Company Quick10K Filing
Cell Medx
Price0.13 EPS-0
Shares44 P/E-6
MCap6 P/FCF-33
Net Debt-0 EBIT-1
TEV6 TEV/EBIT-6
TTM 2019-05-31, in MM, except price, ratios
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CMXC 10K Annual Report

Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Note 1 - Organization and Nature of Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 -Technology
Note 4- Related Party Transactions
Note 5 - Material Agreements
Note 6 - Equipment
Note 7 - Inventory
Note 8 - Notes and Advances Payable
Note 9 - Term Loan
Note 10 - Share Capital
Note 11 - Income Taxes
Note 12 - Subsequent Events
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers, and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Holders and Management.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statements Schedules.
EX-10.38 ex1038.htm
EX-10.39 ex1039.htm
EX-10.40 ex1040.htm
EX-10.41 ex1041.htm
EX-10.42 ex1042.htm
EX-10.43 ex1043.htm
EX-10.44 ex1044.htm
EX-21.0 ex21.htm
EX-31.1 ex311.htm
EX-31.2 ex312.htm
EX-32.1 ex321.htm
EX-32.1 ex322.htm

Cell Medx Earnings 2016-05-31

Balance SheetIncome StatementCash Flow
0.60.1-0.3-0.8-1.2-1.72012201420172020
Assets, Equity
0.40.20.0-0.1-0.3-0.52011201320152018
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32012201420172020
Ops, Inv, Fin

10-K 1 form10k.htm 10-K form10k.htm
l;,,,,,,,,,,,,,,,,,


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
[ X ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2016

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-54500

Cell MedX Corp.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
38-3939625
(I.R.S. Employer Identification No.)
2872 Sumter Valley Circle
Henderson, NV
(Address of principal executive offices)
89052
(Zip Code)

Registrant’s telephone number, including area code: (844) 238-2692

2857 Sumter Valley Circle, Henderson, NV 89052
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
   
None
N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $0.001 par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

 
 

 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange Act.
Larger accelerated filer
[ ]
Accelerated filer
[ ]
Non-accelerated filer
[ ] (Do not check if a smaller reporting company)
Smaller reporting company
[ x ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[ ] Yes [X] No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $2,304,500 based on average of closing bid and ask for Cell MedX Corp. shares on November 28, 2015.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Class
Outstanding at September 13, 2016
common stock - $0.001 par value
31,000,000


 
ii

 


 
Contents

     
   
Page
 
PART I
 
     
Item 1
Business 
  1
Item 1a
Risk Factors
  6
Item 1b
Unresolved Staff Comments
  8
Item 2
Properties
  9
Item 3
Legal Proceedings
  9
Item 4
Mine Safety Disclosures
  9
     
 
PART II
 
     
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  10
Item 6
Selected Financial Data
  11
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  11
Item 7a
Quantitative and Qualitative Disclosures About Market Risk
  17
Item 8
Financial Statements and Supplementary Data
  18
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  19
Item 9a
Controls and Procedures
  19
Item 9b
Other Information
  19
     
 
PART III
 
     
Item 10
Directors, Executive Officers and Corporate Governance
  20
I                   Item 11
Ex                Executive Compensation
  22
Item 12
Security Ownership of Certain Beneficial Holders and Management
  26
Item 13
Certain Relationships and Related Transactions, and Director Independence
  27
Item 14
Principal Accounting Fees and Services
  28
     
 
PART IV
 
     
Item 15
Exhibits, Financial Statement Schedules
  29
     
 
SIGNATURES
  32



 
iii

 


 
PART I
 
FORWARD LOOKING STATEMENTS

Unless the context otherwise requires, all references in this report to “Cell MedX,” “the Company,” “we,” “us,” or “our” are to Cell MedX Corp., collectively with its wholly owned subsidiaries Avyonce Cosmedics Inc. and Cell MedX (Canada) Corp.
 
The information in this Annual Report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports we file with the Securities and Exchange Commission.

The forward-looking statements in this Form 10-K for the fiscal year ended May 31, 2016, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.

All forward-looking statements are made as of the date of the filing of this Form 10-K and we disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. We may, from time to time, make oral forward-looking statements. We strongly advise that the above paragraphs and the risk factors described in this Annual Report and in our other documents filed with the United States Securities and Exchange Commission should be read for a description of certain factors that could cause our actual results to materially differ from those in the oral forward-looking statements. We disclaim any intention or obligation to update or revise any oral or written forward-looking statements whether as a result of new information, future events or otherwise.
 
ITEM 1. BUSINESS.

GENERAL
 
We were incorporated as Plandel Resources, Inc. under the laws of the State of Nevada on March 19, 2010.  On March 24, 2014, we changed our name to Sports Asylum, Inc. and on September 30, 2014, we changed our name to Cell MedX Corp. to reflect our new business direction.
 
 
On November 25, 2014, we completed the acquisition of a proprietary method for the application of bioelectric signaling to treat diabetes and related ailments (the “eBalance Technology”).  With our acquisition of the eBalance Technology, we have shifted our business direction to the discovery, development and commercialization of therapeutic products for patients with diseases such as diabetes by developing technologies to help manage the illness and related complications.

On November 26, 2014, we formed a subsidiary, Avyonce Cosmedics Inc., (the “Avyonce”) under the laws of the Province of British Columbia. Avyonce’s main business activity is channelled towards the resale and marketing of spa technology and equipment to the worldwide beauty and wellness industry. Avyonce is also instrumental in carrying out the observational studies using eBalance Technology.

On April 26, 2016, we formed a subsidiary, Cell MedX (Canada) Corp., (the “Cell MedX Canada”) under the laws of the Province of British Columbia, in anticipation of increased business activity in Canada. As of the date of this Annual Report on Form 10-K this subsidiary remained dormant.

BUSINESS OF CELL MEDX
 
eBalance Technology Acquisition
 
We acquired our proprietary technology for the use of microcurrents for the treatment of diabetes and related ailments, which we call eBalance Technology, on November 25, 2014, when we entered into a Technology Purchase Agreement with Jean Arnett and Bradley Hargreaves (the “Purchase Agreement”).
 
Pursuant to the Purchase Agreement, Ms. Arnett and Mr. Hargreaves sold to us all of their respective rights, title and interests in and to the eBalance Technology. In consideration for the sale of the eBalance Technology, we paid to Ms. Arnett and Mr. Hargreaves a total of $100,000 and issued to each of Ms. Arnett and Mr. Hargreaves options for the purchase of up to 10,000,000 shares (20,000,000 shares in total) of our common stock at an initial exercise price of $0.05 per share (the “Options”). Exercise of the Options is subject to certain vesting conditions based on the design, initiation and completion of clinical trials for the eBalance Technology as follows:
 
 
1

 

Combined Number of Options  to Vest
Vesting Condition
2,500,000
Upon the design and commencement of the First Clinical Trial (vested on August 26, 2015)
2,500,000
Upon the completion of the First Clinical Trial and the delivery to the Company of a final white paper authored by the trial researchers for the First Clinical Trial discussing the results of the First Clinical Trial
2,500,000
Upon the design and commencement of the Second Clinical Trial
2,500,000
Upon the completion of the Second Clinical Trial and the delivery to the Company of a final white paper authored by the trial researchers for the Second Clinical Trial discussing the results of the Second Clinical Trial
5,000,000
Upon the design and commencement of the Third Clinical Trial
5,000,000
Upon the completion of the Third Clinical Trial and the delivery to the Company of a final white paper authored by the trial researchers for the Third Clinical Trial discussing the results of the Third Clinical Trial
20,000,000
Total

Any Options that vest and become exercisable expire on the 5th year anniversary of the particular vesting date.  Any Options that have not previously vested will expire on December 31, 2019, subject to certain early termination provisions upon the death of the optionee, or if the optionee ceases to act for us in any capacity either voluntarily or as a result of a termination or removal for cause.
 
eBalance Technology
 
eBalance Technology is based on the science of bioelectric signals, their affect on epigenetic events within human body, and ability to modify and affect the behavior of cells, tissue, and organs.  Based on this technology Cell MedX is developing a radically different and very promising family of devices whose core technology demarcates it from the approaches currently in use and those in the “future advances” pipeline as reflected in current medical literature.
 
Microcurrent delivery devices used for the treatment of diabetic neuropathy and poor wound healing in diabetics have been in the marketplace for decades. However, the eBalance Technology can be distinguished from those devices, which have a limited utility and are not designed to treat diabetes at its core – the underlying metabolic disorder that leads to hyperglycemia and its sequelae.  It is hoped that devices incorporating the eBalance Technology will effect changes much further “upstream” in the pathophysiology or natural history of diabetes.  Not a “me too” device, nor an incremental improvement in an established realm, devices based on the eBalance Technology could, if proven through diligent research and development, open a new category of diabetes care.
 
The eBalance Technology is intended to expand the traditional healthcare model of diabetes management by enabling patients to manage their symptoms using a biosignal generating device that is simple to use, causes no discomfort, and can easily be incorporated into any lifestyle.
 
It is expected that the eBalance Technology, currently in the research and development stage, will form the basis for a product line that will be available to aid in the management of diabetes mellitus (both Type 1 and Type 2) and its complications, both as a professional clinic-based device and as a home use device.  In the future, wearable devices may also be developed.
 
A research and development plan has been constructed that will perform a series of investigations that will move the product from a prototype stage through a series of refinements and enhancements to achieve the safety and efficacy objectives of the device(s) upon which a set of claims intended for FDA, Health Canada and European Medical CE approval through the rigorous Pre-Market Approval (PMA) process will be constructed. A series of pre-clinical and clinical trials are planned (see “Clinical Trials”, below). The final marketing claims for the product, which will become the foundation for sales & marketing efforts in subsequent phases, will derive from the clinical trials.  Such claims will likely focus on overall diabetes management, including reductions in average blood sugar (HbA1C) as well as other markers that denote the degree and quality of blood sugar control. Measures that track complications of the disease will also be in focus.
 
Market Opportunity Diabetes and Its Complications
 
Diabetes is a severe and debilitating disease with profound consequences, both for the individual and for society. The complications of diabetes are devastating, and the economic costs of care comprise a substantial portion of health care budgets. Despite the best efforts of the scientific community to devise a cure, the incidence of diabetes is on the rise. According to the information published by International Diabetes Association (“IDA”) in its Diabetes Atlas1, in 2015 there were 415 million people living with diabetes worldwide and a further 318 million people were at high risk of developing diabetes. These numbers were expected to grow to 642 million and 481 million, respectively, by 2040. It is estimated that each year 86,000 new cases of juvenile diabetes are being diagnosed.
 
