094
|
|
|
|
226,711
|
|
Amortization of Patent Application Costs
|
|
|
3,429
|
|
|
|
2,560
|
|
|
|
22,722
|
|
Write-off of Patent Application Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
239,530
|
|
Amortization of Deferred Consulting Contract Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
163,750
|
|
Write-off of Goodwill
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,780,214
|
|
Amortization of Deferred Debt Issuance Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
511,035
|
|
Loss on Extinguishment of Debt
|
|
|
▬
|
|
|
|
▬
|
|
|
|
275,676
|
|
Loss (Gain) on Change in Value of Derivative Liability
|
|
|
(10,781
|
)
|
|
|
▬
|
|
|
|
12,410,242
|
|
Amortization of Discount on Notes Payable
|
|
|
22,900
|
|
|
|
▬
|
|
|
|
22,900
|
|
Interest Accrued and Foreign Exchange Loss on Debt
|
|
|
▬
|
|
|
|
▬
|
|
|
|
922,539
|
|
Unrealized Foreign Currency Exchange Gains
|
|
|
▬
|
|
|
|
▬
|
|
|
|
25,094
|
|
Beneficial Conversion Charge included in Interest Expense
|
|
|
▬
|
|
|
|
▬
|
|
|
|
452,109
|
|
Common Stock and Warrants issued on Settlement Of Lawsuit
|
|
|
▬
|
|
|
|
▬
|
|
|
|
1,653,800
|
|
Common Stock Issued as Employee or Officer/Director Compensation
|
|
|
▬
|
|
|
|
▬
|
|
|
|
2,508,282
|
|
Common Stock Issued for Services Rendered
|
|
|
▬
|
|
|
|
▬
|
|
|
|
2,726,262
|
|
Stock Options Issued for Services Rendered
|
|
|
▬
|
|
|
|
▬
|
|
|
|
192,238
|
|
Stock Options Issued to Directors and Committee Chairman
|
|
|
▬
|
|
|
|
▬
|
|
|
|
54,582
|
|
Changes in Operating Assets and Liabilities, Net of Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
182
|
|
|
|
6,094
|
|
|
|
(255
|
)
|
Deposits and Prepaid Expenses
|
|
|
433
|
|
|
|
(457
|
)
|
|
|
(50,200
|
)
|
Refundable Taxes Receivable
|
|
|
38,058
|
|
|
|
9,086
|
|
|
|
(6,285
|
)
|
Government Grants and Investment Tax Credits Receivable
|
|
|
40,378
|
|
|
|
(6,121
|
)
|
|
|
(19,640
|
)
|
Accounts Payable and Accrued Expenses
|
|
|
87,380
|
|
|
|
36,687
|
|
|
|
105,603
|
|
Advances
|
|
|
200,262
|
|
|
|
▬
|
|
|
|
200,393
|
|
Cash used in operating activities
|
|
|
(55,179
|
)
|
|
|
(654,160
|
)
|
|
|
(7,404,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Acquired from Acquisition
|
|
|
▬
|
|
|
|
▬
|
|
|
|
195,885
|
|
Purchase of Property and Equipment
|
|
|
(156
|
)
|
|
|
(3,893
|
)
|
|
|
(223,646
|
)
|
Patent Application Costs
|
|
|
(13,087
|
)
|
|
|
(609
|
)
|
|
|
(331,861
|
)
|
Cash used in investing activities
|
|
|
(13,243
|
)
|
|
|
(4,502
|
)
|
|
|
(359,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Shareholders
|
|
|
(100,000
|
)
|
|
|
262,500
|
|
|
|
▬
|
|
Derivative Liability on Notes Payable
|
|
|
75,000
|
|
|
|
▬
|
|
|
|
75,000
|
|
(Repayment) of Capital Lease Obligations
|
|
|
(2,627
|
)
|
|
|
(13,742
|
)
|
|
|
(43,917
|
)
|
Due to Director
|
|
|
▬
|
|
|
|
▬
|
|
|
|
725,330
|
|
Issue of Debentures
|
|
|
▬
|
|
|
|
▬
|
|
|
|
1,378,305
|
|
Issue of Common Shares on Exercise of Stock options
|
|
|
▬
|
|
|
|
▬
|
|
|
|
2,781
|
|
Issue of Common Shares on Exercise of Warrants
|
|
|
▬
|
|
|
|
▬
|
|
|
|
45,652
|
|
Issue of Common Shares for Cash
|
|
|
▬
|
|
|
|
▬
|
|
|
|
5,886,669
|
|
Refund of Share Subscription
|
|
|
▬
|
|
|
|
▬
|
|
|
|
(15,000
|
)
|
Issue (Redemption) of 10% Senior Convertible Debentures
|
|
|
300,393
|
|
|
|
▬
|
|
|
|
(94,579
|
)
|
Cash provided by financing activities
|
|
|
272,766
|
|
|
|
248,758
|
|
|
|
7,960,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents
|
|
|
6,082
|
|
|
|
12,653
|
|
|
|
41,058
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents during the period
|
|
|
210,426
|
|
|
|
(397,251
|
)
|
|
|
237,435
|
|
Beginning of Period
|
|
|
27,009
|
|
|
|
669,202
|
|
|
|
▬
|
|
End of Period
|
|
$
|
237,435
|
|
|
$
|
271,951
