Report for the Three and Nine Months Ended June 30, 2013 ... 2013-Final.pdf · Report for the Three...

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Report for the Three and Nine Months Ended June 30, 2013 and 2012

#210 -13480 Crestwood Place, Richmond BC V6V 2J9 Canada Head Office: 604-303-7964 Fax: 604-303-7987

Investor Relations: 1-800-349-7964 ext. 219

[email protected]

www.pyng.com

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PYNG MEDICAL CORP.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended June 30, 2013 and 2012

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NOTICE TO READER

Under National Instrument 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a

review of interim financial statements, they must be accompanied by a notice indicating that the

financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim financial statements of Pyng Medical Corp. have

been prepared by, and are the responsibility of, the Company’s management. Pyng Medical Corp.’s

independent auditor has not performed a review of these financial statements in accordance with

standards established by the Canadian Institute of Chartered Accountants for a review of interim

financial statements by an entity’s auditor.

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PYNG MEDICAL CORP.

Condensed Interim Consolidated Statements of Financial Position

As at June 30, 2013 and September 30, 2012.(Expressed in Canadian Dollars)

June 30 September 30

ASSETS 2013 2012

CurrentCash 204,344$ 283,597$

Accounts receivable 353,403 354,292 Other receivable 84,198 47,919 Inventories (Note 7) 806,426 435,120 Prepaid expenses 83,253 62,871

Total current assets 1,531,624 1,183,799

Non-currentProperty and equipment (Note 8) 84,270 98,761 Intangible assets (Note 9) 4,779,076 4,929,953

Total assets 6,394,970$ 6,212,513$

LIABILITIES

CurrentTrade payable 1,244,343 344,045 Accrued liabilities 456,257 500,373 Loans payable (Note 10) 618,583 535,844

Total current liabilities 2,319,183 1,380,262

Non-current Convertible debentures (Note 11) 471,874 424,093

Total liabilities 2,791,057 1,804,355

SHAREHOLDERS' EQUITYEquity portion of convertible debentures 191,825 191,825

Share capital (Note 12) 8,582,355 8,582,355 Share-based payments reserve (Note 12) 672,876 655,153 Accumulated deficit (5,843,143) (5,021,175)

Total shareholders' equity 3,603,913 4,408,158

Total liabilities and shareholders' equity 6,394,970$ 6,212,513$

Commitments (Note 15)

Subsequent events (Note 16)

Approved and authorized for issue on behalf "L.J. (Bud) Evans" "Ronald Blanck"of the Board of Directors on August 27, 2013 Director Director

See accompanying notes to the condensed interim consolidated financial statements

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PYNG MEDICAL CORP.

Condensed Interim Consolidated Statements of Comprehensive LossFor the Three and Nine Months Ended June 30, 2013 and 2012(Expressed in Canadian Dollars, except number of shares)

Three Months

Ended

June 30, 2013

Three Months

Ended

June 30, 2012

Nine Months

Ended

June 30, 2013

Nine Months

Ended

June 30, 2012

Sales 1,294,369 1,445,785 3,330,019$ 3,583,366$

Cost of goods sold 633,415 497,800 1,732,692 1,324,139

Gross margin 660,954 947,985 1,597,327 2,259,227

Operating expensesResearch and product development 70,934 79,791 233,940 129,749General and administrative 384,005 411,082 1,079,396 1,084,666Sales and marketing 137,982 187,058 521,228 570,301Amortization of property and equipment 5,608 6,988 16,157 21,193

Amortization of intangible assets 108,172 114,760 322,395 342,936Royalties 4,858 3,007 7,638 6,105

711,558 802,686 2,180,755 2,154,950

Loss from operations (50,604) 145,299 (583,428) 104,277

Interest expenses 44,146 26,501 113,081 84,639

Other finance costs 15,927 15,054 47,781 45,161

Foreign exchange (gain) loss 67,228 30,277 77,678 (18,579)

127,301 71,831 238,540 111,221

Net (loss) and comprehensive (loss) for the period (177,905)$ 73,468$ (821,968)$ (6,944)$

Loss per shareBasic and diluted (0.01)$ 0.00$ (0.05)$ (0.00)$

Weighted average number of shares outstanding Basic and diluted 16,942,416 15,001,583 16,942,416 15,001,583


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PYNG MEDICAL CORP.

Condensed Interim Consolidated Statements of Cash Flows


(Expressed in Canadian Dollars)

Three Months

Ended

June 30, 2013

Three Months

Ended

June 30, 2012

Nine Months

Ended

June 30, 2013

Nine Months

Ended

June 30, 2012

Cash provided from (used for)

Operating activities

Net (loss) income for the period (177,905) 73,468 (821,968)$ (6,944)$

Items not involving cash

Amortization of property and equipment 5,608 6,988 16,157 21,193

Amortization of intangible assets 108,172 114,760 322,395 342,936 Amortization of deferred financing costs 5,412 5,415 16,236 16,244

Accreted interest on convertible debentures 10,515 9,639 31,545 28,917 Stock-based compensation 5,086 - 17,723 - Unrealized foreign exchange (gain) loss 3,329 14,129 7,414 (26,374)

(39,784) 224,398 (410,499) 375,972 Net change in non-cash working capital items

Accounts receivable (18,340) 22,390 22,611 247,605

Other receivable 20,816 10,628 (36,279) 22,869 Inventories (65,518) 217,560 169,777 154,285 Prepaid expenses 25,652 (47,889) (20,382) 21,215

Trade payable and accrued liabilities 63,672 165,500 214,213 248,507

(13,501) 592,589 (60,560) 1,070,453

Financing activitiesBank line of credit - (186,649) - (326,427) Repayment on loans payable - - - (158,961)

Proceeds from short-term loans - 182,700 - 402,150

- (3,949) - (83,239)

Investing activitiesAdditions to intangible assets (37,716) (217,435) (86,389) (763,884) Acquisition of property and equipment (1,666) - (1,666) -

(39,382) (217,435) (88,055) (763,884)

Effect of exchange rate changes on cash 56,925 5,899 69,362 1,496

Increase (Decrease) in cash 4,042 377,103 (79,253) 224,826

Cash, beginning of the period 200,302 43,137 283,597 195,414

Cash , end of the period 204,344$ 420,240$ 204,344$ 420,240$

Supplemental information

Interest paid 17,470 19,330$ 52,410$ 72,309$


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PYNG MEDICAL CORP.