Diabetes mellitus (DM) is a heterogeneous group of metabolic disorders characterized by hyperglycemia (high blood sugar levels) with impaired metabolism of carbohydrate, fat and proteins resulting from defects in insulin secretion, insulin action, or both. Diabetes is one of the world’s oldest diseases with the syndrome being discovered centuries ago. The worldwide increase in the prevalence of diabetes has highlighted the need for increased research efforts into treatment options for both the disease itself and its associated complications.
 
Type 1 diabetes is caused by destruction of the insulin secreting (beta) cells of the pancreas. The pathogenesis involves autoimmune processes that lead to an absolute insulin deficiency. Type 2 diabetes is caused by a combination of genetic and non-genetic factors that result in insulin resistance and insulin deficiency. Non-genetic factors include increasing age, high caloric intake, obesity, central adiposity, sedentary lifestyle, and low birth weight. This group comprises approximately 90–95% of cases in the diabetes syndrome.
 
Chronic hyperglycemia leads to various metabolic, hormonal, and physiologic alterations in the body, which further develop a number of secondary complications, resulting in the major increases in morbidity and mortality seen with all types of diabetes. Diabetes dramatically increases the risk of cardiovascular problems, such as coronary artery disease, chest pain (angina), heart attack, stroke, narrowing of arteries (atherosclerosis) and high blood pressure.


 
 
1International Diabetes Federation. (2015). IDF Diabetes Atlas – Seventh Edition, 12 and 52.
 
 
 
2

 

High blood sugar over time can injure the walls of the tiny blood vessels (capillaries) that nourish nerves, especially in the legs, causing tingling, numbness, burning or pain. Gradually, all sensation can be lost. Nerve damage in the feet or poor blood flow to the feet increases the risk of various foot complications. In diabetics, minor wounds easily become serious infections, which may heal poorly. Severe damage might require toe, foot or leg amputation.
 
Diabetes can damage the blood vessels of the retina (diabetic retinopathy), potentially leading to blindness. It also increases the risk of other serious vision conditions, such as cataracts and glaucoma. Diabetic hypertension is a major contributor to kidney failure or irreversible end-stage kidney disease, which often requires dialysis or a kidney transplant.
 
Damage to the nerves that control digestion can cause problems with nausea, vomiting, diarrhea or constipation. For men, erectile dysfunction may be an issue. Diabetes may leave people more susceptible to a variety of skin disorders, including bacterial and fungal infections. Type 2 diabetes may increase the risk of Alzheimer's disease.
 
Diabetes Care and Management
 
In the absence of a cure, the goal of diabetes management is to reduce the likelihood of complications by eliminating the wide fluctuations in blood sugar that define the disease.  The current toolset for managing blood sugar levels is limited.
 
Diabetes management entails the administration of insulin in combination with careful blood glucose monitoring (Type 1 diabetes) or involves adjustments to diet and exercise levels, use of oral anti-diabetic drugs and insulin administration to control blood sugar (Type 2 diabetes).
 
Blood sugars may be self-monitored using a portable, personal device that takes a small blood sample obtained with a tiny finger lancet.  Using such a device, tight glycemic control becomes possible, as an adjunct to insulin therapy, either injected or delivered via a wearable insulin pump. This technology-enabled self-care model has been shown to reduce complications and improve the quality of life in Type 1 diabetes.  Replicating these results in Type 2 diabetes has been challenging, largely reflecting the heterogeneous nature of the disease and the fact that it changes with increasing age and other factors.  Implantable sensors that measure blood glucose continually have come into practice more recently.
 
The value of self-monitoring enablement using electronic devices, including the next generation of wearable health appliances, is aided by incorporating decision support algorithms and other intelligent information technology tools.  The concept of the “artificial pancreas” combines glucose sensing technologies with automated insulin delivery by pump, with software based decision making interposed so that the former drives the latter (fully automated feedback loop). Such systems are under development but have not yet made their way to market.
 
Scientific Foundations
 
Ion flows and transmembrane gradients produced by ion channels and pumps are key regulators of cell proliferation, migration, and differentiation. Instructive roles for bioelectrical gradients in embryogenesis, regeneration, and neoplasm are being revealed.
 
The application of electromagnetic forces to human tissues to effect biologic change has been explored since the 19th century. A good deal of that was wishful thinking or deliberate deception. However, recent advances in molecular biology and imaging technology have allowed insight into the sources and downstream consequences of ion flows in complex organisms. In complement to the current focus on molecular genetics and stem cell biology, artificial modulation of bioelectrical signals in somatic tissues is a powerful modality that might result in profound advances in understanding and augmentation of regenerative capacity. Molecular bioelectricity and its role in cell-to-cell signaling and epigenetics (altering cell behavior without altering genes) provides a new pathway to discovery of technologies that can counteract the effects of many diseases.
 
Many cells in the human body are electrically excitable including those involved with production of chemical signals that affect blood sugar.  One example of such a cell of the endocrine type is the L cell, which resides in the gut and secretes cell glucagon-like peptide-1 (GLP-1), glucagon-like peptide-2 (GLP-2), peptide YY (PYY) and oxyntomodulin. GLP-1 is an enteric hormone that stimulates insulin secretion and improves glycaemia in Type 2 diabetes.  There is evidence that in Type 2 diabetes these cells become unsynchronized”.  Growing these cells in tissue culture and subjecting them to specific electrical signals can act to resynchronize their chemical activity, and alter their behavior as a dispersed metabolic organ.  This serves as an illustration of how endogenous ion flows may serve as key epigenetic regulators of cell behavior, and suggests that bioelectric mechanisms might be harnessed at a whole organism level to cause functional regenerative changes.  It is possible that the eBalance Technology may affect these processes, although that has yet to be established.  We intend to explore this hypothesis in greater detail during our clinical trials.
 
Empirical Modeling
 
The first-in-human observations took place over many years and were carefully documented. The results of these observations lead to the belief that a specific device with a specific set of bioelectric signals of known waveform, frequency, amplitude, pulse, and duration, accompanied by sensing circuits that respond to fluctuations in the body’s response, in a closed feedback loop, produced cumulative effects that led to remarkable global effects in functional aspects of living in a person who had lived with Type 1 diabetes since age 10. Casual trials in another person with longstanding diabetes, Type 2 in this case, yielded findings of a similar nature in a limited time frame. These observations were followed by broader observational studies by Cell MedX’s team.
 
Effects observed in these observational studies include subjective reports of diminished fatigue, improved cognition, diminished neuropathic limb pain, improved sleep, reduction in swelling of extremities, improved skin appearance in color and texture, and a reduction in visual disturbance. Objective measures included healing of wounds, control of blood pressure leading to discontinuation or reduction of medication, and greatly improved control of blood sugars with remarkable diminution in HbA1C (which reflects average blood sugar over months).  Remarkably, in the context of Type 1 Diabetes with other potential variables remaining the same, insulin requirements diminished to a considerable degree.
 
 
3

 
Clinical Trials
 
On January 13, 2015, we appointed Dr. John Sanderson, MD, a stem cell researcher and former Johnson & Johnson (LifeScan) medical director, our Chief Medical Officer. Prior to this appointment Dr. Sanderson acted as a member of our Scientific Advisory Board.
 
During January through March 2015, we carried out a preliminary Pilot Trial (the “Pilot Trial”), which was designed to examine the short term metabolic impact of a single treatment with eBalance Technology on two diabetic subjects.  Pre- and post-treatment blood samples from each subject were sent for extensive metabolic pathway analysis at the University of Alberta Metabolomics Unit.  From those studies we observed alterations in several pathways, which are known to be deficient in persons with diabetes. The results of the Pilot Trial are notable in that significant shifts in metabolites related to blood sugar handling and disposal occurred in a very short time frame, with the only intervening variable being a 20 minute treatment with eBalance Technology.
 
The findings from the Pilot Trial were then used to inform further experimentation, including selection of metabolic end points for testing during a Phase IB clinical trial, which we started preparations for in July 2015. Due to shortage in available funding, we decided to temporarily postpone the Phase IB clinical Trial.
 
During the fourth quarter of our fiscal 2016 we engaged Nutrasource Diagnostics Inc. (“Nutrasource”) to commence observational clinical trials in Canada (“Clinical Study”) to assess and quantify eBalance technology’s ability to alter key metabolic pathways while targeting improved blood sugar control. The trial has been designed to include a site in Ontario with possibility of an additional site in British Columbia. The protocol has been designed to include the following end points:
 
1) Reduction in HbA1c levels;
2) Improvement in insulin sensitivity and a reduction in insulin resistance;
3) Improvement in such complications directly related to diabetes as;
 
·
Diabetic neuropathy;
·
Acceleration in wound healing; and
·
Improvement in blood pressure control.

The Clinical Study is expected to span a 3 to 8 month period at an estimated cost of CAD$345,000, payable in monthly instalments of CAD$20,242.
 
As of the date of this Annual Report on Form 10-K we, with assistance of Nutrasource, have secured the main research facility in Hamilton, Ontario, completed an investigational protocol as well as Informed Consent and Ethics Board submission documentation.
 
Product Development
 
On October 1, 2015, we entered into a development agreement with Mr. Claudio Tassi (the “Development Agreement”) for the development of the first eBalance Professional Series Device (the “Prototype”). Based on the Development Agreement we agreed to pay Bioformed Aestetic SL (“Bio4Med”), a company Mr. Tassi is a director of, $12,848 (EURO €12,000) and, upon successful completion of the development of the first eBalance Prototype, issue to Mr. Tassi, 100,000 shares of our common stock. We received the first Prototype in November 2015.

On December 4, 2015, we executed a non-binding letter of intent (“LOI”) with Mr. Tassi and Bio4Med. The LOI contemplates that (i) we will enter into a technology development and license agreements with Mr. Tassi and Bio4Med to continue development of therapeutic devices based on the eBalance Technology; (ii) upon approval of the first Prototype, we will place an order for the production of 25 devises; and (iii) Mr. Tassi will provide his services for an initial term of four months commencing on December 4, 2015.
 
On December 15, 2015, as contemplated under the LOI, we placed an order for an additional 25 eBalance devices, which we received between March and June of 2016. We consider these devices test prototypes of our eBalance Professional Series model (eBalance Pro Prototype). As of the date of this Annual Report on Form 10-K, we have distributed most of our eBalane Pro Prototypes to clinical practitioners to augment our observational data bank.

