Form 8-K/A Sagent Pharmaceuticals, For: Oct 01

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December 12, 2014 5:02 PM EST

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�

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

�

Form 8-K/A

�

CURRENT REPORT

Pursuant to Section�13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):�October 1, 2014

�

Sagent Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

�

Commission File Number:�1-35144

�

Delaware

�

98-0536317

(State or other jurisdiction

of incorporation)

�

(IRS Employer

Identification No.)

1901 N. Roselle Road, Suite 700, Schaumburg, Illinois 60195

(Address of principal executive offices, including zip code)

(847) 908-1600

(Registrant�s telephone number, including area code)

(Former name or former address, if changed since last report)

�

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

�

�	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

�

�	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

�	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

�

�	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

�

Explanatory Note

On October�1, 2014, Sagent Pharmaceuticals Inc. (the �Company�) through its wholly-owned subsidiary, Sagent Acquisition Corp., a Canadian company, acquired all of the issued and outstanding shares of the capital stock of 7685947 Canada Inc., and its subsidiary, Omega Laboratories Limited (collectively, �Omega�), a privately held Canadian pharmaceutical and specialty healthcare products company for C$93.0 million ($82.9 million) subject to post-closing adjustments. As a result of the completion of the transaction, Omega became a wholly-owned subsidiary of the Company.

On October 2, 2014 the Company filed a Current Report on Form 8-K (the �Current Report�) to report the completion of the acquisition of Omega. This Form 8-K/A amends Item�9.01 of the Form 8-K we filed on October�2, 2014 to include Omega�s audited financial statements for the year ended December�31, 2013, Omega�s unaudited financial statements as of and for the nine months ended September�30, 2014, and the unaudited pro forma condensed combined financial information related to our acquisition of Omega as required by Items 9.01(a) and 9.01(b) of Form 8-K.

�

Item�9.01

Financial Statements and Exhibits

(a) Financial Statements of Business Acquired

The financial statements of Omega as of and for the year ended December�31, 2013 are attached as Exhibit 99.2 to this Form 8-K/A, and are incorporated by reference into this Form 8-K/A.

The financial statements of Omega as of and for the nine months ended September�30, 2014 are attached as Exhibit 99.3 to this Form�8-K/A, and are incorporated by reference into this Form 8-K/A.

The financial statements of Kanghong Sagent (Chengdu) Pharmaceutical Co., Ltd. (�KSCP�) as of June�4, 2013 and for the period from January�1, 2013 to June�4, 2013 are attached as Exhibit 99.4 to this Form 8-K/A, and are incorporated by reference into this Form 8-K/A.

(b) Pro Forma Financial Information

The following unaudited pro forma condensed combined financial information related to the acquisitions is attached as Exhibit 99.1 to this Form 8-K/A and incorporated by reference into this Form 8-K/A:

�

(1)

Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December�31, 2013;

�

(2)

Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September�30, 2014; and

�

(3)

Unaudited Pro Forma Condensed Combined Balance Sheet as of September�30, 2014.

(d) The following exhibits are being filed as part of this Current Report on Form 8-K/A

�


Exhibit Number	��	Description

23.1	��	Consent of KPMG LLP, independent auditors

99.1	��	Unaudited Pro Forma Condensed Consolidated Financial Information

99.2	��	7685947 Canada Inc. Consolidated Financial Statements as of and for the year ended December 31, 2013

99.3	��	7685947 Canada Inc. Consolidated Financial Statements as of and for the nine months ended September 30, 2014

99.4	��	Kanghong Sagent (Chengdu) Pharmaceutical Co. Ltd. Financial Statements as of June 4, 2013 and for the period from January 1, 2013 to June 4, 2013 (Incorporated by reference to Item 15(a) in the Company�s Annual Report on Form�10-K filed March 7, 2014).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

�


	�	�		�	SAGENT PHARMACEUTICALS, INC.

Date: December�12, 2014	�	�		�	/S/ MICHAEL LOGERFO
	�	�	Name:	�	Michael Logerfo
	�	�	Title:	�	Executive Vice President, Chief Legal Officer and Corporate Secretary

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the:

�

(1)

Registration Statement on Form S-3 (No.�333-200027) of Sagent Pharmaceuticals, Inc., and

�

(2)

Registration Statement on Form S-8 (No.�333-175352) pertaining to the 2007 Global Share Plan of Sagent Holding Co. and the 2011 Incentive Compensation Plan of Sagent Pharmaceuticals, Inc.

of our report dated December 12, 2014, with respect to the consolidated financial statements of 7685947 Canada Inc., which comprise the consolidated balance sheet as of December�31, 2013, and the related consolidated statements of operations, changes in shareholders� deficiency, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and refers to a footnote entitled �Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepting accounting principles� and states that the financial statements as at January�1, 2012 and December�31, 2012 and for the year ended December�31, 2012 were not audited, reviewed, or compiled by us. Our report appears in this Form 8-K/A dated December 12, 2014 of Sagent Pharmaceuticals, Inc.

�

/s/ KPMG LLP*

Montreal, Canada

December 12, 2014

�

*	CPA auditor, CA, public accountancy permit No. A123145

Exhibit 99.1

UNAUDITED PRO FORMA�CONDENSED COMBINED FINANCIAL INFORMATION

On April�30, 2013, Sagent Pharmaceuticals, Inc., a Delaware corporation (the �Company� or �Sagent�) entered into a Share Purchase Agreement with Chengdu Kanghong Pharmaceuticals (Group) Co. Ltd. (�Kanghong�) pursuant to which the Company agreed to acquire Kanghong�s 50% interest in Kanghong Sagent (Chengdu) Pharmaceutical Co. Ltd. (�KSCP�) in exchange for $25 million, payable in installments through September 2015. The acquisition was subject to customary closing conditions, including approval by the Chengdu Hi-Tech Industrial Development Zone Bureau of Investment Services (�BIS�). On June�4, 2013, the Company received final approval for the transaction from the BIS. Accordingly, the transaction was completed. As a result of the completion of the transaction, KSCP became a wholly-owned subsidiary of the Company.

On October�1, 2014, the Company through its, wholly-owned subsidiary, Sagent Acquisition Corp., a Canadian company, acquired all of the issued and outstanding shares of the capital stock of 7685947 Canada Inc., and its subsidiary, Omega Laboratories Limited (collectively, �Omega�), a privately held Canadian pharmaceutical and specialty healthcare products company for C$93.0 million ($82.9 million) subject to post closing adjustments. As a result of the completion of the transaction, Omega became a wholly-owned subsidiary of the Company.

The following unaudited pro forma condensed combined balance sheet presents our historical financial position combined with Omega as if the acquisition had occurred on September�30, 2014, and includes adjustments which give effect to events that are directly attributable to the transaction and that are factually supportable, regardless of whether they have a continuing impact or are nonrecurring.

The following unaudited pro forma condensed combined statements of operations present the combined results of our operations with Omega and KSCP as if the acquisitions had occurred as of January�1, 2013 and include adjustments that are directly attributable to the acquisitions, are expected to have a continuing impact on the combined results, and are factually supportable. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisitions at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.

For purposes of this pro forma financial information Sagent translated the results of operations of its foreign subsidiaries into U.S. dollars using average exchange rates for the year ended December�31, 2013 and the nine months ended September�30, 2014. Sagent translated balance sheet accounts into U.S. dollars using period end exchange rates at the end of September�30, 2014. Based on its review of Omega�s historical financial statements, Sagent is not aware of any further adjustment that we would need to make to Omega�s historical financial statements relating to foreign currency translation. The pro forma adjustments in this table have been translated from Canadian dollars to U.S. dollars using Sagent�s historic exchange rates. The average exchange rate applicable during the periods presented for the unaudited pro forma condensed combined statement of operations and the period end exchange rate for the unaudited pro forma condensed combined balance sheet are as follows:

�


�	��	�	��	US$/C$1		�
December�31, 2013	��	Average Spot Rate	��	�	0.9711	��
September�30, 2014	��	Average Spot Rate	��	�	0.9144	��
September�30, 2014	��	Period End Rate	��	�	0.8914	��

The unaudited pro forma condensed combined financial statements should be read in conjunction with the:

�

the accompanying notes to the unaudited pro forma condensed combined financial statements; and

�

the consolidated financial statements of Sagent included in our Annual Report on Form 10-K for the year ended December�31, 2013 and the condensed consolidated financial statements of Sagent included in our Quarterly Report on Form 10-Q as of and for the three and nine months ended September�30, 2014 and the notes relating thereto; and

�

the consolidated financial statements of Omega for the year ended December�31, 2013 and the notes thereto, included as Exhibit 99.2 to this Current Report on Form 8-K, and the consolidated financial statements of Omega as of and for the nine months ended September�30, 2014 and the notes relating thereto, included as Exhibit 99.3 to this Current Report on Form�8-K; and

�

the consolidated financial statements of KSCP as of June�4, 2013 and for the period from January�1, 2013 to June�4, 2013 and the notes relating thereto, included our Annual Report on Form 10-K for the year ended December�31, 2013.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December�31, 2013

(In thousands, except per-share data)

�

��

Sagent

�

KSCP

�

Omega�C$
ASPE

�

Omega�US$
ASPE

�

Adjustments

�

(Note)

��

Pro�Forma
Combined

�

Net revenue

��

244,750

��

�

��

�

36,130

��

�

35,084

��

�

(783

)

�

4(i)

��

279,051

��

Cost of sales

��

�

167,228

��

�

20,096

��

�

19,514

��

�

8,602

�

4(d),�4(e),

4(f),�4(i)

��

�

195,344

��

�

��

�

Gross profit

��

�

77,522

��

�

16,034

��

�

15,570

��

�

(9,385

)

�

��

�

83,707

��

Operating expenses:

��

�

��

Pre-production expenses

��

�

597

��

�

(597

)�

�

3(g)

��

�

��

Product development

��

�

20,275

��

�

4,159

�

3(g),�4(b)i,

4(e),�4(i)

��

�

24,434

��

Research and development

��

�

1,972

��

�

1,915

��

�

(1,915

)�

�

4(i)

��

Oncology plant related

��

�

2,043

��

�

1,984

��

�

(1,984

)�

�

4(i)

��

Selling, general and administrative

��

�

36,198

��

�

2,211

��

�

8,026

��

�

7,794

��

�

(1,944

)

�

3(a),3(c),

4(e),�4(f),

4(i)

��

�

44,259

��

Equity in net (income) loss of joint ventures

��

�

(2,395

)�

�

(1,825

)

�

3(d)

��

�

(4,220

)�

��

�

��

�

Total operating expenses

��

�

54,078

��

�

2,808

��

�

12,041

��

�

11,693

��

�

(4,106

)

�

��

�

64,473

��

�

��

�

Termination fee

��

�

5,000

��

�

��

�

��

�

5,000

��

Gain on previously held equity interest

��

�

2,936

��

�

(2,936

)�

�

3(e)

��

�

��

�

��

�

Income (loss) from operations

��

�

31,380

��

�

(2,808

)�

�

3,993

��

�

3,877

��

�

(8,215

)

�

��

�

24,234

��

Interest income and other

��

�

��

�

��

�

(562

)

�

4(g),�4(i)

��

�

(521

)�

Financial expenses

��

�

(3,685

)�

�

(3,578

)�

�

3,578

��

�

4(b)iii,�4(i)

��

�

��

Interest expense

��

�

(930

)�

�

(460

)

�

3(b), 4(i)

��

�

(1,390

)�

��

�

��

�

Income (loss) before income taxes

��

�

30,489

��

�

(2,806

)�

�

308

��

�

299

��

�

(5,659

)

�

��

�

22,323

��

Provision for income taxes

��

�

895

��

�

��

�

929

��

�

902

��

�

(654

)

�

3(f),�4(h),
4(b)i

��

�

1,143

��

�

��

�

Net income (loss)

��

29,594

��

�

(2,806

)�

�

(621

)�

�

(603

)�

�

(5,005

)

�

��

21,180

��

�

��

�

Net income per common share:

��

�

��

Basic

��

1.01

��

�

��

0.73

��

Diluted

��

0.99

��

�

��

0.71

��

Weighted-average of shares used to compute net income per common share:

��

�

��

Basic

��

�

29,213

��

�

��

�

29,213

��

Diluted

��

�

29,937

��

�

��

�

29,937

��

See notes to pro forma financial statements

Unaudited Pro Forma Condensed Combined Statement of Operations

For the nine months ended September�30, 2014

(In thousands, except per-share data)

�

��

Sagent

�

Omega�C$
ASPE

�

Omega�US$
ASPE

�

Adjustments

�

(Note)

��

Pro�Forma
Combined

�

Net revenue

��

205,422

�

26,517

��

�

24,248

��

�

(378

)�

�

4(i)

��

229,292

��

Cost of sales

��

�

143,676

�

14,174

��

�

12,961

��

�

3,718

��

�

4(e),�4(f),
4(i)

��

�

160,355

��

�

��

�

Gross profit

��

�

61,746

�

12,343

��

�

11,287

��

�

(4,096

)�

�

��

�

68,937

��

Operating expenses:

��

�

��

Product development

��

�

17,734

�

��

�

��

�

2,997

��

�

4(b)i,�4(e),
4(i)

��

�

20,731

��

Research and development

��

�

��

�

1,951

��

�

1,784

��

�

(1,784

)�

�

4(b)(i),
4(i)

��

�

��

Oncology plant related

��

�

��

�

1,428

��

�

1,306

��

�

(1,306

)�

�

4(i)

��

�

��

Selling, general and administrative

��

�

31,622

�

7,125

��

�

6,515

��

�

(701

)�

�

4(e), 4(f),
4(i)

��

�

37,436

��

Acquisition related costs

��

�

872

��

�

��

�

��

�

(872

)�

�

4(c)

��

�

��

Equity in net (income) loss of joint ventures

��

�

(2,476

)

�

��

�

��

�

��

�

��

�

(2,476

)�

��

�

��

�

Total operating expenses

��

�

47,752

�

10,504

��

�

9,605

��

�

(1,666

)�

�

��

�

55,691

��

�

��

�

Income (loss) from operations

��

�

13,994

�

1,839

��

�

1,682

��

�

(2,430

)�

�

��

�

13,246

��

Interest income and other

��

�

(465

)

�

��

�

��

�

(435

)�

�

4(g),�4(i)