Condensed Interim Consolidated Statements of Changes in Equity


(Expressed in Canadian Dollars)

Number of

Shares Amount

Balance as of September 30, 2011 15,001,583 8,422,339 651,981 191,825 (3,971,723) 5,294,422

Stock-based compensation on options granted - - - - - -

Net income for the period - - - - (6,944) (6,944)

Balance as of June 30, 2012 15,001,583 8,422,339 651,981 191,825 (3,978,667) 5,287,478

Shares issued for cash, gross proceeds 1,940,833 174,675 174,675

Share issuance cost (14,659) (14,659)

Stock-based compensation on options granted 3,172 3,172

Net loss for the period (1,042,508) (1,042,508)

Balance as of September 30, 2012 16,942,416 8,582,355 655,153 191,825 (5,021,175) 4,408,158

Stock-based compensation on options granted 17,723 17,723

Net loss for the period (821,968) (821,968)

Balance as of June 30, 2013 16,942,416 8,582,355 672,876 191,825 (5,843,143) 3,603,913

Share Capital


Share-based

Payments

Reserve

Equtiy Portion of

Convertible

Debentures

Accumulated

Deficit

Total Shareholders'

Equity

PYNG MEDICAL CORP. Notes to Consolidated Financial Statements For the Three and Nine Months Ended June 30, 2013 and 2012 (Expressed in Canadian Dollars)

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1. CORPORATE INFORMATION

Pyng Medical Corp., (the “Company” or “Pyng”) is a public company incorporated under the British Columbia Business Corporations Act. Pyng is a reporting issuer in British Columbia and Alberta and its shares are listed on the TSX Venture Exchange (“TSX-V”) under the symbol PYT. The address of the Company’s registered office is 2800 Park Place, 666 Burrard Street, Vancouver, B.C., Canada. and its principal place of business is located at Unit 210, 13480 Crestwood Place, Richmond, B.C., Canada.

Pyng is a global medical device company that discovers, develops, manufactures and markets a suite of innovative trauma and resuscitation products that can save lives in seconds. Each product in the portfolio meets the ease of clinician to use, safety, efficacy, and overall competitive value criteria essential for life saving trauma products. Currently, the Company is in the business of producing and selling the FAST1® Intraosseous Infusion System, TPOD® Pelvic Stabilizer, MAT® Tourniquet, FASTR™ and developing FASTC™ Sternal Intraosseous Device.

2. BASIS OF PREPARATION

a) Statement of Compliance

These condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting, which do not include all the disclosures in the annual financial statements in accordance with International Financial Reporting Standards (“IFRS”). They should be read in conjunction with the Company’s consolidated financial statements for the year ended September 30, 2012.

The financial statements were authorized for issue by the Board of Directors on August 27, 2013.

b) Basis of Measurement

These consolidated financial statements have been prepared on a historical cost basis and presented in Canadian dollars, which is also the Company’s functional currency. All values are rounded to the nearest dollar, unless otherwise indicated. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

c) Going Concern of Operations As at June 30, 2013, the Company has cash in the amount of $204,344 (September 30, 2012 - $283,597) and working capital deficiency of $787,559 (September 30, 2012 – $196,463). The Company incurred a net loss of $177,905 and $821,968 for the three months and nine months ended June 30, 2013 respectively (three and nine months ended June 30, 2012 – net income of $73,468 and net loss of $6,944). As of June 30, 2013, the Company’s accumulated deficit was $5,843,143 (September 30, 2012 - $5,021,175).

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months. The Company’s ability to continue as a going concern is dependent upon its ability to achieve future


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2. BASIS OF PREPARATION (Continued) profitable operations and to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company is currently pursuing additional debt and equity financing to fund its working capital needs. Management plans to secure the necessary financing through the issuance of new equity or debt instruments. The outcome of this plan is uncertain and this may cast significant doubt on the ability of the Company to continue as a going concern. There can be no assurance that these initiatives will be successful.

d) Use of Estimates and Judgements The presentation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period. Significant areas requiring the use of estimates include the rates of amortization for property and equipment, deferred product development costs and intellectual property rights, impairment of long-lived assets, estimates of accounts payable and accrued liabilities, the assumptions used in the determination of fair value of stock-based payments, and the determination of valuation allowance for deferred income tax assets. These estimates and judgements are further discussed in Note 5.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all years presented in these financial statements and in preparing the opening IFRS statement of financial position at October 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated.

a) Basis of Consolidation

These consolidated financial statements include the accounts of the parent and its wholly-owned subsidiary, Pyng Medical USA Corp. All material inter-company transactions and balances have been eliminated on consolidation.