Several of eBalance Pro Prototypes will be used in our Clinical Study carried out by Nutrasource.

In August of 2016 we commenced the work on designing a new generation of our eBalance Pro Devices, which are being designed for use by practitioners, however, will be more compact and easier to operate. We expect to receive these devices in the 2nd quarter of our Fiscal 2017.

 
4

 
The following table summarizes our estimated cash requirements for the following 12 month period ending August 31, 2017:
 
   
Period Ending November 30, 2017
   
Period Ending February 28, 2017
   
Period Ending May 31, 2017
   
Period Ending August 31, 2017
   
Total at May 31, 2017
 
Research and development
                             
Clinical observational trials
  $ 106,977     $ 131,074     $ 209,074     $ 209,074     $ 656,199  
Development costs
    83,000       393,500       106,500       424,000       1,007,000  
Total research and development
    189,977       524,574       315,574       633,074       1,663,199  
General and administrative costs
    437,560       462,000       438,583       423,667       1,761,810  
Estimated cash requirement
  $ 627,537     $ 986,574     $ 754,157     $ 1,056,741     $ 3,425,009  

Based on our operating budget, our cash requirement for the next 12 month period is approximately $3,425,009. As at May 31, 2016, we had $27,561 cash on hand, a working capital deficit of $1,619,635 and cash flows used in operations of $421,572 for the year then ended. We will require additional capital to support our day-to-day operations and carry out the planned clinical trials and the development of the eBalance Technology. We are planning to raise this capital through debt or equity financing or through a combination of both.
 
Medical Device Regulations and Government Approvals
 
The manufacture, packaging, marketing and importing of medical devices is heavily regulated in the United States, Canada and Europe.  Further, we expect that any other countries in which we may seek to sell or market devices based on the eBalance Technology will similarly have an extensive regulatory environment.
 
The U.S. Food and Drug Administration’s (FDA) Center for Devices and Radiological Health (CDRH) is responsible for regulating firms that manufacture, repackage, re-label and/or import medical devices sold in the United States.  Health Canada’s Health Products and Food Branch Inspectorate is responsible for regulating the manufacture, labeling, packaging, distribution and import of medical devices sold in Canada.
 
Prior to selling any devices based on the eBalance Technology for the treatment in the United States or Canada, we will be required to make applications to obtain approval from the FDA and Health Canada, respectively.  The type of application and complexity of the procedures for obtaining FDA and Health Canada approval will depend upon the classification of the devices that we develop under the provisions of the United States Food and Drugs Act of 1906, as amended, and the Food and Drugs Act (Canada), as amended, respectively, and related regulations.  In addition, we may be required to apply to the FDA for an investigational device exemption (IDE) and/or Health Canada under the Investigational Testing Authorization (“ITA”) program for the use of any such devices in clinical trials that we sponsor to test the efficacy of the eBalance Technology in treating diabetes and related ailments. An application for an ITA has been submitted to Health Canada in July 2016 and is currently being reviewed by Health Canada.
 
Third Party Payers / Private Insurers
 
Reimbursement for medical devices through Medicare and Medicaid in the U.S., and through health protectorates in other nations, is not guaranteed. Third party private payers or private insurers typically follow the lead of government healthcare providers. A decision as to whether a device or treatment is covered involves extensive negotiations and is typically predicated on the concept of health cost savings. If the device can be shown to reduce health care costs through prevention of expensive complications of diabetes, such applications for approvals would be more favorably reviewed.
 
Marketing Plans
 
Once approved for marketing, the intent is to market devices incorporating the eBalance Technology through authorized dealers and distributors of medical equipment, as well as directly to end users and to professional / institutional users. Devices targeted at end users are expected to be self-managed devices that can be used by individuals in the comfort of their own homes.  Devices targeted at professional / institutional users are expected to be larger scaled devices that can be used in clinical settings. A professional sales force is also expected to be developed. Initially, the Company intends to focus on marketing any products that we develop based on the eBalance Technology in the United States and Canada.  The North America and Caribbean include approximately 44.3 million patients suffering from diabetes mellitus and related complications of which 50% are struggling to keep their blood sugar levels within recommended ranges and therefore potentially benefitting from our eBalance Technology.
 
Competition
 
The current market for treatments that assist in the control and management of diabetes and its complications is highly competitive. However, since our technology is based on the microcurrent therapy, which is not traditionally used for management of diabetes, direct competition for eBalance Technology is not well defined.
 
Indirect competitors include a multitude of pharmaceutical companies that produce insulin and other various drugs to maintain and prevent diabetes related complications; companies producing glucose monitoring devices.
 
Competitors in microcurrent therapy would include BodiHealth Systems, focusing on pain relief market in US; Electromedical Products International, Inc., the company that developed Alpha-Stim® PPM, which treats and alleviates acute, chronic or postoperative pain using microcurrent therapy.
 
Patents/Trade Marks/Licenses/Franchises/Concessions/Royalty Agreements or Labor Contracts
 
Our eBalance Technology is not protected by a patent or a trademark.   

As of the date of the filing of this Annual Report on Form 10-K, we are continuing our negotiations with Bio4Med on the licensing agreement for the microcurrent technology that underlies our eBalance Technology. When completed, we expect that the Licensing Agreement will also include royalty payable to Bio4Med for each device sold based on this technology.
 
 
 
5

 
Number of Total Employees and Number of Full Time Employees
 
We currently have no employees other than our executive officers, who provide their services as independent consultants. We contract for the services of medical and technical staff we require to administer our observational studies and the  clinical trials, as well as other consultants on “as needed” basis.
 
ITEM 1A. RISK FACTORS.

There is a high degree of risk associated with buying our common stock.  Prospective investors should carefully read this Annual Report on Form 10-K and consider the following risk factors when deciding whether to purchase our shares. These are speculative stocks and should be purchased by only those who can afford to lose their entire investment.
 
The risk factors outlined below are some of the known, substantial, material and potential risks that could adversely affect our business, financial condition, operating results and common share value. We cannot assure that we will successfully address these or any unknown risks and a failure to do so can have a negative impact on your investment.  We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.
 
Risks Associated with our Company and our Industry
 
We operate in a highly competitive market. We face competition from large, well established medical device manufacturers and pharmaceutical companies in the market for treating and managing diabetes and related ailments.  Many of these companies are very well accepted by health practitioners and have significant resources, and we may not be able to compete effectively.
 
The market for treatment and management of diabetes and related ailments is intensely competitive, subject to rapid change and significantly affected by new product introductions. We compete indirectly with large pharmaceutical and medical device companies, such as Bayer Corp., Becton Dickinson Corp., LifeScan Inc., a division of Johnson & Johnson, the MediSense Inc. and TheraSense Inc. These competitors’ products are based on traditional healthcare model and are well accepted by health practitioners and patients. If these companies decide to penetrate our target market they could threaten our position in the market.
 
We are subject to numerous governmental regulations which can increase our costs of developing the eBalance Technology and products based on this technology.
 
Our products will be subject to rigorous regulation by the FDA, Health Canada and numerous international, supranational, federal, and state authorities. The process of obtaining regulatory approvals to market a medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, our products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that we will remain in compliance with applicable FDA, Health Canada and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and postmarketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns.
 
Changes in the health care regulatory environment may adversely affect our business.
 
A number of the provisions of the U.S. Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and its amendments changed access to health care products and services and established new fees for the medical device industry. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. We cannot predict the timing or impact of any future rulemaking.
 
Inability to protect and enforce our intellectual property rights could adversely affect our financial results.
 
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to our business. An inability to defend, protect and enforce our intellectual property rights could adversely affect our financial results, even if we are successful in developing and marketing products based on the eBalance Technology. In addition, an adverse outcome in any litigation or interference proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. In addition, a finding that any of our intellectual property rights are invalid could allow our competitors to more easily and cost-effectively compete. Thus, an unfavorable outcome in any patent litigation or interference proceeding could have a material adverse effect on our business, financial condition or results of operations.
 
The cost to us of any patent litigation or interference proceeding could be substantial. Uncertainties resulting from the initiation and continuation of patent litigation or interference proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and interference proceedings could also absorb significant management time
 
Competitors' intellectual property may prevent us from selling our products or have a material adverse effect on our future profitability and financial condition.
 
Competitors may claim that our technology infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require us to enter into license agreements. We cannot guarantee that we would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject us to significant damages or an injunction preventing the manufacture, sale or use of our product. Any of these events could have a material adverse effect on our profitability and financial condition.
 
Our research and development efforts may not result in the development of commercially successful products based on our eBalance Technology, which may hinder our profitability and future growth.
 
We do not currently have any marketable products.  Our eBalance Technology is currently in the research and development stage as are our planned products incorporating this technology.  In order to develop commercially marketable products, we will be required to commit substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. We must make ongoing substantial expenditures without any assurance that our efforts will be commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. Planned products may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.
 
 
6

 
Even if we successfully develop marketable products or commercially develop our current technology, we may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations.
 
Innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether our products under development will be launched, whether we will be able to develop, license, or otherwise acquire new products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, causing our revenues and operating results to suffer.
 
New products and technological advances by our competitors may negatively affect our results of operations.
 
Our products face intense competition from our competitors. Competitors' products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than our products. We cannot predict with certainty the timing or impact of the introduction of competitors' products.
 
Significant safety concerns could arise for our products, which could have a material adverse effect on our revenues and financial condition.
 
Health care products typically receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety issues are reported, we may be required to amend the conditions of use for a product. For example, we may be required to provide additional warnings on a product's label or narrow its approved intended use, either of which could reduce the product's market acceptance. If serious safety issues arise with our product, sales of the product could be halted by us or by regulatory authorities. Safety issues affecting suppliers' or competitors' products also may reduce the market acceptance of our products.
 
Inability to attract and maintain key personnel may cause our business to fail.
 
Success depends on the acquisition of key personnel.  We will have to compete with other companies both within and outside the healthcare industry to recruit and retain competent employees and consultants.  If we cannot maintain qualified personnel to meet the needs of our anticipated growth, we could face material adverse effects on our business and financial condition.
 
We are recently formed, lack an operating history and to date have generated only minimal revenues through our wholly owned subsidiary, Avyonce.  If we cannot increase our revenues to start generating profits, our investors may lose their entire investment.
 