��

�

(900

)�

Financial expenses

��

�

(2,397

)�

�

(2,192

)�

�

2,192

��

�

4(b)iii,�4(i)

��

�

��

Interest expense

��

�

(641

)

�

��

�

��

�

(123

)�

�

4(i)

��

�

(764

)�

��

�

��

�

Income (loss) before income taxes

��

�

12,888

�

(558

)�

�

(510

)�

�

(796

)�

�

��

�

11,582

��

Provision for income taxes

��

�

2,774

�

208

��

�

190

��

�

��

�

4(b)i,�4(h)

��

�

3,056

��

�

��

�

Net income (loss)

��

10,114

�

(766

)�

�

(700

)�

�

(888

)�

�

��

8,526

��

�

��

�

Net income per common share:

��

�

��

Basic

��

0.32

�

��

0.27

��

Diluted

��

0.31

�

��

0.26

��

Weighted-average of shares used to compute net income per common share:

��

�

��

Basic

��

�

31,861

�

��

�

31,861

��

Diluted

��

�

32,748

�

��

�

32,748

��

See notes to pro forma financial statements

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September�30, 2014

(In thousands, except per-share data)

�

��

Sagent

�

Omega�C$
ASPE

�

Omega�US$
ASPE

�

Adjustments

�

Note

��

Pro Forma
Combined

�

Assets

��

�

��

Current assets:

��

�

��

Cash and cash equivalents

��

136,280

�

��

�

��

�

(82,864

)�

�

4(a)

��

53,416

��

Short-term investments

��

�

18,995

�

��

�

��

�

��

�

��

�

18,995

��

Accounts receivable, net of chargebacks and other deductions

��

�

33,880

�

4,461

��

�

3,976

��

�

��

�

��

�

37,856

��

Inventories, net

��

�

43,301

�

12,531

��

�

11,170

��

�

2,844

��

�

4(a)

��

�

57,315

��

Due from related party

��

�

2,716

�

��

�

��

�

��

�

��

�

2,716

��

Income taxes receivable

��

�

263

��

�

234

��

�

(234

)�

�

4(i)

��

Prepaid expenses and other current assets

��

�

4,598

�

511

��

�

455

��

�

234

��

�

4(i)

��

�

5,287

��

�

��

�

Total current assets

��

�

239,770

�

17,766

��

�

15,835

��

�

(80,020

)�

�

��

�

175,585

��

Property, plant, and equipment, net

��

�

56,859

�

14,237

��

�

12,690

��

�

424

��

�

4(a)

��

�

69,973

��

Investment in joint ventures

��

�

4,539

��

�

��

�

��

�

4,539

��

Intangible assets, net

��

�

9,050

�

1,210

��

�

1,079

��

�

56,503

��

�

4(a),

4(b)(i),

4(f)

��

�

66,632

��

Goodwill

��

�

6,038

��

�

��

�

��

�

25,550

��

�

4(a)

��

�

31,588

��

Other assets

��

�

309

�

��

�

��

�

��

�

��

�

309

��

�

��

�

Total assets

��

316,565

�

33,213

��

�

29,604

�

2,457

��

�

��

348,626

��

�

��

�

Liabilities and stockholders� equity

��

�

��

Current liabilities:

��

�

��

Accounts payable

��

27,314

�

7,064

��

�

6,297

��

�

425

��

�

4(i)

��

34,036

��

Bank overdraft

��

�

��

�

477

��

�

425

��

�

(425

)�

�

4(i)

��

�

��

Due to related party

��

�

7,528

�

��

�

��

�

��

�

��

�

7,528

��

Accrued profit sharing

��

�

7,231

�

��

�

��

�

��

�

��

�

7,231

��

Accrued liabilities

��

�

14,137

��

�

��

�

��

�

��

�

��

�

14,137

��

Current portion of deferred purchase consideration

��

�

8,624

�

��

�

��

�

��

�

��

�

8,624

��

Short-term debt

��

�

��

�

4,530

��

�

4,038

��

�

��

�

��

�

4,038

��

Redeemable shares

��

�

��

�

4,000

��

�

3,565

��

�

(3,565

)�

�

4(b)(ii)

��

�

��

Redeemable shares issued by a subsidiary

��

�

��

�

30,135

��

�

26,862

��

�

(26,862

)�

�

4(b)(iii)

��

�

��

Current portion of long-term debt

��

�

��

�

616

��

�

549

��

�

��

�

��

�

549

��

�

��

�

Total current liabilities

��

�

64,834

�

46,822

��

�

41,736

�

(30,427

)�

�

��

�

76,143

��

Long term liabilities:

��

�

��

Long-term debt

��

�

��

�

2,329

��

�

2,076

��

�

��

�

��

�

2,076

��

Deferred income taxes

��

�

��

�

1,478

��

�

1,317

��

�

17,359

��

�

4(a)

��

�

18,676

��

Other long-term liabilities

��

�

1,981

�

��

�

��

�

��

�

��

�

1,981

��

�

��

�

Total liabilities

��

�

66,815

�

50,629

��

�

45,129

�

(13,068

)�

�

��

�

98,876

��

Temporary equity

��

�

��

�

��

�

��

�

��

�

4(b)(ii),

4(b)(iii),
4(j)

��

�

��

Stockholders� equity:

��

�

��

Common stock

��

�

319

�

��

�

��

�

��

�

��

�

319

��

Redeemable shares

��

�

��

�

218

��

�

194

��

�

(194

)�

�

4(b)(ii)

��

�

��

Non-controlling interest

��

�

��

�

(441

)�

�

(393

)�

�

393

��

�

4(j)

��

�

��

Additional paid-in capital

��

�

353,358

�

��

�

��

�

��

�

4(j),
4(b)(ii)

��

�

353,358

��

Accumulated other comprehensive income

��

�

��

�

��

�

��

�

��

�

��

Accumulated retained earnings (deficit)

��

�

(103,944

)�

�

(17,193

)�

�

(15,326

)�

�

15,326

��

�

4(j),
4(c)

��

�

(103,944

)�

��

�

��

�

Total stockholders� equity

��

�

249,750

�

(17,416

)�

�

(15,525

)�

�

15,525

��

�

��

�

249,750

��

�

��

�

Total liabilities and stockholders� equity

��

316,565

�

33,213

��

�

29,604

��

�

2,457

��

�

��

348,626

��

�

��

�

See notes to pro forma financial statements

NOTE 1.�BASIS OF PRESENTATION:

The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC and are intended to show how the acquisitions might have affected the historical financial statements if both had been completed on January�1, 2013 for the purposes of the condensed combined statements of operations and as if the Omega acquisition had been completed on September 30 for purposes of the condensed combined balance sheet.�The pro forma adjustments reflecting the completion of both the Omega acquisition and the KSCP acquisition are based upon the accounting rules�for business combinations, specifically, the acquisition method of accounting in accordance with U.S. GAAP, and upon the assumptions set forth herein.

The unaudited pro forma financial information should be read in conjunction with the following underlying financial information from which it was extracted without material adjustment: (a)�the condensed consolidated financial statements of Sagent Pharmaceuticals, Inc. as of and for the three and nine months ended September�30, 2014 included in the Quarterly Report on Form 10-Q, filed with the SEC on November�5, 2014; (b)�the audited consolidated financial statements of Sagent Pharmaceuticals, Inc. as of and for the year ended December�31, 2013, included in our Annual Report on Form 10-K for the year ended December�31, 2013; (c)�the audited financial statements of Omega as of and for the year ended December�31, 2013 included in Exhibit 99.2 to this Current Report on Form 8-K; (d)�the condensed consolidated financial statements of Omega as of and for the nine months ended September�30, 2014, included in Exhibit 99.3 to this Current Report on Form 8-K; and (e)�the financial statements of KSCP as of June�4, 2013 and for the period from January�1, 2013 to June�4, 2013, included in the Sagent Annual Report on Form 10-K for the year ended December�31, 2013.

The KSCP acquisition has been accounted for as an acquisition, with Sagent as the acquirer and KSCP as the acquiree, assuming that the KSCP acquisition had been completed at January�1, 2013, the beginning of the periods presented, for the unaudited pro forma condensed combined statement of operations. Results of KSCP subsequent to June�4, 2013, the date of the acquisition, are included within the consolidated results of the Company. As a result, there are no adjustments for KSCP to the unaudited pro forma condensed combined statement of operations for the nine months ended September�30, 2014 or the unaudited pro forma condensed combined balance sheet at September�30, 2014.

The Omega acquisition has been accounted for as an acquisition, with Sagent as the acquirer and Omega as the acquiree, assuming that the Omega acquisition had been completed at January�1, 2013, the beginning of the periods presented, for the unaudited pro forma condensed combined statement of operations, and on September�30, 2014 for the unaudited pro forma condensed combined balance sheet.

This unaudited pro forma financial information is not intended to reflect the financial position and results of operations which would have actually resulted had the KSCP and Omega acquisitions been effected on the dates indicated. Further, the pro forma results of operations are not necessarily indicative of the results of operations that may be obtained in the future.

All amounts are in thousands of US dollars (US$), except share amounts or where Canadian dollars (C$) are otherwise indicated.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The unaudited pro forma financial information has been compiled in a manner consistent with the accounting policies adopted by Sagent. These accounting policies differ in certain respects from those of KSCP and Omega.

NOTE 3. PRO FORMA ADJUSTMENTS KSCP:

(a) Transaction costs

An adjustment to selling, general and administrative expenses for $478 was made to eliminate transaction costs related to the KSCP acquisition in the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 because such costs directly related to the transaction and are non-recurring.

(b) Interest expense

An adjustment was recorded to increase interest expense related to deferred consideration associated with the acquisition of KSCP by $261 in the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013. The interest charges are based on the accretion that would be charged to interest expense for the deferred purchase consideration had the transaction closed on January�1, 2013 and the timing of the remaining payments remained the same. An interest rate of 4.75% was used to calculate the accretion charge. The remaining payments were comprised of the following:

�


December�31, 2013	��	$	��2,500	��
September�30, 2014	��	�	3,500	��
September�1, 2015	��	�	9,000	��

(c) Depreciation expense

Property, plant and equipment was increased by $2,197 to its fair value. An adjustment to increase estimated depreciation expense related to this step up to fair value of $13 was made to selling, general and administrative expenses in the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013.

(d) Equity in net income (loss) of joint ventures

An adjustment to eliminate our share of KSCP results that we had recognized using the equity method of accounting for our previously held 50% equity interest in KSCP included in equity in net income of joint venture of $1,825 was made in the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013.

(e) Remeasurement of previously held equity interest in KSCP

The gain on our previously held equity interest in KSCP of $2,936 has been eliminated from the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 as it is directly related to the transaction and is non-recurring.

(f) Provision for income taxes

Represents the tax effect of the above pro forma adjustments as calculated at the statutory rate.�The tax effect of the adjustments is determined to be zero because both Sagent and KSCP currently maintain a full valuation allowance against deferred tax assets.�No adjustment has been made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013.

(g) Reclassifications

Certain balances were reclassified from the financial statements of KSCP to conform their presentation to Sagent�s.

The following reclassifications were made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013:

�


�	��	Increase (Decrease)		�
Product development	��	$	597	��
Pre-production expenses	��	�	(597	)�

NOTE 4. PRO FORMA ADJUSTMENTS OMEGA ACQUISITION:

(a) Omega Acquisition

On October�1, 2014, we, through our wholly-owned subsidiary, Sagent Acquisition Corp., a Canadian company, acquired all of the issued and outstanding shares of the capital stock of 7685947 Canada Inc. and Omega Laboratories Limited (collectively, �Omega�), a privately held Canadian pharmaceutical and specialty healthcare products company for C$92,964 ($82,864). Under the acquisition method of accounting, the total consideration transferred for the 100% equity interest has been preliminarily allocated to the net identifiable assets based on the estimated fair value at the date of acquisition. The excess of the consideration transferred over the net identifiable assets, after considering the tax effects of temporary differences due to the fair value adjustments, has been recorded as goodwill. The final cost allocation may differ materially from the preliminary assessment.

�


Purchase Price	��	Amount�US$		�
Cash	��	$	82,864	��
Less: book value of net assets acquired	��	�	(14,110	)�
Less: fair value adjustments	��	�	(60,850	)�
Plus: deferred income taxes	��	�	17,646	��
	��	�	�	�
Residual Goodwill	��	$	25,550	��

Except as it relates to inventory, property, plant and equipment, and intangible assets, the carrying value of assets and liabilities in Omega�s historical financial statements are considered to be a proxy for the fair value of those assets and liabilities due to their short term nature. As this allocation is based on preliminary estimates, additional adjustments to record the fair value of all assets and liabilities and adjustments for consistency of accounting policies may be required. The following adjustments were made to increase Omega�s inventory, property, plant and equipment and intangible assets, reflecting our preliminary estimate of fair value.

�


�	��	Amount�US$		�
Allocation of fair value adjustments:	��
Inventory	��	$	2,844	��
Property, plant and equipment	��	�	424	��
Intangibles	��	�	57,582	��
	��	�	�	�
Total fair value adjustments	��	$	60,850	��

The estimated deferred tax impact of the above fair value adjustments, $17,646, has been recorded as a deferred tax liability in the unaudited pro forma condensed combined balance sheet at September�30, 2014. No other adjustment was made to the assets and liabilities of Omega under U.S. GAAP. An adjustment to goodwill representing the total preliminary excess of the purchase consideration over the fair value of the assets acquired for $25,550 was made in the unaudited pro forma condensed combined balance sheet at September�30, 2014. This allocation is based on preliminary estimates; the final acquisition cost allocation may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to goodwill.

(b) Adjustments to U.S. GAAP

The Omega financial statements were prepared pursuant to Canadian Accounting Standards for Private Enterprises (ASPE) and therefore must be adjusted to U.S. GAAP for purposes of the these pro forma financial statements by making the following adjustments:

(i) Intangible assets

Pursuant to ASPE, Omega capitalized as intangible assets certain deferred development and other deferred costs related to the construction of a new plant. Under U.S. GAAP, these costs would be expensed as incurred. An adjustment of $450 and $173 to record the net impact of the reversal of amortization expense and record actual costs incurred during the periods has been made to research and development in the unaudited pro forma combined condensed consolidated statement of operations for the year ended December�31, 2013 and the nine months ended September�30, 2014, respectively.