b) Cash and Cash Equivalents

Cash includes cash on hand and demand deposits. Cash equivalents comprise short-term, highly liquid investments that are readily convertible to known amounts of cash which are subject to insignificant risk of change and have maturities of three months or less from the date of acquisition, held for the purpose of meeting short-term cash commitments rather than for investing or other purposes. As at June 30, 2013, the Company did not have any cash equivalents.

c) Inventories Raw materials, work-in-progress and finished goods are measured at the lower of cost and net realizable value. The cost of the inventory is determined on a weighted average basis and includes expenditures incurred in acquiring inventory, production cost and other cost incurred in bring them to their existing location and condition. In the case of finished goods and work in progress,


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued) the cost includes materials, labor and appropriate share of production overhead based on normal operating capacity. The net realizable value of inventory is generally considered to be the selling price in the ordinary course of business less the estimated costs of completion and estimated costs to make the sale. The amount of any write-down of inventories to net realizable value and all loss of inventories is recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

d) Property and Equipment

Property and equipment are recorded at cost less accumulated amortization and accumulated impairment losses. Cost included expenditures that are directly attributable to the acquisition of the assets. Property and equipment are amortized from the date of acquisition over the estimated useful lives of the assets at the following annual rates and methods:

Assets Annual Rate Basis

Furniture and office equipment 20% Declining balance

Medical equipment 20% Declining balance

Computer equipment 30% Declining balance

Leasehold improvements 30% Straight-line

Software 100% Straight-line

Amortization methods, useful lives and residual values are reviewed at each fiscal year end and adjusted if appropriate. Gains and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property and are recognized in profit and loss.

e) Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The internally –generated intangible assets are initially recognized if they meet the recognition criteria. Subsequent to the initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. Intangible assets consist of deferred product development costs, website development costs, patents and intellectual property rights.


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Research costs are expensed as they are incurred. Product development costs are expensed as incurred except when they meet specific criteria under IFRS for capitalization. Capitalized development costs are amortized when commercial production begins, using the straight-line method over the estimated useful lives of the products (10-15 years).

Website development costs are stated at acquisition cost less accumulated amortization. Amortization is calculated over the estimated useful life of three years using the straight line method. Website hosting and maintenance costs are charged to operations as they are incurred.

Patents are recorded at cost and comprised of costs associated with preparing, filing and obtaining patents. Technology license costs are recorded at the fair value of consideration paid. Patents are amortized using the straight-line method over 10 years.

All the costs incurred to acquire patents, trademarks, and other intellectual and industrial property rights related to TPOD®, MAT®, FASTINFO and CRIC™ have been capitalized. The capitalized costs are amortized when commercial production begins using the straight-line method over the estimated useful lives of the products (15 years).

The estimated useful lives and amortization methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

f) Impairment of Long-lived Assets

On an annual basis and when impairment indicators arise, the Company evaluates the future recoverability of its long-lived assets, including property and equipment and intangible assets. If the changes in circumstances indicate that the carrying amount of an asset may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. The recoverable amount is the higher of the fair value less cost to sell and the value in use. In assessing value in use, the estimated future cash flow are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. An impairment loss is recognized in net loss if carrying amount of an asset or its cash-generating unit exceed its estimated recoverable amount. Impairment loss recognized in prior periods will be reversed if there is any indications that the loss has decreased or no longer exists and the reversal of the impairment loss shall not exceed the carrying amount that would have been determined had no impairment loss been recognized for the assets in prior years.

g) Share Capital

Common shares issued by the Company are classified as equity. Costs directly attributable to the issuance of common shares, share purchase warrants and stock options are recognized as a deduction from equity, net of any related income tax effects. Proceeds from unit placements are allocated between share capital and warrants using the residual method whereby the value allocated to the shares is equal to the market price of the shares and any excess is assigned to the value of the warrants issued.


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued) h) Share-based Payments

The Company grants stock options to directors, employees and service providers pursuant to a stock option plan described in Note 12 (d). An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. The fair value of options granted is recognized as an employee or consultant expense with a corresponding increase in equity. The fair value is measured at grant date and each tranche is recognized using the graded vesting method over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest. In situations where equity instruments are issued to non‐employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the share‐based payment. Otherwise, share‐based payments are measured at the fair value of goods or services received.

i) Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share amounts are computed using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method to determine the dilutive effect of stock options and other dilutive instruments. Under the treasury stock method, only instruments with exercise amounts less than market prices impact the diluted calculations. This method assumes that common shares are issued for the exercise of warrants and options and that the assumed proceeds from the exercise of warrants and options are used to purchase common shares at the average market price during the period. The difference between the number of shares assumed issued and the number of shares assumed purchased is then added to the basic weighted average number of shares outstanding to determine the fully diluted number of common shares outstanding. No shares were added to the weighted average number of common shares outstanding during the year for the dilutive effect of warrants and options as they were all anti-dilutive.

j) Revenue Recognition

The Company generates revenue primarily from product sales. Revenue from sales of the Company’s products is recognized at the time of shipment, at which point risks and rewards over ownership and title of transfer have been passed to the customer, provided that collection of the proceeds of sale is reasonably assured.

k) Foreign Currency Translation

The Company’s functional and reporting currency is the Canadian dollar. The transactions denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued) effect at the date of the transaction. At each reporting date, unsettled monetary assets and liabilities denominated in foreign currencies have been translated into Canadian dollars at the rate of exchange in effect at the reporting date and the related differences are recognized in net income. Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars using the exchange rate in effect at the rate of the date of the initial transaction and are not subsequently restated. The assets and liabilities of foreign operations are translated to the presentation currency at exchange rate at the reporting date. The income and expenses of foreign operations are translated to presentation currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in comprehensive income.