|
|
|
$
|
237,435
|
|
See notes to condensed consolidated financial statements.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
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.
On October 27, 2009, the name of the Company was changed from
JAG Media Holdings, Inc. to CardioGenics Holdings, Inc.
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 April
30, 2013, their results of operations for the three and six months ended April 30, 2013 and 2012, and the period from
November 20, 1997 (date of inception) to April 30, 2013, changes in comprehensive loss for the three and six months ended
April 30, 2013 and 2012 and the period from November 20, 1997 (date of inception) to April 30, 2013, changes in deficiency
for the six months ended April 30, 2013 and cash flows for the six months ended April 30, 2013 and 2012, and the period from
November 20, 1997 (date of inception) to April 30, 2013. 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, 2012 and 2011 (the “Audited Financial
Statements”) included in the Company’s Form 10-K that was previously filed with the SEC on January 29, 2013 and
from which the October 31, 2012 consolidated balance sheet was derived.
The results of the Company’s operations for the six months
ended April 30, 2013 are not necessarily indicative of the results of operations to be expected for the full year ending October
31, 2013.
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 April 30, 2013 of approximately
$42.5 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.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
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.
While the Company believes it
will be successful in obtaining the necessary financing to fund its operations, meet revenue projections 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
.
|
Recent Accounting Pronouncements
In December 2011, the FASB issued
ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity
to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect
of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S.
GAAP with financial statements prepared under International Financial Reporting Standards (IFRS). The new standards are effective
for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required.
The Company will implement the provisions of ASU 2011-11 as of November 1, 2013.
In February 2013, the Financial
Accounting Standards Board (“FASB”) issued guidance requiring disclosure of amounts reclassified out of accumulated
other comprehensive income by component. In addition, an entity is required to present either on the face of the condensed consolidated
statements of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the
respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety
in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference
to other disclosures that provide additional detail about those amounts. This guidance is effective prospectively for the Company
for annual and interim periods beginning January 1, 2013. The Company believes that the impact of this standard has not had a material
impact on its consolidated financial statements.
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 sheets
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 consolidated balance sheet date.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
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 April 30, 2013, approximated $6,750,000 (2012 - $6,301,000) which will expire
from 2014 through 2032. All fiscal years as originally filed have been assessed. Claims relating to research and development credits
are open for review for the fiscal years ended October 2012, 2011, 2010, 2009, 2008 and 2007 and July 2009.
