|
|
|
|
Document Preview Auditors' Report |
||||
|
|
||||
|
Click "Add to Cart" button to purchase document. |
||||
|
|
||||
|
Title: |
Auditors' Report |
|||
|
Entities: |
Bank of Nova Scotia; Hemosol Inc.; MDS Laboratory Services Inc; TOTAL SA |
|||
|
Date: |
2004 |
|||
|
Size: |
Preview shows 28KB of 126KB total |
|||
|
Price: |
$50 |
|||
|
ID: |
#1902738 |
|||
|
|
||||
|
||||
|
|
||||
|
Start of Preview |
||||
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND AUDITORS' REPORT
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of Hemosol Inc. and all the information in
this annual report are the responsibility of management and have been approved
by the Board of Directors.
The financial statements have been prepared by management in accordance with
Canadian generally accepted accounting principles. When alternative accounting
methods exist, management has chosen those it deems most appropriate in the
circumstances. Financial statements are not precise since they include certain
amounts based on estimates and judgement. Management has determined such amounts
on a reasonable basis in order to ensure that the financial statements are
presented fairly, in all material respects. Management has prepared the
financial information presented elsewhere in the annual report and has ensured
that it is consistent with that in the financial statements. Hemosol Inc.
maintains systems of internal accounting and administrative controls of high
quality, consistent with reasonable cost. Such systems are designed to provide
reasonable assurance that the financial information is relevant, reliable and
accurate and the Company's assets are appropriately accounted for and adequately
safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its
responsibilities for financial reporting and is ultimately responsible for
reviewing and approving the financial statements. The Board carries out this
responsibility principally through its Audit Committee. The Audit Committee is
appointed by the Board and all its members are outside directors, The Committee
meets periodically with management, as well as the external auditors, to discuss
internal controls over the financial reporting process, auditing matters and
financial reporting issues, to satisfy itself that each party is properly
discharging its responsibilities, and to review the annual report, the financial
statements and the external auditors' report. The Committee reports its findings
to the Board for consideration when approving the financial statements for
issuance to the shareholders. The Committee also considers, for review by the
Board and approval by the shareholders, the engagement or re-appointment of the
external auditors.
Financial statements have been audited by Ernst & Young LLP, the external
auditors, on behalf of the shareholders. Ernst & Young LLP has full and free
access to the Audit Committee.
/s/ Lee Hartwell
-----------------------------------
Lee Hartwell
President & Chief Executive Officer
AUDITORS' REPORT
TO THE SHAREHOLDERS OF HEMOSOL INC.
We have audited the consolidated balance sheets of HEMOSOL INC. [A Development
Stage Company] as at December 31, 2003 and 2002 and the consolidated statements
of loss, deficit and cash flows for each of the years in the three-year period
ended December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2003 in accordance with
Canadian generally accepted accounting principles.
Toronto, Canada,
March 10, 2004.
/s/ Ernst & Young LLP
-------------------------------
Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph, following the opinion paragraph, when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the consolidated financial statements. Our report to the shareholders
dated March 10, 2004 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
Toronto, Canada,
March 10, 2004.
/s/ Ernst & Young LLP
------------------------------
Chartered Accountants
2003 Annual Report 17
{PAGE}
Hemosol Inc. [A Development Stage Company] - Incorporated under the laws of
Ontario
CONSOLIDATED BALANCE SHEETS
SEE NOTE 1 - BASIS OF PRESENTATION
As at December 31
(in thousands of dollars)
{TABLE}
{CAPTION}
2003 2002
$ $
-------- ------------------
{S} {C} {C}
ASSETS [note 10[a]] [restated - note 2]
CURRENT
Cash and cash equivalents 8,125 17,579
Cash held in escrow [notes 8[a] and 11] 448 5,000
Amounts receivable and prepaids [note 8[c]] 735 1,077
Inventory [note 3] 1,274 2,877
-------- -------
TOTAL CURRENT ASSETS 10,582 26,533
-------- -------
Property, plant and equipment, net [note 4] 83,881 88,907
Patents and trademarks, net [note 5] 1,368 2,176
License technology [note 6] 2,520 --
Deferred charges, net [note 7] 2,026 6,696
-------- -------
TOTAL OTHER ASSETS 89,795 97,779
-------- -------
100,377 124,312
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 3,394 15,249
Short-term debt [note 10] 20,000 --
Debentures payable [note 11] -- 5,000
-------- -------
TOTAL CURRENT LIABILITIES 23,394 20,249
-------- -------
Commitments and contingencies [notes 4, 12 and 14]
SHAREHOLDERS' EQUITY
Common shares [note 2[b] and 8[a]] 305,983 303,463
Non-employee warrants and options 8[b]] 15,642 10,300
Contributed surplus 8,535 8,535
-------- -------
Deficit (253,177) (218,235)
-------- -------
TOTAL SHAREHOLDERS' EQUITY 76,983 104,063
-------- -------
100,377 124,312
======== =======
{/TABLE}
See accompanying notes
On behalf of the Board:
/s/ E. Rygiel /s/ Lee Hartwell
------------------------- --------------------------------------
Edward K. Rygiel Lee Hartwell
Chairman of the Board President & Chief Executive Officer
and Director
18 Annual Report 2003
{PAGE}
Hemosol Inc. [A Development Stage Company]
CONSOLIDATED STATEMENTS OF LOSS
{TABLE}
{CAPTION}
Years ended December 31
(in thousands of dollars, except per share data) 2003 2002 2001
$ $ $
------- ------- -------
{S} {C} {C} {C}
EXPENSES
Research and development
Scientific and process [note 3] 10,773 15,271 18,386
Regulatory and clinical 5,817 17,173 11,771
Administration 6,586 6,115 5,137
Marketing and business development 1,760 6,018 5,561
Support services 1,297 2,602 1,594
Write-off of property, plant and equipment [note 4 [v]] 4,654 -- --
Write-off of patents and trademarks [note 5] 846 -- --
Foreign currency translation loss (gain) 380 246 (970)
------- ------- -------
Loss from operations 32,113 47,425 41,479
Amortization of deferred charges [note 7] 5,009 1,587 360
Write-off of deferred charges [note 7] -- 6,453 --
Interest income (153) (842) (3,488)
Interest expense 688 -- --
Miscellaneous income [note 13] (2,871) -- --
------- ------- -------
Loss before income taxes 34,786 54,623 38,351
Provision for income taxes [note 9] 156 211 226
------- ------- -------
NET LOSS FOR THE YEAR 34,942 54,834 38,577
======= ======= =======
BASIC AND DILUTED LOSS PER SHARE $ 0.75 $ 1.23 $ 0.98
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING [000'S] 46,837 44,514 39,215
======= ======= =======
{/TABLE}
See accompanying notes
CONSOLIDATED STATEMENTS OF DEFICIT
{TABLE}
{CAPTION}
Years ended December 31
(in thousands of dollars) 2003 2002 2001
$ $ $
-------- -------- --------
{S} {C} {C} {C}
DEFICIT, BEGINING OF YEAR AS ORGINALLY PRESENTED (240,761) (183,858) (136,388)
Adjustment for change in accounting policy [note 2[b]] 22,526 20,457 11,564
-------- -------- --------
Deficit, beginning of year as restated (218,235) (163,401) (124,824)
-------- -------- --------
Net loss for the year (34,942) (54,834) (38,577)
-------- -------- --------
DEFICIT, END OF YEAR (253,177) (218,235) (163,401)
======== ======== ========
{/TABLE}
See accompanying notes
2003 Annual Report 19
{PAGE}
Hemosol Inc. [A Development Stage Company]
CONSOLIDATED STATEMENTS OF CASH FLOW
{TABLE}
{CAPTION}
Years ended December 31
(in thousands of dollars) 2003 2002 2001
$ $ $
------- ------- --------
{S} {C} {C} {C}
OPERATING ACTIVITIES
Net loss for the year (34,942) (54,834) (38,577)
Add (deduct) items not involving cash
Amortization of property, plant and equipment 2,276 2,450 2,303
Write-off of property, plant and equipment [note 4[v]] 4,654 -- --
Amortization of patents and trademarks 134 115 74
Write-down of patents and trademarks [note 5] 846 -- --
Amortization of deferred charges 5,009 1,587 360
Write-off of deferred charges [note 7] -- 6,453 --
Write-down of inventory [note 3] 1,676 -- --
Expense for non-employee stock options -- -- 134
Gain on sale of equipment [note 4[iii]] (1,100) -- --
Foreign currency translation gain (loss) (79) 52 (42)
------- ------- --------
(21,526) (44,177) (35,748)
Net change in non-cash working capital balances
related to operations [note 16] (5,129) 3,818 (2,186)
------- ------- --------
CASH USED IN OPERATING ACTIVITIES (26,655) (40,359) (37,934)
------- ------- --------
INVESTING ACTIVITIES
Patent and trademark costs (172) (327) (568)
Purchase of short-term investments -- -- (87,647)
Proceeds on sale of equipment 1,100 -- --
Sale of short-term investments -- 67,052 20,595
Purchase of property, plant and equipment (8,361) (31,699) (38,415)
------- ------- --------
Cash provided by (used in) investing activities (7,433) 35,026 (106,035)
------- ------- --------
FINANCING ACTIVITIES
Proceeds on issuance of common shares -- 22,170 113,078
Proceeds on issuance of series A special warrants 5,021 -- --
Proceeds on issuance of series B special warrants 448 -- --
Proceeds from short-term debt 20,000 -- --
Payment of share issue costs (466) (1,351) (8,393)
Payment of debentures (5,000) -- --
Payment of debt issue costs -- (640) --
Proceeds on issuance of debentures -- 5,000 --
Cash put in escrow (448) (5,000) --
Cash released from escrow 5,000 -- --
------- ------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 24,555 20,179 104,685
------- ------- --------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 79 (52) 42
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR (9,454) 14,794 (39,242)
Cash and cash equivalents, beginning of year 17,579 2,785 42,027
------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR 8,125 17,579 2,785
======= ======= ========
{/TABLE}
See accompanying notes
20 Annual Report 2003
{PAGE}
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All dollar amounts in thousands, except as noted]
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hemosol Inc. [the "Company" or "Hemosol"] is an integrated biopharmaceutical
company developing a family of products for the treatment of human hemoglobin
deficiencies and the discovery, development and manufacture of a wide array of
products derived from human blood proteins. To date, the Company has not earned
significant revenues and is considered to be an enterprise in the development
stage.
The consolidated financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting principles.
The impact of material differences between Canadian and U.S. generally accepted
accounting principles is set out in note 19. Significant accounting policies are
as follows:
BASIS OF PRESENTATION These consolidated financial statements have been prepared
on a going concern basis, which presumes that the Company will be able to
realize its assets and discharge its liabilities in the normal course of
operations for the foreseeable future.
The Company in its development stage has incurred cumulative net losses since
inception, including a net loss of $34,942 in 2003, an accumulated deficit of
$253,177 and a working capital deficit of $12,812 as at December 31, 2003.
The Company's ability to continue as a going concern is dependent upon its
ability to secure additional financing in order to be able to continue its
development activities and successfully bring its products to market, either on
it's own or with partners.
On March 13, 2003, based on the recommendation of the Company's Data Safety
Monitoring Board [the "DSMB"], the Company elected to halt enrolment in its
cardiac surgery trial HLK 213/304 at 152 patients in order to fully review the
safety data. The DSMB's comments were based on an observation of an imbalance in
the incidence of certain adverse events between the HEMOLINK and control groups.
As a precaution, the Company also voluntarily suspended enrolment in its Phase
II clinical study involving the use of HEMOLINK in patients undergoing
orthopedic surgery. On June 11, 2003, the Company completed an internal review
of data generated from its cardiac trial HLK 213/304 for the use of HEMOLINK in
patients undergoing cardiac bypass grafting ["CABG"] surgery. The review
confirmed the observation made by the DSMB of an imbalance in the incidence of
certain adverse events between the HEMOLINK and control groups in the HLK
213/304 trial with a higher number occurring in the HEMOLINK group.
On February 12, 2004, Hemosol announced that it had entered into an agreement
[the "Arrangement Agreement"] with MDS Inc. ["MDS"] under which Hemosol will
benefit from its existing accumulated income tax losses and other tax assets
through a reorganization of Hemosol's business and certain MDS assets. MDS is a
shareholder with greater than 10% shareholding in Hemosol, has a number of
appointees to the Board of Directors and has guaranteed Hemosol's $20 million
credit facility. The transaction will involve a cash payment to Hemosol of $16
million along with certain other considerations [note 18[b]].
The Company intends to exercise its option to extend its $20 million credit
facility currently expiring on October 1, 2004 to May 25, 2005, subject to
regulatory approval.
The Company is actively pursuing opportunities to generate revenues and reduce
its cash burn over the short to mid-term by using its Meadowpine facility to
provide manufacturing services to companies in the biotechnology and
biopharmaceutical sectors focused in the area of blood and blood protein
products.
The Company believes that it will successfully conclude these transactions and
as a result will be able to meet its short-term cash flow requirements. However,
the successful conclusion of these transactions cannot be predicted at this time
which casts substantial doubt on the Company's ability to continue as a going
concern.
These consolidated financial statements do not include any adjustments to the
amounts and classification of assets and liabilities that might be necessary
should the Company be unable to continue as a going concern and therefore be
required to realize its assets and discharge its liabilities in other than the
normal course of business and at amounts different from those reflected in the
accompanying consolidated financial statements.
2003 Annual Report 21
{PAGE}
BASIS OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of the Company and all of its wholly-owned subsidiaries.
All significant intercompany transactions and balances are eliminated.
Interests in jointly controlled enterprises are consolidated using the
proportionate consolidation method. Under this method, the Company's
proportionate share of the jointly controlled enterprise's revenues, expenses,
assets and liabilities are included in the consolidated financial statements.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid instruments
with maturities of 90 days or less at date of acquisition to be cash
equivalents. As at December 31, 2003, cash and cash equivalents included cash
equivalents of $5.1 million [2002 - $16.8 million] with effective interest rates
of 2.76% [2002 - 2.29%].
SHORT-TERM INVESTMENTS Short-term investments are generally held to maturity.
Short-term investments are liquid investments with maturities between 90 days
and one year from the date of acquisition and are valued at the lower of cost
and market value.
INVENTORY Inventory consists of raw materials that can be used in production for
commercial or research purposes. Inventory is valued at the lower of direct
acquisition cost, determined on a first-in, first-out basis, and replacement
cost.
INVESTMENT TAX CREDITS Investment tax credits are accrued when qualifying
expenditures are made and there is reasonable assurance that the credits will be
realized. The Company accounts for the investment tax credits using the cost
reduction method.
|
End of Preview |
Home Intelligence Services Subscriptions News About Us