We are a recently formed company and to date have generated only minimal revenues through sales of Spa equipment and MediSpa courses through our wholly owned subsidiary, Avyonce. No profits have been made to date and if we fail to make any then we may fail as a business and an investment in our common stock will be worth nothing.  We have no operating history and thus no way to measure progress or potential future success.  Success has yet to be proved. We have yet to prove our eBalane Technology through clinical trials and we have yet to develop any products through which we would be able to start generating revenue. Financial losses should be expected to continue in the near future and at least until such time that we enter commercial production of devices based on the eBalance Technology, of which there is no assurance.  As a new business we face all the risks of a ‘start-up’ venture including unforeseen costs, expenses, problems, and management limitations and difficulties.  Since inception, we have accumulated deficit of $3,254,597 and there is no guarantee, that we may ever be able to turn a profit or locate additional opportunities, hire additional management and other personnel.
 
We need to acquire additional financing or our business will fail.
 
We must obtain additional capital or our business will fail. In order to continue development of our eBalance Technology and to successfully complete observational and clinical trials, we must secure more funds. Currently, we have very limited resources and have already accumulated a deficit. Financing may be subject to numerous factors including investor sentiment, acceptance of our technology and so on.  We currently have no arrangements for additional financing.  We may also have to borrow large sums of money that require substantial capital and interest payments.
 
Risks related to our stock
 
We expect to raise additional capital through the offering of more shares, which will result in dilution to our current shareholders.
 
Raising additional capital through future offerings of common stock is expected to be necessary for our Company to continue.  However there is no guarantee that we will be successful in raising additional capital. Issuance of additional stock will increase the total number of shares issued and outstanding resulting in decrease of the percentage interest held by each of our shareholders. 
 
There is a limited market for our common stock meaning that our shareholders may not be able to resell their shares.
 
Our common stock currently has a limited market which may restrict shareholders’ ability to resell their stock or use their stock as collateral. Thus, the shareholders may have to sell their shares privately which may prove very difficult. Private sales are more difficult and often give lower than anticipated prices.
 
 
7

 
Should a larger public market develop for our stock, future sales of shares may negatively affect their market price.
 
Even if a larger market develops, the shares may be sparsely traded and have wide share price fluctuations.  Liquidity may be low despite there being a market, making it difficult to get a return on the investment.  The price also depends on potential investor’s feelings regarding the results of our operations, the competition of other companies’ shares, our ability to generate future revenues, and market perception about future of microcurrent technologies.
 
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
 
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.
 
Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
 
·
contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
·
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;
·
contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
·
contains a toll-free telephone number for inquiries on disciplinary actions;
·
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
·
contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
 
We have not paid nor anticipate paying cash dividends on our common stock.
 
We have not declared any dividends on our common stock during the past two fiscal years or at any time in our history.  The Nevada Revised Statutes (the “NRS”), provide certain limitations on our ability to declare dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
 
 
(a)
we would not be able to pay our debts as they become due in the usual course of business; or
 
(b)
except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution.
We do not expect to declare any dividends in the foreseeable future as we expect to spend any funds legally available for the payment of dividends on the development of our business.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.
 
 
8

 
ITEM 2. PROPERTIES.

Our principal executive office is located at 2872 Sumter Valley Circle, Henderson, NV 89052. Our wholly owned subsidiary’s, Avyonce’s, and Cell MedX (Canada) Corp.’s principle office is located at 810 – 789 West Pender Street, Vancouver, BC V6C 1H2. Other than these offices, we do not currently maintain any other facilities, and do not anticipate the need for maintaining other facilities at any time in the foreseeable future.
 
ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our properties or assets are the subject of any pending legal proceedings.
 
ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.
 


 
9

 

PART II

 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
MARKET INFORMATION
 
Quotations for our common stock are entered on the OTC Link alternative trading system on the OTCQB marketplace under the symbol “CMXC”. The table below gives the high and low bid information for each fiscal quarter for the last two fiscal years. The bid information was obtained from OTC Markets Group Inc. and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

High & Low Bids
Period ended
High
Low
August 31, 2014
$0.78
$0.21
November 30, 2014
$0.702
$0.21
February 28, 2015
$0.775
$0.26
May 31, 2015
$0.32
$0.11
August 31, 2015
$0.33
$0.255
November 30, 2015
$0.21
$0.10
February 29, 2016
$0.32
$0.065
May 31, 2016
$0.29
$0.10

HOLDERS OF RECORD
 
As of September 12, 2016, we had approximately 41 holders of record, according to a shareholders’ list provided by our transfer agent as of that date. The number of registered shareholders does not include the beneficial owners of common stock held in street name. The transfer agent for Cell MedX’s common stock is Pacific Stock Transfer Company with an address at 6725 Via Austi Pkwy, Suite 300 Las Vegas, NV 89119 and their telephone number is 702-361-3033.

DIVIDENDS
 
We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends in the foreseeable future.  We plan to retain our earnings, if any, to provide funds for the expansion of our business.
 
Our Articles of Incorporation and Bylaws do not contain any restrictions limiting our ability to declare dividends.  Section 78.288 of the Nevada Revised Statutes prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
 
(a)  
we would not be able to pay our debts as they become due in the usual course of business; or
 
(b)  
our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
During our fiscal year ended May 31, 2016, we completed the following unregistered sales of our equity securities:

·
On August 5, 2015, we issued to our CEO, President and a member of the board of directors options to purchase up to 2,500,000 shares of our common stock (the “CEO Options”). The CEO Options are exercisable at $0.35 per share, subject to the following vesting schedule:
 
Number of Options  to Vest
Vesting Date
500,000
August 5, 2015
500,000
October 1, 2015
500,000
January 1, 2016
500,000
April 1, 2016
500,000
July 1, 2016
2,500,000
 

 
10

 
Any CEO Options that vest and become exercisable will expire on the 5th year anniversary of the particular vesting date, subject to certain early termination provisions, upon the death of the optionee, or if the optionee ceases to act for the Company in any capacity either voluntarily or as a result of a termination or removal for cause.

·
On September 23, 2015, we issued to Mr. Bulwa, our consultant, options to purchase up to 150,000 shares of our common stock at an exercise price of $0.20 per share expiring September 1, 2017. We issued these options pursuant to the provisions of Regulation S of the Securities Act of 1933 (the "Act"), relying on the representation we received from Mr. Bulwa that he was not a US person as defined in Regulation S of the Act.

·
On March 3, 2016, as additional consideration for Mr. Richard Jeffs lending us $50,000 in exchange for an unsecured promissory note, we issued to Mr. Jeffs share purchase warrants (the “Warrants”) for the purchase of up to 2,000,000 shares of the Company’s common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share during the fifth year.

The Warrants were issued to Mr. Jeffs in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Regulation S of the Securities Act, on the basis of representations made by Mr. Jeffs that he is not a "US Person" (as that term is defined in Regulation S) and was not in the United States at the time the Lender acquired the Warrants.  

PENNY STOCK RULES
 
The SEC has adopted regulations that regulate broker-dealer practices in connection with transactions in “penny stocks.”  “Penny stocks” are generally defined as being any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. The application of the “penny stock” rules may affect your ability to resell our securities.
 
ITEM 6. SELECTED FINANCIAL DATA.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10(f) of Regulation SK and are not required to provide the information required under this item.
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K constitute "forward-looking statements". These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis" and elsewhere in this Form 10-K. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”).

 
11

 
General

The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.

Results of Operation

   
Year Ended
May 31,
   
Percentage
Increase /
 
   
2016
   
2015
   
(Decrease)
 
Sales
  $ 36,557     $ 42,624       (14.2 )%
Cost of goods sold
    (28,416 )     (26,560 )     7.0 %
    Gross margin
    8,141       16,064       (49.3 )%
 
Operating expenses
                       
Amortization
    20,603       1,955       953.9 %
Consulting fees
    331,587       275,146       20.5 %
Financing costs
    -       88,900       (100.0 )%
General and administrative expenses
    241,666       294,318       (17.9 )%
Research and development costs
    650,377       177,867       265.7 %
Stock-based compensation
    868,160       203,829       325.9 %
Total operating expenses
    2,112,393       1,042,015       102.7 %
Other items
                       
Accretion expense
    (5,028 )     -       n/a  
Gain on sale of equipment
    2,979       -       n/a  
Interest
    (32,836 )     (6,214 )     428.4 %
Net loss
  $ (2,139,137 )   $ (1,032,165 )     107.2 %

 
12

 

Revenues

Our revenue during the years ended May 31, 2016 and 2015 was associated with the operations of our wholly owned subsidiary, Avyonce Cosmedics Inc. (“Avyonce”). The revenue consisted of sales of spa equipment and consumable products, as well as continuing education courses to estheticians and health care professionals in the field of medical aesthetics. During the year ended May 31, 2016, due to the unforeseen downward trend in spa equipment supply market, the business efforts of Avyonce were redirected to the observational studies of the effects of the eBalance Therapy.

Operating Expenses

During the year ended May 31, 2016, our operating expenses increased by 102.7% from $1,042,015 incurred during the year ended May 31, 2015, to $2,112,393 incurred during the year ended May 31, 2016. The increase was mainly associated with our increased research and development activities during the year as well as stock-based compensation we granted to our senior officers. The most significant year-to-date changes were as follows:

Our research and development fees for the year ended May 31, 2016, increased by $472,510, from $177,867 we incurred during the year ended May 31, 2015 to $650,377 for the year ended May 31, 2016. We recorded $496,345 as fair value of options to acquire up to 2,500,000 shares of our common stock that we granted to Ms. Arnett and Mr. Hargreaves in connection with our acquisition from them of the eBalance Technology pursuant to our Technology Purchase Agreement, as amended. In addition, we incurred $50,000 pursuant to our Management Consulting Agreement with Dr. Sanderson, and $26,700 with Newport Aesthetics Research, for conducting our US-based clinical study (which we have terminated during the year ended May 31, 2016, when the clinical trials were moved to Canada during the 4th quarter of our Fiscal 2016). In the comparative period, our research and development costs included $100,000 we paid Ms. Arnett and Mr. Hargreaves for the eBalance Technology, pursuant to our Technology Purchase Agreement, as amended, and $70,000 we paid or accrued to Dr. Sanderson, as compensation for his agreeing to act as our Chief Medical Officer and to design and carry out our medical studies.
During the year ended May 31, 2016, we recorded $868,160 in share-based compensation, an increase of $664,331 as compared to $203,829 we recorded during the year ended May 31, 2015. The share-based compensation included $262,874 (2015 - $203,829) in fair market value of the options we issued to Dr. Sanderson pursuant to his consulting agreement with us, and $605,286 (2015 - $Nil) in fair market value of the options we issued to Mr. McEnulty pursuant to his option agreement with us.
During the year ended May 31, 2016, our consulting and management fees increased by $56,441 and $27,600, respectively. We incurred $331,587 in consulting fees (2015 - $275,146), of this amount, $159,437 (2015 - $172,647) was paid or accrued to Jean Arnett and Brad Hargreaves – the vendors of our eBalance Technology - for assisting us with our business development efforts. Our management fees for the year ended May 31, 2016, totaled $55,200 (2015 - $27,600).
In order to continue providing information about our Company and the eBalance Technology to the general public, during the year ended May 31, 2016, we incurred $28,375 in corporate communications and $4,801 in marketing fees; these costs decreased significantly compared to $80,631 we incurred for corporate communications and marketing fees during the year ended May 31, 2015, which included programming and design of our corporate web site, the production of PowerPoint and video presentations associated with our eBalance technology and the business of the Company.
During the year ended May 31, 2015, we recorded $88,900 in financing fees on the loan agreements we entered into to support our current operations. The non-cash financing fees resulted from the conversion features of the loans, which were below the market value of the shares on the date of the transactions.
Our legal fees for the year ended May 31, 2016, were $39,807, as compared to $64,819 we incurred during the year ended May 31, 2015. Higher legal fees during the year ended May 31, 2015 were associated with the acquisition of the eBalance Technology. In addition, during the year ended May 31, 2015, we recorded $29,646 in due diligence costs related to the acquisition of the eBalance Technology.