As of April 30, 2013, the Company
had net operating loss carryforwards from US sources of approximately $40,769,000 (2012 - $40,652,000) available to reduce future
Federal taxable income which will expire from 2019 through 2032. Returns for the years 2008 through 2012 are yet to be filed.
For the six months ended April
30, 2013 and 2012, the Company’s effective tax rate differs from the statutory rate principally due to the net operating
losses for which no benefit was recorded.
During the three months ended
January 31, 2013, two shareholder/directors advanced $200,000 to the Company. On February 27, 2013, those advances together with
$100,000 advanced by a shareholder to the Company prior to October 31, 2012 were exchanged on a dollar for dollar basis for Series
A Convertible Debenture Units (the “Units”). Each unit includes a debenture having a term of three years, bearing interest
at 10%, and a warrant having a term of three years. The debentures are convertible at any time into common shares of the Company’s
stock at a price of $0.25 per share. The warrants entitle the holder to purchase an equal number of common shares of the Company’s
stock at a price of $0.25 per share exercisable at any time during the term of the warrant.
In April 2013, an unrelated third
party advanced $200,000 to the Company as an advance against the purchase of Series B Convertible Debenture Units to be issued
after April 30, 2013. The advance is due on demand and carries no interest.
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 owing more than
4.99% of the common stock outstanding. On March 27, 2013, the Company borrowed $25,000 under this Line.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
A summary of the Notes at April 30, 2013 is as follows:
|
|
April 30,
2013
|
|
|
October 31,
2012
|
|
|
|
|
|
|
|
|
Convertible Note Payable, interest at 5% per annum to maturity at November 19, 2014
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Convertible Note Payable, interest at 5% per annum to maturity at March 27, 2014
|
|
|
25,000
|
|
|
|
-
|
|
Debt Discount - value attributable to conversion feature attached to notes, net of accumulated amortization of $22,900
|
|
|
(52,100
|
)
|
|
|
-
|
|
Total
|
|
|
22,900
|
|
|
|
-
|
|
Less: Current portion
|
|
|
22,900
|
|
|
|
-
|
|
Total Long-term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
As described in further detail
in Note 8, “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.
|
8.
|
Derivative Liabilities
|
Convertible notes - embedded conversion features:
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 $75,000 at April 30, 2013.
Accordingly, changes in the fair value of the
embedded derivative 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. There was no change in the fair value for the six
months ended April 30, 2013.
The Company estimated the fair
value of the embedded derivatives using a Black Scholes model with the following assumptions: conversion price $0.12 per share
according to the agreements; risk free interest rate of .18%; expected life of 1 year; expected dividend of zero; a volatility
factor of 170%, as of April 30, 2013. 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.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
|
9.
|
Fair Value Measurements
|
As defined by the Accounting
Standard Codification (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.
|
The following table summarizes
the financial liabilities measured at fair value on a recurring basis as of April 30, 2013, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value:
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Reduction)
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
in Fair Value
|
|
Balance Sheet
|
|
Identical Assets or
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
April 30, 2013
|
|
|
Recorded at
|
|
Location
|
|
Liabilities (Level
1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Total
|
|
|
April 30, 2013
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability – on Notes Payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
64,219
|
|
|
$
|
64,219
|
|
|
$
|
10,781
|
|
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 six month period ended April 30, 2013.
