IV. ANALISIS E INTERPRETACIÓN DE LOS RESULTADOS
4.1.4 Determinación de la correlación de los resultados del Penetrómetro
The Company’s outstanding stock options as at October 31, 2003 and 2002 and changes that occurred during the years then ended are as follows:
2003 2002
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
$ $ Options outstanding, beginning of year 2,327,629 1.87 1,691,977 2.95 Granted 423,500 0.40 1,136,764 1.00 Cancelled or forfeited (873,097 ) 0.96 (501,112 ) 3.56 Options outstanding, end of year 1,878,032 2.12 2,327,629 1.87
Options exercisable, end
of year 1,191,530 2.91 1,869,515
The following table summarizes information relating to the stock options outstanding as at October 31, 2003:
Options outstanding Options exercisable
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices of options life (years) price of options price
$ $
$5.90 224,175 1.30 5.90 224,175 5.90
$2.00 to $3.75 461,857 4.82 3.13 461,857 3.13
$0.37 to $1.85 1,192,000 7.88 1.02 505,498 1.37
Page 36
Consolidated Financial Statements
9.
CAPITAL STOCK [Cont’d]
Stock options [cont’d]
Other stock options [cont’d]
During the period ended October 31, 2003, the Company granted 423,500 options to certain key employees and directors. The weighted average fair value of stock options granted during this period amounted to $0.38 per stock option. The fair value of each option granted was determined using the Black-Scholes option pricing model and the following weighted average assumptions:
Risk-free interest rate 4.74%
Expected life 10 years
Expected volatility in the market price of
the share 122%
Expected dividend yield —
The Company has elected to account for its share option plan as capital transactions. If the share option plan had been accounted for using the fair value method, the pro forma net loss and the pro forma loss per share would have been as follows:
Year ended October 31, 2003 $ Net loss As presented 3,229,016 Pro forma 3,294,408
Basic and diluted loss per share
As presented 0.11
Pro forma 0.11
Because the method of accounting under CICA Handbook section 3870 has not been applied to options granted prior to November 1, 2002, the pro forma compensation cost may not be representative of compensation cost to be expected in future years.
For the purpose of the pro forma disclosure, stock-based compensation is amortized to expense on a straight-line basis over the vesting period, which is three years.
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the use of highly subjective assumptions including the expected stock price volatility. Because the Company’s employees and directors stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can have a material effect on the fair value estimate, in management’s opinion, the existing option pricing models do not necessarily provide a reliable single measure of the fair value of its employees and directors stock options.
Consolidated Financial Statements
Page 37
9.
CAPITAL STOCK [Cont’d]
Stock options [Cont’d]
Earnings per share
No adjustments were required to the net loss for purposes of calculating basic and diluted earnings per share. There were also no adjustments to the weighted average number of shares outstanding for the purpose of calculating diluted earnings per share, because to do so would be anti-dilutive.
10. INVESTMENT TAX CREDITS RECEIVABLE
The amounts recorded as research and development tax credits receivable are related to amounts claimed which have not yet been subject to a review by the tax authorities. In case of differences between the amounts claimed by the Company and the amounts granted by the tax authorities, any adjustment will be recorded during the year in which they are determined.
11. GAIN FROM CANCELLATION OF AN AGREEMENT
During the year ended October 31, 2002, the Company and a distributor privately terminated a distribution agreement, and the Company obtained compensation totalling $866,658.
12. INCOME TAXES
The income tax expense reported differs from the amount of the tax expense computed by applying statutory income tax rates to the loss before taxes. The reasons for the differences and the related tax effects are as follows:
2003 2002
$ $
Combined statutory federal and provincial 1,078,000 941,000
Increase (decrease) in taxes recoverable resulting from Unrecognized tax benefits of operating losses and other
available deductions (1,101,000 ) (969,000 )
Tax credit not taxable in Québec 23,000 28,000
— —
The major components of future income tax assets are as follows:
2003 2002
$ $
Future income tax assets
Net operating losses carried forward 6,394,000 5,585,000 Research and development expenditures 1,512,000 1,379,000 Tax value of capital assets in excess of carrying values 482,000 422,000
Other 239,000 340,000
Total future income tax assets 8,627,000 7,726,000
Valuation allowance (8,627,000 ) (7,726,000 )
Page 38
Consolidated Financial Statements
12. INCOME TAXES [Cont’d]
The Company has the following non-capital tax losses, which are available to reduce future taxable income and expire as follows:
Year Amount Year
of loss Federal Québec of expiry
$ $ October 31, 1997 2,929,000 2,784,000 2004 October 31, 1998 4,368,000 4,262,000 2005 October 31, 1999 3,033,000 2,950,000 2006 October 31, 2000 2,986,000 2,896,000 2007 October 31, 2001 2,600,000 2,447,000 2008 October 31, 2002 2,110,000 1,934,000 2009 October 31, 2003 2,834,000 2,717,000 2010 20,860,000 19,990,000
In addition, the Company has investment tax credits that it may carry forward for federal tax purposes as follows:
Year Year
of credit Amount of expiry
$ September 30, 1996 20,000 2005 October 31, 1996 1,000 2006 October 31, 1997 330,000 2007 October 31, 1998 439,000 2008 October 31, 1999 216,000 2009 October 31, 2000 150,000 2010 October 31, 2001 226,000 2011 October 31, 2002 189,000 2012 October 31, 2003 165,000 2013 1,736,000
As at October 31, 2003, the deferred scientific research and experimental development expenses which could be used to reduce the Company’s taxable income in future years, with no set expiry date, amounted to approximately $5,658,000 at the federal level and $8,978,000 at the Québec level.
13. FINANCIAL INSTRUMENTS
Fair value
The carrying amounts of cash and cash equivalents, temporary investments, accounts receivable, investment tax credits receivable and accounts payable are a reasonable estimate of their fair values because of the short maturity of these instruments.
Consolidated Financial Statements
Page 39
13. FINANCIAL INSTRUMENTS [Cont’d]
Concentration of credit risk
Investment tax credits receivable are due from the Québec government. All of the cash and cash equivalents are held with Canadian chartered banks. Temporary investments are held in commercial paper or bonds of municipalities, hospitals, CEGEPs and government bodies, and in a money market fund.
14. GOVERNMENT ASSISTANCE
The Company incurred research and development expenditures that are eligible for investment tax credits. The credits, totalling $254,126 [$309,324 in 2002], were applied against research and development expenses.
The Company has also obtained other government assistance related to various projects. These amounts have been applied against the following expenses:
Year ended Year ended October 31, October 31,
2003 2002
$ $
General and administrative expenses 9,170 23,948
Selling and business development expenses 5,000 24,000
Manufacturing costs — 7,743
14,170 55,691
15. COMMITMENTS
As at October 31, 2003, the Company’s obligations under a lease maturing on February 28, 2006 totalled $331,866. The minimum annual lease payments for the following three years are as follows: 2004 – $139,447; 2005 – $143,469 and 2006 – $48,270.
16. SUBSEQUENT EVENTS
On November 19, 2003, the Company has granted to Gen-Probe Incorporated, a U.S. based company, an exclusive license for the diagnostic use of the PCA3 technology in prostate cancer. Under the terms of the agreement, Gen-Probe Incorporated will pay the Company an up-front US $3 million fee, and future fees and contract development payments of up to US $7,5 million over the next three years. Gen-Probe Incorporated will receive exclusive worldwide rights to diagnostic product resulting from the agreement, and will pay the Company royalties of 8% on cumulative net product sales of up to $50 million, and royalties of 16% on cumulative net sales above $50 million.
On December 18, 2003, the Company acquired the assets including customer lists and intellectual property of SAMBA Technologies SARL, an European company which specializes in digital imaging and information technology. The cost of the acquisition is not material to the Company.
Page 40
Corporate Information
Board of Directors Pierre Lapalme 1, 2
Chairman of the Board Consultant
Pierre Désy
President and Chief Executive Officer DiagnoCure Inc.
Dr. Yves Fradet
Senior Vice-President, Chief Scientific Officer and Secretary
DiagnoCure Inc.
Yves Cornellier 1
Senior Vice President, Business Development, LAB International Inc.
Michel Côté 1, 2,
Consultant, Investment Banking Services, BMO Nesbitt Burns Inc.
Dr. Mario Thomas 2
Vice-President, Gestion T2C2/Bio Inc.
Dr. Vincent R. Zurawski, Jr.
President of Varinel, Inc. and Executive Consultant and Advisor to the board of Ricerca Biosciences LLC
1 Audit and Corporate Governance Committee Member 2 Human Resources Committee Member
Advisor to the President Paul Gobeil
Chairman of the Board of directors Export Development Canada
Management and General Operations Pierre Désy, M.B.A.
President and Chief Executive Officer
Yves Fradet, M.D.
Senior Vice-President and Chief Scientific Officer
Blair L. Shamel
Senior Vice President, Corporate Development
Camille Chypre, Ph.D.
Director, Research and Development and Production
Marie L. Desaulniers, R.N.
Director, Customer Service and Clinical Studies
Dany Leblanc, Ing., P.E.
Director, Quality Assurance
Patrice Plourde
Director, Sales and Marketing
Romano Robusto, LL.B., B.C.L.
Director, Business Development
Lyson Piché, M.Sc.
Group Leader – Research and Development
General Shareholder Information DiagnoCure Inc.
2050, René-Lévesque Blvd. West 6th floor
Sainte-Foy (Québec) Canada G1V 2K8 Telephone: (418) 527-6100 Fax: (418) 527-0240 [email protected] www.diagnocure.com Investor Relations Pierre Désy
President and CEO
Legal Advisors McCarthy Tétrault LLP 1150, rue Claire-Fontaine 7th floor Québec (Québec) G1R 5G4
Registrar and Transfer Agent
Computershare Trust Company of Canada 1500 University Street Suite 700 Montréal (Québec) H3A 3S8 Telephone: (514) 982-7888 Fax: (514) 982-7580 Auditors
Ernst & Young LLP
150 René-Lévesque Blvd. East Suite 1200
Québec (Québec) G1R 6C6
Stock Exchange Listing
The common shares are listed on the Toronto Stock Exchange under the symbol CUR.
Annual Meeting
The annual meeting of shareholders of DiagnoCure Inc. will be held on April 8, 2004, in Québec, at Musée des Beaux-Arts du Québec, 1, av. Wolfe-Montcalm, Québec, at 11:00 a.m. (local time)
Trademarks
uCyt+ , DiagnoGene and uPM3 are trademarks of DiagnoCure Inc. ImmunoCytTM is used under license in the United States of America
2050 René-Lévesque Blvd. W. 6th floor Sainte-Foy, QC
G1V 2K8 Canada
Telephone: (418) 527-6100 Fax: (418) 527-0240 www.diagnocure.com [email protected]