Other Items

During the year ended May 31, 2016, we accrued $32,836 (2015 - $6,214) in interest associated with the outstanding notes payable. Of this interest, $7,620 was accrued on $197,000 in notes payable we issued to Mr. Jeffs, our major shareholder.
During the year ended May 31, 2016, we recorded $2,979 in a gain on sale of equipment which we sold to Mr. Hargreaves for total proceeds of $19,301.
During the year ended May 31, 2016, we recorded $5,028 (2015 - $Nil) in accretion expense which resulted from the difference between the 6%  stated interest rate and the 77.51% implied interest rate we used to determine the fair value of the proceeds we received pursuant to the $50,000 term loan with Mr. Jeffs.

Liquidity and Capital Resources

Working Capital
   
Year Ended May 31,
     Percentage  
   
2016
   
2015
   
Increase / (Decrease)
 
Current assets
  $ 61,844     $ 20,718       198.5 %
Current liabilities
    1,681,479       730,630       130.1 %
Working capital deficit
  $ (1,619,635 )   $ (709,912 )     128.1 %

 
13

 
As of May 31, 2016, we had a cash balance of $27,561, a working capital deficit of $1,619,635 and cash flows used in operations of $421,572 for the year then ended. During the year ended May 31, 2016, we funded our operations with $247,000 we received from Mr. Jeffs, our major shareholder, and with $480,000 we received from non-related parties. See “Net Cash Provided By Financing Activities”.

We did not generated sufficient cash flows from our operating activities to satisfy our cash requirements for the Fiscal 2016.  The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under our notes payable.  There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under these notes and advances payable, or to service our other debt obligations.  If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources.

Cash Flows
   
Year Ended May 31,
 
   
2016
   
2015
 
Cash flows used in operating activities
  $ (421,572 )   $ (316,811 )
Cash flows used in investing activities
    (218,790 )     (27,801 )
Cash flows provided by financing activities
    666,788       345,244  
Effects of foreign currency exchange on cash
    (123 )     (575 )
Net increase in cash during the period
  $ 26,303     $ 57  

Net Cash Used in Operating Activities

Net cash used in operating activities during the year ended May 31, 2016, was $421,572. This cash was primarily used to cover our cash operating expenses of $689,172, to increase our inventory by $3,925 and increase our other current assets mainly associated with the prepayments of future expenses by $8,429. These uses of cash were offset by increases in our accounts payable and accrued liabilities of $136,278 and $8,268, respectively, as well as an increase in the amounts due to related parties of $135,408.

Net cash used in operating activities during the year ended May 31, 2015, was $316,811. This cash was primarily used to cover our cash operating expenses of $735,964, to increase our inventory held by Avyonce by $729 and increase our other current assets mainly associated with the prepayments of future expenses by $18,772. These uses of cash were offset by increases in our accounts payable and accrued liabilities of $222,790 and $30,402, respectively, as well as an increase in the amounts due to related parties of $185,462.

Non-cash transactions

During the year ended May 31, 2016, our net loss was affected by the following expenses that did not have any impact on cash used in operations:

·
$496,345 in share-based compensation associated with the fair value of the options to purchase up to 2,500,000 shares of our common stock, which we issued to Ms. Arnett and Mr. Hargreaves as part of the options to purchase up to 20,000,000 shares of our common stock pursuant to our Technology Purchase Agreement, dated for reference November 25, 2014, and which vested on August 26, 2015;
·
$262,874 in share-based compensation associated with the fair value of the options to purchase up to 2,400,000 shares of our common stock we issued to Dr. Sanderson as compensation for his appointment as our Chief Medical Officer; and $605,286 in share-based compensation associated with the fair value of the options to purchase up to 2,500,000 shares of our common stock we issued to Mr. Frank McEnulty, our CEO and President;
·
$32,836 in interest we accrued on the outstanding notes payable. Of this interest, $7,620 was accrued on $197,000 in notes payable we issued to Mr. Jeffs, our major shareholder;
·
$5,028 in accretion expense which resulted from the difference between the 6%  stated interest rate and the 77.51% implied interest rate we used to determine the fair value of the proceeds we received pursuant to the $50,000 term loan with Mr. Jeffs;
·
$20,603 in amortization expense we recorded on the equipment that is being used in our research of the eBalance Technology;
·
$20,364 in share-based compensation associated with the fair value of the options to purchase up to 150,000 shares of our common stock, which we issued to Mr. Bulwa, as apart of his Consulting Agreement with us;
·
$9,608 loss that resulted from foreign exchange fluctuations on Canadian dollar denominated transactions; and
·
$2,979 gain on sale of equipment, which we sold to Mr. Hargreaves.
 

 
14

 
During the year ended May 31, 2015, our net loss was affected by the following expenses that did not have any impact on cash used in operations:

·
$203,829 in stock-based compensation associated with the fair value of the options to purchase up to 2,400,000 shares of our common stock we issued to Dr. Sanderson as compensation for his appointment as our Chief Medical Officer;
·
$88,900 in financing costs associated with the conversion feature of the notes payable we issued to an arms length party, as the conversion price was below the market value of the shares on the date of the transaction;
·
$6,214 in interest we accrued on the outstanding notes payable we issued to non-related parties;
·
$1,955 in amortization expense we recorded on our equipment to be used in clinical trials of our eBalance Technology; and
·
$4,697 gain that resulted from foreign exchange fluctuations on Canadian Dollar denominated loans and advances we received.
 
Net Cash Provided by Financing Activities

During the year ended May 31, 2016, we borrowed a total of $480,000 from unrelated parties and $197,000 from our major shareholder.  These loans are unsecured, payable on demand and bear interest at 6% per annum, compounded monthly. In addition, we borrowed $50,000 from our major shareholder, which is to be repaid on or before March 3, 2017. The loan bears a 6% interest rate, however, due to the issuance of the warrants to acquire up to 2,000,000 shares of the Company’s common stock, which were issued to Mr. Jeffs as consideration for lending us the funds, the fair value of the loan, at the time of the transaction, was determined to be $25,000, which resulted in 77.51% implied interest.

During the same period we repaid $60,212 in non-interest bearing advances, net of any additions, to a non-related party.

During the year ended May 31, 2015, we borrowed a total of $205,000 from City Group LLC (the “Lender”), an unrelated party.  The loans are unsecured, payable on demand and bear interest at 6% per annum, compounded monthly. Subject to applicable US securities laws, at the discretion of the Lender, $195,000 of principle amount outstanding and accrued interest thereon may be converted into shares of our common stock at $0.50 per share.  We recorded $88,900 in non-cash financing fees associated with the conversion feature. In addition, we received $40,523 and $24,721 (CAD$27,500) in non-interest bearing advances from an unrelated party; these advances were due on demand and were repaid during our Fiscal 2016.

In addition to the debt financing, during the same period we received subscriptions for 150,000 units (each a “Unit”) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consisted of one share of our common stock and one warrant for the purchase of one additional share of our common stock, exercisable at a price of $1.00 per share. As of the date of this report, the Units subscribed for remain unissued.

Net Cash Used in Investing Activities

During the year ended May 31, 2016, we paid $218,790 for the equipment which is being used in our clinical and observational studies. During the year ended May 31, 2015, we paid $27,801 for the equipment which is being used in our observational studies.

Going Concern

The notes to our audited consolidated financial statements at May 31, 2016, disclose our uncertain ability to continue as a going concern. We are development stage company with limited operations. To date we were able to generate only minimal revenue from the operations of our wholly owned subsidiary, Avyonce. Our research and development plans for the near future will require large capital expenditures, which we are planning to mitigate through equity or debt financing.

We have accumulated a deficit of $3,254,597 since inception and increased sales will be required to fund and support our operations. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our audited consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. We have applied our critical accounting policies and estimation methods consistently.

Principals of consolidation

The consolidated financial statements include the accounts of Cell MedX Corp. and our wholly owned subsidiaries, Avyonce Cosmedics Inc. and Cell MedX (Canada) Corp. On consolidation, we eliminate all intercompany balances and transactions.

 
15

 
Foreign currency translations and transactions

Our functional and reporting currency is the United States dollar. We translate foreign denominated monetary assets and liabilities into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
 
The functional currency of our wholly owned subsidiaries is the Canadian dollar. On consolidation, the subsidiaries translate the assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translate revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income. As of the date of this Annual Report on Form 10-K we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Revenue recognition

We recognize the revenue when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.

Inventory valuation

Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.

Research and development costs

We expense all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.

Accounts receivable

Receivables represent valid claims against debtors for services provided or goods sold on or before the balance sheet date and are reduced to their estimated net realizable value.  An allowance for doubtful accounts is based on an assessment of the collectability of all past due accounts. At May 31, 2016 and 2015, our allowance for doubtful accounts was $Nil.

Long-lived assets

In accordance with ASC 360, “Property, Plant, and Equipment”, we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to:
 
·
significant decreases in the market price of the asset;
·
significant adverse changes in the business climate or legal factors;
·
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;
·
current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and
·
current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.

 
16

 
Equipment

Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over 3 years.

Stock options and other share-based compensation

For equity awards, such as stock options, total compensation cost is based on the grant date fair value and for liability awards, such as stock appreciation rights, total compensation cost is based on the settlement value. We recognize the stock-based compensation expense for all awards over the service period required to earn the award, which is the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement.

Fair value of financial Instruments

Our financial instruments include cash, amounts receivable, accounts payable, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values due to their short maturities.

Concentration of credit risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable.

At May 31, 2016, we had $27,561 in cash on deposit with a large chartered Canadian bank and a large US bank. Of these deposits approximately $4,662 was insured.  As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions.  We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash.

Accounts receivable consists of sales income generated by our wholly owned subsidiary, Avyonce, and is not collateralized.  We continually monitor the financial condition of our customers to reduce the risk of loss. We routinely assess the financial strength of our source of revenue income and as a consequence, concentration of credit risk is limited. At May 31, 2016, we had $1,040 in accounts receivable outstanding.
 
Recent accounting standards and pronouncements
 
Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to have a significant impact on our consolidated financial statements.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f) of Regulation SK and are not required to provide the information required under this item.

 
17

 


 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Index to Financial Statements
   
 
Page No.
Financial Statements
 
Report of Independent Registered Public Accounting Firm  
F-1
Consolidated Balance Sheets as of May 31, 2016 and May 31, 2015
F-2
Consolidated Statements of Operations for the years ended May 31, 2016 and May 31, 2015
F-3
Consolidated Statement of Stockholders’ Deficit for the years  ended May 31, 2016 and May 31, 2015
F-4
Consolidated Statements of Cash Flows for the years  ended May 31, 2016 and May 31, 2015
F-5
Notes to the Consolidated Financial Statements
F-6
   
 
18

 


 
 

 










REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of Cell MedX Corp.

We have audited the accompanying consolidated balance sheets of Cell MedX Corp. (the “Company”) as of May 31, 2016 and 2015, the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended.  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 audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Cell MedX Corp. as of May 31, 2016 and 2015, the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, to date the Company has reported losses since inception from operations and requires additional funds to meet its obligations and fund the costs of its operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

                                                                                                                                                                               /s/DMCL
 
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
September 12, 2016
 
 



 
F-1

 

CELL MEDX CORP.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
 
             
   
May 31, 2016
   
May 31, 2015
 
ASSETS
           
             
Current assets
           
Cash
  $ 27,561     $ 1,258  
Inventory
    4,599       707  
Other current assets
    29,684       18,753  
Total current assets
    61,844       20,718  
                 
Equipment
    207,083       25,846  
Total assets
  $ 268,927     $ 46,564  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Accounts payable
  $ 384,147     $ 242,954  
Accrued liabilities
    37,966       30,339  
Due to related parties
    307,650       183,538  
Notes and advances payable
    951,716       273,799  
Total liabilities
    1,681,479       730,630  
                 
STOCKHOLDERS' DEFICIT
               
Common stock, $0.001 par value, 300,000,000 shares authorized;
               
31,000,000 shares issued and outstanding at May 31, 2016 and 2015
    31,000       31,000  
Additional paid-in capital
    1,734,498       324,629  
Obligation to issue shares
    75,000       75,000  
Accumulated deficit
    (3,254,597 )     (1,115,460 )
Accumulated other comprehensive income
    1,547       765  
Total stockholders' deficit
    (1,412,552 )     (684,066 )
Total liabilities and stockholders’ deficit
  $ 268,927     $ 46,564  
                 
                 
 
         
The accompanying notes are an integral part of these consolidated financial statements.

 
F-2

 
CELL MEDX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
 
             
   
Year ended
   
Year ended
 
   
May 31,
   
May 31,
 
   
2016
   
2015
 
             
Revenue
           
Sales
  $ 36,557     $ 42,624  
Cost of goods sold
    28,416       26,560  
Gross margin
    8,141       16,064  
                 
Operating expenses
               
Amortization
    20,603       1,955  
Consulting fees
    331,587       275,146  
Financing fees
    -       88,900  
General and administrative expenses
    241,666       294,318  
Research and development costs
    650,377       177,867  
Stock-based compensation
    868,160       203,829  
Total operating expenses
    2,112,393       1,042,015  
                 
Other items
               
Accretion expense
    (5,028 )     -  
Gain on sale of equipment
    2,979       -  
Interest
    (32,836 )     (6,214 )
Net loss
    (2,139,137 )     (1,032,165 )
                 
Unrealized foreign exchange translation gain
    782       765  
Comprehensive loss
  $ (2,138,355 )   $ (1,031,400 )
Net loss per common share
               
Basic and diluted
  $ (0.07 )   $ (0.03 )
                 
Weighted average number of shares outstanding – basic and diluted
    31,000,000       31,000,000  
                 
                 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
F-3

 
CELL MEDX CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
 
               
Obligation
   
Additional
          Accumulated Other
 
 
   
Common Stock
   
to Issue
   
Paid-in
   
Deficit
    Comprehensive
 
 
   
Shares
   
Amount
   
Shares
   
Capital
   
Accumulated
    Income   
Total
 
                                           
Balance - May 31, 2014
    31,000,000     $ 31,000     $ -     $ 31,900     $ (83,295 )   $ -     $ (20,395 )
                                                         
Financing costs - beneficial conversion feature
    -       -       -       88,900       -       -       88,900  
Proceeds from share subscription
    -       -       75,000       -       -       -       75,000  
Stock-based compensation
    -       -       -       203,829       -       -       203,829  
Net loss for the year ended May 31, 2015
    -       -       -       -       (1,032,165 )     -       (1,032,165 )
Translation to reporting currency
    -       -       -       -       -       765       765  
                                                         
Balance - May 31, 2015
    31,000,000       31,000       75,000       324,629       (1,115,460 )     765       (684,066 )
                                                         
Options issued for technology
    -       -       -       496,345       -       -       496,345  
Options issued for consulting fees
    -       -       -       20,364       -       -       20,364  
Stock-based compensation
    -       -       -       868,160       -       -       868,160  
Warrants issued for term loan
    -       -       -       25,000       -       -       25,000  
Net loss for the year ended May 31, 2016
    -       -       -       -       (2,139,137 )     -       (2,139,137 )
Translation to reporting currency
    -       -       -       -       -       782       782  
                                                         
Balance - May 31, 2016
    31,000,000     $ 31,000     $ 75,000     $ 1,734,498     $ (3,254,597 )   $ 1,547     $ (1,412,552 )
 
                 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-4

 
CELL MEDX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)

   
Year Ended May 31,
 
   
2016
   
2015
 
             
Cash flows used in operating activities:
           
Net loss
  $ (2,139,137 )   $ (1,032,165 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Accretion expense
    5,028       -  
Accrued interest on notes payable
    32,836       6,214  
Amortization
    20,603       1,955  
Consulting fees - non-cash
    20,364       -  
Financing costs
    -       88,900  
Foreign exchange loss (gain)
    9,608       (4,697 )
Gain on sale of equipment
    (2,979 )     -  
Research and development costs - non-cash
    496,345       -  
Stock-based compensation
    868,160       203,829  
Changes in operating assets and liabilities:
               
Inventory
    (3,925 )     (729 )
Other current assets
    (8,429 )     (18,772 )
Accounts payable
    136,278       222,790  
Accrued liabilities
    8,268       30,402  
Due to related parties
    135,408       185,462  
Net cash flows used in operating activities
    (421,572 )     (316,811 )
                 
Cash flows used in investing activities:
               
Acquisition of equipment
    (218,790 )     (27,801 )
Net cash used in investing activities
    (218,790 )     (27,801 )
                 
Cash flows from financing activities
               
Advances payable
    (60,212 )     65,244  
Proceeds from notes payable
    727,000       205,000  
Obligation to issue shares
    -       75,000  
Net cash provided by financing activities
    666,788       345,244  
                 
Effects of foreign currency exchange on cash
    (123 )     (575 )
Increase in cash
    26,303       57  
Cash, beginning
    1,258       1,201  
Cash, ending
  $ 27,561     $ 1,258  
                 
The accompanying notes are an integral part of these consolidated financial statements.
         
                 
 
 
F-5

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
 
Cell MedX Corp. (the “Company”) was incorporated under the laws of the State of Nevada. On November 26, 2014, the Company formed a subsidiary, Avyonce Cosmedics Inc., (“Avyonce”) and on April 26, 2016, the Company formed an additional subsidiary, Cell MedX (Canada) Corp. (“Cell MedX Canada”). Both subsidiaries were formed under the laws of British Columbia.
 
The Company is an early development stage company focused on the discovery, development and commercialization of therapeutic products for patients with diseases such as diabetes. Through Avyonce, the Company is engaged in reselling and marketing spa technology and equipment.
 
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2016, the Company has not achieved profitable operations and has accumulated a deficit of $3,254,597. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and are presented in US dollars.

Principles of consolidation
The consolidated financial statements include the accounts of Cell MedX Corp. and its subsidiaries, Avyonce and Cell MedX Canada. On consolidation, all intercompany balances and transactions are eliminated.
 
Accounting estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of equipment, fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
 
F-6

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

 
Foreign currency translations and transactions
The Company’s functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
 
The functional currency of Avyonce and Cell MedX Canada is the Canadian dollar. On consolidation, the subsidiaries translate their assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translate their revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Revenue recognition
Revenue is recognized when all the following conditions have been met:
·
the sales price is fixed or determinable;
·
pervasive evidence of an agreement exists;
·
when delivery of the product has occurred and title has transferred or services have been provided; and
·
when collectability is reasonably assured.

Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.

Research and development costs
The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.

Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.

Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.
 
 
F-7

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

 
Long-lived assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.

Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over 3 years.

Financial instruments
The Company’s financial instruments include cash, inventory, amounts receivable, accounts payable, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values due to their short maturities.

Stock options and other stock-based compensation
For equity awards, such as stock options, total compensation cost is based on the grant date fair value and for liability awards, such as stock appreciation rights, total compensation cost is based on the settlement value. The company recognizes stock-based compensation expense for all awards over the service period required to earn the award, which is the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement.

Recent accounting pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to have a significant impact on the consolidated financial statements of the Company.

NOTE 3 –TECHNOLOGY

On November 25, 2014, the Company completed the acquisition of a proprietary technology for the use of microcurrents for the treatment of diabetes and related ailments (the “Technology”) from Jean Arnett and Brad Hargreaves (the “Vendors”).  

 
F-8

 
 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
In consideration for the sale of the Technology, the Company paid the Vendors a total of $100,000 and issued the Vendors options for the purchase of up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The options vest as follows:

Number of Options  to Vest
Vesting Condition
2,500,000
Upon the design and commencement of the first clinical trial (vested)
2,500,000
Upon the completion of the first clinical trial.
2,500,000
Upon the design and commencement of the second clinical trial.
2,500,000
Upon the completion of the second clinical trial.
5,000,000
Upon the design and commencement of the third clinical trial.
5,000,000
Upon the completion of the third clinical trial.
20,000,000
Total

During the year ended May 31, 2015, the cash consideration paid for acquisition of the Technology has been expensed as research and development costs.

On August 26, 2015, the board of directors of the Company determined that the options to purchase up to 2,500,000 common shares of the Company’s common stock granted to the Vendors for the Technology, which were to vest upon the design and commencement of the first clinical trial, have vested. The total fair value of the vested options was calculated to be $496,345 (Note 10) and was expensed as research and development costs.

NOTE 4– RELATED PARTY TRANSACTIONS

Amounts due to related parties, other than notes payable to related parties (Notes 8 and 9) at May 31, 2016 and 2015:
   
May 31, 2016
   
May 31, 2015
 
Due to the Chief Executive Officer (“CEO”) and President
  $ 66,254     $ 23,054  
Due to the Vice President (“VP”), Corporate Strategy
    95,575       60,228  
Due to the VP, Technology and Operations
    56,596       44,362  
Due to the Chief Medical Officer
    81,059       51,059  
Due to a company owned by VP,  Corporate Strategy  and VP Technology and Operations
    1,747       1,835  
Due to the Chief Financial Officer (“CFO”)
    6,419       3,000  
Due to related parties
  $ 307,650     $ 183,538  

Amounts are unsecured, due on demand and bear no interest.

 
F-9

 
 
 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
 
During the years ended May 31, 2016 and 2015, the Company had the following transactions with related parties:
 
   
May 31,
2016
   
May 31,
2015
 
Management fees incurred to the CEO and President
  $ 43,200     $ 21,600  
Stock-based compensation  incurred to the CEO and President (Note 10)
    605,286       -  
Management fees incurred to the CFO
    12,000       6,000  
Consulting fees incurred to the VP, Corporate Strategy
    85,669       95,915  
Consulting fees incurred to the VP, Technology and Operations
    73,768       76,732  
Cash consideration paid for Technology to the VP, Technology and Operations and VP, Corporate Strategy
    -       100,000  
Net payments made (received)  for equipment acquired from (sold to) the VP, Technology and Operations and VP, Corporate Strategy
    (8,911 )     8,500  
Value of options  issued and vested for Technology acquired from the VP, Technology and Operations and VP, Corporate Strategy, and recorded as part of research and development costs (Notes 3 and 10)
    496,345       -  
Inventory acquired from a company owned by VP, Technology and Operations and VP, Corporate Strategy
    -       1,689  
Consulting fees incurred to the Chief Medical Officer and recorded as part of research and development costs (Note 5)
    50,000       70,000  
Stock-based compensation  incurred to the Chief Medical Officer (Notes 5 and 10)
    262,874       203,829  
Research and development costs incurred to a company  controlled by the Chief Medical Officer
    26,700       -  
Accrued interest expense incurred to a significant shareholder, included in general and administrative expense (Note 8)
    7,620       -  
Accretion expense associated with a loan agreement entered into with significant shareholder (Note 9)
    5,028       -  
Total transactions with related parties
  $ 1,659,579     $ 584,265  

NOTE 5 – MATERIAL AGREEMENTS

Management Consulting Agreement

On January 13, 2015, the Company entered into a three-year Management Consulting Agreement (the “Consulting Agreement”) with Dr. John Sanderson, MD. Pursuant to the Consulting Agreement, the Company agreed to pay Dr. Sanderson a monthly consulting fee of $10,000.  In addition, the Company agreed to pay Dr. Sanderson a signing bonus of $10,000, plus an additional $10,000 as compensation for the past consulting services (Note 4). In the event of early termination without cause $60,000 will become payable to Dr. Sanderson.

The Company also issued to Dr. Sanderson non-transferrable options to purchase up to 2,400,000 shares of the Company’s common stock at an exercise price of $0.67 per share. The options vest quarterly starting on March 31, 2015 in equal portions of 200,000 shares per vesting period, and expire on the 5th year anniversary of the applicable vesting date subject to early termination provisions in the event that Dr. Sanderson ceases to act for the Company in any capacity. As of May 31, 2016, the options to purchase up to 1,000,000 shares of the Company’s common stock had vested. During the year ended May 31, 2016, the Company recorded stock-based compensation of $262,874 (2015 - $203,829) in connection with the vesting of these options (Note 10).

During the year ended May 31, 2016, the Company and Dr. Sanderson reached an agreement to suspend his consulting services until further notice, since the Company decided to move its clinical and observational studies to Canada.
 
 
F-10

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

 
Service Agreement for Observational Clinical Trials

On March 15, 2016, the Company entered into a service agreement with Nutrasource Diagnostics Inc. (“Nutrasource”) for its observational clinical studies in Canada (the “Clinical Studies”). The Clinical Studies will span over a 3 to 8 month period and will examine the effects of eBalance therapy on diabetes and associated complications. The estimated cost of the Clinical Studies is approximately CAD$345,000, payable in monthly instalments of CAD$20,242 over a period of 17 months.

NOTE 6 – EQUIPMENT

On October 1, 2015, the Company entered into an eBalance Prototype Development Agreement (the “Development Agreement”) with an unrelated party (the “Developer”) for development of its first eBalance Professional Series Device (the “Prototype”). Based on the Development Agreement, upon delivery of the Prototype the Company paid the Developer $12,848 (EURO €12,000).

On December 15, 2015, the Company submitted its first manufacturing order with the Developer to manufacture 25 eBalance Professional Series devices (the “eBalance Pro Devices”) based on the Prototype delivered to the Company in November 2015. The Company incurred a total of $185,027 in costs associated with commissioning of 25 eBalance Pro Devices, which were recorded as part of equipment and are being amortized on a straight line basis over their estimated useful lives of three (3) years.

These prototypes were received in spring of 2016 and have been provided to various clinicians to aid the Company with collection of data.

During the year ended May 31, 2016, the Company sold equipment to a director of the Company for proceeds of $19,301 resulting in a gain on sale of equipment of $2,979 recorded in the statement of operations.

Amortization schedule for the equipment at May 31, 2016 and 2015:
 
   
May 31, 2016
   
May 31, 2015
 
Book value, beginning of the period
  $ 25,846     $ -  
Changes during the period
    201,840       27,801  
Amortization
    (20,603 )     (1,955 )
Book value, end of the period
  $ 207,083     $ 25,846  

NOTE 7 – INVENTORY

As at May 31, 2016, the inventory consisted of supplies held for resale, and was valued at $4,599 (May 31, 2015 - $707). The Company uses lower of cost or net realizable value to determine the book value of the inventory at reporting date.

 
F-11

 

CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

NOTE 8 – NOTES AND ADVANCES PAYABLE

The tables below summarize the short-term loans and advances outstanding as at May 31, 2016 and 2015:
 
As at May 31, 2016
 
Principal outstanding
   
Interest rate
per annum
 
Additional
description
 
Accrued
Interest / Accretion
   
Total Book
Value
 
$ 195,000       6%  
Convertible
  $ 18,588     $ 213,588  
  490,000       6%  
Non-convertible
    12,842       502,842  
  197,000       6%  
Related Party (Note 4)
    7,620       204,620  
  50,000       6%  
Related Party Term Loan (Notes 4 and 9)
    5,028       30,028  
  638       0%  
Advances
    -       638  
$ 932,638               $ 44,078     $ 951,716  
.

As at May 31, 2015
 
Principal outstanding
   
Interest rate
per annum
 
Additional
description
 
Accrued
Interest / Accretion
   
Total Book Value
 
$ 195,000       6%  
Convertible
  $ 6,147     $ 201,147  
  10,000       6%  
Non-convertible
    67       10,067  
  62,585       0%  
Advances
    -       62,585  
$ 267,585               $ 6,214     $ 273,799  

During the year ended May 31, 2016, the Company entered into a number of loan agreements with unrelated parties for a total of $480,000 (2015 - $205,000). These loans bear interest at 6% per annum, are unsecured and are payable on demand. During the same period, the Company entered into a number of loan agreements with Mr. Richard Jeffs (“Mr. Jeffs”), the Company’s major shareholder, for a total of $247,000 (2015 – $Nil). The loans for a total of $197,000 bear interest at 6% per annum, are unsecured and are payable on demand. The remaining loan for $50,000 bears interest at 6% per annum compounded annually, and is payable on March 3, 2017 (Note 9).

During the year ended May 31, 2016, the Company repaid $60,212, net of additions, in non-interest bearing advances. These advances were unsecured and payable on demand.

As of May 31, 2016, the Company recorded $32,836 (2015 - $6,214) in interest expense associated with above loans, not including the interest accumulated on the Term Loan with Mr. Jeffs (Note 9).
 
 
F-12

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
 
Convertible Loans

During the year ended May 31, 2015, the Company signed two loan agreements with City Group LLC., (the “Lender”) for $125,000 and $70,000. The loans bear interest at 6% per annum, are unsecured and payable on demand. At the discretion of the Lender, the loans and accrued interest thereon can be converted into restricted shares of common stock of the Company at $0.50 per share. Since at the time of the transactions the conversion price was below the market value of the shares of the Company’s common stock, the Company recorded a beneficial conversion feature and associated non-cash financing costs of $88,900.

NOTE 9 – TERM LOAN

On March 3, 2016, the Company entered into a loan agreement (the “Term Loan Agreement”) with Richard Jeffs for a loan in the principal amount of $50,000 maturing March 3, 2017, with interest payable at a rate of 6% per annum (the “Term Loan”).  As additional consideration for the Term Loan, the Company issued to the Mr. Jeffs share purchase warrants (the “Warrants”) for the purchase of up to 2,000,000 shares of the Company’s common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share during the fifth year. The Warrants were determined to be detachable from the debt instrument, as the debt instrument does not have to be surrendered to exercise the warrant. Under the guidance provided by ASC 470-20-25-2, proceeds from the sale of debt instrument with stock purchase warrants must be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants was $25,000 and was recorded to additional paid-in capital.

The Term Loan has effective interest rate of 77.51%, which was due primarily to the recording of non-cash accretion interest. During the year ended May 31, 2016, the Company recognized accretion expense of $5,028 (2015 - $Nil).

At March 3, 2016, the fair value of Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:

   
At March 3, 2016
 
Expected Warrant Life
 
     5 years
 
Risk-Free Interest Rate
   1.33%  
Expected Dividend Yield
 
           Nil
 
Expected Stock Price Volatility
   16%  

NOTE 10 – SHARE CAPITAL

During the year ended May 31, 2016, the Company did not have any transactions that resulted in the issuance of the shares of its common stock.

During the year ended May 31, 2015, the Company received a subscription for 150,000 units (each a “Unit”) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consists of one share of the Company’s common stock and one warrant for the purchase of one additional share of the Company’s common stock, exercisable at a price of $1.00 per share, expiring one year after the issuance of the Units. As of May 31, 2016, the Units subscribed for have not yet been issued.
 
 
F-13

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Options

On November 25, 2014, as part of the technology purchase agreement dated for reference October 16, 2014, and as amended on October 28, 2014 and November 13, 2014, the Company issued to the vendors of the Technology (the “Vendors”) options for the purchase of up to 20,000,000 shares of the Company’s common stock at an initial exercise price of $0.05 per share and expiring on the 5th year anniversary of the applicable vesting date, or on December 31, 2019, for those options that have not vested.

On August 26, 2015, the board of directors of the Company determined that the options to purchase up to 2,500,000 common shares of the Company’s common stock granted to the Vendors for the Technology, which were to vest upon the design and commencement of the first clinical trial, have vested.

The total fair value of the vested options was calculated to be $496,345 (Note 4) and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

 
At August
26, 2015
 
Expected Life of Options
5 years
 
Risk-Free Interest Rate
1.49%       
Expected Dividend Yield
Nil 
 
Expected Stock Price Volatility
216%       

As of May 31, 2016, the remaining options for the purchase of up to 17,500,000 shares of the Company’s common stock remained unvested.
 
On January 13, 2015, the Company issued 2,400,000 non-transferrable options to its Chief Medical Officer. The options vest quarterly starting on March 31, 2015, in equal portions of 200,000 shares per vesting period, and expire on the 5th year anniversary of the applicable vesting date.
 
The total fair value of the options was calculated to be $591,503 and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

 
At January 13, 2015
 
Expected Life of Options
5 years from vesting
 
Risk-Free Interest Rate
1.37%      
Expected Dividend Yield
Nil
 
Expected Stock Price Volatility
27%      

As of May 31, 2016, options to acquire up to 1,000,000 shares of the Company’s common stock have vested, and the Company recognized $262,874 (2015 - $203,829) (Note 4) as share-based compensation expense for the year ended May 31, 2016. Further $124,800 will be recognized in the future periods.
 
 
F-14

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

 
On August 5, 2015, the Company issued to its CEO, President and a member of the board of directors options to purchase up to 2,500,000 shares of the Company’s common stock (the “CEO Options”). The CEO Options are exercisable at $0.35 per share, subject to the following vesting schedule:

Number of Options  to Vest
Vesting Date
500,000
August 5, 2015
500,000
October 1, 2015
500,000
January 1, 2016
500,000
April 1, 2016
500,000
July 1, 2016
2,500,000
 

Any CEO Options that vest and become exercisable will expire on the 5th year anniversary of the particular vesting date, subject to certain early termination provisions, upon the death of the optionee, or if the optionee ceases to act for the Company in any capacity either voluntarily or as a result of a termination or removal for cause.

The total fair value of the options was calculated to be $616,886 and was determined using the Black-Scholes option pricing model at the grant date using the following assumptions:

 
At August 5, 2015
 
Expected Life of Options
5 years from vesting
 
Risk-Free Interest Rate
1.65%       
Expected Dividend Yield
Nil 
 
Expected Stock Price Volatility
   218%       

Of the total fair value of the options $605,286 (Note 4) was recognized as share-based compensation expense for the year ended May 31, 2016 and remaining $11,600 will be recognized in the first quarter of fiscal 2017.

On September 23, 2015, the Company issued 150,000 non-transferrable options to a consultant. The options vested immediately and expire on September 1, 2017.

The total fair value of the options was calculated to be $20,364 and was recorded as share-based compensation for consulting fees during the year ended May 31, 2016. The fair value of the options granted was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

 
At September 23, 2015
 
Expected Life of Options
1.94 years
 
Risk-Free Interest Rate
0.7%      
Expected Dividend Yield
Nil
 
Expected Stock Price Volatility
214%      

 
F-15

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
 
The changes in the number of stock options outstanding during the years ended May 31, 2016 and 2015 are as follows:

   
Year ended
May 31, 2016
   
Year ended
May 31, 2015
 
   
Number of
options
   
Weighted average exercise price
   
Number of
 options
   
Weighted average exercise price
 
Options outstanding, beginning
    22,400,000     $ 0.12       -       n/a  
Options granted
    2,650,000     $ 0.34       22,400,000     $ 0.12  
Options outstanding, ending
    25,050,000     $ 0.14       22,400,000     $ 0.12  
Options exercisable, ending
    5,650,000     $ 0.27       200,000     $ 0.67  

Details of options outstanding and exercisable as at May 31, 2016 are as follows:

Exercise price
Grant date
Number of options
granted
Number of options
exercisable
$0.05
November 25, 2014
20,000,000
2,500,000
$0.67
January 13, 2015
2,400,000
1,000,000
$0.35
August 5, 2015
2,500,000
2,000,000
$0.20
September 23, 2015
150,000
150,000
   
25,050,000
5,650,000

At May 31, 2016, the weighted average remaining contractual life of the stock options outstanding and exercisable was 4.27 years.

 
Warrants

On March 3, 2016 (the “Effective Date”) the Company issued non-transferrable share purchase warrants to acquire up to 2,000,000 shares of the Company’s common stock expiring on March 3, 2021, to Mr. Jeffs as additional consideration for the Term Loan (Note 9). The exercise price of these warrants is as follows:

Period expiring on:
Exercise Price
March 3, 2017
$0.15
March 3, 2018
$0.25
March 3, 2019
$0.40
March 3, 2020
$0.60
March 3, 2021
$0.75

As at May 31, 2016, the Company has 2,000,000 (May 31, 2015 – Nil) warrants outstanding. The remaining contractual life of the warrants was 4.75 years.


 
F-16

 
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016

NOTE 11 – INCOME TAXES

The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
 
   
May 31, 2016
   
May 31, 2015
 
Net loss
  $ (2,139,137 )   $ (1,032,165 )
Statutory tax rate
    34%       34%  
Expected income tax recovery
    (727,307 )     (350,936 )
Permanent differences
    296,884       99,528  
Temporary differences
    7,005       665  
Difference in foreign tax rates
    1,345       1,408  
Change in valuation allowance
    422,073       249,335  
Income tax recovery
  $ -     $ -  

The Company’s tax-effected future income tax assets and liabilities are estimated as follows:
 
   
May 31, 2016
   
May 31, 2015
 
Deferred income tax assets (liabilities)
           
    Losses carried forward
  $ 693,708     $ 279,970  
    Equipment
    7,670       (665 )
Less:  Valuation allowance
    (701,378 )     (279,305 )
Net deferred income tax assets
  $ -     $ -  

At May 31, 2016 and 2015, the Company had a deferred tax asset that related to net operating losses. A full valuation allowance has been established; as management believes it is more likely than not that the deferred tax asset will not be realized.

As at May 31, 2016, the Company had net operating loss carry forwards of approximately $1,977,972  (2015 - $774,500) to reduce future federal and state taxable income. The Company also had non-capital loss carry forwards of approximately $66,874 (2015 - $25,000) to reduce Canadian taxable income. These losses expire by 2036.

The Company is not currently subject to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax adjustments, if accepted, that would result in a material change to its financial position.

NOTE 12 – SUBSEQUENT EVENTS

Loan Agreements

Subsequent to the year ended May 31, 2016, the Company received $75,000 under loan agreements with non-related parties and $74,278 (CAD$96,500) under loan agreements with Richard Jeffs. The loans bear interest at 6% per annum, are unsecured, non-convertible and payable on demand.

 
F-17

 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of May 31, 2016. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms due to lack of segregation of duties.

Management’s Report on Internal Controls over Financial Reporting

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2016, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, it was found that the internal controls cannot be relied upon due to lack of segregation of duties.

Our independent auditors have not issued an attestation report on management’s assessment of our internal control over financial reporting. As a result, this Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Controls

As of the end of the period covered by this report, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, our results of operations.
 
ITEM 9B. OTHER INFORMATION

Not applicable

 
19

 
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Directors and Executive Officers

Each of our directors holds office until the earlier of (i) our next annual meeting of our stockholders, (ii) that director’s successor has been elected and qualified, or (iii) that director resigns.  Each of our executive officers are appointed by our Board of Directors and holds office until he resigns or is removed by the Board.

Our management team is listed below:

 
Name
 
Age
 
Positions
Frank McEnulty
59
Chief Executive Officer, President and Director
Yanika Silina
38
Chief Financial Officer, Treasurer, Corporate Secretary
Dr. John Sanderson, MD
66
Chief Medical Officer
Jean Arnett
60
Vice President, Corporate Strategy, and Director
Bradley Hargreaves
57
Vice President, Technology and Operations

Set forth below is a brief description of the background and business experience of each of our executive officers and directors:

Mr. McEnulty has served as a director and as the Chief Executive Officer and President of our Company since March 6, 2014.  Prior to closing our acquisition of the eBalance Technology, on November 25, 2015, Mr. McEnulty also served as our Chief Financial Officer, Treasurer and Secretary.  Mr. McEnulty is an experienced executive with an extensive background in finance and accounting. Since 1996, Mr. McEnulty has been the President and CEO of Meghan Matthews, Inc., a private investment company. Since 2004, Mr. McEnulty has also been a member of the board and compensation committee for Ojai Oil Company. Ojai Oil Company currently trades on the OTC Pink marketplace. Since September 2014 until January 2015 Mr. McEnulty has been the director of Madison Technologies, Inc. From 1989 through 1995, Mr. McEnulty was the Chief Operating Officer and Vice President of Finance for Tri-Five Property Management, a foreign owned real estate investment company. Mr. McEnulty received a Masters of Business Administration from the University of Southern California and a Bachelor of Science from California State University, Long Beach.

Ms. Silina has served as the Company’s Chief Financial Officer and Corporate Secretary since November 24, 2014. Ms. Silina is a Chartered Professional Accountant and holds a Diploma in Management Studies from Thompson Rivers University. Ms. Silina is currently the