Balance at beginning of period
|
|
$
|
-
|
|
Additions to derivative instruments
|
|
|
75,000
|
|
Change in fair value of derivative liabilities
|
|
|
(10,781
|
)
|
Balance at end of period
|
|
$
|
64,219
|
|
In February 2013, shareholder
loans were converted on a dollar-for-dollar basis for Series A Convertible Debenture Units (the “A Units”). Each A
Unit includes a debenture having a term of three years, bearing interest at 10%, and a warrant having a term of three years. The
debentures are convertible at any time into common shares of the Company’s stock at a price of $0.25 per share. The warrants
entitle the holder to purchase 2 times the number of common shares of the Company’s stock allowed in conjunction with the
debentures at any time up to three years.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
A summary of the Debentures at April 30, 2013 is as
follows:
|
|
April 30,
2013
|
|
|
October 31,
2012
|
|
|
|
|
|
|
|
|
Convertible Debentures Payable, interest at 10% per annum to maturity at February 27, 2016
|
|
$
|
300,393
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Debt Discount - value attributable to conversion feature attached to notes
|
|
|
(95,760
|
)
|
|
|
-
|
|
Total
|
|
|
204,633
|
|
|
|
-
|
|
Less: Current portion
|
|
|
-
|
|
|
|
-
|
|
Total Long-term portion
|
|
$
|
204,633
|
|
|
$
|
-
|
|
|
11.
|
Stock Based Compensation
|
Stock-based employee compensation
related to stock options for the six months ended April 30, 2013 and 2012 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, 2011
|
|
|
30,000
|
|
|
$
|
0.90
|
|
Granted
|
|
|
▬
|
|
|
|
▬
|
|
Forfeited/Expired
|
|
|
▬
|
|
|
|
▬
|
|
Exercised
|
|
|
▬
|
|
|
|
▬
|
|
Outstanding – October 31, 2012
|
|
|
30,000
|
|
|
$
|
0.90
|
|
Granted
|
|
|
▬
|
|
|
|
▬
|
|
Forfeited/Expired
|
|
|
▬
|
|
|
|
▬
|
|
Exercised
|
|
|
▬
|
|
|
|
▬
|
|
Outstanding – April 30, 2013
|
|
|
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 April 30,
2013.
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
Outstanding warrants are as follows:
|
|
April 30,
2013
|
|
|
October 31,
2012
|
|
|
|
|
|
|
|
|
Issued to consultant August 1, 2009, entitling the holder to purchase 1 common share in the company at an exercise price of $0.90 per common share up to and including July 31, 2017
|
|
|
287,085
|
|
|
|
287,085
|
|
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 consultants in September 2011 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 March 20, 2013
|
|
|
▬
|
|
|
|
1,500,000
|
|
Issued to consultants in September 2011 entitling the holders to purchase 1 common share in the Company at an exercise price of $0.34 per common share up to and including March 20, 2013
|
|
|
▬
|
|
|
|
1,500,000
|
|
Issued to consultants in September 2011 entitling the holders to purchase 1 common share in the Company at an exercise price of $0.50 per common share up to and including March 20, 2013
|
|
|
▬
|
|
|
|
1,000,000
|
|
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
|
|
|
|
▬
|
|
Total Warrants outstanding
|
|
|
2,887,085
|
|
|
|
6,287,085
|
|
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
|
13.
|
Issuance of Common Stock
|
On January 17, 2013, the Company’s
articles of incorporation were amended to increase the total number of common and preferred shares authorized for issuance from
65,000,000 shares to 150,000,000 shares and 5,000,000 shares to 50,000,000, respectively, par value $0.00001 per share.
During the six months ended April
30, 2013, the Company issued no common shares.
The following table sets forth
the computation of weighted-average shares outstanding for calculating basic and diluted earnings per share (EPS):
|
|
Three Months Ended
April 30,
|
|
|
Six Months Ended
April 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
Effect of dilutive securities
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
Weighted-average shares - diluted
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
|
|
56,676,166
|
|
|
|
55,626,166
|
|
Basic earnings per share “EPS”
and diluted EPS for the three and six months ended April 30, 2013 and 2012 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 options and warrants representing 2,917,085 and
9,834,969 incremental shares respectively have been excluded from the three and six months ended April 30, 2013 and 2012 computation
of diluted EPS as they are antidilutive given the net losses generated.
|
15.