l) Financial Instruments All financial assets are classified into one of the following categories based on the nature and purpose of the financial assets and are determined at the time of initial recognition. Financial Assets at Fair Value through Profit or Loss Financial assets are classified at fair value through profit or loss if they are held for trading or if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value and changes therein are recognized in profit or loss. The Company has classified cash and cash equivalents as financial assets at fair value through profit or loss. Held-to-maturity Investments Bills of exchange and debentures with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are initially recorded at fair value and subsequently measured at amortized cost using the effective interest method less any impairment with revenue recognized on an effective yield basis. Currently, the Company does not have any assets classified as held-to-maturity investments. Loan and Receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value and subsequently at amortized cost using the effective interest method less any impairment loss. Loan and receivables are comprised of the Company’s accounts and other receivables. Available-for-sale Financial Assets Non-derivative financial assets that do not meet the definition of loans and receivables are classified as available-for-sale financial assets. Available-for-sale investments are carried at fair value with changes in fair value recognized in other comprehensive income/loss. When an


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

l) Financial Instruments (Continued) investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss. Currently, the Company does not have any assets classified as available-for-sale financial assets. Financial Liabilities Financial liabilities are classified as other financial liabilities, based on the purpose for which the liabilities was incurred, and comprised of trade payables, accrued liabilities, bank line of credit, bank loans, and convertible debt. These liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. Impairment of Financial Assets At each annual reporting date, the Company assess whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flow of the financial asset or the group of the financial assets. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

m) Income Taxes Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive income or loss.

Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current period and any adjustment to income taxes payable in respect of previous periods. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the period-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously


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3. SIGNIFICANT ACCOUNTING POLICIES (Continued) unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

n) Comparative Figures

Certain comparative figures have been reclassified to conform with the current year’s presentation.

4. FUTURE ACCOUNTING PRONOUNCEMENTS

Certain pronouncements were issued by the International Accounting Standards Board (“IASB”) or the IFRS Interpretations Committee that are mandatory for accounting years beginning or after January 1, 2013 or later years. The Company has not adopted the following standards and is in the process of evaluating the impact that these standards will have on the financial statements: a) IFRS 9 Financial Instruments

IFRS 9 Financial Instrument is part of the IASB’s wider project of replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristic of the financial assets. The standard is effective for annual periods beginning on or after January 1, 2015.

b) IFRS 10 Consolidated Financial Statements

IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This standard is effective for annual periods beginning on or after January 1, 2013.

c) IFRS 11 Joint Arrangements

IFRS 11 describes the accounting for arrangement in which there is joint control by focusing on the rights and obligations of the arrangement rather than its legal form. Proportionate consolidation is not permitted for joint ventures and it requires a single method to account for interest in jointly control entities. The standard is effective for annual periods beginning on or after January 1, 2013.

d) IFRS 12 Disclosure of Interest in Other Entities

IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangement, associates, special purpose vehicles and other off balance sheet vehicles. The standard is effective for annual periods beginning or after January 1, 2013.


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4. FUTURE ACCOUNTING PRONOUNCEMENTS (Continued)

e) IFRS 13 Fair Value Measurement

IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The standard is effective for annual periods beginning on or after January 1, 2013.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses for the periods reported. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in operations in the period in which they become known. We have identified the following as critical accounting estimates, which are defined as those that are reflective of significant judgments and uncertainties. These estimates are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions and conditions. a) Revenue Recognition

Revenue from sales of the Company’s products is recognized at the time of shipment, at which point risks and rewards over ownership and title of transfer have been passed to the customer, provided that collection of the proceeds of sale is reasonably assured.

b) Research and Development Costs

All product development costs that meet the specific criteria of capitalization under IFRS have been capitalized. In prior years, the accumulated capitalized costs were being amortized on a per unit basis based on the sales volume projection for the estimated remaining useful life of the product. During fiscal 2011, the Company changed the amortization method to straight line to better reflect the pattern of realization of the future economic benefits. The unamortized deferred product development costs are reviewed annually and should the review indicate that the basis of amortization requires modification, the change will be applied prospectively.

c) Patents

Patents are recorded at cost and comprised of costs associated with preparing, filing and obtaining patents. Technology license costs are recorded at the fair value of consideration paid. Patents are amortized using the straight-line method over 10 years. The amounts shown for patents do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialization of products based on these rights. If management determines that such costs exceed estimated net recoverable value based on future cash flows, the excess of such costs is charged to operations.


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5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

d) Intellectual Property Rights

All the costs incurred to acquire patents, trademarks, and other intellectual and industrial property rights related to TPOD®, MAT®, FASTINFO and CRIC™ have been capitalized. During fiscal 2011, the Company changed the estimated useful life of these intellectual property rights from indefinite to 15 years based on the current market demand and other economic factors.

e) Property and Equipment

Property and equipment are recorded at cost less amortization provided for over the estimated useful lives of the assets at the following annual rates and methods: Assets Annual Rate Basis

Furniture and office equipment 20% Declining balance

Medical equipment 20% Declining balance

Computer equipment 30% Declining balance

Leasehold improvements 30% Straight-line

Software 100% Straight-line

f) Impairment of Long-lived Assets

On an annual basis and when impairment indicators arise, the Company evaluates the future recoverability of its long-lived assets, including deferred product development costs, property and equipment, website development costs, patents and intellectual property rights. If the changes in circumstances indicate that the carrying amount of an asset may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. The recoverable amount is the higher of the fair value less cost to sell and the value in use. In assessing value in use, the estimated future cash flow are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. An impairment loss is recognized in net loss if carrying amount of an asset or its cash-generating unit exceed its estimated recoverable amount.