Income tax expense was reduced $211 in the unaudited pro forma combined condensed consolidated statement of operations for the year ended December�31, 2013 and increased $46 in the unaudited pro forma combined condensed consolidated statement of operations for the nine months ended September�30, 2014 related to the above U.S. GAAP adjustments.

An adjustment to reduce intangible assets by $1,079 for assets that would not qualify as intangible assets under U.S. GAAP, a $287 decrease to deferred tax liabilities for the related tax impact and a corresponding offset to retained earnings of $792 was made to the unaudited pro forma condensed combined balance sheet at September�30, 2014.

(ii) Redeemable shares

Under ASPE, Omega has classified its Class D, E, F, I, J and M shares, each of which is redeemable at the option of the holder of the shares, as equity. Omega�s Class K shares have been recorded as a current liability under ASPE at their redemption amount. Under U.S. GAAP, the embedded redemption options result in these instruments not qualifying for equity classification, however, they do not create unconditional obligations of Omega, and therefore the shares should be classified as temporary equity in the financial statements. The following U.S. GAAP adjustment has been recorded to the unaudited pro forma condensed combined balance sheet at September�30, 2014:

�


�	��	Increase (Decrease)		�
Redeemable shares	��	$	(3,565	)�
Share capital	��	�	(194	)�
Temporary equity	��	�	34,367	��
Additional paid-in-capital	��	�	(30,608	)�

(iii) Non-controlling interest

Under ASPE, Omega has classified the Class�A and C shares issued by Omega Laboratories Ltd., each of which is owned by one non-controlling shareholder, as a current liability and remeasured to the current redemption amount through the statement of operations. Under U.S. GAAP, the embedded put option does not create an unconditional obligation of Omega, and therefore the shares should be classified as temporary equity in the financial statements of Omega, and changes to the fair value would be recorded within additional-paid-in-capital. The unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 and the nine months ended September�30, 2014 have been adjusted to eliminate the fair value adjustment of redeemable shares issued by a subsidiary, recorded in financial expenses, of $3,224 and $1,829, respectively.

The unaudited pro forma condensed combined balance sheet has been adjusted to classify the shares as temporary equity at September�30, 2014 as follows:

�


�	��	Increase (Decrease)		�
Redeemable shares	��	$	(26,862	)�
Temporary equity	��	�	26,862	��

(c) Transaction costs

An adjustment to eliminate transaction costs of $872 incurred has also been made to the unaudited pro forma condensed combined statement of operations for the nine months ended September�30, 2014 because these costs are directly related to the transaction and are non-recurring.

(d) Inventory

Inventory was increased by $2,844 to its fair value. An adjustment to increase cost of goods sold for $3,099 was made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013.

(e) Depreciation

Property, Plant and Equipment was increased by $423 to its fair value. An adjustment to increase the related estimated depreciation expense of $249 and $177 was made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 and the nine months ended September�30, 2014, respectively, as follows:

�


�	��	Year ended December�31,�2013		�	��	Nine months ended September�30,�2014		�
Cost of sales	��	$	59	��	��	$	42	��
Product development	��	�	113	��	��	�	80	��
Selling, general and administrative	��	�	77	��	��	�	55	��

(f) Intangible assets and amortization

Amortizable intangible assets were revalued to a fair value of $57,582. An adjustment to increase the estimated amortization expense of $4,671 and $3,298 was made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 and the nine months ended September�30, 2014, respectively, as follows:

�


�	��	Year ended December�31,�2013		�	��	Nine months ended September�30,�2014		�
Cost of sales	��	$	4,541	��	��	$	3,207	��
Selling, general and administrative	��	�	129	��	��	�	91	��

(g) Interest income and other

An adjustment to decrease interest income and other by $407 and $287 related to the decreased interest income earned on cash and cash equivalents used to fund the acquisition was made to the unaudited pro forma condensed combined statement of operations for the year ended December�31, 2013 and the nine months ended September�30, 2014, respectively. An interest rate of 0.45% was used.

An adjustment to increase interest income and other by $89 was recorded to eliminate a bank charge recorded upon the change in control of certain of Omega�s mortgages in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2014 as the charge is directly related to the acquisition and is non-recurring.

(h) Provision for income taxes

Represents the tax effect of the above pro forma adjustments on pretax income after adjusting for non-controlling interest, as calculated at the statutory rate of 29%.

(i) Reclassifications

Certain amounts were reclassified from the financial statements of Omega to conform their presentation to Sagent.

The following reclassifications were made to the unaudited pro forma condensed combined balance sheet at September�30, 2014:

�


�	��	Increase (Decrease)		�
Accounts payable	��	�	425	��
Bank overdraft	��	�	(425	)�

Income taxes receivable	��	�	(234	)�
Prepaid expenses	��	�	234	��

The following reclassifications were made to the unaudited pro forma condensed combined statement of operations for year ended December�31, 2013 and the nine months ended September�30, 2014:

�


�	��	Year ended December�31,�2013		�	�	Nine months ended September�30,�2014		�
�	��	Increase�(Decrease)		�	�	Increase�(Decrease)		�
Net revenue	��	$	(783	)�	�	$	(378	)�
Selling, general and administrative	��	�	(783	)�	�	�	(378	)�

Cost of sales	��	�	903	��	�	�	469	��
Selling, general and administrative	��	�	(903	)�	�	�	(469	)�

Product development	��	�	3,899	��	�	�	2,917	��
Research and development	��	�	(1,915	)�	�	�	(1,611	)�
Oncology plant related	��	�	(1,984	)�	�	�	(1,306	)�

Interest income and other	��	�	(155	)�	�	�	(148	)�
Financial expenses	��	�	354	��	�	�	272	��
Interest expense	��	�	(199	)�	�	�	(124	)�

(j) Elimination of Omega�s Equity

Adjustments to eliminate Omega�s equity by recording a reduction to temporary equity of $61,230, a reduction to non-controlling interest of $393, an increase to additional paid-in-capital of $30,608 and an increase to retained earnings/accumulated deficit of $30,229 were made to the unaudited pro forma condensed combined balance sheet at September�30, 2014 to reflect the acquisition of 100% of the outstanding equity at that date.

Exhibit 99.2

Consolidated Financial Statements of

7685947 CANADA INC.

Year ended December�31, 2013

INDEPENDENT AUDITORS� REPORT

To the Board of Directors of 7685947 Canada Inc.

We have audited the accompanying consolidated financial statements of 7685947 Canada Inc., which comprise the consolidated balance sheet as at December�31, 2013, and the consolidated statements of operations, changes in shareholders� deficiency and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management�s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian accounting standards for private enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors� Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors� judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity�s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity�s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the 2013 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of 7685947 Canada Inc. as at December�31, 2013, and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises.

Other Matters

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. Footnote 18 entitled �Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepted accounting principles� is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

The accompanying consolidated balance sheets of 7685947 Canada Inc. as at December�31, 2012 and January�1, 2012 and the related statements of operations, changes in shareholders� deficiency and cash flows for the year ended December�31, 2012, were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

�

/S/ KPMG LLP*

December�12, 2014

Montr�al, Canada

�

*	CPA auditor, CA, public accountancy permit No. A123145

�

Page 2

7685947 CANADA INC.

Consolidated Financial Statements

Year ended December�31, 2013

Financial Statements

�


Consolidated Balance Sheet	��	�	1	��

Consolidated Statement of Operations	��	�	2	��

Consolidated Statement of Changes in Shareholders� Deficiency	��	�	3	��

Consolidated Statement of Cash Flows	��	�	4	��

Notes to Consolidated Financial Statements	��	�	5	��

7685947 CANADA INC.

Consolidated Balance Sheet

December�31, 2013, with comparative information as at December�31, 2012 and January�1, 2012

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Assets

��

�

Current assets:

��

�

Cash and cash equivalents

��

108,191

��

�

114,533

��

�

147,783

��

Accounts receivable (note 4)

��

�

5,678,208

��

�

4,642,472

��

�

3,730,888

��

Inventories (note 5)

��

�

10,288,126

��

�

7,593,069

��

�

5,799,194

��

Prepaid expenses and deposits

��

�

1,172,684

��

�

1,356,598

��

�

245,673

��

Advances to a shareholder, without interest or repayment terms

��

�

84,018

��

�

2,310

��

�

��

�

��

�

17,331,227

��

�

13,708,982

��

�

9,923,538

��

Property, plant and equipment (note 6)

��

�

10,250,341

��

�

8,763,088

��

�

7,802,415

��

Intangible assets (note 7)

��

�

1,397,966

��

�

1,900,693

��

�

2,491,196

��

�

��

28,979,534

��

�

24,372,763

��

�

20,217,149

��

�

Liabilities and Shareholders� Deficiency

��

�

Current liabilities:

��

�

Credit facilities (note 8)

��

2,300,000

��

�

1,240,000

��

�

1,360,000

��

Accounts payable and accrued liabilities (note 9)

��

�

5,821,509

��

�

4,510,806

��

�

3,412,235

��

Income taxes payable

��

�

681,287

��

�

609,298

��

�

164,818

��

Redeemable shares issued by a subsidiary (note 10)

��

�

27,748,881

��

�

24,428,685

��

�

21,444,790

��

Current portion of long-term debt (note 11)

��

�

802,025

��

�

548,388

��

�

708,796

��

�

��

�

37,353,702

��

�

31,337,177

��

�

27,090,639

��

Long-term debt (note 11)

��

�

2,446,772

��

�

3,242,849

��

�

2,540,335

��

Deferred revenue (note 12)

��

�

��

�

115,385

��

�

346,154

��

Future income taxes (note 13)

��

�

1,275,203

��

�

1,152,601

��

�

1,087,106

��

�

��

�

41,075,677

��

�

35,848,012

��

�

31,064,234

��

Shareholders� deficiency:

��

�

Share capital (note 14):

��

�

Classes B and C shares

��

�

200

��

�

200

��

�

200

��

Classes D, E and F shares, redeemable at the option of the holder for a total amount of $12,259,613

��

�

205,211

��

�

205,211

��

�

205,211

��

Deficit

��

�

(11,233,658

)�

�

(10,672,179

)�

�

(10,103,733

)�

��

�

Total deficiency attributable to the shareholders of 7685947 Canada Inc.

��

�

(11,028,247

)�

�

(10,466,768

)�

�

(9,898,322

)�

Non-controlling interest

��

�

(1,067,896

)�

�

(1,008,481

)�

�

(948,763

)�

��

�

Total shareholders� deficiency

��

�

(12,096,143

)�

�

(11,475,249

)�

�

(10,847,085

)�

Commitments and contingencies (note 17)

��

�

Subsequent events (note 19)

��

�

��

�

��

28,979,534

��

�

24,372,763

��

�

20,217,149

��

�

See accompanying notes to consolidated financial statements.

�


On behalf of the Board:

/s/ Fran�ois Angers	�	Director

/s/ Michael Logerfo	�	Director

�

7685947 CANADA INC.

Consolidated Statement of Operations

Year ended December�31, 2013, with comparative information for 2012

�


�	��	2013		�	�	2012		�
�	��	�		�	�	(Unaudited)		�

Revenue	��	$	36,129,553	��	�	$	32,653,234	��
Cost of sales (note 5)	��	�	20,095,619	��	�	�	17,577,281	��
	��	�	�	�	�	�	�	�
	��	�	16,033,934	��	�	�	15,075,953	��

Operating expenses:	��				�
Selling and administration	��	�	8,025,603	��	�	�	7,522,267	��
Research and development	��	�	1,972,216	��	�	�	1,617,921	��
Oncology plant related	��	�	2,043,138	��	�	�	2,441,951	��
Loss on disposal of property, plant and equipment	��	�	��	��	�	�	9,360	��
	��	�	�	�	�	�	�	�
	��	�	12,040,957	��	�	�	11,591,499	��
	��	�	�	�	�	�	�	�
Earnings before financial expenses and income taxes	��	�	3,992,977	��	�	�	3,484,454	��

Financial expenses (note 15)	��	�	3,685,143	��	�	�	3,373,232	��
	��	�	�	�	�	�	�	�
Earnings before income taxes	��	�	307,834	��	�	�	111,222	��

Income taxes:	��				�
Current	��	�	806,126	��	�	�	673,891	��
Future	��	�	122,602	��	�	�	65,495	��
	��	�	�	�	�	�	�	�
	��	�	928,728	��	�	�	739,386	��
	��	�	�	�	�	�	�	�
Net loss	��	$	(620,894	)�	�	$	(628,164	)�
	��	�	�	�	�	�	�	�

Net loss attributable to:	��				�
Shareholders of 7685947 Canada Inc.	��	$	(561,479	)�	�	$	(568,446	)�
Non-controlling interest	��	�	(59,415	)�	�	�	(59,718	)�
	��	�	�	�	�	�	�	�
	��	$	(620,894	)�	�	$	(628,164	)�
	��	�	�	�	�	�	�	�

See accompanying notes to consolidated financial statements.

�

7685947 CANADA INC.

Consolidated Statement of Changes in Shareholders� Deficiency

Year ended December�31, 2013, with comparative information as at December�31, 2012 and January�1, 2012

�

��

�

7685947 Canada Inc.�s
shareholders

�

��

�

��

Total
shareholders�
deficiency

�

Deficit

�

Share
capital

�

��

Non-controlling
interest

�

Balance as at January�1, 2012 (unaudited)

��

(10,847,085

)�

�

(10,103,733

)�

�

205,411

��

(948,763

)�

Net loss (unaudited)

��

�

(628,164

)�

�

(568,446

)�

�

��

�

(59,718

)�

��

�

��

�

Balance as at December�31, 2012 (unaudited)

��

�

(11,475,249

)�

�

(10,672,179

)�

�

205,411

��

�

(1,008,481

)�

Net loss (unaudited)

��

�

(620,894

)�

�

(561,479

)�

�

��

�

(59,415

)�

��

�

��

�

Balance as at December�31, 2013

��

(12,096,143

)�

�

(11,233,658

)�

�

205,411

��

(1,067,896

)�

��

�

��

�

See accompanying notes to consolidated financial statements.