|
Commitments and Contingencies
|
Lawsuits
On April 22, 2009, the Company
was served with a statement of claim from a former employee claiming compensation for wrongful dismissal and ancillary causes of
action including payment of monies in realization of his investment in the Company, with an aggregate claim of $514,000. The Company
considers all the claims to be without any merit, has already delivered a statement of defense and intends to vigorously defend
the action. If the matter eventually proceeds to trial, the Company does not expect to be found liable on any ground or for any
cause of action.
|
16.
|
Supplemental Disclosure of Cash Flow Information
|
|
|
Six Months Ended
|
|
|
|
April 30
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,735
|
|
|
$
|
9,358
|
|
Income taxes
|
|
$
|
▬
|
|
|
$
|
▬
|
|
CardioGenics Holdings Inc.
|
(A Development Stage Company)
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
April 30, 2013 and 2012
|
|
(i)
|
In May 2013, the $200,000 advance included in the condensed consolidated balance sheet at April
30, 2013, together with a further advance of $300,000 from the same third party in May 2013, was exchanged on a dollar-for-dollar
basis for Series B Convertible Debenture Units (the “B Units”). Each B Unit includes a debenture having a term of three
years, bearing interest at 10%, and a warrant having a term of three years. The debentures are convertible at any time into common
shares of the Company’s stock at a price of $0.25 per share. The warrants entitle the holder to purchase 1.5 times the number
of common shares of the Company’s stock allowed on conversion of the debentures at a price of $0.15 per share exercisable
at any time during the term of the warrant.
|
|
(ii)
|
In June 2013, certain officers of the Company purchased $155,000 in Series B Convertible Debenture
Units (the “B Units”). Each B Unit includes a debenture having a term of three years, bearing interest at 10%, and
a warrant having a term of three years. The debentures are convertible at any time into common shares of the Company’s stock
at a price of $0.25 per share. The warrants entitle the holder to purchase 1.5 times the number of common shares of the Company’s
stock allowed in conjunction with the conversion of the debentures at a price of $0.15 per share exercisable at any time during
the term of the warrant.
|
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
You should read this Management’s Discussion and Analysis
(“MD&A”) in combination with the accompanying unaudited condensed interim consolidated financial statements and
related notes as well as the audited consolidated financial statements and the accompanying notes to the consolidated financial
statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)
included within the Company’s Annual Report on Form 10-K filed on January 29, 2013.
Our discussion and analysis of our financial condition and results
of operations are based upon our unaudited condensed interim consolidated financial statements, which have been prepared in accordance
with U.S. GAAP for interim financial statements filed with the Securities and Exchange Commission.
Critical Accounting Policies and Estimates
The preparation of these unaudited condensed interim consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to accounts receivable, equipment, stock-based compensation, income taxes and contingencies. We base our estimates
on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies and estimates used as of October 31,
2012, as outlined in our previously filed Form 10-K, have been applied consistently for the six months ended April 30, 2013.
Related Party Transactions
During the six months ended April 30, 2013, the Company received
from officer/directors $200,000 for the subscription of 200,000 of the Company’s Series A Convertible Debentures. On the
same day a shareholder’s loan in the amount of $100,000 was converted to 100,000 of the Company’s Series A Convertible
Debentures.
Off-Balance Sheet arrangements
We are not party to any off-balance sheet arrangements.