g) Stock-based Payments

The fair value is measured at grant date, and each tranche is recognized using the graded vesting method over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest. This estimate requires determining the most appropriate inputs to the valuation model including the estimated dividend yield, expected volatility, the risk-free interest rate and the expected lives of the share purchase options.

h) Income Taxes

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition


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5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss.

h) Income Taxes (Continued) Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

6. FINANCIAL INSTRUMENTS AND RISKS

As at June 30, 2013 and September 30, 2012, the Company's financial instruments recognized on the statement of financial position consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities, loan payable, and convertible debentures. Determination of Fair Value The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable, bank line of credit, accrued liabilities and bank loan approximate the carrying amounts due to their short-term nature. The fair value of the liability component of the convertible debenture was estimated by discounting future cash flow at the current market interest rates for agreements covering similar investments. Based on the quoted interest rates for borrowings of companies of similar level risk, in management’s estimation, the carrying value of the liability component of the convertible debenture approximates fair value. Fair Value Hierarchy Financial instruments that are measured subsequent to initial recognition at fair value are grouped in level 1 to 3 based on the degree to which the fair value is observable. Level 1 – observable inputs such as quoted price in active markets; Level 2 – inputs, other than the quoted market prices in active markets, which are observable, either

directly or indirectly, Level 3 – unobservable inputs for the assets or liabilities in which little or no market data exists,

therefore requiring an entity to develop its own assumptions. Financial Risk The Company is exposed in varying degrees of financial instrument related risks. The Board of Directors approves and monitors the risk management process. The overall objective of the Board is


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6. FINANCIAL INSTRUMENTS AND RISKS (Continued) to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. The type of risk exposure and the way in which such exposure is managed is provided as follows: a) Credit Risk

The Company’s exposure to credit risk related to accounts receivable arises from the possibility that a customer does not fulfil its obligation. This is minimized through certain credit evaluation procedures and limits on the amount of credit extended as deemed necessary. The Company does not require collateral for financial instruments subject to credit risk. The maximum exposure to credit risk is the net carrying value of accounts receivable. Credit risk also arises from cash with banks and financial institutions. This risk is limited because the counterparties are mainly Canadian banks with high credit rating. To minimize the risk, cash has been deposited in major financial institutions in Canada (subject to deposit insurance up to $100,000). The Company also obtains accounts receivable insurance coverage to mitigate collection risks.

The Company’s credit risk for accounts receivable is concentrated, as the Company presently derives a substantial amount of its revenues from one distributor which contributed approximately 46% of revenues for the three months ended June 30, 2013 (three months ended June 30, 2012 - 80%). The sales are made to the distributor under a distributorship agreement. The non-renewal or cancellation of the contract could have a material adverse short-term impact on the Company.

Amounts owing from one distributor comprised 33% (September 30, 2012 - 22%) of the accounts receivable balance as at June 30, 2013

b) Foreign Exchange Risk

The Company uses the Canadian dollar as its reporting currency for these consolidated financial statements. The Company’s revenues are denominated primarily in U.S. dollars, giving rise to the exposure to market risks from changes in foreign exchange rates. The Company is exposed to foreign currency fluctuation on its cash, accounts receivable, accounts payable, accrued liabilities as well as certain operating expenses. If the Canadian dollar appreciated one percent against U.S. dollar, with all other variables remain constant, the net income would have been increased by approximately $13,055 (three months ended June 30, 2012 – increased by $6,983). If the Canadian dollar depreciated one percent against U.S. dollar, there would be an equal and opposite impact on net income.

During fiscal 2012, the Company entered into foreign currency forward contracts to protect itself against foreign exchange rate fluctuations. The Company’s objective is to manage and control the exposures and secure the Company’s profitability on existing sales and anticipated future cash flows. The Company does not utilize derivative instruments for trading or speculative purposes.

The forward foreign exchange contracts primarily require the Company to sell U.S. dollars for Canadian dollars at contractual rates. As at June 30, 2013, all the forward contracts the Company entered into were settled.


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6. FINANCIAL INSTRUMENTS AND RISKS (Continued)

c) Liquidity Risk

Liquidity risk is the risk the Company may not be able to meet its contractual obligations and financial liabilities as they become due. The Company is exposed to liquidity risk as its continued operations are dependent upon the Company realizing its accounts receivable and the ability to issue debt and equity instruments to satisfy its liabilities as they become due.

The Company controls liquidity risk by management of working capital, cash flow and availability of short-term loan from the largest shareholder. The customer credit evaluations are conducted based on trade references, bank reports, and periodic review of customers’ payment patterns to ensure irregularities are addressed promptly. As at June 30, 2013, the Company had cash of $204,344 (September 30, 2012 - $283,597) and working capital deficiency of $787,559 (September 30, 2012 – $196,463). On April 10, 2013, the Company renewed its short-term loan in the amount of $602,465 (US$572,794) along with the interest accrued of $16,118 (US$15,324) to April 9, 2013 for another three months maturing on July 8, 2013. It was subsequently extended to September 6, 2013 (Note 10). The following is an analysis of the contractual maturities of the Company’s financial liabilities as at June 30, 2013:

Total <1 year 1-2 year 2-3 year 3-4 year 4-5 year >5 year

Trade payable and accrued

liabilities 1,700,600$ 1,700,600$ -$ -$ -$ -$ -$

Loan payable 618,583 618,583 - - - - -

Convertible debenture 471,874 471,874 - - - - Operating lease 25,402 23,448 1,954 - - - -

Product development 191,115 191,115 - - - - -

3,007,574$ 2,533,746$ 473,828$ -$ -$ -$ -$

Due by period

d) Interest Rate Risk

Loan payable and convertible debentures are subject to interest rate risk as the required cash flow to service the debt will fluctuate as a result of the changing prime interest rate. The Company has estimated that one percent increase or decrease in the prime rate would have caused a net income decrease or increase by approximately $1,336 (three months ended June 30, 2012 - $1,121).

7. INVENTORIES

June 30, 2013 September 30, 2012

Raw materials and work in progress 377,279$ 202,324$

Raw materials in transit - 17,617

Finished goods 429,147 215,179

806,426$ 435,120$


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8. PROPERTY AND EQUIPMENT

Furniture and

office

equipment

Medical

equipment

Computer

equipment

Leasehold

improvements Software Total

Cost

At September 30, 2012 179,150$ 312,722$ 119,711$ 108,190$ 221,210$ 940,983$

Additions - 1,665 - - - 1,665

Disposals - - - - - -

At June 30, 2013 179,150$ 314,387$ 119,711$ 108,190$ 221,210$ 942,648$

Furniture and

office

equipment

Medical

equipment

Computer

equipment

Leasehold


Accumulated amortization

At September 30, 2012 138,788$ 283,780$ 90,254$ 108,190$ 221,210$ 842,222$

Additions 4,854 4,674 6,628 - - 16,156

Disposals - - - - - -

At June 30, 2013 143,643$ 288,454$ 96,882$ 108,190$ 221,210$ 858,378$

Furniture and

office

equipment

Medical

equipment

Computer

equipment

Leasehold


Net carrying value

At September 30, 2012 40,362$ 28,942$ 29,457$ -$ -$ 98,761$

At June 30, 2013 35,507$ 25,934$ 22,829$ -$ -$ 84,270$

9. INTANGIBLE ASSETS

Deferred product

development costs

Website

development costs Patents

Intellectual

Property Rights Total

Cost

At September 30, 2012 7,644,198$ 58,244$ 595,327$ 2,576,889$ 10,874,659$

Additions 118,300 - 53,218 - 171,518

Disposals - - - - -

At June 30, 2013 7,762,498$ 58,244$ 648,545$ 2,576,889$ 11,046,177$


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9. INTANGIBLE ASSETS (Continued)

Deferred product

development costs

Website


Intellectual


Accumulated amortization and impairment loss

At September 30, 2012 3,914,162$ 58,244$ 318,527$ 1,653,773$ 5,944,706$

Additions 227,369 - 41,692 53,334 322,395

Impairment loss - - - - -

Disposals - - - - -

At June 30, 2013 4,141,531$ 58,244$ 360,219$ 1,707,107$ 6,267,101$

Deferred product

development costs

Website


Intellectual


Net carrying value

At September 30, 2012 3,730,037$ - 276,800$ 923,116$ 4,929,953$

At June 30, 2013 3,620,967$ -$ 288,327$ 869,782$ 4,779,076$

10. LOANS PAYABLE


Short-term loans totaling US$588,118, interest at

18% per annum, unsecured and no equity

component attached, due date was extended to

September 6, 2013. 618,583 535,844

Less: current portion (618,583) (535,844)

-$ -$ On April 10, 2013, the Company renewed the short-term loan $602,465 (US$572,794) for another three months along with the interest accrued to date of $16,118 (US$15,324). The maturity date was then extended from July 8, 2013 to September 6, 2013. As at June 30, 2013, a total amount of $24,709 (US$23,493) interest was outstanding and reported under accrued liabilities on the statement of financial position.

11. CONVERTIBLE DEBENTURES


Convertible debentures issued 545,000$ 545,000$

Equity portion of convertible debentures (191,825) (191,825)

353,175 353,175

Deferred financing costs (net of amortization) (23,648) (39,884)

Interest accretion 142,347 110,802

Debt portion of convertible debentures 471,874$ 424,093$


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11. CONVERTIBLE DEBENTURES (Continued) On August 10, 2009, the Company issued convertible debentures in the amount of $545,000, which are due and payable on August 10, 2014. The amount of $495,000 out of $545,000 was issued to directors and officers of the Company. The debentures are convertible into common shares of the Company at $0.20 per share. The Company issued 2,725,000 common share purchase warrants at $0.001 per warrant as part of the convertible debt financing agreement. Each warrant is exercisable to purchase one common share of the Company at $0.22 per share until the date the loan is repaid or no later than August 10, 2014. Interest on the debentures is calculated at prime plus 10% per annum. The interest is payable quarterly in Canadian dollars. The debentures are secured by all assets of the Company.

The liability component of the convertible debt is calculated as the present value of the principal, discounted at a rate approximating the interest rate that was estimated would have been applicable to non-convertible debt at the time the debt was issued. This portion of the convertible debt is accreted over its term to the full face value by charges to interest expense. The accretion is a non-cash transaction and has been excluded from the statement of cash flows. The equity element of the convertible debt comprises the value of the conversion option, being the difference between the face value of the convertible debt and the liability component.

12. SHARE CAPITAL

a) Authorized

100,000,000 common shares without par value.

b) Issued and Outstanding

On July 19, 2012, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $174,675. Upon closing the financing, the Company issued a total of 1,940,833 units; each unit made up of one common share of the Company and three-quarters (3/4) of one common share purchase warrant (each whole warrant, a “Warrant”) at a price of $0.09 per unit. Each Warrant entitles the holder to acquire one additional common share of the Company at a price of $0.1125 per unit for a period of four years from the date after the closing. All securities issued in connection with the placement were subject to a statutory hold period of four months that expired on November 20, 2012. The net proceeds from the placement were used for debt reduction and general working capital.

c) Warrants

A summary of warrant activities for the quarter ended June 30, 2013 presented is as follows:


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12. SHARE CAPITAL (Continued) c) Warrants (Continued)

Number of

Warrants

Weighted Average

Exercise Price

Number of

Warrants

Weighted Average

Exercise Price

Outstanding, beginning of period 4,290,625 $ 0.19 2,835,000 $ 0.23

Issued - - 1,455,625 0.11

Expired (110,000) 0.55 - -

Outstanding, end of period 4,180,625 $ 0.18 4,290,625 $ 0.19


As at June 30, 2013, the following warrants were outstanding:

Number of Warrants Exercise Price Expiring Date

2,725,000 0.2200$ 10-Aug-14

1,455,625 0.1125$ 19-Jul-16

4,180,625

d) Stock Options The Company has a rolling stock option plan, which follows the policies of the TSX Venture Exchange (“TSXV”) regarding stock option awards granted to employees, directors and consultants. The stock option plan allows a maximum of 10% of the issued shares to be reserved for issuance under the plan. The Company’s stock options vest as follows: 1/3 six months after the date of grant, 1/3 twelve months after the date of grant, and 1/3 eighteen months after the date of grant. On August 22, 2012, the Company granted a total of 530,000 options to purchase common shares of the Company to certain directors, officers and employees in accordance with the Company’s stock option plan. The options will expire four years from the date of grant and have an exercise price of $0.10 per common share. One-third of the options granted will vest every six months for a period of eighteen months.

On December 3, 2012, the Board of Directors passed a resolution that the amount of stock options granted to one director on August 22, 2012 was incorrect, and as a result, 30,000 stock options previously granted were cancelled. In addition, 100,000 stock options previously granted were cancelled due to the staff departure.

As at June 30, 2013, a total of 660,000 (September 30, 2012 – 931,200) stock options were granted out of the 1,694,242 (September 30, 2012 – 1,694,242) pool under this plan, with the balance of 1,034,242 (September 30, 2012 – 763,042) stock options available to grant. A summary of stock option activities for the quarter presented is as follows:


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12. SHARE CAPITAL (Continued)

d) Stock Options (Continued)

Number of

Options

Weighted Average

Exercise Price Number of Options

Weighted Average

Exercise Price

Outstanding, beginning of period 931,200 $ 0.17 401,200 $ 0.26

Granted - - 530,000 0.10

Expired (141,200) 0.35 - -

Cancelled (130,000) 0.12 - -

Outstanding, end of period 660,000 $ 0.21 931,200 $ 0.17


As at June 30, 2013, the following stock options were outstanding:

Options Exercisable

Number of Options Exercise Price Expiring Date Number of Options

60,000 0.41$ 8-Sep-13 60,000

150,000 0.20$ 9-Mar-15 150,000

450,000 0.10$ 22-Aug-16 150,000

660,000 360,000

Options Outstanding

As at June 30, 2013, 360,000 (September 30, 2012 – 401,200) stock options were vested and exercisable, and stock based compensation of $5,086 and $17,723 (June 30, 2012 - Nil) was expensed during the three and nine months ended June 30, 2013 respectively.

13. RELATED PARTY TRANSACTIONS

Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. a) Consulting Fees

During the quarter ended June 30, 2013, consulting fees of $8,005 (three months ended June 30, 2012 - $6,411) were paid or accrued to a director for medical consulting services provided to the Company. As at June 30, 2013, $5,325 (September 30, 2012 - $430) were owing to him for the consulting services rendered and travel expenses in June 2013. The amount is included in trade payable. Key management personnel are persons responsible for planning, directing and controlling the activities of the Company, which includes directors and other members of key management personnel. The compensation of key management for the three months ended June 30, 2013 and 2012 were as follows:


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13. RELATED PARTY TRANSACTIONS (Continued) b) Compensation of Key Management Personnel (Continued)

Three Months Ended

June 30, 2013

Three Months Ended

June 30, 2012

Salaries and benefits 61,183$ 43,051$ Consulting fees 37,705 33,411 Director fees 43,750 16,500 Share-based payments 5,086 -

147,724$ 92,962$

As at June 30, 2013, director fees of $166,000 (September 30, 2012 - $37,750) is outstanding and included in accrued liabilities.

c) Short-term Loans

On April 10, 2013, the Company signed a new promissory note with its largest shareholder, Excelera Corp. (“Excelera”), to roll over the principal balance of all the short term loans in the total amount of $602,465 (US$572,794) and the interest accrued to April 9, 2013 amounting to $16,118 (US$15,324). The loan carries interest at 18% per annum, is not secured, and matures on July 8, 2013. The maturity date was subsequently extended to September 6, 2013. As at June 30, 2013, the total amount of $24,709 (US$23,493) interest was outstanding and reported under accrued liabilities on the statement of financial position.

d) Shares for debt transaction and private placement On April 29, 2013, the Company reached an agreement with MDR to convert an amount of $598,057 (being the equivalent of US$588,118, as calculated at the Bank of Canada closing exchange rate on April 26, 2013 of 1.0169 CDN$/US$) owed by the Company to MDR into common shares at a price of $0.09 per common share, subject to disinterested shareholder approval and TSX Venture Exchange (“TSX-V”) acceptance (the “Shares for Debt Transaction”). MDR and Excelera Corporation (“Excelera”), the Company’s largest shareholder holding approximately 17.71% of the Company’s outstanding common shares, are wholly-owned subsidiaries of Venuity Corporation. Herbert A. Toms III, a director of the Company, is the co-founder and Chief Executive Officer of Venuity Corporation, and owns 80% of the shares of Venuity Corporation. Pursuant to the Shares for Debt Transaction, a total of 6,645,080 common shares will be issued to MDR in settlement of the debt owing. Following the completion of the Shares for Debt Transaction and the Private Placement (as defined below), MDR will own 6,645,080 common shares, being approximately 25.20% of the 26,365,273 common shares of the Company that would then be outstanding.


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13. RELATED PARTY TRANSACTIONS (Continued) d) Shares for debt transaction and private placement (Continued)

Following the completion of the Shares for Debt Transaction, Excelera plans to subscribe for 2,777,777 units of the Company (the “Units”) by way of a private placement at a price of $0.09 per Unit for gross proceeds to the Company of approximately CDN$250,000 (the “Private Placement”). Each Unit will consist of one common share of the Company and one-half of one common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant will entitle Excelera to acquire one additional common share of the Company at a price of $0.1125 per share for a period of four years from the date of issue. Following the completion of the Shares for Debt Transaction and the Private Placement, Excelera will own 5,777,777 common shares, being approximately 21.91% of the 26,365,273 common shares of the Company that would then be outstanding. The net proceeds from the Private Placement will be used for general working capital. Following the completion of the Shares for Debt Transaction and the Private Placement, MDR and Excelera will own a combined 47.11% of the Company’s common shares then outstanding. The completion of the Private Placement is subject to disinterested shareholder approval and TSX-V acceptance. As at June 30, 2013, a special shareholder meeting was scheduled to be held on July 11, 2013 to approve these two transactions.

14. SEGMENTED INFORMATION

The Company’s operations are in Canada and U.S.A. and it operates in one industry segment. Sales by geographic region are as follows:

Percentage Amount Percentage Amount

U.S.A. 60% 781,190$ 80% 1,154,539$

Other 40% 513,179 20% 291,246

100% 1,294,369$ 100% 1,445,785$

Three Months Ended June 30, 2013 Three Months Ended June 30, 2012

15. COMMITMENTS

a) Operating Lease

The Company previously had a one-year operating lease commitment on its Richmond production premises. The Company was required to pay base rent of $4,577 per month. That lease expired on September 30, 2012 and was renewed to January 31, 2013. The Company has subsequently entered into two new lease agreements with different landlords for a smaller premise: a sublease agreement effective January 15, 2013 that will expire on July 31, 2013 with monthly lease payments of $2,083; and a one year lease agreement from August 1, 2013 to July 31, 2014 with monthly lease payments of $1,954.


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15. COMMITMENTS (Continued)

b) Product Development and Manufacturing

In May 2011, the Company entered into a strategic relationship with Donatelle Plastics Inc. (“Donatelle”), a medical device development and manufacturing company in Minnesota USA. The Company entered into this relationship to leverage Donatelle’s capabilities in product development and manufacturing as part of its efforts in bringing new Products to the market and in addressing issues seen with the FASTx recall. It was estimated that the Company would incur costs with Donatelle in the amount of US$2.07 million in addressing issues from the FASTx recall (product development) and bringing new product(s) to the market. As of June 30, 2013, total costs of US$1,887,957 had been incurred and the balance of US$181,703 is anticipated to be incurred in the fourth quarter of fiscal 2013. As part of the strategic relationship entered into with Donatelle in May 2011, in addition to product development, the Company agreed to manufacture FASTx related products (FASTR and FASTC) with Donatelle upon market release. All FASTx products for commercial sale will be manufactured by and purchased exclusively from Donatelle during the life of FASTx products. All products supplied by Donatelle will meet mutually agreed specifications and will be charged at a mutually agreed unit price. These efforts are also in line with management’s overall strategy of reducing operating costs in fiscal 2013. If certain minimum volumes are not achieved with new products released with Donatelle, or products cannot obtain FDA approval, cancellation charges could apply to offset Donatelle’s investment (capacity and resource commitments) in the programs.

During fiscal 2012, the Company also signed a letter of commitment (“LOC”) with Donatelle to outsource the FAST1 manufacturing process. Based on the LOC, Donatelle would provide assembly, packaging and sterilization of FAST1 at the specified annual production volumes. The product supplied by Donatelle will meet Pyng’s documented design specifications and will be charged at a mutually agreed unit price. If the annual quantities are not achieved, a cancellation charge may apply. In late 2012, the Company finalized a manufacturing transfer of the FAST1 product line to Donatelle. FAST1 is now being manufactured at Donatelle

16. SUBSEQUENT EVENTS

a) On July 1, 2013, the Company granted a total of 145,000 options to purchase common shares of the Company to certain officers and employees in accordance with the Company’s stock option plan. The options will expire four years from the date of grant and have an exercise price of $0.10 per common share. One-third of the options granted will vest every six months for a period of 18 months.

b) On July 17, 2013, the Company reported that, at a special meeting of shareholders held in Vancouver on July 11, 2013, the disinterested shareholders of the Company approved the shares for debt transaction and private placement, as previously proposed on April 29, 2013 and disclosed in Note 13 (d). As of the reporting date August 27, 2013, the transaction is not yet closed.


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16. SUBSEQUENT EVENTS (Continued) The Company also reported that a board meeting convened following the special shareholder meeting, the directors approved the repricing of the convertible debentures in the principle amount of $545,000 issued by the Company on August 10, 2009, from the original price of $0.20 per common shares to $0.09 per common shares, and a corresponding reduction of the exercise price of common share purchase warrants issued as part of the convertible debt financing from $0.22 per common shares to $0.1125 per common shares, subject to the approval of the Company’s disinterested shareholders and TSXV. The Company is currently exploring this option compared to other financing alternatives.

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