�

7685947 CANADA INC.

Consolidated Statement of Cash Flows

Year ended December�31, 2013, with comparative information for 2012

�


�	��	2013		�	�	2012		�
�	��	�		�	�	(Unaudited)		�

Cash flows from operating activities:	��				�
Net loss	��	$	(620,894	)�	�	$	(628,164	)�
Adjustments for:	��				�
Amortization of intangible assets	��	�	841,837	��	�	�	823,421	��
Amortization of financing costs	��	�	901	��	�	�	901	��
Amortization of property, plant and equipment	��	�	942,454	��	�	�	938,651	��
Loss on disposal of property, plant and equipment	��	�	��	��	�	�	9,360	��
Future income taxes	��	�	122,602	��	�	�	65,495	��
Deferred revenue	��	�	(115,385	)�	�	�	(230,769	)�
Redeemable shares issued by a subsidiary	��	�	3,320,196	��	�	�	2,983,895	��
Net change in non-cash operating working capital:	��				�
Accounts receivable	��	�	(1,035,736	)�	�	�	(911,584	)�
Inventories	��	�	(2,695,057	)�	�	�	(1,793,875	)�
Prepaid expenses and deposits	��	�	183,914	��	�	�	(1,110,925	)�
Accounts payable and accrued liabilities	��	�	1,136,357	��	�	�	1,066,471	��
Income taxes payable	��	�	71,989	��	�	�	444,480	��
	��	�	�	�	�	�	�	�
	��	�	2,153,178	��	�	�	1,657,357	��

Cash flows from financing activities:	��				�
Net variation in credit facilities	��	�	1,060,000	��	�	�	(120,000	)�
Increase in long-term debt	��	�	��	��	�	�	1,250,000	��
Repayment of long-term debt	��	�	(543,341	)�	�	�	(708,795	)�
Increase in advances to a shareholder	��	�	(81,708	)�	�	�	(2,310	)�
	��	�	�	�	�	�	�	�
	��	�	434,951	��	�	�	418,895	��

Cash flows used in investing activities:	��				�
Increase in intangible assets	��	�	(339,110	)�	�	�	(232,918	)�
Additions to property, plant and equipment	��	�	(2,294,614	)�	�	�	(2,033,273	)�
Proceeds from disposal of property, plant and equipment	��	�	��	��	�	�	10,000	��
Tax credits on property, plant and equipment	��	�	39,253	��	�	�	146,689	��
	��	�	�	�	�	�	�	�
	��	�	(2,594,471	)�	�	�	(2,109,502	)�
	��	�	�	�	�	�	�	�
Net decrease in cash and cash equivalents	��	�	(6,342	)�	�	�	(33,250	)�

Cash and cash equivalents, beginning of year	��	�	114,533	��	�	�	147,783	��
	��	�	�	�	�	�	�	�
Cash and cash equivalents, end of year	��	$	108,191	��	�	$	114,533	��
	��	�	�	�	�	�	�	�

Supplemental cash flow information:	��				�
Non-cash investing activities:	��				�
Additions to property, plant and equipment financed by accounts payable and accrued liabilities	��	$	236,798	��	�	$	62,452	��

See accompanying notes to consolidated financial statements.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements

Year ended December 31, 2013

�

7685947 Canada Inc. (the �Company�) is a private company incorporated under the Canada Business Corporations Act which manufactures and distributes pharmaceutical products.

�

1.	Basis of presentation:

On January�1, 2013, the Company adopted Canadian accounting standards for private enterprises (�ASPE�). These are the first consolidated financial statements prepared in accordance with ASPE.

In accordance with the transitional provisions in ASPE, the Company has adopted its accounting policies retrospectively. The transition date is January�1, 2012 and all comparative information provided has been presented by applying ASPE.

There were no adjustments to the deficit as at January�1, 2012 or net loss for the year ended December�31, 2012 as a result to the transition to ASPE.

These consolidated financial statements are presented in Canadian dollars.

These consolidated financial statements are prepared in accordance with Canadian GAAP applicable to private enterprises, which are ASPE in Part II of the CPA Canada Handbook (the �Handbook�).

The recognition, measurement and disclosure requirements of Canadian GAAP applicable to private enterprises differ from those of Canadian GAAP applicable to publicly accountable enterprises, which are international financial reporting standards incorporated into the Handbook.

The recognition, measurement and disclosure requirements of Canadian GAAP applicable to private enterprises differ from those of U.S. generally accepted accounting principles (�U.S. GAAP�). See Note 17 for a description of material variation between ASPE and U.S. GAAP.

�

2.	Significant accounting policies:

The Company�s significant accounting policies are as follows:

�

(a)

Revenue recognition:

The Company recognizes revenue when obligations to a customer are fulfilled relative to a specific product and all of the following conditions are satisfied: (i)�persuasive evidence of an arrangement exists; (ii)�the price is fixed or determinable; (iii)�collectability is reasonably assured; and (iv)�delivery has occurred.

Revenue reflects reductions of gross sales for estimated wholesaler billbacks, returns and contractual allowances. The Company has internal historical information on wholesaler billbacks, rebates and customer credits and returns which are used as the primary factor in determining the related provision and reserve requirements. The Company provides for these reductions during the period in which they occurred.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(a)

Revenue recognition (continued):

�

Revenue billbacks

The majority of the Company�s products are distributed through pharmaceutical wholesalers. In accordance with industry practice, sales to wholesalers are initially transacted at the wholesale list price. The wholesalers then generally sell to end-users at a lower price based upon contracts between the Company and the end-user or the wholesalers. The Company records sales to a wholesaler and the resulting receivable at the list price. However, the Company�s experience indicates that most sales at list price will eventually be amended, at the time the wholesaler sells to the end-user, to reflect a lower sale price based upon contract prices negotiated between the customer or wholesalers or the Company. Therefore, at the time of the sale, a contra asset is recorded for, and revenue is reduced by, the estimated amount of the billbacks based on the Company�s history. When the wholesaler ultimately sells the product to the end-user at the end-user contract price, the wholesaler charges the Company, or issues a chargeback, for the difference between the list price and the actual price paid by the end-user.

Sales returns

Consistent with industry practice, the Company�s return policy permits customers to return products within a window of time before and after the expiration of product dating. The Company provides for product returns at the time of sale by applying historical experience factors. The Company provides specifically for known outstanding returns. The effect of any changes in estimated returns is recorded in the current period�s income.

Contractual allowances

Consistent with pharmaceutical industry practice, contractual allowances, generally rebates or administrative fees are offered to certain pharmaceutical wholesalers, group purchasing organizations and end-user customers. Settlement of rebates and fees may generally occur from one to five months from date of sale. The Company provides a provision for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Contractual allowances are reflected in the consolidated financial statements as a reduction of revenues and as an accrued liability.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(a)

Revenue recognition (continued):

�

Revenue from license rights, royalties and milestone payments are recognized when all the obligations related to the terms of the agreement have been met. These agreements may contain initial payments to be paid to the Company. The initial payments are recognized as revenue on a systematic basis over the period for which the services are rendered or the related obligations are met, as stipulated in the agreement. The deferred revenue represents the amounts billed and cashed from the customers before it is recognized as revenue.

�

(b)

Principle of consolidation:

The Company�s consolidated financial statements include the accounts of 7685947 Canada Inc., and its subsidiaries, which are owned as follows at December�31, 2013:

�


Subsidiaries	��	Participation		�

176441 Canada Inc.	��	�	94.2	%�
Omega Laboratories Ltd.	��	�	65	%�

All significant intercompany transactions and related balances are eliminated upon consolidation.

�

(c)

Cash and cash equivalents:

The cash and cash equivalents include cash on hand and short-term investments with original maturities of 90 days or less. As at December�31, 2013, there were no short-term investments included in cash and cash equivalents (December 31, 2012 - nil - unaudited - January 1, 2012 - nil - unaudited).

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(d)

Inventories:

Finished goods and work in progress are stated at the lower of manufacturing cost using the first-in, first-out basis and net realizable value. The manufacturing cost of products is established using the progress of the production activities.

Raw materials are not written down if the finished goods products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished goods products exceeds net realizable value, the raw materials are written down to net realizable value which is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale.

�

(e)

Property, plant and equipment:

Property, plant and equipment are stated at cost. Cost includes acquisition and construction costs. The costs related to acquisition and improvement are capitalized, while repair and maintenance expenditures are expensed.

Amortization is calculated using the following basis, rates and periods:

�


Asset	��	Basis		�	��	Rate/period

Buildings	��	�	Declining�balance	��	��	5%
Machinery and equipment	��	�	Declining balance	��	��	10%�-�20%
Oncology plant	��	�	Declining balance	��	��	10%
Water system for injection	��	�	Declining balance	��	��	10%
Furniture and fixtures	��	�	Declining balance	��	��	20%
Rolling stock	��	�	Declining balance	��	��	30%
Computer equipment	��	�	Declining balance	��	��	30%
Leasehold improvements	��	�	Straight-line	��	��	5�to�10�years

The Company periodically reviews the useful life and net carrying amount of long-lived assets. The Company tests the recoverability of a long-lived asset whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. An impairment loss should be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. When quoted market prices are not available, the Company uses an estimate of discounted future cash flows.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(f)

Income taxes:

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively 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 future tax assets and liabilities of a change in tax rates is recognized in earnings in the year that includes the date of enactment or substantive enactment. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized.

�

(g)

Tax credits:

The Company receives tax credits related to its research and development costs. The tax credits on research and development and the other tax credits are recognized based on the reduction of the cost method. Under this method, the tax credits related to eligible expenditures are accounted for as a reduction of the related expenditures in the year in which the expenditures are incurred, provided their realization is reasonably assured.

�

(h)

Intangible assets:

The intangible assets include deferred development costs of products, deferred costs related to the implementation of the new plant and the deferred costs related to the distribution licenses.

Research expenditures, net of related tax credits, are expensed in earnings when incurred. The development costs of products are deferred when they meet the capitalization criteria, which include the Company�s ability to demonstrate technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company�s intention to complete the asset for use or for sale; the Company�s ability to use or sell the asset; the adequacy of the Company�s resources to complete the development; the Company�s ability to measure reliably the expenditures during the development; and the Company�s ability to demonstrate that the asset will generate future economic benefits. Deferred development costs of products are accounted for at cost, net of related tax credits, and are amortized when the production starts using the straight-line method over a period of three years.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(h)

Intangible assets (continued):

�

Deferred costs related to the implementation of the new plant represent costs incurred for the calibration and qualification of the oncology products plant and its equipment. These costs are amortized on a straight-line basis over five years.

Management periodically reviews the capitalization criteria, the carrying amount and the period of amortization of the deferred costs. An impairment loss, if required, would be recognized in the year that the impairment arises.

�

(i)

Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. The Company has not elected to carry any such financial instruments at fair value.

Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.

Financial assets measured at cost or amortized at cost are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, the Company determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount the Company expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value.

�

(j)

Classes D, E and F preferred shares:

The Company presents as equity Classes D, E and F preferred shares that were issued in accordance with Section�85, one of the allowable sections of the Income Tax Act, in a tax planning arrangement, at its original book value.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

2.	Significant accounting policies (continued):

�

(k)

Use of estimates:

The preparation of the consolidated financial statements in conformity with ASPE requires management to make estimates and assumptions. The reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the year are established with these estimates and assumptions. Significant items subject to such estimates include the key economic assumptions used to determine the fair value of the redeemable shares issued by a subsidiary, the provision for doubtful accounts, the tax credits receivable, the provision for inventory obsolescence, the useful lives of assets for amortization purposes, and the evaluation of the realizable value of future income taxes and the provision for income taxes. Actual results could differ from those estimates.

�

3.	Recently issued accounting standard:

In August 2014, the AcSB issued Section�1591, Subsidiaries, which replaces Section�1590, Subsidiaries. The new standard requires the use of professional judgment to determine when control is obtained through means other than equity interests. This new standard is effective for fiscal years beginning on or after January�1, 2016 with earlier adoption permitted. The Company chose to early adopt Section�1591 for fiscal 2013. In accordance with the new standard, when the Company applies for the first time an accounting policy to consolidate its subsidiaries, the Company can measure prospectively its non-controlling by using the carrying amounts of the assets and liabilities in the financial statements of its subsidiaries at the beginning of the fiscal year immediately preceding the date at which the Company prepares consolidated financial statements for the first time. As such, the Company measured its non-controlling interest balance at the proportionate share of net assets of its subsidiaries as at January�1, 2012. The adoption of this standard has no other impact on the consolidated financial statements.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

4.	Accounts receivable:

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Trade receivables

��

5,222,037

��

�

4,173,042

��

�

2,754,292

��

Tax credit receivable

��

�

451,676

��

�

422,785

��

�

986,330

��

Sales tax receivable

��

�

14,495

��

�

56,645

��

�

266

��

�

��

�

5,688,208

��

�

4,652,472

��

�

3,740,888

��

Allowance for doubtful accounts

��

�

(10,000

)�

�

(10,000

)�

�

(10,000

)�

��

�

��

5,678,208

��

�

4,642,472

��

�

3,730,888

��

�

5.	Inventories:

�

��

December�31,
2013

�

��

December�31,
2012

�

��

January�1,
2012

�

��

�

��

(Unaudited)

�

��

(Unaudited)

�

Finished goods

��

5,555,540

��

4,116,127

��

3,034,536

��

Work in progress

��

�

818,935

��

�

608,183

��

�

551,349

��

Raw materials

��

�

3,913,651

��

�

2,868,759

��

�

2,213,309

��

�

��

�

��

�

��

10,288,126

��

7,593,069

��

5,799,194

��

�

��

�

��

�

The cost of inventories recognized as an expense in the cost of sales is $20,095,619 for the year ended December�31, 2013 (2012 - $17,577,281 - unaudited).

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

6.	Property, plant and equipment:

�

��

December�31,�2013

�

��

Cost

�

��

Accumulated
depreciation

�

��

Net book
value

�

Land

��

522,267

��

522,267

��

Buildings

��

�

3,892,389

��

�

1,118,272

��

�

2,774,117

��

Machinery and equipment

��

�

5,809,060

��

�

3,992,564

��

�

1,816,496

��

Oncology plant

��

�

5,127,577

��

�

2,019,166

��

�

3,108,411

��

Water system for injection

��

�

489,008

��

�

396,930

��

�

92,078

��

Furniture and fixtures

��

�

197,393

��

�

179,529

��

�

17,864

��

Rolling stock

��

�

97,136

��

�

71,381

��

�

25,755

��

Computer equipment

��

�

1,198,580

��

�

1,011,675

��

�

186,905

��

Leasehold improvements

��

�

2,179,966

��

�

1,563,137

��

�

616,829

��

Deposit on machinery and equipment

��

�

1,079,746

��

�

��

�

1,079,746

��

�

��

�

��

�

��

�

20,593,122

��

�

10,352,654

��

�

10,240,468

��

Under capital leases:

��

Computer equipment

��

�

41,668

��

�

31,795

��

�

9,873

��

�

��

�

��

�

��

20,634,790

��

10,384,449

��

10,250,341

��

�

��

�

��

�

��

December 31, 2012

�

��

(Unaudited)

�

��

Cost

�

��

Accumulated
depreciation

�

��

Net book
value

�

Land

��

522,267

��

522,267

��

Buildings

��

�

3,186,264

��

�

995,686

��

�

2,190,578

��

Machinery and equipment

��

�

5,430,070

��

�

3,771,827

��

�

1,658,243

��

Oncology plant

��

�

5,165,664

��

�

1,679,826

��

�

3,485,838

��

Water system for injection

��

�

489,008

��

�

386,699

��

�

102,309

��

Furniture and fixtures

��

�

197,393

��

�

175,063

��

�

22,330

��

Rolling stock

��

�

97,136

��

�

60,343

��

�

36,793

��

Computer equipment

��

�

1,108,064

��

�

948,688

��

�

159,376

��

Leasehold improvements

��

�

1,970,750

��

�

1,399,500

��

�

571,250

��

�

��

�

��

�

��

�

18,166,616

��

�

9,417,632

��

�

8,748,984

��

Under capital leases:

��

Computer equipment

��

�

41,668

��

�

27,564

��

�

14,104

��

�

��

�

��

�

��

18,208,284

��

9,445,196

��

8,763,088

��

�

��

�

��

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

6.	Property, plant and equipment (continued):

�

��

January�1,�2012

�

��

(Unaudited)

�

��

Cost

�

��

Accumulated
depreciation

�

��

Net�book
value

�

Land

��

238,460

��

238,460

��

Buildings

��

�

2,003,499

��

�

904,048

��

�

1,099,451

��

Machinery and equipment

��

�

5,369,132

��

�

3,548,428

��

�

1,820,704

��

Oncology plant

��

�

4,875,122

��

�

1,308,651

��

�

3,566,471

��

Water system for injection

��

�

489,008

��

�

375,332

��

�

113,676

��

Furniture and fixtures

��

�

197,393

��

�

169,480

��

�

27,913

��

Rolling stock

��

�

123,166

��

�

48,480

��

�

74,686

��

Computer equipment

��

�

1,182,456

��

�

1,011,137

��

�

171,319

��

Leasehold improvements

��

�

1,917,387

��

�

1,247,801

��

�

669,586

��

�

��

�

��

�

��

�

16,395,623

��

�

8,613,357

��

�

7,782,266

��

Under capital leases:

��

Computer equipment

��

�

41,668

��

�

21,519

��

�

20,149

��

�

��

�

��

�

��

16,437,291

��

8,634,876

��

7,802,415

��

�

��

�

��

�

The amortization expense related to property, plant and equipment for the year ended December�31, 2013 was $942,454 (2012 - $938,651 - unaudited).

�

7.	Intangible assets:

�

(i)

Deferred development costs of products:

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Balance, beginning of year

��

1,485,293

��

�

1,472,401

��

�

1,356,771

��

Costs capitalized during the year

��

�

339,110

��

�

232,918

��

�

216,801

��

Amortization for the year

��

�

(426,437

)�

�

(220,026

)�

�

(101,171

)�

��

�

Balance, end of year

��

1,397,966

��

�

1,485,293

��

�

1,472,401

��

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

7.	Intangible assets (continued):

�

(ii)

Deferred costs related to the implementation of the new plant:

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Balance, beginning of year

��

375,773

��

�

899,907

��

�

1,424,041

��

Amortization for the year

��

�

(375,773

)�

�

(524,134

)�

�

(524,134

)�

��

�

Balance, end of year

��

�

375,773

��

�

899,907

��

�

(iii)

Deferred costs related to the distribution licenses:

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Balance, beginning of year

��

39,627

��

�

118,888

��

�

198,149

��

Amortization for the year

��

�

(39,627

)�

�

(79,261

)�

�

(79,261

)�

��

�

Balance, end of year

��

�

39,627

��

�

118,888

��

�

Intangible assets

��

1,397,966

��

1,900,693

��

2,491,196

��

�

��

�

��

�

8.	Credit facilities:

The Company has an authorized operating credit facility in the amount of $8,200,000. The operating credit facility can be utilized in the form of floating-rate advances for an amount not exceeding $7,000,000 and advances in the form of letter of guarantee or letter of credit, within that limit, for an amount not exceeding $2,000,000. The operating credit facility can also be utilized in the form of advances to cover the Company�s currency risk for an amount not exceeding $1,200,000. As at December�31, 2013, the operating credit facility was used in the form of floating-rate advances for an amount of $2,300,000 (December 31, 2012 - $1,240,000 - unaudited; January�1, 2012 - $1,360,000 - unaudited), bearing interest at the prime rate of the bank plus 0.50% (effective rate of 3.50%).

The Company also has a decreasing revolving credit facility, which is utilized in the amount of $416,655 as at December�31, 2013 (December 31, 2012 - $616,659 - unaudited; January�1, 2012 - $816,663 - unaudited) (Note 11).

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

8.	Credit facilities (continued):

�

The operating credit facility and the special credit are secured by a first ranking hypothec in the amount of $8,250,000 on the universality of the inventories, the trade receivables and on the intellectual property of the Company, present and future.

The decreasing revolving credit facility is secured by a first ranking hypothec in the amount of $1,000,000, on the universality of the equipment, tooling and office furniture financed by the present credit.

The credit facilities are also secured by a first ranking security agreement on the universality of the tangible and intangible assets, present or future, registered in the provinces of Alberta, British-Columbia and Ontario.

The credit facilities are subject to certain restrictions, including the obligation to maintain certain financial ratios. As at December�31, 2013, certain financial ratios were not met. Consequently, the decreasing revolving credit facility of $416,655 was reclassified in the current liabilities.

�

9.	Accounts payable and accrued liabilities:

The accounts payable and accrued liabilities include an amount of $279,898 (December 31, 2012 - $288,315 - unaudited; January�1, 2012 - $179,576 - unaudited) related to government remittances, which include amounts payable for sales taxes and payroll-related taxes.

�

10.

Redeemable shares issued by a subsidiary:

The Company presents its financial instruments as liabilities or a component of equity based on the substance of the agreement at the time of the issuance of the financial instruments, according to the definition of financial liabilities and equity under ASPE.

Per the shareholder agreement, one of the non-controlling interest shareholders of Classes A and D shares issued by a subsidiary of the Company (Omega Laboratories Ltd.) has a right to require the subsidiary to redeem its shares at its option at any time since July 2009, at the redemption value of the higher of the book value of the shares and the proportion of the shareholder�s interests in the fair value of the Company. As at December�31, 2013, 5,566.83 Class�A shares and 720�Class D shares of this subsidiary were presented as financial liabilities and are remeasured each period at the redemption value. The amount of the remeasurement adjustment is presented in the financial expenses in the consolidated statement of operations.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

10.

Redeemable shares issued by a subsidiary (continued):

�

Financial liabilities related to redeemable shares issued by a subsidiary are:

�

��

December�31,
2013

�

��

December�31,
2012

�

��

January�1,
2012

�

��

�

��

(Unaudited)

�

��

(Unaudited)

�

5,566.83 Class�A shares
(December 31, 2012 - 5,566.83;
January�1, 2012 - 6,286.83 - unaudited)

��

24,570,937

��

21,630,987

��

21,444,790

��

720 Class D shares
(December 31, 2012 - 720;
January�1, 2012 - nil - unaudited)

��

�

3,177,944

��

�

2,797,698

��

�

��

�

��

�

��

�

��

27,748,881

��

24,428,685

��

21,444,790

��

�

��

�

��

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

11.

Long-term debt:

�

��

December�31,
2013

�

��

December�31,
2012

�

��

January�1,
2012

�

��

�

��

(Unaudited)

�

��

(Unaudited)

�

Mortgage loan with the Business Development Bank of Canada, secured by a building, bearing interest at the prime rate of the lender plus 0.25% (effective rate of 5.25% at December�31, 2013), payable in one installment of $4,695 and in 263 monthly installments of $4,735 plus interest, starting in April 2014 and maturing in March 2036

��

1,250,000

��

1,250,000

��

Mortgage loan with the Business Development Bank of Canada, secured by a building and the equipment, and also by the universality of the property of the Company, bearing interest at the prime rate of the borrower (effective rate of 5% at December�31, 2013), payable in 120 monthly installments of $10,250 plus interest, maturing in August 2019

��

�

697,000

��

�

820,000

��

�

943,000

��

Mortgage loan with the Business Development Bank of Canada, secured by a building and the equipment, and also by the universality of the property of the Company, bearing interest at the rate of 6.10%, payable in 179 installments of $6,800 plus interest, maturing in March 2019

��

�

428,400

��

�

510,000

��

�

591,600

��

Decreasing revolving credit facility, secured and subject to certain conditions mentioned in the credit facilities (note 8), bearing interest at the prime rate of the bank plus 1.00% (effective rate of 4% at December�31, 2013), monthly decrease of $16,667, extended until January 2016⁽¹⁾

��

�

416,655

��

�

616,659

��

�

816,663

��

�

��

�

��

�

Balances carryforward

��

�

2,792,055

��

�

3,196,659

��

�

2,351,263

��

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

11.

Long-term debt (continued):

�

��

December�31,
2013

�

��

December�31,
2012

�

��

January�1,
2012

�

��

�

��

(Unaudited)

�

��

(Unaudited)

�

Balances brought forward

��

2,792,055

��

3,196,659

��

2,351,263

��

Mortgage loan with the Business Development Bank of Canada, secured by a building and also by the universality of the property of the Company, bearing interest at the prime rate of the lender plus 1.5% (effective rate of 6.5% at December�31, 2013), payable in monthly installments of $4,850 plus interest, maturing in August 2019

��

�

329,800

��

�

388,000

��

�

446,200

��

Mortgage loan with the Business Development Bank of Canada, secured by a building and also by the universality of the property of the Company, bearing interest at the prime rate of the lender plus 0.5% (effective rate of 4.5%, at December�31, 2013), payable in monthly installments of $6,335 plus interest, maturing in August 2015

��

�

127,000

��

�

203,020

��

�

279,040

��

Term loan reimbursed in 2012

��

�

��

�

��

�

163,236

��

Obligations under capital leases for computer equipment, bearing interest at rates between 7.38% and 16.27%, payable in equal installments between $463 and $1,092 until January 2015

��

�

5,047

��

�

9,564

��

�

16,299

��

�

��

�

��

�

��

�

3,253,902

��

�

3,797,243

��

�

3,256,038

��

Less deferred financing costs

��

�

5,105

��

�

6,006

��

�

6,907

��

Current portion of long-term debt

��

�

802,025

��

�

548,388

��

�

708,796

��

�

��

�

��

�

��

2,466,772

��

3,242,849

��

2,540,335

��

�

��

�

��

�

⁽¹⁾�

This facility is subject to certain restrictions, including the obligation to maintain certain financial ratios. As at December 31, 2013, certain ratios were not met. As the creditor has not given up its rights on these restrictions, the credit facility was reclassified in the current liabilities.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

11.

Long-term debt (continued):

�

The estimated payments over the next years are as follows:

�

��

Obligations�under
capital�leases

�

��

Other�loans

�

��

Total

�

2014

��

4,368

��

798,050

��

802,418

��

2015

��

�

1,102

��

�

370,600

��

�

371,702

��

2016

��

�

��

�

319,620

��

�

319,620

��

2017

��

�

��

�

319,620

��

�

319,620

��

2018

��

�

��

�

319,620

��

�

319,620

��

2019 and thereafter

��

�

��

�

1,121,345

��

�

1,121,345

��

�

��

�

��

�

Total of minimum payments

��

�

5,470

��

�

3,248,855

��

�

3,254,325

��

Less interests included in the minimum payments

��

�

423

��

�

��

�

423

��

�

��

�

��

�

��

5,047

��

3,248,855

��

3,253,902

��

�

��

�

��

�

12.

Deferred revenue:

The Company concluded a distribution agreement, in which the Company granted sale and distribution rights in Europe and in Australia for an injectable product for a seven-year period, starting October�1, 2004, in consideration of an non-refundable payment of $850,000 at the execution, $650,000 at the acceptance by the regulatory authorities for the concerned countries, which was scheduled for the year 2006, and for royalties on the net sales of the products under permit. Also, the Company is committed to supply the distributor during the period of the agreement based on purchase orders made by the distributor.

Based on this agreement and previous agreements, the Company has to maintain, for the period of the agreements, an insurance coverage of at least $10,000,000 by claim related to the products under license and at least $10,000,000 in total.

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Balance, beginning of year

��

115,385

��

�

346,154

��

�

576,923

��

Revenue recognized during the year

��

�

(115,385

)�

�

(230,769

)�

�

(230,769

)�

��

�

Balance, end of year

��

�

115,385

��

�

346,154

��

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

13.

Future income taxes:

The tax effects of temporary differences that give rise to significant portion of future income tax assets and future tax liabilities are as follows:

�

��

December�31,
2013

�

December�31,
2012

�

January�1,
2012

�

��

�

(Unaudited)

�

(Unaudited)

�

Future income tax assets:

��

�

Intangible assets

��

277,215

��

�

299,633

��

�

321,079

��

Future income tax liabilities:

��

�

Research and development costs

��

�

372,310

��

�

155,141

��

�

(52,124

)�

Property, plant and equipment

��

�

1,137,142

��

�

1,140,177

��

�

1,144,164

��

Deferred expenses

��

�

��

�

111,208

��

�

271,801

��

Others

��

�

42,966

��

�

45,708

��

�

44,344

��

�

��

�

1,552,418

��

�

1,452,234

��

�

1,408,185

��

�

��

(1,275,203

)�

�

(1,152,601

)�

�

(1,087,106

)�

��

�

Financial statements� presentation:

��

�

Long-term future income tax liabilities

��

1,275,203

��

�

1,152,601

��

�

1,087,106

��

�

14.

Share capital:

Unlimited number of shares, without par value:

Class B, non-voting, participating, non-cumulative dividend, rights to the net assets of the Company

Class C, voting, each share granting ten votes, non-participating, redeemable at the option of the Company at a price determined by the Board of Directors, rights to the fair value of the consideration received at issuance in case of a windup of the Company. Class C shares have priority over Class B shares.

Classes D, E and F, non-voting, non-participating, non-cumulative dividend and redeemable at the option of the shareholders or the Company at the fair value of the consideration received at issuance plus unpaid declared dividends minus any reduction in paid-up capital, rights to the fair value of the consideration received at issuance in case of a windup of the Company. Classes D, E and F shares have priority over Class B and C shares.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

14.

Share capital (continued):

�

��

December�31,
2013

�

��

December�31,
2012

�

��

January�1,
2012

�

��

�

��

(Unaudited)

�

��

(Unaudited)

�

Issued and paid

��

100 Class B shares

��

100

��

100

��

100

��

100 Class C shares

��

�

100

��

�

100

��

�

100

��

9,163,531 Class D shares

��

�

165,796

��

�

165,796

��

�

165,796

��

1,326,279 Class E shares

��

�

38,546

��

�

38,546

��

�

38,546

��

1,870,329 Class F shares

��

�

869

��

�

869

��

�

869

��

�

��

�

��

�

��

205,411

��

205,411

��

205,411

��

�

��

�

��

�

The following shares classes are redeemable at the option of the holder at the following amounts:

�


Class D shares	��	$	9,063,005	��
Class E shares	��	�	1,326,279	��
Class F shares	��	�	1,870,329	��
	��	�	�	�
	��	$	12,259,613	��
	��	�	�	�

�

15.

Financial expenses:

�


�	��	2013		�	��	2012		�
�	��	�		�	��	(Unaudited)		�

Adjustments to the fair value of the redeemable shares issued by a subsidiary	��	$	3,320,196	��	��	$	2,983,895	��
Interest on long-term debt	��	�	205,387	��	��	�	221,356	��
Bank charges and other interests	��	�	158,659	��	��	�	167,080	��
Amortization of financing costs	��	�	901	��	��	�	901	��
	��	�	�	�	��	�	�	�
	��	$	3,685,143	��	��	$	3,373,232	��
	��	�	�	�	��	�	�	�

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

16.

Financial risks and concentration of risk:

�

(a)

Currency risk:

The Company is exposed to financial risks as a result of exchange rate fluctuations and the volatility of these rates. In the normal course of business, the Company purchases inventories denominated in different currencies. Also, due to the management of the cash and cash equivalents, some receivables and payables are denominated in U.S. dollars and in euros. The Company does not currently enter into forward contracts to mitigate this risk.

�

(b)

Credit risk:

Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss. The accounts receivable are the financial instruments that are more likely to expose the Company to the concentration of the credit risk. The Company conducts regular reviews and, in general, does not require security.

�

(c)

Interest rate risk:

As at December�31, 2013, the Company is exposed to a risk of fluctuating interest rates on its operating credit facility in the amount of $2,300,000, its decreasing revolving credit facility in the amount of $416,655 and its mortgage loans in a total amount of $2,403,800, which all bear interest at floating rates.

�

(d)

Liquidity risk:

Liquidity risk is the risk that the Company will be unable to fulfill its obligations on a timely basis or at a reasonable cost. The Company manages its liquidity risk by monitoring its operating requirements. The Company prepares budget and cash forecasts to ensure it has sufficient funds to fulfill its obligations.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

17.

Commitments and contingencies:

�

(a)

Operating leases:

The Company is committed under operating lease agreements, including leases for premises and rolling stock, expiring at various dates up to June 2021, for which the total lease payments amount to $5,365,567. The minimum lease payments for the next years are as follows:

�


2014	��	$	713,154	��
2015	��	�	689,895	��
2016	��	�	680,645	��
2017	��	�	695,633	��
2018	��	�	716,502	��
2019 and thereafter	��	�	1,869,738	��
	��	�	�	�
	��	$	5,365,567	��
	��	�	�	�

�

(b)

Contingencies:

The Company is a defendant in a certain number of claims in the normal course of business. The potential outcome of such claims is not expected to have a materially adverse effect on the Company�s financial position or its results of operations.

�

(c)

Purchase commitments:

The Company has entered into significant purchase commitments for equipment from two suppliers. As at December�31, 2013, an amount of approximately $3.3 million is committed. These purchase commitments are in the normal course of business.

�

7685947 CANADA INC.

Notes to Financial Statements, Continued

Year ended December 31, 2013

�

18.

Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepted accounting principles:

This footnote identifies the nature of material variations in the accounting principles, practices and methods used in preparing these consolidated financial statements pursuant to ASPE from the principles, practices and methods pursuant to U.S. generally accepted accounting principles (�U.S. GAAP�). This footnote does not identify disclosure differences or variations for the years prior to the year ended December�31, 2013. The material variations are as follows for the year ended December�31, 2013:

�

(a)

Pursuant to ASPE, the Company early adopted Section�1591, Subsidiaries, for its first set of ASPE consolidated financial statements and, as such, the Company measured its non-controlling interest balance prospectively from January�1, 2012, as described in Note 3. Rather than establishing its non-controlling interest balances retrospectively based on the guidance in effect in the respective historical years, the Company measured its non-controlling interest balance based on the carrying amounts of the assets and liabilities in the financial statements of the subsidiaries as at January�1, 2012. Pursuant to U.S. GAAP, the non-controlling interest balance would have to be established retrospectively pursuant to the guidance in effect in the respective historical years.

�

(b)

Pursuant to ASPE, the Company capitalized, as intangibles assets, deferred developments costs of products and deferred costs related to the implementation of the new plant, as described in Notes 2 (h)�and 7. Pursuant to U.S. GAAP, those costs would have been expensed as incurred. As a result, to adjust to U.S. GAAP, the balance of such costs of $1,397,966 as at December�31, 2013 would have been expensed in the year such costs were incurred and the amortization of $802,210 for the year ended December�31, 2013 would be replaced with the actual costs of $339,110 incurred during the year.

�

(c)

Pursuant to ASPE, the Classes D, E, and F shares, which are redeemable at the option of the holder, are recorded in equity due to an ASPE exception from liability treatment for preferred shares issued in tax planning arrangements, and measured at their original book value, as described in Notes 2 (j)�and 14. Pursuant to U.S. GAAP, the embedded redemption options do not create unconditional obligations and, as such, the shares are not recorded as liabilities. However, pursuant to SEC guidance, the shares would have been recorded as temporary equity between liabilities and shareholders� deficiency on the consolidated balance sheet and measured at December�31, 2013 at their redemption amount, with the offset recorded in an account within shareholders� deficiency. As a result, to adjust to U.S. GAAP, as at December�31, 2013, temporary equity would have been increased by $12,259,613 and shareholders� deficiency would have been increased by $12,259,613.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

18.

Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepted accounting principles (continued):

�

(d)

Pursuant to ASPE, the Class�A and Class D shares issued by a subsidiary and owned by one non-controlling interest shareholder are classified as a current liability and remeasured each period to the current redemption amount, through earnings, due to the shareholder having the current right to put its shares to the subsidiary, as described in Note 10. Pursuant to U.S. GAAP, the embedded put option does not create an unconditional obligation and as such, the shares are not recorded as liabilities. However, pursuant to SEC guidance, the puttable shares would have been recorded as temporary equity between liabilities and shareholders� deficiency on the consolidated balance sheet and measured at the greater of the non-controlling interest balance computed pursuant to consolidation guidance and the current redemption amount as at December�31, 2013. Further a portion of the net loss would have been attributed to this non-controlling interest shareholder for the year ended December�31, 2013. As a result, to adjust to U.S. GAAP, the current liability of $27,748,881 as at December�31, 2013 for the puttable shares would not have existed, temporary equity would have been established, the remeasurement of the puttable shares in earnings of $3,320,196 for the year ended December�31, 2013 would not have existed, a portion of net loss for the year ended December�31, 2013 would have been attributed to this non-controlling interest shareholder, and the shareholders� deficiency would have been adjusted accordingly.

�

19.

Subsequent events:

�

(a)

Purchase of the Company:

On October�1, 2014, the shares of the Company were sold to Sagent Pharmaceuticals, Inc. (the �Buyer�) in the same industry as the Company for an amount of $92,964,000, subject to post-closing adjustments (the �Transaction�).

Prior to the Transaction, a non-controlling shareholder of 176441 Canada Inc., a subsidiary of the Company, transferred all of its shares to the Company in exchange for 100 Class J shares of the Company. In addition, 100 Class B shares were exchanged for 15 Class I, 10�Class L and 100 Class M shares, newly created. On September�30, 2014, a $4,000,000 dividend was declared to Class L shareholders. The dividend was paid by means of an issuance of 4,000,000 Class K shares, redeemable at the option of the holder for an amount of $1 per share.

On the day of the Transaction, 176441 Canada Inc. was liquidated into the Company. Also, the Buyer purchased all the non-controlling shareholders� shares in Omega Laboratories Ltd., a subsidiary of the Company.

�

7685947 CANADA INC.

Notes to Consolidated Financial Statements, Continued

Year ended December 31, 2013

�

19.

Subsequent events (continued):

�

(b)

New credit facility:

In July 2014, a subsidiary of the Company entered into a credit agreement with National Bank of Canada, for a $3,000,000 demand loan, bearing interest at the prime rate of the bank, plus a premium of 1.75% (effective rate of 4.75% at the time the loan was received). This demand loan is secured by a hypothec on the universality of the property of this subsidiary for an amount of $3,000,000, plus an additional hypothec of 20% of this amount, bearing interest at 25%�per annum. This loan matures in November 2014 and is subject to certain restrictions, including the obligation to maintain certain financial ratios. The loan was used to finance certain capital expenditures.

�

Exhibit 99.3

Condensed Consolidated Interim Financial Statements of

(Unaudited)

7685947 CANADA INC.

Nine-month periods ended September�30, 2014 and 2013

7685947 CANADA INC.

Condensed Consolidated Interim Financial Statements

(Unaudited)

Nine-month periods ended September�30, 2014 and 2013

�


Financial Statements	��

Condensed Consolidated Interim Balance Sheet	��	�	1	��

Condensed Consolidated Interim Statement of Operations	��	�	2	��

Condensed Consolidated Interim Statement of Changes in Shareholders� Deficiency	��	�	3	��

Condensed Consolidated Interim Statement of Cash Flows	��	�	4	��

Notes to Condensed Consolidated Interim Financial Statements	��	�	5	��

7685947 CANADA INC.

Condensed Consolidated Interim Balance Sheet

(Unaudited)

September�30, 2014 and December�31, 2013

�


�	��	September�30,		�	�	December�31,		�
�	��	2014		�	�	2013		�

Assets	��				�
Current assets:	��				�
Cash and cash equivalents	��	$	��	��	�	$	108,191	��
Accounts receivable	��	�	4,461,108	��	�	�	5,678,208	��
Inventories	��	�	12,531,054	��	�	�	10,288,126	��
Prepaid expenses and deposits	��	�	510,940	��	�	�	1,172,684	��
Income taxes receivable	��	�	262,572	��	�	�	��	��
Advances to a shareholder, without interest or repayment terms	��	�	��	��	�	�	84,018	��
	��	�	�	�	�	�	�	�
	��	�	17,765,674	��	�	�	17,331,227	��
Property, plant and equipment	��	�	14,237,463	��	�	�	10,250,341	��
Intangible assets	��	�	1,209,827	��	�	�	1,397,966	��
	��	�	�	�	�	�	�	�
	��	$	33,212,964	��	�	$	28,979,534	��
	��	�	�	�	�	�	�	�
Liabilities and Shareholders� Deficiency	��				�
Current liabilities:	��				�
Bank overdraft	��	$	477,148	��	�	$	��	��
Credit facilities (note 4)	��	�	4,530,000	��	�	�	2,300,000	��
Accounts payable and accrued liabilities	��	�	7,064,222	��	�	�	5,821,509	��
Income taxes payable	��	�	��	��	�	�	681,287	��
Redeemable shares (note 8)	��	�	4,000,000	��	�	�	��	��
Redeemable shares issued by a subsidiary (note 5)	��	�	30,135,639	��	�	�	27,748,881	��
Current portion of long-term debt (note 6)	��	�	615,724	��	�	�	802,025	��
	��	�	�	�	�	�	�	�
	��	�	46,822,733	��	�	�	37,353,702	��
Long-term debt (note 6)	��	�	2,328,691	��	�	�	2,446,772	��
Future income taxes (note 7)	��	�	1,478,107	��	�	�	1,275,203	��
	��	�	�	�	�	�	�	�
	��	�	50,629,531	��	�	�	41,075,677	��
Shareholders� deficiency:	��				�
Share capital (note 8):	��				�
Class B, C and L shares	��	�	110	��	�	�	200	��
Class D, E, F, I, J and M shares, redeemable at the option of the holder for a total amount of $34,556,134 (December 31, 2013 - $12,259,613)	��	�	217,640	��	�	�	205,211	��
Deficit	��	�	(17,193,094	)�	�	�	(11,233,658	)�
	��	�	�	�	�	�	�	�
Total deficiency attributable to the shareholders of 7685947 Canada Inc.	��	�	(16,975,344	)�	�	�	(11,028,247	)�
Non-controlling interest	��	�	(441,223	)�	�	�	(1,067,896	)�
	��	�	�	�	�	�	�	�
Total shareholders� deficiency	��	�	(17,416,567	)�	�	�	(12,096,143	)�
Commitments and contingencies (note 10)	��				�
Subsequent event (note 12)	��				�
	��	�	�	�	�	�	�	�
	��	$	33,212,964	��	�	$	28,979,534	��
	��	�	�	�	�	�	�	�

See accompanying notes to unaudited condensed consolidated interim financial statements.

On behalf of the Board:

�


/s/ Fran�ois Angers	�	Director

/s/ Michael Logerfo	�	Director

�

7685947 CANADA INC.

Condensed Consolidated Interim Statement of Operations

(Unaudited)

Nine-month periods ended September�30, 2014 and 2013

�


�	��	September�30,		�	�	September�30,		�
�	��	2014		�	�	2013		�
�	��	(9 months)		�	�	(9 months)		�

Revenue	��	$	26,517,067	��	�	$	25,561,639	��
Cost of sales	��	�	14,174,122	��	�	�	15,022,396	��
	��	�	�	�	�	�	�	�
	��	�	12,342,945	��	�	�	10,539,243	��

Operating expenses:	��				�
Selling and administration	��	�	7,124,936	��	�	�	5,569,876	��
Research and development	��	�	1,951,383	��	�	�	1,534,527	��
Oncology plant related	��	�	1,427,743	��	�	�	1,878,980	��
	��	�	�	�	�	�	�	�
	��	�	10,504,062	��	�	�	8,983,383	��
	��	�	�	�	�	�	�	�
Earnings before financial expenses and income taxes	��	�	1,838,883	��	�	�	1,555,860	��

Financial expenses (note 9)	��	�	2,397,132	��	�	�	2,768,485	��
	��	�	�	�	�	�	�	�
Loss before income taxes	��	�	(558,249	)�	�	�	(1,212,625	)�

Income taxes:	��				�
Current	��	�	5,336	��	�	�	170,787	��
Future	��	�	202,904	��	�	�	132,673	��
	��	�	�	�	�	�	�	�
	��	�	208,240	��	�	�	303,460	��
	��	�	�	�	�	�	�	�
Net loss	��	$	(766,489	)�	�	$	(1,516,085	)�
	��	�	�	�	�	�	�	�

Net loss attributable to:	��				�
Shareholders of 7685947 Canada Inc.	��	$	(773,818	)�	�	$	(1,376,373	)�
Non-controlling interest	��	�	7,329	��	�	�	(139,712	)�
	��	�	�	�	�	�	�	�
	��	$	(766,489	)�	�	$	(1,516,085	)�
	��	�	�	�	�	�	�	�

See accompanying notes to unaudited condensed consolidated interim financial statements.

�

7685947 CANADA INC.

Condensed Consolidated Interim Statement of Changes in Shareholders� Deficiency

(Unaudited)

Nine-month periods ended September�30, 2014 and year ended December�31, 2013

�

��

Total
shareholders�
deficiency

�

7685947�Canada Inc.�s
shareholders

�

Non-controlling
interest

�

��

�

Deficit

�

Share
capital

�

Balance as at December�31, 2012

��

(11,475,249

)�

�

(10,672,179

)�

�

205,411

��

�

(1,008,481

)�

Net loss (9 months)

��

�

(1,516,085

)�

�

(1,376,373

)�

�

��

�

(139,712

)�

��

�

Balance as at September�30, 2013

��

�

(12,991,334

)�

�

(12,048,552

)�

�

205,411

��

�

(1,148,193

)�

Net earnings (3 months)

��

�

895,191

��

�

814,894

��

�

��

�

80,297

��

�

Balance as at December�31, 2013

��

�

(12,096,143

)�

�

(11,233,658

)�

�

205,411

��

�

(1,067,896

)�

Net loss (9 months)

��

�

(766,489

)�

�

(773,818

)�

�

��

�

7,329

��

Redemption of Class F shares

��

�

(553,935

)�

�

(553,678

)�

�

(257

)�

�

��

Refundable dividend tax on hand

��

�

(145,673

)�

�

(145,673

)�

�

��

�

��

Dividend refund

��

�

145,673

��

�

145,673

��

�

��

�

��

Dividend on Class L shares

��

�

(4,000,000

)�

�

(4,000,000

)�

�

��

�

��

Purchase of non-controlling interest

��

�

��

�

(631,940

)�

�

12,596

��

�

619,344

��

�

Balance as at September�30, 2014

��

(17,416,567

)�

�

(17,193,094

)�

�

217,750

��

�

(441,223

)�

��

�

See accompanying notes to unaudited condensed consolidated interim financial statements.

�

7685947 CANADA INC.

Condensed Consolidated Interim Statement of Cash Flows

(Unaudited)

Nine-month periods ended September�30, 2014 and 2013

�


�	��	September�30, 2014		�	�	September�30, 2013		�
�	��	(9 months)		�	�	(9 months)		�

Cash flows (used in) from operating activities:	��				�
Net loss	��	$	(766,489	)�	�	$	(1,516,085	)�
Adjustments for:	��				�
Amortization of intangible assets	��	�	382,589	��	�	�	898,247	��
Amortization of financing costs	��	�	676	��	�	�	690	��
Amortization of property, plant and equipment	��	�	754,886	��	�	�	717,905	��
Dividend on redeemable shares issued by a subsidiary	��	�	8,141	��	�	�	��	��
Future income taxes	��	�	202,904	��	�	�	132,673	��
Deferred revenue	��	�	��	��	�	�	(115,385	)�
Adjustment to the fair value of the redeemable shares issued by a subsidiary	��	�	1,999,599	��	�	�	2,490,147	��
Net change in non-cash operating working capital:	��				�
Accounts receivable	��	�	1,217,100	��	�	�	(124,229	)�
Inventories	��	�	(2,242,928	)�	�	�	(2,786,346	)�
Prepaid expenses and deposits	��	�	661,744	��	�	�	(176,585	)�
Accounts payable and accrued liabilities	��	�	1,242,713	��	�	�	401,738	��
Income taxes payable	��	�	(943,859	)�	�	�	(604,182	)�
	��	�	�	�	�	�	�	�
	��	�	2,517,076	��	�	�	(681,412	)�

Cash flows from (used in) financing activities:	��				�
Net increase in bank overdraft	��	�	477,148	��	�	�	��	��
Net variation in credit facilities	��	�	(770,000	)�	�	�	2,150,000	��
Issuance of new credit facility	��	�	3,000,000	��	�	�	��	��
Repayment of long-term debt	��	�	(305,058	)�	�	�	(407,706	)�
Redemption of Class F shares	��	�	(553,935	)�	�	�	��	��
Issuance of redeemable shares by a subsidiary	��	�	379,018	��	�	�	��	��
Increase in advances to a shareholder	��	�	84,018	��	�	�	2,310	��
	��	�	�	�	�	�	�	�
	��	�	2,311,191	��	�	�	1,744,604	��

Cash flows (used in) from investing activities:	��				�
Increase in intangible assets	��	�	(194,450	)�	�	�	(339,110	)�
Additions to property, plant and equipment	��	�	(4,742,008	)�	�	�	(771,301	)�
	��	�	�	�	�	�	�	�
	��	�	(4,936,458	)�	�	�	(1,110,411	)�
	��	�	�	�	�	�	�	�
Net decrease in cash and cash equivalents	��	�	(108,191	)�	�	�	(47,219	)�
Cash and cash equivalents, beginning of period	��	�	108,191	��	�	�	114,533	��
	��	�	�	�	�	�	�	�
Cash and cash equivalents, end of period	��	$	��	��	�	$	67,314	��
	��	�	�	�	�	�	�	�

Supplemental cash flow information:	��				�
Non-cash financing activities:	��				�
Dividend payable by the issuance of shares	��	$	4,000,000	��	�	$	��	��
Purchase of non-controlling interest by issuance of shares	��	�	12,596	��	�	�	��	��

See accompanying notes to unaudited condensed consolidated interim financial statements.

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

Nine-month periods ended September�30, 2014 and 2013

�

7685947 Canada Inc. (the �Company�) is a private company incorporated under the Canada Business Corporations Act which manufactures and distributes pharmaceutical products.

�

1.	Basis of presentation:

These unaudited condensed consolidated interim financial statements are prepared in accordance with Canadian GAAP applicable to private enterprises, which are ASPE in Part II of CPA Canada Handbook (the �Handbook�) for interim financial statements.

These unaudited condensed consolidated interim financial statements have been prepared using accounting policies consistent with those used in preparing the Company�s annual consolidated financial statements for the year ended December�31, 2013, with differences explained below. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company�s annual consolidated financial statements.

The recognition, measurement and disclosure requirements of Canadian GAAP applicable to private enterprises differ from those of U.S. generally accepted accounting principles (�U.S. GAAP�). See Note 11 for a description of material variations between ASPE and U.S. GAAP.

These financial statements are presented in Canadian dollars.

�

2.	Significant accounting policies:

The Company�s significant accounting policies that have changed from the annual policies are as follows:

�

(a)

Principle of consolidation:

The Company�s condensed consolidated interim financial statements include the accounts of 7685947 Canada Inc., and its subsidiaries, which are owned as follows at September�30, 2014:

�


Subsidiary	��	Participation		�

176441 Canada Inc.	��	�	100	%�
Omega Laboratories Ltd.	��	�	65	%�

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

2.	Significant accounting policies (continued):

�

(b)

Class D, E, F, I, J and M shares:

The Company presents as equity Class D, E, F, I, J and M shares that were issued in accordance with Sections 85 and 86, two of the allowable sections of the Income Tax Act, in a tax planning arrangement, at their original book value.

�

(c)

Use of estimates:

The preparation of the condensed consolidated interim financial statements in conformity with ASPE requires management to make estimates and assumptions. The reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements, and the reported amounts of revenue and expenses during the year are established with these estimates and assumptions. Significant items subject to such estimates include the key economic assumptions used to determine the fair value of the redeemable shares issued by a subsidiary, the provision for doubtful accounts, the tax credits receivable, the provision for inventory obsolescence, the useful lives of assets for amortization purposes and the evaluation of the net recoverable value and the provision for income taxes and the composition of future tax assets and liabilities. Actual results could differ from those estimates.

�

3.	Recently issued accounting standard:

In August 2014, the Accounting Standards Board (AcSB) issued Section�1591, Subsidiaries, which replaces Section�1590, Subsidiaries. The new standard requires the use of professional judgment to determine when control is obtained through means other than equity interests. This new standard is effective for fiscal years beginning on or after January�1, 2016 with earlier adoption permitted. The Company chose to early adopt Section�1591, for fiscal 2013. In accordance with the new standard, when the Company applies for the first time an accounting policy to consolidate its subsidiaries, the Company can measure prospectively its non-controlling by using the carrying amounts of the assets and liabilities in the financial statements of its subsidiaries at the beginning of the fiscal year immediately preceding the date at which the Company prepares consolidated financial statements for the first time. As such, the Company measured its non-controlling interest balance at the proportionate share of net assets of its subsidiaries as at January�1, 2012. The adoption of this standard has no other impact on the consolidated financial statements.

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

4.	Credit facilities:

The Company has an authorized operating credit facility in the amount of $8,200,000. The operating credit facility can be utilized in the form of floating-rate advances for an amount not exceeding $7,000,000 and advances in the form of letter of guarantee or letter of credit, within that limit for an amount not exceeding $2,000,000. The operating credit facility can also be utilized in the form of advances to cover the Company�s currency risk for an amount not exceeding $1,200,000. As at September�30, 2014, the operating credit facility was used in the form of floating-rate advances for an amount of $1,530,000 (December 31, 2013 - $2,300,000), bearing interest at the prime rate of the bank plus 0.50% (effective rate of 3.50%).

In July 2014, the Company obtained a $3,000,000 demand loan, bearing interest at the prime rate of the bank, plus a premium of 1.75% (effective rate of 4.75%). This demand loan is secured by a hypothec on the universality of the property of the Company for an amount of $3,000,000, plus an additional hypothec of 20% of this amount, bearing interest at 25%�per annum. This loan matures in November 2014.

The Company also has a decreasing revolving credit facility, which is utilized in the amount of $266,652 as at September�30, 2014 (December 31, 2013 - $416,655) (Note 6).

The credit facilities are subject to certain restrictions, including the obligation to maintain certain financial ratios. As at September�30, 2014, certain financial ratios were not met. Consequently, the decreasing revolving credit facility of $266,652 was presented in the current liabilities.

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

5.	Redeemable shares issued by a subsidiary:

Per the shareholder agreement, one of the non-controlling interest shareholders of Class�A, C and D shares issued by a subsidiary of the Company (Omega Laboratories Ltd.) has a right to require the subsidiary to redeem its shares at its option since July 2009, redemption value being the higher of the book value of the shares and the proportion of the shareholder�s interests in the fair value of the Company. As at September�30, 2014, these shares are presented as financial liabilities and are remeasured each year at the redemption value. The amount of the remeasurement adjustment is presented in the financial expenses in the condensed consolidated interim statement of operations.

Financial liabilities related to redeemable shares issued by a subsidiary are:

�


�	��	September�30, 2014		�	��	December�31, 2013		�

6,286.83 Class�A shares (December 31, 2013 - 5,566.83)	��	$	29,748,480	��	��	$	24,570,937	��

379,018 Class C shares (December 31, 2013 - nil)	��	�	387,159	��	��	�	��	��

Nil Class D shares (December 31, 2013 - 720)	��	�	��	��	��	�	3,177,944	��
	��	�	�	�	��	�	�	�
	��	$	30,135,639	��	��	$	27,748,881	��
	��	�	�	�	��	�	�	�

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

6.	Long-term debt:

�


�	��	September�30, 2014		�	��	December�31, 2013		�

Mortgage loan with the Business Development Bank of Canada, secured by a building, bearing interest at the prime rate of the lender plus 0.25% (effective rate of 5.25% at September�30, 2014), payable in one installment of $6,010 and in 263 monthly installments of $4,730 plus interest, starting in April 2014 and maturing in November 2036	��	$	1,250,000	��	��	$	1,250,000	��

Mortgage loan with the Business Development Bank of Canada, secured by a building and the equipment, and also by the universality of the property of the Company, bearing interest at the prime rate of the lender (effective rate of 5% at September�30, 2014), payable in 120 monthly installments of $10,250 plus interest, maturing in April 2020	��	�	666,250	��	��	�	697,000	��

Mortgage loan with the Business Development Bank of Canada, secured by a building and the equipment, and also by the universality of the property of the Company, bearing interest at the rate of 6.10%, payable in 179 installments of $6,800 plus interest, maturing in November 2019	��	�	408,000	��	��	�	428,400	��

Decreasing revolving credit facility, secured and subject to certain condition mentioned in the credit facilities (note 4), bearing interest at the prime rate of the bank plus 1.00% (effective rate of 4% at September�30, 2014), monthly decrease of $16,667, maturing in November 2014⁽¹⁾	��	�	266,652	��	��	�	416,655	��

Mortgage loan with the Business Development Bank of Canada, secured by a building and also by the universality of the property of the Company, bearing interest at the prime rate of the lender plus 1.5% (effective rate of 6.5% at September�30, 2014), payable in monthly installments of $4,850 plus interest, maturing in August 2019	��	�	286,150	��	��	�	329,800	��
	��	�	�	�	��	�	�	�

Balances carryforward	��	�	2,877,052	��	��	�	3,121,855	��

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

6.	Long-term debt (continued):

�


�	��	September�30, 2014		�	��	December�31, 2013		�

Balances brought forward	��	$	2,877,052	��	��	$	3,121,855	��

Mortgage loan with the Business Development Bank of Canada, secured by a building and also by the universality of the property of the Company, bearing interest at the prime rate of the lender plus 0.5% (effective rate of 4.5% at September�30, 2014), payable in monthly installments of $6,335 plus interest, maturing in August 2015	��	�	69,685	��	��	�	127,000	��

Obligations under capital leases for computer equipment, bearing interest at rates between 7.38% and 16.27%, payable in equal installments between $463 and $1,092 until January 2015	��	�	2,107	��	��	�	5,047	��
	��	�	�	�	��	�	�	�
	��	�	2,948,844	��	��	�	3,253,902	��

Less deferred financing costs	��	�	4,429	��	��	�	5,105	��

Current portion of long-term debt	��	�	615,724	��	��	�	802,025	��
	��	�	�	�	��	�	�	�
	��	$	2,328,691	��	��	$	2,446,772	��
	��	�	�	�	��	�	�	�

�

⁽¹⁾�

This facility is subject to certain restrictions, including the obligation to maintain certain financial ratios. As at September 30, 2014, certain ratios were not met. As the creditor has not given up its rights on these restrictions, the credit facility was reclassified in the current liabilities.

The estimated payments over the next years are as follows:

�

��

Obligations�under
capital leases

�

��

Other loans

�

��

Total

�

2015

��

2,316

��

613,617

��

615,933

��

2016

��

�

��

�

319,560

��

�

319,560

��

2017

��

�

��

�

319,560

��

�

319,560

��

2018

��

�

��

�

319,560

��

�

319,560

��

2019

��

�

314,710

��

�

314,710

��

2020 and thereafter

��

�

��

�

1,059,730

��

�

1,059,730

��

�

��

�

��

�

Total of minimum payments

��

�

2,316

��

�

2,946,737

��

�

2,949,053

��

Less interests included in the minimum payments

��

�

209

��

�

��

�

209

��

�

��

�

��

�

��

2,107

��

2,946,737

��

2,948,844

��

�

��

�

��

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

7.	Future income taxes:

The tax effects of temporary differences that give rise to significant portion of future income tax assets and future tax liabilities are as follows:

�


�	��	September�30, 2014		�	�	December�31, 2013		�

Future income tax assets:	��				�
Intangible assets	��	$	262,701	��	�	$	277,215	��

Future income tax liabilities:	��				�
Research and development costs	��	�	322,205	��	�	�	372,310	��
Property, plant and equipment	��	�	1,406,954	��	�	�	1,137,142	��
Others	��	�	11,649	��	�	�	42,966	��
	��	�	�	�	�	�	�	�
	��	�	1,740,808	��	�	�	1,552,418	��
	��	�	�	�	�	�	�	�
	��	$	(1,478,107	)�	�	$	(1,275,203	)�
	��	�	�	�	�	�	�	�

Financial statements� presentation:	��				�
Long-term future income tax liabilities	��	$	1,478,107	��	�	$	1,275,203	��
	��	�	�	�	�	�	�	�

�

8.	Share capital:

�

(a)

Unlimited number of shares, without par value:

Class B, non-voting, participating, non-cumulative dividend, rights to net assets of the Company pari passu with Class L shares

Class C, voting each share granting ten votes, non-participating, redeemable at the option of the Company at a price determined by the Board of Directors, rights to the fair value of the consideration received at issuance in case of a windup of the Company. Class C shares have priority over Class B shares

Class D, E and F, non-voting, non-participating, non-cumulative dividend and redeemable at the option of the shareholder or the Company at the fair value of the consideration received at issuance plus unpaid declared dividends minus any reduction in paid-up capital, rights to the redemption price as described above in case of a windup of the Company. Class D, E and F shares have priority over Class B, C, I, J, L and M shares

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

8.	Share capital (continued):

�

(a)

Unlimited number of shares, without par value (continued):

Class I, non-voting, non-participating, non-cumulative dividend and redeemable at the option of the shareholder or the Company at the fair value of the consideration received at issuance plus unpaid declared dividends minus any reduction in paid-up capital, rights to the redemption price as described above in case of a windup of the Company. Class I shares have priority over Class B, C and L shares, exchangeable at the option of the shareholder for Class B shares at a ratio of 1:1

Class J, non-voting, non-participating, non-cumulative dividend and redeemable at the option of the shareholder or the Company at the fair value of the consideration received at issuance plus unpaid declared dividends minus any reduction in paid-up capital, rights to the redemption price as described above in case of a windup of the Company. Class J shares have priority over Class B, C, I and L shares

Class K, non-voting, non-participating, non-cumulative dividend of 5% and redeemable at the option of the shareholder or the Company at a price of $1 per share plus unpaid declared dividends, rights to the redemption price as described above in case of a windup of the Company. Class K shares have priority over Class B, C, I, J and L shares

Class L shares, voting, participating, rights to the net assets in case of a windup of the Company, pari passu with Class B shares

Class M, non-voting, non-participating, non-cumulative dividend and redeemable at the option of the shareholder or the Company at the fair value of the consideration received at issuance plus unpaid declared dividends minus any reduction in paid-up capital, rights to the redemption price as described above in case of a windup of the Company. Class M shares have priority over Class B, C, I, J, K and L shares

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

8.	Capital stock (continued):

�

(b)

Issued and paid:

�


�	��	September�30, 2014		�	��	December�31, 2013		�

Nil Class B shares (December 31, 2013 - 100)	��	$	��	��	��	$	100	��
100 Class C shares	��	�	100	��	��	�	100	��
9,163,531 Class D shares	��	�	165,796	��	��	�	165,796	��
1,326,279 Class E shares	��	�	38,546	��	��	�	38,546	��
1,316,394 Class F shares (December 31, 2013 - 1,870,329)	��	�	612	��	��	�	869	��
15 Class I shares	��	�	15	��	��	�	��	��
100 Class J shares	��	�	12,596	��	��	�	��	��
10 Class L shares	��	�	10	��	��	�	��	��
100 Class M shares	��	�	75	��	��	�	��	��
	��	�	�	�	��	�	�	�
	��	$	217,750	��	��	$	205,411	��
	��	�	�	�	��	�	�	�

In June 2014, the Class F shareholder redeemed 553,935 shares for an amount of $553,935. The excess of the redemption amount over the book value of $553,678 paid was recorded against the deficit.

In September 2014, in a tax planning reorganization, the Class B shareholders exchanged their 100 shares for 15 Class I, 10 Class L and 100 Class M shares. The non-controlling interest in a subsidiary was also entirely purchased by the issuance of 100 Class J shares.

In September 2014, the Company declared a $4,000,000 dividend to the Class L shareholder. The dividend was paid by the mean of an issuance of $4,000,000 Class K shares, redeemable at a price of $1 per share at any time at the option of the holder (Note�8�(d)).

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

8.	Capital stock (continued):

�

(c)

Shares redeemable at the option of the holder presented as equity:

The following share classes are redeemable at the option of the holder at the following amounts:

�


Class D shares	��	$	9,063,005	��
Class E shares	��	�	1,326,279	��
Class F shares	��	�	1,316,394	��
Class I shares ⁽¹⁾	��	�	6,858,779	��
Class J shares ⁽¹⁾	��	�	3,460,561	��
Class M shares	��	�	12,531,116	��
	��	�	�	�
	��	$	34,556,134	��
	��	�	�	�

�

⁽¹⁾^�

The redemption value of these shares are based on the October�1, 2014 sales price of the Company�s shares (Note 12) and are therefore subject to adjustment based on the final post-closing sales price adjustments. Therefore, the redemption value disclosed here could differ from the final redemption price.

�

(d)

Shares redeemable at the option of the holder presented as liabilities:

Class K shareholder has a right to require the Company to redeem shares at its option at anytime at a redemption value of $1 per share. As at September�30, 2014, these shares are presented as financial liabilities and are measured at their redemption value.

Financial liabilities related to redeemable shares are:

�


�	��	September�30, 2014		�	��	December�31, 2013		�

4,000,000 Class K shares (December 31, 2013 - nil)	��	$	4,000,000	��	��	$	��	��

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

9.	Financial expenses:

�


�	��	September�30, 2014		�	��	September�30, 2013		�
�	��	(9 months)		�	��	(9 months)		�

Adjustment to the fair value of the redeemable shares issued by a subsidiary	��	$	1,999,599	��	��	$	2,490,147	��
Interest on long-term debt	��	�	134,598	��	��	�	162,051	��
Bank charges and other interests	��	�	254,118	��	��	�	115,597	��
Dividend on redeemable shares issued by a subsidiary	��	�	8,141	��	��	�	��	��
Amortization of financing costs	��	�	676	��	��	�	690	��
	��	�	�	�	��	�	�	�
	��	$	2,397,132	��	��	$	2,768,485	��
	��	�	�	�	��	�	�	�

�

10.

Commitments and contingencies:

�

(a)

Operating leases:

The Company is committed under operating lease agreements, including leases for premises and rolling stock, expiring at various dates up to June 2021, for which the total lease payments amount to $4,830,702. The minimum lease payments for the next years are as follows:

�


2015	��	$	701,623	��
2016	��	�	678,363	��
2017	��	�	690,568	��
2018	��	�	711,285	��
2019	��	�	732,623	��
2020 and thereafter	��	�	1,316,240	��
	��	�	�	�
	��	$	4,830,702	��
	��	�	�	�

�

(b)

Contingencies:

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

10.

Commitments and contingencies (continued):

�

(c)

Purchase commitments:

The Company has entered into significant purchase commitments for equipment from two suppliers. As at September�30, 2014, an amount of approximately $3.6 million (December 31, 2013 - $3.3 million) is committed. These purchase commitments are in the normal course of business.

�

11.

Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepted accounting principles:

This footnote identifies the nature of material variations in the accounting principles, practices and methods used in preparing these consolidated financial statements pursuant to ASPE from the principles, practices and methods pursuant to U.S. generally accepted accounting principles (�U.S. GAAP�). This footnote does not identify disclosure differences. The material variations are as follows for the nine-month period ended September�30, 2014:

�

(a)

Pursuant to ASPE, the Company early adopted Section�1591, Subsidiaries, for its first set of ASPE consolidated financial statements and as such, the Company measured its non-controlling interest balance prospectively from January�1, 2012, as described in Note 3. Rather than establishing its non-controlling interest balances retrospectively based on the guidance in effect in the respective historical years, the Company measured its non-controlling interest balance based on the carrying amounts of the assets and liabilities in the financial statements of the subsidiaries as at January�1, 2012. Pursuant to U.S. GAAP, the non-controlling interest balance would have to be established retrospectively pursuant to the guidance in effect in the respective historical years.

�

(b)

Pursuant to ASPE, the Company capitalized, as intangible assets, deferred developments costs of products and deferred costs related to the implementation of the new plant. Pursuant to U.S. GAAP, those costs would have been expensed as incurred. As a result, to adjust to U.S. GAAP, the balance of such costs of $1,209,827 as at September�30, 2014 would have been expensed in the period such costs were incurred and the amortization of $382,589 for the nine-month period ended September�30, 2014 would be replaced with the actual costs of $194,450 incurred during the period.

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

11.

Description of material variations between Canadian accounting standards for private enterprises and U.S. generally accepted accounting principles (continued):

�

(c)

Pursuant to ASPE, the Class D, E, F, I, J and M shares, which are redeemable at the option of the holder, are recorded in equity due to an ASPE exception from liability treatment for preferred shares issued in tax planning arrangements, and measured at their original book value, as described in Notes 2 (b)�and 8. Further, pursuant to ASPE, the Class K shares are recorded as a current liability at their redemption amount, as described in Note 8. Pursuant to U.S. GAAP, the embedded redemption options do not create unconditional obligations and as such, the shares are not recorded as liabilities. However, pursuant to SEC guidance, the Class D, E, F, I, J, K and M shares would have been recorded as temporary equity between liabilities and shareholders� deficiency on the consolidated balance sheet and measured at September�30, 2014 at their redemption amount, with the offset recorded in an account within shareholders� deficiency. As a result, to adjust to U.S. GAAP, as at September�30, 2014, temporary equity would have been increased by $38,556,134, current liabilities would have been decreased by $4,000,000 and shareholders� deficiency would have been increased by $34,556,134.

�

(d)

Pursuant to ASPE, the Class�A and C shares issued by a subsidiary owned by one non-controlling interest shareholder are classified as a current liability and remeasured each period to the current redemption amount, through earnings, due to the shareholder having the current right to put its shares to the subsidiary, as described in Note 5. Pursuant to U.S. GAAP, the embedded put option does not create an unconditional obligation and as such, the shares are not recorded as liabilities. However, pursuant to SEC guidance, the puttable shares would have been recorded as temporary equity between liabilities and shareholders� deficiency on the consolidated balance sheet and measured at the greater of the non-controlling interest balance computed pursuant to consolidation guidance and the current redemption amount as at September�30, 2014. Further a portion of the net earnings would have been attributed to this non-controlling interest shareholder for the nine-month period ended September�30, 2014. As a result, to adjust to U.S. GAAP, the current liability of $30,135,639 as at September�30, 2014 for the puttable shares would not have existed, temporary equity would have been established, the remeasurement of the puttable shares in earnings of $1,999,599 for the nine-month period ended September�30, 2014 would not have existed, a portion of the earnings for the nine-month period ended September�30, 2014 would have been attributed to this non-controlling interest shareholder, and the shareholders� deficiency would have been adjusted accordingly.

�

7685947 CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements, Continued

(Unaudited)

Nine-month periods ended September 30, 2014 and 2013

�

12.

Subsequent event:

Purchase of the Company:

On October�1, 2014, the shares of the Company were sold to Sagent Pharmaceuticals Inc. (the �Buyer�) in the same industry as the Company for an amount of $92,964,000, subject to post-closing adjustments (the �Transaction�).

�

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Form 8-K/A Sagent Pharmaceuticals, For: Oct 01

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