Results of operations
Six months ended April 30, 2013 as compared to six months
ended April 30, 2012
|
|
Six Months
|
|
|
|
|
|
|
Ended April 30,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
$ Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
▬
|
|
|
$
|
1,136
|
|
|
$
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
6,967
|
|
|
|
9,094
|
|
|
|
(2,127
|
)
|
Amortization of patent application costs
|
|
|
3,429
|
|
|
|
2,560
|
|
|
|
869
|
|
General and administrative expenses
|
|
|
205,647
|
|
|
|
361,488
|
|
|
|
(155,841
|
)
|
Research and product development, net of investment
tax credits
|
|
|
198,486
|
|
|
|
348,738
|
|
|
|
(150,252
|
)
|
Total operating expenses
|
|
|
414,529
|
|
|
|
721,880
|
|
|
|
(307,351
|
)
|
Operating Loss
|
|
|
(414,529
|
)
|
|
|
(720,744
|
)
|
|
|
(306,215
|
)
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and bank charges, net
|
|
|
36,716
|
|
|
|
9,485
|
|
|
|
27,231
|
|
(Gain on change in value of derivative liability
|
|
|
(10,781
|
)
|
|
|
▬
|
|
|
|
(10,781
|
)
|
Loss (gain) on foreign
exchange transactions
|
|
|
3,923
|
|
|
|
(19,126
|
)
|
|
|
23,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(444,387
|
)
|
|
$
|
(711,103
|
)
|
|
$
|
(266,716
|
)
|
Revenues
During the six months ended April 30, 2013 and 2012 we generated
revenues of 2013 – $0 and 2012 – $1,136, respectively, from sales of paramagnetic beads.
Operating expenses
Operating expenses include the costs to a) develop and patent
a method for controlling the delivery of compounds to a chemical reaction; b) develop the QL Care Analyzer, a small, automated,
robust and proprietary point of care testing device; and, c) custom paramagnetic beads through our proprietary method which improves
their light collection. In addition, the Company is in the process of adapting test products for the Point Of Care (“POC”)
disposable, single-use cartridge-format. Detailed manufacturing specifications and costing have been created and custom manufacturers
have been sourced.
General and administrative expenses
General and administrative expenses consist primarily of compensation
to officers, occupancy costs, professional fees, listing costs and other office expenses. The decrease in general and administrative
expenses is attributable primarily to a decrease in consulting fees.
Research and product development, net of investment tax credits
Research and development expenses consist primarily of salaries
and wages paid to officers and employees engaged in those activities and supplies consumed therefor. The decrease in research and
development expenses is attributable primarily to the decrease in staff engaged in those activities in the current six month period
vs. the same six month period in the prior year.
Three months ended April 30, 2013 as compared to three months
ended April 30, 2012
|
|
Three Months
|
|
|
|
|
|
|
Ended April 30,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
$ Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
▬
|
|
|
$
|
▬
|
|
|
$
|
▬
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
3,443
|
|
|
|
4,539
|
|
|
|
(1,096
|
)
|
Amortization of patent application costs
|
|
|
1,695
|
|
|
|
1,260
|
|
|
|
435
|
|
General and administrative expenses
|
|
|
92,915
|
|
|
|
187,325
|
|
|
|
(94,410
|
)
|
Research and product development, net of investment
tax credits
|
|
|
95,042
|
|
|
|
192,694
|
|
|
|
(97,652
|
)
|
Total operating expenses
|
|
|
193,095
|
|
|
|
385,818
|
|
|
|
(192,723
|
)
|
Operating Loss
|
|
|
(193,095
|
)
|
|
|
(385,818
|
)
|
|
|
(192,723
|
)
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and bank charges, net
|
|
|
32,892
|
|
|
|
6,015
|
|
|
|
26,877
|
|
(Gain) on change in value of derivative liability
|
|
|
(10,781
|
)
|
|
|
▬
|
|
|
|
(10,781
|
)
|
Loss (gain) on foreign
exchange transactions
|
|
|
(4,116
|
)
|
|
|
2,238
|
|
|
|
(6,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(211,090
|
)
|
|
$
|
(394,071
|
)
|
|
$
|
(182,981
|
)
|
Revenues
During the three months ended April 30, 2013 and 2012 we generated
no revenues.
Operating expenses
Operating expenses include the costs to a) develop and patent
a method for controlling the delivery of compounds to a chemical reaction; b) develop the QL Care Analyzer, a small, automated,
robust and proprietary point of care testing device; and, c) custom paramagnetic beads through our proprietary method which improves
their light collection. In addition, the Company is in the process of adapting test products for the POC disposable, single-use
cartridge-format. Detailed manufacturing specifications and costing have been created and custom manufacturers have been sourced.
General and administrative expenses
General and administrative expenses consist primarily of compensation
to officers, occupancy costs, professional fees, listing costs and other office expenses. The decrease in general and administrative
expenses is attributable primarily to a decrease in consulting fees.
Research and product development, net of investment tax credits
Research and development expenses consist primarily of salaries
and wages paid to officers and employees engaged in those activities and supplies consumed therefore. The decrease in research and
development expenses is attributable primarily to the decrease in staff engaged in those activities in the current three month
period vs. the same three month period in the prior year.
Liquidity and Capital Resources
We have not generated significant revenues since inception.
We incurred a net loss of approximately $444,000 and a cash flow deficiency from operating activities of $55,179 for the six months
ended April 30, 2013. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow
us to continue as a going concern. We have funded our activities to date almost exclusively from debt and equity financings. These
matters raise substantial doubt about our ability to continue as a going concern.
We will continue to require substantial funds to continue research
and development, including preclinical studies and clinical trials of our products, to fund the ongoing operations and to commence
sales and marketing efforts. Our plans include financing activities such as private placements of our common stock and
issuances of convertible debt instruments. We are also actively pursuing industry collaboration including product licensing
and specific project financing.
We believe we will be successful in obtaining the necessary
financing to fund our operations, meet revenue projections and manage costs; however, there are no assurances that such additional
funding will be achieved and that we will succeed in obtaining the funding to support our future operations.
Seasonality
We do not believe that our business is subject to seasonal trends
or inflation. On an ongoing basis, we will attempt to minimize any effect of inflation on our operating results by controlling
operating costs.
Recent Accounting Pronouncements
The FASB had issued certain accounting pronouncements as of
April 30, 2013 that will become effective in subsequent periods; however, we do not believe that any of those pronouncements would
have significantly affected our financial accounting measurements or disclosures had they been in effect during the six months
ended April 30, 2013 and 2012 or that they will have a significant effect at the time they become effective.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2013, our management, including our principal executive
officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures,
as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange
Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were not effective as of April 30, 2013.
Management’s Report on Internal Control Over Financial
Reporting
Management is responsible for establishing
and maintaining adequate disclosure controls and procedures and internal control over financial reporting (as defined in the Exchange
Act) to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting principles. A control system, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations
in all control systems, internal controls over financial reporting may not prevent or detect misstatements. The design and operation
of a control system must also reflect that there are resource constraints and management is necessarily required to apply its judgment
in evaluating the cost-benefit relationship of possible controls.
Our management assessed the effectiveness
of our disclosure controls and procedures and internal control over financial reporting for the quarter ended April 30, 2013 based
on the criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on such assessment, our management concluded that during the period covered by this report, our
disclosure controls and procedures and internal control over financial reporting were not effective. Management has identified
the following material weaknesses in our disclosure controls and procedures and internal control over financial reporting:
|
•
|
lack of documented policies and procedures;
|
|
•
|
there is no effective separation of duties, which includes monitoring
controls, between the members of management; and,
|
|
•
|
lack of resources to account for complex and unusual transactions.
|
Management is currently evaluating what steps, if any, can be
taken in order to address these material weaknesses in light of our current management structure.
Changes in Internal Control over Financial
Reporting
During the fiscal quarter ended April 30,
2013, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 22, 2009, CardioGenics was
served with a statement of claim in the Province of Ontario, Canada, from a prior contractor claiming compensation for wrongful
dismissal and ancillary causes of action including payment of monies in realization of his investment in CardioGenics, with an
aggregate claim of $514,000. The Company considers all the claims to be without any merit, has already delivered a statement
of defence and intends to vigorously defend the action. The action is currently in the discovery phase. If the matter
eventually proceeds to trial, the Company does not expect to be found liable on any ground or for any cause of action.
Item 1A. Risk Factors
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds